<PAGE>
REGISTRATION NO. 333-64227
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
UNITED RENTALS (NORTH AMERICA), INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
----------------
DELAWARE 7353 06-1493538
(STATE OR OTHER (PRIMARY STANDARD (I.R.S. EMPLOYER
JURISDICTION OF INDUSTRIAL
INCORPORATION OR CLASSIFICATION NUMBER) IDENTIFICATION NO.)
ORGANIZATION)
(FOR CO-REGISTRANTS, PLEASE SEE "TABLE OF CO-REGISTRANTS"
ON THE FOLLOWING PAGE)
FOUR GREENWICH OFFICE PARK
GREENWICH, CONNECTICUT 06830
(203) 622-3131
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
BRADLEY S. JACOBS
UNITED RENTALS (NORTH AMERICA), INC.
GREENWICH, CONNECTICUT 06830
(203) 622-3131
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
----------------
A COPY OF ALL COMMUNICATIONS, INCLUDING COMMUNICATIONS SENT TO THE AGENT FOR
SERVICE, SHOULD BE SENT TO:
JOSEPH EHRENREICH, ESQ. STEPHEN M. BESEN, ESQ.
EHRENREICH EILENBERG KRAUSE & ZIVIAN WEIL, GOTSHAL & MANGES LLP
LLP 767 FIFTH AVENUE
11 EAST 44TH STREET NEW YORK, NEW YORK 10153
NEW YORK, NEW YORK 10017 (212) 310-8000
(212) 986-9700
----------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC: As soon as practicable following the effectiveness of this
Registration Statement and satisfaction of all other conditions to the
exchange offer described in the prospectus included herein.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance
with General Instruction G, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
----------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
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<PAGE>
TABLE OF CO-REGISTRANTS
<TABLE>
<CAPTION>
(PRIMARY
(STATE OR OTHER STANDARD
EXACT NAME OF CO- JURISDICTION OF INDUSTRIAL
REGISTRANT AS INCORPORATION OR CLASSIFICATION (I.R.S. EMPLOYER
SPECIFIED IN ITS CHARTER ORGANIZATION) NUMBER) IDENTIFICATION NO.)
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<S> <C> <C> <C>
A&A Tool Rentals & Sales,
Inc. California 7353 94-1729580
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ACG, Inc. Indiana 7353 35-1581235
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Adco Equipment, Inc. California 7353 95-3448693
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Arrow Equipment Company Illinois 7353 36-2748973
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Austino's Liftrucks, Inc. New Jersey 7353 22-1924783
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BNR Equipment, Inc. New York 7353 16-1487245
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Coran Enterprises,
Incorporated California 7353 94-2292438
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Dealers Service Company New Jersey 7353 22-1944238
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Grand Valley Equipment Co. Michigan 7353 38-2279574
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High Reach Co., Inc. Pennsylvania 7353 23-1737104
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Independent Scissor Lifts, California 7353 94-2505169
Inc.
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JBK, Inc. Ohio 7353 34-1291932
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Kubota of Grand Rapids,
Inc. Michigan 7353 38-2700834
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Lift, Inc. Maryland 7353 52-1822290
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Madison Equipment Sales
and Rental, Inc. Alabama 7353 63-0972387
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Mark Equipment, Inc. Alabama 7353 63-1023613
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Mercer Equipment Company North Carolina 7353 56-1686482
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Misco Rents, Inc. Indiana 7353 35-1804651
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Mission Valley Rentals,
Inc. California 7353 94-2367404
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Palmer Equipment Company,
Inc. Michigan 7353 38-2216420
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Paul E. Carlson, Inc. Minnesota 7353 41-1346079
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Powers Rentals & Sales,
Inc. California 7353 94-1619789
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Rental Tools & Equipment
Co. International, Inc. Maryland 7353 52-1178782
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Rentals Unlimited,
Incorporated Rhode Island 7353 05-0373691
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Rosedale Equipment Rental,
Inc. California 7353 95-3389334
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Space Maker Systems of
Va., Inc. Virginia 7353 54-1696593
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United Equipment Rentals
of Houston, Inc. Texas 7353 76-0551618
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United Rentals Aerial
Equipment, Inc. Delaware 7353 06-1520087
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United Rentals, Inc. (WA) Washington 7353 91-1400269
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United Rentals Northwest,
Inc. Oregon 7353 93-0257120
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United Rentals of
Colorado, Inc. Colorado 7353 84-1092722
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United Rentals of Kentucky Kentucky 7353 06-1522041
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United Rentals of Nevada,
Inc. Nevada 7353 88-0208294
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United Rentals of New
York, Inc. New York 7353 06-1512550
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United Rentals of Southern
California, Inc. California 7353 95-2592018
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United Rentals of Utah,
Inc. Utah 7353 06-1506299
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</TABLE>
<PAGE>
<TABLE>
<CAPTION>
(PRIMARY
(STATE OR OTHER STANDARD
EXACT NAME OF CO- JURISDICTION OF INDUSTRIAL
REGISTRANT AS INCORPORATION OR CLASSIFICATION (I.R.S. EMPLOYER
SPECIFIED IN ITS CHARTER ORGANIZATION) NUMBER) IDENTIFICATION NO.)
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
US Rentals, Inc. Delaware 7353 94-3061974
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Wynne Systems, Inc. California 7353 33-0507674
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</TABLE>
The Address, Including Zip Code, and Telephone Number, Including Area Code,
of each of the Co-Registrant's Principal Executive Offices is c/o United
Rentals (North America), Inc., Four Greenwich Office Park, Greenwich,
Connecticut 06830, (203) 622-3131.
The Name, Address, Including Zip Code, and Telephone Number, Including Area
Code, of Agent For Service for each of the Co-Registrants is Michael J. Nolan,
c/o United Rentals (North America), Inc., Four Greenwich Office Park,
Greenwich, Connecticut 06830, (203) 622-3131.
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION BUT HAS NOT YET BECOME EFFECTIVE. +
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. THESE +
+SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE +
+TIME THE REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT +
+CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL +
+THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, +
+SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION +
+UNDER THE SECURITIES LAWS OF ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION DATED DECEMBER 17, 1998
PROSPECTUS
UNITED RENTALS (NORTH AMERICA), INC.
OFFER TO EXCHANGE
UP TO $205,000,000 OF 8.80% SENIOR SUBORDINATED NOTES DUE 2008, SERIES B FOR
ANY AND ALL OF THE OUTSTANDING 8.80% SENIOR SUBORDINATED NOTES DUE 2008, SERIES
A
-----------
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M.,
NEW YORK CITY TIME, ON , 1999, UNLESS EXTENDED.
-----------
United Rentals (North America), Inc. ("URI") hereby offers (the "Exchange
Offer"), upon the terms and subject to the conditions set forth in this
Prospectus and the accompanying Letter of Transmittal (the "Letter of
Transmittal"), to exchange its outstanding 8.80% Senior Subordinated Notes due
2008, Series A (the "Original Notes"), of which an aggregate of $205,000,000 in
principal amount is outstanding as of the date hereof, for an equal principal
amount of newly issued 8.80% Senior Subordinated Notes due 2008, Series B (the
"Exchange Notes"). The Original Notes were issued on August 12, 1998 (the
"Offering") by URI. The form and terms of the Exchange Notes will be the same
in all material respects as the form and terms of the Original Notes except
that (i) the Exchange Notes will be registered under the Securities Act of
1933, as amended (the "Securities Act"), and, therefore, will not bear legends
restricting the transfer thereof; and (ii) certain of the registration rights
under the Registration Rights Agreement (as defined herein) relating to the
Exchange Notes are different than those relating to the Original Notes and,
therefore, the defaults under the Registration Rights Agreement that may
require URI to pay additional interest will be different for the Exchange Notes
and the Original Notes. The Exchange Notes will evidence the same debt as the
Original Notes and will be entitled to the benefits of an indenture dated as of
August 12, 1998, governing the Original Notes and the Exchange Notes (the
"Indenture"). The Indenture provides for the issuance of both the Exchange
Notes and the Original Notes. The Exchange Notes and the Original Notes are
sometimes referred to herein collectively as the "Notes".
Interest on the Exchange Notes will be payable semi-annually in arrears on
February 15 and August 15 of each year, commencing February 15, 1999. The
Exchange Notes will mature on August 15, 2008. The Exchange Notes will be
redeemable at the option of URI, in whole or in part, at any time on or after
August 15, 2003 at the redemption prices set forth herein, plus accrued and
unpaid interest thereon to the date of redemption. In addition, on or prior to
August 15, 2001, URI may redeem Exchange Notes at a redemption price of 108.8%
of the principal amount thereof, plus accrued and unpaid interest thereon to
the date of redemption, with the net cash proceeds of one or more Public Equity
Offerings (as defined herein), provided that after giving effect to such
redemption the aggregate principal amount of the Notes outstanding must equal
at least $133,250,000. See "Description of the Exchange Notes--Optional
Redemption." Upon a Change of Control (as defined herein), each holder of
Exchange Notes (a "Holder") will have the right to require URI to purchase all
or a portion of such Holder's Exchange Notes at a price equal to 101% of the
principal amount thereof, plus accrued and unpaid interest thereon to the date
of purchase. See "Description of the Exchange Notes--Change of Control."
-----------
SEE "RISK FACTORS" BEGINNING ON PAGE 16 FOR A DISCUSSION OF CERTAIN FACTORS
WHICH HOLDERS OF ORIGINAL NOTES AND PROSPECTIVE PURCHASERS OF EXCHANGE NOTES
SHOULD CONSIDER IN CONNECTION WITH THIS EXCHANGE OFFER.
-----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
-----------
The date of this Prospectus is , 1998
<PAGE>
The Exchange Notes will be unsecured senior subordinated obligations of URI
and, as such, will be subordinated in right of payment to all existing and
future Senior Indebtedness (as defined herein) of URI, including borrowings
under URI's Credit Facility (as defined herein) and Term Loan (as defined
herein). The Exchange Notes will rank pari passu in right of payment with any
senior subordinated indebtedness of URI, including URI's 9 1/2% Senior
Subordinated Notes due 2008 (the "9 1/2% Notes") and 9 1/4% Senior
Subordinated Notes due 2009 (the "9 1/4% Notes"), and senior in right of
payment to any future subordinated indebtedness of URI. The Exchange Notes
will be unconditionally guaranteed (the "Guarantees") on a senior subordinated
basis by URI's current and future United States subsidiaries (each, a
"Guarantor" and collectively, the "Guarantors"). The Guarantees will be
unsecured senior subordinated obligations of the Guarantors and, as such, will
be subordinated in right of payment to all existing and future Guarantor
Senior Indebtedness (as defined herein). The Exchange Notes will also be
effectively subordinated to all obligations of any subsidiary of URI that is
not a Guarantor. At September 30, 1998, on a pro forma basis (after giving
effect to all acquisitions completed by URI subsequent to such date and the
financing thereof), there was outstanding (i) $519.9 million of Senior
Indebtedness, (ii) $50.4 million of Guarantor Senior Indebtedness (other than
guarantees of URI's Senior Indebtedness), (iii) $14.3 million of obligations
of subsidiaries that are not Guarantors (other than obligations to URI) and
(iv) $500.0 million of indebtedness that is pari passu with the Exchange
Notes. The Indenture permits URI and its subsidiaries to incur additional
debt, subject to certain limitations. See "Description of the Exchange Notes."
There is no established trading market for the Original Notes or the
Exchange Notes and URI does not intend to apply for listing of the Original
Notes or the Exchange Notes on any securities exchange or for inclusion of the
Notes in any automated quotation system. Although the Original Notes are
currently eligible for trading through PORTAL (as defined herein), the
Exchange Notes will not be eligible for trading through PORTAL. If a market
for the Exchange Notes develops, the Exchange Notes could trade at a discount
from their principal amount.
URI will accept for exchange any and all Original Notes validly tendered on
or prior to 5:00 p.m., New York City time, on , 1999 (if and as
extended, the "Expiration Date"). Tenders of Original Notes may be withdrawn
at any time prior to 5:00 p.m., New York City time, on the Expiration Date.
The Exchange Offer is not conditioned upon any minimum principal amount of
Original Notes being tendered for exchange. The Original Notes may be tendered
only in integral multiples of $1,000. In the event URI terminates the Exchange
Offer and does not accept for exchange any Original Notes, URI will promptly
return all previously tendered Original Notes to the Holders thereof.
The Original Notes were originally issued and sold on August 12, 1998 in a
transaction not registered under the Securities Act in reliance upon an
exemption from the registration requirements thereof and were offered for sale
by the initial purchaser of the Original Notes pursuant to Rule 144A of the
Securities Act. In general, the Original Notes may not be offered or sold
unless registered under the Securities Act, except pursuant to an exemption
from, or in a transaction not subject to, the Securities Act. The Exchange
Notes are being offered hereby in order to satisfy certain obligations of URI
contained in the Registration Rights Agreement. Following the Exchange Offer,
any holders of Original Notes will continue to be subject to the existing
restrictions on transfer and, subject to limited exceptions, URI will not have
any further obligation to such holders to provide for registration under the
Securities Act of transfers of the Original Notes held by them. See
"Registration Rights Agreement."
Each holder that wishes to exchange Original Notes for Exchange Notes in the
Exchange Offer will be required to make certain representations, including
that (i) it is not an affiliate of URI, (ii) it is not a broker-dealer that
purchased such Original Notes directly from URI, (iii) any Exchange Notes that
it acquires in the Exchange Offer will be acquired by it in the ordinary
course of its business and (iv) it has no arrangement with any person to
participate in the distribution of the Exchange Notes; provided, however, that
if the holder is a broker-dealer that wishes to exchange Original Notes that
were acquired by it for its own account as a result of market-making
ii
<PAGE>
activities or other trading activities, it may represent, in lieu of the
representation set forth in clause (iv), that it has no arrangement or
understanding with URI, or any affiliate of URI, to participate in the
distribution of the Exchange Notes. See "The Exchange Offer--Required
Representations."
Based on interpretations by the Staff of the Securities and Exchange
Commission (the "Commission") set forth in no-action letters issued to third
parties, URI believes that the Exchange Notes issued pursuant to the Exchange
Offer may be offered for resale, resold or otherwise transferred by any Holder
thereof (other than an affiliate of URI) without compliance with the
registration and prospectus delivery provisions of the Securities Act (subject
to the representations set forth in the preceding paragraph being made and
being accurate); provided, however, that in the case of a broker-dealer that
receives Exchange Notes in exchange for Original Notes that were acquired by
it for its own account as a result of market-making activities or other
trading activities, such broker-dealer must deliver a prospectus meeting the
requirements of the Securities Act in connection with any resales by it of any
such Exchange Notes. This Prospectus, as it may be amended or supplemented
from time to time, may, if permitted by URI, be used by a broker-dealer in
order to satisfy such prospectus delivery requirements. URI has agreed in the
Registration Rights Agreement that, for a period of 30 days following
consummation of the Exchange Offer (subject to extension under certain
circumstances), it will make this Prospectus available to any broker-dealer
for use in connection with any such resale (subject to the right of URI to
restrict the use of this Prospectus under certain circumstances). Each broker-
dealer that participates in the Exchange Offer will be required to confirm
that it will comply with the prospectus delivery requirements described above.
See "The Exchange Offer--Resale of Exchange Notes" and "Registration Rights
Agreement--Certain Provisions Relating to Broker-Dealers."
Any Original Notes not tendered and accepted in the Exchange Offer will
remain outstanding. To the extent that Original Notes are tendered and
accepted in the Exchange Offer, a holder's ability to sell untendered, or
tendered but unaccepted, Original Notes could be adversely affected.
The Exchange Notes issued pursuant to the Exchange Offer will be issued in
the form of permanent Exchange Global Securities (as defined herein), which
will be deposited with, or on behalf of, The Depository Trust Company ("DTC")
and registered in its name or in the name of Cede & Co., its nominee.
Beneficial interests in the Exchange Global Securities representing the
Exchange Notes will be shown on, and transfers thereof will be effected
through, records maintained by DTC and its participants. See "Description of
the Exchange Notes--Book-Entry, Delivery and Form."
URI will not receive any proceeds from, and has agreed to bear the expense
of, this Exchange Offer. No underwriter is being used in connection with this
Exchange Offer.
THE EXCHANGE OFFER IS NOT BEING MADE TO, NOR WILL URI ACCEPT TENDERS FOR
EXCHANGE FROM, HOLDERS OF THE ORIGINAL NOTES IN ANY JURISDICTION IN WHICH THE
EXCHANGE OFFER OR THE ACCEPTANCE THEREOF WOULD NOT BE IN COMPLIANCE WITH THE
SECURITIES OR BLUE SKY LAWS OF SUCH JURISDICTION.
iii
<PAGE>
AVAILABLE INFORMATION
URI has filed with the Commission in Washington, D.C. a Registration
Statement on Form S-4 (together with all amendments thereto, the "Registration
Statement"), under the Securities Act with respect to the Exchange Notes
offered hereby. This Prospectus does not contain all the information set forth
in the Registration Statement and the exhibits and schedules filed therewith,
certain portions of which have been omitted as permitted by the rules and
regulations of the Commission. For further information with respect to URI and
the Exchange Notes offered hereby, reference is hereby made to the
Registration Statement and to the exhibits and schedules filed therewith.
Statements contained in this Prospectus regarding the contents of any contract
or other document referred to are not necessarily complete and, in each
instance, reference is made to the copy of such contract or other document
filed as an exhibit to the Registration Statement, each such statement being
deemed to be qualified in its entirety by such reference. The Registration
Statement, including all exhibits and schedules thereto, may be inspected and
copied at the public reference facilities maintained by the Commission at the
principal office of the Commission located at 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the Midwest Regional Office of the Commission
located at Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661-2511 and at the Northeast Regional office of the Commission
located at Seven World Trade Center, Suite 1300, New York, New York 10048.
Copies of such material may be obtained from the Public Reference Section of
the Commission at 450 Fifth Street, N.W., Room 1204, Washington, D.C. 20549,
at prescribed rates.
URI is subject to the informational and periodic reporting requirements of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith, files periodic reports, proxy statements, and other
information with the Commission. Such periodic reports, proxy statements, and
other information may be inspected and copied at the public reference
facilities maintained by the Commission at the principal office of the
Commission in Washington, D.C., and at the Commission's regional offices at
the addresses stated above. Copies of such material may be obtained at
prescribed rates from the Public Reference Section of the Commission at the
address stated above.
The Commission maintains an Internet web site that contains reports, proxy
and information statements and other information regarding issuers that file
electronically with the Commission. The address of that site is
http://www.sec.gov.
CAUTIONARY NOTICE REGARDING FORWARD LOOKING STATEMENTS
Certain statements contained in this Prospectus are forward-looking in
nature. Such statements can be identified by the use of forward-looking
terminology such as "believes," "expects," "may," "will," "should," or
"anticipates" or the negative thereof or comparable terminology, or by
discussions of strategy. Holders of Original Notes and prospective purchasers
of Exchange Notes are cautioned that URI's business and operations are subject
to a variety of risks and uncertainties and, consequently, URI's actual
results may materially differ from those projected by the forward-looking
statements contained in this Prospectus. Certain of such risks and
uncertainties are discussed under "Risk Factors," beginning on page 16 of this
Prospectus, and holders of Original Notes and prospective purchasers of
Exchange Notes are urged to carefully consider such factors.
1
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read in
conjunction with, the more detailed information and financial statements and
notes thereto appearing elsewhere in this Prospectus. The Company has acquired
84 companies (the "Acquired Companies") since its formation in September 1997.
Unless otherwise indicated, all pro forma financial and operating data for the
Company contained herein with respect to the year ended December 31, 1997 or
the nine months ended September 30, 1998 gives effect to each acquisition
completed after the beginning of the period and the financing thereof as if
such transactions had occurred at the beginning of the period.
United Rentals (North America), Inc. (referred to herein as "URI") was
formerly named United Rentals, Inc. On August 5, 1998, a reorganization (the
"Reorganization") was effected pursuant to which (a) URI became a wholly owned
subsidiary of a newly formed holding company, (b) the name of URI was changed
from United Rentals, Inc. to United Rentals (North America), Inc. and (c) the
name of the new holding company became United Rentals, Inc. Unless otherwise
indicated or the context clearly requires otherwise, (i) the terms "United
Rentals" and "Holdings" refer to the holding company, (ii) the term "URI"
refers to United Rentals (North America), Inc. and not its subsidiaries, (iii)
the term "the Company" refers to URI and its subsidiaries, and (iv) the term
"Common Stock" refers to the common stock of URI, with respect to periods prior
to the Reorganization, and to the common stock of Holdings with respect to
periods thereafter.
THE COMPANY
The Company is the largest equipment rental company in North America with
over 400 branch locations in 38 states, Canada and Mexico. The Company offers
for rent a wide variety of equipment (on a daily, weekly or monthly basis) and
serves customers that include construction industry participants, industrial
companies, homeowners and others. The Company also sells used rental equipment,
acts as a dealer for certain new equipment, and sells related merchandise and
parts. The Company began operations in October 1997 with the acquisition of six
well-established rental companies and has grown through a combination of
internal growth and the acquisition of 78 additional companies, including a
merger in September 1998 with U.S. Rentals, Inc. ("U.S. Rentals"). At the time
of the merger, U.S. Rentals was the second largest equipment rental company in
the United States based on 1997 rental revenues. The Company had pro forma
revenue and EBITDA (as defined herein) in the nine months ended September 30,
1998, of $1.1 billion and $351.1 million, respectively.
The rental equipment offered by the Company includes a broad range of light
to heavy construction and industrial equipment (such as backhoes, forklifts,
aerial lifts, skid-steer loaders, compressors, pumps and generators) and
general tools and equipment (such as hand tools and garden and landscaping
equipment). The equipment mix varies at each of the Company's locations, with
some locations offering a general mix and some specializing in specific
equipment categories. As of December 8, 1998, the Company's rental equipment
included approximately 260,000 units, had an original purchase price of
approximately $1.8 billion and had a weighted average age (based on original
purchase price) of approximately 26 months.
COMPETITIVE ADVANTAGES
The Company believes that it benefits from the following competitive
advantages:
Low-Cost Purchasing. The Company has significant purchasing power due to its
size and volume purchasing. As a result, the Company is able to buy new
equipment at prices that are significantly lower than those generally available
to smaller companies. The Company is also able to purchase many other products
and services--such as insurance, telephone service and fuel--at attractive
rates.
2
<PAGE>
Operating Efficiencies. The Company generally groups its branches into
clusters of 10 to 30 locations within a particular geographic region. The
Company's information technology system links all branches within a cluster and
enables each branch to track and access all equipment at any other branch
within the cluster. The Company believes that its cluster strategy produces
significant operating efficiencies, including:
. the equipment within a cluster is marketed through multiple branches
rather than a single branch--thereby increasing equipment utilization
rates;
. the specialties of different branches are cross-marketed--thereby
increasing revenues without increasing marketing expense; and
. costs are reduced through the centralization of common functions such as
payroll, credit and collection, and heavy maintenance.
Full Range of Rental Equipment. The Company believes that it has one of the
largest and most diverse equipment rental fleets in the industry. The Company
believes that the size and diversity of its fleet provide significant
advantages, including enabling the Company to:
. serve a large and diverse customer base--thereby reducing dependence on
any particular customer;
. satisfy most or all of a customer's equipment rental needs--thereby
increasing the revenues that can be generated from each customer;
. attract customers by providing the benefit of "one-stop" shopping;
. serve the needs of large customers--such as large industrial companies--
which require assurance that large quantities of diverse equipment will
be available as required; and
. minimize lost sales due to equipment being unavailable.
Information Technology System. The Company has a modern information
technology system designed to facilitate rapid and informed decision making.
The system provides management with a wide range of real time operating and
financial data--including data relating to inventory, receivables, customers,
vendors, fleet utilization and price and sales trends. The system also enables
branch personnel to search for needed equipment throughout a geographic region,
determine the closest location of such equipment and arrange for delivery to
the customer's work site. The Company is in the process of extending the system
to the locations acquired in the merger with U.S. Rentals. See "Business--
Information Technology System."
Geographic Diversity. The Company's branches are situated in 38 states,
Canada and Mexico. The Company believes that its geographic diversity should
reduce its sensitivity to fluctuations in regional economic conditions and
enable it to transfer equipment to regions where demand is increasing from
regions where demand is flat or decreasing. The Company also believes that its
geographic diversity and large network of branch locations provide significant
operating advantages including the ability to service national accounts and
access used equipment re-sale markets across the country.
Experienced Management. The Company believes that it has one of the most
experienced management teams in the equipment rental industry. The Company's
senior management team includes managers with extensive experience in the
equipment rental industry and others with proven track-records in other
industries. The Company's executive officers include four former executive
officers of United Waste Systems, Inc., a publicly-traded solid waste
management company that was acquired by USA Waste Services, Inc. in August
1997. United Waste executed a growth strategy that combined a disciplined
acquisition program (including over 200 acquisitions completed from January
1995 through August 1997), the integration and optimization of acquired
facilities, and internal growth. The Company's executive officers also include
two former officers of
3
<PAGE>
U.S. Rentals who joined the Company following the merger of the Company with
U.S. Rentals. One of these
officers has over 30 years experience in the equipment rental industry and the
other has over 10 years of experience. The Company's senior management is
supported by the Company's branch managers who have an average of over 20 years
experience in the equipment rental industry and substantial knowledge of the
local markets served. The Company's senior management is also supported by a
team of acquisition specialists who are engaged full-time in evaluating
acquisition candidates and executing the Company's acquisition program.
GROWTH STRATEGY
The Company's objective is to continue to expand its operations primarily in
North America. The Company's plan for achieving this objective includes the
following key elements:
Continue Strong Internal Growth. The Company is seeking to sustain its strong
internal growth by further expanding and modernizing its equipment fleet,
increasing sales efforts, and increasing cross-marketing of the Company's
equipment specialties at different locations. The Company is also seeking to
increase its rentals to industrial companies through a comprehensive marketing
program specifically aimed at this sector. The Company believes that industrial
companies represent an attractive market for rental equipment because (i) many
industrial companies require a certain level of predictable and necessary plant
maintenance regardless of economic conditions and (ii) the equipment required
for this maintenance is typically not used full-time. In addition, the Company
believes that there is significant potential for growth in this market because
the current penetration of this market by the equipment rental industry is very
low in comparison to its penetration of the construction market.
Execute Disciplined Acquisition Program. The Company intends to continue to
expand through its disciplined acquisition program. The Company generally seeks
to acquire multiple locations within the regions that it enters, with the goal
of creating clusters of locations that can share equipment, marketing
resources, back office functions and heavy maintenance. The Company is seeking
to acquire companies of varying size, including relatively large companies to
serve as platforms for the development of new regional clusters and smaller
companies to complement existing or anticipated locations. In evaluating
potential acquisition targets, the Company considers a number of factors,
including the quality of the target's rental equipment and management, the
opportunities to improve operating margins and increase internal growth at the
target, the economic prospects of the region in which the target is located,
the potential for additional acquisitions in the region, and the competitive
landscape in the target's markets.
Open New Rental Locations. The Company also intends to grow by selectively
opening new rental locations in attractive markets where there are no suitable
acquisition targets available or where the cost of a start-up location would be
less than the cost of acquiring an existing business.
Increase Cost Savings. The Company focuses significant efforts on reducing
costs through the efficient integration of new and existing operations, the
elimination of duplicative costs, the centralization of common functions, the
consolidation of locations where practical, and the use of its purchasing power
to negotiate discounts from suppliers.
INDUSTRY BACKGROUND
The Company estimates that the U.S. equipment rental industry (including used
and new equipment sales by rental companies) generates annual revenues in
excess of $20 billion. The combined equipment rental revenues of the 100
largest equipment rental companies have increased at an estimated compound
annual rate of approximately 23% from 1992 through 1997 (based upon 1992
revenues and 1997 pro forma revenues, giving
4
<PAGE>
effect to certain acquisitions completed after the beginning of 1997, reported
by the Rental Equipment Register, an industry trade publication). The Company
believes growth in the equipment rental industry primarily reflects the
following trends:
Recognition of Advantages of Renting. There is increasing recognition of
the many advantages that equipment rental may offer compared with
ownership, including the ability to: (i) avoid the large capital investment
required for equipment purchases, (ii) reduce storage and maintenance
costs, (iii) supplement owned equipment thereby increasing the range and
number of jobs that can be worked on, (iv) access a broad selection of
equipment and select the equipment best suited for each particular job, (v)
obtain equipment as needed and minimize the costs associated with idle
equipment, and (vi) access the latest technology without investing in new
equipment.
Increase in Contractor Rentals. There has been a fundamental shift in the
way contractors meet their equipment needs. While contractors have
historically used rental equipment on a temporary basis--to provide for
peak period capacity, meet specific job requirements or replace broken
equipment--many contractors are now also using rental equipment on an
ongoing basis to meet their long-term equipment requirements.
Outsourcing Trend. The general trend towards the corporate outsourcing of
non-core competencies is leading large industrial companies increasingly to
rent, rather than purchase, equipment that they require for repairing,
maintaining and upgrading their facilities.
The equipment rental industry is highly fragmented, consisting of a small
number of multi-location regional or national operators and a large number of
relatively small, independent businesses serving discrete local markets. Based
upon rental revenues reported by the Rental Equipment Register for 1997: (i)
there were only 10 equipment rental companies that had 1997 equipment rental
revenues in excess of $100 million (with the largest company having had 1997
equipment rental revenues of approximately $460 million), (ii) the largest 100
equipment rental companies combined had less than a 22% share of the market
based on 1997 equipment rental revenues and the Company's estimate of the size
of the market (with the largest company having had a market share of less than
3%), and (iii) there were approximately 100 equipment rental companies that had
1997 equipment rental revenues between $5 million and $100 million. In
addition, the Company estimates that there are more than 20,000 companies with
annual equipment rental revenues of less than $5 million. The Company believes
that the fragmented nature of the industry presents substantial consolidation
and growth opportunities for companies with the ability to implement a
disciplined acquisition program. The Company also believes that the extensive
experience of its management team in acquiring and effectively integrating
acquisition targets should enable the Company to capitalize on these
opportunities.
BACKGROUND
URI was incorporated under the laws of the State of Delaware as "United
Rentals, Inc." in August 1997, initially capitalized in September 1997 and
commenced rental operations in October 1997. In August 1998, pursuant to the
Reorganization, URI became a wholly owned subsidiary of United Rentals and the
corporate name of URI was changed to "United Rentals (North America), Inc." The
executive offices of the Company are located at Four Greenwich Office Park,
Greenwich, Connecticut 06830, and its telephone number is (203) 622-3131.
5
<PAGE>
CERTAIN INFORMATION CONCERNING THE ISSUANCE OF THE ORIGINAL NOTES
The Original Notes were originally issued and sold on August 12, 1998 in a
transaction not registered under the Securities Act in reliance upon an
exemption from the registration requirements thereof. The initial purchaser
(the "Initial Purchaser") of the Original Notes was Merrill Lynch, Pierce,
Fenner & Smith Incorporated. The Initial Purchaser subsequently offered and
resold the Original Notes pursuant to Rule 144A under the Securities Act. In
connection with the issuance of the Original Notes, the Company entered into a
Registration Rights Agreement with the Initial Purchaser (the "Registration
Rights Agreement") which provides the Holders of the Notes with certain
registration and exchange rights. The Exchange Offer is intended to satisfy
certain of the Company's obligations under the Registration Rights Agreement.
See "Registration Rights Agreement."
The Original Notes are represented by two, permanent global notes which are
registered in the name of a nominee of DTC. Pursuant to procedures established
by DTC, interests in the global notes are held in book-entry form by
participants in the DTC system who have accounts with DTC ("DTC Participants").
Accordingly, ownership of beneficial interests in such Notes is limited to DTC
Participants or persons who hold such interests through DTC Participants.
The term "Book-Entry Holder" with respect to any Notes means the DTC
Participant that is listed as the holder of such Notes in the records
maintained by DTC.
6
<PAGE>
THE EXCHANGE OFFER
The Exchange Offer.......... URI is offering to exchange up to $205 million
aggregate principal amount of Exchange Notes for
a like principal amount of Original Notes. The
Exchange Notes may be exchanged only in multiples
of $1,000 principal amount. URI will issue the
Exchange Notes on or promptly after the
Expiration Date. See "The Exchange Offer."
Required Representations.... In connection with any tender of Original Notes
pursuant to the Exchange Offer, the Book-Entry
Holder of such Original Notes will be required to
make certain representations in the Letter of
Transmittal, including that (i) it is not an
affiliate of URI, (ii) it is not a broker-dealer
that purchased such Original Notes directly from
URI, (iii) any Exchange Notes that it acquires in
the Exchange Offer will be acquired by it in the
ordinary course of its business and (iv) it has
no arrangement with any person to participate in
the distribution of the Exchange Notes; provided,
however, that if the Book-Entry Holder is a
broker-dealer that wishes to tender Original
Notes that were acquired by it for its own
account as a result of market-making activities
or other trading activities, it may represent, in
lieu of the representation set forth in clause
(iv) above, that it has no arrangement or
understanding with URI, or any affiliate of URI,
to participate in the distribution of the
Exchange Notes. In addition, any Book-Entry
Holder that holds any Original Notes as nominee,
will be required to confirm that the beneficial
owner for which it is holding such Original Notes
has made the representations provided for in the
preceding sentence.
Resale of the Exchange Based on interpretations by the Staff of the
Notes...................... Commission set forth in no-action letters issued
to third parties, URI believes that the Exchange
Notes issued pursuant to the Exchange Offer may
be offered for resale, resold or otherwise
transferred by any Holder thereof (other than an
affiliate of URI) without compliance with the
registration and prospectus delivery provisions
of the Securities Act (subject to the
representations set forth in the preceding
paragraph being made and being accurate);
provided, however, that in the case of a broker-
dealer that receives Exchange Note in exchange
for Original Notes that were acquired by it for
its own account as a result of market-making
activities or other trading activities, such
broker-dealer must deliver a prospectus meeting
the requirements of the Securities Act in
connection with any resales by it of any such
Exchange Notes. This Prospectus, as it may be
amended or supplemented from time to time, may,
if permitted by URI, be used by a broker-dealer
in order to satisfy such prospectus delivery
requirements. URI has agreed in the Registration
Rights Agreement that, for a period of 30 days
following consummation of the Exchange Offer
(subject to extension under certain
circumstances), it will make this Prospectus
available to any broker-dealer for use in
connection with any such resale (subject to the
right of URI to restrict the use of this
Prospectus under certain circumstances). Each
7
<PAGE>
broker-dealer that participates in the Exchange
Offer will be required to confirm that it will
comply with the prospectus delivery requirements
described above. See "Registration Rights
Agreement" and "Plan of Distribution."
The conclusions set forth in the preceding
paragraph are based on interpretations by the
Staff of the Commission set forth in no-action
letters issued to third parties. URI does not
intend to seek its own no-action letter with
respect to the Exchange Offer and there can be no
assurance that the Staff of the Commission would
make a similar determination with respect to the
Exchange Offer as it has in such no-action
letters to third parties.
Accrued Interest on the
Original Notes.............
The Exchange Notes will bear interest at the rate
of 8.80% per annum from and including the last
interest payment date on the Original Notes (or,
if none has yet occurred, the date of issuance of
such Original Notes). Accordingly, holders of
Original Notes that are accepted for exchange
will not receive interest that is accrued but
unpaid on the Original Notes at the time of
tender, but such interest will be payable in
respect of the Exchange Notes delivered in
exchange for such Original Notes on the first
interest payment date after the Expiration Date.
Procedures for Tendering
Original Notes.............
To tender any Original Notes pursuant to the
Exchange Offer, the Book-Entry Holder of such
Original Notes must make book-entry delivery of
such Original Notes by causing DTC to transfer
such Original Notes to the account of the
Exchange Agent (as defined herein) at DTC in
accordance with DTC's Automated Tender Offer
Program ("ATOP"). In addition, either (i) DTC
must deliver an Agent's Message (as defined
below) prior to 5:00 p.m., New York City time, on
the Expiration Date, indicating that DTC has
received from such Book-Entry Holder an express
acknowledgment that such Book-Entry Holder has
received and agrees to be bound by the terms of
the accompanying Letter of Transmittal (the
"Letter of Transmittal") or (ii) such Book-Entry
Holder must complete, sign and date the Letter of
Transmittal or a facsimile thereof, in accordance
with the instructions contained herein and
therein, and deliver such Letter of Transmittal,
or such facsimile, and any other required
documentation to the Exchange Agent at the
address set forth herein prior to 5:00 p.m., New
York City time, on the Expiration Date. The term
"Agent's Message" means a message transmitted by
DTC to, and received by, the Exchange Agent and
forming part of the book-entry confirmation
relating to a book-entry transfer of Original
Notes through ATOP, which states that DTC has
received an express acknowledgment from the DTC
Participant that is tendering the Original Notes
which are the subject of such book entry
confirmation, that such DTC Participant has
received and agrees to be bound by the terms of
the Letter of Transmittal. See "The Exchange
Offer--Procedures for Tendering."
8
<PAGE>
Expiration Date.............
5:00 p.m., New York City time, on , 1999,
unless the Exchange Offer is extended, in which
case the term "Expiration Date" means the latest
date and time to which the Exchange Offer is
extended. See "The Exchange Offer--Expiration
Date; Extensions; Amendments."
Exchange Date............... The date of acceptance for exchange of the
Original Notes tendered for exchange will be
when, as and if URI gives oral or written notice
thereof to the Exchange Agent.
Withdrawal Rights........... Tenders of Original Notes may be withdrawn at any
time prior to 5:00 p.m., New York City time, on
the Expiration Date by (i) furnishing a written
or facsimile notice of withdrawal to the Exchange
Agent containing the information set forth under
"The Exchange Offer--Withdrawal of Tenders" or
(ii) complying with the appropriate procedures of
DTC's ATOP system.
Acceptance of Original
Notes and Delivery of
Exchange Notes.............
Subject to satisfaction or waiver of all the
conditions referred to below, URI will accept for
exchange any and all Original Notes which are
properly tendered in the Exchange Offer prior to
5:00 p.m., New York City time, on the Expiration
Date. The Exchange Notes issued pursuant to the
Exchange Offer will be delivered promptly
following the Expiration Date. See "The Exchange
Offer--Terms of the Exchange Offer."
Conditions to the Exchange The Exchange Offer is not conditioned upon any
Offer...................... minimum aggregate principal amount of Original
Notes being tendered for exchange. The Exchange
Offer is subject to certain customary conditions
concerning, among other things, changes to
existing law and governmental approvals, which
may be waived by URI. See "The Exchange Offer--
Conditions."
Federal Income Tax The exchange of Original Notes for Exchange Notes
Consequences............... pursuant to the terms set forth in this
Prospectus should not result in any material
federal income tax consequences to Holders
exchanging Original Notes for Exchange Notes. See
"The Exchange Offer--Certain Federal Income Tax
Considerations."
Use of Proceeds......... There will be no cash proceeds to the Company
from the exchange of Original Notes pursuant to
the Exchange Offer. The net proceeds to the
Company from the sale of the Original Notes was
approximately $196.0 million. The Company used
the net proceeds from the sale of the Original
Notes for (i) acquisitions, (ii) capital
expenditures and (iii) general corporate
purposes.
Exchange Agent.............. State Street Bank and Trust Company is serving as
exchange agent (the "Exchange Agent") in
connection with the Exchange Offer. The address
and telephone number of the Exchange Agent is set
forth under "The Exchange Offer--Exchange Agent."
State Street Bank and Trust Company also serves
as Trustee under the
Indenture.
9
<PAGE>
Effect on the Holders of
Original Notes.............
Upon consummation of the Exchange Offer, the
holders of Original Notes will not have any
further registration rights under the
Registration Rights Agreement (subject to limited
exceptions as described under "Registration
Rights Agreement--Shelf Registration Statement").
Holders of the Original Notes who do not tender
their Original Notes in the Exchange Offer will
continue to hold such Original Notes and will be
entitled to all the rights and will be subject to
all the limitations applicable thereto under the
Indenture. All Original Notes that remain
outstanding upon consummation of the Exchange
Offer will continue to be subject to the
restrictions on transfer provided for in the
Original Notes and the Indenture. In general, the
Original Notes may not be offered or sold unless
registered under the Securities Act, except
pursuant to an exemption from, or in a
transaction not subject to, the registration
requirements of the Securities Act. To the extent
that the Original Notes are tendered and accepted
in the Exchange Offer, the trading market for
untendered Original Notes could be adversely
affected.
10
<PAGE>
SUMMARY OF TERMS OF THE EXCHANGE NOTES
The Exchange Offer applies to $205 million aggregate principal amount of the
Original Notes. The terms of the Exchange Notes will be the same in all
material respects as the Original Notes except that (i) the Exchange Notes will
be registered under the Securities Act, and, therefore, will not bear legends
restricting the transfer thereof and (ii) certain of the registration rights,
under the Registration Rights Agreement, relating to the Exchange Notes are
different than those relating to the Original Notes and, therefore, the
defaults under the Registration Rights Agreement that may require URI to pay
additional interest will be different for the Exchange Notes and the Original
Notes. The Exchange Notes will evidence the same debt as the Original Notes and
both series of Notes will be entitled to the benefits of the Indenture and
treated as a single class of debt securities.
Issuer...................... United Rentals (North America), Inc.
Maturity.................... August 15, 2008.
Interest Payment Dates...... February 15 and August 15 of each year,
commencing February 15, 1999.
Optional Redemption......... The Exchange Notes will be redeemable at the
option of URI, in whole or in part, at any time
on or after August 15, 2003, at the redemption
prices set forth herein, plus accrued and unpaid
interest thereon to the date of redemption.
In addition, on or prior to August 15, 2001, URI
may redeem Exchange Notes at a redemption price
of 108.8% of the principal amount thereof, plus
accrued and unpaid interest thereon to the date
of redemption, with the net cash proceeds of one
or more Public Equity Offerings (as defined
herein), provided that not less than $133,250,000
of principal amount of the Notes is outstanding
immediately after giving effect to such
redemption. See "Description of the Exchange
Notes--Optional Redemption."
Guarantees.................. The Exchange Notes will be unconditionally
guaranteed on a senior subordinated basis by
URI's current and future United States
subsidiaries.
Ranking.....................
The Exchange Notes will be unsecured senior
subordinated obligations of URI and, as such,
will be subordinated in right of payment to all
existing and future Senior Indebtedness (as
defined herein) of URI, including borrowings
under URI's $762.5 million credit facility (the
"Credit Facility") and $250 million term loan due
2005 (the "Term Loan"). The Exchange Notes will
rank pari passu in right of payment with any
senior subordinated indebtedness of URI,
including the 9 1/2% Notes and 9 1/4% Notes, and
senior in right of payment to any future
subordinated indebtedness of URI. The Guarantees
will be unsecured senior subordinated obligations
of the Guarantors and, as such, will be
subordinated in right of payment to all existing
and future Guarantor Senior Indebtedness (as
defined herein). The Guarantees will rank pari
passu with any future senior subordinated
Indebtedness of the Guarantors, and senior in
right of payment to any future subordinated
indebtedness of the Guarantors. URI's Canadian
subsidiaries will not be Guarantors and,
11
<PAGE>
as a result, the Exchange Notes will be
effectively subordinated to all obligations of
such subsidiaries, including trade payables of
such subsidiaries. At September 30, 1998, on a
pro forma basis (after giving effect to all
acquisitions completed by the Company subsequent
to such date and the financing thereof), there
was outstanding (i) $519.9 million of Senior
Indebtedness, (ii) $50.4 million of Guarantor
Senior Indebtedness (other than guarantees of
URI's Senior Indebtedness), (iii) $14.3 million
of obligations of subsidiaries that are not
Guarantors (other than obligations to URI) and
(iv) $500.0 million of indebtedness that is pari
passu with the Exchange Notes. The Indenture
pursuant to which the Exchange Notes will be
issued (the "Indenture") will permit URI and its
subsidiaries to incur additional debt, subject to
certain limitations. See "Description of the
Exchange Notes--Subordination" and "--Certain
Covenants--Limitation on Indebtedness."
Change of Control........... Following the occurrence of a Change of Control
(as defined herein), each Holder of Exchange
Notes will have the right to require URI to
purchase all or a portion of such Holder's
Exchange Notes at a purchase price equal to 101%
of the aggregate principal amount thereof, plus
accrued and unpaid interest thereon to the date
of purchase. See "Description of the Exchange
Notes--Change of Control."
Certain Covenants........... The Indenture contains certain covenants,
including (i) limitations on additional
indebtedness, (ii) limitations on restricted
payments, (iii) limitations on liens, (iv)
limitations on dividends and other payment
restrictions affecting Restricted Subsidiaries
(as defined herein), (v) limitations on preferred
stock of Restricted Subsidiaries, (vi)
limitations on transactions with affiliates,
(vii) limitations on the disposition of proceeds
of asset sales and (viii) limitations on
designations of Unrestricted Subsidiaries (as
defined herein). In addition, the Indenture
limits the ability of URI to consolidate, merge
or sell all or substantially all of its assets.
These covenants are subject to important
exceptions and qualifications. See "Description
of the Exchange Notes--Certain Covenants."
Registration Rights......... A broker-dealer (a "Participating Broker-Dealer")
that receives Exchange Notes in exchange for
Original Notes that were acquired by it for its
own account as a result of market-making
activities or other trading activities, will be
required to deliver a prospectus meeting the
requirements of the Securities Act in connection
with any resales by it of any such Exchange
Notes. This Prospectus, as it may be amended or
supplemented from time to time, may, if permitted
by URI, be used by a broker-dealer in order to
satisfy such prospectus delivery requirements.
URI has agreed in the Registration Rights
Agreement that it will use its best efforts to
make this Prospectus available to any such
broker-dealer for use in connection with any
resales of such Exchange Notes (subject to the
right of URI to restrict the use of this
Prospectus under certain
12
<PAGE>
circumstances). The obligation of URI to make
this Prospectus available as aforesaid will
commence on the day that the Exchange Offer is
consummated and continue in effect for a 30-day
period (the "Broker Prospectus Period");
provided, however, that, if for any day during
such period URI restricts the use of such
prospectus, the Broker Prospectus Period shall be
extended on a day-for-day basis.
URI has agreed in the Registration Rights
Agreement that, if at the end of the Broker
Prospectus Period any Participating Broker-Dealer
continues to hold any Exchange Notes that it
received in the Exchange Offer, URI will (within
the time period specified under "Registration
Rights Agreement"), if any such broker-dealer so
requests within 60 days after the end of the
Broker Prospectus Period, file with the
Commission a shelf registration statement (a
"Broker Shelf Registration Statement") to cover
the resale of such Exchange Notes by such broker-
dealers and use its best efforts to have such
registration statement declared effective by the
Commission; provided, however, that (i) URI may
in lieu of filing such registration statement
extend the Broker Prospectus Period by 60 days
and (ii) URI will not be required to file such
registration statement until such time as URI
becomes eligible to use a Form S-3 for such
registration statement. The interest rate on the
Exchange Notes is subject to increase under
certain circumstances if URI is not in compliance
with its obligations under the Registration
Rights Agreement relating to the Broker Shelf
Registration Statement. See "Registration Rights
Agreement."
Absence of Public Market
for Exchange Notes.........
The Exchange Notes are new securities for which
there is currently no established trading market.
Although the Initial Purchaser has informed URI
that it currently intends to make a market in the
Exchange Notes, it is not obligated to do so and
any such market making may be discontinued at any
time without notice. Accordingly, there can be no
assurance as to the development or liquidity of
any market for the Exchange Notes. URI does not
intend to apply for listing of the Exchange Notes
on any securities exchange or for quotation
through the Nasdaq National Market. Although the
Original Notes are currently eligible for trading
in the Private Offerings, Resale and Trading
through Automated Linkages ("PORTAL") market of
the National Association of Securities Dealers,
Inc., the Exchange Notes will not be eligible for
trading through PORTAL. If a market for the
Exchange Notes develops, the Exchange Notes could
trade at a discount from their principal amount.
RISK FACTORS
See "Risk Factors" beginning on page 16 for a discussion of certain factors
applicable to a decision to tender Original Notes in the Exchange Offer.
13
<PAGE>
SUMMARY HISTORICAL AND UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
The tables below present selected historical and pro forma financial
information for the Company. This information should be read together with (i)
the information set forth under "Capitalization," "Selected Historical and Pro
Forma Consolidated Financial Information" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations," (ii) the
Consolidated Financial Statements and the related notes thereto and Pro Forma
Consolidated Financial Statements and the related notes thereto of the Company
included elsewhere in this Prospectus and (iii) the financial statements
included elsewhere in this Prospectus of certain of the Acquired Companies.
The Company commenced operations in October 1997 by acquiring six established
equipment rental companies. The Company completed 78 additional acquisitions in
1998 (through December 8, 1998), including the merger with U.S. Rentals which
was completed in September 1998. Three of these acquisitions (including the
U.S. Rentals merger) were accounted for as "poolings-of-interests," which means
that for accounting and financial reporting purposes the acquired company is
treated as having been combined with the Company at all times since the
inception of the acquired company. Accordingly, the Company's financial
statements have been restated to include the accounts of two of the companies
acquired in these pooling-of-interests transactions (but was not restated for
one that was not material which has been combined with the Company effective
July 1, 1998). As a result of this restatement, the Company's financial
statements include combined historical financial information of these two
acquired companies for periods that precede the date on which the Company
commenced its own operations. See Note 3 to the Consolidated Financial
Statements of the Company included elsewhere herein. The other 81 acquisitions
completed by the Company were accounted for as "purchases," which means that
the results of operations of the acquired company are included in the Company's
financial statements only from the date of acquisition.
The following unaudited income statement and other financial data under the
column heading "Pro Forma" with respect to each period presented gives effect
to each acquisition completed by the Company after the beginning of the period
and the financing thereof, as if all such transactions had occurred at the
beginning of the period. The following unaudited balance sheet data as of
September 30, 1998 under the column heading "Pro Forma" gives effect to each
acquisition completed by the Company subsequent to such date and the financing
of each such acquisition, as if all such transactions had occurred on such
date.
The pro forma data set forth below is provided for informational purposes.
However, this data may not be indicative of the actual results that the Company
would have had during any period presented, had any or all of the acquisitions
been completed as of the beginning of that period, or of any future results.
14
<PAGE>
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
-------------------------------------------------------------------- --------------------------
YEAR NINE MONTHS
NINE MONTHS ENDED ENDED ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30, DECEMBER 31, SEPTEMBER 30,
------------------------------------------------ ------------------ ------------ -------------
1993 1994 1995 1996 1997 1997 1998 1997 1998
-------- -------- -------- -------- -------- -------- -------- ------------ -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Total revenues.......... $172,043 $222,326 $283,432 $354,478 $489,838 $327,824 $804,262 $1,288,628 $1,110,610
Gross profit............ 46,120 68,557 89,198 113,033 149,292 100,186 274,050 452,059 386,003
Operating income........ 15,372 28,502 42,575 48,925 44,743 22,185 79,378 160,634 113,883
Interest expense........ 3,906 6,245 7,490 11,278 11,847 6,316 39,170 80,021 60,344
Net income (loss)....... 14,732 25,502 33,297 37,726 3,898 (6,161) (3,055) 53,094 37,613
Pro forma provision for
income taxes before
extraordinary
items(1)(2)............ 6,230 10,637 13,715 15,487 14,176 21,637 27,162
Pro forma income (loss)
before extraordinary
items(1)(2)............ 8,960 15,388 20,066 22,659 20,741 (4,412) 17,570
OTHER FINANCIAL DATA:
EBITDA(3)............... $ 50,002 $ 73,446 $101,438 $123,606 $160,554 $108,413 $265,257 $ 404,640 $ 351,115
EBITDA margin(4)........ 29.1% 33.0% 35.8% 34.9% 32.8% 33.1% 33.0% 31.4% 31.6%
Interest expense(5)(6).. $ 3,906 $ 6,245 $ 7,490 $ 11,278 $ 11,847 $ 6,316 $ 39,170 $ 80,021 $ 60,344
Depreciation and
amortization........... 34,630 44,944 58,863 74,681 95,521 65,938 143,663 223,716 195,016
Ratio of EBITDA to
interest expense....... 5.1x 5.8x
Ratio of total debt to
EBITDA(7).............. 2.7x
Ratio of earnings to
fixed charges(8)....... 4.0x 4.5x 4.8x 4.0x 3.4x 3.2x 2.0x
Pro forma ratio of
earnings to fixed
charges(9)............. 2.7x 1.9x
Supplemental pro forma
ratio of earnings to
fixed charges(10)...... 2.0x 1.8x
</TABLE>
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30,
1998
---------------------
HISTORICAL PRO FORMA
---------- ----------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................ $ 21,793 $ 4,000
Rental equipment, net.................................... 1,191,448 1,212,754
Total assets............................................. 2,531,683 2,567,582
Total debt............................................... 1,235,508 1,267,139
Stockholders' equity..................................... 1,002,204 1,002,304
</TABLE>
- -------
(1) The Company recorded an extraordinary item (net of income taxes) of $1.5
million in 1997 and an extraordinary item (net of income taxes) of $21.3
million in 1998. Such item in 1997 resulted from the prepayment of certain
debt by U.S. Rentals. Such item in 1998 resulted from the early
extinguishment of certain debt and primarily reflected prepayment penalties
on certain debt of U.S. Rentals.
(2) U.S. Rentals was taxed as a Subchapter S Corporation until its initial
public offering in February 1997, and another Acquired Company was taxed as
a Subchapter S Corporation until being acquired by the Company in 1998. In
general, the income or loss of a Subchapter S Corporation is passed through
to its owners rather than being subjected to taxes at the entity level. Pro
forma provision for income taxes before extraordinary items and pro forma
income (loss) before extraordinary items reflect a provision for income
taxes as if all such companies were liable for federal and state income
taxes as taxable corporate entities for all periods presented.
(3) EBITDA is defined as net income (excluding (i) non-operating income and
expense, (ii) a $20.3 million non-recurring charge incurred by U.S. Rentals
in 1997 arising from the termination of deferred compensation agreements
with certain executives and (iii) $42.2 million in merger-related expenses
in 1998 related to the three acquisitions accounted for as poolings-of-
interests, including the merger with U.S. Rentals) plus interest expense,
income taxes and depreciation and amortization. EBITDA data is presented to
provide additional information concerning the Company's ability to meet its
future debt service obligations and capital expenditure and working capital
requirements. However, EBITDA is not a measure of financial performance
under generally accepted accounting principles. Accordingly, EBITDA should
not be considered an alternative to net income or cash flows as indicators
of the Company's operating performance or liquidity.
(4) EBITDA margin is defined as EBITDA as a percentage of revenues.
(5) Interest expense excludes the amortization of deferred financing fees.
(6) URI is a wholly owned subsidiary of Holdings. Although not legally
obligated to do so, URI has made, and expects that it will continue to
make, cash distributions to Holdings in order to enable Holdings to pay
dividends on certain preferred securities that were issued by a subsidiary
trust of Holdings. These distributions are not reflected in URI's interest
expense. For additional information concerning such preferred securities,
see "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Liquidity and Capital Resources."
(7) For purposes of determining the ratio of total debt to EBITDA for the nine
months ended September 30, 1998, EBITDA is annualized.
(8) For purposes of determining the ratio of earnings to fixed charges, (i)
earnings consist of income before income taxes and extraordinary items plus
fixed charges and (ii) fixed charges consist of interest expense,
amortization of debt issuance costs, and the estimated interest portion of
rental expense.
(9) The pro forma ratio of earnings to fixed charges gives effect to the
issuance of the Notes and the application of a portion of the net proceeds
therefrom to repay outstanding indebtedness, as if such transaction had
occurred at the beginning of the period.
(10) The supplemental pro forma ratio of earnings to fixed charges gives effect
to each acquisition completed by the Company after the beginning of the
period and the financing thereof, as if such transactions had occurred at
the beginning of the period.
15
<PAGE>
RISK FACTORS
In addition to the other information contained in this Prospectus, Holders
of Original Notes should carefully consider the following factors before
deciding to tender Original Notes in the Exchange Offer. Except as otherwise
indicated, the risk factors set forth below are generally applicable to both
the Original Notes and the Exchange Notes.
SUBSTANTIAL LEVERAGE; ABILITY TO SERVICE INDEBTEDNESS IS DEPENDENT ON FUTURE
PERFORMANCE
The Company incurred substantial indebtedness in connection with its
acquisition of the Acquired Companies. As of September 30, 1998, the Company
had total debt of $1.3 billion on a pro forma basis after giving effect to the
acquisitions completed by the Company subsequent to such date and the
financing thereof. The Company will require substantial capital to finance its
growth and expects that it will incur substantial additional indebtedness from
time to time (including borrowings under the Credit Facility) for a variety of
purposes, including completing additional acquisitions, establishing new
rental locations and purchasing equipment. The Indenture and the agreements
governing the Company's existing indebtedness permit the Company and its
subsidiaries to incur additional debt, subject to certain limitations. See "--
Dependence on Additional Capital to Finance Growth," "Capitalization,"
"Selected Historical and Pro Forma Consolidated Financial Information,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources" and "Description of the Notes--
Certain Covenants--Limitation on Indebtedness."
The degree to which the Company is leveraged could have important
consequences to holders of the Notes, including, but not limited to, the
following: (i) a substantial portion of the Company's consolidated cash flow
from operations will be dedicated to the payment of the principal of and
interest on its debt and will not be available for other purposes, (ii) the
Company's ability to obtain additional financing in the future for
acquisitions, new rental locations, capital expenditures, general corporate
purposes or other purposes may be impaired, (iii) the Company is more
leveraged than certain of its competitors, which may place the Company at a
competitive disadvantage, (iv) a high degree of leverage may make the Company
more vulnerable to a downturn in its business or in the economy generally and
(v) certain of the Company's borrowings, including all borrowings under the
Credit Facility and the Term Loan, are or in the future may be at variable
interest rates which may make the Company vulnerable to increases in interest
rates.
The Company's ability to make scheduled payments of principal of, or to pay
interest on, or to refinance its debt (including the Notes) depends on its
future financial performance, which, to a certain extent, is subject to
general economic, financial, competitive, legislative, regulatory and other
factors beyond its control. There can be no assurance that the Company will
have sufficient cash from operations or other sources to service its debt
(including the Notes).
SUBORDINATION OF THE NOTES AND GUARANTEES; UNSECURED STATUS
The Notes will be general unsecured obligations of URI and will be
subordinated in right of payment to the prior payment in full of all existing
and future Senior Indebtedness of URI, including all amounts owing under the
Credit Facility and the Term Loan. The Guarantees will be general unsecured
obligations of the Guarantors and will be subordinated in right of payment to
all existing and future Guarantor Senior Indebtedness. URI's foreign
subsidiaries will not be Guarantors and, as a result, the Notes will be
effectively subordinated to all obligations of such subsidiaries, including
trade payables of such subsidiaries. At September 30, 1998, on a pro forma
basis (after giving effect to all acquisitions completed by the Company
subsequent to such date and the financing thereof), there was outstanding (i)
$519.9 million of Senior Indebtedness, (ii) $50.4 million of Guarantor Senior
Indebtedness (other than guarantees of URI's Senior Indebtedness), (iii) $14.3
million of obligations of subsidiaries that are not Guarantors (other than
obligations to URI) and (iv) $500.0 million of indebtedness that is pari passu
with the Notes. The Indenture will permit the Company and its subsidiaries to
incur additional debt, subject to certain limitations. As of December 15,
1998, the Company had approximately $464.3 million of borrowing capacity
available under the Credit Facility.
16
<PAGE>
The effect of such subordination provisions is that, (i) in the event of a
bankruptcy, liquidation, dissolution, reorganization or similar proceeding
with respect to URI, the assets of URI will be available to pay obligations on
the Notes only after all Senior Indebtedness has been paid in full and (ii) in
the event of any such occurrence with respect to a Guarantor, the assets of
such Guarantor will be available to pay obligations on the Guarantee of such
Guarantor only after all Guarantor Senior Indebtedness of such Guarantor has
been paid in full. In addition, no cash payments may be made with respect to
the Notes during the continuance of a payment default with respect to Senior
Indebtedness. Furthermore, under certain circumstances, no cash payments with
respect to the Notes may be made for a period of up to 179 days (during each
period of 360 days) if a non-payment default exists with respect to Senior
Indebtedness. There can be no assurance that, after the payment of all Senior
Indebtedness and Guarantor Senior Indebtedness, there will be sufficient
assets remaining to pay amounts due on all or any of the Notes.
The Indenture permits the Company to incur certain secured indebtedness,
including indebtedness under the Credit Facility and Term Loan which are
secured by a lien on substantially all the assets of the Company and the
Guarantors. If an event of default occurs under the Credit Facility or Term
Loan, the lenders thereunder will have the right to exercise the remedies
(such as foreclosure) available to a secured lender under applicable law and
the agreements governing the Credit Facility and Term Loan, as the case may
be. Since the Notes are unsecured, the effect of such security interest is to
give the lenders under the Credit Facility and Term Loan a prior claim on the
assets of the Company and the Guarantors, in addition to the priority that
they have by virtue of the subordination provisions described above.
RISKS ASSOCIATED WITH HOLDING COMPANY STRUCTURE
The Company derives all its operating income from its subsidiaries and, as
of September 30, 1998, approximately 99% of the Company's consolidated assets
were held by its subsidiaries. Consequently, the Company's ability to meet its
financial obligations, including its obligations under the Notes, the Credit
Facility, the Term Loan, the 9 1/2% Notes and the 9 1/4% Notes, is dependent
upon the earnings of such subsidiaries and the distribution or other payment
of such earnings to the Company. The ability of the Company's subsidiaries to
make distributions or other payments to the Company is limited by applicable
law generally governing the payment of dividends and other distributions by
corporations. Furthermore, although at present there are no contractual
restrictions that limit the ability of the Company's subsidiaries to make
distributions or other payments to the Company, certain of the Company's
subsidiaries may in the future become subject to loan or other agreements that
contain such restrictions.
POSSIBLE INABILITY TO REPURCHASE NOTES UPON CHANGE OF CONTROL
Upon the occurrence of a Change of Control, URI is required under certain
circumstances to offer to repurchase the Notes for cash at a price equal to
101% of the principal amount thereof, plus accrued and unpaid interest thereon
to the date of purchase. The same offer is also required to be made pursuant
to the indentures governing the 9 1/2% Notes and 9 1/4% Notes. There can be no
assurance, however, that URI would have sufficient cash to make such required
repurchase. Furthermore, the agreements governing the Credit Facility and the
Term Loan prohibit the Company from purchasing the Notes and future agreements
that the Company may enter into relating to Senior Indebtedness may contain a
similar prohibition. In the event that a Change of Control occurs at a time
when URI is prohibited from purchasing the Notes, URI could seek the consent
of its lenders to the purchase of the Notes or could attempt to refinance the
borrowings that contain such prohibition. If URI does not obtain such consent
or repay such borrowings, URI will remain prohibited from purchasing the
Notes. In such case, URI's failure to purchase Notes that are tendered
following a Change of Control would constitute an event of default under the
Indenture which would, in turn, constitute a default under the Credit Facility
and the Term Loan and could constitute a default under other Senior
Indebtedness. In such circumstances, the subordination provisions in the
Indenture would likely restrict payments to the Holders of the Notes.
17
<PAGE>
RESTRICTIVE COVENANTS
The Indenture and the agreements governing the Company's existing
indebtedness contain, and future agreements governing the Company's long-term
debt may also contain, certain restrictive financial and operating covenants
which affect, and in many respects significantly limit or prohibit, among
other things, the ability of the Company to incur indebtedness, make
prepayments of certain indebtedness, make investments, create liens, make
acquisitions, sell assets and engage in mergers and consolidations. These
covenants may significantly limit the operating and financial flexibility of
the Company and may limit its ability to respond to changes in its business or
competitive activities. The failure by the Company to comply with such
covenants could result in an event of default under the applicable instrument,
which could permit acceleration of the debt under such instrument and in some
cases acceleration of debt under other instruments that contain cross-default
or cross-acceleration provisions. See "Description of the Notes--Certain
Covenants" and "Description of the Notes--Events of Default."
FRAUDULENT TRANSFER CONSIDERATIONS
Various fraudulent conveyance laws enacted for the protection of creditors
may apply to the Guarantors' issuance of the Guarantees. To the extent that a
court were to find that (x) a Guarantee was incurred by a Guarantor with
actual intent to hinder, delay or defraud any present or future creditor or
(y) such Guarantor did not receive fair consideration or reasonably equivalent
value for issuing its Guarantee and such Guarantor (i) was insolvent, (ii) was
rendered insolvent by reason of the issuance of such Guarantee, (iii) was
engaged or about to engage in a business or transaction for which the
remaining assets of such Guarantor constituted unreasonably small capital to
carry on its business or (iv) intended to incur, or believed that it would
incur, debts beyond its ability to pay such debts as they matured, the court
could avoid such Guarantee or subordinate such Guarantee in favor of the
Guarantor's creditors. To the extent that the Guarantee of a Guarantor were
avoided as a fraudulent conveyance or held unenforceable for any other reason,
claims of Holders of the Notes against such Guarantor would be adversely
affected, Holders of the Notes would be solely creditors of URI and the other
Guarantors and the Notes would be effectively subordinated to all obligations
of such Guarantor. To the extent that the claims of the Holders of the Notes
against any Guarantor were subordinated in favor of other creditors of such
Guarantor, such other creditors would be entitled to be paid in full before
any payment could be made on the Notes. In the event that one or more of the
Guarantees is avoided or subordinated, there can be no assurance that after
providing for all prior claims there would be sufficient assets remaining to
satisfy the claims of Holders of the Notes.
Based upon financial and other information, the Company believes that the
Notes and the Guarantees are being incurred for proper purposes and in good
faith and that URI and each Guarantor is solvent and will continue to be
solvent after issuing the Notes or its Guarantee, as the case may be, will
have sufficient capital for carrying on its business after such issuance and
will be able to pay its debts as they mature. There can be no assurance,
however, that a court passing on such standards would agree with the
foregoing. Among other things, a legal challenge of a Guarantee on fraudulent
conveyance grounds may focus on the benefits, if any, realized by the
Guarantor as a result of the issuance by URI of the Notes.
CONSEQUENCES OF FAILURE TO EXCHANGE ORIGINAL NOTES
All Original Notes that remain outstanding upon consummation of the Exchange
Offer will continue to be subject to the restrictions on transfer provided for
in the Original Notes and the Indenture. In general, the Original Notes may
not be offered or sold unless registered under the Securities Act, except
pursuant to an exemption from, or in a transaction not subject to, the
registration requirements of the Securities Act. Upon consummation of the
Exchange Offer, the Holders of Original Notes will not have any further
registration rights under the Registration Rights Agreement (subject to
limited exceptions as described under "Registration Right Agreement--Shelf
Registration Statement"). To the extent that the Original Notes are tendered
and accepted in the Exchange Offer, the trading market for untendered Original
Notes could be adversely affected.
18
<PAGE>
EXCHANGE OFFER PROCEDURES
Issuance of the Exchange Notes for Original Notes pursuant to the Exchange
Offer will be made only after timely tender of the Original Notes in the
manner described under "The Exchange Offer--Procedure for Tendering."
Therefore, Holders desiring to tender their Original Notes pursuant to the
Exchange Offer should allow sufficient time to ensure timely tender of the
Original Notes. The Company is under no duty to give notification of defects
or irregularities with respect to tenders of Original Notes for exchange.
PROSPECTUS DELIVERY REQUIREMENTS APPLICABLE TO PARTICIPATING BROKER-DEALERS
A broker-dealer that receives Exchange Notes in exchange for Original Notes
that were acquired by it for its own account as a result of market-making
activities or other trading activities will be required to deliver a
prospectus meeting the requirements of the Securities Act in connection with
any resales by it of any such Exchange Notes. In order for a broker-dealer to
participate in the Exchange Offer, it must acknowledge that it will comply
with such prospectus delivery requirements. The Company's obligation to make
this Prospectus available to broker-dealers for use by them in connection with
resales of the Exchange Notes is limited (as described under "Registration
Rights Agreement--Certain Provisions Relating to Broker-Dealers").
Accordingly, there can be no assurance that a prospectus meeting the
requirements of the Securities Act will be available for use by broker-dealers
in connection with any proposed resale of Exchange Notes.
NEED TO MAKE REPRESENTATIONS IN ORDER TO PARTICIPATE IN EXCHANGE OFFER
In connection with any tender of Original Notes pursuant to the Exchange
Offer, the Book-Entry Holder of such Original Notes will be required to make
certain representations in the Letter of Transmittal, including that (i) it is
not an affiliate of the Company, (ii) it is not a broker-dealer that purchased
such Original Notes directly from the Company, (iii) any Exchange Notes that
it acquires in the Exchange Offer will be acquired by it in the ordinary
course of its business and (iv) it has no arrangement with any person to
participate in the distribution of the Exchange Notes; provided, however, that
if the Book-Entry Holder is a broker-dealer that wishes to exchange Original
Notes that were acquired by it for its own account as a result of market-
making activities or other trading activities, it may represent, in lieu of
the representation set forth in clause (iv) above, that it has no arrangement
or understanding with the Company, or any affiliate of the Company, to
participate in the distribution of the Exchange Notes. In addition, any Book-
Entry Holder that holds any Original Notes as nominee will be required to
confirm that the beneficial owner for which it is holding such Notes has made
the representations provided for in the preceding sentence. In the event that
any of the required representations is not true with respect to a Holder that
receives Exchange Notes pursuant to the Exchange Offer, the Exchange Notes
received by such Holder may be deemed to be restricted securities and, if so,
such Exchange Notes may not be offered or sold unless registered under the
Securities Act, except pursuant to an exemption from, or in a transaction not
subject to, the registration requirements of the Securities Act.
ABSENCE OF PUBLIC MARKET FOR THE EXCHANGE NOTES
The Exchange Notes are a new issue of securities for which there is
currently no trading market. The Company does not intend to apply for listing
of the Exchange Notes on any securities exchange or for quotation through the
Nasdaq National Market. Although the Initial Purchaser has informed the
Company that it currently intend to make a market in the Exchange Notes, it is
not obligated to do so and any such market making may be discontinued at any
time without notice. Accordingly, there can be no assurance as to the
development of any market for the Exchange Notes, the liquidity of any such
market that may develop, the ability of the Holders of the Exchange Notes to
sell their Exchange Notes or the price at which such Holders would be able to
sell their Exchange Notes. If a market were to exist, the Exchange Notes could
trade at prices that may be lower than the initial offering price of the
Original Notes for which they were exchanged, depending on many factors;
including prevailing interest rates and the markets for similar securities,
general economic conditions and the financial condition and performance of,
and prospects for, the Company.
19
<PAGE>
SENSITIVITY TO GENERAL ECONOMIC AND WEATHER CONDITIONS
The Company believes that the equipment rental business is sensitive to
changes in general economic conditions and may be temporarily disrupted by
adverse weather conditions. There can be no assurance that the Company's
business and financial condition will not be adversely affected by (i) changes
in general economic conditions, including changes in construction and
industrial activity, or increases in prevailing interest rates, or (ii)
adverse weather conditions that may temporarily decrease construction and
industrial activity in any one particular geographic area.
ACQUIRED COMPANIES NOT HISTORICALLY OPERATED AS A COMBINED BUSINESS
The Acquired Companies have been in existence an average of 29 years and
some have been in existence for more than 50 years. However, the businesses of
these companies have not historically been operated as a combined business and
there can be no assurance that the Company will be able to integrate
successfully the businesses of the Acquired Companies (or the businesses of
any companies acquired in the future), to operate them profitably on a
combined basis, or to manage effectively the combined business. Failure by the
Company to integrate successfully or manage effectively the Acquired Companies
could have a material adverse effect on the Company's results of operations
and financial condition.
LIMITED OPERATING HISTORY
The Company commenced equipment rental operations in October 1997 with the
acquisition of six well-established rental companies and has grown through a
combination of internal growth and the acquisition of 78 additional companies,
including the merger in September 1998 with U.S. Rentals. Due to the recent
commencement of the Company's operations, the Company has limited history upon
which an evaluation of the Company and its prospects can be based.
RISKS RELATING TO GROWTH STRATEGY
Principal components of the Company's growth strategy include continued
expansion through an ongoing acquisition program, the opening of start-up
locations, and internal growth. However, there can be no assurance that the
Company will successfully implement its growth strategy or that, if
implemented, such strategy will result in continued profitability. In
addition, under the terms of the Credit Facility, the Term Loan, the Indenture
and the indentures governing the 9 1/2% Notes and 9 1/4% Notes, the Company
may not make acquisitions unless certain financial conditions are satisfied or
the consent of the lenders is obtained. Furthermore, there can be no assurance
that the Company's growth rate will be comparable to the past or future growth
rate of the overall equipment rental industry or any segment thereof. The
Company's growth strategy involves a number of risks and uncertainties,
including:
Availability of Acquisition Targets and Sites for Start-up Locations. The
Company may encounter substantial competition in its efforts to identify and
acquire appropriate acquisition candidates and sites for start-up locations,
which could have the effect of increasing prices for acquisitions or such
sites. There can be no assurance that the Company will succeed in identifying
appropriate acquisition candidates or sites for start-up locations or that the
Company will be able to acquire any acquisition candidate or site that it does
identify on terms that are acceptable to the Company.
Need to Integrate New Operations. Realization of the anticipated benefits of
completed and future acquisitions will depend, in part, upon the efficient,
effective and timely integration of acquired operations. Accordingly, the
Company intends to continue to focus substantial efforts on the efficient
integration of new operations, the elimination of duplicative costs and the
reduction of overhead. There can be no assurance, however, that the Company
will be successful in these efforts or that these efforts may not in certain
circumstances adversely affect existing operations.
Certain Risks Related to Start-up Locations. The Company expects that start-
up locations may initially have a negative impact on results of operations and
margins due to several factors, including: (i) the Company will incur
significant start-up expenses in connection with establishing each start-up
location and (ii) it will generally take
20
<PAGE>
some time following the commencement of operations for a start-up location to
become profitable. Although start-ups can generate long-term growth, there can
be no assurance that any start-up location will become profitable within any
specific time period, if at all.
DEPENDENCE ON ADDITIONAL CAPITAL TO FINANCE GROWTH
The Company's growth strategy will require substantial capital investment.
Capital will be required by the Company for, among other purposes, completing
acquisitions, establishing new rental locations, integrating completed
acquisitions, acquiring rental equipment and maintaining the condition of its
rental equipment. The Company intends to pay for future acquisitions using
cash, Holdings capital stock, notes and/or assumption of indebtedness. To the
extent that cash generated internally and cash available under the Company's
borrowing facilities are not sufficient to fund the Company's capital
requirements, the Company and/or Holdings will require additional debt and/or
equity financing. There can be no assurance, however, that such financing will
be available or, if available, will be available on terms satisfactory to the
Company and Holdings. Failure by the Company to obtain sufficient additional
capital in the future could limit the Company's ability to implement its
business strategy. Future debt financings, if available, may result in
increased interest and amortization expense, increased leverage and decreased
income available to fund further acquisitions and expansion, and may limit the
Company's ability to withstand competitive pressures and render the Company
more vulnerable to economic downturns. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
POSSIBLE UNDISCOVERED LIABILITIES OF ACQUIRED COMPANIES
Although the Company performs a due diligence investigation of each business
that it acquires, there may nevertheless be liabilities of the Acquired
Companies or future acquired companies that the Company fails or is unable to
discover during its due diligence investigation and for which the Company, as
a successor owner, may be responsible. In connection with acquisitions, the
Company seeks to minimize the impact of these liabilities by obtaining
indemnities and warranties from the seller which may be supported by deferring
payment of a portion of the purchase price. However, these indemnities and
warranties, if obtained, may not fully cover the liabilities due to their
limited scope, amount, or duration, the financial limitations of the
indemnitor or warrantor, or other reasons.
DEPENDENCE ON MANAGEMENT
The Company is highly dependent upon its senior management team. The loss of
the services of any member of senior management may have a material adverse
effect on the Company. The agreements governing the Credit Facility and the
Term Loan provide that the failure of certain members of the Company's current
senior management to continue to hold executive positions with the Company for
a period of 30 consecutive days constitutes an event of default under the
Credit Facility and the Term Loan unless replacement officers satisfactory to
the lenders are appointed. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital
Resources." The Company does not presently maintain "key man" life insurance
with respect to members of senior management.
COMPETITION
The equipment rental industry is highly fragmented and competitive. The
Company's competitors include public companies or divisions of public
companies; regional competitors which operate in one or more states; small,
independent businesses with one or two rental locations; and equipment vendors
and dealers who both sell and rent equipment directly to customers. There can
be no assurance that the Company will not encounter increased competition from
existing competitors or new market entrants or that equipment manufacturers
will not commence, or increase their efforts, to rent or sell equipment
directly to the Company's customers. In addition, to the extent that
competitors seek to gain or retain market share by reducing prices, the
Company may be required to lower its prices, thereby affecting operating
results. See "Business--Competition."
21
<PAGE>
QUARTERLY FLUCTUATIONS OF OPERATING RESULTS
The Company expects that its revenues and operating results may fluctuate
from quarter to quarter due to a number of factors, including: seasonal rental
patterns of the Company's customers (with rental activity tending to be lower
in the winter); changes in general economic conditions in the Company's
markets; the timing of acquisitions and the opening of start-up locations
(which generally will require a period of time to become profitable) and
related costs; the effect of the integration of acquired businesses and start-
up locations; the timing of expenditures for new equipment and the disposition
of used equipment; and price changes in response to competitive factors. These
factors, among others, may result in the Company's results of operations in
some future period not meeting expectations, which could have a material
adverse impact on the price of the Notes.
LIABILITY AND INSURANCE
The Company is subject to various possible claims, including claims for
personal injury or death caused by equipment rented or sold by the Company or
motor vehicle accidents involving Company delivery and service personnel and
compensation and other employment related claims. The Company carries a broad
range of insurance for the protection of its assets and operations. However,
such coverage is subject to a deductible of $1,000,000 and limited to a
maximum of $97 million per occurrence. In addition, the Company does not
maintain insurance coverage for environmental liability, since the Company
believes that the cost for such coverage is high relative to the benefit that
it provides. Furthermore, certain types of claims, such as claims for punitive
damages or for damages arising from intentional misconduct, which are often
alleged in third party lawsuits, might not be covered by the Company's
insurance. There can be no assurance that insurance will continue to be
available to the Company on economically reasonable terms, if at all, that
existing or future claims will not exceed the level of the Company's insurance
or relate to matters not covered by the Company's insurance (such as
environmental liability), or that the Company will have sufficient capital
available to pay any uninsured claims.
ENVIRONMENTAL AND SAFETY REGULATIONS
The Company's equipment, facilities and operations are subject to certain
federal, state and local laws and regulations relating to environmental
protection and occupational health and safety. These include, among other
things, laws and regulations governing wastewater discharges, the use,
treatment, storage and disposal of solid and hazardous wastes and materials,
air quality and the remediation of contamination associated with the release
of hazardous substances. Under such laws, an owner or lessee of real estate
may be liable for, among other things, (i) the costs of removal or remediation
of certain hazardous or toxic substances located on, in, or emanating from,
such property, as well as related costs of investigation and property damage
and substantial penalties for violations of such laws, and (ii) environmental
contamination at facilities where its waste is or has been disposed. Such laws
often impose such liability without regard to whether the owner or lessee knew
of, or was responsible for, the presence of such hazardous or toxic
substances. The activities of the Company that are or may be impacted by these
laws include, but are not limited to, the use of hazardous materials to clean
and maintain equipment and the disposal of solid and hazardous waste and
wastewater from equipment washing. In addition, the Company dispenses
petroleum products from underground and above-ground storage tanks located at
certain rental locations and is required from time to time to remove or
upgrade tanks in order to comply with applicable laws. Furthermore, the
Company has acquired or leased certain locations which have or may have been
contaminated by leakage from underground tanks or other sources and is in the
process of assessing the nature of the required remediation. Based on the
conditions currently known to the Company, the Company believes that any
unreserved environmental remediation and compliance costs required with
respect to those conditions will not have a material adverse affect on the
Company. However, there can be no assurance that the Company will not identify
adverse environmental conditions that are not currently known to it, that all
potential releases from underground storage tanks removed in the past have
been identified, or that environmental and safety requirements will not become
more stringent or be interpreted and applied more stringently in the future.
The identification of such adverse environmental conditions or such future
changes or interpretations could result
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in additional environmental compliance or remediation costs not currently
anticipated by the Company, which depending on the magnitude of the cost could
have a material adverse effect on the Company.
CONCENTRATED CONTROL
The executive officers and directors of Holdings own in the aggregate shares
of Common Stock which represent approximately 54.8% of the outstanding Common
Stock on a pro forma basis giving effect to the exercise of all currently
exercisable options and warrants owned by such executive officers and
directors (57.6% giving effect to the exercise of all options and warrants,
including options and warrants that are not currently exercisable). Such share
ownership may effectively give such persons the ability to elect the entire
Board of Directors of Holdings and to control the Company's management and
affairs.
RISKS RELATED TO INTERNATIONAL OPERATIONS
The Company's operations outside the United States are subject to risks
normally associated with international operations, including currency
conversion risks and complying with foreign laws.
YEAR 2000 ISSUES
The Company has been informed by its software vendors that the Company's new
information technology system is year 2000 compliant. The Company has,
therefore, not developed any contingency plans relating to year 2000 issues
and has not budgeted any funds for year 2000 issues. Although the Company
believes that its system is year 2000 compliant, there can be no assurance
that unanticipated year 2000 problems will not arise which, depending on the
nature and magnitude of the problem, could have a material adverse effect on
the Company's business and financial condition. Furthermore, year 2000
problems involving third parties may have a negative impact on the Company's
customers or suppliers, the general economy or on the ability of businesses
generally to receive essential services (such as telecommunications, banking
services, etc.). Any such occurrence could have a material adverse effect on
the Company's business and financial condition.
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THE EXCHANGE OFFER
The following summary of certain terms of the Exchange Offer is qualified in
its entirety by reference to the full text of the documents underlying the
Exchange Offer, including the Letter of Transmittal and the Registration
Rights Agreement, copies of which are filed as exhibits to the Registration
Statement of which this Prospectus is a part.
Participation in the Exchange Offer is voluntary, and holders of Original
Notes should carefully consider whether to accept. Holders of Original Notes
are urged to consult their financial and tax advisors in making their decision
on what action to take.
PURPOSE OF THE EXCHANGE OFFER; EFFECT ON HOLDERS OF ORIGINAL NOTES
The Exchange Offer is being made in order to satisfy certain of URI's
obligations under the Registration Rights Agreement. See "Registration Rights
Agreement."
Upon consummation of the Exchange Offer, the holders of Original Notes will
not have any further registration rights under the Registration Rights
Agreement (subject to limited exceptions as described under "Registration
Right Agreement--Shelf Registration Statement"). Holders of the Original Notes
who do not tender their Original Notes in the Exchange Offer will continue to
hold such Original Notes and will be entitled to all the rights and will be
subject to all the limitations applicable thereto under the Indenture. All
Original Notes that remain outstanding upon consummation of the Exchange Offer
will continue to be subject to the restrictions on transfer provided for in
the Original Notes and the Indenture. In general, the Original Notes may not
be offered or sold unless registered under the Securities Act, except pursuant
to an exemption from, or in a transaction not subject to, the registration
requirements of the Securities Act. To the extent that the Original Notes are
tendered and accepted in the Exchange Offer, the trading market for untendered
Original Notes could be adversely affected.
REQUIRED REPRESENTATIONS
In connection with any tender of Original Notes pursuant to the Exchange
Offer, the Book-Entry Holder of such Original Notes will be required to make
certain representations in the Letter of Transmittal, including that (i) it is
not an affiliate of URI, (ii) it is not a broker-dealer that purchased such
Original Notes directly from URI, (iii) any Exchange Notes that it acquires in
the Exchange Offer will be acquired by it in the ordinary course of its
business and (iv) it has no arrangement with any person to participate in the
distribution of the Exchange Notes; provided, however, that if the Book-Entry
Holder is a broker-dealer that wishes to tender Original Notes that were
acquired by it for its own account as a result of market-making activities or
other trading activities, it may represent, in lieu of the representation set
forth in clause (iv), that it has no arrangement or understanding with URI, or
any affiliate of URI, to participate in the distribution of the Exchange
Notes. In addition, a Book-Entry Holder that holds any Original Notes as
nominee, will be required to confirm that the beneficial owner for which it is
holding such Original Notes has made the representations provided for in the
preceding sentence.
RESALE OF EXCHANGE NOTES
Based on interpretations by the staff of the Commission set forth in no-
action letters issued to third parties, URI believes that (except as provided
in the following two paragraphs) the Exchange Notes issued pursuant to the
Exchange Offer may be offered for resale, resold or otherwise transferred by
any Holder thereof (other than an affiliate of URI) without compliance with
the registration and prospectus delivery provisions of the Securities Act
(subject to the representations set forth under "--Required Representations"
being made and being accurate).
Any broker-dealer that receives Exchange Notes in exchange for Original
Notes that were acquired by it for its own account as a result of market-
making activities or other trading activities, must deliver a prospectus
meeting the requirements of the Securities Act in connection with any resales
by it of any such Exchange Notes.
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This Prospectus, as it may be amended or supplemented from time to time, may,
if permitted by URI, be used by a broker-dealer in order to satisfy such
prospectus delivery requirements. URI has agreed in the Registration Rights
Agreement that, for a period of 30 days following consummation of the Exchange
Offer (subject to extension under certain circumstances described under
"Registration Rights Agreement"), it will make this Prospectus available to
any broker-dealer for use in connection with any such resale (subject to the
right of URI to restrict the use of this Prospectus under certain
circumstances). Each broker-dealer that participates in the Exchange Offer
will be required to confirm that it will comply with the prospectus delivery
requirements described above. A broker-dealer that delivers a prospectus in
connection with the resale of any Exchange Notes will be subject to certain of
the civil liability provisions under the Securities Act. See "Registration
Rights Agreement" and "Plan of Distribution."
In the event that any of the required representations set forth under "--
Required Representations" is not true with respect to a Holder that receives
Exchange Notes pursuant to the Exchange Offer, the Exchange Notes received by
such Holder may be deemed to be restricted securities and, if so, such
Exchange Notes may not be offered or sold unless registered under the
Securities Act, except pursuant to an exemption from, or in a transaction not
subject to, the registration requirements of the Securities Act.
The conclusions set forth in the preceding three paragraphs are based on
interpretations by the Staff of the Commission set forth in no-action letters
issued to third parties. URI does not intend to seek its own no-action letter
with respect to the Exchange Offer and there is no assurance that the Staff of
the Commission would make a similar determination with respect to the Exchange
Offer as it has in such no-action letters to third parties.
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this Prospectus
and in the accompanying Letter of Transmittal, URI will accept for exchange
all Original Notes properly tendered and not withdrawn prior to 5:00 p.m., New
York City time, on the Expiration Date. URI will issue $1,000 principal amount
of Exchange Notes in exchange for each $1,000 principal amount of outstanding
Original Notes accepted in the Exchange Offer. Holders may tender some or all
of their Original Notes pursuant to the Exchange Offer in denominations of
$1,000 and integral multiples thereof. The Exchange Offer is not conditioned
upon any minimum aggregate principal amount of Original Notes being tendered.
The terms of the Exchange Notes will be the same in all material respects as
the Original Notes except that (i) the Exchange Notes will be registered under
the Securities Act, and, therefore, will not bear legends restricting the
transfer thereof and (ii) certain of the registration rights, under the
Registration Rights Agreement, relating to the Exchange Notes are different
than those relating to the Original Notes and, therefore, the defaults under
the Registration Rights Agreement that may require URI to pay additional
interest will be different for the Exchange Notes and the Original Notes. See
"Registration Rights Agreement--Certain Provisions Relating to Additional
Interest." The Exchange Notes will evidence the same debt as the Original
Notes and both series of Notes will be entitled to the benefits of the
Indenture and treated as a single class of debt securities.
In connection with the issuance of the Original Notes, URI arranged for the
Original Notes to be issued and transferable in book-entry form through the
facilities of DTC, acting as depositary. The Exchange Notes will also be
issuable and transferable in book-entry form through DTC. See "Description of
the Notes--Book Entry; Delivery and Form."
URI shall be deemed to have accepted validly tendered Original Notes when,
as and if URI has given oral or written notice thereof to the Exchange Agent.
The Exchange Agent will act as agent for the tendering Holders of Original
Notes for the purposes of receiving the Exchange Notes from URI and delivering
Exchange Notes to such Holders. URI's obligation to accept Original Notes for
exchange pursuant to the Exchange Offer is subject to certain customary
conditions as set forth under "--Conditions."
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If any tendered Original Notes are not accepted for exchange because of an
invalid tender or the occurrence of certain other events set forth herein,
such unaccepted Original Notes will be returned, without expense, to the
tendering Holder thereof as promptly as practicable after the Expiration Date.
Holders of Original Notes who tender pursuant to the Exchange Offer will not
be required to pay brokerage commissions or fees or, subject to the
instructions in the Letter of Transmittal, transfer taxes with respect to the
exchange of Original Notes pursuant to the Exchange Offer. URI will pay all
charges and expenses, other than certain applicable taxes, in connection with
the Exchange Offer. See "--Solicitation of Tenders; Fees and Expenses."
Holders do not have appraisal or dissenters' rights under the Delaware
General Corporation Law or under the Indenture in connection with the Exchange
Offer. URI intends to conduct the Exchange Offer in accordance with the
applicable requirements of Regulation 14E under the Exchange Act.
NEITHER THE BOARD OF DIRECTORS OF THE COMPANY NOR THE COMPANY MAKES ANY
RECOMMENDATION TO HOLDERS OF ORIGINAL NOTES AS TO WHETHER TO TENDER OR REFRAIN
FROM TENDERING ALL OR ANY PORTION OF THEIR ORIGINAL NOTES PURSUANT TO THE
EXCHANGE OFFER. MOREOVER, NO ONE HAS BEEN AUTHORIZED TO MAKE ANY SUCH
RECOMMENDATION. HOLDERS OF ORIGINAL NOTES MUST MAKE THEIR OWN DECISION WHETHER
TO TENDER PURSUANT TO THE EXCHANGE OFFER AND, IF SO, THE AGGREGATE AMOUNT OF
ORIGINAL NOTES TO TENDER, AFTER READING THIS PROSPECTUS AND THE LETTER OF
TRANSMITTAL AND CONSULTING WITH THEIR ADVISORS, IF ANY, BASED ON THEIR OWN
FINANCIAL POSITION AND REQUIREMENTS.
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The Exchange Offer will remain open for acceptance for a period of not less
than 20 business days after the date notice of the Exchange Offer is mailed to
holders of the Original Notes (or longer if required by applicable law). The
Expiration Date will be 5:00 p.m., New York City time, on , 1999,
unless URI, in its sole discretion, extends the Exchange Offer, in which case
the Expiration Date will be the latest business day to which the Exchange
Offer is extended. In order to extend the Expiration Date, URI will notify the
Exchange Agent of any extension by oral or written notice and will mail to the
record holders an announcement thereof, each prior to 9:00 a.m., New York City
time, on the next business day after the previously scheduled Expiration Date.
During any such extension, all Original Notes previously tendered and not
withdrawn as herein provided will remain subject to the Exchange Offer and may
be accepted for exchange by URI.
INTEREST ON THE EXCHANGE NOTES
Interest on the Notes is payable semi-annually on February 15 and August 15
of each year at the rate of 8.80% per annum. The Exchange Notes will bear
interest from and including the last interest payment date on the Original
Notes (or, if none has yet occurred, the date of issuance of such Original
Notes). Accordingly, Holders of Original Notes that are accepted for exchange
will not receive interest that is accrued but unpaid on the Original Notes at
the time of tender, but such interest will be payable in respect of the
Exchange Notes delivered in exchange for such Original Notes on the first
interest payment date after the Expiration Date.
PROCEDURES FOR TENDERING
Only a Book-Entry Holder of Original Notes may tender such Original Notes
pursuant to the Exchange Offer. To tender any Original Notes pursuant to the
Exchange Offer, the Book-Entry Holder of such Original Notes must make book-
entry delivery of such Original Notes by causing DTC to transfer such Original
Notes to the account of the Exchange Agent at DTC in accordance with DTC's
Automated Tender Offer Program ("ATOP") prior to 5:00 p.m., New York City
time, on the Expiration Date. In addition, either (i) DTC must deliver an
Agent's Message (as defined below) prior to 5:00 p.m., New York City time, on
the Expiration Date,
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indicating that DTC has received from such Book-Entry Holder an express
acknowledgment that such Book-Entry Holder has received and agrees to be bound
by the terms of the Letter of Transmittal or (ii) such Book-Entry Holder must
complete, sign and date the Letter of Transmittal or a facsimile thereof, in
accordance with the instructions contained herein and therein and deliver such
Letter of Transmittal, or such facsimile, and any other required documentation
to the Exchange Agent at the address set forth herein prior to 5:00 p.m., New
York City time, on the Expiration Date. DELIVERY OF DOCUMENTS TO DTC DOES NOT
CONSTITUTE DELIVERY TO THE EXCHANGE AGENT.
The term "Agent's Message" means a message transmitted by DTC to, and
received by, the Exchange Agent and forming part of the book-entry
confirmation relating to a book-entry transfer of Original Notes through ATOP,
which states that DTC has received an express acknowledgment from the DTC
Participant that is tendering the Original Notes which are the subject of such
book entry confirmation, that such DTC Participant has received and agrees to
be bound by the terms of the Letter of Transmittal.
The tender by a holder of Original Notes and the acceptance thereof by URI
will constitute an agreement between such holder and URI in accordance with
the terms and subject to the conditions set forth herein and in the Letter of
Transmittal.
THE METHOD OF DELIVERY OF THE LETTER OF TRANSMITTAL AND ALL OTHER REQUIRED
DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND RISK OF THE HOLDER.
INSTEAD OF DELIVERY BY MAIL, IT IS RECOMMENDED THAT HOLDERS USE AN OVERNIGHT
OR HAND DELIVERY SERVICE. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO
ASSURE TIMELY DELIVERY TO THE EXCHANGE AGENT BEFORE THE EXPIRATION DATE. NO
LETTER OF TRANSMITTAL SHOULD BE SENT TO THE COMPANY.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance of tendered Original Notes and withdrawal of tendered
Original Notes will be determined by URI in its sole discretion, which
determination will be final and binding. URI reserves the absolute right to
reject any and all Original Notes not properly tendered or any Original Notes
URI's acceptance of which would, in the opinion of counsel for URI, be
unlawful. URI also reserves the right to waive any irregularities or
conditions of tender as to particular Original Notes. URI's interpretation of
the terms and conditions of the Exchange Offer (including the instructions in
the Letter of Transmittal) will be final and binding on all parties. Unless
waived, any defects or irregularities in connection with tenders of Original
Notes must be cured within such time as URI shall determine. Neither URI, the
Exchange Agent nor any other person shall be under any duty to give
notification of defects or irregularities with respect to tenders of Original
Notes, nor shall any of them incur any liability for failure to give such
notification. Tenders of Original Notes will not be deemed to have been made
until such irregularities have been cured or waived. Any Original Notes
received by the Exchange Agent that are not properly tendered or the tender of
which is otherwise rejected by URI and as to which the defects or
irregularities have not been cured or waived will be returned by the Exchange
Agent to the Book-Entry Holder that tendered such Original Notes (by crediting
an account maintained at DTC designated by such Book-Entry Holder) as soon as
practicable following the Expiration Date.
WITHDRAWAL OF TENDERS
Except as otherwise provided herein, tenders of Original Notes may be
withdrawn at any time prior to 5:00 p.m., New York City time, on the
Expiration Date.
To withdraw a tender of Original Notes pursuant to the Exchange Offer, the
Book-Entry Holder that tendered such Original Notes must, prior to 5:00 p.m.,
New York City time, on the Expiration Date, either (i) withdraw such tender in
accordance with the appropriate procedures of the ATOP system or (ii) deliver
to the Exchange Agent a written or facsimile transmission notice of withdrawal
at the address set forth herein. Any such notice of withdrawal must contain
the name and number of the Book-Entry Holder, the amount of Original Notes to
which such withdrawal relates, the account at DTC to be credited with the
withdrawn Original Notes
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<PAGE>
and the signature of the Book-Entry Holder. All questions as to the validity,
form and eligibility (including time of receipt) of such withdrawal notices
will be determined by URI in its sole discretion, whose determination will be
final and binding on all parties. Any Original Notes so withdrawn will be
deemed not to have been validly tendered for purposes of the Exchange Offer,
and no Exchange Notes will be issued with respect thereto unless the Original
Notes so withdrawn are validly retendered. Any Original Notes which have been
tendered but which are withdrawn will be returned by the Exchange Agent to the
Book-Entry Holder that tendered such Original Notes (by crediting an account
maintained at DTC designated by such Book-Entry Holder) as soon as practicable
after withdrawal. Properly withdrawn Original Notes may be retendered at any
time prior to the Expiration Date by following the procedures described under
"--Procedures for Tendering."
CONDITIONS
Notwithstanding any other term of the Exchange Offer, URI shall not be
required to accept for exchange, or to exchange Exchange Notes for, any
Original Notes, and may terminate or amend the Exchange Offer as provided
herein before the acceptance of such Original Notes, if:
(a) any action or proceeding is instituted or threatened in any court or by
or before any governmental agency or regulatory authority or any
injunction, order or decree is issued with respect to the Exchange
Offer which, in the sole judgment of URI, might impair the ability of
URI to proceed with the Exchange Offer; or
(b) any law, statute, rule, regulation or interpretation by the Staff of
the Commission is proposed, adopted or enacted, which, in the
reasonable judgment of URI, might materially impair the ability of URI
to proceed with the Exchange Offer; or
(c) there shall have been proposed, adopted or enacted any law, statute,
rule or regulation (or an amendment to any existing law, statute, rule
or regulation) which, in the sole judgment of URI, might materially
impair the ability of URI to proceed with the Exchange Offer.
If URI determines in its reasonable judgment that any of the conditions set
forth above are not satisfied, URI may (i) terminate the Exchange Offer and
refuse to accept any Original Notes and return all tendered Original Notes to
the tendering Holders, (ii) extend the Exchange Offer and retain all Original
Notes tendered prior to the expiration of the Exchange Offer subject, however,
to the rights of Holders to withdraw such Original Notes (see "--Withdrawals
of Tenders") or (iii) waive such unsatisfied conditions with respect to the
Exchange Offer and accept all properly tendered Original Notes which have not
been withdrawn. Moreover, regardless of whether any of such conditions has
occurred, URI may amend the Exchange Offer in any manner which, in its good
faith judgment, is advantageous to holders of the Original Notes.
The foregoing conditions are for the sole benefit of URI and may be asserted
by URI regardless of the circumstances giving rise to any such condition or
may be waived by URI in whole or in part at any time and from time to time in
its sole discretion. The failure by URI at any time to exercise any of the
foregoing rights shall not be deemed a waiver of any such right, and each such
right shall be deemed an ongoing right which may be asserted at any time and
from time to time. If a waiver constitutes a material change in the Exchange
Offer, URI will disclose such change by means of a supplement to this
Prospectus that will be distributed to each Book-Entry Holder, and URI will
extend the Exchange Offer for a period of five to ten business days, depending
upon the significance of the waiver and the manner of disclosure to the Book-
Entry Holders, if the Exchange Offer would otherwise expire during such
period. Any determination by URI concerning the events described above will be
final and binding upon all parties.
In addition, URI will not accept for exchange any Original Notes tendered,
and no Exchange Notes will be issued in exchange for any such Original Notes,
if at such time any stop order shall be threatened or in effect with respect
to the Registration Statement of which this Prospectus is a part or if the
Indenture is not qualified
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under the Trust Indenture Act of 1939, as amended. URI is required to use
every reasonable effort to obtain the withdrawal of any such stop order at the
earliest possible time.
The Exchange Offer is not conditioned upon any minimum principal amount of
Original Notes being tendered for exchange.
EXCHANGE AGENT
State Street Bank and Trust Company, the Trustee under the Indenture, has
been appointed as Exchange Agent for the Exchange Offer. In such capacity, the
Exchange Agent has no fiduciary duties to the Holders of the Notes and will be
acting solely on the basis of directions of the Company. All executed Letters
of Transmittal must be directed to the Exchange Agent at the applicable
address set forth below. Questions and requests for assistance and requests
for additional copies of this Prospectus or the Letter of Transmittal should
be directed to the Exchange Agent addressed as follows:
By Mail: By Facsimile By Overnight or Hand
Transmission:
(registered or certified Delivery:
recommended) (for Eligible
State Street Bank and Institutions only) State Street Bank and
Trust Company Trust Company
Corporate Trust (617) 664-5290 Corporate Trust
Department Attention: Kellie Mullen Department
P.O. Box 778 Confirm by Telephone: Two International Plaza
Boston, MA 02102-0078 (617) 664-5587 Boston, MA 02110-0078
Attention: Kellie Mullen Fourth Floor
Attention: Kellie Mullen
DELIVERY OF THE LETTER OF TRANSMITTAL TO AN ADDRESS OR FACSIMILE NUMBER
OTHER THAN SET FORTH ABOVE WILL NOT CONSTITUTE A VALID DELIVERY.
SOLICITATION OF TENDERS; FEES AND EXPENSES
The expenses of soliciting tenders pursuant to the Exchange Offer will be
borne by URI. The principal solicitation for tenders pursuant to the Exchange
Offer is being made by mail; however, additional solicitations may be made by
telegraph, facsimile, telephone or in person by officers and regular employees
of URI and its affiliates.
URI has not retained any dealer-manager in connection with the Exchange
Offer and will not make any payments to brokers, dealers or other persons
soliciting acceptances of the Exchange Offer. URI will, however, pay the
Exchange Agent reasonable and customary fees for its services and will
reimburse the Exchange Agent for its reasonable out-of-pocket expenses in
connection therewith and pay other expenses of the Exchange Offer, including
fees and expenses of the Trustee, filing fees, blue sky fees, accounting and
legal fees and printing and distribution expenses. URI may also pay brokerage
houses and other custodians, nominees and fiduciaries the reasonable out-of-
pocket expenses incurred by them in forwarding copies of this Prospectus,
Letters of Transmittal and related documents to the beneficial owners of the
Original Notes and in handling or forwarding tenders for exchange.
URI will pay all transfer taxes, if any, applicable to the exchange of
Original Notes pursuant to the Exchange Offer. If, however, Exchange Notes or
Original Notes for principal amounts not tendered or accepted for exchange are
to be delivered to, or are to be registered or issued in the name of, any
person other than the Book-Entry Holder of the Original Notes tendered, or if
a transfer tax is imposed for any reason other than the exchange of Original
Notes pursuant to the Exchange Offer, then the amount of any such transfer
taxes (whether imposed on the Book-Entry Holder or any other persons) will be
payable by the tendering Holder. If satisfactory evidence of payment of such
taxes or exemption therefrom is not submitted with the Letter of Transmittal,
the amount of such transfer taxes will be billed directly to such tendering
Holder.
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ACCOUNTING TREATMENT
The Exchange Notes will be recorded at the same carrying value as the
Original Notes for which they are exchanged, which is the aggregate principal
amount of the Original Notes, as reflected in URI's accounting records on the
date of exchange. Accordingly, no gain or loss for accounting purposes will be
recognized in connection with the Exchange Offer. The cost of the Exchange
Offer will be deferred and amortized over the term of the Exchange Notes.
OTHER
URI may in the future seek to acquire untendered Original Notes, to the
extent permitted by applicable law, in open market or privately negotiated
transactions, through subsequent exchange offers or otherwise. URI has no
present plans to acquire any Original Notes that are not tendered in the
Exchange Offer or to file a registration statement to permit resales of any
untendered Original Notes.
CERTAIN U.S. FEDERAL INCOME TAX CONSIDERATIONS
The following is a general discussion of certain U.S. federal income tax
consequences of the Exchange Offer. This discussion is based on the current
provisions of the Internal Revenue Code of 1986, as amended (the "Code"),
applicable Treasury regulations, judicial authority and administrative rulings
and practice. This discussion is generally limited to the tax consequences to
Holders that hold the Exchange Notes as capital assets (within the meaning of
Section 1221 of the Code). There can be no assurance that the Internal Revenue
Service (the "Service") will not take a contrary view, and no ruling from the
Service has been or will be sought. Legislative, judicial or administrative
changes or interpretations may be forthcoming that could alter or modify the
statements and conditions set forth herein. Any such changes or
interpretations may or may not be retroactive and could affect the tax
consequences to Holders. Certain Holders, including insurance companies, tax-
exempt organizations, financial institutions, broker-dealers, foreign
corporations and persons who are not citizens or residents of the United
States, may be subject to special rules not discussed below.
For U.S. federal income tax purposes, the exchange of Original Notes for
Exchange Notes pursuant to the Exchange Offer should not be treated as a
taxable transaction for federal income tax purposes. As a result, there should
be no federal income tax consequences to Holders exchanging Original Notes for
Exchange Notes pursuant to the Exchange Offer. A Holder should have the same
adjusted basis and holding period in an Exchange Note as it had in an Original
Note immediately prior to the exchange.
THE FOREGOING DISCUSSION IS BASED ON THE PROVISIONS OF THE CODE,
REGULATIONS, TREASURY REGULATIONS, RULINGS AND JUDICIAL DECISIONS NOW IN
EFFECT, ALL OF WHICH ARE SUBJECT TO CHANGE. ANY SUCH CHANGES MAY BE APPLIED
RETROACTIVELY IN A MANNER THAT COULD ADVERSELY AFFECT HOLDERS EXCHANGING
NOTES. EACH HOLDER OF NOTES SHOULD CONSULT ITS OWN TAX ADVISOR WITH RESPECT TO
THE TAX CONSEQUENCES TO IT, INCLUDING THE TAX CONSEQUENCES UNDER STATE, LOCAL,
FOREIGN AND OTHER TAX LAWS, OF EXCHANGING ORIGINAL NOTES FOR EXCHANGE NOTES
PURSUANT TO THE EXCHANGE OFFER.
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REGISTRATION RIGHTS AGREEMENT
In connection with the issuance of the Original Notes, the Company entered
into a Registration Rights Agreement with the Initial Purchaser (the
"Registration Rights Agreement"). Set forth below is a summary of certain
provisions of the Registration Rights Agreement. Such summary does not purport
to be complete and is subject to, and is qualified in its entirety by
reference to, all the provisions of the Registration Rights Agreement, a copy
of which is filed as an exhibit to the Registration Statement of which this
Prospectus forms a part.
EXCHANGE OFFER
The Registration Rights Agreement provides that the Company is obligated to
(unless applicable law or Commission policy does not permit) (i) on or prior
to 90 days after the date (the "Issue Date") the Original Notes were
originally issued, file a registration statement (the "Exchange Registration
Statement") with the Commission with respect to an offer to exchange the
Original Notes for Exchange Notes, (ii) use its best efforts to cause the
Exchange Registration Statement to become effective under the Securities Act
on or prior to 150 days after the Issue Date, (iii) commence the exchange
offer contemplated by the Exchange Registration Statement promptly after the
registration statement is declared effective by the Commission and keep such
exchange offer open for acceptance for a period (the "Exchange Period") of 20
business days after the date notice of the exchange offer is mailed to the
holders of the Original Notes (or for such longer period as may be required by
law), (iv) use its best efforts to issue, promptly after the end of the
Exchange Period, Exchange Notes in exchange for all Original Notes that have
been properly tendered for exchange during the Exchange Period and (v) use its
best efforts to maintain the effectiveness of the Exchange Registration
Statement during the Exchange Period and thereafter until such time as the
Company has issued Exchange Notes in exchange for all Original Notes that have
been properly tendered for exchange during the Exchange Period. The exchange
offer contemplated by the Registration Rights Agreement will be deemed
consummated, for purposes of the Registration Rights Agreement, if the Company
makes such offer, such offer remains open for Exchange Period, and the Company
issues Exchange Notes in respect of all Original Notes that are properly
tendered during the Exchange Period.
The Exchange Offer being made hereby is intended to satisfy the Company's
obligations under the Registration Rights Agreement described in the preceding
paragraph.
SHELF REGISTRATION STATEMENT
If (i) the Company is not permitted to file the Exchange Registration
Statement or to consummate the exchange offer contemplated by the Registration
Rights Agreement because such offer is not permitted by applicable law or
Commission policy; (ii) for any other reason, the exchange offer contemplated
by the Registration Rights Agreement is not consummated within 180 days after
the Issue Date of the Original Notes; (iii) any holder of Original Notes or
Exchange Notes notifies the Company prior to the 20th day following
consummation of the Exchange Offer that (a) due to a change in law or policy
such holder is not entitled to participate in the Exchange Offer, (b) due to a
change in law or policy such holder may not resell the Exchange Notes acquired
by it in the Exchange Offer to the public without delivering a prospectus and
the prospectus contained in the Exchange Registration Statement is not
appropriate or available for such resales by such holder or (c) such holder is
a broker-dealer and owns Original Notes acquired directly from the Company or
an affiliate of the Company; or (iv) the holders of a majority in aggregate
principal amount of the Original Notes are not eligible to participate in the
Exchange Offer and to receive Exchange Notes that they may resell to the
public without restriction under the Securities Act and without restriction
under applicable blue sky or state securities laws, then the Company is
required to file with the Commission a shelf registration statement ("Shelf
Registration Statement") to cover resales of the Transfer Restricted Notes (as
defined below) by the holders thereof.
If the Company is required to file the Shelf Registration Statement as
described in the preceding paragraph, the Company is obligated (i) to use its
best efforts to file the Shelf Registration Statement on or prior to the 90th
day after such filing obligation arises (except that, if the obligation to
file the Shelf Registration Statement arises because the exchange offer
contemplated by the Registration Rights Agreement has not been consummated
within 180 days after the Issue Date, then the Company will use its best
efforts to file the Shelf Registration
31
<PAGE>
Statement on or prior to the 30th day after such filing obligation arises),
(ii) following the filing of the Shelf Registration Statement, to use its best
efforts to cause the Shelf Registration Statement to be declared effective by
the Commission on or prior to the 150th day after such filing obligation
arises and (iii) after the Shelf Registration Statement is declared effective
by the Commission, to use its best efforts to keep such Shelf Registration
Statement continuously effective, supplemented and amended (including through
a post-effective amendment on Form S-3 when the Company becomes eligible to
file such Form) until the second anniversary of the effective date of the
Shelf Registration Statement or such shorter period that will terminate when
all the Transfer Restricted Notes covered by the Shelf Registration Statement
have been sold pursuant thereto.
The term "Transfer Restricted Notes" means (i) each Original Note and (ii)
each Exchange Note that is issued to a broker-dealer in exchange for Original
Notes that were acquired by such broker-dealer for its own account as a result
of market-making activities or other trading activities; provided, however,
that a Note shall cease to be a Transfer Restricted Note when (a) such Note
has been effectively registered under the Securities Act and disposed of in
accordance with the Shelf Registration Statement or Broker Shelf Registration
Statement (as defined herein), or (b) such Note is eligible for distribution
to the public pursuant to Rule 144(k) under the Securities Act (or any similar
provision then in force, but not Rule 144A under the Securities Act), or (c)
such Note shall have been otherwise transferred by the holder thereof and a
new Note not bearing a legend restricting further transfer shall have been
delivered by the Company and subsequent disposition of such Note shall not
require registration or qualification under the Securities Act or any similar
state law then in force, or (d) such Note ceases to be outstanding or (e) in
the case of an Exchange Note that is a Transfer Restricted Note, such Exchange
Note is sold to a purchaser who receives from the seller on or prior to the
date of such sale a copy of the prospectus contained in the Exchange
Registration Statement, as amended or supplemented.
CERTAIN PROVISIONS RELATING TO BROKER-DEALERS
A broker-dealer (a "Participating Broker-Dealer") that receives Exchange
Notes in exchange for Original Notes that were acquired by it for its own
account as a result of market-making activities or other trading activities,
will be required to deliver a prospectus meeting the requirements of the
Securities Act in connection with any resales by it of any such Exchange
Notes. This Prospectus, as it may be amended or supplemented from time to
time, may, if permitted by the Company, be used by a broker-dealer in order to
satisfy such prospectus delivery requirements. The Company has agreed in the
Registration Rights Agreement that it will use its best efforts to make this
Prospectus available to any such broker-dealer for use in connection with any
resales of such Exchange Notes (subject to the right of the Company to
restrict the use of this Prospectus under certain circumstances specified in
the Registration Rights Agreement). The obligation of the Company to make this
Prospectus available as aforesaid will commence on the day that the Exchange
Offer is consummated and continue in effect for a 30-day period (the "Broker
Prospectus Period"); provided, however, that, if for any day during such
period the Company restricts the use of such prospectus, the Broker Prospectus
Period shall be extended on a day-for-day basis.
If at the end of the Broker Prospectus Period any Participating Broker-
Dealer continues to hold any Exchange Notes that it received in the Exchange
Offer, the Company is required (within the time period specified below), if
any such broker-dealer so requests within 60 days after the end of the Broker
Prospectus Period, to file with the Commission a shelf registration statement
(a "Broker Shelf Registration Statement") to cover the resale of such Exchange
Notes by such broker-dealers and use its best efforts to have such
registration statement declared effective by the Commission; provided,
however, that (i) the Company may in lieu of filing such registration
statement extend the Broker Prospectus Period by 60 days and (ii) the Company
will not be required to file such registration statement until such time as
the Company becomes eligible to use a Form S-3 for such registration
statement.
If the Company is required to file the Broker Shelf Registration Statement
as described in the preceding paragraph, the Company is obligated to (i) file
the Broker Shelf Registration Statement within 30 days following the date on
which the Company first becomes eligible to use a Form S-3 for such
registration statement (or, if later, within 30 days of the date the request
for such registration statement is first made in accordance with the
32
<PAGE>
Registration Rights Agreement) and (ii) use its best efforts to have the
Broker Shelf Registration Statement declared effective by the Commission on or
prior to the 90th day following the date on which the Company first becomes
eligible to use a Form S-3 for such registration statement (or, if later, the
90th day following the date the request for such registration statement is
first made in accordance with the Registration Rights Agreement). The Company
will be required to use its best efforts to keep the Broker Shelf Registration
Statement continuously effective, supplemented and amended for a 60-day
period; provided, however, that, if for any day during such period such
registration statement is not usable in connection with the resale of the
Exchange Notes covered thereby, such period shall be extended on a day-for-day
basis.
CERTAIN PROVISIONS RELATING TO ADDITIONAL INTEREST
If a Registration Default (as defined herein) exists, the interest rate on
the Specified Notes (as defined below) will increase, with respect to the
first 90-day period (or portion thereof) while a Registration Default is
continuing immediately following the occurrence of such Registration Default,
.25% per annum, such interest rate increasing by an additional .25% per annum
at the beginning of each subsequent 90-day period (or portion thereof) while a
Registration Default is continuing until all Registration Defaults have been
cured, up to a maximum rate of additional interest of 1.00% per annum.
Following the cure of all Registration Defaults the accrual of additional
interest on the Specified Notes will cease and the interest rate will revert
to the original rate. The Indenture will provide that additional interest as
aforesaid will constitute liquidated damages and will be the exclusive
monetary remedy available to holders of the Original Notes or Exchange Notes
in respect of any Registration Default. The Specified Notes mean the Original
Notes (and not the Exchange Notes); provided, however, that the Specified
Notes means the Exchange Notes (and not the Original Notes) with respect to
(a) any Registration Default that arises pursuant to clause (i) or (ii) of the
definition of such term and relates solely to the Broker Shelf Registration
Statement and (b) any Registration Default that arises solely pursuant to
clause (v) or (vi) of the definition of such term.
A "Registration Default" will exist (subject to the following sentence) if
(i) the Company fails to file any of the registration statements required by
the Registration Rights Agreement on or prior to the date specified for such
filing, (ii) any of such registration statements is not declared effective by
the Commission on or prior to the date specified for such effectiveness, (iii)
an exchange offer is required to be consummated under the Registration Rights
Agreement and is not consummated within 180 days after the Issue Date, (iv)
the Shelf Registration Statement is declared effective but thereafter, during
the period for which the Company is required to maintain the effectiveness of
such registration statement, it ceases to be effective or usable in connection
with the resale of the Notes covered by such registration statement for a
period of 60 days, whether or not consecutive, (v) the Exchange Offer
Registration Statement is declared effective but thereafter, during the Broker
Prospectus Period, it ceases to be effective (or the Company restricts the use
of the prospectus included therein) for a period of 60 days, whether or not
consecutive, or (vi) the Broker Shelf Registration Statement is declared
effective but thereafter, during the period for which the Company is required
to maintain the effectiveness of such registration statement, it ceases to be
effective or usable in connection with the resale of the Exchange Notes
covered by such registration statement for a period of 60 days, whether or not
consecutive. Notwithstanding the foregoing, (a) any Registration Default
specified in clause (i), (ii) or (iii) of the preceding sentence that relates
to the Exchange Offer Registration Statement or the Exchange Offer shall be
deemed cured at such time as the Shelf Registration Statement is declared
effective by the Commission and (b) any Registration Default specified in
clause (v) of the preceding sentence shall be deemed cured at such time as the
Broker Shelf Registration Statement is declared effective by the Commission.
33
<PAGE>
USE OF PROCEEDS
URI will not receive any cash proceeds from the issuance of the Exchange
Notes. In consideration for issuing the Exchange Notes as contemplated in this
Prospectus, URI will receive in exchange Original Notes in like principal
amount, which will be cancelled and as such will not result in any increase in
indebtedness of URI.
34
<PAGE>
CAPITALIZATION
The table below sets forth the capitalization of the Company as of September
30, 1998, (i) on an historical basis and (ii) on a pro forma basis giving
effect to the acquisitions completed by the Company subsequent to such date
and the financing of each such acquisition, as if all such transactions had
occurred on such date. This table should be read in conjunction with the
information set forth under "Selected Historical and Pro Forma Consolidated
Financial Information" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the Consolidated Financial Statements
and related notes thereto and the Pro Forma Consolidated Financial Statements
and related notes thereto of the Company included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1998
---------------------------------
ACTUAL PRO FORMA
---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Cash and cash equivalents.. $ 21,793 $ 4,000
========== ==========
Debt (including current
portion):
Credit Facility........... $ 535,000 $ 266,631
Term Loan ................ 250,000 250,000
9 1/2% Notes.............. 200,000 200,000
8.80% Notes............... 200,070 200,070
9 1/4% Notes.............. -- 300,000
Other Debt................ 50,438 50,438
---------- ----------
Total debt.............. 1,235,508 1,267,139
Stockholders' equity....... 1,002,204 1,002,304
---------- ----------
Total capitalization....... $2,237,712 $2,269,443
========== ==========
</TABLE>
35
<PAGE>
SELECTED HISTORICAL AND PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
The tables below present selected historical and pro forma financial
information for the Company. This information should be read together with (i)
the information set forth under "Capitalization" and "Management's Discussion
and Analysis of Financial Condition and Results of Operations," (ii) the
Consolidated Financial Statements and the related notes thereto and Pro Forma
Consolidated Financial Statements and the related notes thereto of the Company
included elsewhere in this Prospectus and (iii) the financial statements
included elsewhere in this Prospectus of certain of the Acquired Companies.
The balance sheet data presented below as of December 31, 1996 and 1997 and
the income statement data presented below for each of the years in the three-
year period ended December 31, 1997, are derived from the audited Consolidated
Financial Statements of the Company. Such financial statements are included
elsewhere in this Prospectus. The balance sheet data presented below as of
December 31, 1993, 1994 and 1995 and as of September 30, 1998 and the income
statement data presented below for the years ended December 31, 1993 and 1994
and for the nine-month periods ended September 30, 1997 and 1998 are derived
from the unaudited consolidated financial statements of the Company which
include, in the opinion of management of the Company, all adjustments
(consisting of normal recurring accruals) necessary to present fairly the
results of operations and financial position of the Company for the periods
and the dates presented.
The Company commenced operations in October 1997 by acquiring six
established equipment rental companies. The Company completed 78 additional
acquisitions in 1998 (through December 8, 1998), including the merger with
U.S. Rentals, Inc. which was completed in September 1998. Three of these
acquisitions (including the U.S. Rentals merger) were accounted for as
"poolings-of-interests," which means that for accounting and financial
reporting purposes the acquired company is treated as having been combined
with the Company at all times since the inception of the acquired company.
Accordingly, the Company's financial statements have been restated to include
the accounts of two of the companies acquired in these pooling-of-interests
transactions (but was not restated for one that was not material which has
been combined with the Company effective July 1, 1998). As a result of this
restatement, the Company's financial statements include combined historical
financial information of these two acquired companies for periods that precede
the date on which the Company commenced its own operations. See Note 3 to the
Consolidated Financial Statements of the Company included elsewhere herein.
The other 81 acquisitions completed by the Company were accounted for as
"purchases," which means that the results of operations of the acquired
company are included in the Company's financial statements only from the date
of acquisition.
The following unaudited income statement and other financial data under the
column heading "Pro Forma" with respect to each period presented gives effect
to each acquisition completed by the Company after the beginning of the period
and the financing thereof, as if all such transactions had occurred at the
beginning of the period. The following unaudited balance sheet data as of
September 30, 1998 under the column heading "Pro Forma" gives effect to each
acquisition completed by the Company subsequent to such date and the financing
of each such acquisition, as if all such transactions had occurred on such
date.
The pro forma data set forth below is provided for informational purposes.
However, this data may not be indicative of the actual results that the
Company would have had during any period presented, had any or all of the
acquisitions been completed as of the beginning of that period, or of any
future results.
36
<PAGE>
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
-------------------------------------------------------------------- --------------------------
NINE NINE
MONTHS ENDED YEAR ENDED MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30, DECEMBER 31, SEPTEMBER 30,
------------------------------------------------ ------------------ ------------ -------------
1993 1994 1995 1996 1997 1997 1998 1997 1998
-------- -------- -------- -------- -------- -------- -------- ------------ -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Total revenues.......... $172,043 $222,326 $283,432 $354,478 $489,838 $327,824 $804,262 $1,288,628 $1,110,610
Total cost of
operations............. 125,923 153,769 194,234 241,445 340,546 227,638 530,212 836,569 724,607
-------- -------- -------- -------- -------- -------- -------- ---------- ----------
Gross profit............ 46,120 68,557 89,198 113,033 149,292 100,186 274,050 452,059 386,003
Selling, general and
administrative
expenses............... 26,595 34,948 39,707 54,721 70,835 48,488 128,763 230,365 195,444
Merger-related
expenses............... 42,216 42,216
Non-rental depreciation
and amortization....... 4,153 5,107 6,916 9,387 13,424 9,223 23,693 40,770 34,460
Termination cost of
deferred compensation
agreements............. 20,290 20,290 20,290
-------- -------- -------- -------- -------- -------- -------- ---------- ----------
Operating income........ 15,372 28,502 42,575 48,925 44,743 22,185 79,378 160,634 113,883
Interest expense........ 3,906 6,245 7,490 11,278 11,847 6,316 39,170 80,021 60,344
Other income (expense).. (3,724) (3,768) 1,304 (499) (2,021) (1,356) (4,524) (8,621) (9,677)
-------- -------- -------- -------- -------- -------- -------- ---------- ----------
Income before provision
for income taxes and
extraordinary items.... 15,190 26,025 33,781 38,146 34,917 17,225 44,732 89,234 63,216
Provision for income
taxes.................. 458 523 484 420 29,508 21,875 26,450 36,140 25,603
-------- -------- -------- -------- -------- -------- -------- ---------- ----------
Income (loss) before
extraordinary items.... 14,732 25,502 33,297 37,726 5,409 (4,650) 18,282 53,094 37,613
Extraordinary items, net
(1).................... 1,511 1,511 21,337
-------- -------- -------- -------- -------- -------- -------- ---------- ----------
Net income (loss)....... $ 14,732 $ 25,502 $ 33,297 $ 37,726 $ 3,898 $ (6,161) $ (3,055) $ 53,094 $ 37,613
======== ======== ======== ======== ======== ======== ======== ========== ==========
Pro forma provision for
income taxes before
extraordinary
items (2).............. $ 6,230 $ 10,637 $ 13,715 $ 15,487 $ 14,176 $ 21,637 $ 27,162
Pro forma income (loss)
before extraordinary
items (2).............. 8,960 15,388 20,066 22,659 20,741 (4,412) 17,570
OTHER FINANCIAL DATA:
EBITDA(3)............... $ 50,002 $ 73,446 $101,438 $123,606 $160,554 $108,413 $265,257 $ 404,640 $ 351,115
EBITDA margin(4)........ 29.1% 33.0% 35.8% 34.9% 32.8% 33.1% 33.0% 31.4% 31.6%
Interest expense(5)(6).. $ 3,906 $ 6,245 $ 7,490 $ 11,278 $ 11,847 $ 6,316 $ 39,170 $ 80,021 $ 60,344
Depreciation and
amortization........... 34,630 44,944 58,863 74,681 95,521 65,938 143,663 223,716 195,016
Ratio of EBITDA to
interest expense....... 5.1x 5.8x
Ratio of total debt to
EBITDA(7).............. 2.7x
Ratio of earnings to
fixed charges(8)....... 4.0x 4.5x 4.8x 4.0x 3.4x 3.2x 2.0x
Pro forma ratio of
earnings to fixed
charges(9)............. 2.7x 1.9x
Supplemental pro forma
ratio of earnings to
fixed charges(10)...... 2.0x 1.8x
</TABLE>
<TABLE>
<CAPTION>
HISTORICAL
-------------------------------------------
DECEMBER 31, HISTORICAL PRO FORMA
------------------------------------------- ---------- ----------
1993 1994 1995 1996 1997 SEPTEMBER 30, 1998
------- -------- -------- -------- -------- ---------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash
equivalents............ $ 1,724 $ 2,956 $ 3,728 $ 2,906 $ 72,411 $ 21,793 $ 4,000
Rental equipment, net... 85,196 136,731 182,082 235,055 461,026 1,191,448 1,212,754
Total assets............ 163,773 233,359 297,994 381,228 826,890 2,531,683 2,567,582
Total debt.............. 67,363 107,284 131,771 214,337 264,573 1,235,508 1,267,139
Stockholders' equity.... 65,551 77,600 104,392 105,420 446,388 1,002,204 1,002,304
</TABLE>
- -------
(1) The Company recorded an extraordinary item (net of income taxes) of $1.5
million in 1997 and an extraordinary item (net of income taxes) of $21.3
million in 1998. Such item in 1997 resulted from the prepayment of certain
debt by U.S. Rentals. Such item in 1998 resulted from the early
extinguishment of certain debt and primarily reflected prepayment
penalties on certain debt of U.S. Rentals.
(2) U.S. Rentals was taxed as a Subchapter S Corporation until its initial
public offering in February 1997, and another Acquired Company was taxed
as a Subchapter S Corporation until being acquired by the Company in 1998.
In general, the income or loss of a Subchapter S Corporation is passed
through to its owners rather than being subjected to taxes at the entity
level. Pro forma provision for income taxes before extraordinary items and
pro forma income (loss) before extraordinary items reflect a provision for
income taxes as if all such companies were liable for federal and state
income taxes as taxable corporate entities for all periods presented.
(3) EBITDA is defined as net income (excluding (i) non-operating income and
expense, (ii) a $20.3 million non-recurring charge incurred by U.S.
Rentals in 1997 arising from the termination of deferred compensation
agreements with certain executives and (iii) $42.2 million in merger-
related expenses in 1998 related to the three acquisitions accounted for
as poolings-of-interests, including the merger with U.S. Rentals) plus
interest expense, income taxes and depreciation and amortization. EBITDA
data is presented to provide additional information concerning the
Company's ability to meet its future debt service obligations and capital
expenditure and working capital requirements. However, EBITDA is not a
measure of financial performance under generally accepted accounting
principles. Accordingly, EBITDA should not be considered an alternative to
net income or cash flows as indicators of the Company's operating
performance or liquidity.
(4) EBITDA margin is defined as EBITDA as a percentage of revenues.
(5) Interest expense excludes the amortization of deferred financing fees.
(6) URI is a wholly owned subsidiary of Holdings. Although not legally
obligated to do so, URI has made, and expects that it will continue to
make, cash distributions to Holdings in order to enable Holdings to pay
dividends on certain preferred securities that were issued by a subsidiary
trust of Holdings. These distributions are not reflected in URI's interest
expense. For additional information concerning such preferred securities,
see "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Liquidity and Capital Resources."
(7) For purposes of determining the ratio of total debt to EBITDA for the nine
months ended September 30, 1998, EBITDA is annualized.
(8) For purposes of determining the ratio of earnings to fixed charges, (i)
earnings consist of income before income taxes and extraordinary items
plus fixed charges and (ii) fixed charges consist of interest expense,
amortization of debt issuance costs, and the estimated interest portion of
rental expense.
(9) The pro forma ratio of earnings to fixed charges gives effect to the
issuance of the Notes and the application of a portion of the net proceeds
therefrom to repay outstanding indebtedness, as if such transaction had
occurred at the beginning of the period.
(10) The supplemental pro forma ratio of earnings to fixed charges gives
effect to each acquisition completed by the Company after the beginning
of the period and the financing thereof, as if such transactions had
occurred at the beginning of the period.
37
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following discussion should be read in conjunction with the Consolidated
Financial Statements and related Notes thereto of the Company included
elsewhere in this Prospectus.
INTRODUCTION
The Company commenced equipment rental operations in October 1997 by
acquiring six established equipment rental companies. The Company completed 78
additional acquisitions in 1998 (through December 8, 1998), including the
merger with U.S. Rentals (the "U.S. Rentals Merger") which was completed in
September 1998.
Three of the acquisitions completed by the Company (including the U.S.
Rentals Merger) were accounted for as "poolings-of-interests," and the
Company's financial statements have been restated to include the accounts of
two of the companies acquired in such transactions (but was not restated for
one that was not material which has been combined with the Company effective
July 1, 1998). See Note 3 to the Consolidated Financial Statements of the
Company included elsewhere herein. As a result of such restatement, the
Company's financial statements include historical financial information of
these two acquired companies for periods that precede the date on which the
Company commenced its own operations.
The other 81 acquisitions completed by the Company were accounted for as
"purchases". The results of operations of the businesses acquired in these
acquisitions are included in the Company's financial statements only from
their respective dates of acquisition. In view of the fact that the Company's
operating results for 1997 and 1998 were impacted by these acquisitions that
were accounted for as purchases, the Company believes that the results of its
operations for such periods are not directly comparable.
GENERAL
The Company primarily derives revenues from the following sources: (i)
equipment rental (including additional fees that may be charged for equipment
delivery, fuel, repair of rental equipment, and damage waivers), (ii) the sale
of rental equipment, (iii) the sale of new equipment, and (iv) the sale of
related merchandise and parts.
Cost of operations consists primarily of depreciation costs associated with
rental equipment, the cost of repairing and maintaining rental equipment, the
cost of rental and new equipment sold, personnel costs, occupancy costs and
supplies.
The Company records rental equipment expenditures at cost and depreciates
equipment using the straight-line method over the estimated useful life (which
ranges from 2 to 10 years), after giving effect to an estimated salvage value
of 0% to 10% of cost.
Selling, general and administrative expense includes advertising and
marketing expenses, management salaries, and clerical and administrative
overhead.
Non-rental depreciation and amortization includes (i) depreciation expense
associated with equipment that is not offered for rent (such as vehicles,
computers and office equipment) and amortization expense associated with
leasehold improvements and (ii) the amortization of intangible assets. The
Company's intangible assets include goodwill, which represents the excess of
the purchase price of acquired companies over the estimated fair market value
of the net assets acquired.
RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
Revenues. Total revenues for the first nine months of 1998 were $804.3
million, representing an increase of 145.3% over total revenues for the first
nine months of 1997 of $327.8 million. The Company's revenues in
38
<PAGE>
the first nine months of 1998 and 1997 were attributable to: (i) equipment
rental ($592.5 million, or 73.7% of revenues, in 1998 compared to $263.2
million, or 80.3% of revenues, in 1997), (ii) sales of rental equipment ($73.7
million, or 9.2% of revenues, in 1998 compared to $27.0 million, or 8.2% of
revenues, in 1997) and (iii) sales of new equipment, merchandise and other
revenues ($138.1 million, or 17.2% of revenues, in 1998 compared to $37.6
million, or 11.5% of revenues, in 1997).
The 145.3% increase in total revenues in the first nine months of 1998
reflected (i) increased revenues at locations open more than one year (which
accounted for approximately 19.1 percentage points) and (ii) new rental
locations acquired through acquisitions and the opening of start-up locations
(which accounted for approximately 126.2 percentage points). The increase in
revenues at locations open more than one year primarily reflected an increase
in the volume of rental transactions.
Gross Profit. Gross profit increased to $274.1 million during the first nine
months of 1998 from $100.2 million during the first nine months of 1997. This
increase in gross profit was primarily attributable to the increase in
revenues described above. The Company's gross profit margin by source of
revenue in the first nine months of 1998 and 1997 was: (i) equipment rental
(35.3% in 1998 and 29.9% 1997), (ii) sales of rental equipment (46.0% in 1998
and 51.5% in 1997) and (iii) sales of new equipment, merchandise and other
revenues (22.6% in 1998 and 20.1% in 1997).
Selling, General and Administrative Expense. Selling, general and
administrative expense ("SG&A") was $128.8 million or 16.0% of total revenues
during the first nine months of 1998 and $48.5 million or 14.8% of total
revenues during the first nine months of 1997. The increase in SG&A as a
percentage of revenues in 1998 primarily reflected the additional expenses for
senior management and corporate overhead that the Company began incurring in
the third quarter of 1997 as it built the management team and infrastructure
required to support its growth strategy.
Merger-related Expenses. The Company incurred merger-related expenses in the
first nine months of 1998 of $42.2 million ($29.5 million after-tax) in
connection with three acquisitions completed by the Company in 1998 that were
accounted for as poolings-of-interests. These expenses consisted of (i) $18.5
million for investment banking, legal, accounting services and other merger
costs, (ii) $14.5 million of expenses relating to the closing of duplicate
facilities, (iii) $6.3 million for employee severance and (iv) $2.9 million in
other expenses. Certain additional merger-related expenses are transitional in
nature and, in accordance with generally accepted accounting principles, are
not presently accruable and will be expensed in future quarters.
Non-rental Depreciation and Amortization. Non-rental depreciation and
amortization was $23.7 million or 2.9% of total revenues during the first nine
months of 1998 and $9.2 million or 2.8% of total revenues during the first
nine months of 1997. The increase in the dollar amount of non-rental
depreciation and amortization in 1998 primarily reflected the amortization of
goodwill attributable to the acquisitions completed at the end of 1997 and in
1998.
Termination Cost of Deferred Compensation Agreements. The Company's results
for the first nine months of 1997 were impacted by $20.3 million of expenses
for "termination costs of deferred compensation agreements." These expenses
reflect one-time expenses that were incurred by U.S. Rentals in connection
with the termination of certain deferred incentive compensation agreements in
connection with its initial public offering in February 1997.
Interest Expense. Interest expense increased to $39.2 million during the
first nine months of 1998 from $6.3 million during the first nine months of
1997. This increase primarily reflected the fact that the Company's
indebtedness increased in the fourth quarter of 1997 and in 1998 primarily to
fund acquisitions.
Other (Income) Expense. Other income was $4.5 million during the first nine
months of 1998 compared with $1.4 million during the first nine months of
1997. The increase in other income in 1998 primarily reflected increased
interest income in 1998 as a result of higher cash balances resulting from the
financing transactions completed in the fourth quarter of 1997 and in 1998.
39
<PAGE>
Income Taxes. Income taxes increased to $26.5 million, or an effective rate
of 59.1%, during the first nine months of 1998 from $21.9 million, or an
effective rate of 127.0% during the first nine months of 1997. During 1998,
the Company's high effective tax rate reflected (i) the non-deductibility of
certain merger related expenses and (ii) a $4.8 million charge to recognize
deferred tax liabilities of an Acquired Company, which was an S Corporation
prior to being acquired by the Company. During 1997, the Company's high
effective tax rate reflected (i) a $7.5 million charge to recognize deferred
tax liabilities of U.S. Rentals, which was an S Corporation prior to its
initial public offering, and (ii) the non-deductibility for income tax
purposes of certain losses that were incurred by U.S. Rentals prior to a
recapitalization effected in connection with its initial public offering.
Extraordinary Items. The Company recorded an extraordinary charge of $35.6
million ($21.3 million net of taxes) in the first nine months of 1998 and an
extraordinary charge of $1.5 million in the first nine months of 1997. Such
charge in 1998 was incurred in connection with the early extinguishment of
certain debt and primarily reflected prepayment penalties on certain debt of
U.S. Rentals. Such charges in 1997 were incurred by U.S. Rentals in connection
with the prepayment of certain debt.
YEARS ENDED DECEMBER 31, 1997 AND 1996
Revenues. Total revenues for 1997 were $489.8 million, representing an
increase of 38.2% over total revenues in 1996 of $354.5 million. The Company's
revenues in 1997 and 1996 were attributable to: (i) equipment rental ($388.2
million, or 79.2% of revenues in 1997, compared to $295.3 million, or 83.3% of
revenues, in 1996), (ii) sales of rental equipment ($41.4 million, or 8.5% of
revenues, in 1997 compared to $25.5 million, or 7.2% of revenues, in 1996) and
(iii) sales of new equipment, merchandise and other revenues ($60.3 million,
or 12.3% of revenues, in 1997 compared to $33.7 million, or 9.5% of revenues,
in 1996).
The 38.2% increase in total revenues in 1997 reflected (i) increased
revenues at locations open more than one year (which accounted for
approximately 24.8 percentage points) and (ii) new rental locations acquired
through acquisitions and the opening of start-up locations (which accounted
for approximately 13.4 percentage points). The increase in such revenues at
locations open more than one year primarily reflected (a) an increase in
customer demand for rental equipment and for new and used equipment offered
for sale, (b) expansion of the product lines offered by the Company for sale,
(c) an increase in the sale of related merchandise and parts which was driven
by the increase in equipment rental and sales transactions and (d) an increase
in sales efforts relating to used equipment.
Gross profit. Gross profit increased to $149.3 million in 1997 from $113.0
million in 1996. This increase in gross profit was primarily attributable to
the increase in revenues described above. The Company's gross profit margin by
source of revenue was: (i) equipment rental (30.0% in 1997 and 31.2% in 1996),
(ii) sales of rental equipment (50.6% in 1997 and 58.6% in 1996) and (iii)
sales of new equipment, merchandise and other revenues (19.6% in 1997 and
18.1% in 1996). The decrease in the gross profit margin from rental revenues
in 1997 primarily reflected the fact that the Company in 1997 incurred
expenses in connection with expanding its rental fleet and opening new rental
locations. The increase in the gross profit margin from sales of new
equipment, merchandise and other revenues in 1997 primarily reflected a shift
in sales mix to higher margin items.
Selling, General and Administrative Expense. SG&A increased to $70.8 million
in 1997 from $54.7 million in 1996, but as a percentage of revenues decreased
to 14.5% in 1997 from 15.4% in 1996. This decrease in SG&A as a percentage of
revenues in 1997 primarily reflected (i) increased operating efficiencies and
(ii) certain economies of scale related to the increase in revenue described
above.
Non-rental Depreciation and Amortization. Non-rental depreciation and
amortization was $13.4 million or 2.7% of total revenues in 1997 and $9.4
million or 2.6% of total revenues in 1996. The increase in the dollar amount
of non-rental depreciation and amortization in 1997 primarily reflected
increases in (i) depreciation expense attributable to equipment not offered
for rent, (ii) depreciation expense associated with rental facility locations
and (iii) amortization expense relating to leaseholds.
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Termination Cost of Deferred Compensation Agreements. The Company's results
for 1997 were impacted by $20.3 million of expenses for "termination costs of
deferred compensation agreements." These expenses reflect one-time expenses
that were incurred by U.S. Rentals in connection with the termination of
certain deferred incentive compensation agreements in connection with its
initial public offering.
Interest Expense. Interest expense increased to $11.8 million in 1997 from
$11.3 million in 1996. This increase was primarily the result of an increase
in related party interest expense, offset by a decrease in interest as a
result of lower average debt outstanding during 1997 due to repayment of
certain debt with proceeds from the U.S. Rentals initial public offering in
February 1997.
Other (Income) Expense. Other income was $2.0 million in 1997 compared with
$0.5 million in 1996. The increase in other income in 1997 primarily reflected
increased interest income in 1997 as a result of higher cash balances
resulting from the financing transactions completed during 1997.
Income Taxes. Income taxes were $29.5 million, or an effective rate of
84.5%, in 1997 and $0.4 million, or an effective rate of 1.1%, in 1996. The
Company's low effective tax rate in 1996 reflected the fact that (i) U.S.
Rentals was taxed as an S Corporation for federal and state purposes until its
initial public offering in February 1997 and (ii) Rental Tools (another
acquisition that was accounted for as a pooling-of-interests) was taxed as an
S Corporation for federal and state purposes until being acquired by the
Company in 1998. The Company's high effective tax rate in 1997 primarily
reflected (i) a $7.5 million charge to recognize deferred tax liabilities of
U.S. Rentals and (ii) the non-deductibility for income tax purposes of certain
losses that were incurred by U.S. Rentals prior to a recapitalization effected
in connection with its initial public offering.
Extraordinary Item. The Company recorded an extraordinary charge of $1.5
million during 1997. This charge was incurred by U.S. Rentals in connection
with the prepayment of certain debt.
YEARS ENDED DECEMBER 31, 1996 AND 1995
Revenues. Total revenues for 1996 were $354.5 million, representing an
increase of 25.1% over total revenues in 1995 of $283.4 million. The Company's
revenues in 1996 and 1995 were attributable to: (i) equipment rental ($295.3
million, or 83.3% of revenues, in 1996 compared to $252.3 million, or 89.0% of
revenues, in 1995), (ii) sales of rental equipment ($25.5 million, or 7.2% of
revenues, in 1996 compared to $11.2 million, or 3.9% of revenues, in 1995) and
(iii) sales of new equipment, merchandise and other revenues ($33.7 million,
or 9.5% of revenues, in 1996 compared to $20.0 million, or 7.1% of revenues,
in 1995).
The 25.1% increase in total revenues in 1996 reflected (i) an increase in
revenues at locations open more than one year (which accounted for
approximately 17.1 percentage points) and (ii) new rental locations acquired
through acquisitions and the opening of start-up locations (which accounted
for approximately 8.0 percentage points). The increase in such revenues at
locations open more than one year primarily reflected (a) an increase in
customer demand for rental equipment and for new and used equipment offered
for sale, (b) an increase in the sale of related merchandise and parts which
was driven by the increase in equipment rental and sales transactions and (c)
an increase in sales efforts.
Gross profit. Gross profit increased to $113.0 million in 1996 from $89.2
million in 1995. This increase in gross profit was primarily attributable to
the increase in revenues described above. The Company's gross profit margin by
source of revenue was: (i) equipment rental (31.2% in 1996 and 30.2% in 1995),
(ii) sales of rental equipment (58.6% in 1996 and 53.5% in 1995) and (iii)
sales of new equipment, merchandise and other revenues (18.1% in 1996 and
35.5% in 1995). The increase in the gross profit margin from rental revenues
in 1996 was primarily attributable to greater equipment utilization. The
decrease in the gross profit margin from the sale of new equipment,
merchandise and other revenues in 1996 primarily reflected a shift in sales
mix toward lower margin items.
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Selling, General and Administrative Expense. SG&A increased to $54.7
million, or 15.4% of revenues, in 1996 from $39.7 million, or 14.0% of
revenues, in 1995. SG&A includes $1.5 million and $0.6 million in 1996 and
1995, respectively, of non-recurring compensation expense related to deferred
incentive compensation agreements that were terminated in connection with U.S.
Rentals' initial public offering. The increase in SG&A as a percentage of
revenues in 1996 primarily reflected (i) higher costs in 1996 relating to
advertising, bad debt and insurance and (ii) the fact that the non-recurring
compensation expense described above was higher in 1996 than in 1995.
Non-rental Depreciation and Amortization. Non-rental depreciation and
amortization was $9.4 million or 2.6% of total revenues in 1996 and $6.9
million or 2.4% of total revenues in 1995. The increase in the dollar amount
of non-rental depreciation and amortization in 1996 primarily reflected
increases in (i) depreciation expense attributable to equipment not offered
for rent, (ii) depreciation expense associated with rental facility locations
and (iii) amortization expense relating to leaseholds.
Interest Expense. Interest expense increased to $11.3 million in 1996 from
$7.5 million in 1995. This increase was primarily the result of higher average
debt outstanding during 1996 as a result of an increase in the purchase of
rental equipment.
Other (Income) Expense. Other income was $0.5 million in 1996 compared with
other expense of $1.3 million in 1995. The expense in 1995 primarily reflected
the write-off of $1.3 million on a non-operating investment.
Income Taxes. Income taxes were $0.4 million, or an effective rate of 1.1%,
in 1996 and $0.5 million, or an effective rate of 1.4%, in 1995. The Company's
low effective tax rate in 1996 and 1995 reflected the fact that (i) U.S.
Rentals was taxed as an S Corporation for federal and state purposes until its
initial public offering in February 1997 and (ii) Rental Tools was taxed as an
S Corporation for federal and state purposes until it was acquired by the
Company in 1998. The acquisitions of U.S. Rentals and Rental Tools were
accounted for as "poolings-of-interests."
LIQUIDITY AND CAPITAL RESOURCES
General
The Company has funded its cash requirements in 1997 and 1998 from a
combination of cash generated from operations, the sale of rental equipment,
borrowings under a revolving credit facility and the proceeds of other
financing transactions. These other financing transactions included (i) the
sale of Common Stock and warrants in private placements for aggregate
consideration of $54.7 million, (ii) the sale of Common Stock in two public
offerings for aggregate consideration of $307.0 million (after deducting
underwriting discounts and offering expenses), (iii) the sale of the 9 1/2%
Notes in May 1998 for aggregate consideration of $193.0 million (after
deducting the initial purchasers' discount and offering expenses), (iv) a $250
million term loan (the "Term Loan") obtained in July 1998, (v) the issuance by
a subsidiary trust of Holdings of preferred securities (the "Preferred
Securities") in August 1998 which resulted in URI receiving net proceeds of
$290.0 million, (vi) the sale of the Original Notes in August 1998 for
aggregate consideration of $196.0 million (after deducting the initial
purchaser's discount and offering expenses), and (vii) the sale of the 9 1/4%
Notes in December 1998 for aggregate consideration of $292.1 million (after
deducting underwriting commissions and estimated offering expenses). For
additional information concerning certain of the financings described above,
see "--Certain Information Concerning the Credit Facility and Other
Indebtedness" and "--Certain Information Concerning Preferred Securities."
During the first nine months of 1998, the Company (i) generated cash from
operations of approximately $205.0 million, (ii) generated cash from the sale
of rental equipment of approximately $73.7 million and (iii) had net cash from
financing activities of approximately $991.7 million. The Company used cash
during this period principally to (i) pay consideration for acquisitions
(approximately $833.3 million), (ii) repay indebtedness in connection with the
U.S. Rentals Merger and the acquisition of Rental Tools (approximately $450.3
million), (iii) purchase rental equipment (approximately $426.7 million) and
(iv) purchase other property and equipment (approximately $54.0 million).
These cash expenditures were the principal reason for the decrease in cash at
September 30, 1998 compared with December 31, 1997.
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During 1997, the Company (i) generated cash from operations of approximately
$93.1 million, (ii) generated cash from the sale of rental equipment of
approximately $41.4 million and (iii) had net cash from financing activities
of approximately $372.7 million. The Company used cash during this period
principally to (i) pay consideration for acquisitions (approximately $115.5
million), (ii) purchase rental equipment (approximately $268.5 million) and
(iii) purchase other property and equipment (approximately $53.7 million).
In September 1998, URI obtained a new $762.5 million revolving credit
facility (the "Credit Facility") from a group of financial institutions. This
facility replaced the credit facility that had previously been used by URI.
For additional information concerning the Credit Facility, see "--Certain
Information Concerning the Credit Facility and Other Indebtedness."
The Company expects that its principal existing sources of cash will be cash
generated from operations and borrowings available under the Credit Facility.
Certain Balance Sheet Changes
The acquisitions and the equipment purchases made by the Company in 1998
(and the financing of such acquisitions and purchases) were the principal
reasons for the increase in the following items at September 30, 1998 compared
with December 31, 1997: accounts receivable, inventory, rental equipment,
property and equipment, intangible assets, accounts payable, debt, and accrued
expenses and other liabilities.
The increase in prepaid expenses and other assets at September 30, 1998
compared with December 31, 1997 primarily reflects (i) an increase in prepaid
expenses relating to the Company's operations, (ii) deferred tax assets
recorded in connection with acquisitions and (iii) certain direct costs
relating to potential acquisitions that were capitalized.
The increase in stockholder's equity at September 30, 1998 compared with
December 31, 1997, primarily reflects (i) the sale of 8,625,000 shares of
Common Stock in a public offering in March 1998 for aggregate consideration of
$207.4 million (after deducting underwriting discounts and estimated offering
expenses), (ii) the issuance of an aggregate of 3,626,897 shares of Common
Stock during the nine months ended September 30, 1998 as consideration for
acquisitions and (iii) the issuance of Preferred Securities (as defined
herein) in August 1998 as described under "--Certain Information Concerning
Preferred Securities."
Relationship With Holdings
URI is a wholly owned subsidiary of Holdings. Holdings provides certain
services to URI in connection with its operations. These services principally
include: (i) senior management services, (ii) finance related services and
support, (iii) information technology systems and support and (iv) acquisition
related services. In addition, Holdings leases certain equipment and real
property that are made available for use by URI and its subsidiaries. URI has
made, and expects to continue to make, certain payments to Holdings in respect
of the services provided by Holdings to the Company. The expenses relating to
URI's payments to Holdings are reflected on URI's financial statements as
selling, general and administrative expense. In addition, although not legally
obligated to do so, URI has in the past, and expects that it will in the
future, make distributions to Holdings for, among other things, Holdings to
pay dividends on the Preferred Securities (as described under "--Certain
Information Concerning Preferred Securities").
Cash Requirements Related to Operations
The Company expects that its principal needs for cash relating to its
existing operations over the next 12 months will be to fund (i) operating
activities and working capital, (ii) the purchase of rental equipment and
inventory of items offered for sale, (iii) debt service and (iv) payments and
distributions to Holdings as described under "--Relationship With Holdings."
The Company plans to fund such cash requirements relating to its existing
operations from cash generated from operations supplemented, if required, by
borrowings available under the Credit Facility.
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The Company estimates that equipment expenditures over the next 12 months
will be approximately $425.0 to $450.0 million for the existing operations of
the Company. These expenditures are comprised of approximately $225.0 to
$235.0 million of expenditures in order to maintain the average age of the
Company's rental fleet and $200.0 to $215.0 million of discretionary
expenditures to increase the size of the Company's rental fleet. The Company
expects to fund such expenditures from cash generated from operations
supplemented, if required, by borrowings available under the Credit Facility.
In addition, the Company expects that it will be required to make equipment
expenditures in connection with new acquisitions. The Company cannot quantify
at this time the amount of equipment expenditures that will be required in
connection with new acquisitions.
Principal elements of the Company's strategy include continued expansion
through a disciplined acquisition program and the opening of new rental
locations. The Company expects to pay for future acquisitions using cash,
capital stock, notes and/or assumption of indebtedness. To the extent that
cash generated internally and cash available under the Company's borrowing
facilities are not sufficient to fund such future acquisitions, the Company
will require additional financing and, consequently, the Company's
indebtedness may increase as the Company implements its growth strategy. There
can be no assurance, however, that any additional financing will be available
or, if available, will be on terms satisfactory to the Company.
The Company is in the process of developing one start-up location. The
Company estimates that the aggregate costs associated with this start-up
location will be in the range of $3 million to $4 million (including
expenditures of approximately $845,000 paid to date). The Company plans to
fund the cash requirements relating to this start-up location from cash
generated from operations supplemented, if required, by borrowings available
under the Credit Facility.
The Company is in the process of extending its information technology system
to the locations acquired through the U.S. Rentals Merger and other recent
acquisitions. The Company estimates that the cost of completing this work will
be approximately $5.1 million.
Based upon the terms of the Company's currently outstanding indebtedness,
the Company is scheduled to repay approximately $1.9 million of indebtedness
during the balance of 1998 and $9.0 million during 1999. In addition, the
Company may be required at any time to repay a $21.5 million demand note that
the Company assumed in connection with the U.S. Rentals Merger.
Year 2000 Compliance
The Company has been informed by its software vendors that the Company's new
information technology system is year 2000 compliant. The Company has,
therefore, not developed any contingency plans relating to year 2000 issues
and has not budgeted any funds for year 2000 issues. Although the Company
believes that its system is year 2000 compliant, there can be no assurance
that unanticipated year 2000 problems will not arise which, depending on the
nature and magnitude of the problem, could have a material adverse effect on
the Company's business and financial condition. Furthermore, year 2000
problems involving third parties may have a negative impact on the Company's
customers or suppliers, the general economy or on the ability of businesses
generally to receive essential services (such as telecommunications, banking
services, etc.). Any such occurrence could have a material adverse effect on
the Company's business and financial condition.
Certain Information Concerning the Credit Facility and Other Indebtedness
Credit Facility. In September 1998, URI obtained a new $762.5 million
revolving Credit Facility, from a group of financial institutions. This
facility replaced the credit facility that had previously been used by URI.
Set forth below is certain information concerning the terms of the Credit
Facility.
The Credit Facility enables URI to borrow up to $762.5 million on a
revolving basis and permits a Canadian subsidiary of URI (the "Canadian
Subsidiary") to directly borrow up to $40 million under the Credit Facility
(provided that the aggregate borrowings of URI and the Canadian Subsidiary do
not exceed $762.5 million). Up
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to $25 million of the Credit Facility is available in the form of letters of
credit. The agreement governing the Credit Facility requires that the
aggregate commitment shall be reduced on the last day of each calendar
quarter, beginning September 30, 2001 and continuing through June 30, 2003 by
an amount equal to $19.1 million. The Credit Facility terminates on September
26, 2003, at which time all outstanding indebtedness is due. As of December 8,
1998, the amount of indebtedness outstanding under the Credit Facility was
$587.0 million (not including undrawn outstanding letters of credit in the
amount of $3.3 million).
Borrowings by URI under the Credit Facility accrue interest at URI's option,
at either (a) the Base Rate (which is equal to the greater of (i) the Federal
Funds Rate plus 0.5% or (ii) Bank of America's reference rate) or (b) the
Eurodollar Rate (which for borrowings by URI is equal to Bank of America's
reserve adjusted eurodollar rate) plus a margin ranging from 0.950% to 1.625%
per annum. Borrowings by the Canadian Subsidiary under the Credit Facility
accrue interest, at such subsidiary's option, at either (x) the Prime Rate
(which is equal to Bank of America Canada's prime rate), (y) the BA Rate
(which is equal to Bank of America Canada's BA Rate) plus a margin ranging
from 0.950% to 1.625% per annum or (z) the Eurodollar Rate (which for
borrowing by the Canadian Subsidiary is equal to Bank of America Canada's
reserve adjusted Eurodollar Rate) plus a margin ranging from 0.95% to 1.625%
per annum. If at any time an event of default (as defined in the agreement
governing the Credit Facility) exists, the interest rate applicable to each
loan will increase by 2% per annum. The Company is also required to pay the
banks an annual facility fee equal to 0.375% of the banks' $762.5 million
aggregate lending commitment under the Credit Facility (which fee may be
reduced to 0.300% for periods during which the Company maintains a specified
funded debt to cash flow ratio).
The obligations of URI under the Credit Facility are (i) secured by
substantially all of its assets, the stock of its United States subsidiaries
and a portion of the stock of URI's Canadian subsidiaries and (ii) guaranteed
by Holdings and secured by the stock of URI. The obligations of the Canadian
Subsidiary under the Credit Facility are guaranteed by URI and secured by
substantially all of the assets of the Canadian Subsidiary and the stock of
the subsidiaries of the Canadian Subsidiary.
The Credit Facility contains certain covenants that require the Company to,
among other things, satisfy certain financial tests relating to: (a) maximum
leverage, (b) the ratio of senior debt to cash flow,
(c) minimum interest coverage ratio, (d) the ratio of funded debt to cash
flow, and (e) the ratio of senior debt to tangible assets. The agreements
governing the Credit Facility also contains various other covenants that
restrict the Company's ability to, among other things, (i) incur additional
indebtedness, (ii) permit liens to attach to its assets, (iii) pay dividends
or make other restricted payments on its common stock and certain other
securities and (iv) make acquisitions unless certain financial conditions are
satisfied. In addition, the agreement governing the Credit Facility (a)
requires the Company to maintain certain financial ratios and (b) provides
that failure by any two of Messrs. Jacobs, Milne, Nolan and Miner to continue
to hold executive positions with the Company for a period of 30 consecutive
days constitutes an event of default unless replacement officers satisfactory
to the lenders are appointed.
Term Loan. In July 1998, URI obtained a $250 million term loan from a group
of financial institutions. The term loan matures on June 30, 2005. Prior to
maturity, quarterly installments of principal in the amount of $625,000 are
due on the last day of each calendar quarter, commencing September 30, 1999.
The amount due at maturity is $235,625,000. The term loan accrues interest, at
the Company's option, at either (a) the Base Rate (as defined above with
respect to the Credit Facility) plus a margin ranging from 0% to 0.5% per
annum, or (b) the Eurodollar Rate (as defined above with respect to the Credit
Facility for borrowings by the Company) plus a margin ranging from 1.875% to
2.375% per annum. The Term Loan is secured pari passu with the Credit
Facility. The agreement governing the Term Loan contains restrictive covenants
substantially similar to those provided under the Credit Facility.
9 1/2% Senior Subordinated Notes. In May 1998, URI issued $200 million
aggregate principal amount of 9 1/2% Notes which are due June 1, 2008. The 9
1/2% Notes are unsecured. URI may, at its option, redeem the 9 1/2% Notes on
or after June 1, 2003 at specified redemption prices which range from 104.75%
in 2003 to 100.00% in 2006 and thereafter. In addition, on or prior to June 1,
2001, URI may, at its option, use the proceeds
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of a public equity offering to redeem up to 35% of the outstanding 9 1/2%
Notes, at a redemption price of 109.5%. The indenture governing the 9 1/2%
Notes contains certain restrictive covenants, including (i) limitations on
additional indebtedness, (ii) limitations on restricted payments, (iii)
limitations on liens, (iv) limitations on dividends and other payment
restrictions, (v) limitations on preferred stock of certain subsidiaries, (vi)
limitations on transactions with affiliates, (vii) limitations on the
disposition of proceeds of asset sales and (viii) limitations on the ability
of the Company to consolidate, merge or sell all or substantially all of its
assets.
8.80% Senior Subordinated Notes. For information concerning the Notes, see
"Descripton of the Notes."
9 1/4% Senior Subordinated Notes. In December 1998, URI issued $300 million
aggregate principal amount of 9 1/4% Notes which are due January 15, 2009. The
9 1/4% Notes are unsecured. URI may, at its option, redeem the 9 1/4% Notes on
or after January 15, 2004 at specified redemption prices which range from
104.625% in 2004 to 100.00% in 2007 and thereafter. In addition, on or prior
to January 15, 2002, URI may, at its option, use the proceeds of a public
equity offering to redeem up 35% of the 9 1/4% Notes, at a redemption price of
109.25%. The indenture governing the 9 1/4% Notes contains restrictions
substantially similar to those applicable to the 9 1/2% Notes.
Certain Information Concerning Preferred Securities
In August 1998, a subsidiary trust (the "Trust") of Holdings sold $300
million of 6 1/2% Convertible Quarterly Income Preferred Securities (the
"Preferred Securities"). The net proceeds from the sale of the Preferred
Securities were approximately $290 million. The Trust used such proceeds to
purchase convertible subordinated debentures from Holdings which resulted in
Holdings receiving all of the proceeds from the sale of the Preferred
Securities. Holdings in turn contributed the net proceeds from the sale of the
Preferred Securities to its wholly owned subsidiary URI. The Preferred
securities are convertible into Common Stock at a conversion price equivalent
to $43.63 per share.
Although not legally obligated to do so, URI has in the past, and expects
that it will in the future, make distributions to Holdings in order to enable
Holdings to pay dividends on the Preferred Securities.
FLUCTUATIONS IN OPERATING RESULTS
The Company expects that its revenues and operating results may fluctuate
from quarter to quarter due to a number of factors, including: seasonal rental
patterns of the Company's customers (with rental activity tending to be lower
in the winter); changes in general economic conditions in the Company's
markets; the timing of acquisitions and the opening of start-up locations and
related costs; the effect of the integration of acquired businesses and start-
up locations; the timing of expenditures for new equipment and the disposition
of used equipment; and price changes in response to competitive factors.
The Company is continually involved in the investigation and evaluation of
potential acquisitions. In accordance with generally accepted accounting
principles, the Company capitalizes certain direct out-of-pocket expenditures
(such as legal and accounting fees) relating to potential or pending
acquisitions. Indirect acquisition costs, such as executive salaries, general
corporate overhead, public affairs and other corporate services, are
expensed as incurred. The Company's policy is to charge against earnings any
capitalized expenditures relating to any potential or pending acquisition that
the Company determines will not be consummated. There can be no assurance that
the Company in future periods will not be required to incur a charge against
earnings in accordance with such policy, which charge, depending upon the
magnitude thereof, could adversely affect the Company's results of operations.
The Company will be required to incur significant start-up expenses in
connection with establishing each start-up location. Such expenses may
include, among others, pre-opening expenses related to setting up the
facility, training employees, installing information systems and marketing.
The Company expects that in general start-up locations will initially operate
at a loss or at less than normalized profit levels. Consequently, the opening
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of a start-up location may negatively impact the Company's margins until the
location achieves normalized profitability.
There may be a lag between the time that the Company purchases new equipment
and begins to incur the related depreciation and interest expenses and the
time that the equipment begins to generate revenues at normalized rates. As a
result, the purchase of new equipment, particularly equipment purchased in
connection with expanding and diversifying the Company's rental equipment, may
periodically reduce margins.
GENERAL ECONOMIC CONDITIONS AND INFLATION
The Company's operating results may be adversely affected by (i) changes in
general economic conditions, including changes in construction and industrial
activity, or increases in interest rates, or (ii) adverse weather conditions
that may temporarily decrease construction and industrial activity in a
particular geographic area. Although the Company cannot accurately anticipate
the effect of inflation on its operations, the Company believes that inflation
has not had, and is not likely in the foreseeable future to have, a material
impact on its results of operations.
RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive
Income," and SFAS No. 131, "Disclosures about Segments of an Enterprise and
Related Information." SFAS No. 130 establishes standards for reporting and
display of comprehensive income and its components in primary financial
statements. The Company adopted SFAS No. 130 during the period ended March 31,
1998. The adoption of SFAS No.130 did not have a material effect on the
consolidated financial position, results of operations or cash flows of the
Company. SFAS No. 131 establishes a new method by which companies will report
operating segment information. This method is based on the manner in which
management organizes the segments within a company for making operating
decisions and assessing performance. The Company continues to evaluate the
provisions of SFAS No. 131 and, upon adoption, the Company may report
operating segments. The Company is required to adopt SFAS No. 131 by December
31, 1998.
In February 1998, the Financial Accounting Standards Board issued SFAS No.
132, "Employers' Disclosures about Pensions and Other Post Retirement
Benefits." SFAS No. 132 revises employers' disclosures about pension and other
post retirement benefit plans but does not change the measurement or
recognition of those plans. The Company is required to adopt SFAS No. 132 by
December 31, 1998. The adoption of SFAS No. 132 is expected to have no effect
on the Company's disclosure of employee benefit matters.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133
establishes a new model for accounting for derivatives and hedging activities.
The Company will adopt SFAS No. 133 beginning January 1, 2000. The adoption of
SFAS No. 133 is not expected to have a material effect on the Company's
consolidated financial position or results of operations.
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BUSINESS
The Company is the largest equipment rental company in North America with
over 400 branch locations in 38 states, Canada and Mexico. The Company offers
for rent a wide variety of equipment (on a daily, weekly or monthly basis) to
customers that include construction industry participants, industrial
companies, homeowners and others. The Company also sells used rental
equipment, acts as a dealer for certain new equipment, and sells related
merchandise and parts. The Company began operations in October 1997 with the
acquisition of six well-established rental companies and has grown through a
combination of internal growth and the acquisition of 78 additional companies,
including a merger in September 1998 with U.S. Rentals. At the time of the
merger, U.S. Rentals was the second largest equipment rental company in the
United States based on 1997 rental revenues. The Company had pro forma
revenues and EBITDA in the nine months ended September 30, 1998, of
$1.1 billion and $351.1 million, respectively.
The rental equipment offered by the Company includes a broad range of light
to heavy construction and industrial equipment (such as backhoes, forklifts,
aerial lifts, skid-steer loaders, compressors, pumps and generators) and
general tools and equipment (such as hand tools and garden and landscaping
equipment). The equipment mix varies at each of the Company's locations, with
some locations offering a general mix and some specializing in specific
equipment categories. As of December 8, 1998, the Company's rental equipment
included approximately 260,000 units, had an original purchase price of
approximately $1.8 billion and had a weighted average age (based on original
purchase price) of approximately 26 months.
INDUSTRY OVERVIEW
The Company estimates that the U.S. equipment rental industry (including
used and new equipment sales by rental companies) generates annual revenues in
excess of $20 billion. The combined equipment rental revenues of the 100
largest equipment rental companies have increased at an estimated compound
annual rate of approximately 23% from 1992 through 1997 (based upon 1992
revenues and 1997 pro forma revenues, giving effect to certain acquisitions
completed after the beginning of 1997, reported by the Rental Equipment
Register, an industry trade publication). The Company believes growth in the
equipment rental industry primarily reflects the following trends:
Recognition of Advantages of Renting. There is increasing recognition of
the many advantages that equipment rental may offer compared with
ownership, including the ability to: (i) avoid the large capital investment
required for equipment purchases, (ii) reduce storage and maintenance
costs, (iii) supplement owned equipment thereby increasing the range and
number of jobs that can be worked on, (iv) access a broad selection of
equipment and select the equipment best suited for each particular job, (v)
obtain equipment as needed and minimize the costs associated with idle
equipment, and (vi) access the latest technology without investing in new
equipment.
Increase in Contractor Rentals. There has been a fundamental shift in the
way contractors meet their equipment needs. While contractors have
historically used rental equipment on a temporary basis--to provide for
peak period capacity, meet specific job requirements or replace broken
equipment--many contractors are now also using rental equipment on an
ongoing basis to meet their long-term equipment requirements.
Outsourcing Trend. The general trend toward the corporate outsourcing of
non-core competencies is leading large industrial companies increasingly to
rent, rather than purchase, equipment that they require for repairing,
maintaining and upgrading their facilities.
The equipment rental industry is highly fragmented, consisting of a small
number of multi-location regional or national operators and a large number of
relatively small, independent businesses serving discrete local markets. Based
upon rental revenues reported by the Rental Equipment Register for 1997: (i)
there were only 10 equipment rental companies that had 1997 equipment rental
revenues in excess of $100 million (with the largest
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company having had 1997 equipment rental revenues of approximately $460
million), (ii) the largest 100 equipment rental companies combined had less
than a 22% share of the market based on 1997 equipment rental revenues and the
Company's estimate of the size of the market (with the largest company having
had a market share of less than 3%), and (iii) there were approximately 100
equipment rental companies that had 1997 equipment rental revenues between $5
million and $100 million. In addition, the Company estimates that there are
more than 20,000 companies with annual equipment rental revenues of less than
$5 million. The Company believes that the fragmented nature of the industry
presents substantial consolidation and growth opportunities for companies with
the ability to implement a disciplined acquisition program. The Company also
believes that the extensive experience of its management team in acquiring and
effectively integrating acquisition targets should enable the Company to
capitalize on these opportunities.
COMPETITIVE ADVANTAGES
The Company believes that it benefits from the following competitive
advantages:
Low-Cost Purchasing. The Company has significant purchasing power due to its
size and volume purchasing. As a result, the Company is able to buy new
equipment at prices that are significantly lower than those generally
available to smaller companies. The Company is also able to purchase many
other products and services--such as insurance, telephone service and fuel--at
attractive rates.
Operating Efficiencies. The Company generally groups its branches into
clusters of 10 to 30 locations within a particular geographic region. The
Company's information technology system links all branches within a cluster
and enables each branch to track and access all equipment at any other branch
within the cluster. The Company believes that its cluster strategy produces
significant operating efficiencies, including:
. the equipment within a cluster is marketed through multiple branches
rather than a single branch--thereby increasing equipment utilization
rates;
. the specialties of different branches are cross-marketed--thereby
increasing revenues without increasing marketing expense; and
. costs are reduced through the centralization of common functions such as
payroll, credit and collection, and heavy maintenance.
Full Range of Rental Equipment. The Company believes that it has one of the
largest and most diverse equipment rental fleets in the industry. The Company
believes that the size and diversity of its fleet provide significant
advantages, including enabling the Company to:
. serve a large and diverse customer base--thereby reducing dependence on
any particular customer;
. satisfy most or all of a customer's equipment rental needs--thereby
increasing the revenues that can be generated from each customer;
. attract customers by providing the benefit of "one-stop" shopping;
. serve the needs of large customers--such as large industrial companies--
which require assurance that large quantities of diverse equipment will
be available as required; and
. minimize lost sales due to equipment being unavailable.
Information Technology System. The Company has a modern information
technology system designed to facilitate rapid and informed decision making.
The system provides management with a wide range of real time operating and
financial data--including data relating to inventory, receivables, customers,
vendors, fleet utilization and price and sales trends. The system also enables
branch personnel to search for needed equipment throughout a geographic
region, determine the closest location of such equipment and arrange for
delivery to the customer's work site. The Company is in the process of
extending the system to the locations acquired in the merger with U.S.
Rentals. See "--Information Technology System."
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Geographic Diversity. The Company's branches are situated in 38 states,
Canada and Mexico. The Company believes that its geographic diversity should
reduce its sensitivity to fluctuations in regional economic conditions and
enable it to transfer equipment to regions where demand is increasing from
regions where demand is flat or decreasing. The Company also believes that its
geographic diversity and large network of branch locations provide significant
operating advantages including the ability to service national accounts and
access used equipment re-sale markets across the country.
Experienced Management. The Company believes that it has one of the most
experienced management teams in the equipment rental industry. The Company's
senior management team includes managers with extensive experience in the
equipment rental industry and others with proven track-records in other
industries. The Company's executive officers include four former executive
officers of United Waste Systems, Inc., a publicly-traded solid waste
management company that was acquired by USA Waste Services, Inc. in August
1997. United Waste executed a growth strategy that combined a disciplined
acquisition program (including over 200 acquisitions completed from January
1995 through August 1997), the integration and optimization of acquired
facilities, and internal growth. The Company's executive officers also include
two former officers of U.S. Rentals who joined the Company following the
merger of the Company with U.S. Rentals. One of these officers has over 30
years experience in the equipment rental industry and the other has over 10
years of experience. The Company's senior management is supported by the
Company's branch managers who have an average of over 20 years experience in
the equipment rental industry and substantial knowledge of the local markets
served. The Company's senior management is also supported by a team of
acquisition specialists who are engaged full-time in evaluating acquisition
candidates and executing the Company's acquisition program.
GROWTH STRATEGY
The Company's objective is to continue to expand its operations primarily in
North America. The Company's plan for achieving this objective includes the
following key elements:
Continue Strong Internal Growth. The Company is seeking to sustain its
strong internal growth by further expanding and modernizing its equipment
fleet, increasing sales efforts, and increasing cross-marketing of the
Company's equipment specialties at different locations. The Company is also
seeking to increase its rentals to industrial companies through a
comprehensive marketing program specifically aimed at this sector. The Company
believes that industrial companies represent an attractive market for rental
equipment because (i) many industrial companies require a certain level of
predictable and necessary plant maintenance regardless of economic conditions
and (ii) the equipment required for this maintenance is typically not used
full-time. In addition, the Company believes that there is significant
potential for growth in this market because the current penetration of this
market by the equipment rental industry is very low in comparison to its
penetration of the construction market.
Execute Disciplined Acquisition Program. The Company intends to continue to
expand through its disciplined acquisition program. The Company generally
seeks to acquire multiple locations within the regions that it enters, with
the goal of creating clusters of locations that can share equipment, marketing
resources, back office functions and heavy maintenance. The Company is seeking
to acquire companies of varying size, including relatively large companies to
serve as platforms for the development of new regional clusters and smaller
companies to complement existing or anticipated locations. In evaluating
potential acquisition targets, the Company considers a number of factors,
including the quality of the target's rental equipment and management, the
opportunities to improve operating margins and increase internal growth at the
target, the economic prospects of the region in which the target is located,
the potential for additional acquisitions in the region, and the competitive
landscape in the target's markets.
Open New Rental Locations. The Company also intends to grow by selectively
opening new rental locations in attractive markets where there are no suitable
acquisition targets available or where the cost of a start-up location would
be less than the cost of acquiring an existing business.
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Increase Cost Savings. The Company focuses significant efforts on reducing
costs through the efficient integration of new and existing operations, the
elimination of duplicative costs, the centralization of common functions, the
consolidation of locations where practical, and the use of its purchasing
power to negotiate discounts from suppliers.
ACQUISITIONS
The Company believes that there will continue to be a large number of
attractive acquisition opportunities in the equipment rental industry due to
the highly fragmented nature of the industry, the inability of many small and
mid-sized equipment rental companies to expand and modernize due to capital
constraints, and the desire of many long-time owners for liquidity. The
Company has an experienced acquisition team, comprised of senior level
executives with extensive acquisition, operating and financial experience,
that is engaged in identifying and evaluating acquisition candidates and
executing the Company's acquisition program.
Completed Acquisitions
The Company has completed 84 acquisitions (through December 8, 1998),
including a merger with U.S. Rentals that was completed in September 1998. At
the time of the merger U.S. Rentals was the second largest equipment rental
company in the United States based on 1997 rental revenues. The aggregate
consideration paid by the Company for the Acquired Companies (other than the
29.6 million shares of Common Stock issued in the U.S. Rentals merger) was
$975.2 million and consisted of approximately $785.0 million in cash, 6.6
million shares of Common Stock, seller notes of approximately $4.3 million, a
convertible note in the principal amount of $0.3 million, and warrants to
purchase an aggregate of 30,000 shares of Common Stock. In addition, the
Company repaid or assumed outstanding indebtedness of the Acquired Companies
in the aggregate amount of approximately $483.4 million (other than $413.6
million of debt assumed or repaid in connection with the U.S. Rentals merger).
The Company agreed in connection with 13 acquisitions to pay former owners
additional amounts based upon specified future revenues and/or new store
openings. Such amounts are limited (i) in the case of 12 of the acquisitions,
to a specified maximum amount which varies from $0.4 million to $10.0 million
(with the average being $1.8 million) and (ii) in the case of one acquisition,
to an amount based upon the performance of a single store.
Potential Acquisitions
As of December 8, 1998, the Company was a party to 24 non-binding letters of
intent relating to the possible acquisition by the Company of 24 additional
companies having an aggregate of 61 rental locations. Based upon information
provided to the Company in connection with its preliminary investigation of
these companies, the Company estimates that the aggregate 1997 revenues of
these companies were approximately $91 million. However, in view of the
preliminary nature of this estimate, there can be no assurance that actual
revenues did not differ.
Based upon the terms contained in the letters of intent, the Company
estimates that the aggregate purchase price for the 24 companies under letter
of intent would be approximately $110.0 million plus the assumption of
approximately $27.8 million of indebtedness. A portion of the purchase price
may be paid in the form of Common Stock.
In view of the fact that the letters of intent are non-binding and that the
Company has not completed its due diligence investigations with respect to the
companies under letter of intent, the Company cannot predict whether these
letters of intent will lead to definitive agreements, whether the terms of any
such definitive agreements will be the same as the terms contemplated by the
letters of intent or whether any transaction contemplated by such letters of
intent will be consummated.
The Company is continuously involved in discussions relating to potential
acquisitions of varying size and in due diligence investigations of potential
acquisition candidates. In addition to the potential acquisitions that
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are currently under letter of intent, there are additional potential
acquisitions with respect to which the Company is currently engaged in
discussions or due diligence investigations. These potential acquisitions
include the acquisition of smaller companies to complement existing or
anticipated locations and combinations with large companies that have an
established presence in one or more regions.
START-UP LOCATIONS
The Company has to date developed three start-up locations (located in
Florida, Texas and Quebec) and is in the process of developing one additional
start-up location (located in Maryland). The Company expects that this
location will open at the end of 1998.
OPERATIONS
The Company offers for rent a wide variety of equipment to customers that
include construction industry participants, industrial companies, homeowners
and others. The Company also sells used equipment, acts as a dealer for
certain new equipment and sells related merchandise and parts.
LOCATIONS
The Company currently operates 410 rental locations (367 in the United
States, 42 in Canada and 1 in Mexico). The number of locations in each state
(or province) is shown below:
United States: Alabama (13), Arizona (3), Arkansas (3), California
(82), Colorado (6), Connecticut (7), Delaware (5), Florida (19),
Georgia (3), Idaho (2), Indiana (6), Illinois (5), Kansas (2), Kentucky
(8), Louisiana (3), Maryland (15), Massachusetts (1), Michigan (5),
Minnesota (5), Missouri (2), Nebraska (1), Nevada (12), New Jersey (8),
New Mexico (2), New York (11), North Carolina (17), Ohio (2), Oklahoma
(2), Oregon (27), Pennsylvania (6), Rhode Island (2), South Carolina
(8), Tennessee (3), Texas (32), Utah (6), Virginia (13), Washington
(19), Wisconsin (1)
Canada: Ontario (32), Quebec (10)
Mexico: Nuevo Leon (1)
The Company's rental locations generally include facilities for displaying
equipment and, depending on the location, may include separate equipment
service areas and storage areas.
EQUIPMENT RENTAL
The Company offers for rent a broad array of equipment on a daily, weekly,
monthly and multi-month basis. The following are examples of the types of
equipment that the Company offers for rent:
Construction and Industrial: aerial lifts (such as boom and scissor
lifts), air compressors, backhoes, ditching equipment, earth moving
equipment, forklifts, generators, pumps and skid-steer loaders.
General Tools and Equipment: garden and landscaping equipment, hand
tools, high-pressure washers, paint sprayers, power tools and roto
tillers.
The equipment mix varies at each of the Company's locations, with some
locations offering a general mix and some specializing in specific equipment
categories.
As of December 8, 1998, the Company's rental equipment included
approximately 260,000 units and had an original purchase price of
approximately $1.8 billion and a weighted average age (based on original
purchase price) of approximately 26 months. The Company estimates that (based
on original purchase price) construction and industrial equipment represents
approximately 94% of the Company's rental equipment and that general tools and
equipment represents approximately 6%. The Company also estimates that each of
the following categories of construction and industrial equipment represents
more than 15% of the Company's rental
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equipment: (i) aerial lift equipment (represents approximately 30%), (ii)
earth moving equipment (represents approximately 21%) and (iii) forklifts
(represents approximately 16%).
RELATED OPERATIONS
In addition to renting equipment, the Company is engaged in a variety of
related or complementary activities.
Sales of Used Equipment. The Company routinely sells used rental equipment
to adjust the age and composition of its rental fleet. The Company sells such
equipment through a variety of means including sales to the Company's existing
rental customers and local customer base, sales to used equipment dealers, and
sales through public auctions. The Company also participates in trade-in
programs in connection with purchasing new equipment.
Sales of New Equipment. The Company, at most locations, is a dealer for
various tool and equipment manufacturers, including American Honda Motor Co.
Inc. (generators and pumps), Edco Manufacturing (surfacing equipment), Genie
Industries, Inc. (aerial lifts), Grove Worldwide (aerial platforms), Kubota
(earthmoving equipment), Multiquip, Inc. (compaction equipment and
compressors), Milwaukee Electric Tool Corporation (power tools), Trak
International (loaders and forklifts), Stihl, Inc. (chain saws and power cut-
off saws) and Wacker (compaction equipment). In general, such manufacturers
may at any time terminate the Company's right to act as a dealer.
Sales of Related Merchandise and Parts. The Company, at most locations,
sells a variety of merchandise that may be used in conjunction with rental
equipment (such as saw blades, fasteners, drill bits, hard hats, gloves and
other safety equipment) and also sells parts.
Other. The Company at certain locations offers equipment maintenance
services to customers for equipment that is owned by the customer. This
service is primarily provided with respect to equipment purchased from the
Company.
CUSTOMERS AND SALES AND MARKETING
The Company on a pro forma basis rented equipment to approximately 633,000
customers in 1997 and 922,000 customers in the first nine months of 1998. The
Company's top 10 customers accounted for approximately 1% of the Company's pro
forma revenues in 1997 and approximately 4% in the first nine months of 1998.
The composition of the Company's customer base varies widely by location and
is determined by several factors, including the equipment mix and marketing
focus of the particular location and the business composition of the local
economy. The Company's customer base consists of the following general
categories: (i) construction industry participants (such as construction
companies, contractors and subcontractors), (ii) industrial companies (such as
manufacturers, chemical companies, paper mills and utilities), and (iii)
homeowners and other individuals. The Company estimates that (a) revenues
attributable to construction industry participants accounted for approximately
63% of the Company's pro forma revenues in 1997 and 64% in the first nine
months of 1998, (b) revenues attributable to industrial companies accounted
for approximately 27% of the Company's pro forma revenues in 1997 and 26% in
the first nine months of 1998, and (c) revenues attributable to homeowners and
others accounted for approximately 10% of the Company's pro forma revenues in
1997 and 9% in the first nine months of 1998.
The Company markets its products and services through a sales force which,
as of December 8, 1998, consisted of approximately 887 store-based salespeople
and 790 field-based salespeople. The Company supplements the activities of its
sales force through participation in industry trade shows and conferences,
direct mailings, and advertising in local industry publications and the yellow
pages in the markets it serves.
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PURCHASING
The Company believes that due to its size and the significant volume of
equipment that it regularly purchases it is able to purchase equipment at
prices that are significantly lower than those generally available to many of
its smaller competitors. The Company estimates that on a pro forma basis the
Company's largest supplier accounted for approximately 15% to 20% of the
Company's equipment purchases in the first nine months of 1998, and that the
Company's 10 largest suppliers accounted for approximately 65% to 75% of the
Company's equipment purchases during such period. The Company believes that it
has sufficient alternative sources of supply for its principal product
categories.
INFORMATION TECHNOLOGY SYSTEM
The Company has a modern information technology system designed to
facilitate rapid and informed decision making. Each of the Company's locations
at which the system is operational is equipped with a workstation that is
electronically linked to each of the Company's other locations and to the
Company's centralized databases. All rental transactions are entered at these
workstations and processed on a real-time basis through a centralized AS400
system located at corporate headquarters. Personnel at each location are able
to access the system 24 hours a day in order to determine equipment
availability, monitor business activity on a real-time basis, and obtain a
wide range of operating and financial data. The data available through the
system includes: (i) inventory reports, (ii) accounts receivable information,
(iii) customer and vendor information, (iv) price and sales trends by store,
region, salesperson, equipment category, or customer, (v) fleet utilization by
individual asset or asset class and (vi) financial results by store or region.
The system also enables branch personnel to search for needed equipment
throughout a geographic region, determine the closest location of such
equipment and arrange for delivery to the customer's work site.
The Company's information technology system is currently operational at all
of the Company's locations, except for certain recently acquired locations. In
general, it takes the Company three to five weeks to extend the system to
newly acquired locations. However, in view of the significant number of
locations that were acquired in the merger with U.S. Rentals, the Company
expects that the process of extending the system to these locations will not
be completed until February 1999.
COMPETITION
The equipment rental industry is highly fragmented and competitive. The
Company's competitors include: public companies or divisions of public
companies (such as Hertz Equipment Rental Corporation, Prime Service, Inc.,
and Rental Service Corporation); regional competitors which operate in one or
more states; small, independent businesses with one or two rental locations;
and equipment vendors and dealers who both sell and rent equipment directly to
customers. The Company believes that, in general, large companies enjoy
significant competitive advantages compared to smaller operators, including
greater purchasing power, a lower cost of capital, the ability to provide
customers with a broader range of equipment and services and with newer and
better maintained equipment, and greater flexibility to transfer equipment
among locations in response to customer demand.
PROPERTIES
The Company currently operates 410 rental locations. The Company owns 75 of
its rental locations and leases the other locations. The Company's leases
provide for varying terms and include 12 leases that are on a month-to-month
basis and 15 leases that provide for a remaining term of less than one-year
and do not provide a renewal option. The Company is currently negotiating
renewals for most of the leases that provide for a remaining term of less than
one-year. Certain of the Company's leases were entered into (or assumed) in
connection with acquisition transactions and most of the lessors with respect
to these leases are former owners of businesses that were acquired.
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The Company maintains a fleet of vehicles that is used for delivery,
maintenance and sales functions. A portion of this fleet is owned and a portion
leased and, as of December 8, 1998, this fleet included approximately 9,585
vehicles.
The Company's corporate headquarters are located in Greenwich, Connecticut,
where it leases approximately 15,000 square feet under a lease that extends
until 2001 (subject to extension rights).
ENVIRONMENTAL AND SAFETY REGULATIONS
The Company's equipment, facilities and operations are subject to certain
federal, state and local laws and regulations relating to environmental
protection and occupational health and safety. These include, among other
things, laws and regulations governing wastewater discharges, the use,
treatment, storage and disposal of solid and hazardous wastes and materials,
air quality and the remediation of contamination associated with the release of
hazardous substances. Under such laws, an owner or lessee of real estate may be
liable for, among other things, (i) the costs of removal or remediation of
certain hazardous or toxic substances located on, in, or emanating from, such
property, as well as related costs of investigation and property damage and
substantial penalties for violations of such laws, and (ii) environmental
contamination at facilities where its waste is or has been disposed. Such laws
often impose such liability without regard to whether the owner or lessee knew
of, or was responsible for, the presence of such hazardous or toxic substances.
The activities of the Company that are or may be impacted by these laws
include, but are not limited to, the use of hazardous materials to clean and
maintain equipment and the disposal of solid and hazardous waste and wastewater
from equipment washing. In addition, the Company dispenses petroleum products
from underground and above-ground storage tanks located at certain rental
locations and is required from time to time to remove or upgrade tanks in order
to comply with applicable laws. Furthermore, the Company has acquired or leased
certain locations which have or may have been contaminated by leakage from
underground tanks or other sources and is in the process of assessing the
nature of the required remediation. Based on the conditions currently known to
the Company, the Company believes that any unreserved environmental remediation
and compliance costs required with respect to those conditions will not have a
material adverse affect on the Company. However, there can be no assurance that
the Company will not identify adverse environmental conditions that are not
currently known to it, that all potential releases from underground storage
tanks removed in the past have been identified, or that environmental and
safety requirements will not become more stringent or be interpreted and
applied more stringently in the future.
The identification of such adverse environmental conditions or such future
changes or interpretations could result in additional environmental compliance
or remediation costs not currently anticipated by the Company, which depending
on the magnitude of the cost could have a material adverse effect on the
Company.
EMPLOYEES
At December 8, 1998, the Company employed 7,889 persons, including 732
corporate and regional management employees, 5,480 operational employees and
1,677 sales people. Of these employees, 1,877 are salaried personnel and 6,012
are hourly personnel. Collective bargaining agreements relating to 23 separate
locations cover approximately 310 of the Company's employees. The Company
considers its labor relations to be good.
LEGAL PROCEEDINGS
The Company and its subsidiaries are parties to various litigation matters,
in most cases involving ordinary and routine claims incidental to the business
of the Company. The ultimate legal and financial liability of the Company with
respect to such pending litigation cannot be estimated with certainty but the
Company believes, based on its examination of such matters, that such ultimate
liability will not have a material adverse effect on the business or financial
condition of the Company.
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MANAGEMENT
BACKGROUND
The Company was founded in September 1997 by a group that included the
following executive officers of the Company: Bradley Jacobs, John Milne,
Michael Nolan and Robert Miner. Each of these officers was formerly a senior
executive of United Waste Systems, Inc. ("United Waste"). United Waste, a solid
waste management company, was formed in 1989 and sold in August 1997 to USA
Waste Services, Inc. for stock consideration valued at over $2.2 billion. At
the time it was sold, United Waste was the sixth largest provider of
integrated, non-hazardous solid waste management services in the United States,
as measured by 1996 revenues.
EXECUTIVE OFFICERS AND DIRECTORS
The table below identifies, and provides certain information concerning, the
officers and directors of URI. The officers and directors of Holdings are the
same as the officers and directors of URI.
<TABLE>
<CAPTION>
NAME AGE POSITIONS(1)
---- --- ------------
<S> <C> <C>
Bradley S. Jacobs....... 42 Chairman, Chief Executive Officer and Director
Wayland R. Hicks........ 55 Vice Chairman, Chief Operating Officer and Director
John N. Milne........... 39 Vice Chairman, Chief Acquisition Officer,
Secretary and Director
William F. Berry........ 46 President and Director
Michael J. Nolan........ 37 Chief Financial Officer
John S. McKinney........ 44 Vice President, Finance and Director
Robert P. Miner......... 49 Vice President, Strategic Planning
Richard D. Colburn...... 87 Director
Ronald M. DeFeo......... 46 Director
Richard J. Heckmann..... 55 Director
Gerald Tsai, Jr. ....... 69 Director
Christian M. Weyer...... 74 Director
</TABLE>
- --------
(1) For information concerning the term served by directors, see "--
Classification of Board of Directors."
Bradley S. Jacobs has been Chairman, Chief Executive Officer and a director
of the Company since its formation in September 1997. Mr. Jacobs founded United
Waste Systems, Inc. and served as its Chairman and Chief Executive Officer from
its inception until the sale of the company in August 1997. From 1984 to July
1989, Mr. Jacobs was Chairman and Chief Operating Officer of Hamilton Resources
Ltd., an international trading company, and from 1979 to 1983, he was Chief
Executive Officer of Amerex Oil Associates, Inc., an oil brokerage firm that he
co-founded.
Wayland R. Hicks has been Chief Operating Officer of the Company since
November 1997 and a director since June 1998. He also served as President of
the Company during the period from November 1997 until September 1998, when he
became Vice Chairman. Mr. Hicks previously held various senior executive
positions at Xerox Corporation where he worked for 28 years (1966-1994). His
positions at Xerox Corporation included Executive Vice President, Corporate
Operations (1993-1994), Executive Vice President, Corporate Marketing and
Customer Support Operations (1989-1993) and Executive Vice President,
Engineering and Manufacturing--Xerox Business Products and Systems Group (1987-
1989). Mr. Hicks also served as Vice Chairman and Chief Executive Officer of
Nextel Communications Corp. (1994-1995) and as Chief Executive Officer and
President of Indigo N.V. (1996-1997). He is also a director of Maytag
Corporation.
John N. Milne has been Vice Chairman, Chief Acquisition Officer and a
director of the Company since its formation in September 1997. Mr. Milne was
Vice Chairman and Chief Acquisition Officer of United Waste
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Systems, Inc. from 1993 until August 1997 and held other senior executive
positions at United Waste from 1990 until 1993. Mr. Milne had primary
responsibility for implementing United Waste's acquisition program. From
September 1987 to March 1990, Mr. Milne was employed in the Corporate Finance
Department of Drexel Burnham Lambert Incorporated.
William F. Berry joined the Company as President and a director in September
1998 following the merger of the Company with U.S. Rentals. Mr. Berry served
as President of U.S. Rentals from 1987 until the merger and held numerous
other operational and managerial positions at U.S. Rentals and a predecessor
during the more than 30 years that he was employed there (1966-1998).
Michael J. Nolan has been Chief Financial Officer of the Company since its
formation in September 1997. Mr. Nolan served as the Chief Financial Officer
of United Waste Systems, Inc. from February 1994 until August 1997. He served
in other finance positions at United Waste from November 1991 until February
1994, including Vice President, Finance, from October 1992 to February 1994.
From 1985 until November 1991, Mr. Nolan held various positions at the
accounting firm of Ernst & Young, including senior audit manager, and is a
Certified Public Accountant.
John S. McKinney joined the Company as Vice President, Finance and a
director in September 1998 following the merger of the Company with U.S.
Rentals. Mr. McKinney served as Chief Financial Officer of U.S. Rentals from
1990 until the merger and as Controller of U.S. Rentals from 1988 until 1990.
Prior to joining U.S. Rentals, Mr. McKinney served as the controller of an
electrical wholesale company, held various financial positions at Iomega
Corporation, including Assistant Controller, and held various positions at the
accounting firm of Arthur Andersen & Co.
Robert P. Miner has been an executive officer of the Company since its
formation in September 1997. He served as Vice President, Finance until July
1998 at which time he was appointed Vice President, Strategic Planning . Mr.
Miner was an executive officer of United Waste Systems, Inc. from November
1994 until August 1997, serving first as Vice President, Finance and then Vice
President, Acquisitions. Prior to joining United Waste, he was a research
analyst with PaineWebber Incorporated (November 1988 to October 1994) and
Needham & Co. (January 1987 to October 1988) and held various executive
positions at General Electric Environmental Services, Inc., Stauffer Chemical
Company, and OHM Corporation.
Richard D. Colburn became a director of the Company in September 1998
following the merger of the Company with U.S. Rentals. Mr. Colburn was
Chairman of U.S. Rentals for 22 years. Mr. Colburn is a private investor.
Ronald M. DeFeo has been a director of the Company since October 1997. Mr.
DeFeo is the Chief Executive Officer, President, Chief Operating Officer and a
director of Terex Corporation, a leading global provider of equipment for the
manufacturing, mining and construction industries. Mr. DeFeo joined Terex in
1992 as President of the Terex heavy equipment group and was appointed
President and Chief Operating Officer in 1993 and Chief Executive Officer in
1995. From 1984 to 1992, Mr. DeFeo held various management positions at
Tenneco, Inc., including Senior Vice President and Managing Director.
Richard J. Heckmann has been a director of the Company since October 1997.
Mr. Heckmann has served since 1990 as Chairman, President and Chief Executive
Officer of United States Filter Corporation, a leading global provider of
industrial and commercial water and wastewater treatment systems and services.
Mr. Heckmann is also a director of Waste Management, Inc. and K2 Inc.
Gerald Tsai, Jr. has been a director of the Company since December 1997. Mr.
Tsai served as Chairman, Chief Executive Officer and President of Delta Life
Corporation, an insurance company, from 1993 until the sale of the company in
October 1997. Mr. Tsai was Chairman of the Executive Committee of the Board of
Directors of Primerica Corporation, a diversified financial services company,
from December 1988 until April 1991, and
57
<PAGE>
served as Chief Executive Officer of Primerica Corporation from April 1986
until December 1988. Mr. Tsai is
currently a private investor and serves as a director of The Meditrust
Companies, Saks Incorporated, Rite Aid Corporation, Sequa Corporation, Triarc
Companies, Inc. and Zenith National Insurance Corp. He also serves as a
trustee of Boston University, Mount Sinai--NYU Medical Center and Health
System and NYU School of Medicine Foundation Board.
Christian M. Weyer became a director of the Company in December 1998. Mr.
Weyer has been in the international banking business for over 31 years and has
served as President of Enerfin S.A., an international trade and financial
advisory firm, since 1985. From May 1988 to December 1992, Mr. Weyer was a
member of senior management at Banque Indosuez in Geneva, Switzerland, with
responsibility for matters relating to commercial banking, and from 1971 to
1985, held various senior management positions at Banque Paribas and its
affiliates (including President of Banque Paribas (Suisse) in Geneva during
1984). Prior to 1971, Mr. Weyer held senior management positions with Chase
Manhattan Bank in Paris and in Geneva.
CAPITAL CONTRIBUTIONS BY EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of the Company listed below have made
capital contributions to the Company in the aggregate amount of $45.0 million
(excluding amounts paid by certain officers and directors in respect of shares
of Common Stock purchased by them in the Company's initial public offering in
December 1997). Such capital contributions were made in connection with the
sale to such officers and directors in private placements of an aggregate of
12,645,714 shares of Common Stock and 6,142,858 warrants ("Warrants"). Each
such Warrant entitles the holder to purchase one share of Common Stock at an
exercise price of $10.00 per share at any time prior to September 12, 2007.
Such shares and Warrants were sold at a price of $3.50 per unit consisting of
one share of Common Stock and one-half of a Warrant (except that Mr. Tsai
purchased only Common Stock at a price of $3.50 per share and Messrs. Hicks
and Heckmann purchased only Common Stock at a price of $10.00 per share). The
table below indicates (i) the number of shares of Common Stock and the number
of Warrants purchased by such officers and directors (excluding shares
purchased in the Company's initial public offering) and (ii) the aggregate
amount paid by such officers and directors for such securities:
<TABLE>
<CAPTION>
SECURITIES PURCHASED(1)
-------------------------
COMMON
NAME STOCK WARRANTS PURCHASE PRICE
---- ------------ --------------------------
<S> <C> <C> <C>
Bradley S. Jacobs.................. 10,000,000 5,000,000 $35,000,000
Wayland R. Hicks................... 100,000 -- 1,000,000
John N. Milne...................... 1,428,571 714,286 5,000,000
Michael J. Nolan................... 571,429 285,715 2,000,000
Robert P. Miner.................... 285,714 142,857 1,000,000
Richard J. Heckmann................ 20,000 -- 200,000
Gerald Tsai, Jr. .................. 240,000 -- 840,000
</TABLE>
- --------
(1) In certain cases includes securities owned by one or more entities
controlled by the named holder.
CLASSIFICATION OF BOARD OF DIRECTORS
The Board of Directors is divided into three classes. The term of office of
the first class (currently comprised of Messrs. Hicks, McKinney and Tsai) will
expire at the first annual meeting of stockholders following January 1, 1998,
the term of office of the second class (currently comprised of Messrs. Berry,
DeFeo and Heckmann) will expire at the second annual meeting of stockholders
following January 1, 1998, and the term of office of the third class
(currently comprised of Messrs. Colburn, Jacobs, Milne and Weyer) will expire
at the third annual meeting of stockholders following January 1, 1998. At each
annual meeting of stockholders, successors to directors of the class whose
term expires at such meeting will be elected to serve for three-year terms and
until their successors are elected and qualified.
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<PAGE>
COMMITTEES OF THE BOARD
The Board of Directors has three standing committees: the Audit Committee,
the Compensation/Stock Option Committee, and the Special Stock Option
Committee.
The responsibilities of the Audit Committee include selecting the firm of
independent accountants to be appointed to audit the Company's financial
statements and reviewing the scope and results of the audit with the
independent accountants. The members of this committee are Messrs. DeFeo,
Heckmann and Tsai.
The responsibilities of the Compensation/Stock Option Committee include
making recommendations with respect to the compensation to be paid to officers
and directors, administering any stock option plan in which officers or
directors are eligible to participate and approving the grant of options
pursuant to any such plan. The members of this committee are Messrs. DeFeo,
Heckmann and Tsai.
The responsibilities of the Special Stock Option Committee include
administering any stock option plan in which officers and directors are not
eligible to participate and approving the grant of options pursuant to any
such plan to persons who are not officers or directors. The members of this
committee are Messrs. Jacobs and Milne.
COMPENSATION OF DIRECTORS
Each director is paid up to $2,500 per day for each Board of Directors'
meeting such director attends, together with an expense reimbursement. During
1997, Messrs. DeFeo, Heckmann and Tsai were each granted options to purchase
an aggregate of 20,000 shares of Common Stock at an exercise price of $15.00
per share. For information concerning options granted to directors in 1998,
see "--Stock Option Plans."
COMPENSATION OF CERTAIN OFFICERS
The following table sets forth information concerning the compensation of
the Chief Executive Officer of the Company and each other person that was an
executive officer of the Company during the period from August 14, 1997
(inception) through December 31, 1997.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
AWARDS
------------
SECURITIES
UNDERLYING
NAME AND PRINCIPAL POSITION SALARY($) OPTIONS(#)
- --------------------------- --------- ------------
<S> <C> <C>
Bradley S. Jacobs...................................... $97,039 --
Chief Executive Officer
Wayland R. Hicks....................................... 47,692(1) 450,000
President and Chief Operating Officer
John N. Milne.......................................... 63,577 --
Chief Acquisition Officer
Michael J. Nolan....................................... 58,558 --
Chief Financial Officer
Robert P. Miner........................................ 50,192 --
Vice President, Finance
</TABLE>
- --------
(1)Mr. Hicks's employment with the Company commenced on November 14, 1997.
The following tables summarize the options granted in 1997 to Mr. Hicks, the
potential value of these options at the end of the option term (assuming
certain levels of appreciation of the Common Stock), and the total number of
options held by such executive officer as of December 31, 1997. None of the
other executive
59
<PAGE>
officers of the Company named in the Summary Compensation Table above were
granted options in 1997. For information concerning options granted to
executive officers in 1998, see "--Stock Option Plans."
OPTION GRANTS IN 1997
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-----------------------------------------------------------------------
POTENTIAL REALIZABLE VALUE
NUMBER OF % OF TOTAL AT ASSUMED RATE OF STOCK
SECURITIES OPTIONS EXERCISE APPRECIATION FOR OPTION
UNDERLYING GRANTED TO PRICE TERM(1)
OPTIONS EMPLOYEES PER EXPIRATION ---------------------------
NAME GRANTED IN 1997 SHARE DATE 5% 10%
- ---- ---------- ---------- -------- ---------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Wayland R. Hicks........ 350,000(2) 38.7% $10.00 11/13/07 $ 2,201,131 $ 5,578,099
50,000(2) 5.5% $15.00 11/13/07 64,447 546,871
50,000(2) 5.5% $20.00 11/13/07 -- 296,871
</TABLE>
- --------
(1) These amounts are based on calculations at hypothetical 5% and 10%
compound annual appreciation rates prescribed by the Securities and
Exchange Commission and, therefore, are not intended to forecast possible
future appreciation, if any, of the Common Stock price.
(2) One-third of these options vested in November 1998. The remaining options
will vest one-half in November 1999 and one-half in November 2000.
VALUE OF OPTIONS AT DECEMBER 31, 1997
<TABLE>
<CAPTION>
NUMBER OF SECURITIES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS AT
NAME DECEMBER 31, 1997 DECEMBER 31, 1997
- ---- ------------------------------- -------------------------
EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
-------------- ----------------- ----------- -------------
<S> <C> <C> <C> <C>
Wayland R. Hicks........ -- 450,000 -- $3,475,000
</TABLE>
EMPLOYMENT AGREEMENTS
The Company or Holdings has entered into employment agreements with each of
the executive officers of the Company. Certain information with regard to
these agreements is set forth below.
Base Salary. The agreements provide for base salary to be paid at a rate per
annum as follows: Mr. Jacobs ($290,000), Mr. Hicks ($400,000), Mr. Milne
($190,000), Mr. Berry ($225,000), Mr. Nolan ($175,000), Mr. McKinney
($175,000) and Mr. Miner ($150,000). The base salary payable to Mr. Hicks is
payable 50% in cash and 50% in Common Stock (valued at the average closing
sales price of the Common Stock during all trading days in the calendar
quarter preceding the quarter in which the payment is made). Shares of Common
Stock issued to Mr. Hicks are subject to certain restrictions on transfer as
described under "Principal Stockholders--Certain Agreements Relating to
Securities Held by Officers." The base salary payable to Messrs. Jacobs,
Milne, Berry and McKinney is subject to possible upward annual adjustments
based upon changes in a designated cost of living index.
Bonus. The agreements do not provide for mandatory bonuses. However, the
agreements provide that in addition to the compensation specifically provided
for, the Company may pay such salary increases, bonuses or incentive
compensation as may be authorized by the Board of Directors.
Other Compensation and Benefits. The agreements with Messrs. Jacobs and
Milne provide for each such executive to receive an automobile allowance of at
least $700 per month. The agreements with Messrs. Berry and McKinney provide
that the employee is entitled to participate in an automobile allowance
program which is made available to other senior executives of the Company.
The agreements with Messrs. Hicks and Berry provide for the Company to
reimburse the employee for certain relocation expenses up to a maximum of
$100,000.
60
<PAGE>
Certain of the agreements provide that the employee is entitled to
participate in certain specified insurance, retirement, compensation and
benefit plans if such plans are made available to other specified executives
of the Company.
Term. The employment agreements with the following executives provide that
the term shall automatically renew so that at all times the balance of the
terms will not be less than the period hereinafter specified with respect to
such executive: Mr. Jacobs (five years), Mr. Milne (five years), Mr. Nolan
(three years) and Mr. Miner (three years). The employment agreement with Mr.
Hicks provides for a term extending until November 2000. The employment
agreements with Messrs. Berry and McKinney provide for a term of three years
commencing on September 29, 1998, subject to automatic renewal so that at all
times the balance of the term will not be less than two years.
Termination and Severance. Under each of the agreements, the Company or the
employee may at any time terminate the agreement, with or without cause,
provided that if the Company terminates the agreement, the Company is required
to make severance payments to the extent described below.
The employment agreements with Messrs. Jacobs and Milne provide that the
executive is entitled to severance benefits in the event that (i) his
employment agreement is terminated by the Company without Cause (as defined in
the employment agreement), (ii) the executive terminates his employment
agreement for Good Reason (as defined in the employment agreement) or because
of a breach by the Company of its obligations thereunder, (iii) his employment
is terminated as a result of death or (iv) the Company or the executive
terminates the employment agreement due to the disability of the executive.
The severance benefits include (i) a lump sum payment equal to five times the
sum of the executive's annual base salary at the time of termination plus the
highest annual bonus paid to the executive in the preceding three years and
(ii) the continuation of the executive's benefits for such specified period.
The employment agreements with Messrs. Jacobs and Milne also provide that if
any portion of the required severance payment to the executive constitutes an
"excess parachute payment" (as defined in Section 280G of the Internal Revenue
Code of 1986, as amended (the "Code")), the executive is entitled to receive a
payment sufficient on an after-tax basis to offset any excise tax payable by
the executive pursuant to Section 4999 of the Code. Any payment constituting
an "excess parachute payment" would not be deductible by the Company.
The employment agreement with Mr. Hicks provides that the executive is
entitled to a severance payment in the amount of $1 million in the event that
his employment agreement is terminated by the Company without Cause (as
defined in the employment agreement) or he terminates his employment for Good
Reason (as defined in the employment agreement).
The employment agreements with Messrs. Berry and McKinney provide that if
the employment agreement is terminated by the Company without Cause (as
defined in the employment agreement), the executive is entitled to continue
receiving from the Company his then current monthly base salary and benefits
over the balance of the term.
The employment agreements with the other officers provide that the executive
is entitled to severance benefits of up to three months' base salary in the
event that the executive's employment agreement is terminated without Cause
(as defined in the employment agreement).
Options. Each of the agreements provides that all options at any time to be
granted to the executive will automatically vest upon a change of control of
the Company (as defined in the agreement).
Pursuant to the employment agreement with Mr. Hicks, Mr. Hicks has been
granted options to purchase an aggregate of 450,000 shares of Common Stock.
For information concerning these options, see "---Compensation of Certain
Officers."
Pursuant to the employment agreement with Mr. Berry, Mr. Berry has been
granted (i) options to purchase an aggregate of 200,000 shares of Common Stock
at a price per share of $21.375 and (ii) options to purchase an
61
<PAGE>
aggregate of 75,000 shares of Common Stock at a price per share of $45. These
options will vest one-third in September 1999, one-third in September 2000 and
one-third in September 2001.
Pursuant to the employment agreement with Mr. McKinney, Mr. McKinney has
been granted (i) options to purchase an aggregate of 100,000 shares of Common
Stock at a price per share of $21.375 and (ii) options to purchase an
aggregate of 37,500 shares of Common Stock at a price per share of $45. These
options will vest one-third in September 1999, one-third in September 2000 and
one-third in September 2001.
Other Provisions. The agreement with Mr. Hicks provides that at each annual
meeting of the stockholders of the Company which occurs during the term of the
agreement and at which Mr. Hicks' term as director would be scheduled to
expire, the Company will nominate Mr. Hicks for re-election as a director.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
At the time the employment agreements with Messrs. Jacobs and Milne were
approved by the Board of Directors, the sole members of the Board were Messrs.
Jacobs and Milne. No compensation committee interlocks with other companies
have existed.
STOCK OPTION PLANS
1997 Stock Option Plan. Options to purchase an aggregate of 4,872,075 shares
of Common Stock have been granted pursuant to the Company's 1997 Stock Option
Plan. These options have a weighted average exercise price of $22.69 per
share. No additional grants will be made under this plan.
1998 Stock Option Plan. Holdings' 1998 Stock Option Plan provides for the
granting of options to purchase not more than an aggregate of 4,000,000 shares
of Common Stock. Some or all of the options issued under the 1998 Stock Option
Plan may be "incentive stock options" within the meaning of the Code. All
officers and directors of Holdings and its subsidiaries are eligible to
participate in the 1998 Stock Option Plan. Each option granted pursuant to the
1998 Stock Option Plan must provide for an exercise price per share that is at
least equal to the fair market value per share of Common Stock on the date of
grant. No options may be granted under the 1998 Stock Option Plan after August
20, 2008. As of December 8, 1998, options to purchase an aggregate of
3,700,000 shares had been granted pursuant to this plan to executive officers
and directors. These options have a weighted average exercise price of $12.44
per share.
Plan for Persons Other Than Officers and Directors. Holdings has adopted a
stock option plan pursuant to which options, for up to an aggregate of 750,000
shares of Common Stock, may be granted to employees who are not officers or
directors and to consultants and independent contractors who perform services
for Holdings or its subsidiaries. As of December 8, 1998, options to purchase
an aggregate of 481,350 shares had been granted pursuant to this plan. These
options have a weighted average exercise price of $21.82 per share.
CERTAIN TRANSACTIONS
The Company has from time to time purchased equipment from Terex Corporation
("Terex") and may do so in the future. Ronald M. DeFeo, a director of the
Company, is the chief executive officer, and a director, of Terex. During
1997, the Company purchased approximately $1.1 million of equipment from
Terex.
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<PAGE>
PRINCIPAL STOCKHOLDERS
GENERAL
URI is a wholly owned subsidiary of Holdings. The table below and the notes
thereto set forth as of December 8, 1998 certain information concerning the
beneficial ownership (as defined in Rule 13d-3 under the Exchange Act) of the
Common Stock of Holdings by (i) each director and executive officer of
Holdings and (ii) all executive officers and directors of Holdings as a group.
Except as indicated in the table, the Company does not know of any stockholder
that is the beneficial owner of more than 5% of the outstanding Common Stock.
For purposes of the table, each executive officer is deemed to be the
beneficial owner of all shares of Common Stock that may be acquired upon the
exercise of the Warrants held by such officer. The Warrants are currently
exercisable at an exercise price of $10.00 per share (representing an
aggregate exercise price of $61.4 million, assuming the exercise of all
Warrants held by executive officers).
<TABLE>
<CAPTION>
NUMBER OF SHARES OF
COMMON STOCK PERCENT OF COMMON
NAME BENEFICIALLY OWNED(1)(2) STOCK OWNED(2)
- ---- ------------------------ -----------------
<S> <C> <C>
Bradley S. Jacobs................... 15,583,434(3)(4) 21.1%
Wayland R. Hicks.................... 438,502(5) *
John N. Milne....................... 2,292,857(6) 3.3 %
William F. Berry.................... 2,170,466(7) 3.1 %
Michael J. Nolan.................... 953,911(8) 1.4 %
John S. McKinney.................... 1,088,068(9) 1.6 %
Robert P. Miner..................... 428,571(10) *
Richard D. Colburn.................. 19,833,462(11) 29.0 %
Ronald M. DeFeo..................... 73,000(12) *
Richard J. Heckmann................. 90,000(13) *
Gerald Tsai, Jr..................... 340,001(14) *
Christian M. Weyer.................. 102,000(15) *
All executive officers and directors
as a group
(12 persons)....................... 43,394,272(16) 54.8%
</TABLE>
- --------
*Less than 1%.
(1) Unless otherwise indicated, each person has sole investment and voting
power with respect to the shares indicated. For purposes of this table, a
person or group of persons is deemed to have "beneficial ownership" of
any shares as of a given date which such person has the right to acquire
within 60 days after such date. For purposes of computing the percentage
of outstanding shares held by each person or group of persons named above
on a given date, any security which such person or persons has the right
to acquire within 60 days after such date is deemed to be outstanding for
the purpose of computing the percentage ownership of such person or
persons, but is not deemed to be outstanding for the purpose of computing
the percentage ownership of any other person.
(2) In certain cases, includes securities owned by one or more entities
controlled by the named holder.
(3) Consists of 10,000,100 outstanding shares, 5,000,000 shares issuable upon
the exercise of currently exercisable Warrants and 583,334 shares
issuable upon the exercise of currently exercisable options. Does not
include 2,366,667 shares issuable upon exercise of options which are not
currently exercisable.
(4) Mr. Jacobs has certain rights relating to the disposition of the shares
and Warrants owned by certain of the other officers of Holdings. By
virtue of such rights, Mr. Jacobs is deemed to share beneficial ownership
(within the meaning of Rule 13d-3 under the Exchange Act) of the shares
owned by such other officers of Holdings as described under "--Certain
Agreements Relating to Securities Held by Officers." The shares that the
table indicates are owned by Mr. Jacobs do not include the shares with
respect to which Mr. Jacobs is deemed to share beneficial ownership as
aforesaid. Including such shares, Mr. Jacobs is deemed the beneficial
owner of an aggregate of 19,717,006 shares of Common Stock (composed of
12,790,814 outstanding shares, 6,342,858 shares issuable upon the
exercise of outstanding Warrants and 583,334 shares issuable upon the
exercise of currently exercisable options).
(5) Consists of 105,169 outstanding shares and 333,333 shares issuable upon
the exercise of currently exercisable options. Does not include unissued
shares that the Company is required to pay Mr. Hicks as
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<PAGE>
part of his base salary as described under "Management--Employment
Agreements." Does not include 891,667 shares issuable upon exercise of
options which are not currently exercisable.
(6) Consists of 1,428,571 outstanding shares, 714,286 shares issuable upon
the exercise of currently exercisable Warrants and 150,000 shares
issuable upon the exercise of currently exercisable options. Does not
include 600,000 shares issuable upon exercise of options which are not
currently exercisable.
(7) Consists of 100 outstanding shares and 2,170,366 shares issuable upon the
exercise of currently exercisable options. Does not include 575,000
shares issuable upon exercise of options that are not currently
exercisable.
(8) Consists of 571,529 outstanding shares, 285,715 shares issuable upon the
exercise of currently exercisable Warrants and 96,667 shares issuable
upon the exercise of currently exercisable options. Does not include
418,333 shares issuable upon exercise of options which are not currently
exercisable.
(9) Consists of 3,000 outstanding shares and 1,085,068 shares issuable upon
the exercise of currently exercisable options. Does not include 337,500
shares issuable upon exercise of options that are not currently
exercisable.
(10) Consists of 285,714 outstanding shares and 142,857 shares issuable upon
the exercise of currently exercisable Warrants. Does not include 80,000
shares issuable upon exercise of options which are not currently
exercisable.
(11) Consists of 19,823,462 outstanding shares and 10,000 shares issuable upon
the exercise of currently exercisable options. Does not include 20,000
shares issuable upon exercise of options that are not currently
exercisable.
(12) Consists of 3,000 outstanding shares and 70,000 shares issuable upon the
exercise of currently exercisable options. Does not include 20,000 shares
issuable upon exercise of options that are not currently exercisable.
(13) Consists of 20,000 outstanding shares and 70,000 shares issuable upon
exercise of currently exercisable options. Does not include 20,000 shares
issuable upon exercise of options that are not currently exercisable.
(14) Consists of 270,001 outstanding shares and 70,000 shares issuable upon
exercise of currently exercisable options. Does not include 20,000 shares
issuable upon exercise of options that are not currently exercisable.
(15) Consists of 72,000 outstanding shares and 30,000 shares issuable upon
exercise of currently exercisable options.
(16) Consists of 32,582,646 outstanding shares, 6,142,858 shares issuable upon
the exercise of currently exercisable Warrants and 4,668,768 shares
issuable upon the exercise of currently exercisable options. Does not
include 5,349,167 shares issuable upon exercise of options which are not
currently exercisable.
CERTAIN AGREEMENTS RELATING TO SECURITIES HELD BY OFFICERS
Prior to the Company's initial public offering, certain executive officers
and other employees of the Company purchased Common Stock (and in certain
cases Warrants) from the Company in private placements. (For information
concerning the securities purchased by certain executive officers of the
Company in such private placements, see "Management--Capital Contributions by
Executive Officers and Directors.") All shares of Common Stock and Warrants
purchased by the executive officers and other employees of the Company prior
to the Company's initial public offering (and any shares of Common Stock
acquired upon exercise of such Warrants) are referred to as the "Private
Placement Securities."
Each holder of Private Placement Securities (other than Mr. Jacobs and Mr.
Hicks) has entered into an agreement with the Company and Mr. Jacobs that
provides that (i) if Mr. Jacobs sells any Private Placement Securities that he
beneficially owns in a commercial, non-charitable transaction, then Mr. Jacobs
is required to use his best efforts to sell (and has the right to sell subject
to certain exceptions) on behalf of such holder a pro rata portion of such
holder's Private Placement Securities at then prevailing prices, and (ii)
except for sales that may be required to be made as aforesaid, the officer
shall not (without the prior written consent of the Company) sell or otherwise
dispose of the Private Placement Securities owned by such officer (subject to
certain exceptions for charitable gifts). The foregoing provisions of the
agreements terminate in September or October 2002.
64
<PAGE>
Each holder of Private Placement Securities (other than Mr. Jacobs and Mr.
Hicks) has also agreed pursuant to such agreements that the Company, in its
sole discretion, may (i) prior to September 1, 2005, repurchase the Private
Placement Securities owned by such officer in the event that such officer
breaches any agreement with the Company or acts adversely to the interest of
the Company and (ii) repurchase such Private Placement Securities without any
cause (provided that such repurchase right without cause has lapsed with
respect to one-third of the securities and will lapse with respect to an
additional one-third on each of the second and third anniversaries of the date
of such agreements). The amount to be paid by the Company in the event of a
repurchase will be equal to (i) in the case of Messrs. Milne, Nolan and Miner,
$9.125 per share of Common Stock and $0.625 per Warrant plus an amount
representing a 4% annual return on such amounts from the date on which such
securities were purchased and (ii) in the case of any other holder of Private
Placement Securities, the amount originally paid by such holder for such
securities plus an amount representing a 10% annual return on such amount. See
"Management--Capital Contributions by Executive Officers and Directors" for
information concerning the amounts paid by the executive officers of the
Company for the Private Placement Securities owned by them.
Mr. Hicks has agreed that he will not transfer any shares of Common Stock
that are issued to him as compensation pursuant to his employment agreement
for a one-year period following the date of issuance. See "Management--
Employment Agreements."
65
<PAGE>
DESCRIPTION OF THE NOTES
The Exchange Notes offered hereby will be issued, and the Original Notes
were issued, under an Indenture dated as of August 12, 1998 (the "Indenture"),
among the Company, the Guarantors and State Street Bank & Trust Company, as
trustee (the "Trustee"). References to the Notes include both the Original
Notes and the Exchange Notes. Upon the effectiveness of the Registration
Statement of which this Prospectus is a part, the Indenture will be subject to
and governed by the Trust Indenture Act of 1939, as amended (the "Trust
Indenture Act").
The following summary of the material provisions of the Indenture and the
Notes does not purport to be complete and is subject to, and qualified in its
entirety by, reference to the provisions of the Indenture and the Notes,
including the definitions of certain terms contained therein and those terms
made part of the Indenture by reference to the Trust Indenture Act. The
definition of certain capitalized terms used in the following summary are set
forth below under "--Certain Definitions." All references to the Company in
the following summary refer exclusively to URI, and not to any of its
subsidiaries.
ORIGINAL NOTES AND EXCHANGE NOTES WILL REPRESENT SAME DEBT
The Exchange Notes will be issued solely in exchange for an equal principal
amount of Original Notes pursuant to the Exchange Offer. The Exchange Notes
will evidence the same debt as the Original Notes and both series of Notes
will be entitled to the benefits of the Indenture and treated as a single
class of debt securities. The terms of the Exchange Notes will be the same in
all material respects as the Original Notes except that (i) the Exchange Notes
will be registered under the Securities Act, and therefore, will not bear
legends restricting the transfer thereof and (ii) certain of the registration
rights, under the Registration Rights Agreement, relating to the Exchange
Notes are different than those relating to the Original Notes and, therefore,
the defaults under the Registration Rights Agreement that may require the
Company to pay additional interest will be different for the Exchange Notes
and the Original Notes. See "Registration Rights Agreement--Certain Provisions
Relating to Additional Interest" and "--Additional Interest."
If the Exchange Offer is consummated, holders of Original Notes who do not
exchange their Original Notes for Exchange Notes will vote together with
holders of the Exchange Notes for all relevant purposes under the Indenture.
Accordingly, all references herein to specified percentages in aggregate
principal amount of the outstanding Notes shall be deemed to mean, at any time
after the Exchange Offer is consummated, such percentages in aggregate
principal amount of the Original Notes and the Exchange Notes then
outstanding.
GENERAL
The Notes are unsecured senior subordinated obligations of the Company
limited to $205 million aggregate principal amount, and are guaranteed by each
of the Guarantors on a senior subordinated basis as described below. The Notes
may be issued only in registered form without coupons, in denominations of
$1,000 and integral multiples thereof. Principal of, premium, if any, and
interest on the Notes is payable, and the Notes are transferable, at the
corporate trust office or agency of the Trustee in the City of New York
maintained for such purposes. In addition, interest may be paid at the option
of the Company by check mailed to the person entitled thereto as shown on the
security register. No service charge will be made for any transfer, exchange
or redemption of Notes, except in certain circumstances for any tax or other
governmental charge that may be imposed in connection therewith.
MATURITY, INTEREST AND PRINCIPAL
The Notes will mature on August 15, 2008. Interest on the Notes accrue at
the rate of 8.80% per annum and is payable semi-annually in arrears on each
February 15 and August 15, commencing February 15, 1999, to the holders of
record of Notes at the close of business on the February 1 and August 1,
respectively, immediately preceding such interest payment date. Interest on
the Exchange Notes will accrue from the most recent date to
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which interest has been paid on the Exchange Notes or, if no interest has been
paid on the Exchange Notes, from the most recent date on which interest was
paid on the Original Notes (or, if no interest has been paid on the Original
Notes, from the Issue Date of the Original Notes). Interest will be computed
on the basis of a 360-day year comprised of twelve 30-day months.
ADDITIONAL INTEREST
As discussed under "Registration Rights Agreement," the interest rate on the
Notes is subject to increase under certain circumstances if the Company is not
in compliance with its obligations under the Registration Rights Agreement.
See "Registration Rights Agreement."
OPTIONAL REDEMPTION
Optional Redemption. The Notes will be redeemable at the option of the
Company, in whole or in part, at any time on or after August 15, 2003, at the
redemption prices (expressed as percentages of principal amount) set forth
below, plus accrued and unpaid interest, if any, to the redemption date, if
redeemed during the 12-month period beginning August 15 of the years indicated
below:
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
---- ----------
<S> <C>
2003................................... 104.400%
2004................................... 102.934%
2005................................... 101.467%
2006 and thereafter.................... 100.000%
</TABLE>
In addition, at any time, or from time to time, on or prior to August 15,
2001, the Company may, at its option, use the net cash proceeds of one or more
Public Equity Offerings (as defined below) to redeem up to an aggregate of 35%
of the principal amount of the Notes originally issued, at a redemption price
equal to 108.8% of the principal amount thereof plus accrued and unpaid
interest, if any, thereon to the redemption date; provided that at least 65%
of the originally issued principal amount of Notes remains outstanding
immediately after the occurrence of such redemption. In order to effect the
foregoing redemption with the proceeds of any Public Equity Offering the
Company shall send a redemption notice to the Trustee not later than 90 days
after the consummation of any such Public Equity Offering.
As used in the preceding paragraph, "Public Equity Offering" means an
underwritten public offering of Common Stock pursuant to a registration
statement filed with the Commission in accordance with the Securities Act.
Selection and Notice. In the event that less than all of the Notes are to be
redeemed at any time, selection of such Notes for redemption will be made by
the Trustee in compliance with the requirements of the principal national
securities exchange, if any, on which the Notes are listed or, if the Notes
are not then listed on a national securities exchange, on a pro rata basis, by
lot or by such method as the Trustee shall deem fair and appropriate (subject
to the rules of DTC); provided, however, that Notes shall only be redeemable
in principal amounts of $1,000 or an integral multiple of $1,000. Notice of
redemption shall be mailed by first-class mail at least 30 but not more than
60 days before the redemption date to each holder of Notes to be redeemed at
its registered address. If any Note is to be redeemed in part only, the notice
of redemption that relates to such Note shall state the portion of the
principal amount thereof to be redeemed. A new Note in a principal amount
equal to the unredeemed portion thereof will be issued in the name of the
holder thereof upon surrender for cancellation of the original Note. On and
after the redemption date, interest will cease to accrue on Notes or portions
thereof called for redemption, unless the Company defaults in the payment of
the redemption price.
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SINKING FUND
The Notes will not be entitled to the benefit of any mandatory sinking fund.
CHANGE OF CONTROL
Upon the occurrence of a Change of Control, the Company shall be obligated
to make an offer to purchase (a "Change of Control Offer"), on a business day
(the "Change of Control Purchase Date") not more than 60 nor less than 30 days
following the occurrence of the Change of Control, all of the then outstanding
Notes tendered at a purchase price in cash (the "Change of Control Purchase
Price") equal to 101% of the principal amount thereof plus accrued and unpaid
interest, if any, thereon to the Change of Control Purchase Date. The Company
shall be required to purchase all Notes tendered into the Change of Control
Offer and not withdrawn. The Change of Control Offer is required to remain
open for at least 20 business days.
In order to effect such Change of Control Offer, the Company shall, not
later than the 30th day after the Change of Control, mail to each holder of
Notes notice of the Change of Control Offer, which notice shall govern the
terms of the Change of Control Offer and shall state, among other things, the
procedures that holders of Notes must follow to accept the Change of Control
Offer.
If a Change of Control Offer is made, there can be no assurance that the
Company will have available funds sufficient to pay the Change of Control
Purchase Price for all of the Notes that might be delivered by holders of
Notes seeking to accept the Change of Control Offer. In addition, there can be
no assurance that the Company's debt instruments will permit such offer to be
made. The agreements governing Credit Facility and the Term Loan do not permit
the Company to make a Change of Control Offer and, in order to make such
offer, the Company would be required to pay off the Credit Facility and the
Term Loan in full or seek a waiver from the lenders under the Credit Facility
and the Term Loan to allow the Company to make the Change of Control Offer.
The occurrence of a Change of Control is also an event of default under the
agreements governing the Credit Facility and the Term Loan and would entitle
the lenders to accelerate all amounts owing thereunder. Failure to make a
Change of Control Offer, even if prohibited by the Company's debt instruments,
would constitute a default under the Indenture. Pursuant to the indentures
governing the 9 1/2% Notes and the 9 1/4% Notes, respectively, the Company is
also required to make an offer to repurchase the 9 1/2% Notes and the 9 1/4%
Notes, respectively, upon a Change of Control, and failure by the Company to
make such an offer is an event of default under those indentures. See "Risk
Factors--Possible Inability to Repurchase Notes upon Change of Control." The
Company shall not be required to make a Change of Control Offer upon a Change
of Control if a third party makes the Change of Control Offer in the manner,
at the times and otherwise in compliance with the requirements applicable to a
Change of Control Offer made by the Company and purchases all Notes validly
tendered and not withdrawn under such Change of Control Offer.
The definition of "Change of Control" excludes certain transactions by
Permitted Holders, including a direct or indirect sale, lease, exchange or
other transfer of all or substantially all of the assets of the Company to
Permitted Holders. The provisions of the Indenture may not afford Noteholders
protection in the event of a highly leveraged transaction, reorganization,
restructuring, merger or similar transaction involving the Company if such
transaction is not a transaction defined as a "Change of Control."
The use of the term "all or substantially all" in provisions of the
Indenture such as clause (b) of the definition of "Change of Control" and
under "--Consolidation, Merger, Sale of Assets, Etc." has no clearly
established meaning under New York law (which governs the Indenture) and has
been the subject of limited judicial interpretation in only a few
jurisdictions. Accordingly, there may be a degree of uncertainty in
ascertaining whether any particular transaction would involve a disposition of
"all or substantially all" of the assets of a person, which uncertainty should
be considered by prospective purchasers of Notes.
The Company will comply with Rule 14e-1 under the Exchange Act and any other
securities laws and regulations thereunder, to the extent such laws or
regulations are applicable, in the event that a Change of Control occurs and
the Company is required to purchase Notes as described above.
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SUBORDINATION
The indebtedness evidenced by the Notes is subordinated in right of payment
to the prior payment in full in cash of all Senior Indebtedness. The Notes are
senior subordinated indebtedness of the Company ranking senior to all existing
and future Subordinated Indebtedness of the Company.
The Indenture provides that in the event of any insolvency or bankruptcy
case or proceeding, or any receivership, liquidation, reorganization or other
similar case or proceeding in connection therewith, relating to the Company or
its assets, or any liquidation, dissolution or other winding-up of the
Company, whether voluntary or involuntary, or any assignment for the benefit
of creditors or other marshalling of assets or liabilities of the Company, all
Senior Indebtedness (including, in the case of Designated Senior Indebtedness,
any interest accruing subsequent to the filing of a petition for bankruptcy
regardless of whether such interest is an allowed claim in the bankruptcy
proceeding) must be paid in full in cash before any payment is made on account
of the principal of, premium, if any, or interest on the Notes.
During the continuance of any default in the payment of principal, premium,
if any, or interest on any Senior Indebtedness, when the same becomes due, and
after receipt by the Trustee and the Company from representatives of holders
of such Senior Indebtedness of written notice of such default, no direct or
indirect payment (other than payments from trusts previously created pursuant
to the provisions described under "--Defeasance or Covenant Defeasance of
Indenture") by or on behalf of the Company of any kind of character (excluding
certain permitted equity or subordinated securities) may be made on account of
the principal of, premium, if any, or interest on, or the purchase, redemption
or other acquisition of, the Notes unless and until such default has been
cured or waived or has ceased to exist or such Senior Indebtedness shall have
been discharged or paid in full in cash, after which the Company shall resume
making any and all required payments in respect of the Notes, including any
missed payments.
In addition, during the continuance of any other default with respect to any
Designated Senior Indebtedness that permits, or would permit with the passage
of time or the giving of notice or both, the maturity thereof to be
accelerated (a "Non-payment Default") and upon the earlier to occur of (a)
receipt by the Trustee and the Company from the representatives of holders of
such Designated Senior Indebtedness of a written notice of such Non-payment
Default or (b) if such Non-payment Default results from the acceleration of
the maturity of the Notes, the date of such acceleration, no payment (other
than payments from trusts previously created pursuant to the provisions
described under "--Defeasance or Covenant Defeasance of Indenture") of any
kind or character (excluding certain permitted equity or subordinated
securities) may be made by the Company on account of the principal of,
premium, if any, or interest on, or the purchase, redemption, or other
acquisition of, the Notes for the period specified below (the "Payment
Blockage Period").
The Payment Blockage Period shall commence upon the receipt of notice of a
Non-payment Default by the Trustee and the Company from the representatives of
holders of Designated Senior Indebtedness or the date of the acceleration
referred to in clause (b) of the preceding paragraph, as the case may be, and
shall end on the earliest to occur of the following events: (i) 179 days have
elapsed since the receipt of such notice or the date of the acceleration
referred to in clause (b) of the preceding paragraph (provided the maturity of
such Designated Senior Indebtedness shall not theretofore have been
accelerated), (ii) such default is cured or waived or ceases to exist or such
Designated Senior Indebtedness is discharged or paid in full in cash, or (iii)
such Payment Blockage Period shall have been terminated by written notice to
the Company or the Trustee from the representatives of holders of Designated
Senior Indebtedness initiating such Payment Blockage Period, after which the
Company shall promptly resume making any and all required payments in respect
of the Notes, including any missed payments. Only one Payment Blockage Period
with respect to the Notes may be commenced within any 360 consecutive day
period. No Non-payment Default with respect to Designated Senior Indebtedness
that existed or was continuing on the date of the commencement of any Payment
Blockage Period will be, or can be, made the basis for the commencement of a
second Payment Blockage Period, whether or not within a period of 360
consecutive days, unless such default has been cured or waived for a period of
not less than 90 consecutive days. In no event will a Payment Blockage Period
extend beyond 179 days from the date of the receipt by the
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Trustee of the notice or the date of the acceleration initiating such Payment
Blockage Period and there must be a 180 consecutive day period in any 360 day
period during which no Payment Blockage Period is in effect.
If the Company fails to make any payment on the Notes when due on account of
the payment blockage provisions referred to above, such failure would
constitute an Event of Default under the Indenture and would enable the
holders of the Notes to accelerate the maturity thereof. See "--Events of
Default."
By reason of such subordination, in the event of liquidation or insolvency,
creditors of the Company who are holders of Senior Indebtedness may recover
more, ratably, than the holders of the Notes, and funds which would be
otherwise payable to the holders of the Notes will be paid to the holders of
Senior Indebtedness to the extent necessary to pay the Senior Indebtedness in
full, and the Company may be unable to meet its obligations fully with respect
to the Notes.
The Indenture limits, but does not prohibit, the incurrence by the Company
of additional Indebtedness which is senior to the Notes and prohibits the
incurrence by the Company of Indebtedness which is subordinated in right of
payment to any other Indebtedness of the Company and senior in right of
payment to the Notes.
"Designated Senior Indebtedness" means (i) all Indebtedness under the Credit
Facility and the Term Loan and (ii) any other issue of Senior Indebtedness
which (a) at the time of the determination is equal to or greater than $25
million in aggregate principal amount and (b) is specifically designated by
the Company in the instrument evidencing such Senior Indebtedness as
"Designated Senior Indebtedness."
"Senior Indebtedness" means the principal of, premium, if any, and interest
on any Indebtedness of the Company, whether outstanding on the Issue Date or
thereafter created, incurred or assumed, unless, in the case of any particular
Indebtedness, the instrument creating or evidencing the same or pursuant to
which the same is outstanding expressly provides that such Indebtedness shall
not be senior in right of payment to the Notes. Without limiting the
generality of the foregoing, (x) "Senior Indebtedness" shall include the
principal of, premium, if any, and interest on all obligations of every nature
of the Company from time to time owed to the lenders under the Credit Facility
and the Term Loan, including, without limitation, principal of and interest
on, and all fees, indemnities and expenses payable under the Credit Facility
and the Term Loan, and (y) in the case of Designated Senior Indebtedness,
"Senior Indebtedness" shall include interest accruing thereon subsequent to
the occurrence of any Event of Default specified in clause (vii) or (viii)
under "--Events of Default" relating to the Company, whether or not the claim
for such interest is allowed under any applicable Bankruptcy Code.
Notwithstanding the foregoing, "Senior Indebtedness" shall not include (a)
Indebtedness evidenced by the Notes, (b) Indebtedness that is expressly
subordinate or junior in right of payment to any Indebtedness of the Company,
including the Company's 9 1/2% Notes, (c) Indebtedness which, when incurred
and without respect to any election under Section 1111(b) of Title 11, United
States Code, is without recourse to the Company, (d) Indebtedness which is
represented by Redeemable Capital Stock, (e) Indebtedness for goods, materials
or services purchased in the ordinary course of business or Indebtedness
consisting of trade payables or other current liabilities (other than any
current liabilities owing under the Credit Facility, or the current portion of
any long-term Indebtedness which would constitute Senior Indebtedness but for
the operation of this clause (e)), (f) Indebtedness of or amounts owed by the
Company for compensation to employees or for services rendered to the Company,
(g) any liability for federal, state, local or other taxes owed or owing by
the Company, (h) Indebtedness of the Company to a Subsidiary of the Company or
any other Affiliate of the Company or any of such Affiliate's Subsidiaries,
(i) that portion of any Indebtedness which is incurred by the Company in
violation of the Indenture and (j) amounts owing under leases.
GUARANTEES
Each Guarantor has fully and unconditionally guaranteed, on a senior
subordinated basis, jointly and severally, to each holder and the Trustee, the
full and prompt performance of the Company's obligations under the Indenture
and the Notes, including the payment of principal of and interest on the
Notes. The Guarantees are
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subordinated to Guarantor Senior Indebtedness on the same basis as the Notes
are subordinated to Senior Indebtedness.
The obligations of each Guarantor are limited to the maximum amount which,
after giving effect to all other contingent and fixed liabilities of such
Guarantor and after giving effect to any collections from or payments made by
or on behalf of any other Guarantor in respect of the obligations of such
other Guarantor under its Guarantee or pursuant to its contribution
obligations under the Indenture, will result in the obligations of such
Guarantor under the Guarantee not constituting a fraudulent conveyance or
fraudulent transfer under federal or state law. See "Risk Factors--Fraudulent
Transfer Considerations."
Each Guarantor that makes a payment or distribution under a Guarantee shall
be entitled to a contribution from each other Guarantor in an amount pro rata,
based on the net assets of each Guarantor, determined in accordance with GAAP.
Each Guarantor may consolidate with or merge into or sell its assets to the
Company or another Guarantor without limitation, or with other persons upon
the terms and conditions set forth in the Indenture. See "--Consolidation,
Merger, Sale of Assets, Etc." In the event all or substantially all of the
assets or the capital stock of a Guarantor is sold and the sale complies with
the provisions set forth in "--Certain Covenants--Limitation on Asset Sales,"
the Guarantor's Guarantee will be automatically discharged and released.
"Guarantor Senior Indebtedness" of a Guarantor means the principal of,
premium, if any, and interest on any Indebtedness of such Guarantor, whether
outstanding on the Issue Date or thereafter created, incurred or assumed,
unless, in the case of any particular Indebtedness, the instrument creating or
evidencing the same or pursuant to which the same is outstanding expressly
provides that such Indebtedness shall not be senior in right of payment to the
Notes or such Guarantor's Guarantee. Without limiting the generality of the
foregoing, (x) "Guarantor Senior Indebtedness" shall include the principal of,
premium, if any, and interest on all obligations of every nature of such
Guarantor from time to time owed to the lenders under the Credit Facility and
Term Loan, including, without limitation, principal of and interest on, and
all fees, indemnities and expenses payable under the Credit Facility and Term
Loan, and (y) in the case of amounts owing under the Credit Facility and Term
Loan and guarantees of Designated Senior Indebtedness, "Guarantor Senior
Indebtedness" shall include interest accruing thereon subsequent to the
occurrence of any Event of Default specified in clause (vii) or (viii) under
"--Events of Default" relating to such Guarantor, whether or not the claim for
such interest is allowed under any applicable Bankruptcy Code. Notwithstanding
the foregoing, "Guarantor Senior Indebtedness" shall not include (a)
Indebtedness evidenced by the Notes or the Guarantees, (b) Indebtedness that
is expressly subordinate or junior in right of payment to any Indebtedness of
such Guarantor, including the Guarantor's guarantee of the Company's 9 1/2%
Notes, (c) Indebtedness which, when incurred and without respect to any
election under Section 1111(b) of Title 11, United States Code, is without
recourse to such Guarantor, (d) Indebtedness which is represented by
Redeemable Capital Stock, (e) Indebtedness for goods, materials or services
purchased in the ordinary course of business or Indebtedness consisting of
trade payables or other current liabilities (other than any current
liabilities owing under the Credit Facility, or the current portion of any
long-term Indebtedness which would constitute Guarantor Senior Indebtedness
but for the operation of this clause (e)), (f) Indebtedness of or amounts owed
by such Guarantor for compensation to employees or for services rendered to
such Guarantor, (g) any liability for federal, state, local or other taxes
owed or owing by such Guarantor, (h) Indebtedness of such Guarantor to the
Company or a Subsidiary of the Company or any other Affiliate of the Company
or any of such Affiliate's Subsidiaries, (i) that portion of any Indebtedness
which is incurred by such Guarantor in violation of the Indenture and (j)
amounts owing under leases.
CERTAIN COVENANTS
The Indenture contains the following covenants, among others:
Limitation on Indebtedness. The Company will not, and will not permit any of
its Restricted Subsidiaries to, directly or indirectly, create, incur, issue,
assume, guarantee or in any manner become directly or indirectly
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liable, contingently or otherwise (in each case, to "incur"), for the payment
of any Indebtedness (including any Acquired Indebtedness) other than Permitted
Indebtedness; provided, however, that (i) the Company and any Guarantor will
be permitted to incur Indebtedness (including Acquired Indebtedness), and (ii)
a Restricted Subsidiary will be permitted to incur Acquired Indebtedness, if
in each case, after giving pro forma effect to (1) the incurrence of such
Indebtedness and (if applicable) the application of the net proceeds
therefrom, including to refinance other Indebtedness, as if such Indebtedness
were incurred at the beginning of the four full fiscal quarters immediately
preceding such incurrence, taken as one period; (2) the incurrence, repayment
or retirement of any other Indebtedness by the Company and its Restricted
Subsidiaries since the first day of such four-quarter period as if such
Indebtedness was incurred, repaid or retired at the beginning of such four-
quarter period (except that, in making such computation, the amount of
Indebtedness under any revolving credit facility shall be computed based upon
the average daily balance of such Indebtedness during such four-quarter
period); and (3) any Asset Sale or Asset Acquisition occurring since the first
day of such four-quarter period (including to the date of calculation) as if
such acquisition or disposition occurred at the beginning of such four-quarter
period, the Consolidated Fixed Charge Coverage Ratio of the Company is at
least 2:1.
Limitation on Restricted Payments. The Company will not, and will not permit
any of its Restricted Subsidiaries to, directly or indirectly:
(a) declare or pay any dividend or make any other distribution or payment
on or in respect of Capital Stock of the Company or any of its Restricted
Subsidiaries or make any payment to the direct or indirect
holders (in their capacities as such) of Capital Stock of the Company or
any of its Restricted Subsidiaries (other than dividends or distributions
payable solely in Capital Stock of the Company (other than Redeemable
Capital Stock) or in options, warrants or other rights to purchase Capital
Stock of the Company (other than Redeemable Capital Stock)) (other than the
declaration or payment of dividends or other distributions to the extent
declared or paid to the Company or any Restricted Subsidiary),
(b) purchase, redeem, defease or otherwise acquire or retire for value
any Capital Stock of the Company or any of its Restricted Subsidiaries or
any options, warrants, or other rights to purchase any such Capital Stock
(other than any such securities owned by the Company or a Restricted
Subsidiary),
(c) make any principal payment on, or purchase, defease, repurchase,
redeem or otherwise acquire or retire for value, prior to any scheduled
maturity, scheduled repayment, scheduled sinking fund payment or other
Stated Maturity, any Subordinated Indebtedness (other than any such
Subordinated Indebtedness owned by the Company or a Restricted Subsidiary),
or
(d) make any Investment (other than any Permitted Investment) in any
person
(such payments or Investments described in the preceding clauses (a), (b),
(c) and (d) are collectively referred to as "Restricted Payments"), unless,
after giving effect to the proposed Restricted Payment (the amount of any
such Restricted Payment, if other than cash, shall be the Fair Market Value
of the asset(s) proposed to be transferred by the Company or such
Restricted Subsidiary, as the case may be, pursuant to such Restricted
Payment), (A) no Default or Event of Default shall have occurred and be
continuing, (B) immediately after giving effect to such Restricted Payment,
the Company would be able to incur $1.00 of additional Indebtedness (other
than Permitted Indebtedness) (assuming a market rate of interest with
respect to such additional Indebtedness) and (C) the aggregate amount of
all Restricted Payments declared or made from and after the Issue Date
would not exceed the sum of:
(1) 50% of the aggregate Consolidated Net Income of the Company accrued
on a cumulative basis during the period beginning on May 22, 1998 and
ending on the last day of the fiscal quarter of the Company immediately
preceding the date of such proposed Restricted Payment (or, if such
aggregate cumulative Consolidated Net Income of the Company for such period
shall be a deficit, minus 100% of such deficit);
(2) the aggregate net cash proceeds received by the Company as capital
contributions to the Company after May 22, 1998 and which constitute
shareholders' equity of the Company in accordance with GAAP;
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(3) the aggregate net cash proceeds received by the Company from the
issuance or sale of Capital Stock (excluding Redeemable Capital Stock) of
the Company to any person (other than to a Subsidiary of the Company) after
May 22, 1998;
(4) the aggregate net cash proceeds received by the Company from any
person (other than a Subsidiary of the Company) upon the exercise of any
options, warrants or rights to purchase shares of Capital Stock (other than
Redeemable Capital Stock) of the Company after May 22, 1998;
(5) the aggregate net cash proceeds received after May 22, 1998 by the
Company from any person (other than a Subsidiary of the Company) for debt
securities that have been converted or exchanged into or for Capital Stock
of the Company (other than Redeemable Capital Stock) (to the extent such
debt securities were originally sold for cash) plus the aggregate amount of
cash received by the Company (other than from a Subsidiary of the Company)
in connection with such conversion or exchange;
(6) in the case of the disposition or repayment of any Investment
constituting a Restricted Payment after May 22, 1998, an amount equal to
the lesser of the return of capital with respect to such Investment and the
initial amount of such Investment, in either case, less the cost of the
disposition of such Investment; and
(7) so long as the Designation thereof was treated as a Restricted
Payment made after May 22, 1998, with respect to any Unrestricted
Subsidiary that has been redesignated as a Restricted Subsidiary after the
Issue Date in accordance with "--Limitation on Designations of Unrestricted
Subsidiaries" below, the Fair Market Value of the Company's interest in
such Subsidiary, provided that such amount shall not in any case exceed the
Designation Amount with respect to such Restricted Subsidiary upon its
Designation,
minus:
the Designation Amount (measured as of the date of Designation) with
respect to any Restricted Subsidiary of the Company which has been
designated as an Unrestricted Subsidiary after May 22, 1998 in accordance
with "--Limitations on Designations of Unrestricted Subsidiaries" below.
For purposes of the preceding clause (C)(4), the value of the aggregate net
proceeds received by the Company upon the issuance of Capital Stock upon the
exercise of options, warrants or rights will be the net cash proceeds received
upon the issuance of such options, warrants or rights plus the incremental
amount received by the Company upon the exercise thereof.
None of the foregoing provisions will prohibit, so long, in the case of
clauses (ii), (iii), (v), (vi) and (vii) below, as there is no Default or
Event of Default continuing, (i) the payment of any dividend or distribution
within 60 days after the date of its declaration, if at the date of
declaration such payment would be permitted by the first paragraph of this
covenant; (ii) the redemption, repurchase or other acquisition or retirement
of any shares of any class of Capital Stock of the Company in exchange for, or
out of the net cash proceeds of, a substantially concurrent issue and sale of
other shares of Capital Stock of the Company (other than Redeemable Capital
Stock) to any person (other than to a Subsidiary of the Company); provided,
however, that such net cash proceeds are excluded from clause (C) of the first
paragraph of this covenant; (iii) any redemption, repurchase or other
acquisition or retirement of Subordinated Indebtedness by exchange for, or out
of the net cash proceeds of, a substantially concurrent issue and sale of (1)
Capital Stock (other than Redeemable Capital Stock) of the Company to any
person (other than to a Subsidiary of the Company); provided, however, that
any such net cash proceeds are excluded from clause (C) of the first paragraph
of this covenant; or (2) Indebtedness of the Company so long as such
Indebtedness is Subordinated Indebtedness which (w) has no scheduled principal
payment prior to the 91st day after the Maturity Date, (x) has an Average Life
to Stated Maturity greater than the remaining Average Life to Stated Maturity
of the Notes and (y) is subordinated to the Notes in the same manner and to
the same extent as the Subordinated Indebtedness so purchased, exchanged,
redeemed, acquired or retired; (iv) Investments constituting Restricted
Payments made as a result of the receipt of non-cash consideration from any
Asset Sale or other sale of assets or property made pursuant to and in
compliance with
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the Indenture; (v) payments to purchase Capital Stock of the Company from
officers of the Company, pursuant to agreements in effect as of May 22, 1998,
in an amount not to exceed $15 million in the aggregate, (vi) payments (other
than those covered by clause (v)) to purchase Capital Stock of the Company
from management or employees of the Company or any of its Subsidiaries, or
their authorized representatives, upon the death, disability or termination of
employment of such employees, in aggregate amounts under this clause (vi) not
to exceed $1 million in any fiscal year of the Company; (vii) payments to
Holdings in an amount sufficient to permit it to make scheduled payments of
interest on its 6 1/2% Convertible Subordinated Debentures due August 1, 2028,
issued to United Rentals Trust I; (viii) payments to Holdings in an amount
sufficient to enable Holdings to pay (1) its taxes, legal, accounting and
corporate overhead expenses (including Commission, stock exchange and transfer
agency fees and expenses), expenses of the Preferred Securities Offering and
expenses of United Rentals Trust I payable by Holdings pursuant to the terms
of the trust agreement governing such trust, that, in each case, but for the
Reorganization, would have been payable by the Company in connection with its
ongoing operations, (2) trade and lease obligations in respect of goods to be
delivered to, services performed for and properties used by, the Company and
its Restricted Subsidiaries and (3) reasonable and customary incidental
expenses (other than expenses described in the preceding clause (1)) not to
exceed $500,000 in any fiscal year of the Company; and (ix) the payment of any
dividend or distribution by a Restricted Subsidiary to the holders of its
Capital Stock on a pro rata basis. Any payments made pursuant to clauses (i),
(v), (vi) or (vii) of this paragraph shall be taken into account in
calculating the amount of Restricted Payments made from and after May 22,
1998.
Limitation on Liens. The Company will not, and will not permit any of its
Restricted Subsidiaries to, create, incur, assume or suffer to exist any Liens
of any kind against or upon any of its property or assets, or any proceeds
therefrom, unless the Notes are equally and ratably secured (except that Liens
securing Subordinated Indebtedness shall be expressly subordinate to Liens
securing the Notes to the same extent such Subordinated Indebtedness is
subordinate to the Notes), except for (a) Liens securing Senior Indebtedness;
(b) Liens securing the Notes; (c) Liens in favor of the Company on assets of
any Subsidiary of the Company; (d) Liens securing Indebtedness which is
incurred to refinance Indebtedness which has been secured by a Lien permitted
under the Indenture and which has been incurred in accordance with the
provisions of the Indenture; provided, however, that such Liens do not extend
to or cover any property or assets of the Company or any its Restricted
Subsidiaries not securing the Indebtedness so refinanced; and (e) Permitted
Liens.
Disposition of Proceeds of Asset Sales. The Company will not, and will not
permit any of its Restricted Subsidiaries to, make any Asset Sale unless (a)
the Company or such Restricted Subsidiary, as the case may be, receives
consideration at the time of such Asset Sale at least equal to the Fair Market
Value of the shares or assets sold or otherwise disposed of and (b) at least
75% of such consideration consists of cash or Cash Equivalents or Replacement
Assets; provided, however, that the amount of any liabilities (as shown on the
most recent balance sheet of the Company or such Restricted Subsidiary) of the
Company or such Restricted Subsidiary that are assumed by the transferee of
such assets and any securities, notes or other obligations received by the
Company or such Restricted Subsidiary from such transferee that are converted
within 30 days into cash or Cash Equivalents (to the extent of the cash or
Cash Equivalents received) shall be deemed to be cash for the purposes of this
provision; provided further, that the 75% limitation referred to in clause (b)
will not apply to any Asset Sale in which the cash or Cash Equivalent portion
of the consideration received therefrom, determined in accordance with the
foregoing provision, is equal to or greater than what the after-tax proceeds
would have been had such Asset Sale complied with the aforementioned 75%
limitation. To the extent that the Net Cash Proceeds of any Asset Sale are not
required to be applied to repay, and permanently reduce the commitments under,
Senior Indebtedness of the Company, or are not so applied, the Company or such
Restricted Subsidiary, as the case may be, may apply the Net Cash Proceeds
from such Asset Sale, within 360 days of such Asset Sale, to an investment in
properties and assets that replace the properties and assets that were the
subject of such Asset Sale or in properties and assets that are used or useful
in the business of the Company and its Restricted Subsidiaries conducted at
such time or in businesses reasonably related thereto or in Capital Stock of a
person, the principal portion of whose assets consist of such property or
assets ("Replacement Assets"). Any Net Cash Proceeds from any Asset Sale that
are neither used to repay, and permanently reduce the commitments
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under, Senior Indebtedness nor invested in Replacement Assets within such 360-
day period constitute "Excess Proceeds" subject to disposition as provided
below.
When the aggregate amount of Excess Proceeds equals or exceeds $10 million,
the Company shall make an offer to purchase (an "Asset Sale Offer"), from all
holders of the Notes, an aggregate principal amount of Notes equal to such
Excess Proceeds, at a price in cash equal to 100% of the outstanding principal
amount thereof plus accrued and unpaid interest, if any, to the purchase date
(the "Asset Sale Offer Price"). To the extent that the aggregate principal
amount of Notes tendered pursuant to an Asset Sale Offer is less than the
Excess Proceeds, the Company may use such deficiency for general corporate
purposes. The Notes shall be purchased by the Company, at the option of the
holder thereof, in whole or in part in integral multiples of $1,000, on a date
that is not earlier than 30 days and not later than 60 days from the date the
notice is given to holders, or such later date as may be necessary for the
Company to comply with the requirements under the Exchange Act. If the
aggregate principal amount of Notes validly tendered and not withdrawn by
holders thereof exceeds the Excess Proceeds, Notes to be purchased will be
selected on a pro rata basis. Upon completion of such Asset Sale Offer, the
amount of Excess Proceeds shall be reset to zero.
The Company will comply with Rule 14e-1 under the Exchange Act and any other
securities laws and regulations thereunder, to the extent such laws and
regulations are applicable, in the event that an Asset Sale occurs and the
Company is required to purchase Notes as described above.
Limitation on Preferred Stock of Restricted Subsidiaries. The Company will
not permit any Restricted Subsidiary to issue any Preferred Stock other than
Preferred Stock issued to the Company or a Wholly-Owned Restricted Subsidiary.
The Company will not sell, transfer or otherwise dispose of Preferred Stock
issued by a Restricted Subsidiary of the Company or permit a Restricted
Subsidiary to sell, transfer or otherwise dispose of Preferred Stock issued by
a Restricted Subsidiary, other than to the Company or a Wholly-Owned
Restricted Subsidiary. Notwithstanding the foregoing, nothing in such covenant
will prohibit Preferred Stock (other than Redeemable Capital Stock) issued by
a person prior to the time (A) such person becomes a Restricted Subsidiary of
the Company, (B) such person merges with or into a Restricted Subsidiary of
the Company or (C) a Restricted Subsidiary of the Company merges with or into
such person; provided that such Preferred Stock was not issued or incurred by
such person in anticipation of a transaction contemplated by subclause (A),
(B), or (C) above.
Limitation on Transactions with Affiliates. The Company will not, and will
not permit any of its Restricted Subsidiaries to, directly or indirectly,
enter into any transaction or series of related transactions (including,
without limitation, the sale, transfer, disposition, purchase, exchange or
lease of assets, property or services) with, or for the benefit of, any of its
Affiliates (other than Restricted Subsidiaries), except (a) on terms that are
no less favorable to the Company or such Subsidiary, as the case may be, than
those which could have been obtained in a comparable transaction at such time
from persons who are not Affiliates of the Company, (b) with respect to a
transaction or series of related transactions involving aggregate payments or
value equal to or greater than $2 million, the Company shall have delivered an
officer's certificate to the Trustee certifying that such transaction or
transactions comply with the preceding clause (a), and (c) with respect to a
transaction or series of related transactions involving aggregate payments or
value equal to or greater than $5 million, such transaction or transactions
shall have been approved by a majority of the Disinterested Members of the
Board of Directors of the Company.
Notwithstanding the foregoing, the restrictions set forth in this covenant
shall not apply to (i) transactions with or among the Company and the
Restricted Subsidiaries, (ii) customary directors' fees, indemnification and
similar arrangements, consulting fees, employee salaries, bonuses or
employment agreements, compensation or employee benefit arrangements and
incentive arrangements with any officer, director or employee of the Company
or any Restricted Subsidiary entered into in the ordinary course of business,
(iii) any dividends made in compliance with "--Limitation on Restricted
Payments" above, (iv) loans and advances to officers, directors and employees
of the Company or any Restricted Subsidiary for travel, entertainment, moving
and other relocation expenses, in each case made in the ordinary course of
business, (v) the incurrence of intercompany
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Indebtedness which constitutes Permitted Indebtedness, (vi) transactions
pursuant to agreements in effect on the Issue Date, (vii) the purchase of
equipment for its Fair Market Value from Terex Corporation or its Affiliates
in the ordinary course of business of each of Terex Corporation and the
Company and (viii) transactions described in or permitted by clauses (vii) and
(viii) of the last paragraph under the caption "--Limitation on Restricted
Payments."
Limitation on Dividends and other Payment Restrictions Affecting Restricted
Subsidiaries. The Company will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, create or otherwise cause or suffer
to exist or become effective any consensual encumbrance or restriction on the
ability of any Restricted Subsidiary of the Company to (a) pay dividends, in
cash or otherwise, or make any other distributions on or in respect of its
Capital Stock or any other interest or participation in, or measured by, its
profits, (b) pay any Indebtedness owed to the Company or any other Restricted
Subsidiary of the Company, (c) make loans or advances to the Company or any
other Restricted Subsidiary of the Company, (d) transfer any of its properties
or assets to the Company or any other Restricted Subsidiary of the Company or
(e) guarantee any Indebtedness of the Company or any other Restricted
Subsidiary of the Company, except for such encumbrances or restrictions
existing under or by reason of (i) applicable law or any applicable rule,
regulation or order, (ii) customary non-assignment provisions of any contract
or any lease governing a leasehold interest of the Company or any Restricted
Subsidiary of the Company, (iii) customary restrictions on transfers of
property subject to a Lien permitted under the Indenture, (iv) the Credit
Facility and the Term Loan as in effect on the Issue Date, (v) any agreement
or other instrument of a person acquired by the Company or any Restricted
Subsidiary of the Company in existence at the time of such acquisition (but
not created in contemplation thereof), which
encumbrance or restriction is not applicable to any person, or the properties
or assets of any person, other than the person, or the property or assets of
the person, so acquired, (vi) an agreement entered into for the sale or
disposition of Capital Stock or assets of a Restricted Subsidiary or an
agreement entered into for the sale of specified assets (in either case, so
long as such encumbrance or restriction, by its terms, terminates on the
earlier of the termination of such agreement or the consummation of such
agreement and so long as such restriction applies only to the Capital Stock or
assets to be sold), (vii) any agreement in effect on the Issue Date, (viii)
the Indenture and the Guarantees, (ix) the indenture governing the 9 1/2%
Notes and (x) any agreement that amends, extends, refinances, renews or
replaces any agreement described in the foregoing clauses, provided that the
terms and conditions of any such agreement are not materially less favorable
to the holders of the Notes with respect to such dividend and payment
restrictions than those under or pursuant to the agreement amended, extended,
refinanced, renewed or replaced.
Limitation on Designations of Unrestricted Subsidiaries. The Company may
designate after the Issue Date any Restricted Subsidiary as an "Unrestricted
Subsidiary" under the Indenture (a "Designation") only if:
(i) no Default shall have occurred and be continuing at the time of or
after giving effect to such Designation;
(ii) the Company would be permitted to make an Investment (other than a
Permitted Investment, except a Permitted Investment covered by clause (x)
of the definition thereof) at the time of Designation (assuming the
effectiveness of such Designation) pursuant to the first paragraph of "--
Limitation on Restricted Payments" above in an amount (the "Designation
Amount") equal to the Fair Market Value of the Company's interest in such
Subsidiary on such date calculated in accordance with GAAP; and
(iii) the Company would be permitted under the Indenture to incur $1.00
of additional Indebtedness (other than Permitted Indebtedness) pursuant to
the covenant described under "--Limitation on Indebtedness" at the time of
such Designation (assuming the effectiveness of such Designation).
In the event of any such Designation, the Company shall be deemed to have
made an Investment constituting a Restricted Payment pursuant to the covenant
"--Limitation on Restricted Payments" for all purposes of the Indenture in the
Designation Amount.
The Company shall not, and shall not cause or permit any Restricted
Subsidiary to, at any time (x) provide credit support for or subject any of
its property or assets (other than the Capital Stock of any Unrestricted
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Subsidiary) to the satisfaction of, any Indebtedness of any Unrestricted
Subsidiary (including any undertaking, agreement or instrument evidencing such
Indebtedness), (y) be directly or indirectly liable for any Indebtedness of
any Unrestricted Subsidiary or (z) be directly or indirectly liable for any
Indebtedness which provides that the holder thereof may (upon notice, lapse of
time or both) declare a default thereon or cause the payment thereof to be
accelerated or payable prior to its final scheduled maturity upon the
occurrence of a default with respect to any Indebtedness of any Unrestricted
Subsidiary (including any right to take enforcement action against such
Unrestricted Subsidiary), except any non-recourse guarantee given solely to
support the pledge by the Company or any Restricted Subsidiary of the Capital
Stock of an Unrestricted Subsidiary. All Subsidiaries of Unrestricted
Subsidiaries shall automatically be deemed to be Unrestricted Subsidiaries.
The Company may revoke any Designation of a Subsidiary as an Unrestricted
Subsidiary (a "Revocation") if:
(i) no Default shall have occurred and be continuing at the time of and
after giving effect to such Revocation; and
(ii) all Liens and Indebtedness of such Unrestricted Subsidiary
outstanding immediately following such Revocation would, if incurred at
such time, have been permitted to be incurred for all purposes of the
Indenture.
In the event the Company or a Restricted Subsidiary makes any Investment in
any person which was not previously a Subsidiary and such person thereby
becomes a Subsidiary, such person shall automatically be an Unrestricted
Subsidiary and the Company may designate such Subsidiary as a Restricted
Subsidiary only if it meets the foregoing requirements.
All Designations and Revocations must be evidenced by Board Resolutions of
the Company delivered to the Trustee certifying compliance with the foregoing
provisions.
Limitation on the Issuance of Subordinated Indebtedness. The Company will
not, directly or indirectly, incur any Indebtedness (including Acquired
Indebtedness) that is subordinate in right of payment to any Indebtedness of
the Company and senior in right of payment to the Notes.
Additional Subsidiary Guarantees. If the Company or any of its Restricted
Subsidiaries acquires, creates or designates another domestic Restricted
Subsidiary, then such newly acquired, created or designated Restricted
Subsidiary shall, within 30 days after the date of its acquisition, creation
or designation, whichever is later, execute and deliver to the Trustee a
supplemental indenture in form reasonably satisfactory to the Trustee pursuant
to which such Subsidiary shall unconditionally guarantee all of the Company's
obligations under the Notes and the Indenture on the terms set forth in the
Indenture. Thereafter, such Subsidiary shall be a Guarantor for all purposes
of the Indenture.
Reporting Requirements. For so long as the Notes are outstanding, whether or
not the Company is subject to Section 13(a) or 15(d) of the Exchange Act, or
any successor provision thereto, the Company shall file with the Commission
(if permitted by Commission practice and applicable law and regulations) the
annual reports, quarterly reports and other documents which the Company would
have been required to file with the Commission pursuant to such Section 13(a)
or 15(d) or any successor provision thereto if the Company were so subject,
such documents to be filed with the Commission on or prior to the respective
dates (the "Required Filing Dates") by which the Company would have been
required so to file such documents if the Company were so subject. The Company
shall also in any event (a) within 15 days after each Required Filing Date
(whether or not permitted or required to be filed with the Commission) (i)
transmit (or cause to be transmitted) by mail to all holders of Notes, as
their names and addresses appear in the Note register, without cost to such
holders, and (ii) file with the Trustee, copies of the annual reports,
quarterly reports and other documents which the Company would be required to
file with the Commission if the Notes were then registered under the Exchange
Act. In addition, for so long as any Notes remain outstanding, the Company
will furnish to the holders of Notes and to securities analysts and
prospective investors, upon their request, the information required to be
delivered pursuant to Rule
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144A(d)(4) under the Securities Act, and, to any beneficial holder of Notes,
if not obtainable from the Commission, information of the type that would be
filed with the Commission pursuant to the foregoing provisions upon the
request of any such holder.
CONSOLIDATION, MERGER, SALE OF ASSETS, ETC.
The Company will not, in any transaction or series of transactions, merge or
consolidate with or into, or sell, assign, convey, transfer, lease or
otherwise dispose of all or substantially all of its properties and assets as
an entirety to, any person or persons, and the Company will not permit any of
its Restricted Subsidiaries to enter into any such transaction or series of
transactions if such transaction or series of transactions, in the aggregate,
would result in a sale, assignment, conveyance, transfer, lease or other
disposition of all or substantially all of the properties and assets of the
Company or the Company and its Restricted Subsidiaries, taken as a whole, to
any other person or persons, unless at the time and after giving effect
thereto (a) either (i) if the transaction or transactions is a merger or
consolidation, the Company or such Restricted Subsidiary, as the case may be,
shall be the surviving person of such merger or consolidation, or (ii) the
person formed by such consolidation or into which the Company, or such
Restricted Subsidiary, as the case may be, is merged or to which the
properties and assets of the Company or such Restricted Subsidiary, as the
case may be, substantially as an entirety, are transferred (any such surviving
person or transferee person being the "Surviving Entity") shall be a
corporation organized and existing under the laws of the United States of
America, any state thereof or the District of Columbia and shall expressly
assume by a supplemental indenture executed and delivered to the Trustee, in
form satisfactory to the Trustee, all the obligations of the Company under the
Notes, the Indenture and the Registration Rights Agreement, and in each case,
the Indenture shall remain in full force and effect; (b) immediately after
giving effect to such transaction or series of transactions on a pro forma
basis (including, without limitation, any Indebtedness incurred or anticipated
to be incurred in connection with or in respect of such transaction or series
of transactions), no Default or Event of Default shall have occurred and be
continuing; and (c) except in the case of any merger of the Company with any
wholly-owned Subsidiary of the Company or any merger of Guarantors (and, in
each case, no other persons), the Company or the Surviving Entity, as the case
may be, after giving effect to such transaction or series of transactions on a
pro forma basis (including, without limitation, any Indebtedness incurred or
anticipated to be incurred in connection with or in respect of such
transaction or series of transactions), could incur $1.00 of additional
Indebtedness (other than Permitted Indebtedness) (assuming a market rate of
interest with respect to such additional Indebtedness).
In connection with any consolidation, merger, transfer, lease, assignment or
other disposition contemplated hereby, the Company shall deliver, or cause to
be delivered, to the Trustee, in form and substance reasonably satisfactory to
the Trustee, an officers' certificate and an opinion of counsel, each stating
that such consolidation, merger, transfer, lease, assignment or other
disposition and the supplemental indenture in respect thereof comply with the
requirements under the Indenture.
Upon any consolidation or merger, or any sale, assignment, conveyance,
transfer, lease or disposition of all or substantially all of the properties
and asset of the Company in accordance with the immediately preceding
paragraphs, the successor person formed by such consolidation or into which
the Company or a Restricted Subsidiary, as the case may be, is merged or the
successor person to which such sale, assignment, conveyance, transfer, lease
or disposition is made shall succeed to, and be substituted for, and may
exercise every right and power of the Company under the Notes, the Indenture
and/or the Registration Rights Agreement, as the case may be, with the same
effect as if such successor had been named as the Company in the Notes, the
Indenture and/or in the Registration Rights Agreement, as the case may be and,
except in the case of a lease, the Company or such Restricted Subsidiary shall
be released and discharged from its obligations thereunder.
The Indenture will provide that for all purposes of the Indenture and the
Notes (including the provision of this covenant and the covenants described in
"--Certain Covenants--Limitation on Indebtedness," "--Limitation on Restricted
Payments," and "--Limitation on Liens"), Subsidiaries of any surviving person
shall, upon such transaction or series of related transactions, become
Restricted Subsidiaries unless and until designated Unrestricted Subsidiaries
pursuant to and in accordance with "--Limitation on Designations of
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Unrestricted Subsidiaries" and all Indebtedness, and all Liens on property or
assets, of the Company and the Restricted Subsidiaries in existence
immediately after such transaction or series of related transactions will be
deemed to have been incurred upon such transaction or series of related
transactions.
EVENTS OF DEFAULT
The following will be "Events of Default" under the Indenture:
(i) default in the payment of the principal of or premium, if any, when
due and payable, on any of the Notes (at Stated Maturity, upon optional
redemption, required purchase or otherwise); or
(ii) default in the payment of an installment of interest on any of the
Notes, when due and payable, for 30 days; or
(iii) (a) default in the performance, or breach, of any covenant or
agreement of the Company under the Indenture (other than a default in the
performance or breach of a covenant or agreement which is specifically
dealt with in clauses (i), (ii) or (iv)) and such default or breach shall
continue for a period of 30 days after written notice has been given, by
certified mail, (x) to the Company by the Trustee or (y) to the Company and
the Trustee by the holders of at least 25% in aggregate principal amount of
the outstanding Notes; or
(iv) (a) there shall be a default in the performance or breach of the
provisions of "--Consolidation, Merger and Sale of Assets, Etc."; (b) the
Company shall have failed to make or consummate an Asset Sale Offer in
accordance with the provisions of the Indenture described under "--Certain
Covenants--Dispositions of Proceeds of Asset Sales"; or (c) the Company
shall have failed to make or consummate a Change of Control Offer in
accordance with the provisions of the Indenture described under "--Change
of Control"; or
(v) default or defaults under one or more agreements, instruments,
mortgages, bonds, debentures or other evidences of Indebtedness under which
the Company or any Restricted Subsidiary of the Company then has
outstanding Indebtedness in excess of $15 million, individually or in the
aggregate, and either (a) such Indebtedness is already due and payable in
full or (b) such default or defaults have resulted in the acceleration of
the maturity of such Indebtedness; or
(vi) one or more judgments, orders or decrees of any court or regulatory
or administrative agency of competent jurisdiction for the payment of money
in excess of $15 million, either individually or in the aggregate, shall be
entered against the Company or any Restricted Subsidiary of the Company or
any of their respective properties and shall not be discharged and there
shall have been a period of 60 days after the date on which any period for
appeal has expired and during which a stay of enforcement of such judgment,
order or decree, shall not be in effect; or
(vii) the entry of a decree or order by a court having jurisdiction in
the premises (A) for relief in respect of the Company or any Significant
Subsidiary in an involuntary case or proceeding under the Federal
Bankruptcy Code or any other federal, state or foreign bankruptcy,
insolvency, reorganization or similar law or (B) adjudging the Company or
any Significant Subsidiary bankrupt or insolvent, or seeking
reorganization, arrangement, adjustment or composition of or in respect of
the Company or any Significant Subsidiary under the Federal Bankruptcy Code
or any other similar federal, state or foreign law, or appointing a
custodian, receiver, liquidator, assignee, trustee, sequestrator (or other
similar official) of the Company or any Significant Subsidiary or of any
substantial part of any of their properties, or ordering the winding up or
liquidation of any of their affairs, and the continuance of any such decree
or order unstayed and in effect for a period of 60 consecutive days; or
(viii) the institution by the Company or any Significant Subsidiary of a
voluntary case or proceeding under the Federal Bankruptcy Code or any other
similar federal, state or foreign law or any other case or proceedings to
be adjudicated a bankrupt or insolvent, or the consent by the Company or
any Significant Subsidiary to the entry of a decree or order for relief in
respect of the Company or any Significant
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Subsidiary in any involuntary case or proceeding under the Federal
Bankruptcy Code or any other similar federal, state or foreign law or to
the institution of bankruptcy or insolvency proceedings against the Company
or any Significant Subsidiary, or the filing by the Company or any
Significant Subsidiary of a petition or answer or consent seeking
reorganization or relief under the Federal Bankruptcy Code or any other
similar federal, state or foreign law, or the consent by it to the filing
of any such petition or to the appointment of or taking possession by a
custodian, receiver, liquidator, assignee, trustee or sequestrator (or
other similar official) of any of the Company or any Significant Subsidiary
or of any substantial part of its property, or the making by it of an
assignment for the benefit of creditors, or the admission by it in writing
of its inability to pay its debts generally as they become due or the
taking of corporate action by the Company or any Significant Subsidiary in
furtherance of any such action; or
(ix) any of the Guarantees ceases to be in full force and effect or any
of the Guarantees is declared to be null and void and unenforceable or any
of the Guarantees is found to be invalid or any of the Guarantors denies
its liability under its Guarantee (other than by reason of release of a
Guarantor in accordance with the terms of the Indenture).
If an Event of Default (other than those covered by clause (vii) or (viii)
above with respect to the Company) shall occur and be continuing, the Trustee,
by notice to the Company and the representatives of the lenders under the
Credit Facility and the Term Loan, or the holders of at least 25% in aggregate
principal amount of the Notes then outstanding, by notice to the Trustee, the
Company and the representatives of the lenders under the Credit Facility and
the Term Loan, may declare the principal of, premium, if any, and accrued and
unpaid interest, if any, on all of the outstanding Notes due and payable
immediately, upon which declaration, all amounts payable in respect of the
Notes shall be due and payable as of the date which is five business days
after the giving of such notice to the representative of the lenders under the
Credit Facility and the Term Loan. If an Event of Default specified in clause
(vii) or (viii) above with respect to the Company occurs and is continuing,
then the
principal of, premium, if any, and accrued and unpaid interest, if any, on all
the outstanding Notes shall ipso facto become and be immediately due and
payable without any declaration or other act on the part of the Trustee or any
holder of Notes.
After a declaration of acceleration under the Indenture, but before a
judgment or decree for payment of the money due has been obtained by the
Trustee, the holders of a majority in aggregate principal amount of the
outstanding Notes, by written notice to the Company and the Trustee, may
rescind such declaration if (a) the Company has paid or deposited with the
Trustee a sum sufficient to pay (i) all sums paid or advanced by the Trustee
under the Indenture and the reasonable compensation, expenses, disbursements
and advances of the Trustee, its agents and counsel, (ii) all overdue interest
on all Notes, (iii) the principal of and premium, if any, on any Notes which
have become due otherwise than by such declaration of acceleration and
interest thereon at the rate borne by the Notes, and (iv) to the extent that
payment of such interest is lawful, interest upon overdue interest and overdue
principal at the rate borne by the Notes which has become due otherwise than
by such declaration of acceleration; (b) the rescission would not conflict
with any judgment or decree of a court of competent jurisdiction; and (c) all
Events of Default, other than the non-payment of principal of, premium, if
any, and interest on the Notes that has become due solely by such declaration
of acceleration, have been cured or waived.
The holders of not less than a majority in aggregate principal amount of the
outstanding Notes may on behalf of the holders of all the Notes waive any past
defaults under the Indenture, except a default in the payment of the principal
of, premium, if any, or interest on any Note, or in respect of a covenant or
provision which under the Indenture cannot be modified or amended without the
consent of the holder of each Note outstanding.
No holder of any of the Notes has any right to institute any proceeding with
respect to the Indenture or any remedy thereunder, unless the holders of at
least 25% in aggregate principal amount of the outstanding Notes have made
written request, and offered reasonable indemnity, to the Trustee to institute
such proceeding as Trustee under the Notes and the Indenture, the Trustee has
failed to institute such proceeding within 45 days after receipt of such
notice and the Trustee, within such 45-day period, has not received directions
inconsistent
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with such written request by holders of a majority in aggregate principal
amount of the outstanding Notes. Such limitations do not apply, however, to a
suit instituted by a holder of a Note for the enforcement of the payment of
the principal of, premium, if any, or interest on such Note on or after the
respective due dates expressed in such Note.
During the existence of an Event of Default, the Trustee is required to
exercise such rights and powers vested in it under the Indenture and use the
same degree of care and skill in its exercise thereof as a prudent person
would exercise under the circumstances in the conduct of such person's own
affairs. Subject to the provisions of the Indenture relating to the duties of
the Trustee, whether or not an Event of Default shall occur and be continuing,
the Trustee under the Indenture is not under any obligation to exercise any of
its rights or powers under the Indenture at the request or direction of any of
the holders unless such holders shall have offered to the Trustee reasonable
security or indemnity. Subject to certain provisions concerning the rights of
the Trustee, the holders of a majority in aggregate principal amount of the
outstanding Notes have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Trustee, or
exercising any trust or power conferred on the Trustee under the Indenture.
If a Default or an Event of Default occurs and is continuing and is known to
the Trustee, the Trustee shall mail to each holder of the Notes notice of the
Default or Event of Default within 30 days after obtaining knowledge thereof.
Except in the case of a Default or an Event of Default in payment of principal
of, premium, if any, or interest on any Notes, the Trustee may withhold the
notice to the holders of such Notes if a committee of its trust officers in
good faith determines that withholding the notice is in the interest of the
Noteholders.
The Company is required to furnish to the Trustee annual and quarterly
statements as to the performance by the Company of its obligations under the
Indenture and as to any default in such performance. The Company is
also required to notify the Trustee within five days of any event which is, or
after notice or lapse of time or both would become, an Event of Default.
NO LIABILITY FOR CERTAIN PERSONS
No director, officer, employee or stockholder of Holdings or the Company,
nor any director, officer or employee of any Guarantor, as such, will have any
liability for any obligations of the Company or any Guarantor under the Notes,
the Guarantees or the Indenture based on or by reason of such obligations or
their creation. Each holder by accepting a Note waives and releases all such
liability. The foregoing waiver and release are an integral part of the
consideration for the issuance of the Notes. Such waiver may not be effective
to waive liabilities under the federal securities laws.
DEFEASANCE OR COVENANT DEFEASANCE OF INDENTURE
The Company may, at its option and at any time, terminate the obligations of
the Company with respect to the outstanding Notes ("defeasance") to the extent
set forth below. Such defeasance means that the Company shall be deemed to
have paid and discharged the entire Indebtedness represented by the
outstanding Notes, except for (i) the rights of holders of outstanding Notes
to receive payment in respect of the principal of, premium, if any, and
interest on such Notes when such payments are due, (ii) the Company's
obligations to issue temporary Notes, register the transfer or exchange of any
Notes, replace mutilated, destroyed, lost or stolen Notes and maintain an
office or agency for payments in respect of the Notes, (iii) the rights,
powers, trusts, duties and immunities of the Trustee, and (iv) the defeasance
provisions of the Indenture. In addition, the Company may, at its option and
at any time, elect to terminate the obligations of the Company with respect to
certain covenants that are set forth in the Indenture, some of which are
described under "--Certain Covenants" above, and any subsequent failure to
comply with such obligations shall not constitute a Default or an Event of
Default with respect to the Notes ("covenant defeasance").
In order to exercise either defeasance or covenant defeasance, (i) the
Company must irrevocably deposit with the Trustee, in trust, for the benefit
of the holders of the Notes, cash in United States dollars, U.S.
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Government Obligations (as defined in the Indenture), or a combination
thereof, in such amounts as will be sufficient, in the opinion of a nationally
recognized firm of independent public accountants, to pay the principal of,
premium, if any, and interest on the outstanding Notes to redemption or
maturity (except lost, stolen or destroyed Notes which have been replaced or
paid); (ii) the Company shall have delivered to the Trustee an opinion of
counsel to the effect that the holders of the outstanding Notes will not
recognize income, gain or loss for federal income tax purposes as a result of
such defeasance or covenant defeasance and will be subject to federal income
tax on the same amounts, in the same manner and at the same times as would
have been the case if such defeasance or covenant defeasance had not occurred
(in the case of defeasance, such opinion must refer to and be based upon a
ruling of the Internal Revenue Service or a change in applicable federal
income tax laws); (iii) no Default or Event of Default shall have occurred and
be continuing on the date of such deposit; (iv) such defeasance or covenant
defeasance shall not cause the Trustee to have a conflicting interest with
respect to any securities of the Company; (v) such defeasance or covenant
defeasance shall not result in a breach or violation of, or constitute a
default under, any agreement or instrument to which the Company is a party or
by which it is bound; (vi) the Company shall have delivered to the Trustee an
opinion of counsel to the effect that after the 91st day following the
deposit, the trust funds will not be subject to the effect of any applicable
bankruptcy, insolvency, reorganization or similar laws affecting creditors'
rights generally; (vii) the Company shall have delivered to the Trustee an
officers' certificate stating that the deposit was not made by the Company
with the intent of preferring the holders of the Notes over the other
creditors of the Company with the intent of hindering, delaying or defrauding
creditors of the Company or others; (viii) no event or condition shall exist
that would prevent the Company from making payments of the principal of,
premium, if any, and interest on the Notes on the date of such deposit or at
any time ending on the 91st day after the date of such deposit; and (ix) the
Company shall have delivered to the Trustee an officers' certificate and an
opinion of counsel, each stating that all conditions precedent under the
Indenture to either defeasance or covenant defeasance, as the case may be,
have been complied with.
SATISFACTION AND DISCHARGE
The Indenture will be discharged and will cease to be of further effect
(except as to surviving rights or registration of transfer or exchange of the
Notes, as expressly provided for in the Indenture) as to all outstanding Notes
when (i) either (a) all the Notes theretofore authenticated and delivered
(except lost, stolen or destroyed Notes which have been replaced or repaid and
Notes for whose payment money has theretofore been deposited in trust or
segregated and held in trust by the Company and thereafter repaid to the
Company or discharged from such trust) have been delivered to the Trustee for
cancellation or (b) all Notes not theretofore delivered to the Trustee for
cancellation (except lost, stolen or destroyed Notes which have been replaced
or paid) have become due and payable and the Company has irrevocably deposited
or caused to be deposited with the Trustee funds in an amount sufficient to
pay and discharge the entire Indebtedness on the Notes not theretofore
delivered to the Trustee for cancellation, for principal of, premium, if any,
and interest on the Notes to the date of deposit together with irrevocable
instructions from the Company directing the Trustee to apply such funds to the
payment thereof at maturity or redemption, as the case may be; (ii) the
Company has paid all other sums payable under the Indenture by the Company;
and (iii) the Company has delivered to the Trustee an officers' certificate
and an opinion of counsel stating that all conditions precedent under the
Indenture relating to the satisfaction and discharge of the Indenture have
been complied with.
AMENDMENTS AND WAIVERS
From time to time, the Company, when authorized by a resolution of its Board
of Directors, and the Trustee may, without the consent of the holders of any
outstanding Notes, amend, waive or supplement the Indenture or the Notes for
certain specified purposes, including, among other things, curing ambiguities,
defects or inconsistencies, qualifying, or maintaining the qualification of,
the Indenture under the Trust Indenture Act, or making any change that does
not adversely affect the rights of any holder of Notes. Other amendments and
modifications of the Indenture or the Notes may be made by the Company and the
Trustee with the consent of the holders of not less than a majority of the
aggregate principal amount of the outstanding Notes; provided,
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however, that no such modification or amendment may, without the consent of
the holder of each outstanding Note affected thereby, (i) reduce the principal
amount of, extend the fixed maturity of or alter the redemption provisions of,
the Notes, (ii) change the currency in which any Notes or any premium or the
interest thereon is payable, (iii) reduce the percentage in principal amount
of outstanding Notes that must consent to an amendment, supplement or waiver
or consent to take any action under the Indenture or the Notes, (iv) impair
the right to institute suit for the enforcement of any payment on or with
respect to the Notes, (v) waive a default in payment with respect to the
Notes, (vi) amend, change or modify the obligation of the Company to make and
consummate a Change of Control Offer in the event of a Change of Control or
make and consummate the offer with respect to any Asset Sale or modify any of
the provisions or definitions with respect thereto, (vii) reduce or change the
rate or time for payment of interest on the Notes or (viii) to modify or
change any provision of the Indenture affecting the ranking of the Notes in a
manner adverse to the holders of the Notes.
THE TRUSTEE
The Indenture provides that, except during the continuance of an Event of
Default, the Trustee thereunder will perform only such duties as are
specifically set forth in the Indenture. If an Event of Default has occurred
and is continuing, the Trustee will exercise such rights and powers vested in
it under the Indenture and use the same degree of care and skill in its
exercise as a prudent person would exercise under the circumstances in the
conduct of such person's own affairs.
The Indenture and provisions of the Trust Indenture Act incorporated by
reference therein contain limitations on the rights of the Trustee thereunder,
should it become a creditor of the Company, to obtain payment of claims in
certain cases or to realize on certain property received by it in respect of
any such claims, as security or otherwise. The Trustee is permitted to engage
in other transactions; provided, however, that if it acquires any conflicting
interest (as defined in such Act) it must eliminate such conflict or resign.
GOVERNING LAW
The Indenture and the Notes will be governed by the laws of the State of New
York, without regard to the principles of conflicts of law.
CERTAIN DEFINITIONS
"Acquired Indebtedness" means Indebtedness of a person (a) assumed in
connection with an Asset Acquisition from such person or (b) existing at the
time such person becomes a Subsidiary of any other person and not incurred in
connection with, or in contemplation of, such Asset Acquisition or such person
becoming a Subsidiary.
"Affiliate" means, with respect to any specified person, (i) any other
person directly or indirectly controlling or controlled by or under direct or
indirect common control with such specified person, (ii) any other person that
owns, directly or indirectly, 10% or more of such specified person's Capital
Stock, or (iii) any officer or director of (A) any such specified person, (B)
any Subsidiary of such specified person or (C) any person described in clauses
(i) or (ii) above.
"Asset Acquisition" means (a) an Investment by the Company or any Restricted
Subsidiary of the Company in any other person pursuant to which such person
shall become a Restricted Subsidiary of the Company or any Restricted
Subsidiary of the Company, or shall be merged with or into the Company or any
Restricted Subsidiary of the Company, or (b) the acquisition by the Company or
any Restricted Subsidiary of the Company of the assets of any person which
constitute all or substantially all of the assets of such person, any division
or line of business of such person or any other properties or assets of such
person other than in the ordinary course of business.
"Asset Sale" means any sale, issuance, conveyance, transfer, lease or other
disposition by the Company or any Restricted Subsidiary of the Company to any
person other than the Company or a Restricted Subsidiary of
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the Company, of (a) any Capital Stock of any Restricted Subsidiary of the
Company; (b) all or substantially all of the properties and assets of any
division or line of business of the Company or any Restricted Subsidiary of
the Company; or (c) any other properties or assets of the Company or any
Restricted Subsidiary of the Company, other than (i) sales of obsolete,
damaged or used equipment or other equipment or inventory sales in the
ordinary course of business, (ii) sales of assets in one or a series of
related transactions for an aggregate consideration of less than $1 million,
(iii) sales of Permitted Investments, and (iv) sales of accounts receivable
for financing purposes. For the purposes of this definition, the term "Asset
Sale" shall not include any sale, issuance, conveyance, transfer, lease or
other disposition of properties or assets that is governed by the provisions
described under "--Consolidation, Merger, Sale of Assets, Etc."
"Average Life to Stated Maturity" means, with respect to any Indebtedness,
as at any date of determination, the quotient obtained by dividing (i) the sum
of the products of (a) the number of years from such date to the date or dates
of each successive scheduled principal payment (including, without limitation,
any sinking fund requirements) of such Indebtedness and (b) the amount of each
such principal payment by (ii) the sum of all such principal payments.
"Board of Directors" means the board of directors of a company or its
equivalent, including managers of a limited liability company, general
partners of a partnership or trustees of a business trust, or any duly
authorized committee thereof.
"Capital Stock" means, with respect to any person, any and all shares,
interests, participations, rights in or other equivalents (however designated)
of such person's capital stock or equity participations, and any rights (other
than debt securities convertible into capital stock), warrants or options
exchangeable for or convertible into such capital stock and, including,
without limitation, with respect to partnerships, limited liability companies
or business trusts, ownership interests (whether general or limited) and any
other interest or participation that confers on a person the right to receive
a share of the profits and losses of, or distributions of assets of, such
partnerships, limited liability companies or business trusts.
"Capitalized Lease Obligation" means any obligation under a lease of (or
other agreement conveying the right to use) any property (whether real,
personal or mixed) that is required to be classified and accounted for as a
capital lease obligation under GAAP, and, for the purpose of the Indenture,
the amount of such obligation at any date shall be the capitalized amount
thereof at such date, determined in accordance with GAAP.
"Cash Equivalents" means, at any time, (i) any evidence of Indebtedness,
maturing not more than one year after such time, issued or guaranteed by the
United States Government or any agency thereof, (b) commercial paper, maturing
not more than one year from the date of issue, or corporate demand notes, in
each case rated at least A-1 by Standard & Poor's Ratings Group or P-1 by
Moody's Investors Service, Inc., (c) any certificate of deposit (or time
deposits represented by such certificates of deposit) or bankers acceptance,
maturing not more than one year after such time, or overnight Federal Funds
transactions that are issued or sold by a commercial banking institution that
is a member of the Federal Reserve System and has a combined capital and
surplus and undivided profits of not less than $500 million, (d) any
repurchase agreement entered into with any commercial banking institution of
the stature referred to in clause (c) which (i) is secured by a fully
perfected security interest in any obligation of the type described in any of
clauses (a) through (c) and (ii) has a market value at the time such
repurchase agreement is entered into of not less than 100% of the repurchase
obligation of such commercial banking institution thereunder, (e) investments
in short term asset management accounts managed by any bank party to the
Credit Facility which are invested in indebtedness of any state or
municipality of the United States or of the District of Columbia and which are
rated under one of the two highest ratings then obtainable from Standard &
Poor's Ratings Group or by Moody's Investors Service, Inc. or investments of
the types described in clauses (a) through (d) above, and (f) investments in
funds investing primarily in investments of the types described in clauses (a)
through (e) above.
"Change of Control" means the occurrence of any of the following events: (a)
any "person" or "group" (as such terms are used in Sections 13(d) and 14(d) of
the Exchange Act), excluding Permitted Holders, is or
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becomes the "beneficial owner" (as defined in Rules 13d-3 and 13d-5 under the
Exchange Act, except that a person shall be deemed to have "beneficial
ownership" of all securities that such person has the right to acquire,
whether such right is exercisable immediately or only after the passage of
time), directly or indirectly, of more than 50% of the total Voting Stock of
the Company or Holdings; provided, however, that a "Change of Control" shall
not be deemed to have occurred under this subclause (a) unless the Permitted
Holders do not have the right or ability by voting power, contract or
otherwise to elect or designate for election a majority of the Board of
Directors of the Company or Holdings; (b) the Company or Holdings consolidates
with, or merges with or into, another person or sells, assigns, conveys,
transfers, leases or otherwise disposes of all or substantially all of its
assets to any person, or any person consolidates with, or merges with or into,
the Company (or Holdings), in any such event pursuant to a transaction in
which the outstanding Voting Stock of the Company or Holdings is converted
into or exchanged for cash, securities or other property, other than any such
transaction where (i) the outstanding Voting Stock of the Company or Holdings
is converted into or exchanged for Voting Stock (other than Redeemable Capital
Stock) of the surviving or transferee corporation and (ii) immediately after
such transaction no "person" or "group" (as such terms are used in Section
13(d) and 14(d) of the Exchange Act), excluding Permitted Holders, is the
"beneficial owner" (as defined in Rules 13d-3 and 13d-5 under the Exchange
Act, except that a person shall be deemed to have "beneficial ownership" of
all securities that such person has the right to acquire, whether such right
is exercisable immediately or only after the passage of time), directly or
indirectly, of more than 50% of the total Voting Stock of the surviving or
transferee corporation; (c) during any consecutive two-year period,
individuals who at the beginning of such period constituted the Board of
Directors of the Company or Holdings (together with any new directors whose
election by such Board of Directors or whose nomination for election by the
stockholders of the Company or Holdings was approved by a vote of 66-2/3% of
the directors then still in office who were either directors at the beginning
of such period or whose election or nomination for election was previously so
approved) cease for any reason to constitute a majority of
the Board of Directors of the Company or Holdings then in office; or (d) the
Company is liquidated or dissolved or adopts a plan of liquidation; provided,
however, that the Reorganization shall not be deemed to involve a "Change of
Control."
"Common Stock" means the common stock, par value $.01 per share, of
Holdings.
"Company" means United Rentals (North America), Inc. (formerly United
Rentals, Inc.), a Delaware corporation.
"Consolidated Cash Flow Available for Fixed Charges" means, with respect to
any person for any period, (i) the sum of, without duplication, the amounts
for such period, taken as a single accounting period, of (a) Consolidated Net
Income, (b) Consolidated Non-cash Charges, (c) Consolidated Interest Expense,
(d) Consolidated Income Tax Expense (other than income tax expense (either
positive or negative) attributable to extraordinary gains or losses), (e) one-
third of Consolidated Rental Payments and (f) if any Asset Sale or Asset
Acquisition shall have occurred since the first day of any four quarter period
for which "Consolidated Cash Flow Available for Fixed Charges" is being
calculated (including to the date of calculation) (A) the cost of any
compensation, remuneration or other benefit paid or provided to any employee,
consultant, Affiliate or equity owner of the entity involved in any such Asset
Acquisition to the extent such costs are eliminated or reduced (or public
announcement has been made of the intent to eliminate or reduce such costs)
prior to the date of such calculation and not replaced and (B) the amount of
any reduction in general, administrative or overhead costs of the entity
involved in any such Asset Acquisition, to the extent such amounts under
clauses (A) and (B) would be permitted to be eliminated in a pro forma income
statement prepared in accordance with Rule 11-02 of Regulation S-X, less
(ii)(x) non-cash items increasing Consolidated Net Income and (y) all cash
payments during such period relating to non-cash charges that were added back
in determining Consolidated Cash Flow Available for Fixed Charges in the most
recent Four Quarter Period.
"Consolidated Fixed Charge Coverage Ratio" means, with respect to any
person, the ratio of the aggregate amount of Consolidated Cash Flow Available
for Fixed Charges of such person for the four full fiscal quarters, treated as
one period, for which financial information in respect thereof is available
immediately preceding the date of the transaction (the "Transaction Date")
giving rise to the need to calculate the Consolidated Fixed
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Charge Coverage Ratio (such four full fiscal quarter period being referred to
herein as the "Four Quarter Period") to the aggregate amount of Consolidated
Fixed Charges of such person for the Four Quarter Period. In calculating
"Consolidated Fixed Charges" for purposes of determining the denominator (but
not the numerator) of this "Consolidated Fixed Charge Coverage Ratio," (i)
interest on outstanding Indebtedness determined on a fluctuating basis as of
the Transaction Date and which will continue to be so determined thereafter
shall be deemed to have accrued at a fixed rate per annum equal to the rate of
interest on such Indebtedness in effect on the Transaction Date; and (ii) if
interest on any Indebtedness actually incurred on the Transaction Date may
optionally be determined at an interest rate based upon a factor of a prime or
similar rate, a eurocurrency interbank offered rate, or other rates, then the
interest rate in effect on the Transaction Date will be deemed to have been in
effect during the Four Quarter Period. If such person or any of its Restricted
Subsidiaries directly or indirectly guarantees Indebtedness of a third person,
the above clause shall give effect to the incurrence of such guaranteed
Indebtedness as if such person or such Subsidiary had directly incurred or
otherwise assumed such guaranteed Indebtedness.
"Consolidated Fixed Charges" means, with respect to any person for any
period, the sum of, without duplication, the amounts for such period of (i)
Consolidated Interest Expense, (ii) the aggregate amount of dividends and
other distributions paid or accrued during such period in respect of
Redeemable Capital Stock of such person and its Restricted Subsidiaries on a
consolidated basis and (iii) one-third of Consolidated Rental Payments.
"Consolidated Income Tax Expense" means, with respect to any person for any
period, the provision for federal, state, local and foreign income taxes of
such person and its Restricted Subsidiaries for such period as determined on a
consolidated basis in accordance with GAAP.
"Consolidated Interest Expense" means, with respect to any person for any
period, without duplication, the sum of (i) the interest expense of such
person and its Restricted Subsidiaries for such period as determined on a
consolidated basis in accordance with GAAP, including, without limitation, (a)
any amortization of debt discount, (b) the net cost under Interest Rate
Protection Obligations (including any amortization of discounts), (c) the
interest portion of any deferred payment obligation, (d) all commissions,
discounts and other fees and charges owed with respect to letters of credit,
bankers' acceptance financing or similar facilities and (e) all accrued
interest and (ii) the interest component of Capitalized Lease Obligations
paid, accrued and/or scheduled to be paid or accrued by such person and its
Restricted Subsidiaries during such period as determined on a consolidated
basis in accordance with GAAP.
"Consolidated Net Income" means, with respect to any person, for any period,
the consolidated net income (or loss) of such person and its Restricted
Subsidiaries for such period as determined in accordance with GAAP, adjusted,
to the extent included in calculating such net income, by excluding, without
duplication, (i) all extraordinary gains or losses (net of fees and expenses
relating to the transaction giving rise thereto), (ii) the portion of net
income of such person and its Restricted Subsidiaries allocable to minority
interests in unconsolidated persons or to Investments in Unrestricted
Subsidiaries to the extent that cash dividends or distributions have not
actually been received by such person or one of its Restricted Subsidiaries,
(iii) net income (or loss) of any person combined with such person or one of
its Restricted Subsidiaries on a "pooling of interests" basis attributable to
any period prior to the date of combination, (iv) gains or losses in respect
of any Asset Sales by such person or one of its Restricted Subsidiaries (net
of fees and expenses relating to the transaction giving rise thereto), on an
after-tax basis, (v) the net income of any Restricted Subsidiary of such
person to the extent that the declaration of dividends or similar
distributions by that Restricted Subsidiary of that income is not at the time
permitted, directly or indirectly, by operation of the terms of its charter or
any agreement, instrument, judgment, decree, order, statute, rule or
governmental regulations applicable to that Restricted Subsidiary or its
stockholders and (vi) any gain or loss realized as a result of the cumulative
effect of a change in accounting principles.
"Consolidated Non-cash Charges" means, with respect to any person for any
period, the aggregate depreciation, amortization (including amortization of
goodwill and other intangibles) and other non-cash
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expenses of such person and its Restricted Subsidiaries reducing Consolidated
Net Income of such person and its Restricted Subsidiaries for such period,
determined on a consolidated basis in accordance with GAAP (excluding any such
charges constituting an extraordinary item or loss).
"Consolidated Rental Payments" of any person means, for any period, the
aggregate rental obligations of such person and its Restricted Subsidiaries
(not including taxes, insurance, maintenance and similar expenses that the
lessee is obligated to pay under the terms of the relevant leases), determined
on a consolidated basis in accordance with GAAP, payable in respect of such
period (net of income from subleases thereof, not including taxes, insurance,
maintenance and similar expenses that the sublessee is obligated to pay under
the terms of such sublease), whether or not such obligations are reflected as
liabilities or commitments on a consolidated balance sheet of such person and
its Restricted Subsidiaries or in the notes thereto, excluding, however, in
any event, (i) that portion of Consolidated Interest Expense of such person
representing payments by such person or any of its Restricted Subsidiaries in
respect of Capitalized Lease Obligations (net of payments to such person or
any of its Restricted Subsidiaries under subleases qualifying as capitalized
lease subleases to the extent that such payments would be deducted in
determining Consolidated Interest Expense) and (ii) the aggregate amount of
amortization of obligations of such person and its Restricted Subsidiaries in
respect of such Capitalized Lease Obligations for such period (net of payments
to such person or any of its Restricted Subsidiaries and subleases qualifying
as capitalized lease subleases to the extent that such payments could be
deducted in determining such amortization amount).
"control" when used with respect to any specified person means the power to
direct the management and policies of such person, directly or indirectly,
whether through ownership of voting securities, by contract or otherwise; and
the terms "controlling" and "controlled" have meanings correlative to the
foregoing.
"Credit Facility" means the First Amendment to the Third Amended and
Restated Credit Agreement dated as of May 12, 1998 as amended on July 10,
1998, among the Company, United Rentals of Canada, Inc., various financial
institutions, BankBoston, N.A., Comerica Bank, Credit Lyonnais New York
Branch, Deutsche Bank AG and Fleet Bank N.A., as Co-Agents, Bank of America
Canada, as Canadian Agent, and Bank of America National Trust and Savings
Association, as U.S. Agent, including any notes, guarantees, collateral
documents, instruments and agreements executed in connection therewith, and in
each case as amended (including any amendment and restatement thereof),
modified, renewed, refunded, replaced or refinanced from time to time,
including any agreement extending the maturity of, refinancing, replacing or
otherwise restructuring (including increasing the amount of available
borrowings thereunder or adding Subsidiaries of the Company as additional
borrowers or guarantors thereunder) all or any portion of the Indebtedness
under such agreement or any successor or replacement agreement and whether by
the same or any other agents, lender or group of lenders.
"Default" means any event that is, or after notice or passage of time or
both would be, an Event of Default.
"Disinterested Member of the Board of Directors of the Company" means, with
respect to any transaction or series of transactions, a member of the Board of
Directors of the Company other than a member who has any material direct or
indirect financial interest in or with respect to such transaction or series
of transactions or is an Affiliate, or an officer, director or an employee of
any person (other than the Company or Holdings) who has any direct or indirect
financial interest in or with respect to such transaction or series of
transactions.
"Event of Default" has the meaning set forth under "--Events of Default"
herein.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Fair Market Value" means, with respect to any asset, the price which could
be negotiated in an arm's- length free market transaction, for cash, between a
willing seller and a willing buyer, neither of which is under pressure or
compulsion to complete the transaction. Fair Market Value shall be determined
by the Board of Directors of the Company in good faith.
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"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as may be approved by a significant segment of the accounting
profession of the United States of America, which are applicable at the date
of the Indenture.
"guarantee" means, as applied to any obligation, (i) a guarantee (other than
by endorsement of negotiable instruments for collection in the ordinary course
of business), direct or indirect, in any manner, of any part or all of such
obligation and (ii) an agreement, direct or indirect, contingent or otherwise,
the practical effect of which is to assure in any way the payment or
performance (or payment of damages in the event of nonperformance) of all or
any part of such obligation, including, without limiting the foregoing, the
payment of amounts available to be drawn down under letters of credit of
another person.
"Holdings" means United Rentals, Inc. (formerly United Rentals Holdings,
Inc.), a Delaware corporation.
"Indebtedness" means, with respect to any person, without duplication, (a)
all liabilities of such person for borrowed money or for the deferred purchase
price of property or services, excluding any trade payables and other accrued
current liabilities incurred in the ordinary course of business, but
including, without limitation, all obligations, contingent or otherwise, of
such person in connection with any letters of credit, banker's acceptance or
other similar credit transaction, (b) all obligations of such person evidenced
by bonds, notes, debentures or other similar instruments, (c) all indebtedness
created or arising under any conditional sale or other title retention
agreement with respect to property acquired by such person (even if the rights
and remedies of the seller or lender under such agreement in the event of
default are limited to repossession or sale of such property), but excluding
trade accounts payable arising in the ordinary course of business, (d) all
Capitalized Lease Obligations of such person, (e) all Indebtedness referred to
in the preceding clauses of other persons and all dividends of other persons,
the payment of which is secured by (or for which the holder of such
Indebtedness has an existing right, contingent or otherwise, to be secured by)
any Lien upon property (including, without limitation, accounts and contract
rights) owned by such person, even though such person has not assumed or
become liable for the payment of such Indebtedness (the amount of such
obligation being deemed to be the lesser of the value of such property or
asset or the amount of the obligation so secured), (f) all guarantees of
Indebtedness referred to in this definition by such person, (g) all Redeemable
Capital Stock of such person valued at the greater of its voluntary or
involuntary maximum fixed repurchase price plus accrued dividends, (h) all
obligations under or in respect of Interest Rate Protection Obligations of
such person, and (i) any amendment, supplement, modification, deferral,
renewal, extension, refinancing or refunding of any liability of the types
referred to in clauses (a) through (h) above; provided, however, that
Indebtedness shall not include (i) any holdback or escrow of the purchase
price of property, services, businesses or assets or (ii) any contingent
payment obligations incurred in connection with the acquisition of assets or
businesses, which are contingent on the performance of the assets or
businesses so acquired. For purposes hereof, the "maximum fixed repurchase
price" of any Redeemable Capital Stock which does not have a fixed repurchase
price shall be calculated in accordance with the terms of such Redeemable
Capital Stock as if such Redeemable Capital Stock were purchased on any date
on which Indebtedness shall be required to be determined pursuant to the
Indenture, and if such price is based upon, or measured by, the fair market
value of such Redeemable Capital Stock, such fair market value shall be
approved in good faith by the board of directors of the issuer of such
Redeemable Capital Stock. In the case of Indebtedness of other persons, the
payment of which is secured by a Lien on property owned by a person as
referred to in clause (e) above, the amount of the Indebtedness of such person
attributable to such Lien at any date shall be the lesser of the Fair Market
Value at such date of any asset subject to such Lien and the amount of the
Indebtedness secured.
"Interest Rate Protection Agreement" means, with respect to any person, any
arrangement with any other person whereby, directly or indirectly, such person
is entitled to receive from time to time periodic payments calculated by
applying either a floating or a fixed rate of interest on a stated notional
amount in exchange for periodic payments made by such person calculated by
applying a fixed or a floating rate of interest on the same notional amount
and shall include without limitation, interest rate swaps, caps, floors,
collars and similar agreements.
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"Interest Rate Protection Obligations" means the obligations of any person
pursuant to any Interest Rate Protection Agreements.
"Investment" means, with respect to any person, any direct or indirect loan
or other extension of credit (including, without limitation, a guarantee) or
capital contribution to (by means of any transfer of cash or other property to
others or any payment for property or services for the account or use of
others), or any purchase or acquisition by such person of any Capital Stock,
bonds, notes, debentures or other securities or evidences of Indebtedness
issued by, any other person.
"Lien" means any mortgage, charge, pledge, lien (statutory or other),
security interest, hypothecation, assignment for security, claim, or
preference or priority or other encumbrance upon or with respect to any
property of any kind. A person shall be deemed to own subject to a Lien any
property which such person has acquired or holds subject to the interest of a
vendor or lessor under any conditional sale agreement, capital lease or other
title retention agreement.
"Maturity Date" means August 15, 2008.
"Net Cash Proceeds" means, with respect to any Asset Sale, the proceeds
thereof in the form of cash or Cash Equivalents including payments in respect
of deferred payment obligations when received in the form of cash or Cash
Equivalents (except to the extent that such obligations are financed or sold
with recourse to the
Company or any Restricted Subsidiary of the Company) net of (i) brokerage
commissions and other fees and expenses (including, without limitation, fees
and expenses of legal counsel and investment bankers, recording fees, transfer
fees and appraisers' fees) related to such Asset Sale, (ii) provisions for all
taxes payable as a result of such Asset Sale, (iii) amounts required to be
paid to any person (other than the Company or any Restricted Subsidiary of the
Company) owning a beneficial interest in the assets subject to the Asset Sale,
(iv) payments made to retire Indebtedness where payment of such Indebtedness
is secured by the assets or properties the subject of such Asset Sale, and (v)
appropriate amounts to be provided by the Company or any Restricted Subsidiary
of the Company, as the case may be, as a reserve required in accordance with
GAAP against any liabilities associated with such Asset Sale and retained by
the Company or any Restricted Subsidiary of the Company, as the case may be,
after such Asset Sale, including, without limitation, pension and other post-
employment benefit liabilities, liabilities related to environmental matters
and liabilities under any indemnification obligations associated with such
Asset Sale, all as reflected in an officers' certificate delivered to the
Trustee.
"Permitted Holder" means (i) Holdings and (ii) Bradley S. Jacobs, John N.
Milne, Michael J. Nolan and their respective Affiliates, and trusts
established for the benefit of a Permitted Holder or members of his immediate
family.
"Permitted Indebtedness" means, without duplication:
(a) Indebtedness of the Company and the Guarantors evidenced by up to
$205 million principal amount of the Notes and the Guarantees;
(b) Indebtedness of the Company and Restricted Subsidiaries under (i) the
Credit Facility in an aggregate principal amount at any one time
outstanding not to exceed the greater of (x) $450 million or (y) 100% of
Tangible Assets, less, in either case, any amounts permanently repaid in
accordance with the covenant described under "--Certain Covenants--
Disposition of Proceeds of Asset Sales" and (ii) the Term Loan in an
aggregate amount not to exceed $250 million, less the amount of any
repayments of the Term Loan;
(c) Indebtedness of the Company or any Restricted Subsidiary outstanding
on May 22, 1998, including the 9 1/2% Notes and the guarantees thereof;
(d) Indebtedness of the Company or any Restricted Subsidiary of the
Company incurred in respect of performance bonds, bankers' acceptances and
letters of credit in the ordinary course of business, including
Indebtedness evidenced by letters of credit issued in the ordinary course
of business consistent with past
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practice to support the insurance or self-insurance obligations of the
Company or any of its Restricted Subsidiaries (including to secure workers'
compensation and other similar insurance coverages), in the aggregate
amount not to exceed $10 million at any time; but excluding letters of
credit issued in respect of or to secure money borrowed;
(e) (i) Interest Rate Protection Obligations of the Company covering
Indebtedness of the Company and (ii) Interest Rate Protection Obligations
of any Restricted Subsidiary covering Permitted Indebtedness of such
Restricted Subsidiary provided that, in the case of either clause (i) or
(ii), (x) any Indebtedness to which any such Interest Rate Protection
Obligations correspond bears interest at fluctuating interest rates and is
otherwise permitted to be incurred under the "Limitation on Indebtedness"
covenant and (y) the notional principal amount of any such Interest Rate
Protection Obligations that exceeds the principal amount of the
Indebtedness to which such Interest Rate Protection Obligations relate
shall not constitute Permitted Indebtedness;
(f) Indebtedness of a Restricted Subsidiary owed to and held by the
Company or another Restricted Subsidiary, except that (i) any transfer of
such Indebtedness by the Company or a Restricted Subsidiary (other than to
the Company or another Restricted Subsidiary) and (ii) the sale, transfer
or other disposition by the Company or any Restricted Subsidiary of the
Company of Capital Stock of a Restricted Subsidiary (other than to the
Company or a Restricted Subsidiary) which is owed Indebtedness of another
Restricted Subsidiary shall, in each case, be an incurrence of Indebtedness
by such Restricted Subsidiary subject to the other provisions of the
Indenture;
(g) Indebtedness of the Company owed to and held by a Restricted
Subsidiary which is unsecured and subordinated in right of payment to the
payment and performance of the obligations of the Company under the
Indenture and the Notes, except that (i) any transfer of such Indebtedness
by the Company or a Restricted Subsidiary (other than to another Restricted
Subsidiary) and (ii) the sale, transfer or other disposition by the Company
or any Restricted Subsidiary of the Company (other than to the Company or a
Restricted Subsidiary) of Capital Stock of a Restricted Subsidiary which is
owed Indebtedness of the Company shall, in each case, be an incurrence of
Indebtedness by the Company, subject to the other provisions of the
Indenture;
(h) Indebtedness arising from the honoring by a bank or other financial
institution of a check, draft or similar instrument inadvertently (except
in the case of daylight overdrafts) drawn against insufficient funds in the
ordinary course of business; provided, however, that such Indebtedness is
extinguished within five business days of incurrence;
(i) Indebtedness of the Company or any Restricted Subsidiary under
equipment purchase or lines of credit or for Capitalized Lease Obligations
not to exceed $25 million in aggregate principal amount outstanding at any
time;
(j) Indebtedness of the Company or any Restricted Subsidiary, in addition
to that described in clauses (a) through (i) of this definition, in an
aggregate principal amount outstanding at any time not to exceed $15
million;
(k) (i) Indebtedness of the Company the proceeds of which are used solely
to refinance (whether by amendment, renewal, extension or refunding)
Indebtedness of the Company or any of its Restricted Subsidiaries and (ii)
Indebtedness of any Restricted Subsidiary of the Company the proceeds of
which are used solely to refinance (whether by amendment, renewal,
extension or refunding) Indebtedness of such Restricted Subsidiary (in each
case other than the Indebtedness to be refinanced, redeemed or retired as
described under "Use of Proceeds" herein), provided, however, that (x) the
principal amount of Indebtedness incurred pursuant to this clause (k) (or,
if such Indebtedness provides for an amount less than the principal amount
thereof to be due and payable upon a declaration of acceleration of the
maturity thereof, the original issue price of such Indebtedness) shall not
exceed the sum of principal amount of Indebtedness so refinanced, plus the
amount of any premium required to be paid in connection with such
refinancing pursuant to the terms of such Indebtedness or the amount of any
premium reasonably determined
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by the Company as necessary to accomplish such refinancing by means of a
tender offer or privately negotiated purchase, plus the amount of expenses
in connection therewith, and (y) in the case of Indebtedness incurred by
the Company pursuant to this clause (k) to refinance Subordinated
Indebtedness, such Indebtedness (A) has no scheduled principal payment
prior to the 91st day after the Maturity Date, (B) has an Average Life to
Stated Maturity greater than the remaining Average Life to Stated Maturity
of the Notes and (C) is subordinated to the Notes in the same manner and to
the same extent that the Subordinated Indebtedness being refinanced is
subordinated to the Notes;
(l) Indebtedness arising from agreements of the Company or any Restricted
Subsidiary providing for indemnification, adjustment or holdback of
purchase price or similar obligations, in each case, incurred or assumed in
connection with the acquisition or disposition of any business, assets or a
Subsidiary, other than guarantees of Indebtedness incurred by any person
acquiring all or any portion of such business, assets or Subsidiary for the
purpose of financing such acquisition; and
(m) Guarantees by the Company or a Restricted Subsidiary of Indebtedness
that was permitted to be incurred under the Indenture.
"Permitted Investments" means any of the following: (i) Investments in the
Company or in a Restricted Subsidiary; (ii) Investments in another person, if
as a result of such Investment (A) such other person becomes a Restricted
Subsidiary or (B) such other person is merged or consolidated with or into, or
transfers or conveys all or substantially all of its assets to the Company or
a Restricted Subsidiary; (iii) Investments representing Capital Stock or
obligations issued to the Company or any of its Restricted Subsidiaries in
settlement of claims against
any other person by reason of a composition or readjustment of debt or a
reorganization of any debtor of the Company or such Restricted Subsidiary;
(iv) Investments in Interest Rate Protection Agreements on commercially
reasonable terms entered into by the Company or any of its Subsidiaries in the
ordinary course of business in connection with the operations of the business
of the Company or its Restricted Subsidiaries to hedge against fluctuations in
interest rates on its outstanding Indebtedness; (v) Investments in the Notes;
(vi) Investments in Cash Equivalents; (vii) Investments acquired by the
Company or any Restricted Subsidiary in connection with an Asset Sale
permitted under "--Certain Covenants--Disposition of Proceeds of Asset Sales"
to the extent such Investments are non-cash proceeds as permitted under such
covenant; (viii) advances to employees or officers of the Company in the
ordinary course of business; (ix) any Investment to the extent that the
consideration therefor is Capital Stock (other than Redeemable Capital Stock)
of the Company and (x) other Investments not to exceed $5 million at any time
outstanding.
"Permitted Liens" means the following types of Liens:
(a) any Lien existing as of the date of the Indenture;
(b) Liens securing Indebtedness under the Credit Facility and the Term
Loan in accordance with the provisions thereof in effect on the date of the
Indenture;
(c) any Lien securing Acquired Indebtedness created prior to (and not
created in connection with, or in contemplation of) the incurrence of such
Indebtedness by the Company or any Restricted Subsidiary, if such Lien does
not attach to any property or assets of the Company or any Restricted
Subsidiary other than the property or assets subject to the Lien prior to
such incurrence;
(d) Liens in favor of the Company or a Restricted Subsidiary;
(e) Liens on and pledges of the Capital Stock of any Unrestricted
Subsidiary securing any Indebtedness of such Unrestricted Subsidiary;
(f) Liens for taxes, assessments or governmental charges or claims either
(i) not delinquent or (ii) contested in good faith by appropriate
proceedings and as to which the Company or its Restricted Subsidiaries
shall have set aside on its books such reserves as may be required pursuant
to GAAP;
(g) statutory Liens of landlords and Liens of carriers, warehousemen,
mechanics, suppliers, materialmen, repairmen and other Liens imposed by law
incurred in the ordinary course of business for
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sums not yet delinquent or being contested in good faith, if such reserve
or other appropriate provision, if any, as shall be required by GAAP shall
have been made in respect thereof;
(h) Liens incurred or deposits made in the ordinary course of business in
connection with workers' compensation, unemployment insurance and other
types of social security, or to secure the performance of tenders,
statutory obligations, surety and appeal bonds, bids, leases, government
contracts, performance and return-of-money bonds and other similar
obligations (exclusive of obligations for the payment of borrowed money);
(i) judgment Liens not giving rise to an Event of Default so long as such
Lien is adequately bonded and any appropriate legal proceedings which may
have been duly initiated for the review of such judgment shall not have
been finally terminated or the period within which such proceedings may be
initiated shall not have expired;
(j) easements, rights-of-way, zoning restrictions and other similar
charges or encumbrances in respect of real property not interfering in any
material respect with the ordinary conduct of the business of the Company
or any of its Restricted Subsidiaries;
(k) any interest or title of a lessor under any Capitalized Lease
Obligation or operating lease;
(l) purchase money Liens to finance property or assets of the Company or
any Restricted Subsidiary of the Company acquired in the ordinary course of
business; provided, however, that (i) the related purchase
money Indebtedness shall not be secured by any property or assets of the
Company or any Subsidiary of the Company other than the property and assets
so acquired and (ii) the Lien securing such Indebtedness shall be created
within 90 days of such acquisition;
(m) Liens securing reimbursement obligations with respect to commercial
letters of credit which encumber documents and other property relating to
such letters of credit and products and proceeds thereof;
(n) Liens securing refinancing Indebtedness permitted under clause (k) of
the definition of "Permitted Indebtedness," provided such Liens do not
exceed the Liens replaced in connection with such refinanced Indebtedness;
(o) Liens incurred in the ordinary course of business by the Company or
any Restricted Subsidiary with respect to obligations that do not exceed $5
million at any time outstanding;
(p) Liens encumbering deposits made to secure obligations arising from
statutory, regulatory, contractual, or warranty requirements of the Company
or any of its Restricted Subsidiaries, including rights of offset and set-
off; and
(q) Liens securing Interest Rate Protection Obligations which Interest
Rate Protection Obligations relate to Indebtedness that is secured by Liens
otherwise permitted under this Indenture.
"person" means any individual, corporation, partnership, limited liability
company, joint venture, association, joint-stock company, trust,
unincorporated organization or government or any agency or political
subdivision thereof.
"Preferred Stock," as applied to any person, means Capital Stock of any
class or classes (however designated) which is preferred as to the payment of
dividends or distributions, or as to the distribution of assets upon any
voluntary or involuntary liquidation or dissolution of such person, over
shares of Capital Stock of any other class of such person.
"Redeemable Capital Stock" means any class or series of Capital Stock that,
either by its terms, by the terms of any security into which it is convertible
or exchangeable or by contract or otherwise, is or upon the happening of an
event or passage of time would be, required to be redeemed prior to the
Maturity Date or is redeemable at the option of the holder thereof at any time
prior to the Maturity Date, or is convertible into or exchangeable for debt
securities at any time prior to the Maturity Date; provided that Capital Stock
will not
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constitute Redeemable Capital Stock solely because the holders thereof have
the right to require the Company to repurchase or redeem such Capital Stock
upon the occurrence of a Change of Control or an Asset Sale.
"Restricted Subsidiary" means any Subsidiary of the Company that is not an
Unrestricted Subsidiary.
"Significant Subsidiary" of any person means a Restricted Subsidiary of such
person which would be a significant subsidiary of such person as determined in
accordance with the definition in Rule 1-02(w) of Article 1 of Regulation S-X
promulgated by the Commission and as in effect on the date of the Indenture.
"Stated Maturity" means, when used with respect to any Note or any
installment of interest thereon, the date specified in such Note as the fixed
date on which the principal of such Note or such installment of interest is
due and payable, and when used with respect to any other Indebtedness, means
the date specified in the instrument governing such Indebtedness as the fixed
date on which the principal of such Indebtedness, or any installment of
interest thereon, is due and payable.
"Subordinated Indebtedness" means, with respect to the Company, Indebtedness
of the Company which is expressly subordinated in right of payment to the
Notes.
"Subsidiary" means, with respect to any person, (i) a corporation a majority
of whose Voting Stock is at the time, directly or indirectly, owned by such
person, by one or more Subsidiaries of such person or by such
person and one or more Subsidiaries thereof and (ii) any other person (other
than a corporation), including, without limitation, a partnership, limited
liability company, business trust or joint venture, in which such person, one
or more Subsidiaries thereof or such person and one or more Subsidiaries
thereof, directly or indirectly, at the date of determination thereof, has at
least majority ownership interest entitled to vote in the election of
directors, managers or trustees thereof (or other person performing similar
functions). For purposes of this definition, any directors' qualifying shares
or investments by foreign nationals mandated by applicable law shall be
disregarded in determining the ownership of a Subsidiary.
"Tangible Assets" means all assets of the Company and its Subsidiaries,
excluding all Intangible Assets. For purposes of the foregoing, "Intangible
Assets" means goodwill, patents, trade names, trade marks, copyrights,
franchises, organization expenses and any other assets properly classified as
intangible assets in accordance with GAAP.
"Term Loan" means the Term Loan Agreement, dated as of July 10, 1998, among
the Company, various financial institutions and Bank of America National Trust
and Savings Association, as agent, including any notes, guarantees, collateral
documents, instruments and agreements executed in connection therewith, and in
each case as amended (including any amendment and restatement thereof),
modified, renewed, refunded, replaced or refinanced from time to time,
including any agreement extending the maturity of, refinancing, replacing or
otherwise restructuring (including increasing the amount of available
borrowings thereunder or adding additional guarantors thereunder) all or any
portion of the Indebtedness under such agreement or any successor or
replacement agreement and whether by the same or any other agent, lender or
group of lenders.
"Unrestricted Subsidiary" means each Subsidiary of the Company designated as
such pursuant to and in compliance with the covenant described under "--
Certain Covenants--Limitation on Designations of Unrestricted Subsidiaries."
"Voting Stock" means any class or classes of Capital Stock pursuant to which
the holders thereof have the general voting power under ordinary circumstances
to elect at least a majority of the board of directors, managers or trustees
of any person (irrespective of whether or not, at the time, stock of any other
class or classes shall have, or might have, voting power by reason of the
happening of any contingency).
"Wholly-Owned Restricted Subsidiary" means any Restricted Subsidiary of the
Company of which 100% of the outstanding Capital Stock is owned by the Company
or another Wholly-Owned Restricted Subsidiary of
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the Company. For purposes of this definition, any directors' qualifying shares
or investments by foreign nationals mandated by applicable law shall be
disregarded in determining the ownership of a Subsidiary.
BOOK-ENTRY; DELIVERY AND FORM
The Original Notes are represented by two permanent, global notes (the
"Original Global Securities"), in definitive, fully registered book-entry
form, and the Exchange Notes will be represented by two, permanent global
notes (the "Exchange Global Securities"), in definitive, fully registered
book-entry form. The Original Global Securities are, and the Exchange Global
Securities will be, registered in the name of a nominee of DTC. Pursuant to
procedures established by DTC, interests in the Original Global Securities and
the Exchange Global Securities (collectively, the "Global Securities") will be
shown on, and the transfer of such interest will be effected only through,
records maintained by DTC or its nominee (with respect to interest of
Participants) and the records of Participants (with respect to interests of
persons other than Participants).
So long as DTC or its nominee is the registered owner or holder of the
Global Securities, DTC or such nominee will be considered the sole owner or
holder of the Notes represented by the Global Securities for all purposes
under the Indenture and under the Notes represented thereby. No beneficial
owner of an interest in the Global Securities will be able to transfer such
interest except in accordance with the applicable procedures of DTC in
addition to those provided for under the Indenture. The laws of some states
require that certain persons take physical delivery in definitive form of
securities that they own. Consequently, the ability to transfer beneficial
interest in a Global Security to such persons will be limited to that extent.
Because DTC can act only on behalf of Participants, which in turn act on
behalf of Indirect Participants (as defined herein), the ability of a person
having beneficial interests in a Global Security to pledge such interests to
persons or entities that do not participate in the DTC system, or otherwise
take actions in respect of such interests, may be affected by the lack of a
physical certificate evidencing such interests.
Payments of the principal of, premium, if any, and interest on the Notes
represented by the Global Securities will be made to DTC or its nominee, as
the case may be, as the registered owner thereof. None of the Company, the
Trustee or any paying agent under the Indenture will have any responsibility
or liability for any aspect of the records relating to or payments made on
account of beneficial ownership interests in the Global Securities or for
maintaining, supervising or reviewing any records relating to such beneficial
ownership interest.
The Company expects that DTC or its nominee, upon receipt of any payment of
the principal of, premium, if any, and interest on the Notes represented by
the Global Securities, will credit Participants' accounts with payments in
amounts proportionate to their respective beneficial interests in the Global
Securities as shown in the records of DTC or its nominee. The Company also
expects that payments by Participants to owners of beneficial interests in the
Global Securities held through such Participants will be governed by standing
instructions and customary practice as is now the case with securities held
for the accounts of customers registered in the names of nominees for such
customers. Such payment will be the responsibility of such Participants.
DTC has advised the Company that DTC will take any action permitted to be
taken by a Holder of Notes (including the presentation of Notes for exchange
as described below) only at the direction of one or more Participants to whose
account the DTC interests in the Global Securities are credited and only in
respect of the aggregate principal amount as to which such Participant or
Participants has or have given such direction. However, if there is an Event
of Default under the Indenture, DTC will exchange the Global Securities for
certificated securities, which it will distribute to its Participants.
DTC has advised the Company as follows: DTC is a limited purpose trust
company organized under the laws of the State of New York, a member of the
Federal Reserve System, a "clearing corporation" within the meaning of the
Uniform Commercial Code and a "clearing agency" registered pursuant to the
provisions of Section 17A of the Exchange Act. DTC was created to hold
securities for its Participants and facilitate the clearance and settlement of
securities transactions between Participants through electronic book-entry
changes in
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accounts of its Participants, thereby eliminating the need for physical
movement of certificates. Participants include securities brokers and dealers,
banks, trust companies and clearing corporations and certain other
organizations. Indirect access to the DTC system is available to others such
as banks, brokers, dealers and trust companies that clear through or maintain
a custodial relationship with a Participant, either directly or indirectly
("Indirect Participants").
Although DTC is expected to follow the foregoing procedures in order to
facilitate transfers of interests in the Global Securities among Participants
of DTC, it is under no obligation to perform such procedures, and such
procedures may be discontinued at any time. Neither the Company nor the
Trustee will have any responsibility for the performance by DTC or its direct
or indirect Participants of their respective obligations under the rules and
procedures governing their operations.
Interests in the Global Securities will be exchanged for certificated
securities if (i) DTC notifies the Company that it is unwilling or unable to
continue as depositary for the Global Securities, or DTC ceases to be a
"Clearing Agency" registered under the Exchange Act, and a successor
depositary is not appointed by the Company within 90 days, or (ii) an Event of
Default has occurred and is continuing with respect to the Notes. Upon the
occurrence of any of the events described in the preceding sentence, the
Company will cause the appropriate certificated securities to be delivered.
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PLAN OF DISTRIBUTION
Any broker-dealer (a "Participating Broker-Dealer") that, pursuant to the
Exchange Offer, receives Exchange Notes in exchange for Original Notes that
were acquired by it for its own account as a result of market-making
activities or other trading activities, will be required to deliver a
prospectus meeting the requirements of the Securities Act in connection with
any resales by it of any such Exchange Notes. Each Participating Broker-Dealer
will be required to acknowledge in the Letter of Transmittal that it will
comply with such prospectus delivery requirement in connection with any resale
of Exchange Notes. The Letter of Transmittal states that by making such
acknowledgment a Participating Dealer will not be deemed to admit that it is
an "underwriter" within the meaning of the Securities Act.
Based on interpretations by the Staff of the Commission set forth in no-
action letters issued to third parties, the Company believes that this
Prospectus, as it may be amended or supplemented from time to time, may, if
permitted by the Company, be used by Participating Broker-Dealers in order to
satisfy the prospectus delivery requirements applicable to Participating
Broker-Dealers in connection with the resale of Exchange Notes as described
above. The Company has agreed in the Registration Rights Agreement that it
will use its best efforts to make this Prospectus available to each
Participating Broker-Dealer for use in connection with any resales of such
Exchange Notes (subject to the right of the Company to restrict the use of
this Prospectus under certain circumstances specified in the Registration
Rights Agreement). The obligation of the Company to make this Prospectus
available as aforesaid will commence on the day that the Exchange Offer is
consummated and continue in effect for a 30-day period (the "Broker Prospectus
Period"); provided, however, that, if for any day during such period the
Company restricts the use of such prospectus, the Broker Prospectus Period
shall be extended on a day-for-day basis. See "Description of Registration
Rights Agreement."
Any sale of Exchange Notes by Participating Broker-Dealers will be for their
own account, and the Company will not receive any proceeds of such sales.
Participating Broker-Dealers may from time to time sell Exchange Notes that
were received by them in the Exchange Offer in one or more transactions in the
over-the-counter market, in privately negotiated transactions, through the
writing of options on the Exchange Notes or otherwise, and such sales may be
made at the market price prevailing at the time of sale, a price related to
such prevailing market price or a negotiated price. Such sales of Exchange
Notes may be made directly to purchasers or, alternatively, may be offered
from time to time through agents, brokers, dealers or underwriters, who may
receive compensation in the form of concessions or commissions from the
Participating Broker-Dealers or purchasers of the Exchange Notes (which
compensation may be in excess of customary commissions). Any agents, brokers
or dealers that participate in the distribution of the Exchange Notes may be
deemed to be underwriters and any commissions received by them and any profit
on the resale of such Exchange Notes sold by them might be deemed to be
underwriting discounts and commissions under the Securities Act.
During the Broker Prospectus Period, the Company will promptly send
additional copies of this Prospectus and any amendment or supplement to this
Prospectus to any Participating Broker-Dealer that requests such documents
(subject to the right of the Company to restrict the use of this Prospectus
under certain circumstances specified in the Registration Rights Agreement).
Any such requests should be directed to United Rentals (North America), Inc.,
Attention: Corporate Secretary, Four Greenwich Office Park, Greenwich,
Connecticut 06830, telephone: (203) 622-3131.
The Company has agreed in the Registration Rights Agreement to indemnify
each Participating Broker-Dealer that resells Exchange Notes pursuant to this
Prospectus, and their officers, directors and controlling persons, against
certain liabilities in connection with the offer and sale of the Exchange
Notes, including liabilities under the Securities Act, or to contribute to
payments that such Participating Broker-Dealers may be required to make in
respect thereof.
96
<PAGE>
LEGAL MATTERS
Certain legal matters in connection with the issue and sale of the Exchange
Notes will be passed upon for the Company by Weil, Gotshal & Manges LLP, New
York, New York, and Ehrenreich Eilenberg Krause & Zivian LLP, New York, New
York.
EXPERTS
The consolidated financial statements of United Rentals (North America),
Inc. at December 31, 1997 and 1996, and for each of the two years in the
period ended December 31, 1997, the financial statements of J&J Rental
Services, Inc., at December 31, 1996 and October 22, 1997 and for each of the
two years in the period ended December 31, 1996, the six months ended June 30,
1997 and for the period from July 1, 1997 to October 22, 1997, the financial
statements of Bronco Hi-Lift, Inc. at December 31, 1996 and October 24, 1997
and for each of the two years in the period ended December 31, 1996 and for
the period from January 1, 1997 to October 24, 1997, the financial statements
of Mission Valley Rentals, Inc. at June 30, 1996 and 1997 and for the years
then ended, the combined financial statements of Valley Rentals, Inc. at
December 31, 1997 and for the year then ended, the financial statements of Pro
Rentals, Inc. at December 31, 1997 and for the year then ended, the combined
financial statements of Able Equipment Rental, Inc. at December 31, 1997 and
for the year then ended, the combined financial statements of Channel
Equipment Holding, Inc. at December 31, 1997 and for the year then ended, the
financial statements of ASC Equipment Company at December 31, 1997 and for the
year then ended, the financial statements of Power Rental Co., Inc. at July
31, 1997 and for the year then ended and the combined financial statements of
Adco Equipment, Inc. at December 31, 1997 and for the year then ended,
appearing in this Registration Statement and Prospectus, have been audited by
Ernst & Young LLP, independent auditors, as set forth in their reports thereon
appearing elsewhere herein, and are included in reliance upon such reports
given upon the authority of such firm as experts in accounting and auditing.
The consolidated financial statements of A&A Tool Rentals & Sales, Inc. and
subsidiary as of October 19, 1997 and October 31, 1996, and for the period
from November 1, 1996 to October 19, 1997 and for the years ended October 31,
1996 and 1995, have been included herein in reliance upon the report of KPMG
Peat Marwick LLP, independent certified public accountants, appearing
elsewhere herein.
The financial statements of MERCER Equipment Company appearing in this
Prospectus have been audited by Webster Duke & Co., independent auditors, as
set forth in their reports thereon included elsewhere herein.
The combined financial statements of Coran Enterprises, Inc. (dba A-1 Rents)
and Monterey Bay Equipment Rental, Inc., appearing in this Prospectus, have
been audited by Grant Thornton LLP, independent auditors, as set forth in
their report thereon appearing elsewhere herein.
The combined financial statements of BNR Group of Companies as of March 31,
1996 and 1997 and for the years ended March 31, 1996 and 1997 and the
consolidated financial statements of Perco Group Ltd. as of December 31, 1997
and for the year ended December 31, 1997, have been included herein in
reliance upon the reports of KPMG, independent chartered accountants,
appearing elsewhere herein.
The audited financial statements of Access Rentals, Inc. and Subsidiary and
Affiliate included in this Prospectus have been included herein in reliance on
the report of Battaglia, Andrews & Moag, P.C., independent certified public
accountants, 210 East Main Street, Batavia, New York 14020, for the periods
indicated.
The financial statements of West Main Rentals & Sales, Incorporated as of
December 31, 1997, and the year then ended have been included herein in
reliance upon the report of Moss Adams LLP, independent certified public
accountants, appearing elsewhere herein.
The consolidated statements of income, of cash flows and of changes in
Stockholders' equity of United Rentals (North America), Inc. for the year
ended December 31, 1995 included in this Prospectus have been so included in
reliance on the report of PricewaterhouseCoopers LLP, independent accountants,
given on the authority of said firm as experts in auditing and accounting.
97
<PAGE>
The combined financial statements of Equipment Supply Co., Inc. and
Affiliates included herein have been audited by BDO Seidman, LLP, independent
certified public accountants, to the extent and for the periods set forth in
their reports appearing elsewhere herein, and are included in reliance upon
such reports given upon the authority of said firm as experts in auditing and
accounting.
The consolidated financial statements of McClinch Inc. and subsidiaries as
of January 31, 1998, and August 31, 1998 and for the year ended January 31,
1998 and the financial statements of McClinch Equipment Services, Inc. as of
December 31, 1997 and August 31, 1998 and for the year ended December 31, 1997
included herein have been so included in reliance on the reports of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.
The financial statements of Lift Systems, Inc. as of December 31, 1997 and
the year then ended have been included in reliance upon the report of
Altschuler, Melvoin and Glasser LLP, independent accountants, appearing
elsewhere herein.
The financial statements of Reitzel Rentals Ltd. as of February 28, 1998 and
for the year ended February 28, 1998, included herein have been audited by
PricewaterhouseCoopers LLP, independent chartered accountants, as set forth in
their report thereon included herein.
The combined financial statements of Grand Valley Equipment Co., Inc. and
Kubota of Grand Rapids, Inc. as of December 31, 1997, and the year then ended
have been included herein in reliance upon the report of Beene Garter LLP,
independent auditors, appearing elsewhere herein.
The financial statements of Paul E. Carlson, Inc. (d/b/a Carlson Equipment
Company) as of February 28, 1998, and for the year then ended, included
herein, have been audited by McGladrey & Pullen, LLP, independent accountants,
as stated in their report appearing herein.
The financial statements of Industrial Lift, Inc. as of December 31, 1997
and 1996 and the years then ended included herein in reliance upon the report
of Schalleur & Surgent, LLC, independent auditors, appearing elsewhere herein.
98
<PAGE>
INDEX TO FINANCIAL STATEMENTS
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I. Pro Forma Unaudited Consolidated Financial Statements of United
Rentals (North America), Inc.
Introduction..................................................... F-7
Pro Forma Consolidated Balance Sheet--September 30, 1998
(unaudited)..................................................... F-8
Pro Forma Consolidated Statement of Operations for the nine
months ended September 30, 1998 (unaudited)..................... F-9
Pro Forma Consolidated Statement of Operations for the year ended
December 31, 1997 (unaudited)................................... F-10
Notes to Pro Forma Unaudited Consolidated Financial Statements... F-11
Consolidated Financial Statements of United Rentals (North
II. America), Inc.
Report of Independent Auditors................................... F-13
Report of Independent Accountants................................ F-14
Consolidated Balance Sheets--December 31, 1997 and 1996.......... F-15
Consolidated Statements of Operations for the years ended
December 31, 1997, 1996 and 1995................................ F-16
Consolidated Statements of Stockholders' Equity for the years
ended December 31, 1997, 1996 and 1995 ......................... F-17
Consolidated Statements of Cash Flows for the years ended to
December 31, 1997, 1996 and 1995................................ F-18
Notes to Consolidated Financial Statements....................... F-19
Unaudited Consolidated Financial Statements of United Rentals
III. (North America), Inc.
Consolidated Balance Sheets--September 30, 1998 (unaudited) and
December 31, 1997............................................... F-32
Consolidated Statements of Operations for the nine and three
months ended September 30, 1998 and 1997 (unaudited)............ F-33
Consolidated Statement of Stockholders' Equity for the nine
months ended September 30, 1998 (unaudited)..................... F-34
Consolidated Statements of Cash Flows for the nine months ended
September 30, 1998 and 1997 (unaudited)......................... F-35
Notes to Unaudited Consolidated Financial Statements............. F-36
Combined Financial Statements of Equipment Supply Co., Inc. and
IV. Affiliates
Report of Independent Certified Public Accountants............... F-47
Combined Balance Sheets--December 31, 1997 and 1996 and June 30,
1998 (unaudited)................................................ F-48
Combined Statements of Income for the Years Ended December 31,
1997, 1996 and 1995 and for the Six Months Ended June 30, 1998
and 1997 (unaudited)............................................ F-49
Combined Statements of Stockholders' Equity for the Years Ended
December 31, 1995, 1996 and 1997 and for the Six Months Ended
June 30, 1998 (unaudited)....................................... F-50
Combined Statements of Cash Flows for the Years Ended December
31, 1997, 1996 and 1995 and for the Six Months Ended June 30,
1998 and 1997 (unaudited)....................................... F-51
Notes to Combined Financial Statements........................... F-52
V. Consolidated and Combined Financial Statements of Access Rentals,
Inc. and
subsidiary and affiliate
Report of Independent Accountants................................ F-64
Consolidated and Combined Balance Sheets--March 31, 1996 and 1997
and December 31, 1997 (unaudited)............................... F-65
</TABLE>
F-1
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Consolidated and Combined Statements of Income for the Years
Ended September 30, 1994 and 1995, for the Six Months Ended
March 31, 1996, for the Year Ended March 31, 1997 and for the
Nine Months Ended December 31, 1996 and 1997 (unaudited)....... F-66
Consolidated and Combined Statement of Stockholders' Equity for
the Years Ended September 30, 1994 and 1995, for the Six Months
Ended March 31, 1996, for the Year Ended March 31, 1997 and for
the Nine Months Ended December 31, 1997 (unaudited)............ F-67
Consolidated and Combined Statements of Cash Flows for the Years
Ended September 30, 1994 and 1995, for the Six Months Ended
March 31, 1996, for the Year Ended March 31, 1997 and for the
Nine Months Ended December 31, 1996 and 1997 (unaudited)....... F-68
Notes to Financial Statements................................... F-69
VI. Financial Statements of Power Rental Co., Inc.
Report of Independent Auditors.................................. F-79
Balance Sheets--July 31, 1997 and May 31, 1998 (unaudited)...... F-80
Statements of Operations for the Year Ended July 31, 1997 and
for the Ten Months Ended May 31, 1997 and 1998 (unaudited)..... F-81
Statements of Stockholders' Equity for the Year Ended July 31,
1997 and for the Ten Months Ended May 31, 1998 (unaudited)..... F-82
Statements of Cash Flows for the Year Ended July 31, 1997 and
for the Ten Months Ended May 31, 1997 and 1998 (unaudited)..... F-83
Notes to Financial Statements................................... F-84
VII. Combined Financial Statements of BNR Group of Companies
Report of Independent Auditors.................................. F-90
Combined Balance Sheets--March 31, 1996 and 1997 and December
31, 1997 (unaudited)........................................... F-91
Combined Statements of Earnings for the Years Ended March 31,
1996 and 1997 and for the Nine Months Ended December 31, 1996
and 1997 (unaudited)........................................... F-92
Combined Statements of Stockholders' Equity for the Years Ended
March 31, 1996 and 1997 and for the Nine Months Ended December
31, 1997 (unaudited)........................................... F-93
Combined Statements of Cash Flows for the Years Ended March 31,
1996 and 1997 and for the Nine Months Ended December 31, 1996
and 1997 (unaudited)........................................... F-94
Notes to Combined Financial Statements.......................... F-95
VIII. Combined Financial Statements of Adco Equipment, Inc.
Report of Independent Auditors.................................. F-104
Combined Balance Sheets--December 31, 1997 and June 30, 1998
(unaudited).................................................... F-105
Combined Statements of Operations For the Year Ended December
31, 1997 and For the Six Months Ended June 30, 1997 and 1998
(unaudited).................................................... F-106
Combined Statements of Stockholders' Equity For the Year Ended
December 31, 1997 and For the Six Months Ended June 30, 1998
(unaudited).................................................... F-107
Combined Statements of Cash Flows For the Year Ended December
31, 1997 and For the Six Months Ended June 30, 1997 and 1998
(unaudited).................................................... F-108
Notes to Combined Financial Statements.......................... F-109
Consolidated Financial Statements of McClinch Inc. and Subsidi-
IX. aries
Reports of Independent Accountants.............................. F-113
Consolidated Balance Sheets--January 31, 1998 and August 31,
1998........................................................... F-115
Consolidated Statements of Income and Retained Earnings For the
Year Ended January 31, 1998 and For the Seven Months Ended
August 31, 1998 and 1997 (unaudited)........................... F-116
Consolidated Statements of Cash Flows For the Year Ended January
31, 1998 and For the Seven Months Ended August 31, 1998 and
1997 (unaudited)............................................... F-117
Notes to Consolidated Financial Statements...................... F-118
</TABLE>
F-2
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X. Financial Statements of Industrial Lift, Inc.
Report of Independent Auditors.................................. F-125
Balance Sheets--December 31, 1996 and 1997 and as of May 12,
1998 (unaudited)............................................... F-126
Statements of Income and Retained Earnings for the Years Ended
December 31, 1996 and 1997 and for the Period Ended May 12,
1997 and 1998 (unaudited)...................................... F-127
Statements of Cash Flows for the Years Ended December 31, 1996
and 1997 and for the Period Ended May 12, 1997 and 1998
(unaudited).................................................... F-128
Notes to Financial Statements................................... F-129
XI. Combined Financial Statements of Able Equipment Rental, Inc.
Report of Independent Auditors.................................. F-134
Combined Balance Sheets--December 31, 1997 and February 28, 1998
(unaudited).................................................... F-135
Combined Statements of Income for the Year Ended December 31,
1997 and for the Two Months Ended February 28, 1997 and 1998
(unaudited).................................................... F-136
Combined Statements of Stockholders' Equity and Partners'
Capital for the Year Ended December 31, 1997 and for the Two
Months Ended February 28, 1998 (unaudited)..................... F-137
Combined Statements of Cash Flows for the Year Ended December
31, 1997 and for the Two Months Ended February 28, 1997 and
1998 (unaudited)............................................... F-138
Notes to Combined Financial Statements.......................... F-139
XII. Combined Financial Statements of Grand Valley Equipment Co.,
Inc. and Kubota of Grand Rapids, Inc.
Independent Auditors' Report on Combined Financial Statements .. F-144
Combined Balance Sheets--December 31, 1997 and May 31, 1998
(unaudited).................................................... F-145
Combined Statements of Income and Retained Earnings for the year
ended December 31, 1997 and for the five months ended May 31,
1997 and 1998 (unaudited)...................................... F-146
Combined Statements of Cash Flows for the year ended December
31, 1997 and for the five months ended May 31, 1997 and 1998
(unaudited).................................................... F-147
Notes to Financial Statements................................... F-148
XIII. Financial Statements of McClinch Equipment Services, Inc.
Reports of Independent Accountants.............................. F-152
Balance Sheets--December 31, 1997 and August 31, 1998........... F-154
Statements of Income and Retained Earnings for the year ended
December 31, 1997 and for the eight months ended August 31,
1998 and 1997 (unaudited)...................................... F-155
Statements of Cash Flows for the year ended December 31, 1997
and for the eight months ended August 31, 1998 and 1997
(unaudited).................................................... F-156
Notes to Financial Statements................................... F-157
XIV. Combined Financial Statements of Valley Rentals, Inc.
Report of Independent Auditors.................................. F-162
Combined Balance Sheets--December 31, 1997 and March 31, 1998
(unaudited).................................................... F-163
Combined Statements of Income for the Year Ended December 31,
1997 and for the Three Months Ended March 31, 1997 and 1998
(unaudited).................................................... F-164
Combined Statements of Stockholders' Equity and Partners'
Capital for the Year Ended December 31, 1997 and for the Three
Months Ended March 31, 1998 (unaudited)........................ F-165
Combined Statements of Cash Flows for the Year Ended December
31, 1997 and for the Three Months Ended March 31, 1997 and 1998
(unaudited).................................................... F-166
Notes to Combined Financial Statements.......................... F-167
XV. Financial Statements of Lift Systems, Inc.
Independent Accountants' Report................................. F-171
</TABLE>
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Balance Sheets--December 31, 1997 and July 28, 1998
(unaudited)................................................... F-172
Statement of Income for the year ended December 31, 1997 and
for the 209 day periods ended July 28, 1998 and 1997
(unaudited)................................................... F-173
Statement of Changes in Stockholder's Equity for the year ended
December 31, 1997 and for the 209 day period ended July 28,
1998 (unaudited).............................................. F-174
Statement of Cash Flows for the year ended December 31, 1997
and for the 209 day periods ended July 28, 1998 and 1997
(unaudited)................................................... F-175
Notes to Financial Statements.................................. F-177
XVI. Consolidated Financial Statements of Perco Group Ltd.
Report of Independent Auditors................................. F-182
Consolidated Balance Sheet--December 31, 1997 and May 19, 1998
(unaudited)................................................... F-183
Consolidated Statement of Earnings for the year ended December
31, 1997 and for the 139 days ended May 19, 1997 and 1998
(unaudited)................................................... F-184
Consolidated Statement of Retained Earnings for the year ended
December 31, 1997 and for the 139 days ended May 19, 1998
(unaudited)................................................... F-185
Consolidated Statement of Changes in Financial Position for the
year ended December 31, 1997 and for the 139 days ended May
19, 1997 and 1998 (unaudited)................................. F-186
Notes to Consolidated Financial Statements..................... F-187
XVII. Financial Statements of Reitzel Rentals Ltd.
Auditors' Report............................................... F-195
Balance Sheets--February 28, 1998 and May 31, 1998
(unaudited)................................................... F-196
Statements of Operations for the year ended February 28, 1998
and for the three months ended May 31, 1997 and 1998
(unaudited)................................................... F-197
Statements of Shareholders' Equity for the year ended February
28, 1998 and for the three months ended May 31, 1998
(unaudited)................................................... F-198
Statements of Cash Flows for the year ended February 28, 1998
and for the three months ended May 31, 1997 and 1998
(unaudited)................................................... F-199
Notes to Financial Statements.................................. F-200
Combined Financial Statements of Channel Equipment Holding,
XVIII. Inc.
Report of Independent Auditors................................. F-206
Combined Balance Sheet--December 31, 1997...................... F-207
Combined Statement of Operations for the Year Ended December
31, 1997...................................................... F-208
Combined Statement of Stockholders' Equity (Deficit) for the
Year Ended December 31, 1997.................................. F-209
Combined Statements of Cash Flows for the Year Ended December
31, 1997...................................................... F-210
Notes to Combined Financial Statements......................... F-211
Financial Statements of Paul E. Carlson, Inc. dba Carlson
XIX. Equipment Company
Independent Auditor's Report................................... F-215
Balance Sheets--February 28, 1998 and June 30, 1998
(unaudited)................................................... F-216
Statements of Operations for the year ended February 28, 1998
and for the four months ended June 30, 1997 and 1998
(unaudited)................................................... F-218
Statements of Stockholders' Equity for the year ended February
28, 1998 and for the four months ended June 30, 1998
(unaudited)................................................... F-219
Statements of Cash Flows for the year ended February 28, 1998
and for the four months ended June 30, 1997 and 1998
(unaudited)................................................... F-220
Notes to Financial Statements.................................. F-221
Financial Statements of West Main Rentals and Sales,
XX. Incorporated
Independent Auditor's Report................................... F-229
Balance Sheet--December 31, 1997 and March 31, 1998
(unaudited)................................................... F-230
Statement of Income for the Year Ended December 31, 1997 and
for the Three Months Ended March 31, 1998 and 1997
(unaudited)................................................... F-231
</TABLE>
F-4
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Statement of Stockholders' Equity for the Year Ended December
31, 1996, 1997 and for the Three Months Ended March 31, 1998
(unaudited).................................................... F-232
Statement of Cash Flows for the Year Ended December 31, 1997 and
for the Three Months Ended March 31, 1998 and 1997
(unaudited).................................................... F-233
Notes to Financial Statements................................... F-234
XXI. Financial Statements of Mission Valley Rentals, Inc.
Report of Independent Auditors.................................. F-240
Balance Sheets--June 30, 1996 and 1997 and December 31, 1997
(unaudited).................................................... F-241
Statements of Operations for the Years Ended June 30, 1996 and
1997 and for the Six Months Ended December 31, 1996 and 1997
(unaudited).................................................... F-242
Statements of Stockholders' Equity for the Years Ended July 1,
1995, June 30, 1996 and 1997 and for the Six Months Ended
December 31, 1997 (unaudited).................................. F-243
Statements of Cash Flows for the Years Ended June 30, 1996 and
1997 and the Six Months Ended December 31, 1996 and 1997
(unaudited).................................................... F-244
Notes to Financial Statements................................... F-245
XXII. Financial Statements of Pro Rentals, Inc.
Report of Independent Auditors.................................. F-251
Balance Sheet--December 31, 1997................................ F-252
Statement of Income for the Year Ended December 31, 1997........ F-253
Statement of Stockholders' Equity for the Year Ended December
31, 1997....................................................... F-254
Statement of Cash Flows for the Year Ended December 31, 1997.... F-255
Notes to Financial Statements................................... F-256
XXIII. Financial Statements of ASC Equipment Company
Report of Independent Auditors.................................. F-259
Balance Sheet--December 31, 1997................................ F-260
Statement of Income for the Year Ended December 31, 1997........ F-261
Statement of Stockholders' Equity for the Year Ended December
31, 1997....................................................... F-262
Statement of Cash Flows for the Year Ended December 31, 1997.... F-263
Notes to Financial Statements................................... F-264
XXIV. Financial Statements of MERCER Equipment Company
Independent Auditor's Report.................................... F-267
Balance Sheets--December 31, 1996 and October 24, 1997.......... F-268
Statements of Income and Retained Earnings for the Years Ended
December 31, 1995 and 1996 and for the period from January 1,
1997 to October 24, 1997....................................... F-269
Statements of Cash Flows for the Years Ended December 31, 1995
and 1996 and for the period from January 1, 1997 to October 24,
1997........................................................... F-270
Notes to Financial Statements................................... F-271
Consolidated Financial Statements of A&A Tool Rentals & Sales,
XXV. Inc. and subsidiary
Report of Independent Auditors.................................. F-276
Consolidated Balance Sheets--October 31, 1996 and October 19,
1997 and July 31, 1997 (unaudited)............................. F-277
Consolidated Statements of Operations for the Years Ended
October 31, 1995 and 1996 and for the period from November 1,
1996 to October 19, 1997 and for the Nine Months Ended July 31,
1996 and 1997 (unaudited)...................................... F-278
Consolidated Statements of Stockholders' Equity for the Years
Ended October 31, 1994, 1995 and 1996 and for the period from
November 1, 1996 to October 19, 1997 .......................... F-279
Consolidated Statements of Cash Flows for the Years Ended
October 31, 1995 and 1996 and for the period from November 1,
1996 to October 19, 1997 and for the Nine Months Ended July 31,
1996 and 1997 (unaudited)...................................... F-280
Notes to Consolidated Financial Statements...................... F-281
</TABLE>
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XXVI. Financial Statements of J&J Rental Services, Inc.
Report of Independent Auditors................................ F-288
Balance Sheets--December 31, 1996 and October 22, 1997 ....... F-289
Statements of Income for the Years Ended December 31, 1995 and
1996, for the Six Months Ended June 30, 1997 and for the
period from July 1, 1997 to October 22, 1997................. F-290
Statements of Stockholders' Equity and Partners' Capital for
the Years Ended December 31, 1995 and 1996 and for the Six
Months Ended June 30, 1997 and for the period from July 1,
1997 to October 22, 1997..................................... F-291
Statements of Cash Flows for the Years Ended December 31, 1995
and 1996, for the Six Months Ended June 30, 1997 and for the
period from July 1, 1997 to October 22, 1997................. F-292
Notes to Financial Statements................................. F-293
XXVII. Combined Financial Statements of Coran Enterprises, Inc. dba
A-1 Rents and
Monterey Bay Equipment Rental, Inc.
Report of Independent Certified Public Accountants............ F-300
Combined Statements of Earnings for the Years Ended December
31, 1995 and 1996 and for the period from January 1, 1997 to
October 24, 1997 ............................................ F-301
Combined Statements of Stockholders' Equity for the Years
Ended December 31, 1995 and 1996 and for the period from
January 1, 1997 to October 24, 1997 ......................... F-302
Combined Statements of Cash Flows for the Years Ended December
31, 1995 and 1996 and for the period from January 1, 1997 to
October 24, 1997 ............................................ F-303
Notes to Combined Financial Statements........................ F-304
XXVIII. Financial Statements of Bronco Hi-Lift, Inc.
Report of Independent Auditors................................ F-306
Balance Sheets--December 31, 1996 and October 24, 1997 ....... F-307
Statements of Income for the Years Ended December 31, 1995 and
1996 and for the period from January 1, 1997 to October 24,
1997......................................................... F-308
Statements of Stockholders' Equity for the Years Ended
December 31, 1995 and 1996 and for the period from January 1,
1997 to October 24, 1997..................................... F-309
Statements of Cash Flows for the Years Ended December 31, 1995
and 1996 and for the period from January 1, 1997 to October
24, 1997..................................................... F-310
Notes to Financial Statements................................. F-311
</TABLE>
F-6
<PAGE>
UNITED RENTALS (NORTH AMERICA), INC.
PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The following pro forma unaudited consolidated balance sheet of the Company
gives effect to the acquisitions completed by the Company subsequent to
September 30, 1998 and the financing thereof, as if all such transactions had
occurred on September 30, 1998.
The following pro forma unaudited consolidated statements of operations with
respect to the nine months ended September 30, 1998 and the year ended
December 31, 1997, give effect to each acquisition completed by the Company
after the beginning of the period and the financing thereof and as if all such
transactions had occurred at the beginning of the period.
The pro forma consolidated financial statements are based upon certain
assumptions and estimates which are subject to change. These statements are
not necessarily indicative of the actual results of operations that might have
occurred, nor are they necessarily indicative of expected results in the
future.
The pro forma consolidated financial statements should be read in
conjunction with the Company's historical Consolidated Financial Statements
and related Notes included elsewhere in this Prospectus and the Financial
Statements and related Notes included elsewhere in this Prospectus of certain
of the Acquired Companies.
F-7
<PAGE>
UNITED RENTALS (NORTH AMERICA), INC.
PRO FORMA UNAUDITED CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
UNITED OTHER
RENTALS ACQUISITIONS ADJUSTMENTS PRO FORMA
---------- ------------ ----------- ----------
(IN THOUSANDS, EXCEPT SHARE AND PAR VALUE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS:
Cash and cash
equivalents............ $ 21,793 $ 280 $(18,073)(a) $ 4,000
Accounts receivable,
net.................... 232,448 4,685 237,133
Inventory............... 74,895 1,764 76,659
Rental equipment, net... 1,191,448 20,007 1,299 (b) 1,212,754
Property and equipment,
net.................... 168,689 1,764 (69)(c) 170,384
Intangible assets, net.. 819,094 15,751 (d) 834,845
Prepaid expenses and
other assets........... 23,316 554 23,870
---------- ------- -------- ----------
$2,531,683 $29,054 $ (1,092) $2,559,645
========== ======= ======== ==========
LIABILITIES AND
STOCKHOLDERS' EQUITY:
Liabilities:
Accounts payable,
accrued expenses and
other liabilities...... $ 293,971 $ 4,168 $ $ 298,139
Debt.................... 1,235,508 17,467 (17,467)(e) 1,259,202
23,694 (f)
---------- ------- -------- ----------
Total liabilities...... 1,529,479 21,635 6,227 1,557,341
STOCKHOLDERS' EQUITY:
Common stock............
Additional paid-in
capital................ 982,194 1,065 (1,065)(g) 982,294
100 (h)
Retained earnings....... 20,010 6,354 (6,354)(g) 20,010
---------- ------- -------- ----------
Total stockholders'
equity................ 1,002,204 7,419 (7,319) 1,002,304
---------- ------- -------- ----------
$2,531,683 $29,054 $ (1,092) $2,559,645
========== ======= ======== ==========
</TABLE>
See notes to pro forma unaudited Consolidated Financial Statements.
F-8
<PAGE>
UNITED RENTALS (NORTH AMERICA), INC.
PRO FORMA UNAUDITED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
EQUIPMENT
SUPPLY MCCLINCH INC.
ACCESS POWER CO., INC. AND MCCLINCH
UNITED RENTALS, RENTAL AND EQUIPMENT OTHER
RENTALS INC. CO., INC. AFFILIATES SERVICE, INC. ACQUISITIONS ADJUSTMENTS PRO FORMA
-------- -------- --------- ---------- ------------- ------------ ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues
Equipment rentals...... $592,502 $2,313 $ 6,295 $34,382 $16,515 $132,028 $ 784,035
Sales of equipment,
merchandise and other
revenue............... 211,760 841 1,555 8,958 5,601 97,860 326,575
-------- ------ ------- ------- ------- -------- -------- ----------
Total revenues.......... 804,262 3,154 7,850 43,340 22,116 229,888 1,110,610
Cost of revenues
Cost of equipment
rentals, excluding
depreciation.......... 263,529 1,131 3,416 12,529 6,770 52,763 340,138
Depreciation of rental
equipment............. 119,970 402 2,987 10,368 3,316 32,611 $ (9,098)(a) 160,556
Cost of sales and other
operating costs....... 146,713 741 638 7,267 3,795 64,759 223,913
-------- ------ ------- ------- ------- -------- -------- ----------
Total cost of revenues.. 530,212 2,274 7,041 30,164 13,881 150,133 (9,098) 724,607
-------- ------ ------- ------- ------- -------- -------- ----------
Gross profit............ 274,050 880 809 13,176 8,235 79,755 9,098 386,003
Selling, general and
administrative
expenses............... 128,763 774 3,200 9,672 3,535 62,249 (12,544)(c) 195,444
(205)(d)
Merger-related
expenses............... 42,216 42,216
Non-rental depreciation
and amortization....... 23,693 23 304 359 382 3,644 6,055 (e) 34,460
-------- ------ ------- ------- ------- -------- -------- ----------
Operating income
(loss)................. 79,378 83 (2,695) 3,145 4,318 13,862 15,792 113,883
Interest expense........ 39,170 147 631 4,220 763 8,770 (11,508)(f) 60,344
18,151 (g)
Other (income) expense,
net.................... (4,524) (52) (95) (198) (51) (4,757) (9,677)
-------- ------ ------- ------- ------- -------- -------- ----------
Income (loss) before
provision for income
taxes and extraordinary
item................... 44,732 (12) (3,231) (877) 3,606 9,849 9,149 63,216
Provision for income
taxes.................. 26,450 (2,638) 896 1,654 (759)(h) 25,603
-------- ------ ------- ------- ------- -------- -------- ----------
Income (loss) before
extraordinary item..... $ 18,282 $ (12) $(3,231) $ 1,761 $ 2,710 $ 8,195 $ 9,908 $ 37,613
======== ====== ======= ======= ======= ======== ======== ==========
</TABLE>
See notes to pro forma unaudited Consolidated Financial Statements.
F-9
<PAGE>
UNITED RENTALS (NORTH AMERICA), INC.
PRO FORMA UNAUDITED CONSOLIDATED STATEMENT OF OPERATIONSFOR THE YEAR ENDED
DECEMBER 31, 1997
<TABLE>
<CAPTION>
MCCLINCH
EQUIPMENT INC. AND
MISSION SUPPLY MCCLINCH
ACCESS BNR GROUP VALLEY POWER CO., INC. EQUIPMENT
UNITED RENTALS, OF RENTALS, RENTAL AND SERVICES, OTHER
RENTALS INC. COMPANIES INC. CO., INC. AFFILIATES INC. ACQUISITIONS ADJUSTMENTS PRO FORMA
-------- -------- --------- -------- --------- ---------- --------- ------------ ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues
Equipment rent-
als............ $388,181 $42,316 $ 9,403 $7,853 $35,382 $78,142 $30,615 $327,401 $ 919,293
Sales of
equipment,
merchandise and
other
revenues....... 101,657 9,943 14,612 765 5,154 16,416 9,418 211,370 369,335
-------- ------- ------- ------ ------- ------- ------- -------- -------- ----------
Total revenues... 489,838 52,259 24,015 8,618 40,536 94,558 40,033 538,771 1,288,628
Cost of revenues
Cost of
equipment
rentals,
excluding
depreciation... 189,578 12,415 4,662 3,437 12,678 23,510 11,590 134,862 392,732
Depreciation of
rental
equipment...... 82,097 8,480 1,589 1,746 9,706 20,397 5,888 68,933 $(15,890)(a) 182,946
Cost of sales
and other
operating
costs.......... 68,871 8,862 10,361 518 3,648 11,362 6,485 150,856 (72)(b) 260,891
-------- ------- ------- ------ ------- ------- ------- -------- -------- ----------
Total cost of
revenues........ 340,546 29,757 16,612 5,701 26,032 55,269 23,963 354,651 (15,962) 836,569
-------- ------- ------- ------ ------- ------- ------- -------- -------- ----------
Gross profit..... 149,292 22,502 7,403 2,917 14,504 39,289 16,070 184,120 15,962 452,059
Selling, general
and
administrative
expenses........ 70,835 10,440 5,402 3,062 12,147 17,875 8,605 128,220 (26,221)(c) 230,365
209 (209)(d)
Non-rental
depreciation and
amortization.... 13,424 1,355 104 32 1,226 878 714 7,603 15,434 (e) 40,770
Termination costs
of deferred
compensation
agreements...... 20,290 20,290
-------- ------- ------- ------ ------- ------- ------- -------- -------- ----------
Operating income
(loss).......... 44,743 10,707 1,897 (177) 1,131 20,536 6,751 48,088 26,958 160,634
Interest
expense......... 11,847 3,700 501 434 2,344 11,186 2,195 19,414 (39,223)(f) 80,021
67,623 (g)
Other (income)
expense, net (2,021) (809) (61) (370) (2,859) (715) (1,786) (8,621)
-------- ------- ------- ------ ------- ------- ------- -------- -------- ----------
Income (loss)
before provision
for income taxes
and
extraordinary
item............ 34,917 7,816 1,396 (550) (843) 12,209 5,271 30,460 (1,442) 89,234
Provision for
income taxes.... 29,508 2,745 459 (73) 1,242 1,189 3,493 (2,423)(h) 36,140
-------- ------- ------- ------ ------- ------- ------- -------- -------- ----------
Income (loss)
before
extraordinary
item............ $ 5,409 $ 5,071 $ 937 $ (477) $ (843) $10,967 $ 4,082 $ 26,967 $ 981 $ 53,094
======== ======= ======= ====== ======= ======= ======= ======== ======== ==========
</TABLE>
See notes to pro forma unaudited Consolidated Financial Statements.
F-10
<PAGE>
UNITED RENTALS (NORTH AMERICA), INC.
NOTES TO PRO FORMA UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The Company is a large geographically diversified equipment rental company
in the United States, Canada and Mexico. The Company rents a broad array of
equipment to a diverse customer base that includes construction industry
participants, industrial companies, homeowners and other individuals. The
Company also sells rental equipment, acts as a distributor for certain new
equipment, and sells related merchandise and parts.
The financial data for United Rentals (North America), Inc., is derived from
the historical financial statements of the Company. The financial data for
each of the acquisitions is derived from the respective historical financial
statements of such companies. The results of operations for each acquisition
acquired during a period presented includes the results of operations from the
beginning of such period through the date of acquisition.
2. ACQUISITIONS
Since its formation, the Company has completed a total of 84 acquisitions
through December 8, 1998. These include the acquisition of the six companies
in October 1997 and the acquisition of 76 additional companies in the elapsed
portion of 1998.
Based upon management's preliminary estimates, it is estimated that the
carrying value of the assets and liabilities of the 9 companies acquired by
the Company subsequent to September 30, 1998 approximates fair value, with the
exception of rental equipment and other property and equipment, which required
adjustments to reflect fair market value. The following table presents the
allocation of purchase price of each of the 9 companies acquired by the
Company subsequent to September 30, 1998:
<TABLE>
<S> <C>
Purchase price................................................ $24,400,000
Net assets acquired........................................... 7,419,000
Fair value adjustments:
Rental equipment............................................ 1,299,000
Property and equipment...................................... (69,000)
-----------
Intangible assets recorded.................................... $15,751,000
===========
</TABLE>
3. PRO FORMA ADJUSTMENTS
Balance sheet adjustments:
a. Records the portion of the acquisition consideration and debt repayment
paid from available cash on hand.
b.Adjusts the carrying value of rental equipment to fair market value.
c.Adjusts the carrying value of property and equipment to fair market
value.
d. Records the excess of the acquisition consideration over the estimated
fair value of net assets acquired.
e.Records the repayment of certain indebtedness of the acquisitions.
f. Records the portion of the acquisition consideration and debt repayment
funded by borrowing under United Rentals' credit facility, senior
subordinated notes, term loan and seller notes.
g.Records the elimination of the stockholders' equity of the acquisitions.
F-11
<PAGE>
h.Records the portion of the acquisition consideration paid in the form of
common stock.
Statement of operations adjustments:
a. Adjusts the depreciation of rental equipment and other property and
equipment based upon adjusted carrying values utilizing the following
lives (subject to a salvage value ranging from 0 to 10%):
<TABLE>
<S> <C>
Rental equipment.............................................. 2-10 years
Other property and equipment.................................. 2-15 years
</TABLE>
b. Adjusts the method of accounting for inventory at one of the
acquisitions from the LIFO method to the FIFO method.
c. Adjusts the compensation to former owners and executives of the
acquisitions to current levels of compensation.
d. Adjusts the lease expense for real estate utilized by the acquisitions
to current lease agreements.
e. Records the amortization of the excess of cost over net assets acquired
attributable to the acquisitions using an estimated life of 40 years.
f. Eliminates interest expense related to the outstanding indebtedness of
the acquisitions which was repaid by United Rentals.
g. Records interest expense relating to the portion of the acquisitions
funded through borrowing under United Rentals' credit facility using a
rate per annum of 7%, senior subordinated notes using a rate per annum
of 9 1/2%, term loan using a rate per annum of 7.6% and seller notes
using a rate per annum of 7.0%.
h.Records a provision for income taxes at an estimated rate of 40.5%.
F-12
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors
United Rentals, Inc. (Parent Company of United Rentals (North America), Inc.)
We have audited the accompanying consolidated balance sheets of United
Rentals (North America), Inc. as of December 31, 1997 and 1996 and the related
consolidated statements of operations, stockholders' equity, and cash flows
for each of the two years in the period ended December 31, 1997. These
consolidated financial statements are the responsibility of the management of
United Rentals (North America), Inc. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of United Rentals (North America), Inc. at December 31, 1997 and 1996, and the
consolidated results of its operations and its cash flows for each of the two
years in the period ended December 31, 1997 in conformity with generally
accepted accounting principles.
/s/ Ernst & Young LLP
MetroPark, New Jersey
November 17, 1998
F-13
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
United Rentals, Inc. (Parent Company of United Rentals (North America), Inc.)
In our opinion, the accompanying consolidated statements of income, of cash
flows and of changes in stockholders' equity for the year ended December 31,
1995 present fairly, in all material respects, the results of operations and
cash flows of United Rentals (North America), Inc. for the year ended December
31, 1995, in conformity with generally accepted accounting principles. These
financial statements are the responsibility of the management of United
Rentals (North America), Inc.; our responsibility is to express an opinion on
these financial statements based on our audit. We conducted our audit of these
statements in accordance with generally accepted auditing standards which
required 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 audit provides a
reasonable basis for the opinion expressed above. We have not audited the
consolidated financial statements of United Rentals (North America), Inc. for
any period subsequent to December 31, 1995.
PricewaterhouseCoopers LLP
Sacramento, California
November 17, 1998
F-14
<PAGE>
UNITED RENTALS (NORTH AMERICA), INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31
-----------------
1997 1996
-------- --------
(IN THOUSANDS,
EXCEPT SHARE
DATA)
<S> <C> <C>
ASSETS
Cash and cash equivalents.................................... $ 72,411 $ 2,906
Accounts receivable, net of allowance for doubtful accounts
of $11,085 and $7,346 at 1997 and 1996, respectively........ 82,592 48,193
Notes receivable from affiliate.............................. 25,365
Inventory.................................................... 21,778 6,358
Prepaid expenses and other assets............................ 17,167 5,873
Rental equipment, net........................................ 461,026 235,055
Property and equipment, net.................................. 98,268 56,443
Intangible assets, net of accumulated amortization of $568
and $207 at 1997 and 1996, respectively..................... 73,648 1,035
-------- --------
$826,890 $381,228
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Accounts payable........................................... $ 41,392 $ 23,912
Debt....................................................... 247,573 189,826
Notes payable to related parties........................... 17,000 24,511
Deferred taxes............................................. 25,275 --
Accrued expenses and other liabilities..................... 49,262 37,559
-------- --------
Total liabilities........................................ 380,502 275,808
Commitments and contingencies
Stockholders' equity:
Common stock--$.01 par value, 3,000 shares authorized,
1,000 shares issued and outstanding ...................... -- --
Additional paid-in capital................................. 402,320 13,505
Retained earnings.......................................... 44,068 91,915
-------- --------
Total stockholders' equity............................... 446,388 105,420
-------- --------
$826,890 $381,228
======== ========
</TABLE>
See accompanying notes.
F-15
<PAGE>
UNITED RENTALS (NORTH AMERICA), INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
----------------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Revenues:
Equipment rentals................................ $388,181 $295,308 $252,283
Sales of rental equipment........................ 41,406 25,518 11,155
Sales of new equipment, merchandise and other
revenues........................................ 60,251 33,652 19,994
-------- -------- --------
Total revenues.................................... 489,838 354,478 283,432
Cost of revenues:
Cost of equipment rentals, excluding
depreciation.................................... 189,578 138,018 124,201
Depreciation of rental equipment................. 82,097 65,294 51,947
Cost of rental equipment sales................... 20,455 10,570 5,185
Cost of new equipment and merchandise sales and
other operating costs........................... 48,416 27,563 12,901
-------- -------- --------
Total cost of revenues............................ 340,546 241,445 194,234
-------- -------- --------
Gross profit...................................... 149,292 113,033 89,198
Selling, general and administrative expenses...... 70,835 54,721 39,707
Non-rental depreciation and amortization.......... 13,424 9,387 6,916
Termination cost of deferred compensation
agreements....................................... 20,290
-------- -------- --------
Operating income.................................. 44,743 48,925 42,575
Interest expense.................................. 11,157 11,620 6,755
Related party interest expense (income), net...... 690 (342) 735
Other (income) expense............................ (2,021) (499) 1,304
-------- -------- --------
Income before provision for income taxes and
extraordinary item............................... 34,917 38,146 33,781
Provision for income taxes........................ 29,508 420 484
-------- -------- --------
Income before extraordinary item.................. 5,409 37,726 33,297
Extraordinary item, net of tax benefit of $995.... 1,511
-------- -------- --------
Net income........................................ $ 3,898 $ 37,726 $ 33,297
======== ======== ========
Unaudited pro forma data (Note 9):
Historical income before income taxes and
extraordinary item.............................. $ 34,917 $ 38,146 $ 33,781
Pro forma income tax expense..................... 14,176 15,487 13,715
-------- -------- --------
Pro forma income before extraordinary item....... $ 20,741 $ 22,659 $ 20,066
======== ======== ========
</TABLE>
See accompanying notes.
F-16
<PAGE>
UNITED RENTALS (NORTH AMERICA), INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK
---------------- ADDITIONAL
NUMBER PAID-IN RETAINED
OF SHARES AMOUNT CAPITAL EARNINGS
--------- ------ ---------- --------
(IN THOUSANDS EXCEPT SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Balance, December 31, 1994, as
previously reported.................... -- $-- $ -- $ --
Poolings-of-interests................. 1,000 -- 13,593 64,006
----- ---- -------- --------
Balance, December 31, 1994, as
restated............................... 1,000 -- 13,593 64,006
Issuance of common stock.............. 17
Distributions to stockholders......... (6,584)
Net income............................ 33,297
----- ---- -------- --------
Balance, December 31, 1995.............. 1,000 -- 13,610 90,719
Distributions to stockholders......... (36,530)
Treasury stock purchase............... (105)
Net income............................ 37,726
----- ---- -------- --------
Balance, December 31, 1996.............. 1,000 -- 13,505 91,915
Contributed capital from Parent....... 157,696
Issuance of common stock.............. 186,436
Distribution of non-operating assets,
net.................................. (4,219)
Reclassification of Subchapter S
accumulated
earnings to paid-in capital.......... 48,902 (48,902)
Distributions to stockholders......... (2,843)
Net income............................ 3,898
----- ---- -------- --------
Balance, December 31, 1997.............. 1,000 $-- $402,320 $ 44,068
===== ==== ======== ========
</TABLE>
See accompanying notes.
F-17
<PAGE>
UNITED RENTALS (NORTH AMERICA), INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-------------------------------
1997 1996 1995
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income.................................... $ 3,898 $ 37,726 $ 33,297
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization................ 95,521 74,681 58,863
Gain on sale of rental equipment............. (20,951) (14,948) (5,970)
Non-cash interest, net....................... 201
Loss on early extinguishment of debt......... 2,506
Deferred taxes............................... 25,075
Changes in operating assets and liabilities:
Accounts receivable.......................... (19,837) (8,271) (6,578)
Inventory.................................... (3,785) (1,148) (1,413)
Prepaid expenses and other assets............ (9,821) (2,219) (2,323)
Accounts payable............................. 11,704 (7,966) 8,058
Accrued expenses and other liabilities....... 8,618 8,116 5,360
--------- --------- ---------
Net cash provided by operating activities..... 93,129 85,971 89,294
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of rental equipment................. (268,548) (116,021) (102,241)
Purchases of property and equipment........... (53,653) (27,269) (14,433)
Proceeds from sales of rental equipment....... 41,406 25,518 11,155
Collection (funding) of notes receivable...... 122 2,537 (1,061)
Purchase of other companies................... (115,528) (15,033)
In-process acquisition costs.................. (129)
--------- --------- ---------
Net cash used in investing activities......... (396,330) (130,268) (106,580)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of common stock, net of
issuance costs............................... 186,436 17
Capital contribution from Parent.............. 154,302
Proceeds from debt............................ 291,858 131,053 61,769
Payments on debt.............................. (271,418) (50,713) (37,144)
Proceeds from related party notes............. 17,000
Purchase of treasury stock.................... (105)
Cash retained by Predecessor in connection
with Recapitalization........................ (998)
Distributions to stockholders................. (2,843) (36,530) (6,584)
Payment of debt financing costs............... (1,631) (230)
--------- --------- ---------
Net cash provided by financing activities..... 372,706 43,475 18,058
--------- --------- ---------
Net increase (decrease) in cash and cash
equivalents.................................. 69,505 (822) 772
Cash and cash equivalents at beginning of
year......................................... 2,906 3,728 2,956
--------- --------- ---------
Cash and cash equivalents at end of year...... $ 72,411 $ 2,906 $ 3,728
========= ========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION
Cash paid for interest........................ $ 13,090 $ 13,766 $ 9,707
Cash paid for taxes........................... $ 11,487 $ 399 $ 613
Deferred compensation and bonus payments
through issuance of common stock............. $ 486
Net assets retained by Predecessor in
connection with Recapitalization............. $ 3,221
SUPPLEMENTAL SCHEDULE OF NON CASH INVESTING
AND FINANCING ACTIVITIES
The Company acquired the net assets and
assumed certain liabilities of other
companies as follows:
Assets, net of cash acquired................. $ 162,954 $ 15,033 $ --
Liabilities assumed.......................... (43,301)
Less:
Amounts paid in common stock of the Parent... (3,825)
Amount paid through issuance of convertible
note........................................ (300)
--------- --------- ---------
Net cash paid................................. $ 115,528 $ 15,033 $ --
========= ========= =========
</TABLE>
See accompanying notes.
F-18
<PAGE>
UNITED RENTALS (NORTH AMERICA), INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS EXCEPT SHARE AMOUNTS)
1. ORGANIZATION AND BASIS OF PRESENTATION
United Rentals, Inc. was incorporated in August 1997 for the purpose of
creating a large, geographically diversified equipment rental company in the
United States and Canada. On August 5, 1998 a reorganization was effected
pursuant to which United Rentals, Inc became a wholly owned subsidiary of a
newly formed holding company. The name of United Rentals, Inc was changed to
United Rentals (North America), Inc. (referred to herein as the "Company").
The name of the new holding company became United Rentals, Inc. (referred to
herein as the "Parent"). As a result of the Reorganization all periods
presented have been adjusted to reflect the Company's capitalization of 1,000
shares of Common Stock as if it occurred at the beginning of the period.
Pursuant to the Reorganization, the net proceeds from the Company's initial
public offering completed in December 1997 has been reflected as Contributed
Capital from the Parent in the accompanying statement of stockholders' equity.
The Company rents a broad array of equipment to a diverse customer base that
includes construction industry participants, industrial companies, homeowners
and others. The Company also engages in related activities such as selling
used rental equipment, acting as a distributor for certain new equipment and
selling related merchandise and parts. The nature of the Company's business is
such that short-term obligations are typically met by cash flow generated from
long-term assets. Consequently, consistent with industry practice, the
accompanying balance sheets are presented on an unclassified basis.
The accompanying consolidated financial statements include the accounts of
the Company and its wholly owned subsidiaries. All significant intercompany
accounts and transactions have been eliminated. The accompanying consolidated
financial statements have been restated for all periods presented to include
the accounts of U.S. Rentals, Inc. ("U.S. Rentals") and Rental Tools &
Equipment Co. International Inc. ("Rental Tools"), two acquisitions accounted
for as poolings-of-interests (See Note 3).
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CASH EQUIVALENTS
The Company considers all highly liquid instruments with a maturity of three
months or less when purchased to be cash equivalents.
INVENTORY
Inventory consists of equipment, tools, parts, fuel and related supply
items. Inventory is stated at the lower of cost or market. Cost is determined
on either a weighted average or first-in, first-out method.
RENTAL EQUIPMENT
Rental equipment is recorded at cost and depreciated over the estimated
useful lives of the equipment generally using the straight-line method. The
range of useful lives estimated by management for rental equipment is two to
ten years. Rental equipment is depreciated to a salvage
value of zero to ten percent of cost. Rental equipment having a cost of $.5 or
less is expensed at the time of purchase. Ordinary maintenance and repair
costs are charged to operations as incurred.
F-19
<PAGE>
UNITED RENTALS (NORTH AMERICA), INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
REVENUE RECOGNITION
Revenue related to the sale of equipment and merchandise is recognized at
the point of sale. Revenue related to rental equipment is recognized over the
contract term.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost and depreciated over their
estimated useful lives using the straight-line method. The range of useful
lives estimated by management for property and equipment is two to thirty-nine
years. Ordinary maintenance and repair costs are charged to operations as
incurred. Leasehold improvements are amortized using the straight-line method
over their estimated useful lives or the remaining life of the lease,
whichever is shorter.
INTANGIBLE ASSETS
Intangible assets consist of the excess of cost over the value of
identifiable net assets of businesses acquired and are being amortized on a
straight-line basis over their estimated useful lives of forty years.
LONG-LIVED ASSETS
Long-lived assets are recorded at the lower of amortized cost or fair value.
As part of an ongoing review of the valuation of long-lived assets, management
assesses the carrying value of such assets if facts and circumstances suggest
they may be impaired. If this review indicates that the carrying value of
these assets may not be recoverable, as determined by a nondiscounted cash
flow analysis over the remaining useful life, the carrying value would be
reduced to its estimated fair value. There have been no material impairments
recognized in these financial statements.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts reported in the balance sheets for accounts receivable,
accounts payable, accrued expenses and other liabilities approximate fair
value due to the immediate to short-term maturity of these financial
instruments. The fair value of notes payable is determined using current
interest rates for similar instruments as of December 31, 1997 and
approximates the carrying value of these notes due to the fact that the
underlying instruments include provision to adjust note balances and interest
rates to approximate fair market value.
ADVERTISING EXPENSE
The Company advertises primarily through trade journals and the media.
Advertising costs are expensed as incurred and totaled $6,866, $4,487 and
$3,779 for the years ended December 31, 1997, 1996 and 1995, respectively.
INCOME TAXES
The Company uses the liability method of accounting for income taxes. Under
this method, deferred tax assets and liabilities are determined based on the
differences between financial statement and tax bases of assets and
liabilities and are measured using the enacted tax rates and laws that are
expected to be in effect when the differences are expected to reverse.
Recognition of deferred tax assets is limited to amounts considered by
management to be more likely than not realized in future periods.
U.S. Rentals (prior to February 20, 1997) and Rental Tools (prior to August
28, 1998) elected to be treated as Subchapter S Corporations. See Note 9.
F-20
<PAGE>
UNITED RENTALS (NORTH AMERICA), INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
CONCENTRATIONS OF CREDIT RISK
Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist principally of cash investments and
accounts receivable. The Company maintains cash and cash equivalents with high
quality financial institutions.
Concentration of credit risk with respect to accounts receivable are limited
because a large number of geographically diverse customers make up the
Company's customer base. No single customer represents greater than 10% of
total accounts receivable. The Company controls credit risk through credit
approvals, credit limits, and monitoring procedures.
STOCK-BASED COMPENSATION
The Company accounts for its stock based compensation arrangements under the
provisions of APB Opinion No. 25, "Accounting for Stock Issued to Employees."
Since stock options for Parent Company shares are granted with exercise prices
at or greater than the fair value of the shares at the date of grant, no
compensation expense is recognized.
RELATED PARTY TRANSACTIONS
As disclosed in these financial statements, the Company has participated in
certain transactions with related parties during the current and previous
years. In the opinion of management, all transactions with related parties
have been conducted on terms which are fair and equitable.
INSURANCE
The Company is insured for general liability, workers' compensation, and
group medical claims up to a specified claim and aggregate amounts (subject to
deductibles of $250-$3,000). Insured losses subject to these deductibles 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.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board issued SFAS No. 130,
"Reporting Comprehensive Income," and SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information." The Company is required to
adopt the provisions of these Statements in fiscal year 1998. SFAS No. 130
establishes standards for reporting and display of comprehensive income and
its components in primary financial statements. The Company is currently
evaluating the reporting formats recommended under this Statement. SFAS No.
131 establishes a new method by which companies will report operating segment
information. This method is based on the manner in which management organizes
the segments within a company for making operating decisions and assessing
performance. The Company continues to evaluate the provisions of SFAS No. 131
and, upon adoption, the Company may report operating segments.
In February 1998, the Financial Accounting Standards Board issued SFAS No.
132, "Employers' Disclosures about Pensions and Other Post Retirement
Benefits." SFAS No. 132 revises employers'
F-21
<PAGE>
UNITED RENTALS (NORTH AMERICA), INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
disclosures about pension and other post retirement benefit plans but does not
change the measurement or recognition of those plans. The Company is required
to adopt SFAS No. 132 by December 31, 1998. The adoption of SFAS No. 132 is
expected to have no effect on the Company's disclosure of employee benefit
matters.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133
establishes a new model for accounting for derivatives and hedging activities.
The Company is required to adopt SFAS No. 133 beginning January 1, 2000. The
adoption of SFAS No. 133 is not expected to have a material effect on the
Company's consolidated financial position or results of operations.
RECLASSIFICATIONS
Certain prior year balances have been reclassified to conform to the 1997
presentation.
3. ACQUISITIONS
On September 29, 1998 and August 24, 1998, the Company through its Parent
merged with U.S. Rentals and Rental Tools, respectively. These transactions
have been accounted for as poolings-of-interests and, accordingly, the
consolidated financial statements of the Company have been restated for all
periods presented to include the accounts of U.S. Rentals and Rental Tools.
Separate revenue and net income (loss) of the Company prior to the above
mergers ("United"), U.S. Rentals and Rental Tools prior to the combination are
as follows:
<TABLE>
<CAPTION>
US RENTAL
UNITED RENTALS TOOLS COMBINED
------- -------- ------- --------
<S> <C> <C> <C> <C>
For the year ended December 31, 1997:
Revenues.............................. $10,633 $430,443 $48,762 $489,838
Net income (loss)..................... 34 4,830 (966) 3,898
For the year ended December 31, 1996:
Revenues.............................. 306,118 48,360 354,478
Net income............................ 33,084 4,642 37,726
For the year ended December 31, 1995:
Revenues.............................. 242,847 40,585 283,432
Net income............................ 30,624 2,673 33,297
</TABLE>
During 1997 and 1996, the Company acquired certain assets and assumed
certain liabilities of fifteen and two businesses, respectively. The
acquisitions were financed through borrowings under the Company's lines of
credit and have been recorded using the purchase method of accounting. A
summary of the purchase price, assets acquired and liabilities assumed is as
follows:
<TABLE>
<CAPTION>
1997 1996
-------- -------
<S> <C> <C>
Rental equipment........................................... $ 59,486 $12,435
Inventories................................................ 11,008 --
Accounts receivable........................................ 14,625 1,348
Other assets............................................... 9,542 356
Goodwill................................................... 72,425 894
Liabilities assumed........................................ (43,301) --
-------- -------
$123,785 $15,033
======== =======
</TABLE>
F-22
<PAGE>
UNITED RENTALS (NORTH AMERICA), INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
All of the consideration paid for the acquisitions was in cash with the
exception of two 1997 acquisitions. One acquisition included a $300
convertible note and the consideration for another acquisition was paid
through the issuance of 318,712 shares of the Parent's Common Stock. These
shares are subject to adjustment so that their value will equal $3,800 based
upon the average daily closing price of the Parent's Common Stock during the
60 day period beginning December 18, 1997. In accordance with such provision,
137,600 shares of Common Stock issued by the Parent in connection with such
acquisition were canceled. In addition, contingent consideration is due on
that acquisition based upon a percentage of revenues up to a maximum of
$2,800.
These acquisitions have been accounted for as purchases and, accordingly,
the results of their operations have been included in the Company's results of
operations from their respective acquisition dates. The purchase prices have
been allocated to the assets acquired and liabilities assumed based on their
respective fair values at their respective acquisition dates. Contingent
purchase price is capitalized when earned and amortized over the remaining
life of the related asset.
The following table summarizes, on an unaudited pro forma basis, the
combined results of operations of the Company for the years ended December 31,
1997 and 1996 as though each acquisition described above was made on January
1, for each of the periods.
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Revenues................................................... $568,244 $464,097
Net income................................................. 24,715 30,391
</TABLE>
The unaudited pro forma results are based upon certain assumptions and
estimates which are subject to change. These results are not necessarily
indicative of the actual results of operations that might have occurred, nor
are they necessarily indicative of expected results in the future.
4. NOTES RECEIVABLE FROM AFFILIATE
On February 20, 1997, U.S. Rentals completed a recapitalization upon
completing its initial public offering whereby it exchanged 20,748,975 shares
of its common stock for all the operating assets and liabilities of its
predecessor (the "Recapitalization"). The predecessor retained only non-
operating assets and liabilities, including $25,700 of notes receivable from
an affiliate and $24,400 of notes payable to related parties. In conjunction
with the Recapitalization, certain deferred compensation agreements totaling
$20,290 were terminated and expensed. Unless otherwise indicated, U.S. Rentals
also refers to the Predecessor prior to the Recapitalization.
Prior to the Recapitalization, the Company earned interest income from the
affiliate of $555, $3,420 and $3,343 for the years ended December 31, 1997,
1996 and 1995, respectively. The notes provide for positive or negative annual
adjustments of the principal amount 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 $146, $572 and $220 for the years ended December 31, 1997, 1996 and
1995, respectively.
F-23
<PAGE>
UNITED RENTALS (NORTH AMERICA), INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
5. RENTAL EQUIPMENT
Rental equipment and related accumulated depreciation consists of the
following:
<TABLE>
<CAPTION>
DECEMBER 31
--------------------
1997 1996
--------- ---------
<S> <C> <C>
Rental equipment....................................... $ 718,960 $ 456,735
Less accumulated depreciation.......................... (257,934) (221,680)
--------- ---------
Rental equipment, net.................................. $ 461,026 $ 235,055
========= =========
</TABLE>
6. PROPERTY AND EQUIPMENT
A summary of property and equipment is as follows:
<TABLE>
<CAPTION>
DECEMBER 31
------------------
1997 1996
-------- --------
<S> <C> <C>
Land..................................................... $ 24,102 $ 16,582
Buildings................................................ 34,474 21,127
Vehicles and delivery equipment.......................... 52,407 34,601
Yard equipment........................................... 7,751 6,793
Furniture and fixtures................................... 9,521 4,626
Leasehold improvements................................... 17,846 11,041
-------- --------
146,101 94,770
Less accumulated depreciation and amortization........... (47,833) (38,327)
-------- --------
$ 98,268 $ 56,443
======== ========
</TABLE>
7. ACCRUED EXPENSES AND OTHER LIABILITIES
Accrued expenses and other liabilities consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31
1997 1996
------- -------
<S> <C> <C>
Accrued profit sharing..................................... $12,844 $ 9,102
Insurance reserves......................................... 11,665 14,002
Accrued payroll............................................ 3,345 1,882
Accrued vacation........................................... 2,668 1,377
Deferred compensation...................................... 2,581 2,214
Accrued interest........................................... 924 2,962
Other...................................................... 15,235 6,020
------- -------
$49,262 $37,559
======= =======
</TABLE>
F-24
<PAGE>
UNITED RENTALS (NORTH AMERICA), INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
8. DEBT AND NOTES PAYABLE TO RELATED PARTIES
Debt and notes payable from related parties consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31
1997 1996
-------- --------
<S> <C> <C>
U.S. Rentals' revolving line of credit, interest payable
monthly at money market rate (ranging from 6.03% to
6.34% at December 31, 1997)............................. $203,000 $ 43,000
Rental Tools' revolving line of credit, interest payable
monthly at various rates (ranging from 7.58% to 8.50% at
December 31, 1997), due 2003............................ 38,213 --
Subordinated convertible notes........................... 500 --
Senior notes payable to various parties, interest payable
semiannually ranging from 6.82% to 7.76%................ -- 90,000
Revolving line of credit, interest payable monthly at
reference rate plus .125% (8.25% at December 31, 1996).. -- 26,300
Notes payable to related parties:
Demand note to a stockholder of the Parent, interest
payable monthly at a rate tied to the Company's
revolving line of credit (5.90% at December 31,
1997)................................................. 17,000 --
Subordinated note payable to The Colburn School of
Performing Arts, interest payable quarterly at prime
rate plus 5%.......................................... -- 20,000
Other related party notes.............................. -- 4,511
Other debt............................................... 5,860 30,526
-------- --------
$264,573 $214,337
======== ========
</TABLE>
The Company's credit facility with a group of financial institutions, for
which Bank of America National Trust and Savings Association acts as agent,
enables the Company to borrow up to $155,000 on a revolving basis (the
"Facility"). The facility terminates on October 8, 2000, at which time all
outstanding indebtedness is due. As of December 31, 1997, there was no
outstanding indebtedness under the Facility.
U.S. Rentals' credit facility with various banks provides for an unsecured
line of credit of $300,000 maturing no later than 2002. The revolving line of
credit is unsecured and includes restrictions as to limitations upon certain
ratios of liabilities to net worth and upon the minimum net worth of U.S.
Rentals. The Senior and bank note agreements existing at December 31, 1996
were paid down with the proceeds from U.S. Rentals' IPO.
During the third quarter, the Company paid down all of the amounts
outstanding as of December 31, 1997 under the credit facilities with the
proceeds of a new Credit Facility. The new revolving credit facility in the
amount of $762,500 replaced the credit facilities that had been previously in
place (the Credit Facility). The Credit Facility is with a group of financial
institutions, for which Bank of America National Trust and Savings Association
acts as the agent. The Revised credit facility requires that the aggregate
commitment shall be reduced on the last day of each calendar quarter,
beginning September 30, 2001 and continuing through June 30, 2003 by an amount
equal to $19,062. The Revised Facility terminates on September 26, 2003, at
which time all outstanding indebtedness is due. Borrowings by
F-25
<PAGE>
UNITED RENTALS (NORTH AMERICA), INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
the Company under the Credit Facility accrue interest at the Company's option
at either (a) the Base Rate (which is equal to the greater of (i) the Federal
Funds Rate plus 0.5% or (ii) Bank of America's reference rate) or (b) the
Eurodollar Rate (which for borrowings by the Company is equal to Bank of
America's reserve adjusted eurodollar rate) plus a margin ranging from 0.950%
to 1.625% per annum. Borrowings by a Canadian Subsidiary under the Credit
Facility accrue interest, at such subsidiary's option, at either (x) the Prime
Rate (which is equal to Bank of America Canada's prime rate), (y) the BA Rate
(which is equal to Bank of America Canada's BA Rate) plus a margin ranging
from 0.95% to 1.625% per annum or (z) the Eurodollar Rate (which for borrowing
by the Canadian Subsidiary is equal to Bank of America Canada's reserve
adjusted Eurodollar Rate) plus a margin ranging from 0.95% to 1.625% per
annum. If at any time an event of default (as defined in the agreement
governing the Credit Facility) exists, the interest rate applicable to each
loan will increase by 2% per annum. The Company is also required to pay the
banks an annual facility fee equal to 0.375% of the banks' $762,500 aggregate
lending commitment under the Credit Facility (which fee may be reduced to
0.300% for periods during which the Company maintains a specified funded debt
to cash flow ratio).
The obligations of the Company under the Credit Facility are (i) secured by
substantially all of its assets, the stock of its United States subsidiaries
and a portion of the stock of the Company's Canadian subsidiaries and (ii)
guaranteed by the Parent and secured by the stock of the Company.
The Credit Facility contains certain covenants that require the Company to,
among other things, satisfy certain financial tests relating to: (a) maximum
leverage, (b) the ratio of senior debt to cash flow, (c) minimum interest
coverage ratio, (d) the ratio of funded debt to cash flow, and (e) the ratio
of senior debt to tangible assets. The agreements governing the Credit
Facility also contains various other covenants that restrict the Company's
ability to, among other things, (i) incur additional indebtedness, (ii) permit
liens to attach to its assets, (iii) pay dividends or make other restricted
payments on its common stock and certain other securities and (iv) make
acquisitions unless certain financial conditions are satisfied. In addition,
the agreement governing the Credit Facility requires the Company to maintain
certain financial ratios and (b) provides that failure by any two of certain
of the Company's executive officers to continue to hold executive positions
with the Company for a period of 30 consecutive days constitutes an event of
default unless replacement officers satisfactory to the lenders are appointed.
The subordinated convertible notes consists of two notes; $300 in principal
bearing interest at 7% per annum and $200 in principal bearing interest at 7
1/2% per annum. The $200 note was converted into 14,814 shares of the Parent's
Common Stock during January 1998. The $300 note is repayable in equal
quarterly installments of principal and interest through October 2002, is
convertible into the Parent's Common Stock at a conversion rate of $16.20 per
share and is subordinated to the Company's Credit Facility.
Maturities of the Company's debt for each of the next five years at December
31, 1997 are as follows:
<TABLE>
<S> <C>
1998................................................................ $ 17,394
1999................................................................ 491
2000................................................................ 239
2001................................................................ 182
2002................................................................ 69
Thereafter.......................................................... 246,198
</TABLE>
F-26
<PAGE>
UNITED RENTALS (NORTH AMERICA), INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
9. INCOME TAXES
U.S. Rentals (prior to February 20, 1997) and Rental Tools (prior to August
24, 1998), the companies acquired through mergers with the Company through its
Parent in transactions accounted for as poolings-of-interests (see Note 3),
had elected to be treated as Subchapter S Corporations. In general, the income
or loss of a Subchapter S Corporation is passed through to its owners rather
than being subjected to taxes at the entity level. Pro forma net income
reflects a provision for income taxes on a pro forma basis for all periods
presented as if all such companies were liable for federal and state income
taxes as taxable corporate entities for all periods presented.
The provision for historical federal and state income taxes is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
------------------------
1997 1996 1995
--------- --------------
<S> <C> <C> <C>
Historical:
Federal:
Current......................................... $ 3,765 $ -- $ --
Deferred........................................ 14,276
Deferred tax recorded upon Recapitalization..... 6,141
--------- ------ ------
24,182 -- --
State:
Current......................................... 668 420 484
Deferred........................................ 3,279
Deferred tax recorded upon Recapitalization..... 1,379
--------- ------ ------
5,326 420 484
--------- ------ ------
$ 29,508 $ 420 $ 484
========= ====== ======
</TABLE>
A reconciliation of the provision for income taxes and the amount computed
by applying the statutory federal income tax rate of 35% to income before
provision for income taxes is as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1997
------------
<S> <C>
Computed tax rate at stat-
utory tax rate........... $12,221
Increase (decrease) in
taxes
State income taxes, net
of federal tax
benefit................ 1,716
Cumulative deferred
taxes recorded upon
Recapitalization....... 7,520
Loss prior to
Recapitalization
excluded from taxable
income................. 7,543
Other................... 508
-------
$29,508
=======
</TABLE>
F-27
<PAGE>
UNITED RENTALS (NORTH AMERICA), INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The components of deferred income tax assets (liabilities) as of December
31, 1997 are as follows:
<TABLE>
<S> <C>
Accrued liabilities............................................... $ 7,576
Net operating loss carryforward................................... 314
Property and equipment............................................ 44
Allowance for doubtful accounts................................... 2,079
State income taxes................................................ 1,636
Other, net........................................................ 923
--------
12,572
Depreciation...................................................... (36,334)
Intangibles and other............................................. (633)
--------
$(24,395)
========
</TABLE>
The Company has net short-term deferred tax assets in the amount of $880,
which are reported in the balance sheet in prepaid expenses and other assets.
The Company has net operating loss carryforwards ("NOL's") of $846 for
income tax purposes that expire in 2012.
10. CAPITAL STOCK
As of December 31, 1997 there are outstanding warrants to purchase an
aggregate of 6,344,058 shares of Common Stock of the Parent. Each warrant
provides for an exercise price of $10.00 per share, is currently exercisable
and may be exercised at any time until September 12, 2007.
1997 Stock Option Plan
The Board of Directors of the Parent has adopted the 1997 Stock Option Plan
(the "Stock Option Plan") which provides for the granting of options to
purchase not more than an aggregate of 5,000,000 shares of Common Stock of the
Parent. All officers, employees and others who render services to the Company
are eligible to participate in the Stock Option Plan. Each option granted
pursuant to the Stock Option Plan must provide for an exercise price per share
that is at least equal to the fair market value per share of Common Stock of
the Parent on the date of grant. No options may be granted under the Stock
Option Plan after August 21, 2007. The exercise price of each option, the
period during which each option may be exercised and the other terms and
conditions of each option are determined by the Board of Directors of the
Parent (or by a committee appointed by the Board).
During 1997, 904,583 options to purchase shares of the Parent's Common Stock
were granted under the Stock Option Plan and remain outstanding at December
31, 1997. The weighted average exercise price per share of such options was
$12.76. Such options had exercise prices ranging from $10 to $30 per share. Of
such options 818,583 provided for an exercise price per share in the range of
$10.00 to $19.99 (the weighted average exercise price and weighted average
remaining life of the
options in this range being $11.84 and 9.9 years, respectively) and 86,000
provided for an exercise price per share in the range of $20.01 to $30.00 (the
weighted average exercise price and weighted average remaining life of the
options in this range being $22.51 and 9.9 years, respectively). At December
31, 1997, 60,000 options to purchase the Parent's Common Stock at $15.00 per
share were exercisable.
F-28
<PAGE>
UNITED RENTALS (NORTH AMERICA), INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
1997 Performance Award Plan
Effective February 20, 1997, U.S. Rentals adopted the 1997 Performance Award
Plan under which stock options and other awards could be granted to key
employees and directors at prices and terms established by U.S. Rentals at the
date of grant. The exercise price of all options issued during 1997 equaled
the fair value of the stock on the grant date which ranged from $17.88 to
$26.88. Accordingly, no compensation expense has been recognized. Options
outstanding at December 31, 1997 vest ratably over periods ranging from five
to ten years and expire in 2007.
The following table summarizes the activity under the Performance Award
Plan:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
NUMBER OF EXERCISE
SHARES PRICE
--------- --------
<S> <C> <C>
Shares under option:
Outstanding at December 31, 1996......................... -- $ --
Granted ($17.88-$20.00).................................. 3,867,387 $19.99
($23.44-$26.88)...................................... 206,500 $25.78
---------
Outstanding at December 31, 1997......................... 4,073,887 $20.29
=========
</TABLE>
There were no vested options outstanding and 526,113 shares were available
for future grants under the Performance Award Plan at December 31, 1997.
As a result of the merger, all outstanding options to purchase shares of
U.S. Rentals common stock became fully vested and were converted into options
to purchase the Parent's common stock at the exchange ratio of 0.9625.
The Company applies Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees" in accounting for stock-based employee
compensation arrangements whereby no compensation cost related to stock
options is deducted in determining net income. Had compensation cost for the
Company's stock option plans been determined pursuant to Financial Accounting
Standards Board Statement No. 123 ("SFAS No. 123"), "Accounting for Stock-
Based Compensation," the Company's net income and earnings per share would
have differed. The Black-Scholes option pricing model estimates fair value of
options using subjective assumptions which can materially affect fair value
estimates and, therefore, does not necessarily provide a single measure of
fair value of options. Using the Black-Scholes option pricing model and a
risk-free interest rate ranging from 5.8% to 6.61%, a volatility factor for
the market price of the Company's Common Stock of 32% and a weighted-average
expected life of options of approximately three to five years, the Company's
net income, after giving affect to the Recapitalization, would have been
$17,055. For purposes of these pro forma disclosures, the estimated fair value
of options is amortized over the options' vesting period. Since the number of
options granted and their fair value may vary significantly from year to year,
the pro forma compensation expense in future years may be materially
different.
At December 31, 1997 there are 6,344,058 shares of Common Stock of the
Parent reserved for the exercise of warrants, 5,000,000 shares of Common Stock
of the Parent reserved for issuance pursuant to options granted, and that may
be granted in the future, under the 1997 Stock Option Plan and 33,332 shares
of Common Stock of the Parent reserved for the future conversion of
convertible debt.
F-29
<PAGE>
UNITED RENTALS (NORTH AMERICA), INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
11. COMMITMENTS AND CONTINGENCIES
OPERATING LEASES
The Company leases rental equipment, real estate and certain office
equipment under operating leases. Certain real estate leases require the
Company to pay maintenance, insurance, taxes and certain other expenses in
addition to the stated rentals. Future minimum lease payments, by year and in
the aggregate, for noncancellable operating leases with initial or remaining
terms of one year or more are as follows at December 31, 1997:
<TABLE>
<S> <C>
1998.............................................................. $ 9,185
1999.............................................................. 7,270
2000.............................................................. 5,709
2001.............................................................. 4,891
2002.............................................................. 3,418
Thereafter........................................................ 13,061
-------
$43,534
=======
</TABLE>
Rent expense under non-cancelable operating leases totaled $6,367, $4,151
and $3,855 for the years ended December 31, 1997, 1996 and 1995, respectively.
EMPLOYEE BENEFIT PLANS
The Company sponsors two defined contribution 401(k) retirement plans (the
Plans) which are subject to the provisions of ERISA. Under the Plans, the
Company matches a minimum of 50% of the participants contributions up to a
specified amount. Company contributions to the Plans were $358, $316 and $404
for the years ended December 31, 1997, 1996 and 1995, respectively.
LEGAL MATTERS
The Company is party to legal proceedings and potential claims arising in
the ordinary course of its business. In the opinion of management, the Company
has adequate legal defenses, reserves, or insurance coverage with respect to
these matters so that the ultimate resolution will not have a material adverse
effect on the Company's financial position, results of operations, or cash
flows. The Company has accrued $9,563 and $12,011 at December 31, 1997 and
1996, respectively, to cover the uninsured portion of possible costs arising
from these pending claims and other potential unasserted claims.
ENVIRONMENTAL MATTERS
The Company and its operations are subject to various laws and related
regulations governing environmental matters. Under such laws, an owner or
lessee of real estate may be liable for the costs of removal or remediation of
certain hazardous or toxic substances located on or in, or emanating from,
such property, as well as investigation of property damage. The Company incurs
ongoing expenses associated with the removal of underground storage tanks and
the performance of appropriate remediation at certain of its locations. The
Company believes that such removal and remediation will not have a material
adverse effect on the Company's financial position, results of operations, or
cash flows.
F-30
<PAGE>
UNITED RENTALS (NORTH AMERICA), INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
12. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
SELECTED FINANCIAL DATA
The following table of quarterly financial information has been prepared
from unaudited financial statements of the Company, and reflects adjustments
which are, in the opinion of management, necessary for a fair presentation of
the interim periods presented.
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------- -------- -------- --------
<S> <C> <C> <C> <C>
For the year ended December 31, 1997:
Total revenues....................... $90,409 $108,395 $129,020 $162,014
Gross profit......................... 22,025 32,515 45,464 49,288
Income (loss) before extraordinary
item................................ (24,165) 8,062 11,258 10,254
Extraordinary item................... 1,511 -- -- --
Net income(loss)..................... (25,676) 8,062 11,258 10,254
For the year ended December 31, 1996:
Total revenues....................... 67,290 83,323 102,708 101,157
Gross profit......................... 17,784 24,973 35,859 34,417
Net income........................... 3,621 7,790 15,813 10,502
</TABLE>
13. SUBSEQUENT EVENTS
Subsequent to December 31, 1997 and through November 17, 1998, the Company
completed the acquisition of 76 equipment rental companies (the
"Acquisitions") and the aggregate consideration paid by the Company for the
Acquisitions was $823,639 and consisted of approximately $731,355 in cash,
3,631,765 shares of the Parent's Common stock and warrants to purchase 30,000
shares of the Parent's Common Stock. The Company funded a portion of the cash
consideration for these acquisitions with cash on hand and the balance with
borrowings under the Credit Facility and proceeds from the public offering
noted below.
On March 11, 1998, the Parent completed a public offering of 8,625,000
shares of the Parent's Common Stock. Net proceeds of the offering were
approximately $207,400 which were contributed by the Parent to the Company.
On May 19, 1998, the Company through its Parent completed an offering of
$200,000 of 9 1/2% Senior Subordinated Notes due 2008. Net proceeds of the
offering were approximately $193,000.
On August 5, 1998 United Rentals Trust I, a subsidiary of the Parent,
completed a $300,000 offering of Convertible Quarterly Income Preferred
Securities. Net proceeds of the offering of $290,000 were contributed by the
Parent to the Company.
On August 12, 1998, the Company completed an offering of $205,000 of 8.80%
Senior Subordinated Notes due 2008. Net proceeds of the offering were
approximately $197,500.
F-31
<PAGE>
UNITED RENTALS (NORTH AMERICA), INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30 DECEMBER 31
1998 1997
------------ -----------
IN THOUSANDS
<S> <C> <C>
ASSETS
Cash and cash equivalents................................ $ 21,793 $ 72,411
Accounts receivable, net of allowance for doubtful
accounts of $29,577 in 1998 and $11,085 in 1997......... 232,448 82,592
Inventory................................................ 74,895 21,778
Prepaid expenses and other assets........................ 23,316 17,167
Rental equipment, net.................................... 1,191,448 461,026
Property and equipment, net.............................. 168,689 98,268
Intangible assets, net of accumulated amortization of
$8,675 in 1998 and $568 in 1997......................... 819,094 73,648
---------- --------
$2,531,683 $826,890
========== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Accounts payable....................................... $ 127,217 $ 41,392
Debt................................................... 1,235,508 264,573
Deferred income taxes.................................. 20,761 25,275
Accrued expenses and other liabilities................. 145,993 49,262
---------- --------
Total liabilities.................................... 1,529,479 380,502
Commitments and contingencies
Stockholders' equity:
Common stock...........................................
Additional paid-in capital............................. 982,194 402,320
Retained earnings...................................... 20,293 44,068
Cumulative translation adjustments..................... (283)
---------- --------
Total stockholders' equity........................... 1,002,204 446,388
---------- --------
$2,531,683 $826,890
========== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-32
<PAGE>
UNITED RENTALS (NORTH AMERICA), INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED THREE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
------------------ --------------------
1998 1997 1998 1997
-------- -------- --------- ---------
IN THOUSANDS
<S> <C> <C> <C> <C>
Revenues:
Equipment rentals................. $592,502 $263,249 $ 282,818 $ 104,835
Sales of rental equipment......... 73,703 26,990 30,481 10,026
Sales of new equipment,
merchandise and other revenues... 138,057 37,585 65,775 14,159
-------- -------- --------- ---------
Total revenues.................. 804,262 327,824 379,074 129,020
Cost of revenues:
Cost of equipment rentals,
excluding depreciation........... 263,529 127,799 119,594 46,687
Depreciation of rental equipment.. 119,970 56,715 52,953 21,221
Cost of rental equipment sales.... 39,820 13,084 17,261 4,594
Cost of new equipment and
merchandise sales and other
operating costs.................. 106,893 30,040 50,549 10,870
-------- -------- --------- ---------
Total cost of revenues.......... 530,212 227,638 240,357 83,372
-------- -------- --------- ---------
Gross profit........................ 274,050 100,186 138,717 45,648
Selling, general and administrative
expenses........................... 128,763 48,488 60,413 21,002
Merger-related expenses............. 42,216 42,216
Non-rental depreciation and
amortization....................... 23,693 9,223 11,201 3,492
Termination cost of deferred
compensation agreements............ 20,290
-------- -------- --------- ---------
Operating income.................... 79,378 22,185 24,887 21,154
Interest expense.................... 39,170 6,316 23,924 2,624
Other (income) expense.............. (4,524) (1,356) (291) (531)
-------- -------- --------- ---------
Income before provision for income
taxes and extraordinary items...... 44,732 17,225 1,254 19,061
Provision for income taxes.......... 26,450 21,875 9,652 7,363
-------- -------- --------- ---------
Income (loss) before extraordinary
items.............................. 18,282 (4,650) (8,398) 11,698
Extraordinary items, net of income
taxes of $14,255 in 1998 and $995
in 1997............................ 21,337 1,511 21,337
-------- -------- --------- ---------
Net income (loss)................... $ (3,055) $ (6,161) $ (29,735) $ 11,698
======== ======== ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-33
<PAGE>
UNITED RENTALS (NORTH AMERICA), INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
COMMON STOCK
-------------
NUMBER ADDITIONAL CUMULATIVE
OF PAID-IN RETAINED TRANSLATION
SHARES AMOUNT CAPITAL EARNINGS ADJUSTMENTS
------ ------ ---------- -------- -----------
IN THOUSANDS, EXCEPT SHARE DATA
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1997...... 1,000 $402,320 $ 44,068 --
Contributed capital from
Parent......................... 560,894
Translation adjustments......... $(283)
Reclassification of Subchapter S
accumulated earnings to capital
from Parent.................... 18,979 (18,979)
Pooling-of-interest............. 1 1,795
Subchapter S distributions of a
pooled entity.................. (3,536)
Net loss........................ (3,055)
----- ---- -------- -------- -----
Balance, September 30, 1998..... 1,000 $982,194 $ 20,293 $(283)
===== ==== ======== ======== =====
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-34
<PAGE>
UNITED RENTALS (NORTH AMERICA), INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30
----------------------
1998 1997
----------- ---------
IN THOUSANDS
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss............................................. $ (3,055) $ (6,161)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization....................... 143,663 65,938
Amortization of original issue discount and deferred
financing fees..................................... 527
Extraordinary items................................. 35,592 2,506
Write down of assets held for sale.................. 4,040
Gain on sale of rental equipment.................... (33,883) (13,906)
Deferred income taxes............................... 402 12,829
Changes in operating assets and liabilities:
Accounts receivable.................................. (58,440) (17,612)
Inventory............................................ (9,414) (3,100)
Prepaid expenses and other assets.................... 23,654 (3,880)
Accounts payable..................................... 58,039 5,759
Accrued expenses and other liabilities............... 43,906 4,319
----------- ---------
Net cash provided by operating activities........... 205,031 46,692
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of rental equipment........................ (426,717) (188,041)
Purchases of property and equipment.................. (53,997) (34,258)
Proceeds from sales of rental equipment.............. 73,703 26,990
In-process acquisition costs......................... (4,413)
Payment of contingent purchase price................. (2,617)
Purchases of other companies......................... (833,297) (36,607)
----------- ---------
Net cash used in investing activities............... (1,247,338) (231,916)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from debt................................... 1,934,137 105,776
Repayments of debt................................... (1,410,122) (100,541)
Payment of debt financing costs...................... (26,711) (3,841)
Capital contribution by Parent....................... 497,921 240,922
Distribution to stockholders......................... (3,536)
----------- ---------
Net cash provided by financing activities........... 991,689 242,316
----------- ---------
Net increase (decrease) in cash and cash
equivalents......................................... (50,618) 57,092
Cash and cash equivalents at beginning of period..... 72,411 2,906
----------- ---------
Cash and cash equivalents at end of period........... $ 21,793 $ 59,998
=========== =========
Supplemental disclosure of cash flow information:
Cash paid during the period:
Interest............................................ $ 17,795 $ 11,131
Income taxes........................................ $ 9,679 $ 11,681
Supplemental disclosure of non-cash investing and
financing activities:
The Company acquired the net assets and assumed
certain liabilities of other companies as follows:
Assets, net of cash acquired........................ 1,335,091 36,607
Liabilities assumed................................. (441,120)
Less:
Amounts paid in common stock and warrants by Parent.. (60,674)
----------- ---------
Net cash paid....................................... $ 833,297 $ 36,607
=========== =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-35
<PAGE>
UNITED RENTALS (NORTH AMERICA), INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998 AND 1997
1. BASIS OF PRESENTATION
GENERAL
United Rentals (North America), Inc. ("URI") and subsidiaries is a wholly
owned subsidiary of United Rentals, Inc., which is principally a holding
company ("Holdings" or "Parent"). URI was incorporated in August 1997,
initially capitalized in September 1997 and commenced equipment rental
operations in October 1997. Holdings was incorporated in July 1998 and became
the parent of URI on August 5, 1998, pursuant to the reorganization of the
legal structure of URI described in Note 4. Prior to such reorganization, the
name of URI was United Rentals, Inc. References herein to the "Company" refer
to URI and its subsidiaries. Prior to the formation of Holdings, the
consolidated financial statements of the Company represented the accounts of
URI and its subsidiaries. Earnings per share data is not provided for the
operating results of URI and its subsidiaries as they are wholly owned
subsidiaries of Holdings.
The Company's consolidated balance sheet, statements of operations and
statements of cash flows as of December 31, 1997, and for the nine and three
month periods ended September 30, 1998 and 1997, have been restated to include
the accounts of certain acquisitions completed in 1998 that were accounted for
as poolings-of-interests. See Note 2.
The Consolidated Financial Statements of the Company included herein are
unaudited and, in the opinion of management, such financial statements reflect
all adjustments, consisting only of normal recurring adjustments, necessary to
a fair statement of the results of the interim periods presented. Interim
financial statements do not require all disclosures normally presented in
year-end financial statements, and, accordingly, certain disclosures have been
omitted. Results of operations for the nine and three month periods ended
September 30, 1998 are not necessarily indicative of the results that may be
expected for the year ending December 31, 1998. The Consolidated Financial
Statements included herein should be read in conjunction with the Company's
Consolidated Financial Statements and related Notes thereto included in the
Company's Annual Report on Form 10-K for the year ended December 31, 1997.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive
Income," and SFAS No. 131, "Disclosures About Segments of an Enterprise and
Related Information." SFAS No. 130 establishes standards for reporting and
display of comprehensive income and its components in primary financial
statement. The Company adopted SFAS No. 130 during the period ended March 31,
1998. The adoption of SFAS No. 130 did not have a material effect on the
consolidated financial position, results of operations or cash flows of the
Company. SFAS No. 131 establishes a new method by which companies will report
operating segment information. This method is based on the manner in which
management organizes the segments within a company for making operating
decisions and assessing performance. The Company continues to evaluate the
provisions of SFAS No. 131 and, upon adoption, the Company may report
operating segments. The Company is required to adopt SFAS No. 131 by December
31, 1998.
In February 1998, the Financial Accounting Standards Board issued SFAS No.
132, "Employers' Disclosures about Pensions and Other Post Retirement
Benefits." SFAS No. 132 revises employers' disclosures about pension and other
post retirement benefit plans but does not change the
F-36
<PAGE>
UNITED RENTALS (NORTH AMERICA), INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
measurement or recognition of those plans. The Company is required to adopt
SFAS No. 132 by December 31, 1998. The adoption of SFAS No. 132 is expected to
have no effect on the Company's disclosure of employee benefit matters.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133
establishes a new model for accounting for derivatives and hedging activities.
The Company is required to adopt SFAS No. 133 beginning January 1, 2000. The
adoption of SFAS No. 133 is not expected to have a material effect on the
Company's consolidated financial position or results of operations.
2. ACQUISITIONS
During the nine months ended September 30, 1998, the Company completed 69
acquisitions. Three of such acquisitions were accounted for as poolings-of-
interests (the "Pooling Transactions") and 66 were accounted for as purchases.
ACQUISITIONS ACCOUNTED FOR AS POOLINGS-OF-INTERESTS
On August 24, 1998, the Parent issued 2,744,368 shares of its Common Stock
for all of the outstanding shares of common stock of Rental Tools and
Equipment Co. ("Rental Tools"). The capital stock of Rental Tools was then
contributed to the Company. This transaction was accounted for as a pooling-
of-interests and, accordingly, the consolidated financial statements at
December 31, 1997 and for all periods presented have been restated to include
the accounts of Rental Tools.
On September 24, 1998, the Parent issued 1,456,997 shares of its Common
Stock for all of the outstanding shares of common stock of Wynne Systems, Inc.
("Wynne"). The capital stock of Wynne was then contributed to the Company. The
transaction was accounted for as a pooling-of-interests; however, this
transaction was not material to the Company's consolidated operations and
financial position and, therefore, the Company's financial statements have not
been restated for this transaction.
On September 29, 1998, a merger (the "Merger") of United Rentals, Inc. and
U.S. Rentals, Inc. ("U.S. Rentals") was completed. The Merger was effected by
having a wholly owned subsidiary of United Rentals, Inc. merge with and into
U.S. Rentals. Following the Merger, United Rentals, Inc. contributed the
capital stock of U.S. Rentals to URI, a wholly owned subsidiary of United
Rentals, Inc. Pursuant to the Merger, each outstanding share of common stock
of U.S. Rentals was converted into the right to receive 0.9625 of a share of
common stock of United Rentals, Inc. An aggregate of approximately 29.6
million shares of United Rentals, Inc. Common Stock were issued in the Merger
in exchange for the outstanding shares of U.S. Rentals common stock. The
Merger was accounted for as a pooling-of-interests and, accordingly, the
consolidated financial statements at December 31, 1997, and for all periods
presented have been restated to include the accounts of U.S. Rentals.
F-37
<PAGE>
UNITED RENTALS (NORTH AMERICA), INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The table below shows the separate revenue and net income (loss) of the
Company prior to the above mergers ("United"), U.S. Rentals and Rental Tools
for periods prior to combination (in thousands):
<TABLE>
<CAPTION>
UNITED U.S. RENTALS RENTAL TOOLS COMBINED
-------- ------------ ------------ --------
<S> <C> <C> <C> <C>
Nine months ended September
30, 1998
Revenues................... $311,919 $451,101 $41,242 $804,262
Net income (loss).......... (51,420) 43,670 4,695 (3,055)
Nine months ended September
30, 1997
Revenues................... 291,501 36,323 327,824
Net income (loss).......... (273) (6,471) 583 (6,161)
Three months ended September
30, 1998
Revenues................... 184,566 178,219 16,289 379,074
Net income (loss).......... (59,640) 27,190 2,715 (29,735)
Three months ended September
30, 1997
Revenues................... 114,020 15,000 129,020
Net income (loss).......... (273) 10,857 1,114 11,698
</TABLE>
Rental Tools was accounted for as a Subchapter S Corporation prior to being
acquired by the Company. In general, the income or loss of a Subchapter S
Corporation is passed through to its stockholders rather than being subjected
to taxes at the corporate level.
ACQUISITIONS ACCOUNTED FOR AS PURCHASES
The acquisitions completed by the Company in the first nine months of 1998
include 66 that were accounted for as purchases. The results of operations of
the businesses acquired in these acquisitions have been included in the
Company's results of operations from their respective acquisition dates.
The aggregate initial consideration paid by the Company for such
acquisitions that were accounted for as purchases was $800.5 million and
consisted of approximately $712.6 million in cash and 3.6 million shares of
Common Stock of the Parent and warrants to purchase an aggregate of 30,000
shares of Common Stock of the Parent. In addition, the Company repaid or
assumed outstanding indebtedness of the companies acquired in such
acquisitions in the aggregate amount of $372.1 million. The Company also
agreed in connection with 12 of such acquisitions to pay additional amounts to
the former owners based upon specified future revenues and/or new store
openings (such amounts being limited to (i) $10.0 million, $2.0 million, $1.4
million, 1.0 million, $0.8 million, $0.8 million, $0.5 million, $0.5 million,
$0.5 million, $0.4 million and Cdn. $4.0 million, respectively, with respect
to 11 of such acquisitions and (ii) an amount based on the revenues of a
single store with respect to the other acquisition).
The purchase prices for such acquisitions have been allocated to the assets
acquired and liabilities assumed based on their respective fair values at
their respective acquisition dates. However, the Company has not completed its
valuation of all of its purchases and, accordingly, the purchase price
allocations are subject to change when additional information concerning asset
and liability valuations are completed.
The following table summarizes, on an unaudited pro forma basis, the results
of operations of the Company for the nine months ended September 30, 1998 as
though each acquisition described above
F-38
<PAGE>
UNITED RENTALS (NORTH AMERICA), INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
that was accounted for as a purchase was completed on January 1, 1998 (in
thousands, except per share data):
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, 1998
------------------
<S> <C>
Revenues.................................................. $1,070,883
Net income................................................ 34,006
Basic earnings per share.................................. $ 0.49
Diluted earnings per share................................ $ 0.44
</TABLE>
The unaudited pro forma results are based upon certain assumptions and
estimates, which are subject to change. These results are not necessarily
indicative of the actual results of operations that might have occurred, nor
are they necessarily indicative of expected results in the future.
MERGER-RELATED EXPENSES AND EXTRAORDINARY ITEM
The results of operations for the third quarter of 1998 include pre-tax
expenses related to the three Pooling Transactions totaling approximately
$42.2 million ($29.5 million after-tax), consisting of (i) $18.5 million for
investment banking, legal, accounting services and other merger costs, (ii)
$14.5 million of expenses relating to the closing of duplicate facilities,
(iii) $6.3 million for employee severance and (iv) $2.9 million in other
expenses. Certain additional merger related expenses are transitional in
nature and, in accordance with generally accepted accounting principles, are
not presently accruable and will be expensed in future quarters.
Additionally, in the third quarter of 1998, the Company recorded a pre-tax
extraordinary charge of $35.6 million ($21.3 million after-tax) relating to
early extinguishment of debt primarily related to the Merger with U.S.
Rentals.
3. REVOLVING CREDIT FACILITY
In connection with the Merger, URI obtained a new credit facility (the
"Credit Facility") dated as of September 29, 1998, with a group of financial
institutions. The credit facility enables URI to borrow up to $762.5 million
on a revolving basis and permits a Canadian subsidiary of URI (the "Canadian
Subsidiary") to directly borrow up to $40 million under the Credit Facility
(provided that the aggregate borrowings of URI and the Canadian Subsidiary do
not exceed $762.5 million). Up to $25 million is available in the form of
letters of credit. The agreement governing the Credit Facility requires that
the aggregate commitment shall be reduced on the last day of each calendar
quarter, beginning September 30, 2001 and continuing through June 30, 2003 by
an amount equal to $19.1 million. The Credit Facility terminates on September
26, 2003, at which time all outstanding indebtedness is due. The amount of
indebtedness outstanding under the Credit Facility was $535.0 million at
September 30, 1998.
Borrowings by URI under the Credit Facility accrue interest at URI's option,
at either (a) the Base Rate (which is equal to the greater of (i) the Federal
Funds Rate plus 0.5% or (ii) Bank of America's reference rate) or (b) the
Eurodollar Rate (which for borrowings by URI is equal to Bank of America's
reserve adjusted eurodollar rate) plus a margin ranging from 0.950% to 1.625%
per annum. Borrowings by the Canadian subsidiary under the Credit Facility
accrue interest, at such subsidiary's option, at either (x) the Prime Rate
(which is equal to Bank of America Canada's prime rate), (y) the BA Rate
(which is equal to Bank of America Canada's BA Rate) plus a margin ranging
from 0.950% to 1.625% per annum or (z) the Eurodollar Rate (which for
borrowing by the Canadian Subsidiary is
F-39
<PAGE>
UNITED RENTALS (NORTH AMERICA), INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
equal to the Bank of America Canada's reserve adjusted Eurodollar Rate) plus a
margin ranging from 0.95% to 1.625% per annum. If at any time an event of
default (as defined in the agreement governing the Credit Facility) exists,
the interest rate applicable to each loan will increase by 2% per annum. The
Company is also required to pay the banks an annual facility fee equal to
0.375% of the banks' $762.5 million aggregate lending commitment under the
Credit Facility (which fee may be reduced to 0.300% for periods during which
the Company maintains a specified funded debt to cash flow ratio).
4. HOLDING COMPANY REORGANIZATION
URI was formerly named United Rentals, Inc. On August 5, 1998, a
reorganization was effected pursuant to which (i) URI became a wholly owned
subsidiary of Holdings a newly formed holding company, (ii) the name of URI
was changed from United Rentals, Inc. to United Rentals (North America), Inc.,
(iii) the name of the new holding company became United Rentals, Inc., (iv)
the outstanding common stock of URI was automatically converted, on a share-
for-share basis, into Common Stock of Holdings and (v) the Common Stock of
Holdings commenced trading on the New York Stock Exchange under the symbol
"URI" instead of the common stock of URI. The purpose of the reorganization
was to facilitate certain financings. The business operations of the Company
did not change as a result of the new legal structure. The stockholders of
Holdings have the same rights, privileges and interests with respect to
Holdings as they had with respect to URI immediately prior to the
reorganization.
5. TERM LOAN
In July 1998, URI obtained a $250 million term loan from a group of
financial institutions (the "Term Loan"). The Term Loan matures on June 30,
2005. The term loan accrues interest, at the Company's option, at either (a)
the Base Rate (as defined with respect to the Credit Facility) plus a margin
ranging from 0% to 0.5% per annum, or (b) the Eurodollar Rate (as defined with
respect to the Credit Facility for borrowings by URI) plus a margin ranging
from 1.875% to 2.375% per annum. The Term Loan is secured pari passu with the
Credit Facility. URI used the net proceeds from the Term Loan for
acquisitions.
6. SENIOR SUBORDINATED NOTES
In May 1998, URI issued $200 million aggregate principal amount of 9 1/2%
Senior Subordinated Notes which are due June 1, 2008. The Company used $102.8
million of the net proceeds from the sale of such notes to repay all of the
then outstanding indebtedness under the Company's credit facility and used the
balance of such net proceeds from this offering for acquisitions, capital
expenditures and general corporate purposes.
In August 1998, URI issued $205 million aggregate principal amount of 8.80%
Senior Subordinated Notes which are due August 15, 2008. URI used $90.3
million of the net proceeds from the sale of such notes to repay all of the
then outstanding indebtedness under the Company's credit facility and used the
balance of such net proceeds from this offering for acquisitions, capital
expenditures and general corporate purposes.
7. CAPITAL CONTRIBUTIONS BY PARENT
On August 5, 1998, a subsidiary trust (the "Trust") of Holdings issued and
sold in a private offering (the "Preferred Securities Offering") $300 million
of 6 1/2% Convertible Quarterly Income Preferred Securities (the "Preferred
Securities"). The net proceeds from the Preferred Securities Offering were
F-40
<PAGE>
UNITED RENTALS (NORTH AMERICA), INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
approximately $290 million. The Trust used the proceeds from the Preferred
Securities Offering to purchase convertible subordinated debentures from
Holdings which resulted in Holdings receiving all of the net proceeds of the
Preferred Securities Offering. Holdings in turn contributed the net proceeds
of the Preferred Securities Offering to URI. URI used approximately $281
million of such net proceeds to repay the then outstanding indebtedness under
the Company's credit facility and used the balance of such net proceeds for
acquisitions.
On March 11, 1998, URI completed a public offering of 8,625,000 shares of
Common Stock. The net proceeds to URI from this offering were approximately
$207.4 million (after deducting the underwriting discounts and offering
expenses). Pursuant to the reorganization, the net proceeds from such offering
has been reflected as Contributed Capital from the Parent in the accompanying
statement of stockholders equity. The Company used $132.7 million of the net
proceeds from this offering to repay all of the then outstanding indebtedness
under the Company's credit facility and used the balance of such net proceeds
for acquisitions.
8. CONDENSED CONSOLIDATING FINANCIAL INFORMATION OF GUARANTOR SUBSIDIARIES
Certain indebtedness of URI is guaranteed by URI's United States
subsidiaries (the "guarantor subsidiaries") but is not guaranteed by URI's
foreign subsidiaries (the "non-guarantor subsidiaries"). The guarantor
subsidiaries are all wholly-owned and the guarantees are made on a joint and
several basis and are full and unconditional (subject to subordination
provisions and subject to a standard
limitation which provides that the maximum amount guaranteed by each guarantor
will not exceed the maximum amount that can be guaranteed without making the
guarantee void under fraudulent conveyance laws). Separate consolidated
financial statements of the guarantor subsidiaries have not been presented
because management has determined that such information would not be material
to investors. However, condensed consolidating financial information as of
September 30, 1998 and for the nine and three months ended September 30, 1998,
are presented. The condensed consolidating financial information as of and for
the periods ended December 31, 1997 have been omitted since the non-guarantors
subsidiaries came into existence during 1998. The condensed consolidating
financial information of URI and its subsidiaries are as follows:
F-41
<PAGE>
UNITED RENTALS (NORTH AMERICA), INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
CONDENSED CONSOLIDATING BALANCE SHEET
<TABLE>
<CAPTION>
SEPTEMBER 30, 1998
-----------------------------------------------------------------
GUARANTOR NON-GUARANTOR CONSOLIDATED
URI SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTAL
---------- ------------ ------------- ------------ ------------
IN THOUSANDS
<S> <C> <C> <C> <C> <C>
ASSETS
Cash and cash
equivalents............ $ 4,907 $ 13,492 $ 3,394 $ 21,793
Accounts receivable,
net.................... 217,279 15,169 232,448
Intercompany receivable
(payable).............. 766,764 (720,507) (46,257)
Inventory............... 68,931 5,964 74,895
Prepaid expenses and
other assets........... 11,290 10,368 1,658 23,316
Rental equipment, net... 1,150,965 40,483 1,191,448
Property and equipment,
net.................... 162,801 5,888 168,689
Investment in
subsidiaries........... 1,338,107 $(1,338,107)
Intangible assets, net.. 145 764,731 54,218 819,094
---------- ---------- ------- ----------- ----------
$2,121,213 $1,668,060 $80,517 $(1,338,107) $2,531,683
========== ========== ======= =========== ==========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Liabilities:
Accounts payable...... $ 6,572 $ 112,937 $ 7,708 $ 127,217
Debt.................. 1,206,500 23,846 5,162 1,235,508
Deferred income
taxes................ 1,906 18,855 20,761
Accrued expenses and
other liabilities.... 34,906 109,689 1,398 145,993
---------- ---------- ------- ----------- ----------
Total liabilities... 1,249,884 265,327 14,268 1,529,479
Commitments and
contingencies
Stockholders' equity:
Common stock..........
Additional paid-in
capital.............. 963,410 1,296,837 60,054 $(1,338,107) 982,194
Retained earnings..... (92,081) 105,896 6,478 20,293
Cumulative translation
adjustments.......... (283) (283)
---------- ---------- ------- ----------- ----------
Total stockholders'
equity............. 871,329 1,402,733 66,249 (1,338,107) 1,002,204
---------- ---------- ------- ----------- ----------
$2,121,213 $1,668,060 $80,517 $(1,338,107) $2,531,683
========== ========== ======= =========== ==========
</TABLE>
F-42
<PAGE>
UNITED RENTALS (NORTH AMERICA), INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
-------------------------------------------------------------
NON-
GUARANTOR GUARANTOR CONSOLIDATED
URI SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTAL
-------- ------------ ------------ ------------ ------------
IN THOUSANDS
<S> <C> <C> <C> <C> <C>
Revenues:
Equipment rentals...... $572,884 $19,618 $592,502
Sales of rental equip-
ment.................. 71,019 2,684 73,703
Sales of new equipment,
merchandise and other
revenues.............. 127,216 10,841 138,057
-------- -------- ------- -------- --------
Total revenues........ 771,119 33,143 804,262
Cost of revenues:
Cost of equipment rent-
als, excluding depre-
ciation............... 255,345 8,184 263,529
Depreciation of rental
equipment............. 116,974 2,996 119,970
Cost of rental equip-
ment sales............ 38,235 1,585 39,820
Cost of new equipment
and merchandise sales
and other operating
costs................. 98,157 8,736 106,893
-------- -------- ------- -------- --------
Total cost of reve-
nues................. 508,711 21,501 530,212
-------- -------- ------- -------- --------
Gross profit............ 262,408 11,642 274,050
Selling, general and
administrative
expenses............... $ 13,091 111,479 4,193 128,763
Merger-related
expenses............... 24,048 18,168 42,216
Non-rental depreciation
and amortization....... 400 22,532 761 23,693
-------- -------- ------- -------- --------
Operating income
(loss)................. (37,539) 110,229 6,688 79,378
Interest expense........ 20,389 18,542 239 39,170
Other (income) expense.. 297 (4,788) (33) (4,524)
-------- -------- ------- -------- --------
Income (loss) before
provision for income
taxes and extraordinary
item................... (58,225) 96,475 6,482 44,732
Provision for income
taxes.................. 14,138 12,312 26,450
-------- -------- ------- -------- --------
Income (loss) before
extraordinary item and
equity in net earnings
of subsidiaries........ (72,363) 84,163 6,482 18,282
Extraordinary item,
net.................... 1,640 19,697 21,337
-------- -------- ------- -------- --------
Income (loss) before
equity in net earnings
of subsidiaries........ (74,003) 64,466 6,482 (3,055)
Equity in net earnings
of subsidiaries........ 70,948 $(70,948)
-------- -------- ------- -------- --------
Net income (loss)..... $ (3,055) $ 64,466 $ 6,482 $(70,948) $ (3,055)
======== ======== ======= ======== ========
</TABLE>
F-43
<PAGE>
UNITED RENTALS (NORTH AMERICA), INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
CONSOLIDATING STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1998
-------------------------------------------------------------
NON-
GUARANTOR GUARANTOR CONSOLIDATED
URI SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTAL
-------- ------------ ------------ ------------ ------------
IN THOUSANDS
<S> <C> <C> <C> <C> <C>
Revenues:
Equipment rentals...... $270,920 $11,898 $282,818
Sales of rental
equipment............. 29,417 1,064 30,481
Sales of new equipment,
merchandise and other
revenues.............. 60,155 5,620 65,775
-------- -------- ------- -------- --------
Total revenues........ 360,492 18,582 379,074
Cost of revenues:
Cost of equipment
rentals,
ex-cluding
depreciation.......... 114,649 4,945 119,594
Depreciation of rental
equipment............. 51,207 1,746 52,953
Cost of rental
equipment sales....... 16,714 547 17,261
Cost of new equipment
and merchandise sales
and other operating
costs................. 46,381 4,168 50,549
-------- -------- ------- -------- --------
Total cost of reve-
nues................. 228,951 11,406 240,357
-------- -------- ------- -------- --------
Gross profit............ 131,541 7,176 138,717
Selling, general and
administrative
expenses............... $ 5,463 52,735 2,215 60,413
Merger-related
expenses............... 24,048 18,168 42,216
Non-rental depreciation
and amortization....... 83 10,609 509 11,201
-------- -------- ------- -------- --------
Operating income
(loss)................. (29,594) 50,029 4,452 24,887
Interest expense........ 15,804 7,977 143 23,924
Other (income) expense.. 346 (626) (11) (291)
Income (loss) before
provision for income
taxes and extraordinary
item................... (45,744) 42,678 4,320 1,254
Provision for income
taxes.................. 8,435 1,217 9,652
-------- -------- ------- -------- --------
Income (loss) before
extraordinary item and
equity in net earnings
of subsidiaries........ (54,179) 41,461 4,320 (8,398)
Extraordinary item,
net.................... 1,640 19,697 21,337
-------- -------- ------- -------- --------
Income (loss) before
equity in net earnings
of subsidiaries........ (55,819) 21,764 4,320 (29,735)
Equity in net earnings
of subsidiaries........ 26,084 $(26,084)
-------- -------- ------- -------- --------
Net income (loss)..... $(29,735) $ 21,764 $ 4,320 $(26,084) $(29,735)
======== ======== ======= ======== ========
</TABLE>
F-44
<PAGE>
UNITED RENTALS (NORTH AMERICA), INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
CONDENSED CONSOLIDATING CASH FLOW INFORMATION
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
-----------------------------------------------------------------
GUARANTOR NON-GUARANTOR CONSOLIDATED
URI SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTAL
----------- ------------ ------------- ------------ ------------
IN THOUSANDS
<S> <C> <C> <C> <C> <C>
Net cash provided by
(used in) operating
activities............. $ (443,929) $ 638,566 $10,394 $ 205,031
CASH FLOWS FROM
INVESTING ACTIVITIES:
Purchase of rental
equipment............. (418,182) (8,535) (426,717)
Purchase of property
and equipment......... (8,887) (44,467) (643) (53,997)
Proceeds from sales of
rental equipment...... 71,019 2,684 73,703
In-process acquisition
costs................. (4,413) (4,413)
Payment of contingent
purchase price........ (2,111) (506) (2,617)
Purchase of other
companies............. (820,787) (12,510) (833,297)
----------- --------- ------- ---- -----------
Net cash used in
investing
activities........... (834,087) (406,251) (7,000) (1,247,338)
CASH FLOWS FROM
FINANCING ACTIVITIES:
Proceeds from debt..... 1,923,950 10,187 1,934,137
Repayment of debt...... (1,179,437) (230,685) (1,410,122)
Payment of debt
financing costs....... (26,711) (26,711)
Capital contribution by
Parent................ 497,921 497,921
Distribution to
stockholders.......... (3,536) (3,536)
----------- --------- ------- ---- -----------
Net cash provided by
(used in) financing
activities........... 1,215,723 (224,034) 991,689
Net increase (decrease)
in cash and cash
equivalents........... (62,293) 8,281 3,394 (50,618)
Cash and cash
equivalents at
beginning of period... 67,200 5,211 72,411
----------- --------- ------- ---- -----------
Cash and cash
equivalents at end of
period............... $ 4,907 $ 13,492 $ 3,394 $ 21,793
=========== ========= ======= ==== ===========
</TABLE>
F-45
<PAGE>
UNITED RENTALS (NORTH AMERICA), INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
CONDENSED CONSOLIDATING CASH FLOW INFORMATION
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
----------------------------------------------------------------
GUARANTOR NON-GUARANTOR CONSOLIDATED
URI SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTAL
---------- ------------ ------------- ------------ ------------
IN THOUSANDS
<S> <C> <C> <C> <C> <C>
Supplemental disclosure
of cash flow
information:
Cash paid during the
period:
Interest.............. $ 6,630 $11,098 $ 67 $ 17,795
Income taxes.......... $ 7,434 $2,245 $ 9,679
Supplemental disclosure
of non-cash investing
and financing
activities:
The Company acquired the
net assets and assumed
certain liabilities of
other companies as
follows:
Assets, net of cash
acquired.............. $1,335,091 $1,335,091
Liabilities assumed.... (441,120) (441,120)
Less:
Amounts paid in common
stock and warrants by
Parent................ (60,674) (60,674)
---------- ------- ------ --- ----------
Net cash paid......... $ 833,297 $ 833,297
========== ======= ====== === ==========
</TABLE>
11. SUBSEQUENT EVENTS
COMPLETED ACQUISITIONS
Subsequent to September 30, 1998 (through November 10, 1998), the Company
completed the acquisition of eight equipment rental companies. The aggregate
consideration paid by the Company for these acquisitions was $22.9 million and
consisted of approximately $18.8 million in cash and notes, and 4,868 shares
of Common Stock of the Parent. The Company also agreed in connection with one
of the acquisitions to pay the former owners additional amounts based upon
specified future revenues not to exceed $300,000 in the aggregate. The Company
funded a portion of the cash consideration for these acquisitions with cash on
hand and the balance with borrowings under the Company's revolving credit
facility.
F-46
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of
Equipment Supply Co., Inc. and Affiliates
Burlington, New Jersey
We have audited the accompanying combined balance sheets of Equipment Supply
Co., Inc. and Affiliates (see Note 1) as of December 31, 1997 and 1996, and
the related combined statements of income, stockholders' equity, and cash
flows for each of the three years in the period ended December 31, 1997. These
combined financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these combined
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the financial position of Equipment Supply
Co., Inc. and Affiliates as of December 31, 1997 and 1996, and the results of
their operations and their cash flows for each of the three years in the
period ended December 31, 1997 in conformity with generally accepted
accounting principles.
BDO Seidman, LLP
Philadelphia, Pennsylvania
June 19, 1998,
except for Notes 9 and 15 which
are as of July 10, 1998
F-47
<PAGE>
EQUIPMENT SUPPLY CO., INC. AND AFFILIATES
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------- JUNE 30,
1997 1996 1998
------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents............... $ 1,038,086 $ 4,015,527 $ 1,784,124
Marketable securities................... -- 1,103,354 --
Accounts receivable, net of allowance
for
possible losses of $2,241,339,
$1,202,790
and $2,241,339......................... 16,087,730 14,592,845 16,528,382
Inventories............................. 3,234,402 3,249,010 4,507,505
Prepaid expenses and other assets....... 2,365,177 389,234 1,837,531
Due from stockholder.................... 4,310,190 1,637,628 5,184,698
Rental equipment, net................... 122,154,888 127,343,198 111,617,692
Property and equipment, net............. 6,548,778 5,401,275 5,267,210
Goodwill and other intangible assets,
net.................................... 3,887,945 4,436,997 3,639,033
------------ ------------ ------------
Total assets........................ $159,627,196 $162,169,068 $150,366,175
============ ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Debt.................................. $ 94,870,512 $107,460,779 $ 87,577,703
Capital lease obligations............. 8,841,236 11,923,889 7,241,127
Accounts payable...................... 4,909,578 4,116,967 3,648,493
Income taxes payable.................. 1,209,251 1,393,548 1,442,884
Deferred income taxes................. 3,884,669 3,996,763 939,847
Deferred leasing costs................ 4,379,594 -- 5,626,989
Deferred rental income................ 2,404,500 2,016,607 2,653,308
Other liabilities..................... 1,599,427 2,335,963 3,215,431
------------ ------------ ------------
Total liabilities................... 122,098,767 133,244,516 112,345,782
------------ ------------ ------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Common stock, no par value
Authorized 2,500 shares;
Issued and outstanding 581 shares.... 1,500 1,500 1,500
Additional paid-in capital............ 363,808 326,294 363,808
Retained earnings..................... 37,163,121 28,596,758 37,655,085
------------ ------------ ------------
Total stockholders' equity.......... 37,528,429 28,924,552 38,020,393
------------ ------------ ------------
Total liabilities and stockholders'
equity............................. $159,627,196 $162,169,068 $150,366,175
============ ============ ============
</TABLE>
See accompanying notes to combined financial statements.
F-48
<PAGE>
EQUIPMENT SUPPLY CO., INC. AND AFFILIATES
COMBINED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------------- ------------------------
1997 1996 1995 1998 1997
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES
Equipment rentals..... $78,141,502 $65,226,201 $40,905,725 $34,381,555 $38,110,803
Sales of rental
equipment............ 8,102,210 11,935,375 7,968,205 3,280,299 3,150,044
Sales of new
equipment,
merchandise and other
revenues............. 8,314,451 10,129,016 5,246,285 5,678,060 4,111,176
----------- ----------- ----------- ----------- -----------
TOTAL REVENUES...... 94,558,163 87,290,592 54,120,215 43,339,914 45,372,023
----------- ----------- ----------- ----------- -----------
COST OF REVENUES
Cost of equipment
rentals, excluding
depreciation......... 23,509,529 19,225,581 14,222,651 12,528,730 7,675,660
Depreciation of rental
equipment............ 20,397,030 15,383,114 7,844,434 10,368,052 10,774,115
Cost of rental
equipment sold....... 5,049,876 9,834,128 3,291,409 2,131,867 1,975,139
Cost of new equipment
and merchandise...... 6,312,172 6,263,969 2,250,037 5,135,293 3,721,652
----------- ----------- ----------- ----------- -----------
TOTAL COST OF
REVENUES........... 55,268,607 50,706,792 27,608,531 30,163,942 24,146,566
----------- ----------- ----------- ----------- -----------
GROSS PROFIT............ 39,289,556 36,583,800 26,511,684 13,175,972 21,225,457
----------- ----------- ----------- ----------- -----------
OPERATING EXPENSES
General and
administrative
expenses............. 17,874,879 15,195,802 10,852,925 9,672,514 9,455,819
Nonrental depreciation
and amortization..... 878,342 627,534 237,427 358,520 421,916
----------- ----------- ----------- ----------- -----------
TOTAL OPERATING
EXPENSES........... 18,753,221 15,823,336 11,090,352 10,031,034 9,877,735
----------- ----------- ----------- ----------- -----------
INCOME FROM OPERATIONS.. 20,536,335 20,760,464 15,421,332 3,144,938 11,347,722
INTEREST EXPENSE........ (11,185,934) (7,508,226) (3,691,638) (4,220,244) (6,434,136)
OTHER INCOME (EXPENSE).. 2,858,438 854,658 (28,356) 198,381 793,290
----------- ----------- ----------- ----------- -----------
INCOME (LOSS) BEFORE
PROVISION FOR INCOME
TAXES.................. 12,208,839 14,106,896 11,701,338 (876,925) 5,706,876
PROVISION FOR INCOME TAX
EXPENSE (BENEFIT)...... 1,242,142 2,073,617 1,517,539 (2,637,684) 575,365
----------- ----------- ----------- ----------- -----------
NET INCOME.............. $10,966,697 $12,033,279 $10,183,799 $ 1,760,759 $ 5,131,511
=========== =========== =========== =========== ===========
</TABLE>
See accompanying notes to combined financial statements.
F-49
<PAGE>
EQUIPMENT SUPPLY CO., INC. AND AFFILIATES
COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
------------- PAID-IN RETAINED
SHARES AMOUNT CAPITAL EARNINGS TOTAL
------ ------ ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
BALANCE, January 1, 1995... 581 $1,500 $ -- $14,408,232 $14,409,732
Net income................. -- -- -- 10,183,799 10,183,799
Stockholders'
distributions............. -- -- -- (3,861,677) (3,861,677)
Capital contributions...... -- -- 170,406 -- 170,406
--- ------ -------- ----------- -----------
BALANCE, December 31,
1995...................... 581 1,500 170,406 20,730,354 20,902,260
Net income................. -- -- -- 12,033,279 12,033,279
Stockholders'
distributions............. -- -- -- (4,166,875) (4,166,875)
Capital contributions...... -- -- 155,888 -- 155,888
--- ------ -------- ----------- -----------
BALANCE, December 31,
1996...................... 581 1,500 326,294 28,596,758 28,924,552
Net income................. -- -- -- 10,966,697 10,966,697
Stockholders'
distributions............. -- -- -- (2,937,557) (2,937,557)
Capital contributions...... -- -- 37,514 -- 37,514
Adjustment related to
affiliate with
different fiscal year..... -- -- -- 537,223 537,223
--- ------ -------- ----------- -----------
BALANCE, December 31,
1997...................... 581 1,500 363,808 37,163,121 37,528,429
Net income (unaudited)..... -- -- -- 1,760,759 1,760,759
Stockholders' distributions
(unaudited)............... -- -- -- (1,268,795) (1,268,795)
--- ------ -------- ----------- -----------
BALANCE, June 30, 1998
(unaudited)............... 581 $1,500 $363,808 $37,655,085 $38,020,393
=== ====== ======== =========== ===========
</TABLE>
See accompanying notes to combined financial statements.
F-50
<PAGE>
EQUIPMENT SUPPLY CO., INC. AND AFFILIATES
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
---------------------------------------- ------------------------
1997 1996 1995 1998 1997
------------ ------------ ------------ ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM
OPERATING ACTIVITIES
Net income............. $ 10,966,697 $ 12,033,279 $ 10,183,799 $ 1,760,759 $ 5,131,511
Adjustments to
reconcile net income
to net cash flows
provided by operating
activities
Depreciation and
amortization........ 21,275,372 16,010,648 8,081,861 10,775,137 11,196,031
Provision for bad
debts............... 1,038,549 374,056 828,734 -- --
Loss (Gain) on sale
of equipment........ (3,052,334) (2,101,247) (4,555,863) (1,148,432) (1,174,905)
Gain on sale of
marketable
securities.......... (390,410) (126,747) (37,345) -- (413,631)
Deferred income
taxes............... (112,094) 743,691 961,861 (2,944,822) (127,771)
Adjustment related to
affiliate with
different fiscal
year................ 537,223 -- -- -- 537,223
Changes in operating
assets and
liabilities:
(Increase) decrease
in accounts
receivable.......... (2,533,434) (4,603,457) (4,789,132) (440,653) (1,275,848)
(Increase) decrease
in inventories...... 14,608 (945,385) (824,220) (1,273,103) (384,360)
(Increase) decrease
in prepaid expenses
and other assets.... (1,975,943) 122,694 587,072 527,646 (233,087)
Increase (decrease)
in accounts
payable............. 792,611 1,436,552 1,560,529 (1,261,085) 3,933,297
Increase (decrease)
in income taxes
payable............. (184,297) 1,076,242 689,302 233,633 (474,120)
Increase in deferred
leasing costs....... 4,379,594 -- -- 1,247,395 --
Increase (decrease)
in deferred rental
income.............. 387,893 627,699 499,251 248,808 175,016
Increase (decrease)
in other
liabilities......... (736,536) 914,657 1,015,997 1,616,004 (527,352)
------------ ------------ ------------ ----------- -----------
NET CASH PROVIDED BY
OPERATING ACTIVITIES... 30,407,499 25,562,682 14,201,846 9,341,287 16,362,004
------------ ------------ ------------ ----------- -----------
CASH FLOWS FROM
INVESTING ACTIVITIES
Purchases of
equipment............. (21,445,901) (73,822,654) (32,957,168) (664,200) (12,537,761)
Acquisitions of
affiliated
companies............. -- (11,807,987) (7,829,319) -- --
Proceeds from sale of
equipment............. 8,102,210 11,935,375 7,741,552 3,280,299 3,150,044
Sales (purchases) of
marketable
securities............ 1,493,764 (414,665) 397,153 -- (347,750)
------------ ------------ ------------ ----------- -----------
NET CASH (USED IN)
PROVIDED BY INVESTING
ACTIVITIES............. (11,849,927) (74,109,931) (32,647,782) 2,616,099 (9,735,467)
------------ ------------ ------------ ----------- -----------
CASH FLOWS FROM
FINANCING ACTIVITIES
Proceeds from debt..... $ 12,869,925 $ 79,950,621 $ 28,777,004 $ 2,634,890 $11,729,779
Repayment of capital
lease obligations..... (3,341,413) (4,419,085) (2,177,919) (1,774,650) (2,004,361)
Repayment of debt...... (25,460,192) (18,525,872) (4,207,118) (9,927,699) (14,536,422)
Payment of loan
acquisition fees...... (28,728) (299,978) (88,493) (586) (26,183)
(Increase) decrease in
due to/from
stockholders.......... (2,672,562) (1,673,052) 35,425 (874,508) (2,555,699)
Capital
contributions......... 37,514 155,887 170,406 -- --
Stockholders'
distributions......... (2,937,557) (4,166,875) (3,861,677) (1,268,795) (1,809,911)
------------ ------------ ------------ ----------- -----------
NET CASH PROVIDED BY
(USED IN) FINANCING
ACTIVITIES............. (21,535,013) 51,021,646 18,647,627 (11,211,348) (9,202,797)
------------ ------------ ------------ ----------- -----------
NET (DECREASE) INCREASE
IN CASH AND CASH
EQUIVALENTS............ (2,977,441) 2,474,397 201,691 746,038 (2,576,260)
CASH AND CASH
EQUIVALENTS, beginning
of year................ $ 4,015,527 $ 1,541,130 $ 1,339,439 $ 1,038,086 $ 4,015,527
------------ ------------ ------------ ----------- -----------
CASH AND CASH
EQUIVALENTS, end of
year................... $ 1,038,086 $ 4,015,527 $ 1,541,130 $ 1,784,124 $ 1,439,267
============ ============ ============ =========== ===========
SUPPLEMENTAL SCHEDULE OF
NONCASH INVESTING AND
FINANCIAL ACTIVITIES
Acquisition of
equipment in exchange
for capital lease
obligations........... $ 260,760 $ 7,121,669 $ 6,997,926 $ 174,541 $ 228,467
Goodwill related to
acquisitions.......... $ -- $ -- $ 1,897,761 $ -- $ --
Assets acquired from
purchase of
companies............. $ -- $ 13,165,000 $ 9,524,479 $ -- $ --
Liabilities assumed
from purchase of
companies............. $ -- $ 3,357,013 $ 3,151,101 $ -- $ --
============ ============ ============ =========== ===========
OTHER SUPPLEMENTAL
DISCLOSURES
Taxes paid............. $ 2,226,828 $ 315,814 $ 276,960 $ 73,505 $ 1,280,867
Interest paid.......... $ 11,116,164 $ 7,250,310 $ 3,568,958 $ 4,401,870 $ 6,572,411
============ ============ ============ =========== ===========
</TABLE>
See accompanying notes to combined financial statements.
F-51
<PAGE>
EQUIPMENT SUPPLY CO., INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
(INFORMATION AS OF JUNE 30, 1998 AND FOR THE SIX MONTHS ENDED
JUNE 30, 1998 AND 1997 IS UNAUDITED)
1. ORGANIZATION AND BASIS OF PRESENTATION
The combined financial statements include the accounts of Equipment Supply
Co., Inc. ("Equipment Supply") and its affiliated companies: High Reach Co.,
Inc. ("High Reach") and Rylan, Inc. ("Rylan") (collectively the "Company")
which have common ownership and activities. For financial reporting purposes,
Equipment Supply has been treated as the parent company and the purchaser of
both High Reach and Rylan during 1995. The 1995 acquisitions of the stock of
these companies were made by the stockholders of Equipment Supply.
The Company rents, sells and services aerial platform equipment throughout
the mid-Atlantic region of the United States. The nature of the Company's
business is such that short-term obligations are typically met by cash flow
generated from long-term assets. Consequently, consistent with industry
practice, the accompanying balance sheets are presented on an unclassified
basis.
All significant intercompany balances and transactions have been eliminated
in combination.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Interim Financial Statements
The combined balance sheet as of June 30, 1998 and the combined statements
of income, stockholders' equity and cash flows for the six months ended June
30, 1998 and 1997 are unaudited and have been prepared on the same basis as
the audited financial statements included herein. In the opinion of
management, such unaudited financial statements include all adjustments
necessary to present fairly the information set forth therein, which consists
solely of normal recurring adjustments. The results of operations for the
interim periods are not necessarily indicative of results for the full year.
CASH EQUIVALENTS
The Company considers all highly liquid instruments with a maturity of three
months or less when purchased to be cash equivalents.
MARKETABLE SECURITIES
Statement of Financial Accounting Standards No. 115, "Accounting for Certain
Debt and Equity Securities" requires investments in debt and equity securities
to be classified into one of three categories based on the Company's intent.
The Company has classified its investments in marketable securities as
available for sale which requires the Company to record these investments at
fair market value and record the unrealized gain or loss on the original
investment as a separate component of stockholders' equity. Such unrealized
gains or losses were not material in any period presented.
INVENTORIES
Inventories consisting of equipment and parts are stated at the lower of
average weighted cost or market.
DEPRECIATION AND AMORTIZATION
All equipment and property is stated at cost. Depreciation of rental
equipment is computed, using an estimated 5% residual value, by the straight-
line method at rates adequate to allocate the cost of rental equipment over
their estimated useful lives, ranging from five to ten years.
F-52
<PAGE>
EQUIPMENT SUPPLY CO., INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF JUNE 30, 1998 AND FOR THE SIX MONTHS ENDED
JUNE 30, 1998 AND 1997 IS UNAUDITED)
Depreciation of property and equipment and amortization of leasehold
improvements are computed by the straight-line method at rates adequate to
allocate the cost of applicable assets over their estimated useful lives.
Ordinary maintenance and repair costs are charged to operations as incurred.
DEFERRED FINANCING COSTS
Deferred financing costs, which are incurred by the Company in connection
with debt, are charged to operations over the life of the underlying
indebtedness and are included in goodwill and other intangible assets. The net
book value of deferred financing costs at December 31, 1997 and 1996 and June
30, 1998 is $369,421, $340,693 and $321,445, respectively.
INCOME TAXES
The Company adopted in 1995 the provisions of Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS 109"). SFAS
No. 109 requires a company to recognize deferred income tax liabilities and
assets for the expected future tax consequences of events that have been
recognized in a company's financial statements or tax returns. Under this
method, deferred income tax liabilities and assets are determined based on the
difference between the financial statement carrying amounts and tax bases of
assets and liabilities using enacted tax rates in effect in the years in which
the differences are expected to reverse.
For all periods presented, Equipment Supply has elected, with the consent of
its stockholders, to be taxed as an S Corporation for federal and certain
state reporting purposes. In lieu of federal and certain state corporation
income taxes, the stockholders are taxed on their proportionate share of the
Company's taxable income. Provision has been made for state income taxes for
those states not recognizing S Corporation status.
During 1998, Rylan elected, with the consent of its stockholders, to be
taxed as an S Corporation for federal and state income tax reporting purposes.
Consequently, all applicable federal and state deferred income taxes have been
reversed during the six months ended June 30, 1998. As a result, the effect on
the 1998 combined statement of income was to increase net income by
approximately $2.9 million.
During 1997, High Reach elected, with the consent of its stockholders, to be
taxed as an S Corporation for federal and state income tax reporting purposes.
Provision has been made for state income taxes for those states not
recognizing S Corporation status. A provision for federal and state income
taxes has been recorded for all periods through September 30, 1997. As of
October 1, 1997, all applicable federal and state deferred income taxes
approximating $81,000 have been reversed in accordance with SFAS 109 and have
been recorded in the statement of income.
ACQUISITIONS
High Reach
On April 1, 1995, the stockholders of Equipment Supply purchased all of the
capital stock of High Reach for an aggregate purchase price of approximately
$3.1 million, of which approximately $2.5 million was paid in cash with the
balance in the form of a note maturing no later than March 31, 1997, bearing
interest at 7% per annum.
F-53
<PAGE>
EQUIPMENT SUPPLY CO., INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF JUNE 30, 1998 AND FOR THE SIX MONTHS ENDED
JUNE 30, 1998 AND 1997 IS UNAUDITED)
The High Reach acquisition was accounted for using the purchase method of
accounting. Accordingly, the purchase price was allocated to the net assets
acquired based on their estimated fair values. In accordance with SFAS 109,
the Company recorded an additional increase to goodwill of approximately
$737,000 and a corresponding increase to a deferred income tax liability,
representing the difference between the financial and tax bases of certain
assets acquired. The goodwill is being amortized over fifteen years on a
straight-line basis.
The results of operations of High Reach have been included in the Company's
combined financials since the effective date of the acquisition. The
stockholders borrowed approximately $2.5 million from the Company and such
amounts have been recorded as part of the purchase price. Additionally, other
amounts paid by the stockholders in connection with the acquisition have been
treated as additional capital contributions and as part of the purchase price.
During 1995 and 1996, High Reach was combined using its fiscal year end of
September 30. In 1997, the Company reported the results of operations for High
Reach on a calendar year basis. Net income for High Reach's three month period
ended December 31, 1996 has been reflected as an adjustment to stockholders'
equity. No unusual trends or transactions were noted in this three month
period.
Rylan
On April 27, 1995, the stockholders of Equipment Supply purchased all of the
capital stock of Rylan for an aggregate cash purchase price of $4.8 million.
The Rylan acquisition was accounted for using the purchase method of
accounting. Accordingly, the purchase price was allocated to the net assets
acquired based on their estimated fair values. In accordance with SFAS 109,
the Company recorded an additional increase to goodwill of approximately $1.2
million and a corresponding increase to a deferred income tax liability,
representing the difference between the financial and tax bases of certain
assets acquired.
The results of operations of Rylan have been included in the Company's
combined financial statement since the effective date of the acquisition.
Total goodwill arising from the acquisition, in the amount of approximately
$1.9 million, is being amortized over fifteen years on a straight-line basis.
The stockholders financed the Rylan acquisition in the amount of $4.8
million by obtaining a term loan from a financial institution. Such debt has
been recorded on the Company's financial statements, as the Company has been
making the required principal and interest payments on behalf of the
stockholders and have guaranteed this debt (see Note 9).
Freestate
Effective May 1, 1996, Rylan acquired substantially all of the assets and
assumed certain liabilities of Freestate Industries, Inc. for approximately
$11.8 million in cash. Such amount included payments specified for covenants
not to compete for three key employees. The acquisition was accounted for
using the purchase method of accounting. Accordingly, the purchase price was
allocated to the net assets acquired based on their estimated fair values.
Total goodwill and other intangible assets, amounting to approximately
$2,000,000, are being amortized over a period ranging from five to fifteen
years on a straight-line basis. The results of operations of Freestate have
been included in the Company's combined financial statements since the
effective date of the acquisition.
F-54
<PAGE>
EQUIPMENT SUPPLY CO., INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF JUNE 30, 1998 AND FOR THE SIX MONTHS ENDED
JUNE 30, 1998 AND 1997 IS UNAUDITED)
The Company borrowed approximately $10.8 million to finance a portion of the
purchase price (see Note 9).
REVENUE RECOGNITION
The Company rents equipment to its customers under agreements not exceeding
one month, consequently the rental agreements are classified as operating
leases.
Revenues from rental leases are recognized over the term of the respective
agreements. Revenues from product sales are recognized when the product is
shipped. Revenue from equipment repairs is recognized at the time of service.
Revenues from maintenance contracts are recognized over the term of the
respective contracts as service is provided.
Amounts billed in advance are recorded as prebilled rentals which is
classified as deferred rental income on the combined balance sheet.
DEFERRED LEASING COSTS
The Company receives volume rebates for leasing and purchasing certain
equipment. The rebates related to operating leases are recognized as a
reduction in lease expense over the terms of the respective leases, generally
five years. Rebates related to purchased equipment are treated as a reduction
in the cost of equipment. The Company amortizes the costs of its leases on a
straight-line basis over the respective lease terms.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
LONG-LIVED ASSETS
The Company follows the provisions of Statement of Financial Accounting
Standards No. 121 ("SFAS 121") "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of." SFAS 121 establishes
accounting standards for the impairment of long-lived assets, certain
identifiable intangibles and goodwill related to those assets to be held and
used and for long-lived assets and certain identifiable intangibles to be
disposed of. The Company reviews the carrying values of its long-lived and
identifiable intangible assets for possible impairment whenever events or
changes in circumstances indicate that the carrying amount of the assets may
not be recoverable based on undiscounted estimated future operating cash
flows. As of December 31, 1997, the Company has determined that no impairment
has occurred.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board issued two new
disclosure standards which are effective for financial statements for periods
beginning after December 15, 1997.
F-55
<PAGE>
EQUIPMENT SUPPLY CO., INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF JUNE 30, 1998 AND FOR THE SIX MONTHS ENDED
JUNE 30, 1998 AND 1997 IS UNAUDITED)
Statement of Financial Accounting Standards (SFAS) No. 130, "Reporting
Comprehensive Income," establishes standards for reporting and display of
comprehensive income, its components and accumulated balances. Comprehensive
income is defined to include all changes in equity except those resulting from
investments by owners and distributions to owners. Among other disclosures,
SFAS No. 130 requires that all items that are required to be recognized under
current accounting standards as components of comprehensive income be reported
in a financial statement that is displayed with the same prominence as other
financial statements.
SFAS No. 131, "Disclosure about Segments of a Business Enterprise and
Related Information," which supersedes SFAS No. 14, "Financial Reporting for
Segments of a Business Enterprise," establishes standards for the way that
public enterprises report information about operating segments in annual
financial statements and requires reporting of selected information about
operating segments in interim financial statements issued to the public. It
also establishes standards for disclosures regarding products and services,
geographic areas and major customers. SFAS No. 131 defines operating segments
as components of an enterprise about which separate financial information is
available that is evaluated regularly by the chief operating decision maker in
deciding how to allocate resources and in assessing performance.
The Company believes that its operations compose a single segment and there
are no components of comprehensive income.
3. FINANCIAL INVESTMENTS AND CONCENTRATIONS OF CREDIT RISK
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of periodic temporary
investments of excess cash and trade receivables. The Company places its
temporary excess cash investments in high quality short-term money market
instruments and the carrying value approximates market value. A significant
portion of the Company's rental sales and equipment sales are to customers in
the construction industry and, as such, the Company is directly affected by
the well-being of that industry. However, the credit risk associated with
trade receivables is minimal due to the Company's large customer base,
geographical dispersion and ongoing control procedures which monitor the
credit worthiness of its customers.
4. DUE FROM STOCKHOLDERS
From time to time, the Company makes advances to its stockholders.
Generally, there are no formal repayment terms and the amounts are
noninterest-bearing.
5. RENTAL EQUIPMENT
Rental equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------- JUNE 30,
1997 1996 1998
------------ ------------ ------------
<S> <C> <C> <C>
Rental equipment................... $168,047,372 $156,891,144 $163,566,080
Less accumulated depreciation...... 45,892,484 29,547,946 51,948,388
------------ ------------ ------------
$122,154,888 $127,343,198 $111,617,692
============ ============ ============
</TABLE>
F-56
<PAGE>
EQUIPMENT SUPPLY CO., INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF JUNE 30, 1998 AND FOR THE SIX MONTHS ENDED
JUNE 30, 1998 AND 1997 IS UNAUDITED)
Depreciation expense amounted to $18,948,184, $14,385,916, $7,332,808,
$9,686,871 and $10,130,648 for the years ended December 31, 1997, 1996 and
1995 and the six months ended June 30, 1998 and 1997, respectively.
6. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------- JUNE 30,
1997 1996 1998 LIVES
----------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Shop equipment................. $ 834,355 $ 760,669 $ 525,492 5-7 years
Transportation equipment....... 9,134,757 6,887,232 8,008,297 5 years
Furniture and fixtures......... 1,288,479 962,474 1,071,448 5-7 year
Building and lease hold im-
provements.................... 635,895 590,132 701,146 15-39 years
----------- ---------- -----------
Total........................ 11,893,486 9,200,507 10,306,383
Less accumulated depreciation
and amortization.............. 5,344,708 3,799,232 5,039,173
----------- ---------- -----------
$ 6,548,778 $5,401,275 $ 5,267,210
=========== ========== ===========
</TABLE>
Depreciation and amortization amounted to $1,749,408, $1,180,285, $625,324,
$838,767 and $774,830 for the years ended December 31, 1997, 1996 and 1995 and
the six months ended June 30, 1998 and 1997, respectively.
7. CAPITAL LEASE OBLIGATIONS
Capitalized leased assets include machinery and transportation equipment.
Interest on the respective capital lease obligations range from 7.3% to 11.4%
at December 31, 1997 and 1996 and June 30, 1998.
Capital lease obligations, all of which are collateralized by the leased
equipment, consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------- JUNE 30,
1997 1996 1998
---------- ----------- ----------
<S> <C> <C> <C>
Various equipment capital lease obligations,
lease terms of 60 months with monthly lease
payments of $512 to $52,463 ending April
1999 to June 2001.......................... $6,451,715 $8,807,391 $5,290,680
Various vehicle capital lease obligations,
lease terms of 60 months with monthly lease
payments of $590 to $10,751 ending August
1998 to April 2002......................... 2,204,559 2,826,490 1,825,700
Various vehicle capital lease obligations
lease terms of 48 months with monthly lease
payments of $578 to $4,049 ending January
1999 to June 2000.......................... 184,962 290,008 124,747
---------- ----------- ----------
$8,841,236 $11,923,889 $7,241,127
========== =========== ==========
</TABLE>
F-57
<PAGE>
EQUIPMENT SUPPLY CO., INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF JUNE 30, 1998 AND FOR THE SIX MONTHS ENDED
JUNE 30, 1998 AND 1997 IS UNAUDITED)
The future minimum lease payments under capital leases, together with the
present value of the net minimum lease payments as of December 31, 1997 is as
follows:
<TABLE>
<CAPTION>
YEAR
ENDING
DECEMBER
31, AMOUNT
-------- -----------
<S> <C>
1998........................................................ $ 3,628,913
1999........................................................ 3,416,347
2000........................................................ 2,478,665
2001........................................................ 845,860
2002........................................................ 9,965
-----------
Total minimum lease payments................................. 10,379,750
Less amount representing interest............................ 1,538,514
-----------
Capital lease obligations.................................... $ 8,841,236
===========
</TABLE>
The net book value of equipment under capital leases at December 31, 1997
and 1996 and June 30, 1998 amounted to $11,165,421, $13,800,349 and
$9,990,153, respectively.
8. NOTES PAYABLE, BANK
At December 31, 1997 and June 30, 1998, the Company had a line of credit
with a bank for $2,500,000. Borrowings under the lines bear interest at a rate
of 1/2% above the bank's prime rate (9%, at December 31, 1997 and June 30,
1998) and are secured by certain Company assets. At December 31, 1997 and June
30, 1998, $-0- and $1,993,000, respectively, was outstanding under this line.
F-58
<PAGE>
EQUIPMENT SUPPLY CO., INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF JUNE 30, 1998 AND FOR THE SIX MONTHS ENDED
JUNE 30, 1998 AND 1997 IS UNAUDITED)
9. DEBT
Debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------ JUNE 30,
1997 1996 1998
----------- ------------ -----------
<S> <C> <C> <C>
Notes payable to banks and finance compa-
nies with fixed interest rates ranging
from prime plus .5% to prime plus 2% (9%
and 10.5% at December 31, 1997) due in
monthly installments ranging from $546 to
$211,242 ending in September 1999 to De-
cember 2001 including interest. Collater-
alized either by a specific security in-
terest in equipment, a general lien on
equipment or by all assets owned or here-
after acquired by the Company............ $51,164,326 $ 64,098,599 $46,140,944
Term note payable to a finance company
with interest of 9.93% due in monthly in-
stallments of $221,314, including inter-
est, through April 2002. Collateralized
by a specific security interest in equip-
ment and guaranteed by the President of
the Company. (During 1998, the balance of
the loan was converted to and is included
in the note payable to a finance company
noted below.)............................ 9,310,102 -- --
Note payable, bank, in connection with
Rylan acquisition, due in monthly in-
stallments of $99,519, including interest
at 9.25%: collateralized by certain as-
sets of Rylan and guaranteed by the
stockholders and the Company; final pay-
ment due July 2000....................... 391,362 2,041,928 --
Note payable, sellers in connection with
the High Reach acquisition, due in
monthly installments of $10,213 plus in-
terest at 7% with final payment of
$377,844 made during March 1997.......... -- 408,523 --
Note payable, bank (see Note 8).......... -- -- 1,993,000
Note payable to a finance company with an
interest rate of LIBOR plus 3.25% (9.41%
at December 31, 1997) due in varying
monthly installments. Collateralized by a
specific security interest in equipment
and guaranteed by the President of the
Company.................................. 34,004,722 40,911,729 39,443,759
----------- ------------ -----------
$94,870,512 $107,460,779 $87,577,703
=========== ============ ===========
</TABLE>
F-59
<PAGE>
EQUIPMENT SUPPLY CO., INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF JUNE 30, 1998 AND FOR THE SIX MONTHS ENDED
JUNE 30, 1998 AND 1997 IS UNAUDITED)
At December 31, 1997, the aggregate maturities of debt are as follows:
<TABLE>
<CAPTION>
YEARS ENDING
DECEMBER 31, AMOUNT
------------ ------------
<S> <C>
1998.......................................................... $ 26,007,808
1999.......................................................... 25,586,393
2000.......................................................... 23,492,367
2001.......................................................... 18,116,590
2002.......................................................... 1,208,650
Thereafter.................................................... 458,704
------------
$ 94,870,512
============
</TABLE>
Certain agreements require the Company to maintain specified minimum net
worth and working capital and certain financial ratios. At December 31, 1997,
the Company was in violation of certain covenants, including obtaining a
specified level of minimum tangible net worth and a debt service coverage
ratio.
From the proceeds of the sale, more fully described in Note 15, the Company
repaid substantially all of its debt.
10. INCOME TAXES
Deferred income taxes reflect the net tax effect of differences between the
carrying amounts of assets and liabilities for financial reporting purposes
and the amounts used for income tax purposes.
Deferred income taxes relate primarily to depreciation and amortization,
differences in the accounting treatment of capital leases and bases of certain
assets of acquired businesses.
The components of income tax expense are summarized as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, JUNE 30,
--------------------------------- ---------------------
1997 1996 1995 1998 1997
---------- ---------- ---------- ----------- --------
<S> <C> <C> <C> <C> <C>
CURRENT INCOME TAXES
Federal............... $ 482,568 $ 928,915 $ 277,900 $ -- $232,612
State................. 871,648 401,011 277,778 307,138 470,532
---------- ---------- ---------- ----------- --------
TOTAL CURRENT INCOME
TAX EXPENSE........ 1,354,216 1,329,926 555,678 307,138 703,144
---------- ---------- ---------- ----------- --------
DEFERRED INCOME TAXES
(BENEFIT)
Federal............... 393,018 133,507 452,061 -- 311,611
State................. (424,092) 610,184 509,800 (20,000) (439,382)
Reversal of deferred
income taxes relating
to sub S elections... (81,000) -- -- (2,924,822) --
---------- ---------- ---------- ----------- --------
TOTAL DEFERRED
INCOME TAX EXPENSE
(BENEFIT).......... (112,074) 743,691 961,861 (2,944,822) (127,771)
---------- ---------- ---------- ----------- --------
TOTAL INCOME TAX
EXPENSE (BENEFIT).. $1,242,142 $2,073,617 $1,517,539 $(2,637,684) $575,373
========== ========== ========== =========== ========
</TABLE>
F-60
<PAGE>
EQUIPMENT SUPPLY CO., INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF JUNE 30, 1998 AND FOR THE SIX MONTHS ENDED
JUNE 30, 1998 AND 1997 IS UNAUDITED)
Differences which give rise to a significant portion of deferred income
taxes are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
----------------------- -----------
1997 1996 1998
----------- ----------- -----------
<S> <C> <C> <C>
DEFERRED INCOME TAX (ASSETS)
LIABILITIES
Depreciation and amortization...... $ 2,256,399 $ 2,393,302 $ 1,072,381
Reserves and allowances............ (269,491) (294,300) (132,534)
Difference in basis of certain
acquired assets................... 1,897,761 1,897,761 --
----------- ----------- -----------
$ 3,884,669 $ 3,996,763 $ 939,847
=========== =========== ===========
</TABLE>
The differences between the income tax provision and the tax that would have
resulted from applying federal statutory rates on income before taxes is
primarily due to Equipment Supply being taxed as an S Corporation and High
Reach being taxed as an S Corporation for the three months ended December 31,
1997.
The effect of Rylan's conversion to an S Corporation in 1998 was for the
Company to recognize a deferred income tax benefit of approximately $2.9
million.
11. RETIREMENT PLANS
The Company participates in several defined contribution plans covering
substantially all nonunion employees. The Plans allow matching contributions
based on a percentage of the employees' contributions. The Company
contributions for the years ended December 31, 1997, 1996 and 1995 and the six
months ended June 30, 1998 and 1997 amounted to $139,572, $96,931, $30,821,
$91,351 and $70,393, respectively.
Additionally, the Company participates in a multi-employer plan that
provides defined contributions to the Company's union employees. For
collectively bargained, multi-employer pension plans, contributions are made
in accordance with negotiated labor contracts and generally are based on the
number of hours worked. With the passage of the Multi-Employer Pension Plan
Amendments Act of 1980 (the "Act"), the Company may, under certain
circumstances, become subject to liabilities in excess of contributions made
under collective bargaining agreements. Generally, these liabilities are
contingent upon the termination, withdrawal or partial withdrawal from the
plans. Company contributions for the years ended December 31, 1997, 1996 and
1995 and the six months ended June 30, 1998 and 1997 amounted to $96,737,
$75,930, $62,372, $57,991 and $43,609, respectively.
On January 1, 1998, the Company terminated its defined contribution plans
for Equipment Supply, High Reach and Rylan and established a combined defined
contribution plan covering substantially all nonunion employees. The plan
allows employees to make voluntary contributions processed through payroll
deductions.
12. COMMITMENTS AND CONTINGENCIES AND RELATED PARTY TRANSACTIONS
The Company leases various facilities under lease agreements, including
those with related parties. Some of these leases require the Company to pay
property taxes and other related costs.
F-61
<PAGE>
EQUIPMENT SUPPLY CO., INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF JUNE 30, 1998 AND FOR THE SIX MONTHS ENDED
JUNE 30, 1998 AND 1997 IS UNAUDITED)
Future minimum lease payments, by year, and in the aggregate for
noncancelable operating leases, including those with related parties, with
initial or remaining terms of one year or more are as follows at December 31,
1997:
<TABLE>
<CAPTION>
FACILITIES LEASES
YEAR ENDED (SUBSTANTIALLY WITH EQUIPMENT TOTAL OPERATING
DECEMBER 31, RELATED PARTIES) LEASES LEASES
------------ ------------------- ----------- ---------------
<S> <C> <C> <C>
1998....................... $ 2,120,949 $11,035,372 $13,156,321
1999....................... 1,938,559 10,001,175 11,939,734
2000....................... 1,921,804 7,768,161 9,689,965
2001....................... 1,917,196 6,567,617 8,484,813
2002....................... 1,912,170 4,870,393 6,782,563
Thereafter................. 876,000 -- 876,000
----------- ----------- -----------
$10,686,678 $40,242,718 $50,929,396
----------- ----------- -----------
</TABLE>
Rent expense under noncancelable operating leases for the years ended
December 31, 1997, 1996 and 1995 and the six months ended June 30, 1998 and
1997 amounted to $10,210,657, $6,674,413, $1,179,277, $7,886,107 and
$2,405,348, respectively.
The following related party transactions including rent expense is
summarized as follows:
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
------------------------- -----------------
1997 1996 1995 1998 1997
-------- -------- ------- -------- --------
<S> <C> <C> <C> <C> <C>
Rent expense................... $963,600 $756,000 $18,168 $748,200 $515,500
Other expense.................. 79,190 109,173 58,689 80,100 59,300
</TABLE>
The Company has guaranteed a personal loan of the stockholders, which is
included as a liability in the financial statements. The loan proceeds were
used to purchase Rylan (see Note 9).
From time to time, the Company is a defendant in various lawsuits incident
to the ordinary course of business. It is not possible to determine with any
precision the probable outcome or the amount of liability, if any, under these
lawsuits; however, in the opinion of the Company and its counsel, the
disposition of these lawsuits will not have a material adverse effect on the
Company's financial position, results of operations, or cash flows.
13. FINANCIAL INSTRUMENTS
The carrying amounts reported in the balance sheet for accounts receivable,
accounts payable and other liabilities approximate fair value due to the
immediate to short-term maturity of these financial instruments. The fair
value of debt approximates cost as interest rates approximate market.
14. SUPPLIER CONCENTRATION
During 1997, two suppliers accounted for approximately 73% of total
purchases and leased equipment costs. During 1996, three suppliers (of which
two were the same in 1997) accounted for approximately 84% of total purchases
and lease costs. During 1995, three suppliers (of which two were the same in
1996 and 1997) accounted for approximately 68% of total purchases and lease
costs.
F-62
<PAGE>
EQUIPMENT SUPPLY CO., INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF JUNE 30, 1998 AND FOR THE SIX MONTHS ENDED
JUNE 30, 1998 AND 1997 IS UNAUDITED)
During 1997, volume activities with one vendor generated approximately $2
million in marketing rebates. Such amount has been recorded as other income.
15. SUBSEQUENT EVENT
Sale of Business Operations
Subsequent to December 31, 1997, the Company sold its principal business
operations, a substantial portion of its net assets and certain stock for
approximately $225 million.
Additionally, the Company anticipates paying approximately $1.5 million in
bonuses to certain of its employees.
F-63
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Stockholder of Access Rentals, Inc.
We have audited the accompanying consolidated balance sheet of Access
Rentals, Inc., and subsidiary as of March 31, 1996, and the related
consolidated statements of income, stockholders' equity and cash flows for the
years ended September 30, 1994 and 1995, and the six months ended March 31,
1996. We have also audited the combined balance sheet of Access Rentals, Inc.,
and subsidiary and affiliate as of March 31, 1997, and the related combined
statements of income, stockholders' equity and cash flows for the year then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated and combined financial statements referred
to above present fairly, in all material respects, the financial position of
Access Rentals, Inc., and subsidiary and affiliate as of March 31, 1996 and
1997, and results of their operations and cash flows for the years ended
September 30, 1994 and 1995, the six months ended March 31, 1996 and the year
ended March 31, 1997 in conformity with generally accepted accounting
principles.
/s/ Battaglia, Andrews & Moag, P.C.
Batavia, New York
January 22, 1998
F-64
<PAGE>
ACCESS RENTALS, INC. AND SUBSIDIARY AND AFFILIATE
CONSOLIDATED AND COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, MARCH 31, DECEMBER
1996 1997 31, 1997
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
------
Cash.................................... $ 284,228 $ 399,196 $ 362,817
Accounts receivable, net................ 3,319,859 5,173,046 9,482,265
Unbilled receivables.................... -- -- 1,075,209
Inventory............................... 2,013,125 1,835,687 2,511,326
Rental equipment, net................... 30,865,058 49,551,170 63,636,491
Property and equipment, net............. 2,625,564 4,599,576 5,386,167
Due from related party.................. 1,121,814 1,860,102 2,071,971
Prepaid expenses and other assets....... 1,221,482 1,896,518 1,286,100
Deferred tax asset...................... 458,908 937,585 576,730
Intangibles............................. -- 1,375,005 2,212,368
----------- ----------- -----------
Total assets........................ $41,910,038 $67,627,885 $88,601,444
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Liabilities:
Accounts payable, accrued expenses and
other liabilities.................... $ 3,128,407 $ 3,601,707 $ 7,160,756
Deferred tax liability................ 4,675,199 6,350,541 7,821,732
Debt.................................. 19,109,094 39,782,237 51,505,595
----------- ----------- -----------
Total liabilities................... 26,912,700 49,734,485 66,488,083
Commitments and contingencies
Stockholders' equity:
Common stock, $1 par value; 10,000
shares authorized, 300, 300 and
10,000 shares issued and outstanding
for each respective year............. 300 300 10,000
Additional paid-in capital............ 4,500 4,500 4,500
Note receivable from stockholder...... (420,040) (515,606) (1,105,994)
Retained earnings..................... 15,426,922 18,411,049 23,278,389
Equity adjustment for foreign currency
translation.......................... (14,344) (6,843) (73,534)
----------- ----------- -----------
Total stockholders' equity.......... 14,997,338 17,893,400 22,113,361
----------- ----------- -----------
Total liabilities and stockholders'
equity............................. $41,910,038 $67,627,885 $88,601,444
=========== =========== ===========
</TABLE>
See accompanying notes.
F-65
<PAGE>
ACCESS RENTALS, INC. AND SUBSIDIARY AND AFFILIATE
CONSOLIDATED AND COMBINED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS NINE MONTHS ENDED
SEPTEMBER 30, ENDED YEAR ENDED DECEMBER 31,
------------------------ MARCH 31, MARCH 31, ------------------------
1994 1995 1996 1997 1996 1997
----------- ----------- ----------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Equipment rentals...... $15,804,754 $18,382,243 $10,405,814 $30,615,602 $21,391,478 $33,092,299
Sales of equipment and
parts................. 4,731,889 9,426,936 3,629,373 8,963,128 9,279,272 10,258,882
----------- ----------- ----------- ----------- ----------- -----------
Total revenues......... 20,536,643 27,809,179 14,035,187 39,578,730 30,670,750 43,351,181
Cost of revenues:
Cost of rentals
excluding
depreciation.......... 4,867,059 6,129,103 3,870,961 9,937,663 7,341,151 9,819,143
Depreciation, equipment
rentals............... 2,825,381 3,405,797 2,139,726 6,509,012 4,701,737 6,672,741
Cost of equipment and
parts................. 3,468,073 7,115,826 2,703,494 6,494,156 5,200,774 7,568,450
----------- ----------- ----------- ----------- ----------- -----------
Total cost of
revenues.............. 11,160,513 16,650,726 8,714,181 22,940,831 17,243,662 24,060,334
----------- ----------- ----------- ----------- ----------- -----------
Gross profit............ 9,376,130 11,158,453 5,321,006 16,637,899 13,427,088 19,290,847
Selling, general and
administrative
expenses............... 4,414,362 5,394,286 2,329,997 8,747,215 6,261,115 7,953,627
Non-rental
depreciation........... 489,084 532,659 283,206 946,382 658,899 1,067,156
----------- ----------- ----------- ----------- ----------- -----------
Operating income....... 4,472,684 5,231,508 2,707,803 6,944,302 6,507,074 10,270,064
Interest expense........ 673,532 1,147,616 682,394 2,604,066 1,821,607 2,918,100
Other (income), net..... (220,289) (250,421) (295,443) (605,215) (363,828) (567,759)
----------- ----------- ----------- ----------- ----------- -----------
Income before provision
for income taxes and
cumulative effect of
change in accounting
principle............. 4,019,441 4,334,313 2,320,852 4,945,451 5,049,295 7,919,723
Provision for income
taxes.................. 1,661,994 1,819,455 1,122,851 1,786,724 2,016,066 2,974,033
----------- ----------- ----------- ----------- ----------- -----------
Income before
cumulative effect of
change in accounting
principle............. 2,357,447 2,514,858 1,198,001 3,158,727 3,033,229 4,945,690
Cumulative effect of
change in method of
accounting for taxes... 46,325 -- -- -- -- --
----------- ----------- ----------- ----------- ----------- -----------
Net income............. $ 2,403,772 $ 2,514,858 $ 1,198,001 $ 3,158,727 $ 3,033,229 $ 4,945,690
=========== =========== =========== =========== =========== ===========
</TABLE>
See accompanying notes.
F-66
<PAGE>
ACCESS RENTALS, INC. AND SUBSIDIARY AND AFFILIATE
CONSOLIDATED AND COMBINED STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
NOTE
COMMON STOCK ADDITIONAL RECEIVABLE FOREIGN
-------------- PAID-IN FROM TREASURY RETAINED CURRENCY
SHARES AMOUNT CAPITAL STOCKHOLDER STOCK EARNINGS TRANSLATION
------ ------- ---------- ----------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at October 1,
1993................... 6 $ 4,800 $ -- $ (128,069) $(200,000) $ 9,775,310 $ --
Prior period
adjustment............ (265,019)
------ ------- ------ ----------- --------- ----------- --------
Balance, October 1, as
restated............... 6 4,800 -- (128,069) (200,000) 9,510,291 --
Retroactive retirement
of treasury stock..... 200,000 (200,000)
Retroactive effect of
stock split........... 294 (4,500) 4,500
Advances on note
receivable from
stockholder, net...... (199,179)
Net income............. 2,403,772
------ ------- ------ ----------- --------- ----------- --------
Balance at September 30,
1994................... 300 300 4,500 (327,248) -- 11,714,063 --
Advances on note
receivable from
stockholder, net...... (44,180)
Net income............. 2,514,858 (5,557)
------ ------- ------ ----------- --------- ----------- --------
Balance at September 30,
1995................... 300 300 4,500 (371,428) -- 14,228,921 (5,557)
Advances on note
receivable from
stockholder, net...... (48,612)
Net income............. 1,198,001 (8,787)
------ ------- ------ ----------- --------- ----------- --------
Balance at March 31,
1996................... 300 300 4,500 (420,040) -- 15,426,922 (14,344)
Advances on note
receivable from
stockholder, net...... (105,566)
Affiliate owner
contributions......... 10,000
Affiliate owner
distributions......... (174,600)
Net income............. 3,158,727 7,501
------ ------- ------ ----------- --------- ----------- --------
Balance at March 31,
1997................... 300 300 4,500 (515,606) -- 18,411,049 (6,843)
Issuance of common
stock (unaudited)..... 9,700 9,700 (9,700)
Advances on note
receivable from
stockholder, net
(unaudited)........... (590,388)
Affiliate owner
distributions
(unaudited)........... (68,650)
Net income
(unaudited)........... 4,945,690 (66,691)
------ ------- ------ ----------- --------- ----------- --------
Balance at December 31,
1997 (unaudited)....... 10,000 $10,000 $4,500 $(1,105,994) $ -- $23,278,389 $(73,534)
====== ======= ====== =========== ========= =========== ========
</TABLE>
See accompanying notes.
F-67
<PAGE>
ACCESS RENTALS, INC. AND SUBSIDIARY AND AFFILIATE
CONSOLIDATED AND COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
SEPTEMBER 30, SIX MONTHS YEAR ENDED DECEMBER 31,
------------------------ ENDED MARCH MARCH 31, --------------------------
1994 1995 31, 1996 1997 1996 1997
----------- ----------- ----------- ------------ ------------ ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
CASH FLOWS FROM
OPERATING ACTIVITIES:
Net income............. $ 2,403,772 $ 2,514,858 $ 1,198,001 $ 3,158,727 $ 3,033,229 $ 4,945,690
Adjustments to
reconcile net income
to net cash provided
by operating
activities:
Depreciation and
amortization.......... 3,314,465 3,938,456 2,422,932 7,583,689 5,446,164 7,898,802
Deferred income
taxes................. 672,080 676,782 667,412 1,151,456 1,048,873 1,835,040
Gain on sales of
equipment............. (778,327) (1,274,170) (533,974) (1,543,192) (1,064,927) (1,767,358)
Cumulative effect of
change in method of
accounting for income
taxes................. (46,325) -- -- -- -- --
Change in assets and
liabilities:
Increase (decrease)
in:
Accounts receivable,
net................. (1,163,341) (43,024) 670,789 (1,853,187) (3,004,185) (4,309,219)
Unbilled
receivables......... -- -- -- -- -- (1,075,209)
Inventory............ (91,367) (357,333) (741,329) 177,438 (393,457) (675,639)
Prepaid expenses and
other assets........ (740,966) (92,290) 179,547 (584,753) 111,402 560,606
Increase (decrease)
in:
Accounts payable,
accrued expenses and
other liabilities... 213,105 949,842 402,186 473,300 129,992 3,559,049
----------- ----------- ----------- ------------ ------------ ------------
Total adjustments... 1,379,324 3,798,263 3,067,563 5,404,751 2,273,862 6,026,072
Net cash provided by
operating
activities......... 3,783,096 6,313,121 4,265,564 8,563,478 5,307,091 10,971,762
CASH FLOWS FROM
INVESTING ACTIVITIES:
Proceeds from the sale
of property and
equipment............. 2,715,240 4,498,860 3,511,441 5,223,214 3,662,918 6,076,640
Purchase of property
and equipment......... (2,497,803) (4,978,090) (3,789,714) (3,146,679) (333,516) (5,572,825)
Advances on loan
receivable--
stockholder........... (304,436) (248,462) (99,555) (389,594) (293,310) (697,153)
Repayments on loan
receivable--
stockholder........... 105,257 204,282 50,943 284,028 158,829 106,765
Advances on loan
receivable--related
party................. (13,000) -- (531,466) (759,690) (358,798) (246,543)
Repayments on loan
receivable--related
party................. 10,174 7,128 3,673 21,402 15,401 34,674
Advances on note
receivable............ -- (48,322) -- (77,851) -- --
Repayments on note
receivable............ (126,668) 3,283 2,554 6,255 4,632 31,128
Acquisition of
subsidiary............ -- (866,700) -- -- -- --
Payments for
intangibles........... -- -- -- (1,521,984) (1,521,984) (977,583)
----------- ----------- ----------- ------------ ------------ ------------
Net cash provided by
(used by) investing
activities.......... (111,236) (1,428,021) (852,124) (360,899) 1,334,172 (1,244,897)
CASH FLOWS FROM
FINANCING ACTIVITIES:
Affiliate owner
distributions......... -- -- -- (174,600) -- (68,650)
Affiliate owner
contributions......... -- -- -- 10,000 10,000 --
Borrowings on debt
obligations........... 161,297 736,330 2,083,097 23,048,203 16,018,625 22,959,059
Principal payments on
debt obligations...... (3,932,202) (5,601,158) (5,234,451) (30,978,715) (22,599,866) (32,586,962)
----------- ----------- ----------- ------------ ------------ ------------
Net cash used by
financing
activities.......... (3,770,905) (4,864,828) (3,151,354) (8,095,112) (6,571,241) (9,696,553)
Equity translation...... -- (5,557) (8,787) 7,501 7,569 (66,691)
----------- ----------- ----------- ------------ ------------ ------------
Net increase (decrease)
in cash................ (99,045) 14,715 253,299 114,968 77,591 (36,379)
CASH--BEGINNING OF
PERIOD................. 115,259 16,214 30,929 284,228 284,228 399,196
----------- ----------- ----------- ------------ ------------ ------------
CASH--END OF PERIOD..... $ 16,214 $ 30,929 $ 284,228 $ 399,196 $ 361,819 $ 362,817
=========== =========== =========== ============ ============ ============
</TABLE>
See accompanying notes.
F-68
<PAGE>
ACCESS RENTALS, INC. AND SUBSIDIARY AND AFFILIATE
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED SEPTEMBER 30, 1994 AND 1995, AND AS OF AND FOR THE SIX
MONTHS ENDED
MARCH 31, 1996 AND AS OF AND FOR THE YEAR ENDED MARCH 31, 1997
(THE INFORMATION AS OF DECEMBER 31, 1997 AND FOR THE NINE MONTHS ENDED
DECEMBER 31, 1996 AND 1997 IS UNAUDITED)
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION AND COMBINATION
The accompanying financial statements include the financial statements of
Access Rentals, Inc. (the "Parent"), Access Lift Equipment, Inc. (the
"Subsidiary") which was acquired in February 1995 and Reinhart Leasing LLC
(the "Affiliate"). The Affiliate, which has common ownership to the Parent,
was formed on June 26, 1996.
The accompanying financial statements include the financial statements of
the Parent for the years ended September 30, 1994 and 1995, as of and for the
six months ended March 31, 1996, as of and for the year ended March 31, 1997
and as of December 31, 1997 and for the nine months ended December 31, 1996
and 1997 and the financial statements of the Subsidiary for the seven months
ended September 30, 1995, as of and for the three months ended December 31,
1995 (included in the financial statements for the six months ended March 31,
1996), as of and for the year ended December 31, 1996 (included in the
financial statements for the year ended March 31, 1997) and the nine months
ended December 31, 1996 and 1997. The consolidated financial statements have
been combined with the financial statements of the Affiliate for the six
months ended December 31, 1996 (included in the financial statements for the
nine months ended December 31, 1996) as of and for the nine months ended March
31, 1997 and as of and for the nine months ended December 31, 1997. All
material intercompany transactions and balances have been eliminated in
consolidation and combination.
BUSINESS
Access Rentals, Inc. and Subsidiary (the Company) rents, sells and repairs
aerial personnel lift equipment primarily to companies in the manufacturing
and construction industries. Sales and rentals primarily occur in areas where
the Company maintains offices, such as the states of New York, Minnesota,
Tennessee, Indiana, New Jersey, Pennsylvania, Connecticut, South Carolina,
Florida, Washington and in and around Toronto, Canada. The nature of the
Company's business is such that short-term obligations are typically met by
cash flow generated from long-term assets. Consequently, consistent with
industry practice, the balance sheet is presented on an unclassified basis.
Reinhart Leasing, LLC rents and sells aerial personnel lift equipment solely
to Access Rentals, Inc.
INTERIM FINANCIAL STATEMENTS
The accompanying balance sheet at December 31, 1997, and the statements of
income, stockholders' equity and cash flows for the nine month periods ended
December 31, 1996 and 1997 are unaudited and have been prepared on the same
basis as the audited financial statements included herein. In the opinion of
management, such unaudited financial statements include all adjustments
necessary to present fairly the information set forth therein, which consists
solely of normal recurring adjustments. The results of operations for such
interim periods are not necessarily indicative of results for the full year.
F-69
<PAGE>
ACCESS RENTALS, INC. AND SUBSIDIARY AND AFFILIATE
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
ACCOUNTS RECEIVABLE
It is the Company's policy to present accounts receivable net of an
allowance for uncollectible accounts. At March 31, 1996 and 1997 and December
31, 1997, the balance of the allowance for uncollectible accounts amounted to
$103,028, $228,885 and $380,000, respectively.
INVENTORY
Inventory consists of equipment and vehicles purchased for resale and
equipment parts purchased for repairs and resale. Equipment is valued at the
lower of cost or market, based on specific identification, and parts are
valued using the average cost method.
Inventory amounted to:
<TABLE>
<CAPTION>
MARCH 31,
----------------------- DECEMBER
1996 1997 31, 1997
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Equipment for resale.................. $ 1,371,741 $ 368,723 $ 842,295
Parts................................. 641,384 1,466,964 1,669,031
----------- ----------- -----------
Total............................... $ 2,013,125 $ 1,835,687 $ 2,511,326
=========== =========== ===========
</TABLE>
RENTAL EQUIPMENT
Rental equipment is recorded at cost. Depreciation for rental equipment is
computed using the straight-line method over an estimated six-year useful life
with a 10% salvage value.
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost and is being depreciated using the
straight-line and declining balance methods over the estimated useful lives of
the respective assets.
The cost of normal maintenance and repairs is charged to expense as
incurred, whereas expenditures which materially extend property lives are
capitalized. When depreciable property is retired or otherwise disposed of,
the related cost and accumulated depreciation are removed from the accounts
and any gain or loss is reflected in income.
RENTAL REVENUE
Rental revenue is recorded as earned under the operating method.
ADVERTISING COSTS
The Company advertises primarily through trade journals, trade associations
and phone directories. All advertising costs are expensed as incurred.
Advertising expenses amounted to approximately $7,706, $11,349, $6,717,
$10,395, $6,454 and $26,982, for the years ended September 30, 1994 and 1995,
six months ended March 31, 1996, year ended March 31, 1997, and nine months
ended December 31, 1996 and 1997, respectively.
F-70
<PAGE>
ACCESS RENTALS, INC. AND SUBSIDIARY AND AFFILIATE
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
OTHER ASSETS/AMORTIZATION
During the year ended March 31, 1997 and the nine months ended December 31,
1997, the Company acquired assets of two companies. The acquisitions resulted
in goodwill and covenants not-to-compete amounting to approximately $1,777,500
and $700,000, respectively, which are being amortized using the straight-line
method over 15 years and 5 years, respectively. Total amortization expense
amounted to $128,295, $85,528 and $158,905 for the year ended March 31, 1997
and the nine months ended December 31, 1996 and 1997, respectively.
INCOME TAXES
The provision for income tax is based on earnings reported for financial
statement purposes, adjusted for transactions that do not enter into the
computation of income taxes payable. The Parent, Subsidiary and Affiliate file
separate tax returns. The Parent files tax returns in the United States and
the Subsidiary files tax returns in Canada. The Affiliate is a limited
liability company taxed as a partnership; therefore the members are taxed
individually on the income of the Affiliate and a provision for taxes has not
been made in the financial statements.
CONCENTRATION OF CREDIT RISK
Credit is granted to substantially all of the Parent's customers throughout
the United States and the Subsidiary's customers throughout Canada. Management
feels that adequate reserves for potential credit losses are maintained.
FOREIGN CURRENCY TRANSLATION
The Company conducts business through a subsidiary located in Canada. The
Company regards the local currency of the subsidiary to be its functional
currency; consequently, translation gains and losses of the foreign subsidiary
are accumulated and reported as a separate component of stockholders' equity.
Transaction gains and losses that arise from exchange rate fluctuations on the
transactions denominated in a currency other than the local functional
currency are included in the results of operations.
USE OF ESTIMATES IN PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions. This affects the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements, as well as the reported amounts of revenues and expenses during
the reporting periods. Actual results could differ from those estimates.
NOTE 2--RENTAL EQUIPMENT
RENTAL EQUIPMENT
Rental equipment and related accumulated depreciation consisted of the
following:
<TABLE>
<CAPTION>
MARCH 31,
----------------------- DECEMBER
1996 1997 31, 1997
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Rental equipment........................... $43,896,291 $66,007,890 $84,098,558
Less accumulated depreciation.............. 13,031,233 16,456,720 20,462,067
----------- ----------- -----------
Rental equipment, net...................... $30,865,058 $49,551,170 $63,636,491
=========== =========== ===========
</TABLE>
F-71
<PAGE>
ACCESS RENTALS, INC. AND SUBSIDIARY AND AFFILIATE
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
PROPERTY AND EQUIPMENT
Property and equipment and related accumulated depreciation consisted of the
following:
<TABLE>
<CAPTION>
MARCH 31,
--------------------- DECEMBER 31,
1996 1997 1997
---------- ---------- ------------
(UNAUDITED)
<S> <C> <C> <C>
Land......................................... $ 182,969 $ 182,969 $ 182,969
Buildings and improvements................... 949,741 1,346,619 1,779,975
Office and shop equipment.................... 833,209 1,341,605 1,387,020
Transportation equipment..................... 2,573,492 4,425,156 5,393,695
Less accumulated depreciation................ 1,913,847 2,696,773 3,357,492
---------- ---------- ----------
Property and equipment, net.................. $2,625,564 $4,599,576 $5,386,167
========== ========== ==========
</TABLE>
NOTE 3--NET INVESTMENT IN SALES-TYPE LEASES
The Company leases some of its rental equipment to customers under sales-type
leases. The following summarizes the net investment in sales-type leases which
are included in prepaid and other assets on the balance sheet:
<TABLE>
<CAPTION>
MARCH 31,
------------------- DECEMBER 31,
1996 1997 1997
--------- --------- ------------
(UNAUDITED)
<S> <C> <C> <C>
Total minimum lease payments to be received... $ 418,679 $ 573,127 $ 716,961
Less unearned interest income................. 26,950 38,773 39,627
--------- --------- ---------
Net investment in sales-type leases........... $ 391,729 $ 534,354 $ 677,334
========= ========= =========
</TABLE>
F-72
<PAGE>
ACCESS RENTALS, INC. AND SUBSIDIARY AND AFFILIATE
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE 4--DEBT
Debt consists of the following:
<TABLE>
<CAPTION>
MARCH 31,
----------------------- DECEMBER 31,
1996 1997 1997
----------- ----------- ------------
(UNAUDITED)
<S> <C> <C> <C>
Lines-of-credit.......................... $ 2,130,195 $ 3,788,341 $ 3,828,370
Present value of capital lease
obligations............................. 3,436,191 8,465,249 16,104,886
Various installment obligations
collateralized by rental and
transportation equipment. These notes
bear interest ranging from 6%-9.8%, with
repayment periods ranging from two to
five years.............................. 12,030,127 18,913,002 23,965,117
Term loan payable to a bank, monthly
payments of $50,500 including interest
at 7.84%, maturing July, 2006.
Collateralized by rental equipment...... 270,413 2,217,572 1,887,211
Term loan payable to a bank, requiring
monthly principle payments of $79,511,
plus interest at the prime rate plus
1.75%, or the sum of the LIBOR on the
request day plus 1.75% (7.3125% at
March 31, 1997), maturing July 2002. The
loan is collateralized by rental
equipment of the Affiliate.............. -- 5,088,735 4,325,469
Term loan payable to a bank, quarterly
principal payments of $46,021, plus
interest at 6%, maturing July 1999.
Collateralized by rental equipment of
the Parent.............................. 598,268 414,186 276,124
Subsidiary revolving term loan payable to
a bank, monthly principal payments
totaling Canadian $39,455, plus interest
at Canadian prime rate plus 0.5%, (5.25%
at March 31, 1997), maturing June 2000.
Collateralized by equipment of
Subsidiary and guaranteed by the
Parent.................................. 608,502 878,339 1,116,680
Mortgage payable to third-party lender,
monthly payments of $1,750 including
interest at 9%, maturing January 1998.
Collateralized by real property at 45
Center Street, Batavia, New York........ 35,398 16,813 1,738
----------- ----------- -----------
Total debt........................... $19,109,094 $39,782,237 $51,505,595
=========== =========== ===========
</TABLE>
BANK LINES-OF-CREDIT
The Parent has revolving bank lines-of-credit amounting to $5,000,000
(increased to $6,000,000 on September 1, 1997), which are payable on demand,
with interest due monthly at rates varying from 7.50% to 8.00% as of March 31,
1997. The agreements are collateralized by equipment and receivables of the
Parent. The outstanding balance on these lines-of-credit agreements amounted
to $3,788,341 at March 31, 1997.
The Parent also has revolving term lines-of-credit available from various
lending institutions which aggregate $63,700,000 as of March 31, 1997. The
Company pays interest on the outstanding balances of these agreements at rates
which ranged from 6.65% to 9.8% at March 31, 1997.
The Subsidiary has a $500,000 (Canadian denomination) revolving line-of-
credit available for operating cash requirements and a $2,400,000 (Canadian
denomination) term line-of-credit available
F-73
<PAGE>
ACCESS RENTALS, INC. AND SUBSIDIARY AND AFFILIATE
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
to finance up to 75% of the cost of equipment acquisitions. The operating
line-of-credit is payable on demand, with interest due monthly at the Canadian
prime rate of interest plus 0.25%, (5.00% at March 31, 1997). There was not an
outstanding balance on the operating line-of-credit agreement as of March 31,
1997. Advances on the equipment line-of-credit are payable over 36 or 48
months, with interest due monthly at Canadian prime plus 0.50%, (5.25% at
March 31, 1997). The outstanding balance on the equipment line-of-credit
agreement was $878,339 (United States denomination) as of March 31, 1997. The
line-of-credit agreements are collateralized by accounts receivable and
personal property of the Subsidiary and are guaranteed by the Parent.
Current maturities of long-term debt for each of the five years subsequent
to March 31, 1997 are as follows:
<TABLE>
<CAPTION>
CAPITAL
DEBT LEASE
OBLIGATIONS OBLIGATIONS TOTAL DEBT
----------- ----------- -----------
<S> <C> <C> <C>
1998.................................. $12,274,967 $2,283,984 $14,558,951
1999.................................. 7,097,078 2,168,855 9,265,933
2000.................................. 5,099,954 1,869,131 6,969,085
2001.................................. 3,002,236 1,379,399 4,381,635
2002.................................. 1,811,547 896,077 2,707,624
Thereafter............................ 2,031,206 1,492,772 3,523,978
----------- ---------- -----------
Total payments........................ 31,316,988 10,090,218 41,407,206
Less interest amount.................. -- 1,624,969 1,624,969
----------- ---------- -----------
Total debt.......................... $31,316,988 $8,465,249 $39,782,237
=========== ========== ===========
</TABLE>
CAPITAL LEASE OBLIGATIONS
The Company and Affiliate lease rental equipment under various agreements
classified as capital leases based on the provisions of Statement of Financial
Accounting Standards No. 13. The economic substance of the leases is that the
Company is financing the acquisition of the equipment through the leases and,
accordingly, they are recorded in the Company's assets and liabilities. These
assets are stated on the balance sheet at their capitalized cost, less
accumulated depreciation, of $4,115,887, $9,091,782 and $16,275,311 as of
March 31, 1996 and 1997 and December 31, 1997, respectively.
NOTE 5--OPERATING LEASES
The Company leases building, shop and office space, and rental equipment
under various long-term and short-term operating lease agreements. Rent
expense under the agreements for the years ended September 30, 1994 and 1995,
six months ended March 31, 1996, year ended March 31, 1997, and nine months
ended December 31, 1996 and 1997 amounted to $328,892, $334,504, $174,189,
$825,229, $758,883 and $1,086,219, respectively.
The total future minimum rental payments required for noncancellable
operating leases as of March 31, 1997 are as follows:
<TABLE>
<S> <C>
1998........................................................... $ 513,782
1999........................................................... 342,859
2000........................................................... 363,925
2001........................................................... 267,697
2002........................................................... 410,846
Thereafter..................................................... 80,785
----------
Total...................................................... $1,979,894
==========
</TABLE>
F-74
<PAGE>
ACCESS RENTALS, INC. AND SUBSIDIARY AND AFFILIATE
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE 6--PROVISIONS FOR INCOME TAXES
The Company has provided for income tax based on consolidated net income.
Income tax expense is allocated to the Parent and Subsidiary based on the tax
liability and expense relating to the respective taxing authorities.
The provision for income taxes, calculated according to SFAS No. 109,
"Accounting for Income Taxes", amounted to:
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS NINE MONTHS ENDED
SEPTEMBER 30, ENDED YEAR ENDED DECEMBER 31,
--------------------- MARCH 31, MARCH 31, -----------------------
1994 1995 1996 1997 1996 1997
---------- ---------- ----------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Current:
Federal income tax.... $ 651,914 $ 844,075 $ 336,022 $ 495,887 $ 699,193 $ 835,885
State income tax...... 338,000 296,054 114,774 93,415 268,000 301,000
Canadian business tax... -- 2,544 4,643 45,966 -- 2,108
---------- ---------- ----------- ----------- ---------- -----------
Total current....... 989,914 1,142,673 455,439 635,268 967,193 1,138,993
Deferred:
Federal income tax.... 577,859 455,576 336,121 866,666 849,733 1,320,725
State income tax...... 94,221 89,206 268,291 194,174 64,000 378,575
Canadian business tax... -- 132,000 63,000 90,616 135,140 135,740
---------- ---------- ----------- ----------- ---------- -----------
Total deferred...... 672,080 676,782 667,412 1,151,456 1,048,873 1,835,040
---------- ---------- ----------- ----------- ---------- -----------
Total provision for
income taxes....... $1,661,994 $1,819,455 $ 1,122,851 $ 1,786,724 $2,016,066 $ 2,974,033
========== ========== =========== =========== ========== ===========
</TABLE>
Deferred taxes are recorded based on differences between the financial
statement and tax basis of assets and liabilities. Temporary differences which
give rise to a significant portion of deferred tax assets and liabilities were
the result of book and tax depreciation and revenue recognition timing
differences, allowance for uncollectible accounts, net operating loss
carryforwards of the Subsidiary and certain tax credits.
The Subsidiary has remaining Canadian net operating loss (NOL) carryforwards
of approximately $415,000 as of March 31, 1997 and December 31, 1997. The NOL
carryforwards begin to expire in 1998 and will be completely expired in 2001.
Application of statutory tax rates to combined pretax income will not be
representative of the provision for income taxes. As previously disclosed, the
income of the Affiliate is taxed individually at the member level.
NOTE 7--RELATED PARTY TRANSACTIONS
Officer Loan--The chief executive officer and a stockholder maintains a
floating loan with the Company. This loan is charged when personal
expenditures are paid by the Company on behalf of the officer. A loan
agreement exists between the parties, in which the Company charges interest of
8.5% on the average outstanding balance. The terms provide for the officer to
make regular, periodic payments to reduce the outstanding balance. The balance
outstanding at March 31, 1996 and 1997 and December 31, 1997 amounted to
$420,040, $515,606 and $1,105,994, respectively. The amounts at March 31, 1997
and December 31, 1997 have been reduced in combination by the Affiliate's
capital account.
F-75
<PAGE>
ACCESS RENTALS, INC. AND SUBSIDIARY AND AFFILIATE
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Loan Receivable--The Company has a loan receivable which represents cash
advances made to companies owned by an employee and the stockholders. The
Company charges interest on these loans at an annual rate of 8%. The balance
outstanding at March 31, 1996 and 1997 and December 31, 1997 amounted to
$1,121,814, $1,860,102 and $2,071,971, respectively.
Operating Lease Agreement--The Company leases shop, warehouse space and
aircraft from companies owned by an employee and the stockholders. The Company
also leases rental equipment from the Affiliate, the effect of which has been
eliminated in the combination of the financial statements. The leases are on a
month to month basis and require monthly payments of $41,000 for the shop and
warehouse space and $250,000 ($325,000 as of September 1, 1997) for rental
equipment. The terms of the equipment lease with the Affiliate were modified
during the nine months ended December 1997.
Sale/Leaseback of Property--On March 31, 1996, the Company sold four
buildings to a company owned by the stockholders for $1,725,000. Management
estimated that the market value of the property approximated the net book
value. The property is provided for in the operating lease, as disclosed
above.
NOTE 8--CASH FLOW DISCLOSURE INFORMATION
For the years ended September 30, 1994 and 1995, six months ended March 31,
1996, year ended March 31, 1997, and nine months ended December 31, 1996 and
1997, total interest paid amounted to $660,902, $1,132,222, $676,546,
$2,005,464, $1,447,752 and $2,120,907, respectively.
For the years ended September 30, 1994 and 1995, six months ended March 31,
1996, year ended March 31, 1997, and nine months ended December 31, 1996 and
1997, total taxes paid amounted to $887,760, $1,516,861, $584,371, $1,045,652,
$791,179 and $298,321, respectively.
During the years ended September 30, 1994 and 1995, six months ended March
31, 1996, year ended March 31, 1997, and nine months ended December 31, 1996
and 1997, the Company and Affiliate purchased $7,368,661, $7,127,810,
$7,968,504, $28,603,655, $27,336,255 and $21,237,266, respectively, of
equipment which was financed.
NOTE 9--RETIREMENT PLANS
The Parent maintains a defined contribution retirement plan for non-union
employees. The plan qualifies as a deferred compensation plan under Section
401(k) of the Internal Revenue Code. Company contributions are based on a 100%
match of the employees' elective deferral up to 4%.
The Parent also contributes to defined benefit pension plans for employees
covered under six union contracts, Locals #15C, #103, #138, #542C, #825 and
#832 of the International Union of Operating Engineers. A full description of
the membership, benefits and employer and employee obligations to contribute
to these plans are described in the Summary Plan Description and Annual
Reports of the plans.
The actuarial information needed to determine the liabilities and provide
the current disclosure information necessary under FASB No. 87 was
unavailable. Consequently, the financial statements for the years ended
September 30, 1994 and 1995, six months ended March 31, 1996, year ended March
31, 1997 and nine months ended December 1996 and 1997, do not reflect the
financial position, results of operations and expanded disclosures in
accordance with FASB No. 87.
F-76
<PAGE>
ACCESS RENTALS, INC. AND SUBSIDIARY AND AFFILIATE
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
The Subsidiary maintains a non-contributory pension plan, whereby the
Subsidiary contributes 4% of employee compensation to the plan. In addition,
the Subsidiary will contribute a 100% match of the employees' elective
deferral up to a maximum of 2%.
The cost of the plans for the years ended September 30, 1994 and 1995, six
months ended March 31, 1996, the year ended March 31, 1997, and the nine
months ended December 31, 1996 and 1997, amounted to approximately $151,669,
$192,541, $110,857, $329,712, $149,568 and $162,150, respectively.
NOTE 10--COMMITMENTS AND CONTINGENCIES
Access Rentals, Inc. (Parent) guarantees debt obligations of the Subsidiary,
Access Lift Equipment, Inc., the Affiliate, Reinhart Leasing, LLC, and another
related company owned by the stockholders.
At December 31, 1997, the Company had outstanding purchase orders for
equipment in the amount of $4,240,564.
NOTE 11--CHANGE IN METHOD OF ACCOUNTING AND PRIOR YEAR ADJUSTMENT
The accompanying consolidated financial statements for the fiscal year ended
September 30, 1994 have been retroactively restated as a result of
management's change in method of accounting for rental income. In years prior
to the change, the Company recorded revenue for the entire rental period of a
contract upon billing. The change in accounting policy removes the portion of
rental billings pertaining to periods subsequent to the reporting period. The
effect of the restatement resulted in a $265,019 decrease to retained earnings
at September 30, 1993.
A restatement of the September 30, 1994 consolidated statement of income is
summarized as follows:
<TABLE>
<CAPTION>
AS
PREVIOUSLY
REPORTED AS RESTATED
----------- -----------
<S> <C> <C>
Rental income......................................... $14,730,347 $15,804,754
Income before taxes and cumulative effect of change in
accounting principle................................. 4,127,869 4,019,441
Provision for income taxes............................ 1,715,048 1,661,994
Income before cumulative effect of change in
accounting principle................................. 2,412,821 2,357,447
Cumulative effect of change in method of accounting
for income taxes..................................... 46,325 46,325
Net income............................................ $ 2,459,146 $ 2,403,772
</TABLE>
NOTE 12--ACQUISITION OF SUBSIDIARY
Effective February 26, 1995, the Company acquired 100% of the outstanding
common stock of Access Lift Equipment, Inc., formerly Upright of Canada, Inc.,
for approximately $920,000.
The acquisition, accounted for in accordance with Accounting Principles
Board (APB) Opinion No. 16--Business Combinations, using the purchase method
of accounting, has resulted in the inclusion of the operating results of the
Subsidiary, from the date of acquisition, in the financial statements of the
Company.
F-77
<PAGE>
ACCESS RENTALS, INC. AND SUBSIDIARY AND AFFILIATE
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE 13--STOCKHOLDERS' EQUITY
On December 30, 1997, Access Rentals, Inc. (Parent) retired 6 shares of
treasury stock then issued its remaining 194 common shares with no par value.
Also, on December 30, 1997, Access Rentals, Inc. (Parent) amended its
certificate of incorporation to increase the number of authorized shares from
200 common with no par value to 100 Class A Voting common shares with a par
value of $1 and 9,900 Class B Non-voting common shares with a par value of $1,
effecting a stock split of 50 shares of new stock for each share of stock.
The retirement of treasury stock and the stock split were given retroactive
effect in the accompanying financial statements.
At December 31, 1997 the following common stock shares were authorized,
issued and outstanding:
<TABLE>
<S> <C>
Class A Voting, $1 par value....................................... 100
Class B Non-voting, $1 par value................................... 9,900
------
Total shares................................................... 10,000
======
</TABLE>
NOTE 14--SUBSEQUENT EVENTS
On September 1, 1997, the Company and Affiliate acquired certain assets of a
company engaged in primarily the same business as Access Rentals, Inc., with
operations in Florida. The purchase price, including the covenant not-to-
compete, amounted to approximately $4,988,850, for which the same amount of
debt was incurred.
During January 1998, the Company sold all real estate owned by the Company
to a related party company. The sales price was determined based upon
appraisals and approximated $605,000.
On January 21, 1998, the Company, Affiliate and stockholders entered into a
stock purchase agreement with United Rentals, Inc. (URI). Under the terms of
the stock purchase agreement, URI purchased all of the issued and outstanding
capital stock of the Company and substantially all of the assets of the
Affiliate. Also, as part of the transaction all of the stock of Access Lift
Equipment, Inc. (Subsidiary) was sold by Access Rentals, Inc., to United
Rentals of Canada, Inc., a wholly-owned subsidiary of URI.
NOTE 15--RECLASSIFICATIONS
Certain reclassifications have been made to previously issued financial
statements in order to conform them to current classifications.
F-78
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Stockholders
Power Rental Co., Inc.
We have audited the balance sheet of Power Rental Co., Inc. as of July 31,
1997 and the related statements of operations, stockholders' equity and cash
flows for the year then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Power Rental Co., Inc. at
July 31, 1997, and the results of its operations and its cash flows for the
year then ended in conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
MetroPark, New Jersey
June 24, 1998
F-79
<PAGE>
POWER RENTAL CO., INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
JULY 31, MAY 31,
1997 1998
----------- -----------
(UNAUDITED)
<S> <C> <C>
ASSETS
Cash................................................... $ 53,462 $ --
Accounts receivable, net of allowance for doubtful
accounts of
$200,000 and $170,000 at 1997 and 1998, respectively.. 4,193,529 4,136,551
Due from related parties............................... 612,717 1,173,050
Inventory.............................................. 51,476 63,576
Rental equipment, net.................................. 35,575,067 38,139,754
Property and equipment, net............................ 7,301,836 8,269,235
Prepaid expenses and other assets...................... 1,413,651 1,762,667
Intangible assets, net................................. 378,269 335,289
----------- -----------
Total assets....................................... $49,580,007 $53,880,122
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Accounts payable, accrued expenses and other liabili-
ties................................................ $ 4,831,620 $ 4,674,375
Debt................................................. 30,841,647 38,067,418
Deferred rent........................................ 72,200 84,800
Deferred income taxes................................ 2,921,231 1,983,119
----------- -----------
Total liabilities.................................. 38,666,698 44,809,712
Commitments and contingencies
Stockholders' equity:
Common stock--Class A voting, $1.00 par value, 10,000
shares authorized, 10 issued and outstanding........ 10 10
Common stock--Class B non-voting, $1.00 par value,
90,000 shares authorized, 20,000 issued and
outstanding......................................... 20,000 20,000
Additional paid in capital........................... 522,550 522,550
Retained earnings.................................... 10,370,749 8,527,850
----------- -----------
Total stockholders' equity......................... 10,913,309 9,070,410
----------- -----------
Total liabilities and stockholders' equity......... $49,580,007 $53,880,122
=========== ===========
</TABLE>
See accompanying notes.
F-80
<PAGE>
POWER RENTAL CO., INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
TEN MONTHS ENDED
YEAR ENDED MAY 31,
JULY 31, ------------------------
1997 1997 1998
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Revenues:
Equipment rentals..................... $34,943,308 $28,469,107 $27,578,967
Sales of rental equipment............. 4,484,056 3,428,774 4,020,158
Sales of parts and supplies........... 1,462,391 1,226,682 1,140,346
----------- ----------- -----------
Total revenues...................... 40,889,755 33,124,563 32,739,471
Cost of revenues:
Cost of equipment rentals, excluding
equipment rental depreciation........ 11,392,273 8,867,084 10,726,582
Depreciation, equipment rentals....... 9,753,507 8,150,000 8,967,724
Cost of sales of rental equipment..... 2,915,751 2,402,610 1,898,704
Cost of sales of parts and supplies... 1,316,267 1,032,410 902,963
----------- ----------- -----------
Total cost of revenues.............. 25,377,798 20,452,104 22,495,973
----------- ----------- -----------
Gross profit............................ 15,511,957 12,672,459 10,243,498
Selling, general and administrative
expenses............................... 11,865,623 9,781,625 10,320,661
Non-rental depreciation................. 1,214,796 913,500 1,242,846
----------- ----------- -----------
Operating income (loss)................. 2,431,538 1,977,334 (1,320,009)
Interest expense........................ 2,171,959 1,593,657 2,389,562
Interest income......................... (176,612) (97,471) (137,826)
Other (income), net..................... (398,159) (334,337) (182,304)
----------- ----------- -----------
Income (loss) before provision (benefit)
for income taxes....................... 834,350 815,485 (3,389,441)
Provision (benefit) for income taxes.... 317,053 282,070 (1,546,542)
----------- ----------- -----------
Net income (loss)....................... $ 517,297 $ 533,415 $(1,842,899)
=========== =========== ===========
</TABLE>
See accompanying notes.
F-81
<PAGE>
POWER RENTAL CO., INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
CLASS A CLASS B ADDITIONAL
------------- -------------- PAID IN RETAINED
SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS
------ ------ ------ ------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance at August 1,
1996.................... 10 $10 20,000 $20,000 $522,550 $ 9,853,452
Net income............. 517,297
--- --- ------ ------- -------- -----------
Balance at July 31,
1997.................... 10 10 20,000 20,000 522,550 10,370,749
Net loss (unaudited)... (1,842,899)
--- --- ------ ------- -------- -----------
Balance at May 31, 1998
(unaudited)............. 10 $10 20,000 $20,000 $522,550 $ 8,527,850
=== === ====== ======= ======== ===========
</TABLE>
See accompanying notes.
F-82
<PAGE>
POWER RENTAL CO., INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
TEN MONTHS ENDED
YEAR ENDED MAY 31,
JULY 31, --------------------------
1997 1997 1998
------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)................... $ 517,297 $ 533,414 $ (1,842,899)
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation and amortization..... 11,018,848 9,097,833 10,253,550
Gain on equipment sales........... (1,294,474) (815,756) (1,603,959)
Gain on property and equipment
sales............................ (29,468) (47,940) (27,709)
Deferred income taxes............. 87,846 86,530 (938,112)
Changes in assets and liabilities:
(Increase) decrease in accounts
receivable..................... (135,231) 392,008 56,978
Decrease (increase) in
inventory...................... 8,973 (21,226) (12,100)
Increase in prepaid expenses and
other assets................... (648,001) (486,370) (349,016)
Increase (decrease) in accounts
payable, accrued expenses and
other liabilities 622,048 381,560 (157,244)
Increase in deferred rent....... 40,800 29,000 12,600
------------ ------------ ------------
Total adjustments............. 9,671,341 8,615,639 7,234,988
------------ ------------ ------------
Cash provided by operating
activities......................... 10,188,638 9,149,053 5,392,089
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of rental equipment........ (1,769,523) (3,339,078) (684,337)
Purchase of property and equipment.. (2,757,539) (2,237,093) (903,864)
Intangibles associated with purchase
of certain assets.................. (110,000) (110,000)
Proceeds from sale of rental
equipment.......................... 3,882,235 2,956,554 3,243,356
Proceeds from sale of property and
equipment.......................... 139,723 65,562 204,980
------------ ------------ ------------
Cash provided by (used in) investing
activities......................... (615,104) (2,664,055) 1,860,135
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments on debt.......... (9,810,236) (7,567,820) (10,800,353)
Principal payments on credit
facility........................... (26,748,605) (19,096,555) (17,990,000)
Borrowings on debt.................. 207,000 207,000 220,000
Borrowings under credit facility.... 26,726,605 20,089,955 21,825,000
Repayments from related parties..... 681,553 352,200 824,504
Advances to related parties......... (599,788) (491,933) (1,384,837)
------------ ------------ ------------
Cash used in financing activities... (9,543,471) (6,507,153) (7,305,686)
------------ ------------ ------------
Increase (decrease) in cash......... 30,063 (22,155) (53,462)
Cash balance at beginning of
period............................. 23,399 23,399 53,462
------------ ------------ ------------
Cash balance at end of period....... $ 53,462 $ 1,244 $ --
============ ============ ============
</TABLE>
See accompanying notes.
F-83
<PAGE>
POWER RENTAL CO., INC.
NOTES TO FINANCIAL STATEMENTS
JULY 31, 1997
(THE INFORMATION AS OF MAY 31, 1998 AND FOR THE TEN MONTHS
ENDED MAY 31, 1997 AND 1998 IS UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business Activity
Power Rental Co., Inc. (the "Company") rents, sells and repairs construction
equipment for use by contractor, industrial and homeowner markets. The rentals
are on a daily, weekly or monthly basis. The Company has eighteen locations
and their principal market area is the Pacific Northwest of the United States.
The nature of the Company's business is such that short-term obligations are
typically met by cash flow generated from long-term assets. Consequently,
consistent with industry practice, the balance sheets are presented on an
unclassified basis.
These financial statements are prepared on a historical cost basis and do
not include any adjustments that may result from the acquisition of the
Company by United Rentals, Inc. ("United") as more fully described in Note 10.
Interim Financial Statements
The accompanying balance sheet at May 31, 1998 and the statements of
operations, stockholders' equity and cash flows for the ten-month periods
ended May 31, 1997 and 1998 are unaudited and have been prepared on the same
basis as the audited financial statements included herein. In the opinion of
management, such unaudited financial statements include all adjustments
necessary to present fairly the information set forth therein, which consist
solely of normal recurring adjustments. The results of operations for such
interim period are not necessarily indicative of results for the full year.
Inventory
Inventories consist primarily of general replacement parts and are stated at
the lower of cost, determined under the first-in, first-out method, or market.
Rental Equipment
Rental equipment is recorded at cost. Depreciation for rental equipment is
computed using the straight-line method over an estimated five-year useful
life with no salvage value.
Ordinary maintenance and repair costs are charged to operations as incurred.
Proceeds from the disposal and the related net book value of the equipment are
recognized in the period of disposal and reported as revenue from sales of
equipment and cost of sales of equipment, respectively, in the statement of
operations.
Property and Equipment
Property and equipment is stated at cost. Depreciation of property and
equipment is computed on the straight-line method over estimated useful lives
ranging from three to seven years. Leasehold improvements are amortized using
the straight-line method over the estimated lives of the improvements or the
remaining life of the lease, whichever is shorter.
F-84
<PAGE>
POWER RENTAL CO., INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
JULY 31, 1997
(THE INFORMATION AS OF MAY 31, 1998 AND FOR THE TEN MONTHS
ENDED MAY 31, 1997 AND 1998 IS UNAUDITED)
Ordinary maintenance and repair costs are charged to operations as incurred.
The cost of assets sold, retired, or otherwise disposed of, and the related
accumulated depreciation is eliminated from the accounts and any resulting
gain or loss is included in operations.
Intangible Assets
Intangible assets are recorded at cost and consist of goodwill of $372,480
and covenants not to compete of $207,000. Accumulated amortization at July 31,
1997 and May 31, 1998 is $201,211 and $244,191, respectively. Goodwill is
being amortized by the straight-line method over its estimated useful life of
forty years. The covenants not to compete reflect agreements made regarding
confidentiality and restricting competitive activity and are being amortized
by the straight-line method over the period of the agreements, which is 5
years. Amortization expense was $50,545, $34,333 and $42,980 for the year
ended July 31, 1997 and for the ten months ended May 31, 1997 and 1998,
respectively.
Rental Revenue
Rental revenue is recorded as earned under the operating method.
Advertising Costs
The Companies advertise primarily through sponsorships, trade journals,
trade associations and phone directories. All advertising costs are expensed
as incurred. Advertising expense amounted to approximately $714,680, $609,100
and $653,300 in the year ended July 31, 1997 and for the ten months ended May
31, 1997 and 1998, respectively.
Income Taxes
The Company uses the "liability method" of accounting for income taxes.
Accordingly, deferred tax liabilities and assets are determined based on the
difference between the financial statement and tax bases of assets and
liabilities, using enacted tax rates in effect for the year in which
differences are expected to reverse.
Accounting Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
2. CONCENTRATIONS OF CREDIT RISK
The Company maintains cash balances with a quality financial institution
and, consequently, management believes funds maintained there are secure.
Concentrations of credit risk with respect to customer receivables are limited
due to the large number of customers comprising the Company's customer base
and its credit policy.
F-85
<PAGE>
POWER RENTAL CO., INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
JULY 31, 1997
(THE INFORMATION AS OF MAY 31, 1998 AND FOR THE TEN MONTHS
ENDED MAY 31, 1997 AND 1998 IS UNAUDITED)
3. RENTAL EQUIPMENT
Rental equipment and related accumulated depreciation consisted of the
following:
<TABLE>
<CAPTION>
JULY 31, MAY 31,
1997 1998
----------- -----------
(UNAUDITED)
<S> <C> <C>
Rental equipment.................................. $61,168,264 $69,016,929
Less accumulated depreciation..................... 25,593,197 30,877,175
----------- -----------
Rental equipment, net............................. $35,575,067 $38,139,754
=========== ===========
</TABLE>
4. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
JULY 31, MAY 31,
1997 1998
----------- -----------
(UNAUDITED)
<S> <C> <C>
Transportation equipment.......................... $ 5,143,693 $ 5,984,589
Office and shop equipment......................... 2,236,792 2,683,017
Leasehold improvements............................ 3,573,110 4,419,965
----------- -----------
10,953,595 13,087,571
Less accumulated depreciation and amortization.... 3,651,759 4,818,336
----------- -----------
Property and equipment, net....................... $ 7,301,836 $ 8,269,235
=========== ===========
</TABLE>
5. DEBT
Debt consists of the following:
<TABLE>
<CAPTION>
JULY 31, MAY 31,
1997 1998
--------- -----------
(UNAUDITED)
<S> <C> <C>
Caterpillar Credit-Note with a monthly payment of $1,668
including interest of 5.6%............................. $ 24,020 $ 9,758
Ingersoll Rand--Various non-interest bearing notes with
combined monthly payments of $100,064 and $2,850 in
1997 and 1998, respectively............................ 289,690 26,308
Allegro Escrow--Two notes with combined monthly payments
of $4,297 including interest of 9.0%................... 175,653 144,831
Associates Commercial--Various notes with combined
monthly payments of $24,451 including interest from
7.6% to 8.9%........................................... 905,505 4,149,252
Case Credit--Various notes with combined monthly
payments of $211,021 including interest from 4.9% to
8.9%................................................... 3,823,564 3,079,867
J.D. Fulwiler--Note with monthly payment of $3,134
including interest of 8.0%............................. 27,285 --
Concord Commercial--Various notes with combined monthly
payments of $143,858 including interest from 8.1% to
8.9%................................................... 4,019,259 3,365,279
John Deere Credit--Various notes with combined monthly
payments of $133,615 including interest from 6.9% to
9.7%................................................... 2,399,434 1,571,762
Ford Motor Credit--Various notes with combined monthly
payments of $121,192 including interest from 8.2% to
9.2%................................................... 1,918,226 1,756,489
</TABLE>
F-86
<PAGE>
POWER RENTAL CO., INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
JULY 31, 1997
(THE INFORMATION AS OF MAY 31, 1998 AND FOR THE TEN MONTHS
ENDED MAY 31, 1997 AND 1998 IS UNAUDITED)
<TABLE>
<CAPTION>
JULY 31, MAY 31,
1997 1998
----------- -----------
(UNAUDITED)
<S> <C> <C>
AT&T Credit--Note with monthly payment of $2,599
including interest of 10.6%........................... $ 101,393 $ 77,829
Navistar Financial--Various notes with combined monthly
payments of $53,762 including interest from 7.3% to
9.0%.................................................. 1,271,686 922,509
Seafirst Bank--Various notes with combined monthly
payments of $523,962 including interest from 7.3% to
8.5%.................................................. 12,075,932 13,420,418
Seafirst Bank--Line of credit up to $19,000,000,
expiring in February 1999 with interest payable
monthly at 8.5%....................................... 3,810,000 7,645,000
JCB Finance--Note with monthly payment of $8,529
including interest of 8.51%........................... -- 236,637
Pacific Atlantic--Note with monthly payment of $2,610
including interest of 10.9%........................... -- 74,107
PACCAR Financial--Note with monthly payment of $3,663
including
interest of 7.8%...................................... -- 150,654
Deutsche Financial--Note with monthly payment of
$28,932 including
interest of 8.13%..................................... -- 1,436,718
----------- -----------
$30,841,647 $38,067,418
=========== ===========
</TABLE>
Substantially all rental equipment collateralize the above notes.
All debt was paid off in June 1998 in connection with the acquisition
discussed in Note 10.
6. INCOME TAXES
The provision (benefit) for income taxes consists of the following:
<TABLE>
<CAPTION>
YEAR ENDED TEN MONTHS ENDED MAY
JULY 31, 31,
1997 1997 1998
---------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Current:
Federal................................. $229,197 $195,530 $ (608,430)
State................................... 10 10
-------- -------- -----------
229,207 195,540 (608,430)
Deferred:
Federal................................. 34,832 34,612 (876,200)
State................................... 53,014 51,918 (61,912)
-------- -------- -----------
87,846 86,530 (938,112)
-------- -------- -----------
$317,053 $282,070 $(1,546,542)
======== ======== ===========
</TABLE>
F-87
<PAGE>
POWER RENTAL CO., INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
JULY 31, 1997
(THE INFORMATION AS OF MAY 31, 1998 AND FOR THE TEN MONTHS
ENDED MAY 31, 1997 AND 1998 IS UNAUDITED)
Significant components of the Company's deferred tax liability at July 31,
1997 and May 31, 1998 are as follows:
<TABLE>
<S> <C> <C>
JULY 31, MAY 31,
1997 1998
---------- -----------
(UNAUDITED)
Net operating loss carryforward.................. $ (469,000) $(1,085,000)
Cumulative tax depreciation in excess of book.... 3,390,231 3,068,119
---------- -----------
Deferred tax liability, net...................... $2,921,231 $ 1,983,119
========== ===========
</TABLE>
At July 31, 1997, the Company has net operating loss carryforwards of
$1,142,326 for income tax purposes that expire in 2012.
7. RELATED PARTY TRANSACTIONS
During the year ended July 31, 1997 and the ten months ended May 31, 1997
and 1998, the Company paid $628,533, $565,295 and $530,687 for advertising
expenses to a partnership controlled by the Company's president and principal
stockholder.
The accompanying financial statements at July 30, 1997 and May 31, 1998,
reflect amounts receivable of $509,473 and $659,174, respectively, from the
president of the Company. These advances are made within the framework of a
special drawing and loan account which bears interest at 8%.
In addition, the Company is owed amounts from relatives of and related
entities controlled by the president of the Company totaling $103,244 and
$454,406 at July 31, 1997 and May 31, 1998, respectively. These advances are
non-interest bearing.
The Company conducts its operations primarily from various separate
facilities under noncancellable lease agreements. Three of these facilities
are owned either by the Company's president and principal stockholder or
related entities controlled by the president of the Company. Another facility
is leased to a limited partnership in which the general partner is the
Company's president and principal stockholder. These leases expire at various
dates through the year 2001. All of these agreements require the payment by
the Company of property taxes, maintenance and insurance. Total rent expense
paid to related parties and charged to current operations totaled $630,000,
$516,450 and $704,850 for the year ended July 31, 1997 and ten months ended
May 31, 1997 and 1998, respectively.
In connection with the acquisition discussed in Note 10, the lease terms
with related parties have been renegotiated.
The remaining lease agreements are with unrelated third parties. These
leases expire at various dates through the year 2006. Most of these agreements
contain certain renewal options and provide for first right of refusal toward
purchase. These agreements generally require the Company to pay all utilities,
insurance, taxes and maintenance. Total rent expense charged to operations on
unrelated third party leases for the year ended July 31, 1997 and ten months
ended May 31, 1997 and 1998 were $786,928, $609,674 and $644,800,
respectively.
F-88
<PAGE>
POWER RENTAL CO., INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
JULY 31, 1997
(THE INFORMATION AS OF MAY 31, 1998 AND FOR THE TEN MONTHS
ENDED MAY 31, 1997 AND 1998 IS UNAUDITED)
Some leases include scheduled base rent increases over the term of the
leases. The total amount of the base rent payments is being charged to expense
on a straight-line method over the terms of the leases. The Company recorded a
liability for deferred rent to reflect the excess of rent expense over cash
payments which is included in the accompanying balance sheets.
The future minimum lease commitments under all unrelated third party
operating leases that have noncancellable lease terms in excess of one year
are as follows:
<TABLE>
<S> <C>
Fiscal 1998.............. $ 868,660
1999.................. 667,360
2000.................. 586,600
2001.................. 449,440
2002.................. 317,940
Thereafter............ 399,030
----------
$3,289,030
==========
</TABLE>
At July 31, 1997 and May 31, 1998 the Company was contingently liable as a
guarantor on bank loans in the amount of $1,662,098 and $1,516,740,
respectively, owed to the bank by its president and principal stockholder.
These bank loans are also secured by substantial personal and real property
assets of such stockholder.
8. SUPPLEMENTAL CASH FLOW INFORMATION
For the year ended July 31, 1997 and the ten months ended May 31, 1997 and
1998, total interest paid was $2,019,792, $1,588,185 and $2,394,938,
respectively.
For the year ended July 31, 1997 and the ten months ended May 31, 1997 and
1998, total taxes paid was $899,655, $899,655 and $0, respectively.
For the year ended July 31, 1997 and the ten months ended May 31, 1997 and
1998, the Company purchased $17,555,968, $12,719,662 and $13,971,123,
respectively, of equipment which was financed.
9. EMPLOYEE BENEFIT PLAN
The Company has a defined contribution 401(k) pension plan which covers
substantially all employees. The Company makes discretionary contributions.
Company contributions to the plan were $300,000, $300,000 and $0 for the year
ended July 31, 1997 and for the ten months ended May 31, 1997 and 1998,
respectively.
10. SUBSEQUENT EVENT
On June 8, 1998, under the terms of the stock purchase agreement, United
purchased all of the issued and outstanding capital stock of the Company.
F-89
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors BNR Group of Companies
We have audited the combined balance sheets of BNR Group of Companies as at
March 31, 1996 and 1997 and the combined statements of earnings, stockholders'
equity and cash flows for the years then ended. These combined financial
statements are the responsibility of the companies' management. Our
responsibility is to express an opinion on these combined financial statements
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation.
In our opinion, these combined financial statements present fairly, in all
material respects, the combined financial position of BNR Group of Companies
as at March 31, 1996 and 1997 and the results of their operations and their
cash flows for the years then ended in accordance with generally accepted
accounting principles in Canada.
Generally accepted accounting principles in Canada vary in certain
significant respects from generally accepted accounting principles in the
United States. Application of generally accepted accounting principles in the
United States would have affected results of operations for the years ended
March 31, 1996 and 1997 and stockholders' equity as at March 31, 1996 and
March 31, 1997 to the extent summarized in note 14 to the combined financial
statements.
/s/ KPMG
Chartered Accountants
Waterloo, Canada
February 3, 1998
F-90
<PAGE>
BNR GROUP OF COMPANIES
COMBINED BALANCE SHEETS
(AMOUNTS EXPRESSED IN CANADIAN DOLLARS)
<TABLE>
<CAPTION>
MARCH 31, MARCH 31, DECEMBER 31,
1996 1997 1997
--------- ----------- ------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash.................................... $ 45,817 $ 62,471 $ 36,157
Trade accounts receivable (note 2)...... 3,807,908 4,692,084 7,281,959
Inventories............................. 1,744,367 1,897,021 2,276,311
Income taxes recoverable................ -- 81,808 --
Prepaid expenses........................ 116,844 128,343 85,937
----------- ----------- -----------
5,714,936 6,861,727 9,680,364
Rental equipment (note 3)................. 8,668,609 10,593,547 13,211,100
Fixed assets (note 4)..................... 731,864 716,381 1,054,482
----------- ----------- -----------
$15,115,409 $18,171,655 $23,945,946
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Bank indebtedness (note 5).............. $ 120,373 $ 469,860 $ 1,469,042
Short-term borrowings (note 5).......... 1,428,176 1,407,830 1,752,252
Accounts payable........................ 1,950,163 1,957,643 2,081,720
Accrued liabilities..................... 946,688 686,351 433,945
Income taxes payable.................... 67,618 -- 475,417
Current portion of long-term debt (note
6)..................................... 1,618,749 2,390,758 3,233,715
----------- ----------- -----------
6,131,767 6,912,442 9,446,091
Long-term debt (note 6)................... 2,250,744 3,467,720 4,369,061
Redeemable shares (note 7)................ 4,534,975 4,424,975 4,424,975
Deferred income taxes..................... 681,518 975,570 1,385,392
Stockholders' equity:
Share capital (note 8).................. 83,319 83,319 83,319
Retained earnings....................... 1,433,086 2,307,629 4,237,108
----------- ----------- -----------
1,516,405 2,390,948 4,320,427
----------- ----------- -----------
$15,115,409 $18,171,655 $23,945,946
=========== =========== ===========
</TABLE>
See accompanying notes to combined financial statements.
F-91
<PAGE>
BNR GROUP OF COMPANIES
COMBINED STATEMENTS OF EARNINGS
(AMOUNTS EXPRESSED IN CANADIAN DOLLARS)
<TABLE>
<CAPTION>
NINE MONTHS NINE MONTHS
YEAR ENDED YEAR ENDED ENDED ENDED
MARCH 31, MARCH 31, DECEMBER 31, DECEMBER 31,
1996 1997 1996 1997
---------- ---------- ------------ ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Revenues:
Rental revenue............. $ 9,286,562 $10,873,631 $ 9,333,864 $11,481,757
Sales of equipment, parts
and supplies.............. 12,276,498 15,829,146 12,292,494 15,836,495
Other...................... 847,000 788,306 682,980 757,443
----------- ----------- ----------- -----------
22,410,060 27,491,083 22,309,338 28,075,695
Cost of revenues:
Cost of equipment rentals,
excluding equipment rental
depreciation.............. 4,352,621 5,277,966 4,103,508 5,282,162
Depreciation on rental
equipment................. 1,609,690 1,936,254 1,451,671 1,715,542
Cost of sales, equipment,
parts and supplies........ 8,883,214 11,818,715 9,303,777 11,832,825
----------- ----------- ----------- -----------
14,845,525 19,032,935 14,858,956 18,830,529
----------- ----------- ----------- -----------
Gross profit................. 7,564,535 8,458,148 7,450,382 9,245,166
Selling, general and adminis-
tration..................... 5,728,380 6,386,710 4,528,911 5,623,444
Non-rental depreciation...... 71,748 78,354 56,903 123,246
----------- ----------- ----------- -----------
Operating earnings........... 1,764,407 1,993,084 2,864,568 3,498,476
Interest expense............. 565,106 691,559 514,503 517,347
----------- ----------- ----------- -----------
Earnings before income tax-
es.......................... 1,199,301 1,301,525 2,350,065 2,981,129
Income taxes (note 9):
Current.................... 245,436 132,930 480,220 637,328
Deferred................... 118,677 294,052 288,251 409,822
----------- ----------- ----------- -----------
364,113 426,982 768,471 1,047,150
----------- ----------- ----------- -----------
Net earnings................. $ 835,188 $ 874,543 $ 1,581,594 $ 1,933,979
=========== =========== =========== ===========
</TABLE>
See accompanying notes to combined financial statements.
F-92
<PAGE>
BNR GROUP OF COMPANIES
COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY
(AMOUNTS EXPRESSED IN CANADIAN DOLLARS)
<TABLE>
<CAPTION>
SHARE RETAINED
CAPITAL EARNINGS TOTAL
------- ---------- ----------
<S> <C> <C> <C>
Balances, at March 31, 1995.................... $83,319 $ 597,898 $ 681,217
Net earnings................................... -- 835,188 835,188
------- ---------- ----------
Balances, at March 31, 1996.................... 83,319 1,433,086 1,516,405
Net earnings................................... -- 874,543 874,543
------- ---------- ----------
Balances, at March 31, 1997.................... 83,319 2,307,629 2,390,948
Net earnings (unaudited)....................... -- 1,933,979 1,933,979
Dividends (unaudited).......................... -- (4,500) (4,500)
------- ---------- ----------
Balances, at December 31, 1997 (unaudited)..... $83,319 $4,237,108 $4,320,427
======= ========== ==========
</TABLE>
See accompanying notes to combined financial statements.
F-93
<PAGE>
BNR GROUP OF COMPANIES
COMBINED STATEMENTS OF CASH FLOWS
(AMOUNTS EXPRESSED IN CANADIAN DOLLARS)
<TABLE>
<CAPTION>
NINE MONTHS NINE MONTHS
YEAR ENDED YEAR ENDED ENDED ENDED
MARCH 31, MARCH 31, DECEMBER 31, DECEMBER 31,
1996 1997 1996 1997
---------- ---------- ------------ ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Cash flows from operating
activities:
Net earnings............... $ 835,188 $ 874,543 $ 1,581,594 $ 1,933,979
Items not involving cash:
Depreciation and amorti-
zation.................. 1,681,438 2,014,608 1,508,574 1,838,788
Gain on disposal of
rental equipment........ (639,271) (839,394) (725,213) (764,999)
Gain on disposal of fixed
assets.................. (44,016) -- -- --
Deferred income taxes.... 118,677 294,052 288,251 409,822
Change in operating assets:
Accounts receivable...... (894,464) (884,176) (2,814,394) (2,589,875)
Inventories.............. (613,126) (152,654) (186,602) (379,290)
Prepaid expenses......... (63,687) (11,499) 3,516 42,406
Accounts payable......... 408,768 7,480 (209,735) 124,077
Accrued liabilities...... 387,747 (260,337) (600,645) (252,406)
Income taxes............. 9,712 (149,426) 338,842 557,225
----------- ----------- ----------- -----------
1,186,966 893,197 (815,812) 919,727
Cash flows from investing
activities:
Purchase of rental equip-
ment.................... (5,523,247) (7,355,356) (6,419,981) (7,976,473)
Proceeds on disposal of
rental equipment........ 2,900,664 4,333,558 3,489,908 4,408,377
Purchase of fixed as-
sets.................... (91,794) (62,871) (50,489) (461,347)
Proceeds on disposal of
fixed assets............ 52,648 -- -- --
----------- ----------- ----------- -----------
(2,661,729) (3,084,669) (2,980,562) (4,029,443)
Cash flows from financing
activities:
Net advance (repayment)
of bank indebtedness.... 23,618 349,487 1,256,010 344,422
Net borrowings
(repayment) on short-
term borrowings......... 188,093 (20,346) 338,414 999,182
Borrowings on long-term
debt.................... 2,172,871 2,894,173 3,066,515 2,998,826
Payments on long-term
debt.................... (673,795) (905,188) (783,925) (1,254,528)
Repayment of shareholder
loans................... (41,180) -- -- --
Issuance of share capi-
tal..................... 69,520 -- -- --
Dividends................ -- -- -- (4,500)
Redemption of Class B
special shares.......... (229,725) (110,000) (110,000) --
----------- ----------- ----------- -----------
1,509,402 2,208,126 3,767,014 3,083,402
----------- ----------- ----------- -----------
Increase (decrease) in
cash...................... 34,639 16,654 (29,360) (26,314)
Cash, beginning of period.. 11,178 45,817 45,817 62,471
----------- ----------- ----------- -----------
Cash, end of period........ $ 45,817 $ 62,471 $ 16,457 $ 36,157
=========== =========== =========== ===========
Supplemental Schedule of
Cash Flow Information:
Cash paid during the pe-
riod for interest....... $ 565,106 $ 691,559 $ 514,503 $ 517,347
Cash paid during the
period for income
taxes................... 231,521 332,816 183,030 143,383
=========== =========== =========== ===========
</TABLE>
See accompanying notes to combined financial statements.
F-94
<PAGE>
BNR GROUP OF COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS
(AMOUNTS EXPRESSED IN CANADIAN DOLLARS)
MARCH 31, 1996 AND 1997
(The information as at December 31, 1997 and for the nine months ended
December 31, 1996 and 1997 is unaudited)
1. SIGNIFICANT ACCOUNTING POLICIES:
(a) Basis of presentation:
The accompanying combined financial statements are presented in accordance
with accounting principles generally accepted in Canada (Canadian GAAP).
The combined financial statements include the accounts of BNR Equipment
Limited (BNR Kitchener), 754643 Ontario Limited (BNR Ottawa), 650310 Ontario
Limited (BNR Barrie), 766903 Ontario Inc. (BNR Owen Sound) and BNR Equipment,
Inc. (BNR Amherst).
As more fully described in note 15, on January 22, 1998, all of the
aforementioned companies were acquired by United Rentals, Inc. in a single
common transaction and, accordingly, these financial statements have been
prepared on a combined basis.
Each of the companies rents and sells industrial supplies and power
equipment. All significant intercompany accounts and transactions have been
eliminated on combination.
These financial statements are prepared on the basis of their predecessor
historical costs and do not include any adjustments that may result on the
acquisition of the BNR Group of Companies by United Rentals, Inc. as more
fully described in note 15.
(b) Interim financial statements:
The accompanying combined balance sheets and statements of stockholders'
equity at December 31, 1997 and the combined statements of earnings,
stockholders' equity and cash flows for the nine month periods ended December
31, 1996 and 1997 are unaudited and have been prepared on a basis that is
consistent with the audited combined financial statements included herein. In
the opinion of management, such unaudited combined financial statements
include all adjustments necessary to present fairly the information set forth
therein, which consist solely of normal recurring adjustments. The results of
operations for such interim periods are not necessarily indicative of results
for the full year.
(c) Revenue recognition:
Revenue related to the sale of industrial supplies and power equipment is
recognized at the point of sale. Revenue related to the rental of industrial
power equipment is recognized ratably over the contract term. The companies
generally rent equipment under short-term agreements of one month or less.
(d) Inventories:
Inventories consisting primarily of power tools, industrial supplies and
power equipment are valued at the lower of cost (first-in, first-out basis)
and net realizable value.
(e) Foreign currency translation:
Monetary assets and liabilities of the companies, which are denominated in
foreign currencies, are translated into Canadian dollars at exchange rates
prevailing at the balance sheet date. Exchange gains and losses resulting from
the translation of these amounts are reflected in the combined statement of
earnings in the period in which they occur.
F-95
<PAGE>
BNR GROUP OF COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(AMOUNTS EXPRESSED IN CANADIAN DOLLARS)
(f) Rental equipment, fixed assets and depreciation:
Rental equipment and fixed assets are stated at acquisition cost.
Depreciation is provided using the following methods and annual rates:
<TABLE>
<CAPTION>
ASSET BASIS RATE
----- ----- ----
<S> <C> <C>
Rental equipment...................................... Declining balance 15%
Buildings............................................. Declining balance 5%
Office and shop equipment............................. Declining balance 20%
Signs................................................. Declining balance 20%
Vehicles.............................................. Declining balance 20%
Parking lot........................................... Declining balance 8%
Leasehold improvements................................ Straight-line 20%
</TABLE>
(g) Deferred income taxes:
The companies account for income taxes on the deferred tax allocation
method. Under this method, timing differences between reported and taxable
income result in provisions for taxes not currently payable. Such timing
differences arise principally as a result of claiming depreciation and other
amounts for tax purposes at amounts differing from those charged to income.
(h) Use of estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
2. TRADE ACCOUNTS RECEIVABLE:
Trade accounts receivable are net of allowances for doubtful accounts of
$nil at March 31, 1996, $68,966 at March 31, 1997 and $215,591 at December 31,
1997.
3. RENTAL EQUIPMENT:
<TABLE>
<CAPTION>
MARCH 31, MARCH 31, DECEMBER 31,
1996 1997 1997
----------- ----------- ------------
(UNAUDITED)
<S> <C> <C> <C>
Rental equipment........................ $18,335,170 $22,133,208 $26,466,262
Less accumulated depreciation........... 9,666,561 11,539,661 13,255,162
----------- ----------- -----------
$ 8,668,609 $10,593,547 $13,211,100
=========== =========== ===========
</TABLE>
F-96
<PAGE>
BNR GROUP OF COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(AMOUNTS EXPRESSED IN CANADIAN DOLLARS)
4. FIXED ASSETS:
<TABLE>
<CAPTION>
MARCH 31, MARCH 31, DECEMBER 31,
1996 1997 1997
---------- ---------- ------------
(UNAUDITED)
<S> <C> <C> <C>
Land.................................... $ 201,600 $ 201,600 $ 201,600
Buildings............................... 617,977 617,977 623,066
Office and shop equipment............... 319,208 337,252 363,774
Signs................................... 17,426 19,163 23,884
Vehicles................................ 53,020 53,020 388,361
Parking lot............................. -- 7,560 26,448
Leasehold improvements.................. 145,646 181,176 251,962
---------- ---------- ----------
1,354,877 1,417,748 1,879,095
Less accumulated depreciation and amor-
tization............................... 623,013 701,367 824,613
---------- ---------- ----------
$ 731,864 $ 716,381 $1,054,482
========== ========== ==========
</TABLE>
5. BANK INDEBTEDNESS AND SHORT-TERM BORROWINGS:
Bank indebtedness and short-term borrowings bear interest rates between prime
plus .50% to prime plus .75% and are secured by a general assignment of book
debts, security agreement over all inventories, first collateral mortgages and
demand debenture over land and buildings, a fixed charge and a chattel mortgage
over certain equipment and an assignment of fire insurance over buildings and
equipment.
6. LONG-TERM DEBT:
<TABLE>
<CAPTION>
MARCH 31, MARCH 31, DECEMBER 31,
1996 1997 1997
---------- ---------- ------------
(UNAUDITED)
<S> <C> <C> <C>
Bank loans, various term loans with
combined monthly payments of $123,078
(as at December 31, 1997) including
interest ranging from prime plus 1% to
prime plus 1.75% due from 1998 through
2001. Collateralized by certain
equipment and fixed assets............ $1,662,704 $2,406,572 $2,021,641
Lien notes, various notes with combined
monthly payments of $300,956 (as at
December 31, 1997) including interest
ranging from prime plus 1.25% to prime
plus 2%, due from 1998 through 2001.
Collateralized by specific equipment
...................................... 2,136,540 3,288,692 5,062,094
Other notes, various notes with
combined monthly payments of $26,106
(as at December 31, 1997) including
interest ranging from 2.9% to 10%, due
from 1998 through 2000. Collateralized
by specific equipment and vehicles.... 70,249 163,214 519,041
---------- ---------- ----------
3,869,493 5,858,478 7,602,776
Current portion of long-term debt...... 1,618,749 2,390,758 3,233,715
---------- ---------- ----------
$2,250,744 $3,467,720 $4,369,061
========== ========== ==========
</TABLE>
F-97
<PAGE>
BNR GROUP OF COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(AMOUNTS EXPRESSED IN CANADIAN DOLLARS)
6. LONG-TERM DEBT (CONTINUED):
Annual principal payments over each of the next four years are as follows:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1997 1997
----------- ------------
(UNAUDITED)
<S> <C> <C>
1998............ $ 2,390,758 $ 3,233,715
1999............ 1,878,097 2,696,223
2000............ 1,280,955 1,448,045
2001............ 308,668 224,793
----------- -----------
$ 5,858,478 $ 7,602,776
=========== ===========
</TABLE>
7. REDEEMABLE SHARES:
<TABLE>
<CAPTION>
MARCH 31, MARCH 31, DECEMBER 31,
1996 1997 1997
----------------- ----------------- ----------------- -------
(UNAUDITED)
# $ # $ # $
------- --------- ------- --------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BNR EQUIPMENT LIMITED (BNR
KITCHENER)
Authorized:
Unlimited number of
Class A special
shares, non-voting,
redeemable
Unlimited number of
Class B special
shares, non-voting,
redeemable
Issued:
Class B special
shares.............. 875,975 875,975 765,975 765,975 765,975 765,975
754643 ONTARIO LIMITED (BNR
OTTAWA)
Authorized:
Unlimited number of
special shares, non-
voting, redeemable
Issued:
Special shares....... 159,000 159,000 159,000 159,000 159,000 159,000
650310 ONTARIO LIMITED (BNR
BARRIE)
Authorized:
Unlimited number of
Class C special
shares, non-voting,
redeemable
Unlimited number of
Class D special
shares, non-voting,
redeemable
Issued:
Class C special
shares.............. 1,000 2,315,000 1,000 2,315,000 1,000 2,315,000
Class D special
shares.............. 185,000 185,000 185,000 185,000 185,000 185,000
766903 ONTARIO INC. (BNR OWEN
SOUND)
Authorized:
Unlimited number of
Class C special
shares, non-voting,
redeemable
Issued:
Class C special
shares.............. 1,000 1,000,000 1,000 1,000,000 1,000 1,000,000
--------- --------- ---------
4,534,975 4,424,975 4,424,975
========= ========= =========
</TABLE>
F-98
<PAGE>
BNR GROUP OF COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(AMOUNTS EXPRESSED IN CANADIAN DOLLARS)
7. REDEEMABLE SHARES (CONTINUED)
(a) Certain of the BNR Group of Companies have issued special shares, Class
B special shares and Class D special shares which are redeemable at the
holders option at $1 per share. Under Canadian generally accepted accounting
principles, these shares are presented as liabilities in the combined
financial statements at their redemption amounts.
(b) Certain of the BNR Group of Companies have issued Class C special shares
which are redeemable at the holders option at a fixed amount which is in
excess of their stated capital amounts. Under Canadian generally accepted
accounting principles, these Class C special shares are presented as
liabilities in the combined financial statements at their redemption amounts.
The excess of their redemption amounts over their paid-up capital amounts of
$3,314,990 has been charged to retained earnings.
(c) The special shares, Class B special shares, Class C special shares and
Class D special shares have no fixed redemption date and are redeemable at the
option of the holder. Dividends on these shares are discretionary. In the
event of liquidation, dissolution, or wind up of the companies, holders of
these shares are entitled to receive, in priority to all other classes, an
amount equal to the redemption amount plus any declared and unpaid dividends.
(d) Between May 8, 1995 and January 18, 1996, BNR Equipment Limited (BNR
Kitchener) redeemed 229,725 Class B special shares for $229,725.
Between April 18, 1996 and July 15, 1996, BNR Equipment Limited (BNR
Kitchener) redeemed 110,000 Class B special shares for $110,000.
F-99
<PAGE>
BNR GROUP OF COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(AMOUNTS EXPRESSED IN CANADIAN DOLLARS)
8. SHARE CAPITAL:
<TABLE>
<CAPTION>
MARCH 31, MARCH 31, DECEMBER 31,
1996 1997 1997
------------ ------------ ------------ -------
(UNAUDITED)
# $ # $ # $
----- ------ ----- ------ ----- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BNR EQUIPMENT LIMITED (BNR
KITCHENER)
Authorized:
Unlimited number of common
shares
Issued:
Common shares................. 6,000 13,693 6,000 13,693 6,000 13,693
754643 ONTARIO LIMITED (BNR OT-
TAWA)
Authorized:
Unlimited number of common
shares
Issued:
Common shares................. 100 100 100 100 100 100
650310 ONTARIO LIMITED (BNR
BARRIE)
Authorized:
Unlimited number of Class A
common shares................
Unlimited number of Class B
convertible common shares....
Issued:
Class B convertible common
shares....................... 600 1 600 1 600 1
766903 ONTARIO INC. (BNR OWEN
SOUND)
Authorized:
Unlimited number of Class A
common shares................
Unlimited number of Class B
convertible common shares....
Issued:
Class B convertible common
shares....................... 1,000 5 1,000 5 1,000 5
BNR EQUIPMENT INC. (BNR AMHERST)
Authorized:
Unlimited number of common
shares
Issued:
Common shares................. 100 69,520 100 69,520 100 69,520
------ ------ ------
83,319 83,319 83,319
====== ====== ======
</TABLE>
The Class B convertible common shares are convertible into an equivalent
number of Class A common shares for no additional consideration.
F-100
<PAGE>
BNR GROUP OF COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(AMOUNTS EXPRESSED IN CANADIAN DOLLARS)
9. INCOME TAXES:
The effective income tax rate differs from the statutory rate that would be
obtained by applying the combined basic federal, state and provincial tax rate
to earnings before income taxes. These differences result from the following
items:
<TABLE>
<CAPTION>
MARCH 31, MARCH 31, DECEMBER 31, DECEMBER 31,
1996 1997 1996 1997
--------- --------- ------------ ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Combined basic federal,
state and provincial tax
rate....................... 44.6% 44.6% 44.6% 44.6%
Increase (decrease) in
income tax rate resulting
from:
Tax reductions to certain
private companies.......... (12.0) (9.9) (11.3) (10.0)
Other permanent differ-
ences...................... (2.2) (1.9) (.6) .5
----- ---- ----- -----
Effective income tax rate... 30.4% 32.8% 32.7% 35.1%
===== ==== ===== =====
</TABLE>
10. COMMITMENTS:
The companies are committed to payments under operating leases for
equipment, vehicles and buildings. Annual payments over each of the next five
years are as follows:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1997 1997
---------- ------------
(UNAUDITED)
<S> <C> <C>
1998............ $ 789,000 $ 620,000
1999............ 446,000 522,000
2000............ 275,000 361,000
2001............ 122,000 238,000
2002............ 54,000 148,000
---------- ----------
$1,686,000 $1,889,000
========== ==========
</TABLE>
11. FINANCIAL INSTRUMENTS:
The carrying value of the companies' trade accounts receivable, bank
indebtedness, accounts payable, accrued liabilities, short-term borrowings and
redeemable shares approximate their fair values due to their demand nature or
relatively short periods to maturity.
The fair value of the companies' long-term debt have been determined to be
equal to their carrying values, as the current financing arrangements
represent the borrowing rate presently available to the companies for loans
with similar terms and maturities.
F-101
<PAGE>
BNR GROUP OF COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(AMOUNTS EXPRESSED IN CANADIAN DOLLARS)
12. RELATED PARTY TRANSACTIONS:
(a) The companies rent certain premises from officers and stockholders of
the companies.
The following are the amounts that have been expensed in each of the
periods:
<TABLE>
<S> <C>
March 31, 1997.................. $202,081
December 31, 1997 (unaudited)... 164,498
</TABLE>
(b) Included in note 10 are operating lease commitments with a company
controlled by certain stockholders:
The following are the amounts that have been expensed in each of the
periods:
<TABLE>
<S> <C>
March 31, 1997................... $57,523
December 31, 1997 (unaudited).... 57,391
</TABLE>
13. NATURE OF OPERATIONS AND SEGMENT INFORMATION:
The companies only significant activity is the rental and sale of industrial
supplies and power equipment. Geographically segmented information is as
follows:
<TABLE>
<CAPTION>
CANADA UNITED STATES TOTAL
MARCH 31, MARCH 31, MARCH 31,
----------------------- --------------------- -----------------------
YEAR ENDED 1996 1997 1996 1997 1996 1997
------------------------ ----------- ----------- --------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Revenues................ $21,812,899 $24,746,282 $ 597,161 $2,744,801 $22,410,060 $27,491,083
Operating earnings
(loss)................. 1,922,641 1,996,754 (158,234) (3,670) 1,764,407 1,993,084
Identifiable net
assets................. 1,307,530 1,821,554 208,875 569,394 1,516,405 2,390,948
</TABLE>
<TABLE>
<CAPTION>
CANADA UNITED STATES TOTAL
DECEMBER 31, DECEMBER 31, DECEMBER 31,
------------ ------------- ------------
NINE MONTHS ENDED 1997 1997 1997
------------------------------------- ------------ ------------- ------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
Revenues............................. $24,447,526 $3,628,169 $28,075,695
Operating earnings................... 3,137,274 361,202 3,498,476
Identifiable net assets.............. 3,251,422 1,069,005 4,320,427
</TABLE>
14. UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES:
The companies follow Canadian generally accepted accounting principles which
are different in some respects from those applicable in the United States.
(a) Since redemption of the shares described in note 7 is outside the
control of the companies, the shares are classified as liabilities under
Canadian GAAP. For U.S. GAAP purposes, such redeemable shares can be
classified outside stockholders' equity and below liabilities. This
classification difference has no impact on net income or stockholders' equity
for U.S. GAAP purposes.
(b) The income tax provision is based on the deferral method and adjustments
are generally not made for changes in income tax rates. Under U.S. GAAP,
deferred tax liabilities are measured using the enacted tax rate expected to
apply to taxable income in the periods in which the deferred tax liability is
expected to be settled.
F-102
<PAGE>
BNR GROUP OF COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(AMOUNTS EXPRESSED IN CANADIAN DOLLARS)
14. UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (CONTINUED):
The deferred income tax liability under U.S. GAAP as compared to Canadian
GAAP consists of the following temporary differences:
<TABLE>
<CAPTION>
YEAR YEAR NINE MONTHS
ENDED ENDED ENDED
MARCH 31, MARCH 31, DECEMBER 31,
1996 1997 1997
---------- ---------- ------------
(UNAUDITED)
<S> <C> <C> <C>
Rental Equipment and Fixed Assets--
Tax depreciation in excess of book
depreciation--
For U.S. GAAP........................... $1,257,257 $1,518,790 $1,833,228
For Canadian GAAP....................... 681,518 975,570 1,385,392
</TABLE>
(c) The following table presents a reconciliation of net earnings from
Canadian GAAP to U.S. GAAP:
<TABLE>
<CAPTION>
YEAR YEAR NINE MONTHS NINE MONTHS
ENDED ENDED ENDED ENDED
MARCH 31, MARCH 31, DECEMBER 31, DECEMBER 31,
1996 1997 1996 1997
--------- --------- ------------ ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Net earnings under Canadian
GAAP....................... $835,188 $874,543 $1,581,594 $1,933,979
Income tax adjustment under
the asset and liability
method..................... (66,853) 32,519 56,922 95,384
-------- -------- ---------- ----------
Net earnings under U.S.
GAAP....................... $768,335 $907,062 $1,638,516 $2,029,363
======== ======== ========== ==========
</TABLE>
(d) The following table presents stockholders' equity under U.S. GAAP:
<TABLE>
<CAPTION>
YEAR YEAR NINE MONTHS
ENDED ENDED ENDED
MARCH 31, MARCH 31, DECEMBER 31,
1996 1997 1997
---------- ---------- ------------
(UNAUDITED)
<S> <C> <C> <C>
Stockholders' equity under Canadian
GAAP................................. $1,516,405 $2,390,948 $4,320,427
Income tax adjustment under the asset
and liability method................. (575,739) (543,220) (447,836)
Stockholders' equity under U.S. GAAP.. 940,666 1,847,728 3,872,591
</TABLE>
15. SUBSEQUENT EVENT:
On January 22, 1998, all of the outstanding capital stock was acquired by
United Rentals, Inc. All of the shares described in note 7 and all of the
shares described in note 8, except for the shares of the U.S. company BNR
Equipment, Inc. (BNR Amherst) were cancelled and these Canadian companies of
the BNR Group of Companies amalgamated with United Rentals of Canada, Inc. on
January 30, 1998. Subsequent to December 31, 1997 and prior to the acquisition
by United Rentals, Inc., land and buildings with a carrying value of
approximately $500,000 were acquired by certain of the BNR Group of Companies'
stockholders for cash of $665,000 which was used by the companies to repay the
companies' debt. At the same time, the companies entered into operating lease
agreements with the stockholders with respect to these land and buildings.
F-103
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Stockholders
Adco Equipment, Inc.
We have audited the combined balance sheet of Adco Equipment, Inc. (see Note
1) (the "Companies") as of December 31, 1997 and the related combined
statements of operations, stockholders' equity and cash flows for the year
then ended. These financial statements are the responsibility of the
Companies' management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined financial position of Adco
Equipment, Inc. at December 31, 1997, and the combined results of their
operations and their cash flows for the year then ended in conformity with
generally accepted accounting principles.
/s/ Ernst & Young LLP
MetroPark, New Jersey
July 17, 1998
F-104
<PAGE>
ADCO EQUIPMENT, INC.
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER
31, JUNE 30,
ASSETS 1997 1998
------ ----------- -----------
(UNAUDITED)
<S> <C> <C>
Cash................................................... $ 1,634,205 $ 2,890,453
Accounts receivable, net of allowance for doubtful
accounts of $322,000 at 1997 and 1998................. 2,350,314 3,679,084
Inventory.............................................. 1,263,667 1,372,957
Rental equipment, net.................................. 8,227,480 8,597,740
Property and equipment, net............................ 891,894 821,862
Prepaid expenses and other assets...................... 60,172 61,127
----------- -----------
Total assets....................................... $14,427,732 $17,423,223
=========== ===========
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<S> <C> <C>
Liabilities:
Accounts payable, accrued expenses and other
liabilities......................................... $ 849,960 $ 725,516
Debt................................................. 2,526,175 3,124,603
Stockholder loan..................................... 200,000 200,000
----------- -----------
Total liabilities.................................. 3,576,135 4,050,119
Commitments and contingencies
Stockholders' equity:
Common stock, Adco Equipment, Inc., no par value,
7,500 shares authorized, 100 issued and outstanding;
Adco Equipment Supply, Inc., no par value, 7,500
shares authorized, 1,000 issued and outstanding..... 20,000 20,000
Retained earnings.................................... 10,831,597 13,353,104
----------- -----------
Total stockholders' equity......................... 10,851,597 13,373,104
----------- -----------
Total liabilities and stockholders' equity......... $14,427,732 $17,423,223
=========== ===========
</TABLE>
See accompanying notes.
F-105
<PAGE>
ADCO EQUIPMENT, INC.
COMBINED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE
YEAR ENDED 30,
DECEMBER ------------------------
31, 1997 1997 1998
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Revenues:
Equipment rentals..................... $16,313,470 $ 8,461,446 $ 9,298,812
Sales of parts, supplies and new
equipment............................ 6,968,972 3,619,348 4,012,727
----------- ----------- -----------
Total revenues.......................... 23,282,442 12,080,794 13,311,539
Cost of revenues:
Cost of equipment rentals, excluding
equipment rental depreciation........ 6,191,738 2,689,474 2,906,348
Depreciation, equipment rentals....... 2,465,331 1,232,666 1,393,939
Cost of parts, supplies and new
equipment sales...................... 5,932,862 3,111,352 3,467,749
----------- ----------- -----------
Total cost of revenues.................. 14,589,931 7,033,492 7,768,036
----------- ----------- -----------
Gross profit............................ 8,692,511 5,047,302 5,543,503
Selling, general and administrative
expenses............................... 6,374,453 3,063,353 2,991,891
Non-rental depreciation................. 249,572 124,786 143,020
----------- ----------- -----------
Operating income........................ 2,068,486 1,859,163 2,408,592
Interest expense........................ 267,639 143,470 141,892
Other (income), net..................... (226,501) (116,398) (254,807)
----------- ----------- -----------
Net income.......................... $ 2,027,348 $ 1,832,091 $ 2,521,507
=========== =========== ===========
</TABLE>
See accompanying notes.
F-106
<PAGE>
ADCO EQUIPMENT, INC.
COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK
-------------- RETAINED
SHARES AMOUNT EARNINGS
------ ------- -----------
<S> <C> <C> <C>
Balance at January 1, 1997.......................... 1,100 $20,000 $ 8,804,249
Net income.......................................... 2,027,348
----- ------- -----------
Balance at December 31, 1997........................ 1,100 20,000 10,831,597
Net income (unaudited).............................. 2,521,507
----- ------- -----------
Balance at June 30, 1998 (unaudited)................ 1,100 $20,000 $13,353,104
===== ======= ===========
</TABLE>
See accompanying notes.
F-107
<PAGE>
ADCO EQUIPMENT, INC.
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE
YEAR ENDED 30,
DECEMBER 31, ------------------------
1997 1997 1998
------------ ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income............................ $ 2,027,348 $ 1,832,091 $ 2,521,507
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation........................ 2,714,903 1,357,452 1,536,959
Changes in assets and liabilities:
Accounts receivable, net.......... 22,910 (906,199) (1,328,770)
Inventory......................... 500,839 229,882 (109,290)
Prepaid expenses and other
assets........................... (5,733) (25,819) (955)
Accounts payable, accrued expenses
and other liabilities............ (272,050) (578,559) (124,444)
----------- ----------- -----------
Total adjustments............... 2,960,869 76,757 (26,500)
----------- ----------- -----------
Cash provided by operating
activities..................... 4,988,217 1,908,848 2,495,007
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of rental equipment.......... (3,451,755) (1,797,573) (1,764,199)
Purchase of property and equipment.... (400,350) (61,723) (72,988)
----------- ----------- -----------
Cash used in investing activities..... (3,852,105) (1,859,296) (1,837,187)
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments on debt............ (1,712,003) (773,727) (1,250,521)
Borrowings on debt.................... 867,886 649,784 1,848,949
----------- ----------- -----------
Cash (used in) provided by financing
activities........................... (844,117) (123,943) 598,428
----------- ----------- -----------
Increase (decrease) in cash........... 291,995 (74,391) 1,256,248
Cash balance at beginning of period... 1,342,210 1,342,210 1,634,205
----------- ----------- -----------
Cash balance at end of period......... $ 1,634,205 $ 1,267,819 $ 2,890,453
=========== =========== ===========
</TABLE>
See accompanying notes.
F-108
<PAGE>
ADCO EQUIPMENT, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1997
(THE INFORMATION AS OF JUNE 30, 1998 AND FOR THE SIX MONTHS
ENDED JUNE 30, 1997 AND 1998 IS UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The combined financial statements of Adco Equipment, Inc. include the
accounts of Adco Equipment, Inc. ("Equipment") and Adco Equipment Supply, Inc.
("Supply") (collectively the "Companies"). The Companies are affiliated
through common ownership. All significant intercompany accounts and
transactions have been eliminated in combination.
These combined financial statements are prepared on a historical cost basis
and do not include any adjustments that may result from the acquisition of the
Companies by United Rentals, Inc. ("United") as more fully described in Note
9.
Business Activity
The Companies rent, sell and repair construction equipment for use by
construction, industrial, entertainment and municipal markets. The rentals are
on a daily, weekly or monthly basis. The Companies have two locations and
their principal market area is Southern California. The nature of the
Companies' business is such that short-term obligations are typically met by
cash flow generated from long-term assets. Consequently, consistent with
industry practice, the combined balance sheet is presented on an unclassified
basis.
Interim Financial Statements
The accompanying combined balance sheet at June 30, 1998 and the combined
statements of operations, stockholders' equity and cash flows for the six-
month periods ended June 30, 1997 and 1998 are unaudited and have been
prepared on the same basis as the audited combined financial statements
included herein. In the opinion of management, such unaudited combined
financial statements include all adjustments necessary to present fairly the
information set forth therein, which consist solely of normal recurring
adjustments. The combined results of operations for such interim period are
not necessarily indicative of results for the full year.
Inventory
Inventories consist primarily of general replacement parts and equipment
held for resale and are stated at the lower of cost, determined under the
first-in, first-out method, or market.
Rental Equipment
Rental equipment is recorded at cost. Depreciation for rental equipment is
computed using the straight-line method over an estimated five-year useful
life with no salvage value.
Ordinary maintenance and repair costs are charged to operations as incurred.
Proceeds from the disposal and the related net book value of the equipment are
recognized in the period of disposal and reported as revenue from sales of
equipment and cost of sales of equipment, respectively, in the combined
statement of operations.
F-109
<PAGE>
ADCO EQUIPMENT, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1997
(THE INFORMATION AS OF JUNE 30, 1998 AND FOR THE SIX MONTHS
ENDED JUNE 30, 1997 AND 1998 IS UNAUDITED)
Property and Equipment
Property and equipment is stated at cost. Depreciation of property and
equipment is computed on the straight-line method over an estimated five-year
useful life.
Ordinary maintenance and repair costs are charged to operations as incurred.
The cost of assets sold, retired, or otherwise disposed of, and the related
accumulated depreciation is eliminated from the accounts and any resulting
gain or loss is included in operations.
Rental Revenue
Rental revenue is recorded as earned under the operating method.
Advertising Costs
The Companies advertise primarily through trade journals, trade associations
and phone directories. All advertising costs are expensed as incurred.
Advertising expense amounted to approximately $50,800, $28,200 and $38,600 in
the year ended December 31, 1997 and for the six months ended June 30, 1997
and 1998, respectively.
Income Taxes
The Companies have elected, by unanimous consent of its shareholders, to be
taxed under the provisions of Subchapter S of the Internal Revenue Code for
federal purposes. Under those provisions, the Companies do not pay federal
income taxes; instead, the shareholders are liable for individual income taxes
on the Companies' profits.
Accounting Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
2. CONCENTRATIONS OF CREDIT RISK
The Companies maintain cash balances with a quality financial institution
and, consequently, management believes funds maintained there are secure.
Concentrations of credit risk with respect to customer receivables are limited
due to the large number of customers comprising the Companies' customer base
and its credit policy.
3. RENTAL EQUIPMENT
Rental equipment and related accumulated depreciation consists of the
following:
<TABLE>
<CAPTION>
DECEMBER JUNE 30,
31, 1997 1998
----------- -----------
(UNAUDITED)
<S> <C> <C>
Rental equipment................................. $28,619,154 $30,383,353
Less accumulated depreciation.................... 20,391,674 21,785,613
----------- -----------
Rental equipment, net............................ $ 8,227,480 $ 8,597,740
=========== ===========
</TABLE>
F-110
<PAGE>
ADCO EQUIPMENT, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1997
(THE INFORMATION AS OF JUNE 30, 1998 AND FOR THE SIX MONTHS
ENDED JUNE 30, 1997 AND 1998 IS UNAUDITED)
4. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1997 1998
------------ -----------
(UNAUDITED)
<S> <C> <C>
Transportation equipment......................... $2,201,586 $2,274,574
Furniture, fixtures and equipment................ 48,820 48,820
---------- ----------
2,250,406 2,323,394
Less accumulated depreciation.................... 1,358,512 1,501,532
---------- ----------
Property and equipment, net...................... $ 891,894 $ 821,862
========== ==========
</TABLE>
5. DEBT AND STOCKHOLDER LOAN
Debt and stockholder loan consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1997 1998
------------ -----------
(UNAUDITED)
<S> <C> <C>
Bank of America--Various notes with combined
monthly payments of $150,000 and $207,000 in
1997 and 1998, respectively, including
interest of 8%.............................. $2,526,175 $3,124,603
Stockholder Loan--No set principal payments,
nor due date. The loan accrues interest at a
rate of 10.25% per year..................... 200,000 200,000
---------- ----------
$2,726,175 $3,324,603
========== ==========
</TABLE>
Substantially all rental equipment collateralize the above Bank of America
notes which are secured by UCC Filings.
All debt was paid off in July 1998 in connection with the acquisition
discussed in Note 9.
6. RELATED PARTY TRANSACTIONS
During the year ended December 31, 1997 and the six months ended June 30,
1997 and 1998, the Companies paid $294,000, $147,000 and $147,000 for
equipment rental expenses to the principal stockholder.
The Companies conduct their operations primarily from two separate
facilities which are owned by the Companies principal stockholder. These
leases expire at June 30, 1998. The Companies are required to pay the property
taxes, maintenance and insurance for these facilities. Total rent expense paid
to related parties and charged to current operations totaled $330,000,
$165,000 and $165,000 for the year ended December 31, 1997 and six months
ended June 30, 1997 and 1998, respectively.
In connection with the acquisition discussed in Note 9, the lease terms with
related parties have been renegotiated.
F-111
<PAGE>
ADCO EQUIPMENT, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1997
(THE INFORMATION AS OF JUNE 30, 1998 AND FOR THE SIX MONTHS
ENDED JUNE 30, 1997 AND 1998 IS UNAUDITED)
7. SUPPLEMENTAL CASH FLOW INFORMATION
For the year ended December 31, 1997 and the six months ended June 30, 1997
and 1998, total interest paid was approximately $267,600, $121,900 and
$106,900, respectively.
8. EMPLOYEE PROFIT SHARING PLAN
Equipment maintains a profit-sharing plan which covers substantially all
employees. Equipment's contributions are discretionary and amounted to
$160,000, $0 and $0 for the year ended December 31, 1997 and for the six
months ended June 30, 1997 and 1998, respectively.
9. SUBSEQUENT EVENT
On July 2, 1998, under the terms of the stock purchase agreement, United
purchased all of the issued and outstanding capital stock of the Companies.
F-112
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders of McClinch, Inc.:
We have audited the accompanying consolidated balance sheet of McClinch Inc.
and Subsidiaries as of January 31, 1998, and the related consolidated
statements of income and retained earnings and cash flows for the year then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of McClinch,
Inc. and Subsidiaries as of January 31, 1998, and the consolidated results of
their operations and their cash flows for the year then ended in conformity
with generally accepted accounting principles.
Coopers & Lybrand L.L.P.
Stamford, Connecticut March 25, 1998
F-113
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
October 28, 1998
To the Stockholders of
McClinch, Inc.:
In our opinion, the accompanying consolidated balance sheet presents fairly,
in all material respects, the financial position of McClinch, Inc. and
Subsidiaries at August 31, 1998 in conformity with generally accepted
accounting principles. This financial statement is the responsibility of the
Company's management; 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.
PricewaterhouseCoopers LLP
F-114
<PAGE>
MCCLINCH, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JANUARY 31, AUGUST 31,
1998 1998
----------- -----------
<S> <C> <C>
ASSETS:
Cash and cash equivalents........................... $ 754,000 $ 2,545,000
Accounts receivable, less allowance for doubtful
accounts of $106,000 and $151,000.................. 4,168,000 4,334,000
Due from related parties (Note 6)................... 293,000 1,295,000
Inventories......................................... 1,181,000 1,281,000
Net investment in sales-type leases (Note 3)........ 32,000 9,000
Property and rental equipment, net (Note 4)......... 17,249,000 21,230,000
Other assets........................................ 217,000 228,000
----------- -----------
Total assets...................................... $23,894,000 $30,922,000
=========== ===========
LIABILITIES:
Notes payable (Note 5).............................. $10,388,000 $15,446,000
Accounts payable and accrued expenses............... 1,759,000 1,631,000
Income taxes payable................................ 1,000 324,000
Deferred income taxes............................... 2,476,000 2,660,000
----------- -----------
Total liabilities................................. 14,624,000 20,061,000
----------- -----------
Commitments (Note 9)
STOCKHOLDERS' EQUITY:
Common stock, no par value; authorized, issued and
outstanding, 1,000 shares.......................... 26,000 26,000
Retained earnings................................... 9,862,000 11,453,000
Treasury stock, at cost; 103 shares (Note 6)........ (618,000) (618,000)
----------- -----------
Total stockholders' equity........................ 9,270,000 10,861,000
----------- -----------
Total liabilities and stockholders' equity........ $23,894,000 $30,922,000
=========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-115
<PAGE>
MCCLINCH, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
<TABLE>
<CAPTION>
SEVEN MONTHS ENDED
YEAR ENDED AUGUST 31,
JANUARY 31, -----------------------
1998 1998 1997
----------- ----------- ----------
(UNAUDITED)
<S> <C> <C> <C>
Revenues:
Equipment rentals and service (Note
6).................................... $18,474,000 $12,419,000 $9,776,000
Sales.................................. 4,659,000 3,522,000 2,770,000
----------- ----------- ----------
23,133,000 15,941,000 12,546,000
Cost of equipment rentals and service.... 11,672,000 8,221,000 6,138,000
Cost of sales............................ 2,843,000 2,121,000 1,734,000
----------- ----------- ----------
Gross profit......................... 8,618,000 5,599,000 4,674,000
Selling expenses......................... 1,484,000 890,000 664,000
General and administrative expenses...... 3,136,000 1,503,000 1,336,000
----------- ----------- ----------
3,998,000 3,206,000 2,674,000
Other income (expenses):
Interest income........................ 134,000 23,000 70,000
Interest expense....................... (1,028,000) (591,000) (589,000)
Rental of property, net (Note 9)....... 71,000 18,000 43,000
Other income........................... 44,000 9,000 1,000
Loss on sale of property............... -- (130,000) --
----------- ----------- ----------
Income before provision for income
taxes............................... 3,219,000 2,535,000 2,199,000
Provision for income taxes (Note 7)...... 1,082,000 944,000 964,000
----------- ----------- ----------
Net income........................... 2,137,000 1,591,000 1,235,000
Retained earnings, beginning of period... 7,793,000 9,862,000 7,793,000
Dividends paid........................... (68,000) -- --
----------- ----------- ----------
Retained earnings, end of period..... $ 9,862,000 $11,453,000 $9,028,000
=========== =========== ==========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-116
<PAGE>
MCCLINCH, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SEVEN MONTHS ENDED
YEAR ENDED AUGUST 31,
JANUARY 31, ------------------------
1998 1998 1997
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 2,137,000 $ 1,591,000 $ 1,235,000
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation......................... 3,387,000 2,343,000 1,916,000
Gain on sale of property and rental
equipment........................... (1,313,000) (903,000) (740,000)
Deferred income taxes................ 328,000 184,000 385,000
----------- ----------- -----------
4,539,000 3,215,000 2,796,000
Changes in assets and liabilities:
Accounts receivable................ (643,000) (166,000) (529,000)
Due to or from related parties for
operating expenses................ 519,000 (837,000) (13,000)
Current income taxes receivable.... 58,000 -- 58,000
Inventories........................ (201,000) (100,000) (76,000)
Other assets....................... (165,000) (11,000) (18,000)
Accounts payable and accrued ex-
penses............................ 201,000 (128,000) (402,000)
Income taxes payable............... 1,000 323,000 168,000
----------- ----------- -----------
Net cash provided by operating
activities...................... 4,309,000 2,296,000 1,984,000
----------- ----------- -----------
Cash flows from investing activities:
Advances to related parties.......... (318,000) (165,000) (188,000)
Acquisition of property and rental
equipment........................... (7,227,000) (7,593,000) (5,935,000)
Proceeds from sale of property and
rental equipment.................... 2,292,000 2,172,000 1,448,000
Net investment in sales-type leases.. 88,000 23,000 80,000
----------- ----------- -----------
Net cash used in investing
activities...................... (5,165,000) (5,563,000) (4,595,000)
----------- ----------- -----------
Cash flows from financing activities:
Repayments of notes payable.......... (8,040,000) (4,352,000) (3,788,000)
Borrowings of notes payable.......... 7,145,000 9,410,000 6,000,000
Repayment of note payable to related
party............................... (41,000) -- (41,000)
Dividends paid....................... (68,000) -- --
----------- ----------- -----------
Net cash (used in) provided by
financing activities............ (1,004,000) 5,058,000 2,171,000
----------- ----------- -----------
Net increase (decrease) in cash
and cash equivalents............ (1,860,000) 1,791,000 (440,000)
Cash and cash equivalents, beginning of
period................................ 2,614,000 754,000 2,614,000
----------- ----------- -----------
Cash and cash equivalents, end of
period.......................... $ 754,000 $ 2,545,000 $ 2,174,000
=========== =========== ===========
Supplemental disclosure of cash flow
information:
Cash paid during the period for:
Interest........................... $ 1,029,000 $ 562,000 $ 572,000
Income taxes, net of refunds....... 695,000 437,000 353,000
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-117
<PAGE>
MCCLINCH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(ALL INFORMATION FOR THE SEVEN MONTHS ENDED AUGUST 31, 1998 AND 1997 IS
UNAUDITED)
1. BUSINESS AND ORGANIZATION
The accompanying consolidated financial statements include the accounts of
McClinch, Inc. and its wholly-owned subsidiaries McClinch Leasing Corporation,
McClinch Equipment Corporation, McClinch Crane Services, Inc. and McClinch
Aviation Corporation, (the "Company"). During August of 1998 McClinch Aviation
Corporation was sold to a shareholder for approximately net book value.
The Company is an exclusive dealer for JLG Industries, Inc. and Genie
Industries in the State of Connecticut, metropolitan New York, Long Island,
Westchester County and other counties in New York State. The Company is also
an exclusive dealer for Lull Corporation in various counties in the States of
Connecticut and New York. In addition, the Company has distribution agreements
with other manufacturers in Connecticut and New York. The Company's revenues
are derived principally from the rental of aerialift and material handling
equipment and the sale of new and used equipment to a diversified customer
base including contractors and other users.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation:
The consolidated balance sheet is presented on an unclassified basis since
it more properly reflects the Company's operations as a rental equipment
company.
Basis of Consolidation:
All intercompany transactions and balances have been eliminated.
Interim Financial Statements:
The accompanying statements of income and retained earnings and cash flows
for the seven month periods ended August 31, 1998 and 1997 are unaudited and
have been prepared on the same basis as the audited financial statements
included herein. In the opinion of management, such unaudited financial
statements include all adjustments necessary to present fairly the information
set forth therein, which consists solely of normal recurring adjustments. The
results of operations for such interim periods are not necessarily indicative
of results for the full year.
Revenue Recognition:
Operating Leases--Rental revenue is recognized over the lease term
(generally less than one year) as earned.
Sales-Type Leases--Sales are recorded at amounts equal to the present value
of the minimum lease payments at the inception of the lease. The unearned
interest income represents the difference between the minimum lease payments
and the present value of such payments. Such interest income is recognized
over the life of the lease using the interest method.
Cash and Cash Equivalents:
Cash and cash equivalents consist primarily of cash in banks and temporary
cash investments, which consist principally of U.S. Treasury Notes, with
original maturities of less than 90 days. Temporary cash investments of
$144,000 as of January 31, 1998, are recorded at cost plus accrued interest
which approximates market value. The Company maintains all of its cash
balances in one institution. These balances are insured by the Federal Deposit
Insurance Corporation up to $100,000.
F-118
<PAGE>
MCCLINCH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(ALL INFORMATION FOR THE SEVEN MONTHS ENDED AUGUST 31, 1998 AND 1997 IS
UNAUDITED)
Inventories:
Inventories, consisting principally of aerialift equipment and related spare
parts, are recorded at the lower of first-in, first-out cost or market.
Property and Rental Equipment:
Property and rental equipment, consisting principally of the Company's
rental fleet of aerialift and material handling equipment, is stated at cost
and is depreciated using the straight-line method over the following estimated
useful lives: buildings and building improvements, 30 years; rental equipment,
furniture and fixtures and computer equipment, 7 years; and vehicles, 5 years.
Upon retirement or sale, the cost and related accumulated depreciation are
removed from the accounts and the resulting gains or losses are included in
income.
Income Taxes:
The Company recognizes deferred tax assets and liabilities for the expected
future tax consequences of events that have been recognized in a company's
financial statements or tax returns. Under this method, deferred tax assets
and liabilities are determined based on the differences between the financial
statement carrying amounts and the tax bases of assets and liabilities using
enacted tax rates in effect in the years in which the temporary differences
are expected to reverse.
Estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Reclassifications:
Certain amounts have been reclassified between balance sheet accounts to
more properly reflect the nature of the item.
3. SALES-TYPE LEASES
The net investment in sales-type leases consists of the following:
<TABLE>
<CAPTION>
JANUARY 31, AUGUST 31,
1998 1998
----------- ----------
<S> <C> <C>
Minimum lease payments receivable.................... $34,000 $10,000
Lease, Unearned interest income.................... (2,000) (1,000)
------- -------
Net investment in sales-type leases.................. $32,000 $ 9,000
======= =======
Minimum lease payments as of January 31, 1998 and August 31, 1998 are
receivable as follows:
<CAPTION>
ISCAL YEARF
- -----------
JANUARY 31, AUGUST 31,
1998 1998
----------- ----------
<S> <C> <C>
1999................................................. $29,000 $ 5,000
2000................................................. 5,000 5,000
</TABLE>
F-119
<PAGE>
MCCLINCH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(ALL INFORMATION FOR THE SEVEN MONTHS ENDED AUGUST 31, 1998 AND 1997 IS
UNAUDITED)
4. PROPERTY AND RENTAL EQUIPMENT
Property and rental equipment consists of the following:
<TABLE>
<CAPTION>
JANUARY 31, AUGUST 31,
1998 1998
------------ ------------
<S> <C> <C>
Rental equipment................................. $ 30,965,000 $ 35,119,000
Land............................................. 530,000 130,000
Buildings and improvements....................... 377,000 200,100
Vehicles......................................... 2,381,000 2,652,000
Furniture, fixtures and computer equipment....... 528,000 640,000
------------ ------------
34,781,000 38,241,000
Less, Accumulated depreciation................. (17,532,000) (17,511,000)
------------ ------------
Total........................................ $ 17,249,000 $ 21,230,000
============ ============
</TABLE>
5. NOTES PAYABLE
Notes payable consists of the following:
<TABLE>
<CAPTION>
JANUARY 31, AUGUST 31,
1998 1998
----------- -----------
<S> <C> <C>
Note payable to a bank syndicate bearing interest at
LIBOR plus 1 3/4%.................................. $ 9,695,000 $15,000,000
Note payable to Citicorp Dealer Finance bearing
interest at 8.5%, payable in monthly installments
of $7,839 through September 2004, including
interest........................................... 477,000 446,000
First mortgage to Edith Godwin on real property
located in Bridgeport, Connecticut, bearing
interest at 9.0%, payable in monthly installments
of $3,066 through January 2002, including
interest........................................... 123,000 --
Notes payable to Orix Credit Alliance bearing
interest at 8.5%, payable in monthly installments
of $3,657 through May 2000, including interest..... 93,000 --
----------- -----------
$10,388,000 $15,446,000
=========== ===========
</TABLE>
The Company has available a revolving line of credit with a bank syndicate
totaling the lesser of $22,000,000, or an amount based on eligible accounts
receivable, parts inventory, new equipment inventory, vehicles and rental
equipment. The line of credit includes cross-guarantees of amounts outstanding
with affiliates which amounted to approximately $17,935,000 and $22,550,000 at
January 31, 1998 and August 31, 1998, respectively. The unused portion of the
line of credit was $12,305,000 and $7,000,000 at January 31, 1998 and August
31, 1998, respectively. The Company pays a commitment fee of 1/4% per annum on
the unused portion of the line of credit.
The outstanding balance bears interest at a fluctuating 30-day LIBOR rate
plus 1 3/4% (7.38% and 7.4% at January 31, 1998 and August 31, 1998,
respectively). The Company has the option to borrow additional funds and/or
convert all or a portion of the outstanding balance to a fluctuating interest
rate equal to the lender's prime rate plus 1/2% or a fixed LIBOR rate plus 1
3/4%, for 90, 180 or 360 days.
F-120
<PAGE>
MCCLINCH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(ALL INFORMATION FOR THE SEVEN MONTHS ENDED AUGUST 31, 1998 AND 1997 IS
UNAUDITED)
The line of credit terminates on November 30, 1999 and extends automatically
every six months unless either party gives written notice to the other. Upon
termination or default, amounts outstanding under this line of credit convert
to a note which is payable in at least 48 monthly installments.
Although no fixed payments are required under the revolving credit
agreement, the Company expects aggregate maturities under this agreement and
other notes payable at January 31, 1998 to approximate the following:
<TABLE>
<CAPTION>
FISCAL YEAR
---------------------------------------------------------------
<S> <C>
1999........................................................... $2,544,000
2000........................................................... 2,554,000
2001........................................................... 2,536,000
2002........................................................... 2,530,000
2003........................................................... 78,000
Thereafter..................................................... 146,000
</TABLE>
The lenders require, among other terms, that the Company and its affiliate
(see Note 6) on a combined basis meet certain financial ratios and obtain
approval prior to the issuing of advances or loans to stockholders or officers
which exceed certain amounts, as defined.
Substantially all of the assets of the Company have been pledged as
collateral under the debt agreement. On September 1, 1998, the notes payable
to the bank syndicate and Citicorp were paid in full (see Note 10).
6. RELATED PARTY TRANSACTIONS
Due from related parties consists of the following:
<TABLE>
<CAPTION>
JANUARY 31, AUGUST 31,
1998 1998
----------- ----------
<S> <C> <C>
Due (to) from affiliated companies................... $(72,000) $ 764,000
Loans receivable from officer/stockholder............ 365,000 531,000
-------- ----------
$293,000 $1,295,000
======== ==========
</TABLE>
The Company rents equipment from affiliates with common ownership under
informal equipment sharing agreements for ultimate rental to customers in New
York and Connecticut. In addition, the Company rents equipment to affiliates
for ultimate rental to the affiliates' customers. The net expenses incurred or
net revenue earned (included in cost of equipment rentals and service) by the
Company under these arrangements were net expenses incurred of $744,000 for
the year ended January 31, 1998 and $609,000 for the seven months ended August
31, 1998, and net revenues earned of $174,000 for the seven months ended
August 31, 1997. In addition, the Company provides services to affiliates in
connection with their operations. The primary expenses incurred and paid by
the Company, which are allocated or billed to the affiliates include salaries
($2,059,000, for the year ended January 31, 1998 and $750,000 and $416,000 for
the seven months ended August 31, 1998 and 1997, respectively, deducted from
general and administrative expenses and $154,000 for the year ended January
31, 1998 and $-0- and $104,000 for the seven months ended August 31, 1998 and
1997, respectively, deducted from selling expenses), spare parts inventory,
trucking services and insurance expenses ($699,000 for the year ended January
31, 1998 and $522,000 and $478,000 for the seven months ended August 31, 1998
and 1997, respectively, included in cost of equipment rentals and service).
F-121
<PAGE>
MCCLINCH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(ALL INFORMATION FOR THE SEVEN MONTHS ENDED AUGUST 31, 1998 AND 1997 IS
UNAUDITED)
During fiscal year 1998, the Company purchased $243,000 ($75,000 and
$146,000 during the seven months ended August 31, 1998 and 1997, respectively)
of used machinery and equipment from an affiliate for ultimate sale to
unrelated third parties. Additionally, the Company sold used machinery and
equipment with a selling price of $980,000 ($621,000 and $776,000 during the
seven months ended August 31, 1998 and 1997, respectively) to an affiliate for
ultimate sale to unrelated third parties.
These transactions are settled in the normal course of business.
Loans to officer/stockholder are due on demand and bear interest at the
applicable federal rate (5.66%) as published by the Internal Revenue Service.
The loans were repaid on September 1, 1998 (see Note 10).
Pursuant to a stockholders agreement between the Company and certain of its
stockholders, a stockholder desiring to sell its shares of common stock must
first offer them to the Company. The repurchase price is based on a formula of
one and one-half times the Company's consolidated book value at the end of the
fiscal year preceding the date on which the sale is made.
Refer to Note 9 for commitments with related parties.
7. INCOME TAXES
The components of the provision for income taxes are as follows:
<TABLE>
<CAPTION>
SEVEN
MONTHS ENDED
YEAR ENDED AUGUST 31,
JANUARY 31, ------------------
1998 1998 1997
----------- -------- --------
<S> <C> <C> <C>
Current:
State and local............................. $ 232,000 $236,000 $173,000
Federal..................................... 522,000 524,000 406,000
---------- -------- --------
754,000 760,000 579,000
Deferred:
State and local............................. 57,000 (138,000) 115,000
Federal..................................... 271,000 322,000 270,000
---------- -------- --------
328,000 184,000 385,000
---------- -------- --------
$1,082,000 $944,000 $964,000
========== ======== ========
</TABLE>
The components of deferred tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
JANUARY 31, AUGUST 31,
1998 1998
----------- -----------
<S> <C> <C>
Deferred tax assets:
Accounts receivable............................. $ 37,000 $ 62,000
Deferred tax liabilities:
Property and rental equipment and other......... (2,513,000) (2,722,000)
----------- -----------
$(2,476,000) $(2,660,000)
=========== ===========
</TABLE>
No valuation allowance has been recognized for deferred tax assets.
F-122
<PAGE>
MCCLINCH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(ALL INFORMATION FOR THE SEVEN MONTHS ENDED AUGUST 31, 1998 AND 1997 IS
UNAUDITED)
The income tax provision differs from the provision computed at the
statutory rate as follows:
<TABLE>
<CAPTION>
SEVEN MONTHS
ENDED
YEAR ENDED AUGUST 31,
JANUARY 31, ---------------
1998 1998 1997
----------- ------ ------
<S> <C> <C> <C>
Federal statutory tax rate.................... 34 34 34
Tax effect of state taxes..................... 9 9 9
Reduction for changes in enacted state tax
rates........................................ (3) (5) --
Cash surrender value of life insurance........ (2) -- --
Certain adjustments for prior estimates....... (4) (1) --
--- ------ ------
Provision as reported....................... 34% 37% 43%
=== ====== ======
</TABLE>
8. PROFIT-SHARING PLAN
The Company participates in a profit sharing plan with its affiliates which
provides for a discretionary contribution to a trust fund based on the
Company's net income for the year, to be allocated to all eligible employees
based on their proportional compensation. Nonunion employees are eligible for
participation in the plan after the completion of one year of service,
provided they have also reached age 21. After becoming eligible, employees
vest at an annual rate of 20%. Discretionary contributions under the plan were
$150,000 for the year ended January 31, 1998. There were no discretionary
contributions for the six months ended August 31, 1998 and 1997, respectively.
The plan also provides for a salary deferral plan pursuant to Section 401(k)
of the Internal Revenue Code, as amended. The plan requires the Company to
contribute 25% of employee's contributions not to exceed 6% of their annual
compensation up to $160,000. Participants vest in the Company's contribution
at the rate of 20% annually after becoming eligible. Matching contributions
under the plan by the Company were $27,000 for the year ended January 31, 1998
and $20,000 and $13,000 for the seven months ended August 31, 1998 and 1997,
respectively.
9. COMMITMENTS
The Company has a formal employment agreement with an officer of the Company
which extends through February 1999. The agreement provides for a minimum
annual salary and a bonus based upon the Company's performance.
The Company owns land and buildings which it rents to a third party in the
form of an operating lease. Future minimum rental income from this
noncancelable operating lease as of January 31, 1998 amounted to approximately
$58,000 which is expected to be received as follows: 1999, $30,000; 2000,
$28,000.
F-123
<PAGE>
MCCLINCH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(ALL INFORMATION FOR THE SEVEN MONTHS ENDED AUGUST 31, 1998 AND 1997 IS
UNAUDITED)
The Company leases a building from an affiliated company under the terms of
a lease expiring on July 31, 1999. The Company guarantees the debt of the
affiliated company which was $1,681,000 and $1,627,000 at January 31, 1998 and
August 31, 1998, respectively. Additionally, the Company has commitments under
an operating lease, expiring in 2002, with Fleet Capital Corporation for an
aircraft (See Note 1). The lease provides the Company with certain end of term
rights and early purchase options. The following is a schedule of all future
minimum lease payments, as of August 31, 1998:
<TABLE>
<CAPTION>
FISCAL YEAR
-----------
<S> <C>
1999............................................................ $135,000
2000............................................................ 135,000
--------
$270,000
========
</TABLE>
Total rent expense was $329,000, $192,000 and $192,000 for the year ended
January 31, 1998 and the seven months ended August 31, 1998 and 1997,
respectively.
10. SUBSEQUENT EVENT
On September 1, 1998, United Rentals, Inc. acquired all of the outstanding
shares of common stock of the Company.
F-124
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors
Industrial Lift, Inc.
Vincentown, New Jersey
We have audited the accompanying balance sheets of Industrial Lift, Inc. (a
New Jersey State Corporation) as of December 31, 1996 and 1997, and the
related statements of income, retained earnings and cash flows for the years
then ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statements presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Industrial Lift, Inc. as
of December 31, 1996 and 1997, and the results of its operations and its cash
flows for the years then ended in conformity with generally accepted
accounting principles.
/s/ Schalleur & Surgent, LLC
Devon, Pennsylvania
February 26, 1998, except for
Note J which is as of
September 15, 1998
F-125
<PAGE>
INDUSTRIAL LIFT, INC.
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------- MAY 12,
1996 1997 1998
------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
Current assets:
Cash............................... $ 186,093 $ 533,499 $ 297,689
Accounts receivable--trade......... 1,853,061 2,485,668 1,823,681
Investment in sales--type leases
(Note D).......................... 390,009 274,181 336,827
Inventory (Note C)................. 1,468,070 2,501,870 2,854,061
Prepaid expenses................... 45,361 39,289 35,712
------------ ------------ ------------
Total current assets........... 3,942,594 5,834,507 5,337,980
------------ ------------ ------------
Property, plant and equipment: (Note
A)
Rental equipment................... 17,660,046 18,533,702 18,118,513
Land............................... 40,393 40,393 40,393
Building........................... 650,000 650,000 650,000
Machinery and equipment............ 739,126 748,735 666,316
------------ ------------ ------------
19,089,565 19,972,830 19,475,222
Less: accumulated depreciation..... (11,049,573) (11,879,828) (11,828,604)
------------ ------------ ------------
Net property, plant and
equipment....................... 8,039,992 8,093,002 7,646,618
------------ ------------ ------------
Other assets:
Security deposits.................. 4,443 8,412 8,412
Investment in sales--type leases
(Note D).......................... 1,823,833 1,282,955 1,529,343
Notes receivable--officers (Note
G)................................ 455,068 438,319 573,319
------------ ------------ ------------
Total other assets............. 2,283,344 1,729,686 2,111,074
------------ ------------ ------------
Total assets................... $ 14,265,930 $ 15,657,195 $ 15,095,672
============ ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt
(Note E).......................... $ 3,620,426 $ 5,398,778 $ 3,459,388
Accounts payable................... 590,032 352,571 155,957
Accrued expenses (Note G).......... 136,181 182,362 77,581
Deposits and credits............... 74,500 335,441 196,490
------------ ------------ ------------
Total current liabilities........ 4,421,139 6,269,152 3,889,416
Long-term liabilities:
Long-term debt, net of current por-
tion (Note E)..................... 8,405,283 7,271,718 9,518,587
------------ ------------ ------------
Total liabilities................ 12,826,422 13,540,870 13,408,003
------------ ------------ ------------
Stockholders' equity:
Capital stock, no par value, 1,000
shares authorized, 200 shares
issued and outstanding............ 220,000 220,000 220,000
Retained earnings.................. 1,219,508 1,896,325 1,467,669
------------ ------------ ------------
Total stockholders' equity....... 1,439,508 2,116,325 1,687,669
------------ ------------ ------------
Total liabilities & equity....... $ 14,265,930 $ 15,657,195 $ 15,095,672
============ ============ ============
</TABLE>
See accountant's audit report and notes to the financial statements.
F-126
<PAGE>
INDUSTRIAL LIFT, INC.
STATEMENTS OF INCOME AND RETAINED EARNINGS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED FOR THE PERIOD ENDED
DECEMBER 31, MAY 12, 1998
----------------------- ----------------------
<S> <C> <C> <C> <C>
1996 1997 1997 1998
----------- ----------- ---------- ----------
(UNAUDITED)
Income
Sales, rentals, services, and
interest on leases.......... $15,873,782 $21,502,996 $8,221,446 $7,754,774
Cost of sales
Beginning inventory.......... 1,341,337 1,468,070 1,468,070 2,501,870
Purchases.................... 5,527,726 11,027,711 2,932,170 3,842,272
Direct labor................. 826,677 710,655 470,211 545,665
Cost of used equipment
sales....................... 471,293 900,367 374,284 329,470
Other costs.................. 4,016,301 4,005,126 2,601,818 1,543,505
----------- ----------- ---------- ----------
Total goods available for
sale...................... 12,183,334 18,111,929 7,846,553 8,762,782
Less: ending inventory..... 1,468,070 2,501,870 1,724,926 2,854,061
----------- ----------- ---------- ----------
Total cost of sales........ 10,715,264 15,610,059 6,121,627 5,908,721
----------- ----------- ---------- ----------
Gross profit................... 5,158,518 5,892,937 2,099,819 1,846,053
Operating expenses............. 5,146,620 5,264,130 1,903,993 2,314,803
----------- ----------- ---------- ----------
Net income from operations..... 11,898 628,807 195,826 (468,750)
----------- ----------- ---------- ----------
Other income
Gain on disposal of non-
rental assets............... 24,228 14,861 8,807 24,482
Miscellaneous income......... 707 1,219 (2,814) 1,809
Interest income.............. 18,909 31,930 304 13,803
----------- ----------- ---------- ----------
Total other income......... 43,844 48,010 6,297 40,094
----------- ----------- ---------- ----------
Net income .................... 55,742 676,817 202,123 (428,656)
Retained earnings--beginning... 1,163,766 1,219,508 1,219,508 1,896,325
----------- ----------- ---------- ----------
Retained earnings--ending...... $ 1,219,508 $ 1,896,325 $1,421,631 $1,467,669
=========== =========== ========== ==========
</TABLE>
See accountant's audit report and notes to the financial statements.
F-127
<PAGE>
INDUSTRIAL LIFT, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED FOR THE PERIOD ENDED
DECEMBER 31, MAY 12,
---------------------- ---------------------
1996 1997 1997 1998
---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Cash flows from operating
activities:
Net income................... $ 55,742 $ 676,817 $ 202,123 $ (428,656)
Adjustments to reconcile net
income to net cash provided by
operating activities:
Depreciation................. 1,717,389 1,639,844 616,669 655,600
Gain on sale of assets....... (436,420) (477,760) (198,633) (171,595)
(Increase)/decrease in:
Accounts receivable--trade... 136,810 (632,607) (414,358) 661,987
Inventory.................... (126,733) (1,033,800) (256,856) (352,191)
Prepaid expenses............. 4,682 6,072 3,577
Security deposits............ -- (3,969) (4,014) --
Increase/(decrease) in:
Accounts payable............. (94,283) (237,461) (329,106) (196,614)
Accrued expenses............. 22,068 46,181 19,864 (104,781)
Deposits and credits......... 74,500 260,941 (60,376) (138,952)
---------- ---------- --------- ----------
Net cash provided/(used)
operating activities.......... 1,353,755 244,258 (424,687) (71,625)
---------- ---------- --------- ----------
Cash flows from investing
activities:
Capital expenditures--
property, plant and
equipment................... (2,066,163) (2,153,839) (897,450) (346,778)
Proceeds on sale of
equipment................... 1,076,908 1,465,872 247,485 367,519
Investment in sales--type
leases...................... (966,008) (185,545) (91,209) (458,764)
Proceeds received on lease
payments.................... 352,191 315,124 103,956 101,359
---------- ---------- --------- ----------
Net cash provided/(used) by
investing activities.......... (1,603,072) (558,388) (637,218) (336,664)
---------- ---------- --------- ----------
Cash flows from financing
activities:
Net borrowing/(repayments) on
note payable................ 258,175 644,787 975,812 307,479
(Advances)/repayments on note
receivable--officers........ (2,156) 16,749 (100,000) (135,000)
---------- ---------- --------- ----------
Net cash provided/(used) by
financing activities.......... 256,019 661,536 875,812 172,479
---------- ---------- --------- ----------
Net inc/(decrease) in cash and
cash equivalents.............. 6,702 347,406 (186,093) (235,810)
Cash--Beginning of the year.... 179,391 186,093 186,093 533,499
---------- ---------- --------- ----------
Cash--End of the year.......... $ 186,093 $ 533,499 $ 0 $ 297,689
========== ========== ========= ==========
Supplementary disclosure of
cash flow information:
Interest paid................ $1,097,114 $1,179,133 $ 334,261 $ 493,040
========== ========== ========= ==========
</TABLE>
See accountant's audit report and notes to the financial statements
F-128
<PAGE>
INDUSTRIAL LIFT, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1997
(THE INFORMATION AS OF MAY 12, 1998 AND
FOR THE PERIOD ENDED MAY 12, 1997 AND 1998 IS UNAUDITED)
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS ACTIVITY
Industrial Lift, Inc. (the Company) is engaged in selling, rental and
leasing of commercial lift equipment. The Company's headquarters are located
in Vincentown, New Jersey and also has plant locations in Odenton, Maryland,
Newport News, Virginia, and Ashland, Virginia.
INTERIM FINANCIAL STATEMENTS
The accompanying balance sheet as of May 12, 1998 and the statements of
income and retained earnings and cash flows for the period ended May 12, 1997
and 1998 are unaudited and have been prepared on the same basis as the audited
financial statements included herein. In the opinion of management, such
unaudited financial statements include all adjustments necessary to present
fairly the information set forth therein, which consist solely of normal
recurring adjustments. The results of operations for such interim period are
not necessarily indicative of results for the full year.
METHOD OF ACCOUNTING
The Company maintains its books and records, and files its tax returns on
the accrual basis of accounting. The financial statements have been prepared
on that basis, in which revenue and gains are recognized when earned and
expenses and losses are recognized when incurred.
Preparation of the financial statements in conformity with generally
accepted accounting principles requires the use of management's estimates.
INCOME TAXES
The Company, with the consent of its shareholders, elected to be taxed under
the provisions of Subchapter S of the Internal Revenue Code, which provides
that, in lieu of corporation income taxes, the stockholders are taxed on the
Company's taxable income. Therefore, no provision or liability for income
taxes is reflected in these financial statements.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost. Improvements and
betterments that materially extend the life of the asset are capitalized.
Expenditures for maintenance and repairs that do not add materially to
productive capacity or extend the life of an asset are expensed as incurred.
The Company computes depreciation for financial reporting purposes using the
straight line method over the estimated useful lives of the related assets.
Both the straight-line and accelerated methods are utilized for tax purposes.
When non-rental assets are retired, sold or otherwise disposed of, the cost
and related accumulated depreciation are removed from the accounts, and any
gain or loss thereon is reflected in the current year as other income.
F-129
<PAGE>
INDUSTRIAL LIFT, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996 AND 1997
(THE INFORMATION AS OF MAY 12, 1998 AND
FOR THE PERIOD ENDED MAY 12, 1997 AND 1998 IS UNAUDITED)
NOTE B--CONCENTRATION OF CREDIT RISK
The Company has concentrated its credit risk for cash by maintaining
deposits in banks located within the same geographic region. The maximum loss
that would have resulted from that risk totaled $196,567 and $301,682 at
December 31, 1996 and 1997, respectively, and $197,688 as of May 12, 1998 for
the excess of the deposit liabilities reported by the banks over the amounts
that would have been covered by federal insurance.
The Company provides sales on credit to substantially all of their
customers, the majority of which are construction companies. As of December
31, 1996 and 1997, outstanding credit to customers is $1,853,061 and
$2,485,668, respectively, and $1,823,681 as of May 12, 1998.
NOTE C--INVENTORIES
Inventories, which are stated at the lower of cost (first in/first out) or
market, consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------- MAY 12,
1996 1997 1998
---------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
New equipment............................ $ 850,650 $1,892,561 $2,296,124
Used equipment........................... 6,590 22,632 16,841
Parts, accessories and labor............. 610,830 586,677 541,096
---------- ---------- ----------
Total.................................. $1,468,070 $2,501,870 $2,854,061
========== ========== ==========
</TABLE>
NOTE D--INVESTMENT IN LEASES
The Company leasing operations consist of leasing commercial lift equipment
under short term and long term rental agreements. Certain of these long term
leases fall under the classification as sales-type leases, whereby the lease
gives rise to a dealers profit at the inception of the lease. The Company's
net investment in sales-type leases consist of:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------- MAY 12,
1996 1997 1998
---------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Minimum lease payment receivable..... $1,576,242 $1,034,885 $1,183,128
Estimated residual value of leased
property............................ 637,600 522,251 673,052
---------- ---------- ----------
2,213,842 1,557,136 1,856,180
Less current portion................. (390,009) (274,181) (326,837)
---------- ---------- ----------
$1,823,833 $1,282,955 $1,529,343
========== ========== ==========
</TABLE>
Future annual minimum lease payments receivable on these leases are:
<TABLE>
<S> <C>
1998.............................................................. $274,181
1999.............................................................. 235,026
2000.............................................................. 193,609
2001.............................................................. 152,611
2002.............................................................. 87,532
</TABLE>
F-130
<PAGE>
INDUSTRIAL LIFT, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996 AND 1997
(THE INFORMATION AS OF MAY 12, 1998 AND
FOR THE PERIOD ENDED MAY 12, 1997 AND 1998 IS UNAUDITED)
The Company retains title to the leased equipment. The lessees pay taxes,
licenses and insurance costs on the equipment.
SHORT-TERM RENTALS
The value of future minimum rental payments under operating lease agreements
is not determinable. The Company does not maintain the accounting to summarize
this information due to the short term nature of the leases and the high
volume of which leases are entered.
NOTE E--NOTES PAYABLE
The Company has entered into various security agreements whereby they
finance the equipment they purchased for leasing, rental and resale. The
maturity dates vary according to the purchase date of the equipment and range
between three to eight years. Equipment financing agreements consist of the
following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------- MAY 12,
1996 1997 1998
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
1. Security agreement with Gehl
Company, payable in monthly
installments of interest only
payments, interest rate averaging
between 8.0% to 10.0%, secured by
inventory and accounts receivable... $ 451,355 $ 968,098 $ 989,196
2. Security agreement with Associates
Commercial Corporation, payable in
monthly installments, floating
interest rate averaging between 7.5%
to 9.5%, secured by inventory,
accounts receivable and rights to
equipment financed.................. 10,622,836 10,006,648 9,600,997
3. Security agreement with CitiCorp,
payable in monthly installments,
interest averaging between 8.0% to
10.0%, secured by new and used
inventory and rights to equipment
financed............................ 153,428 -- --
4. Mortgage payable to Associates
Commercial Corporation payable in
monthly installments of $9,544,
interest at 10%, secured by property
and plant. Effective April 1, 1998
the payment will be $8,870 as a
result of a change in the interest
rate to 8.4%........................ 798,089 761,728 748,475
5. Security agreement with Grove North
America is payable within 360 days
of original invoice date. Interest
is calculated by Grove North America
when the invoice is issued based on
360 day repayment terms. Interest is
calculated at 8.25%, secured by
inventory........................... -- 934,022 1,639,307
----------- ----------- -----------
12,025,708 12,670,496 12,977,975
Less: Current Portion................ 3,620,426 5,398,776
3,459,388
----------- ----------- -----------
$ 8,405,282 $ 7,271,720 $ 9,518,587
=========== =========== ===========
</TABLE>
F-131
<PAGE>
INDUSTRIAL LIFT, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996 AND 1997
(THE INFORMATION AS OF MAY 12, 1998 AND
FOR THE PERIOD ENDED MAY 12, 1997 AND 1998 IS UNAUDITED)
Long-Term Maturities at December 31, 1997 are as follows:
<TABLE>
<S> <C>
1999.................................. $ 2,311,740
2000.................................. 2,282,507
2001.................................. 1,832,837
2002.................................. 308,428
Thereafter............................ 536,208
-----------
$ 7,271,720
===========
</TABLE>
NOTE F--PROFIT SHARING CONTRIBUTION PAYABLE
The Company has a profit sharing plan that provides coverage for all
eligible employees who have been employed by the Company for at least six
months at the end of the year. Each participant receives a proportionate share
of the contribution based on his or her compensation to total compensation.
The amount of the employer contributions is determined by the board of
directors during the course of the year. Profit sharing contributions for the
years ended December 31, 1996 and 1997 was $30,000 and $35,000, respectively,
and $13,416 and $15,133 for the period ended May 12, 1997 and 1998,
respectively.
NOTE G--RELATED PARTY TRANSACTIONS
Included in other assets as of December 31, 1996 and 1997 and May 12, 1998
is $455,068, $438,319 and $573,319 in loans to shareholders including $34,694,
$17,946 and $18,710 of accrued interest respectively. The notes have no
repayment terms and are accruing interest at 4%. Repayment of $34,694 was made
on the loans in 1997.
NOTE H--OPERATING LEASES
The Company, as lessee, leases certain equipment and plant facilities under
operating lease agreements.
The Company entered into a three year lease agreement in April, 1997 for its
facilities located in Odenton, Maryland. This lease calls for monthly rental
payments of $4,213 and $4,424 over the next two consecutive years of the
lease.
The Company also rents its facilities located in Newport News, Virginia. The
two year lease agreement was entered into in August, 1996. Monthly payments
for the next year lease is $3,800 per month.
The Company has a lease agreement for their Ashland, Virginia facility which
began in June, 1997. The monthly lease payments for the 1998-1999 lease year
are $1,200 per month.
Certain commercial lift equipment rented to customers under the company's
leasing operations are leased under the following operating lease agreements:
. Eighty-four month lease beginning in December, 1997--First two payments
at $3,235 per month--Eighty-two payments at $9,185 per month
. Seventy-two month lease beginning in December, 1997--First two payments
at $18,858 per month--Seventy payments at $28,578 per month
. Seventy-two month lease beginning in November, 1997--First two payments
at $5,703 per month--Seventy payments at $18,598 per month
F-132
<PAGE>
INDUSTRIAL LIFT, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996 AND 1997
(THE INFORMATION AS OF MAY 12, 1998 AND
FOR THE PERIOD ENDED MAY 12, 1997 AND 1998 IS UNAUDITED)
The company has a lease agreement for their telephone and computer system
which began in December, 1997. The agreement is for sixty months at $4,667 per
month.
Rent expense associated with the above leases was approximately $438,548 for
the year ending December 31, 1997.
Future rental payments under these operating leases at December 31, 1997 is
as follows:
<TABLE>
<S> <C>
1998................................... $1,094,000
1999................................... 1,002,460
2000................................... 857,531
2001................................... 805,448
2002................................... 795,580
Thereafter............................. 751,182
----------
$5,306,201
==========
</TABLE>
NOTE I--LITIGATION
In 1996 the Company settled a claim with the State of New Jersey and was
assessed $1,700 in sales tax, which it paid.
During 1995 the Company had been in a personal injury claim based upon
theories of negligence, product liability, and willful and wanton disregard.
This claim was settled in 1996 at no cost to the Company.
NOTE J--SUBSEQUENT EVENT
On May 12 , 1998, United Rentals, Inc. purchased all of Industrial Lift,
Inc.'s issued and outstanding common stock.
F-133
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Stockholders
Able Equipment Rental, Inc.
We have audited the combined balance sheet of Able Equipment Rental, Inc.
(See Note 1) (the "Companies") as of December 31, 1997 and the related
combined statements of income, stockholders' equity and partners' capital and
cash flows for the year then ended. These financial statements are the
responsibility of the Companies' management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined financial position of Able
Equipment Rental, Inc. at December 31, 1997 and the combined results of their
operations and their cash flows for the year then ended in conformity with
generally accepted accounting principles.
/s/ Ernst & Young LLP
MetroPark, New Jersey
April 15, 1998
F-134
<PAGE>
ABLE EQUIPMENT RENTAL, INC.
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER FEBRUARY
31, 1997 28, 1998
----------- -----------
(UNAUDITED)
<S> <C> <C>
ASSETS
Cash.................................................. $ 489,330 $ 273,090
Accounts receivable, net of allowance for doubtful
accounts of $166,000 and $181,000 in 1997 and 1998,
respectively......................................... 2,725,794 2,670,554
Unbilled receivables.................................. 359,000 395,000
Inventory............................................. 583,013 413,617
Rental equipment, net................................. 9,413,628 9,518,678
Property and equipment, net........................... 696,070 1,008,900
Prepaid expenses and other assets..................... 145,742 116,589
----------- -----------
Total assets...................................... $14,412,577 $14,396,428
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY AND PARTNERS'
CAPITAL
Liabilities:
Accounts payable, accrued expenses and other
liabilities........................................ $ 989,038 $ 784,412
Debt................................................ 8,120,710 8,395,970
Stockholder loan.................................... 364,600 364,600
Deferred rent....................................... 18,247 18,247
Deferred tax liability.............................. 86,348 113,735
----------- -----------
Total liabilities................................. 9,578,943 9,676,964
Commitments and contingencies
Stockholders' equity and partners' capital:
Stockholders' equity:
Common stock........................................ 17,000 17,000
Additional paid-in capital.......................... 102,978 102,978
Retained earnings................................... 4,278,962 4,151,355
----------- -----------
4,398,940 4,271,333
Partners' capital.................................... 434,694 448,131
----------- -----------
Total stockholders' equity and partners' capital.. 4,833,634 4,719,464
----------- -----------
Total liabilities and stockholders' equity and
partners' capital.................................... $14,412,577 $14,396,428
=========== ===========
</TABLE>
See accompanying notes.
F-135
<PAGE>
ABLE EQUIPMENT RENTAL, INC.
COMBINED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
TWO MONTHS TWO MONTHS
YEAR ENDED ENDED ENDED
DECEMBER FEBRUARY 28, FEBRUARY
31, 1997 1997 28, 1998
----------- ------------ ----------
(UNAUDITED)
<S> <C> <C> <C>
Revenues:
Equipment rentals........................ $17,081,826 $1,631,226 $2,633,136
Sales of rental equipment................ 365,670 -- --
Sales of parts, supplies and new
equipment............................... 1,847,708 503,961 757,212
----------- ---------- ----------
Total revenues............................. 19,295,204 2,135,187 3,390,348
Cost of revenues:
Cost of equipment rentals, excluding
equipment rental depreciation........... 6,944,226 1,005,933 1,306,857
Depreciation, equipment rentals.......... 1,667,366 201,010 302,678
Cost of rental equipment sales........... 293,238 -- --
Cost of parts, supplies and new equipment
sales................................... 1,518,807 239,576 272,657
----------- ---------- ----------
Total cost of revenues..................... 10,423,637 1,446,519 1,882,192
----------- ---------- ----------
Gross profit............................... 8,871,567 688,668 1,508,156
Selling, general and administrative
expenses.................................. 6,438,632 627,098 1,241,182
Non-rental depreciation.................... 172,489 14,440 27,130
----------- ---------- ----------
Operating income........................... 2,260,446 47,130 239,844
Interest expense........................... 591,701 42,099 113,995
----------- ---------- ----------
Income before provision for income taxes... 1,668,745 5,031 125,849
Provision for income taxes................. 61,235 19,436 36,269
----------- ---------- ----------
Net income (loss).......................... $ 1,607,510 $ (14,405) $ 89,580
=========== ========== ==========
</TABLE>
See accompanying notes.
F-136
<PAGE>
ABLE EQUIPMENT RENTAL, INC.
COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY AND PARTNERS' CAPITAL
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
-------------- PAID-IN RETAINED PARTNERS'
SHARES AMOUNT CAPITAL EARNINGS CAPITAL
------ ------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1997... 1,700 $17,000 $102,978 $3,290,014 $ 483,975
Capital contributions...... -- 6,000
Stockholders and capital
distributions............. (322,246) (351,597)
Net income................. 1,311,194 296,316
----- ------- -------- ---------- ---------
Balance at December 31,
1997........................ 1,700 $17,000 $102,978 $4,278,962 $ 434,694
Stockholders distributions
(unaudited)............... (203,750) --
Net income (unaudited)..... 76,143 13,437
----- ------- -------- ---------- ---------
Balance at February 28, 1998
(unaudited)................. 1,700 $17,000 $102,978 $4,151,355 $ 448,131
===== ======= ======== ========== =========
</TABLE>
See accompanying notes.
F-137
<PAGE>
ABLE EQUIPMENT RENTAL, INC.
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
TWO MONTHS ENDED
YEAR ENDED FEBRUARY 28,
DECEMBER 31, --------------------
1997 1997 1998
------------ --------- ---------
(UNAUDITED)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)......................... $ 1,607,510 $ (14,405) $ 89,580
Adjustments to reconcile net income (loss)
to net cash provided by operating
activities:
Depreciation............................ 1,839,855 215,450 329,808
Gain on sale of property and equipment.. (72,432) (6,556) (559)
Deferred tax liability.................. 26,340 19,436 27,387
Changes in assets and liabilities:
(Increase) Decrease in accounts
receivable........................... (956,085) 57,264 55,240
Increase in unbilled receivables...... (142,000) (23,000) (36,000)
Increase (Decrease) in inventory...... (346,085) 102,170 169,396
Decrease (Increase) in prepaid
expenses and other assets............ 5,467 (62,149) 29,153
Increase (Decrease) in accounts
payable, accrued expenses and other
liabilities.......................... 724,666 (29,375) (204,627)
Increase in deferred rent............. 18,247 -- --
----------- --------- ---------
Cash provided by operating
activities......................... 2,705,483 258,835 459,378
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of rental equipment.............. (5,395,221) (399,294) (407,728)
Proceeds from sale of rental equipment.... 365,670 22,249 613
Purchases of property and equipment....... (468,927) (54,417) (340,014)
----------- --------- ---------
Cash used in investing activities... (5,498,478) (431,462) (747,129)
CASH FLOWS FROM FINANCING ACTIVITIES
Capital contributions..................... 6,000 -- --
Stockholders and capital distributions.... (673,843) -- (203,750)
Principal payments on debt................ (2,495,519) (343,900) (311,207)
Borrowings under credit facility.......... 6,116,144 346,667 586,468
----------- --------- ---------
Cash provided by financing
activities......................... 2,952,782 2,767 71,511
----------- --------- ---------
Increase (Decrease) in cash............... 159,787 (169,860) (216,240)
Cash balance at beginning of period....... 329,543 329,543 489,330
----------- --------- ---------
Cash balance at end of period....... $ 489,330 $ 159,683 $ 273,090
=========== ========= =========
</TABLE>
See accompanying notes.
F-138
<PAGE>
ABLE EQUIPMENT RENTAL, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1997
(THE INFORMATION AS OF FEBRUARY 28, 1998 AND FOR THE TWO MONTHS ENDED FEBRUARY
28, 1997 AND 1998 IS UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The combined financial statements of Able Equipment Rental, Inc. include the
accounts of the following entities: Rental Equipment, Inc.; Butler & Son,
Inc.; Butler & Derbyshire, Inc.; Butler & O'Connor; Butler & Butler; Butler,
Rollins & Butler; Butler, Schlerf & Butler; Butler, Westbrook & Butler;
Butler, Binder & Butler; Butler, Cook & Butler; Butler, Henkle & Butler;
Butler, McKenney & Butler; Butler, Breitenstein & Butler; Butler, Escalante &
Butler; and Butler, Paeper & Butler (collectively the "Companies"). The
Companies are affiliated through common ownership. All significant
intercompany accounts and transactions have been eliminated in combination.
These combined financial statements are prepared on a historical cost basis
and do not include any adjustments that may result from the acquisition of the
Companies by United Rentals, Inc. ("United") as more fully described in Note
10.
Business Activity
The Companies rent, sell and repair construction equipment for use by
contractor, industrial and homeowners markets. The rentals are on a daily,
weekly or monthly basis. The Companies have six locations and their principal
market area is Southern California. The nature of the Companies' business is
such that short-term obligations are typically met by cash flow generated from
long-term assets. Consequently, consistent with industry practice, the balance
sheet is presented on an unclassified basis.
On March 29, 1997 Rental Equipment, Inc. acquired for $1,500,000 a
substantial amount of rental equipment and fixed assets from Sam's-U-Rent,
Inc. and assumed all operations. The Company utilized the funds available
under its line of credit to finance the purchase. The acquisition has been
accounted for as a purchase and, accordingly, at such date the Company
recorded the assets acquired at their estimated fair values.
Interim Financial Statements
The accompanying combined balance sheet at February 28, 1998 and the
combined statements of income, stockholders' equity and partners' capital and
cash flows for the two-month periods ended February 28, 1997 and 1998 are
unaudited and have been prepared on the same basis as the audited combined
financial statements included herein. In the opinion of management, such
unaudited combined financial statements include all adjustments necessary to
present fairly the information set forth therein, which consist solely of
normal recurring adjustments. The results of operations for such interim
period are not necessarily indicative of results for the full year.
Inventory
Inventory consists primarily of general replacement parts, fuel and
equipment held for resale and are stated at the lower of cost, determined
under the first-in, first-out method, or market.
Rental Equipment
Rental equipment is recorded at cost. Depreciation for rental equipment is
computed using the straight-line method over an estimated seven-year useful
life with no salvage value.
F-139
<PAGE>
ABLE EQUIPMENT RENTAL, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
Ordinary maintenance and repair costs are charged to operations as incurred.
Proceeds from the disposal and the related net book value of the equipment are
recognized in the period of disposal and reported as revenue from sales of
rental equipment and cost of sales of rental equipment, respectively, in the
combined statement of income.
Property and Equipment
Property and equipment is stated at cost. Depreciation of property and
equipment is computed on the straight-line method over an estimated useful
life of seven years. Leasehold improvements are amortized using the straight-
line method over the estimated lives of the leasehold improvement or the
remaining life of the lease, whichever is shorter.
Ordinary maintenance and repair costs are charged to operations as incurred.
The cost of assets sold, retired, or otherwise disposed of, and the related
accumulated depreciation is eliminated from the accounts and any resulting
gain or loss is included in operations.
Rental Revenue
Rental revenue is recorded as earned under the operating method.
Advertising Costs
The Companies advertise primarily through trade journals, trade associations
and phone directories. All advertising costs are expensed as incurred.
Advertising expense amounted to approximately $144,000, $17,000 and $24,000 in
the year ended December 31, 1997 and in the two months ended February 28, 1997
and 1998, respectively.
Income Taxes
Rental Equipment, Inc. and Butler & Son, Inc. have elected, by unanimous
consent of their shareholders, to be taxed under the provisions of Subchapter
S of the Internal Revenue Code for both federal and state purposes. Under
those provisions, the Companies do not pay federal or state income taxes;
instead, the shareholders are liable for individual income taxes on their
profits.
Butler & Derbyshire, Inc., a C Corporation for federal tax purposes, applied
an asset and liability approach to accounting for income taxes. Deferred
income tax assets and liabilities arise from differences between the tax basis
of an asset or liability and its reported amount in the combined financial
statements. Deferred tax balances are determined by using tax rates to be in
effect when the taxes will actually be paid or refunds received.
All the other entities included in these combined financial statements are
partnerships. No provision has been made in the accompanying financial
statements for any federal, state, or local income taxes since they are the
liability of the individual partners.
Accounting Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
F-140
<PAGE>
ABLE EQUIPMENT RENTAL, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
2. CONCENTRATIONS OF CREDIT RISK
The Companies maintain cash balances with a quality financial institution
and consequently, management believes funds maintained there are secure.
Concentrations of credit risk with respect to customer receivables are limited
due to the large number of customers comprising the Companies' customer base
and their credit policy.
3. RENTAL EQUIPMENT
Rental equipment and related accumulated depreciation consists of the
following:
<TABLE>
<CAPTION>
DECEMBER 31, FEBRUARY 28,
1997 1998
------------ ------------
(UNAUDITED)
<S> <C> <C>
Rental equipment................................... $16,709,153 $17,116,881
Less accumulated depreciation...................... 7,295,525 7,598,203
----------- -----------
Rental equipment, net.............................. $ 9,413,628 $ 9,518,678
=========== ===========
</TABLE>
4. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, FEBRUARY 28,
1997 1998
------------ ------------
(UNAUDITED)
<S> <C> <C>
Transportation equipment........................... $ 901,400 $1,228,870
Furniture and fixtures............................. 321,638 330,289
Leasehold improvements............................. 259,854 259,854
---------- ----------
1,482,892 1,819,013
Less accumulated depreciation...................... 786,822 810,113
---------- ----------
Total............................................ $ 696,070 $1,008,900
========== ==========
</TABLE>
5. DEBT AND STOCKHOLDER LOAN
Debt and stockholder loan consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, FEBRUARY 28,
1997 1998
------------ ------------
(UNAUDITED)
<S> <C> <C>
Sanwa Bank--Various lines of credit with combined
monthly payments of $122,452 and $163,958, in
1997 and 1998 respectively including interest
from 8.1% to 9.5%............................... $8,120,710 $8,395,970
Stockholder Loan--No set principal payments. Loan
is due on December 13, 1999. The loan accrues
interest at a rate of 10% per year. ............ 364,600 364,600
---------- ----------
$8,485,310 $8,760,570
========== ==========
</TABLE>
Substantially all rental equipment collateralized the above bank notes. All
debt was paid off in connection with the acquisition discussed in Note 10.
F-141
<PAGE>
ABLE EQUIPMENT RENTAL, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
6. INCOME TAXES
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
TWO MONTHS
ENDED
YEAR ENDED FEBRUARY 28,
DECEMBER 31, ---------------
1997 1997 1998
------------ ------- -------
(UNAUDITED)
<S> <C> <C> <C>
Current:
Federal....................................... $20,009 $ -- $ 7,023
State......................................... 14,886 -- 1,859
------- ------- -------
34,895 -- 8,882
Deferred:
Federal....................................... -- --
State......................................... 26,340 19,436 27,387
------- ------- -------
26,340 19,436 27,387
------- ------- -------
$61,235 $19,436 $36,269
======= ======= =======
</TABLE>
Significant components of the Companies deferred tax liability are as
follows:
<TABLE>
<CAPTION>
DECEMBER 31, FEBRUARY 28,
1997 1998
------------ ------------
(UNAUDITED)
<S> <C> <C>
Difference in basis of accounting................. $34,375 $ 54,566
Cumulative tax depreciation in excess of book..... 51,973 59,169
------- --------
Deferred tax liability............................ $86,348 $113,735
======= ========
</TABLE>
7. OPERATING LEASES
The Companies lease six store locations on long-term leases. The Companies
are responsible for all operating expenses of the facilities including
property taxes, assessments, insurance, repairs and maintenance. These leases
have various terms and extend through May 2007 and include scheduled base rent
increases over the term of the leases. The total amount of the base rent
payments is being charged to expense on the straight-line method over the
terms of the leases. The Companies recorded a liability for deferred rent to
reflect the excess of rent expense over cash payments which is included in the
accompanying combined balance sheet.
Total rent expense for the year ended December 31, 1997 and for the two
months ended February 28, 1997 and 1998 was approximately $846,000, $66,000
and $182,000, respectively.
At December 31, 1997, minimum lease commitments under all operating leases,
with initial or remaining lease terms of more than one year, are as follows:
<TABLE>
<S> <C>
1998......................................................... $ 918,000
1999......................................................... 851,000
2000......................................................... 810,000
2001......................................................... 810,000
2002......................................................... 810,000
Thereafter................................................... 3,230,000
----------
Total...................................................... $7,429,000
==========
</TABLE>
F-142
<PAGE>
ABLE EQUIPMENT RENTAL, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
8. COMMON STOCK
The common stock of the Companies at December 31, 1997 and February 28, 1998
(unaudited) is summarized as follows:
<TABLE>
<CAPTION>
SHARES
----------------------
ISSUED AND
PAR VALUE AUTHORIZED OUTSTANDING AMOUNT
--------- ---------- ----------- -------
<S> <C> <C> <C> <C>
Rental Equipment, Inc. ............ $10 7,500 500 $ 5,000
Butler & Son, Inc. ................ no par 5,000 200 2,000
Butler & Derbyshire, Inc........... no par 5,000 1,000 10,000
----- -------
1,700 $17,000
===== =======
</TABLE>
9. SUPPLEMENTAL CASH FLOW INFORMATION
For the year ended December 31, 1997 and for the two months ended February
28, 1997 and 1998, total interest paid was $554,701, $48,666 and $114,822,
respectively.
For the year ended December 31, 1997 and for the two months ended February
28, 1997 and 1998, total income taxes paid was $9,000, $0 and $0, respectively
10. SUBSEQUENT EVENT
On March 23, 1998, under the terms of the stock purchase agreement, United
purchased all of the issued and outstanding capital stock of Rental Equipment
Inc., Butler & Son, Inc. and Butler & Derbyshire, Inc. as well as the net
assets of the partnerships included herein.
F-143
<PAGE>
INDEPENDENT AUDITORS' REPORT ON COMBINED FINANCIAL STATEMENTS
Board of Directors Grand Valley Equipment Co., Inc. and Kubota of Grand
Rapids, Inc.
We have audited the accompanying combined balance sheet of Grand Valley
Equipment Co., Inc. and Kubota of Grand Rapids, Inc. as of December 31, 1997
and the related combined statements of income and retained earnings and cash
flows for the year then ended. These combined financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these combined financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the combined financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the financial position of Grand Valley
Equipment Co., Inc. and Kubota of Grand Rapids, Inc. as of December 31, 1997
and the results of operations and cash flows for the years then ended, in
conformity with generally accepted accounting principles.
/s/ Beene Garter LLP
July 23, 1998
Grand Rapids, Michigan
F-144
<PAGE>
GRAND VALLEY EQUIPMENT CO., INC. AND KUBOTA OF GRAND RAPIDS, INC.
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, MAY 31,
1997 1998
------------ -----------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current Assets
Cash................................................ $ 440,146 $1,304,088
Accounts receivable................................. 911,325 1,402,058
Refundable income taxes............................. 63,287 --
Inventories......................................... 1,296,093 2,231,832
---------- ----------
TOTAL CURRENT ASSETS.................................. 2,710,851 4,937,978
Rental Equipment, net................................. 4,724,733 3,438,583
Property, Plant and Equipment, net.................... 238,388 237,995
---------- ----------
$7,673,972 $8,614,556
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Bank overdraft...................................... $ 311,917 $ --
Notes payable....................................... 2,070,106 1,526,658
Accounts payable.................................... 289,310 275,169
Accrued expenses
Federal income tax................................ -- 637,560
Other............................................. 215,915 142,869
Customer deposits................................... 154,472 6,769
Deferred income taxes............................... 150,000 150,000
---------- ----------
TOTAL CURRENT LIABILITIES............................. 3,191,720 2,739,025
Stockholders' Equity
Common stock, no par value; authorized 50,000
shares; issued and outstanding 6,000............... 6,000 6,000
Common stock, $1 par value; authorized 50,000
shares; issued and outstanding 21,750.............. 21,750 21,750
Retained earnings................................... 4,454,502 5,847,781
---------- ----------
4,482,252 5,875,531
---------- ----------
$7,673,972 $8,614,556
========== ==========
</TABLE>
See accompanying notes
F-145
<PAGE>
GRAND VALLEY EQUIPMENT CO., INC. AND KUBOTA OF GRAND RAPIDS, INC.
COMBINED STATEMENTS OF INCOME AND RETAINED EARNINGS
<TABLE>
<CAPTION>
FIVE MONTHS FIVE MONTHS
YEAR ENDED ENDED ENDED
DECEMBER 31, MAY 31, MAY 31,
1997 1998 1997
------------ ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
Revenues
Equipment rentals....................... $3,082,730 $1,255,473 $1,123,104
Sales of new, used and rental equipment,
parts and other........................ 15,188,885 6,921,749 6,007,118
---------- ---------- ----------
18,271,615 8,177,222 7,130,222
Cost of Sales
Rental equipment depreciation........... 1,697,339 748,000 635,000
Cost of sales........................... 11,509,080 4,393,854 4,783,983
---------- ---------- ----------
13,206,419 5,141,854 5,418,983
---------- ---------- ----------
GROSS PROFIT.............................. 5,065,196 3,035,368 1,711,239
Selling, General and Administrative
Expenses................................. 3,420,352 902,584 1,139,258
Non-rental Depreciation and Amortization.. 102,359 35,350 38,250
---------- ---------- ----------
Operating Income.......................... 1,542,485 2,097,434 533,731
---------- ---------- ----------
Other Income (Expense)
Interest income......................... 45,631 33,621 5,503
Gain on sale of non-rental equipment.... 38,471 -- --
Other income............................ 75,857 22,028 34,293
Interest expense........................ (111,927) (32,804) (51,729)
---------- ---------- ----------
48,032 22,845 (11,933)
---------- ---------- ----------
INCOME BEFORE INCOME TAXES................ 1,590,517 2,120,279 521,798
Provision for Income Taxes................ 544,138 727,000 187,000
---------- ---------- ----------
NET INCOME................................ 1,046,379 1,393,279 334,798
Beginning Retained Earnings............... 3,408,123 4,454,502 3,408,123
---------- ---------- ----------
ENDING RETAINED EARNINGS.................. $4,454,502 $5,847,781 $3,742,921
========== ========== ==========
</TABLE>
See accompanying notes
F-146
<PAGE>
GRAND VALLEY EQUIPMENT CO., INC. AND KUBOTA OF GRAND RAPIDS, INC.
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FIVE MONTHS FIVE MONTHS
YEAR ENDED ENDED ENDED
DECEMBER 31, MAY 31, MAY 31,
1997 1998 1997
------------ ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
Cash Flows from Operating Activities
Net income............................. $ 1,046,379 $1,393,279 $ 334,798
Adjustments to reconcile net income to
net cash provided by operating
activities............................
Depreciation and amortization........ 1,799,698 783,350 673,250
Gain sale of non-rental equipment.... (38,741) -- --
Gain on sale of rental equipment..... (604,752) (912,841) (209,378)
Deferred income taxes................ 185,000 -- --
Changes in assets and liabilities
Accounts receivable................ (187,919) (427,446) (540,038)
Inventories........................ 313,739 (935,739) (315,768)
Accounts payable, accrued expenses
and other liabilities............. (575,471) 402,670 22,895
----------- ---------- -----------
NET CASH PROVIDED (USED) BY OPERATING
ACTIVITIES.............................. 1,937,933 303,273 (34,241)
Cash Flows from Investing Activities
Purchase of rental equipment........... (9,056,754) (902,990) (1,948,032)
Purchase of non-rental equipment....... (73,591) (34,958) (56,649)
Proceeds from sale of rental
equipment............................. 7,205,622 2,353,982 2,239,869
Proceeds from sale of non-rental
equipment............................. 81,873 -- --
----------- ---------- -----------
NET CASH (USED) PROVIDED BY INVESTING
ACTIVITIES.............................. (1,842,850) 1,416,034 235,188
Cash Flows from Financing Activities
Bank overdraft......................... (156,626) (311,917) (468,543)
Change in notes payable................ 285,939 (543,448) 142,528
----------- ---------- -----------
NET CASH PROVIDED (USED) BY FINANCING
ACTIVITIES.............................. 129,313 (855,365) (326,015)
----------- ---------- -----------
INCREASE (DECREASE) IN CASH.............. 224,396 863,942 (125,068)
Cash Balance at Beginning of Period...... 215,750 440,146 215,750
----------- ---------- -----------
CASH BALANCE AT END OF PERIOD............ $ 440,146 $1,304,088 $ 90,682
=========== ========== ===========
Supplemental Cash Flow Information
Cash paid for interest................. $ 111,927 $ 32,804 $ 51,729
Cash paid for income taxes............. $ 415,280 $ 26,153 $ 103,820
</TABLE>
See accompanying notes
F-147
<PAGE>
GRAND VALLEY EQUIPMENT CO., INC. AND KUBOTA OF GRAND RAPIDS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
(THE INFORMATION AS OF MAY 31, 1998 AND FOR THE THREE MONTHS
ENDED MAY 31, 1998 AND 1997 IS UNAUDITED)
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Business and Basis of Presentation
The combined financial statements include the accounts of Grand Valley
Equipment Co., Inc. and Kubota of Grand Rapids, Inc. (collectively the
"Company"). Grand Valley Equipment Co., Inc. ("GVE") and Kubota of Grand
Rapids, Inc. ("KGR") are combined due to common ownership and operations which
are complimentary. The financial statements of GVE as of October 31, 1997
(GVE's fiscal year end) are combined with the financial statements of KGR as
of December 31, 1997. The financial statements of GVE as of March 31, 1998 and
1997 are combined with the financial statements of KGR as of May 31, 1998 and
1997.
The Company rents and sells heavy and light machinery and equipment
primarily in the Western Michigan area. All significant intercompany accounts
and transactions have been eliminated on combination.
Interim Financial Statements
The accompanying combined balance sheets at May 31, 1998, and the combined
statements of income, and retained earnings and cash flows for the five month
periods ended May 31, 1998 and 1997 are unaudited and have been prepared on
the same basis as the audited combined financial statements included herein.
In the opinion of management, such unaudited combined financial statements
include all adjustments necessary to present fairly the information set forth
therein, which consist solely of normal recurring adjustments. The results of
operations for such interim periods are not necessarily indicative of results
for the full year.
Inventories
Inventories, which consist of heavy and light machinery and equipment, are
valued at the lower of cost or net realizable value.
Revenue Recognition
Revenue related to the sale of heavy and light machinery and equipment is
recognized at the point of sale. Revenue related to the rental of heavy and
light machinery is recognized at the time of return for rentals of one month
or less, and ratably over the contract term for rentals in excess of one
month.
Rental Equipment
Rental equipment is recorded at cost. Depreciation for rental equipment is
computed using an accelerated method over an estimated five-year useful life
with no salvage value.
Property and Equipment
Property and equipment are stated at cost. Depreciation of property and
equipment is provided on accelerated methods over the estimated useful lives
of the respective assets.
The cost of assets sold, retired, or otherwise disposed of, and the related
accumulated depreciation is eliminated from the accounts and any resulting
gain or loss is included in operations. Ordinary maintenance and repair costs
are charged to operations as incurred.
F-148
<PAGE>
GRAND VALLEY EQUIPMENT CO., INC. AND KUBOTA OF GRAND RAPIDS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Income Taxes
The Company uses the "liability method" of accounting for income taxes.
Accordingly, deferred tax assets and liabilities would be determined based on
the difference between the financial statement and tax basis of assets and
liabilities, primarily due to differences in the carrying value of rental
equipment, using enacted tax rates in effect for the year in which the
differences are expected to reverse.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
NOTE 2--CONCENTRATIONS OF CREDIT RISK
The Company maintains cash balances with quality financial institutions and,
consequently, management believes funds maintained there are secure.
Concentrations of credit risk with respect to customer receivables are limited
due to the large number of customers comprising the Company's customer base
and its credit policy.
NOTE 3--RENTAL EQUIPMENT
Rental equipment and related accumulated depreciation consists of the
following:
<TABLE>
<CAPTION>
DECEMBER 31, MAY 31,
1997 1998
------------ -----------
(UNAUDITED)
<S> <C> <C>
Rental equipment.................................. $ 7,694,776 $ 7,156,627
Less: Accumulated depreciation.................... (2,970,043) (3,718,044)
----------- -----------
Rental Equipment, net............................. $ 4,724,733 $ 3,438,583
=========== ===========
</TABLE>
NOTE 4--PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, MAY 31,
1997 1998
------------ -----------
(UNAUDITED)
<S> <C> <C>
Land................................................ $ 5,000 $ 5,000
Buildings........................................... 60,957 60,957
Machinery and equipment............................. 270,759 270,759
Office furniture and equipment...................... 17,066 10,434
Vehicles............................................ 368,476 410,065
--------- ---------
722,258 757,215
Less: Accumulated depreciation...................... (483,870) (519,220)
--------- ---------
$ 238,388 $ 237,995
========= =========
</TABLE>
F-149
<PAGE>
GRAND VALLEY EQUIPMENT CO., INC. AND KUBOTA OF GRAND RAPIDS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE 5--NOTES PAYABLE
Notes payable consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, MAY 31,
1997 1998
------------ -----------
(UNAUDITED)
<S> <C> <C>
$2,500,000 line-of-credit, providing for interest
at prime rate (8.5% at December 31, 1997), due in
March, 1999, secured by the assets of the
Company.......................................... $1,605,000 $ 480,000
Amounts due under manufacturer floor plan
arrangement represent amounts on which principle
and interest are not yet due..................... 465,106 1,046,658
---------- ----------
$2,070,106 $1,526,658
========== ==========
</TABLE>
NOTE 6--LEASES
The Company leases operating facilities under operating leases from entities
under similar ownership. Rent expense under these leases totaled $184,000 for
the year ended December 31, 1997 and $30,000 and $77,000 for five months ended
May 31, 1998 and 1997, respectively. Under the lease agreements, aggregate
rent is payable in monthly installments of $6,000. The agreements provide for
an increase in annual rent based on the Consumer Price Index of the previous
five years. Future minimum rent commitments are $72,000 each for years ended
December 31, 1998 to December 31, 2004, to be adjusted based on the increase
in the Consumer Price Index. There is no formal lease agreement for the GVE
lease, they are leasing on a month to month basis.
NOTE 7--INCOME TAXES
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
MAY 31,
DECEMBER 31, -----------------------
1997 1997 1998
------------ ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
Currently payable....................... $359,138 $187,000 $727,000
Deferred................................ 185,000 -- --
-------- -------- --------
Federal income tax...................... $544,138 $187,000 $727,000
======== ======== ========
</TABLE>
The effective rate for income tax expense differs from the statutory rate of
34% when applied to income from continuing operations before income taxes due
to certain nondeductible expenses of the Company.
NOTE 8--RETIREMENT PLAN
The Company has adopted a profit-sharing plan and a 401(k) plan that covers
substantially all employees and provides for discretionary employer and
voluntary employee contributions.
KGR has established a defined contribution 401(k) retirement plan which
covers substantially all full-time employees. The employees may contribute up
to $9,500 annually. Company contributions are discretionary. Company
contributions to the plan were $20,102, $6,114 and $6,057 for the year ended
December 31, 1997 and for the five month periods ended May 31, 1998 and 1997,
respectively.
GVE has established a Profit-Sharing Plan under section 401 and 501 of the
Internal Revenue Code. Substantially all full-time employees are eligible for
the plan. Yearly employer contributions are discretionary.
F-150
<PAGE>
GRAND VALLEY EQUIPMENT CO., INC. AND KUBOTA OF GRAND RAPIDS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Employees may also elect to contribute to the plan. Company contributions to
the plan were $151,152 for the year ended December 31, 1997. Company
contributions to the plan were $63,000 and $62,500 for the five month periods
ended May 31, 1998 and 1997, respectively.
NOTE 9--CONTINGENCIES
The Company may occasionally be subject to certain liability claims
resulting from the normal course of business.
NOTE 10--SUBSEQUENT EVENT
On June 9, 1998, the Company entered into a stock purchase agreement with
United Rentals, Inc. ("United"). Under the terms of the stock purchase
agreement, United purchased all of the issued and outstanding capital stock of
both GVE and KGR.
F-151
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders of
McClinch Equipment Services, Inc:
We have audited the accompanying balance sheet of McClinch Equipment
Services, Inc. as of December 31, 1997, and the related statements of income
and retained earnings and cash flows for the year then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of McClinch Equipment
Services, Inc. as of December 31, 1997, and the results of its operations and
its cash flows for the year then ended in conformity with generally accepted
accounting principles.
Coopers & Lybrand L.L.P.
Stamford, Connecticut
March 6, 1998.
F-152
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
October 28, 1998
To the Stockholders of
McClinch Equipment Services, Inc.:
In our opinion, the accompanying balance sheet presents fairly, in all
material respects, the financial position of McClinch Equipment Services, Inc.
at August 31, 1998 in conformity with generally accepted accounting
principles. This financial statement is the responsibility of the Company's
management; 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.
PricewaterhouseCoopers LLP
F-153
<PAGE>
MCCLINCH EQUIPMENT SERVICES, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, AUGUST 31,
1997 1998
------------ -----------
<S> <C> <C>
ASSETS:
Cash and cash equivalents............................ $ 314,000 $ 1,160,000
Accounts receivable, less allowance for doubtful
accounts of $75,000................................. 3,611,000 3,388,000
State income taxes receivable........................ 1,000 11,000
Inventories.......................................... 354,000 499,000
Net investment in sales-type leases (Note 2)......... 49,000 114,000
Fixed assets, net (Note 3)........................... 18,631,000 24,031,000
Other assets......................................... 29,000 24,000
Due from related parties............................. 151,000 --
----------- -----------
Total assets....................................... $23,140,000 $29,227,000
=========== ===========
LIABILITIES:
Notes payable (Note 4)............................... $16,200,000 $20,600,000
Accounts payable and accrued expenses................ 1,237,000 940,000
Due to related parties............................... -- 248,000
Deferred state income taxes (Note 6)................. 500,000 389,000
----------- -----------
Total liabilities.................................. 17,937,000 22,177,000
----------- -----------
Commitments (Note 8)
STOCKHOLDERS' EQUITY:
Common stock, no par value; authorized, 6,000 shares;
issued and outstanding, 100 shares.................. -- --
Additional paid-in capital........................... 10,000 10,000
Retained earnings.................................... 5,193,000 7,040,000
----------- -----------
Total stockholders' equity......................... 5,203,000 7,050,000
----------- -----------
Total liabilities and stockholders' equity......... $23,140,000 $29,227,000
=========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-154
<PAGE>
MCCLINCH EQUIPMENT SERVICES, INC.
STATEMENTS OF INCOME AND RETAINED EARNINGS
<TABLE>
<CAPTION>
EIGHT MONTHS ENDED
YEAR ENDED AUGUST 31,
DECEMBER 31, ----------------------
1997 1998 1997
------------ ---------- ----------
(UNAUDITED)
<S> <C> <C> <C>
Revenues:
Equipment rentals and service........... $12,141,000 9,341,000 $7,205,000
Sales................................... 4,759,000 2,958,000 2,936,000
----------- ---------- ----------
16,900,000 12,299,000 10,141,000
----------- ---------- ----------
Cost of equipment rentals and service
(Note 5)................................. 6,520,000 5,080,000 3,954,000
Cost of sales............................. 3,642,000 2,267,000 2,280,000
----------- ---------- ----------
Gross profit.......................... 6,738,000 4,952,000 3,907,000
Selling expenses (Note 5)................. 1,540,000 1,006,000 921,000
General and administrative expenses (Note
5)....................................... 2,445,000 1,359,000 909,000
----------- ---------- ----------
2,753,000 2,587,000 2,077,000
Other income (expense):
Other income............................ 410,000 52,000 300,000
Interest income......................... 56,000 16,000 32,000
Interest expense........................ (1,167,000) (913,000) (722,000)
----------- ---------- ----------
Income before provision for state in-
come taxes........................... 2,052,000 1,742,000 1,687,000
Provision (benefit) for state income
taxes:
Current................................. 7,000 6,000 5,000
Deferred................................ 100,000 (111,000) 95,000
----------- ---------- ----------
Net income............................ 1,945,000 1,847,000 1,587,000
Retained earnings, beginning of period.... 3,248,000 5,193,000 3,248,000
----------- ---------- ----------
Retained earnings, end of period...... $ 5,193,000 $7,040,000 $4,835,000
=========== ========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-155
<PAGE>
MCCLINCH EQUIPMENT SERVICES, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
EIGHT MONTHS ENDED
YEAR ENDED AUGUST 31,
DECEMBER 31, ------------------------
1997 1998 1997
------------ ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income............................ $ 1,945,000 $ 1,847,000 $ 1,587,000
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation........................ 3,215,000 2,772,000 2,033,000
Gain on sale of equipment........... (180,000) (143,000) (91,000)
Deferred state income taxes......... 100,000 (111,000) 95,000
----------- ----------- -----------
5,080,000 4,365,000 3,624,000
Changes in assets and liabilities:
Accounts receivable................. (1,460,000) 223,000 (352,000)
State income taxes receivable....... 1,000 (10,000) (1,000)
Inventories......................... (2,000) (145,000) 69,000
Other assets........................ (9,000) 5,000 --
Accounts payable and accrued
expenses........................... 449,000 (297,000) 99,000
Due to or from related parties...... (243,000) 399,000 162,000
----------- ----------- -----------
Net cash provided by operating
activities....................... 3,816,000 4,540,000 3,601,000
----------- ----------- -----------
Cash flows from investing activities:
Acquisition of property and rental
equipment............................ (8,814,000) (8,394,000) (7,934,000)
Net investment in sales-type leases... 26,000 (65,000) 46,000
Proceeds from the sale of equipment... 495,000 365,000 220,000
----------- ----------- -----------
Net cash used in investing
activities....................... (8,293,000) (8,094,000) (7,668,000)
----------- ----------- -----------
Cash flows from financing activities:
Borrowings under line of credit....... 8,750,000 7,700,000 7,550,000
Repayments under line of credit....... (4,050,000) (3,300,000) 2,650,000
----------- ----------- -----------
Net cash provided by financing
activities....................... 4,700,000 4,400,000 4,900,000
----------- ----------- -----------
Net increase in cash and cash
equivalents...................... 223,000 846,000 833,000
Cash and cash equivalents, beginning of
period................................. 91,000 314,000 91,000
----------- ----------- -----------
Cash and cash equivalents, end of
period........................... $ 314,000 $ 1,160,000 $ 924,000
=========== =========== ===========
Supplemental disclosures of cash flow
information:
Cash paid during the period for:
Interest............................. $ 1,131,000 $ 892,000 $ 704,000
State income taxes................... 6,000 9,000 6,000
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-156
<PAGE>
MCCLINCH EQUIPMENT SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
(ALL INFORMATION FOR THE EIGHT MONTHS ENDED AUGUST 31, 1998 AND 1997 IS
UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Company's Business:
McClinch Equipment Services, Inc. (the "Company") is an exclusive dealer for
JLG Industries in New Jersey, Delaware, Maryland, Washington D.C., and
Northern Virginia. The Company also has distribution agreements with other
manufacturers in New Jersey, Delaware, Maryland, Pennsylvania, Washington,
D.C. and Virginia. Revenues are derived principally from the rental of
aerialift equipment and material handling equipment and the sale of new and
used aerialift equipment to a diversified customer base including contractors
and other users.
Basis of Presentation:
The balance sheet is presented on an unclassified basis since it more
properly reflects the Company's operations as an equipment rental company.
Interim Financial Statements:
The accompanying statements of income and retained earnings and cash flows
for the eight month periods ended August 31, 1998 and 1997 are unaudited and
have been prepared on the same basis as the audited financial statements
included herein. In the opinion of management, such unaudited financial
statements include all adjustments necessary to present fairly the information
set forth therein, which consists solely of normal recurring adjustments. The
results of operations for such interim periods are not necessarily indicative
of results for the full year.
Revenue Recognition:
a. Operating Leases. Rental revenue is recognized over the lease term
(generally less than one year) as earned.
b. Sales-Type Leases: Sales are recorded at amounts equal to the present
value of the minimum lease payments at the inception of the lease. The
unearned interest income represents the difference between the minimum lease
payments and the present value of such payments. Such interest income is
recognized over the life of the lease using the interest method.
Cash and Cash Equivalents:
Cash and cash equivalents consist primarily of cash in banks and temporary
cash investments with original maturities of less than 90 days. These balances
are insured by the Federal Deposit Insurance Corporation up to $100,000.
Inventories:
Inventories, consisting principally of aerialift equipment and related spare
parts, are recorded at the lower of first-in, first-out cost or market.
Fixed Assets:
Fixed assets, consisting principally of the Company's fleet of aerialift
equipment, primarily held for rental under operating leases, is stated at cost
and is depreciated using the straight-line method over the following estimated
useful lives: rental equipment, shop equipment, furniture and fixtures and
computer equipment, 7 years; vehicles, 5 years; and leasehold improvements,
over the remaining term of the lease.
F-157
<PAGE>
MCCLINCH EQUIPMENT SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(ALL INFORMATION FOR THE EIGHT MONTHS ENDED AUGUST 31, 1998 AND 1997 IS
UNAUDITED)
Upon retirement or sale, the cost and related accumulated depreciation are
removed from the accounts and the resulting gains or losses are included in
income.
Income Taxes:
The Company has elected to be taxed as a Small Business Corporation under
the Internal Revenue Code. Under this regulation the Company's income is
reported for federal income tax purposes by the stockholders on their
individual tax returns. Accordingly, the financial statements reflect no
provision or liability for federal income taxes.
The small business corporation election can be made in some of the states in
which the Company does business and accordingly, the financial statements only
reflect state income tax provisions for the states in which the election can
not be made.
The Company recognizes deferred tax assets and liabilities for the expected
future state tax consequences of events that have been recognized in the
Company's financial statements or state tax returns. Under this method,
deferred tax assets and liabilities are determined based on the differences
between the financial statement carrying amounts and the tax bases of assets
and liabilities using enacted tax rates in effect in the years in which the
temporary differences are expected to reverse. A valuation allowance is
established when it is more likely than not that deferred tax assets will not
be realized.
Estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Reclassifications:
Certain amounts have been reclassified between balance sheet accounts to
more properly reflect the nature of the item.
2. SALES-TYPE LEASES
The net investment in sales-type leases consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, AUGUST 31,
1997 1998
------------ ----------
<S> <C> <C>
Minimum lease payments receivable.................... $53,000 $125,000
Less, Unearned interest income..................... (4,000) (11,000)
------- --------
Net investment in sales-type leases.................. $49,000 $114,000
======= ========
</TABLE>
All future minimum lease payments are receivable during 1998 and 1999.
F-158
<PAGE>
MCCLINCH EQUIPMENT SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(ALL INFORMATION FOR THE EIGHT MONTHS ENDED AUGUST 31, 1998 AND 1997 IS
UNAUDITED)
3. FIXED ASSETS
Fixed assets consist of the following:
<TABLE>
<CAPTION>
DECEMBER
31, AUGUST 31,
1997 1998
----------- -----------
<S> <C> <C>
Land and building.................................. $ -- $ 242,000
Rental equipment................................... 24,854,000 32,175,000
Vehicles........................................... 1,043,000 1,290,000
Shop equipment..................................... 35,000 79,000
Office equipment................................... 28,000 31,000
Leasehold improvements............................. -- 32,000
----------- -----------
25,960,000 33,849,000
Less, Accumulated depreciation................... (7,329,000) (9,818,800)
----------- -----------
$18,631,000 $24,031,000
=========== ===========
</TABLE>
4. NOTES PAYABLE
The Company has available a revolving line of credit with a bank syndicate
totaling the lesser of $28,000,000 or an amount based on eligible accounts
receivable, parts inventory, new equipment inventory, vehicles and rental
equipment. The unused portion of the line of credit was $11,800,000 and
$7,400,000 at December 31, 1997 and August 31, 1998, respectively.
At December 31, 1997, the outstanding balance bears interest at fluctuating
30-day LIBOR rate plus 2 1/4% (8.2% at December 31, 1997). Effective in
January 1998, the outstanding balance bears interest at the fluctuating 30-day
LIBOR rate plus 1 3/4% (7.4% at August 31, 1998) and the Company pays a
commitment fee of 1/4% per annum on the unused portion of the line of credit.
The Company has the option to borrow additional funds and/or convert all or a
portion of the outstanding balance to a fluctuating interest rate equal to the
lender's prime rate plus 1/2% or a fixed LIBOR rate plus 1 3/4% for 90, 180 or
360 days.
The line of credit terminates on November 30, 1999 and extends automatically
every six months unless either party gives written notice to the other. Upon
termination or default, amounts outstanding under this line of credit convert
to a note which is payable in 48 monthly installments.
Although there are no fixed payments on the principal, the Company expects
the aggregate maturities of debt outstanding at December 31, 1997 to
approximate the following:
<TABLE>
<S> <C>
1998........................................................... $4,050,000
1999........................................................... 4,050,000
2000........................................................... 4,050,000
2001........................................................... 4,050,000
</TABLE>
Substantially all of the assets of the Company have been pledged as
collateral under the debt agreement. In addition, an affiliate of the Company
has guaranteed this debt.
The lenders require, among other terms, that the Company and its affiliate
on a combined basis meet certain financial ratios and obtain approval prior to
issuing of advances or loans to stockholders or officers which exceed certain
amounts, as defined.
On September 1, 1998, the note payable was paid in full (see Note 9).
F-159
<PAGE>
MCCLINCH EQUIPMENT SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(ALL INFORMATION FOR THE EIGHT MONTHS ENDED AUGUST 31, 1998 AND 1997 IS
UNAUDITED)
5. RELATED PARTY TRANSACTIONS
An affiliate (through common ownership) provides services to the Company in
connection with its operations. The primary expenses, which are incurred and
paid by the affiliate and allocated to the Company, include salaries
($1,750,000 for the year ended December 31, 1997 and $750,000 and $520,000 for
the eight months ended August 31, 1998 and 1997, respectively, included in
general and administrative expenses) and spare parts inventory, trucking
services and insurance expenses ($850,000, for the year ended December 31,
1997, and $590,000 and $489,000 for the eight months ended August 31, 1998 and
1997, respectively, included in cost of equipment rentals and service).
The Company rents equipment to the affiliate under an informal equipment
sharing agreement for ultimate rental to the affiliate's customers in New York
and Connecticut. In addition, the Company rents equipment from the affiliate
for ultimate rental to customers in its operating areas. The net revenue
earned (included in equipment rentals and service revenues) by the Company
under these arrangements for the year ended December 31, 1997 was $178,000 and
$352,000 and $127,000 for the eight months ended August 31, 1998 and 1997,
respectively.
The Company purchased used rental equipment from an affiliate for ultimate
sale to unrelated third parties amounting to $964,000 for the year ended
December 31, 1997 and $657,000 and $795,000 for the eight months ended June
30, 1998 and 1997, respectively. Additionally, the Company sold used rental
equipment to the affiliate for ultimate sale to unrelated third parties. The
selling price of such equipment amounted to $239,000 for the year ended
December 31, 1997 and $75,000 and $153,000 for the eight months ended August
31, 1998 and 1997, respectively.
These transactions are settled in the normal course of business.
6. INCOME TAXES
Deferred state income taxes are recorded to reflect primarily the tax
consequences on future years of temporary differences between the tax bases of
assets and liabilities, principally fixed assets and accounts receivable, and
their financial reporting amounts at each year-end and for tax operating loss
carryforwards.
The components of deferred state tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, AUGUST 31,
1997 1998
------------ ----------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforward................... $ 22,000 $ 10,000
Accounts receivable............................... 5,000 4,000
Deferred tax liabilities:
Fixed assets...................................... (377,000) (303,000)
Other............................................. (150,000) (100,000)
--------- ---------
$(500,000) $(389,000)
========= =========
</TABLE>
No valuation allowance has been recognized for deferred tax assets. The
Company has various state net operating loss carryforwards at December 31,
1997 of approximately $357,000 which expire from 2002 through 2012.
F-160
<PAGE>
MCCLINCH EQUIPMENT SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(ALL INFORMATION FOR THE EIGHT MONTHS ENDED AUGUST 31, 1998 AND 1997 IS
UNAUDITED)
7. PROFIT-SHARING PLAN
The Company participates in a profit sharing plan with its affiliates which
provides for a discretionary contribution to a trust fund based on the
Company's net income for the year, to be allocated to all eligible employees
based on their proportional compensation. Nonunion employees are eligible for
participation in the plan after the completion of one year of service,
provided they have also reached age 21. After becoming eligible, employees
vest at an annual rate of 20%. Discretionary contributions under the plan by
the Company were $75,000 for the year ended December 31, 1997. There were no
discretionary contributions under the plan by the Company for the eight months
ended August 31, 1998 and 1997.
The plan also provides for a salary deferral plan pursuant to Section 401(k)
of the Internal Revenue Code, as amended. The plan requires the Company to
contribute an amount equal to 25% of employees' contributions not to exceed 6%
of their annual compensation up to $160,000. Participants vest in the
Company's contribution at the rate of 20% annually after becoming eligible.
Matching contributions under the plan by the Company were $12,000 for the year
ended December 31, 1997 and $14,000 and $10,000 for the eight months ended
August 31, 1998 and 1997, respectively.
8. COMMITMENTS
The Company leases buildings in Delaware, Virginia, Maryland and New Jersey
from unrelated parties in the form of operating leases which expire in 1998
and 1999. Total future minimum lease payments of $190,000 are as follows:
1998, $163,000; and 1999, $27,000. In addition, the Company leases buildings
in New Jersey and Virginia on a month-to-month basis. Total rent expense of
$243,000 was incurred for the year ended December 31, 1997 and $178,000 and
$152,000 for the eight months ended August 31, 1998 and 1997, respectively.
9. SUBSEQUENT EVENT
On September 1, 1998, United Rentals, Inc. acquired all of the outstanding
shares of common stock of the Company.
F-161
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Stockholders
Valley Rentals, Inc.
We have audited the combined balance sheet of Valley Rentals, Inc. (see Note
1) (the "Companies") as of December 31, 1997 and the related combined
statements of income, stockholders' equity and partners' capital and cash
flows for the year then ended. These financial statements are the
responsibility of the Companies' management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined financial position of Valley
Rentals, Inc. at December 31, 1997, and the combined results of their
operations and their cash flows for the year then ended in conformity with
generally accepted accounting principles.
/s/ Ernst & Young LLP
MetroPark, New Jersey
April 20, 1998, except for Note 10,
as to which the date is April 22,
1998
F-162
<PAGE>
VALLEY RENTALS, INC.
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1997 1998
------------ -----------
(UNAUDITED)
<S> <C> <C>
ASSETS
Cash................................................. $ 663,540 $ 86,842
Accounts receivable, net of allowance for doubtful
accounts of $117,275................................ 2,116,829 1,955,545
Inventory............................................ 169,514 171,114
Rental equipment, net................................ 9,696,900 9,846,963
Property and equipment, net.......................... 1,791,348 1,763,087
Prepaid expenses and other assets.................... 94,146 50,945
----------- -----------
Total assets..................................... $14,532,277 $13,874,496
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY AND PARTNERS' CAPITAL
Liabilities:
Accounts payable, accrued expenses and other
liabilities....................................... $ 1,684,216 $ 1,436,169
Stockholder loan................................... 137,385 103,675
Debt............................................... 1,109,707 1,432,271
----------- -----------
Total liabilities................................ 2,931,308 2,972,115
Commitments and contingencies
Stockholders' equity and partners' capital:
Stockholders' equity:
Common stock, Valley Rentals, Inc., no par value,
10,000 shares authorized, 3,633 shares issued and
outstanding....................................... 58,650 58,650
Additional paid-in capital......................... 1,854,431 1,854,431
Retained earnings.................................. 9,691,223 8,992,635
Partners' capital (deficit)--Valley Equipment
Leasing, LLC ...................................... (3,335) (3,335)
----------- -----------
Total stockholders' equity and partners'
capital......................................... 11,600,969 10,902,381
----------- -----------
Total liabilities and stockholders' equity and
partners' capital............................... $14,532,277 $13,874,496
=========== ===========
</TABLE>
See accompanying notes.
F-163
<PAGE>
VALLEY RENTALS, INC.
COMBINED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED MARCH 31,
DECEMBER 31, ----------------------
1997 1997 1998
------------ ---------- ----------
(UNAUDITED)
<S> <C> <C> <C>
Revenues:
Equipment rentals....................... $12,998,863 $2,984,396 $2,835,547
Sales of rental equipment............... 663,776 201,797 351,103
Sales of parts, supplies and new
equipment.............................. 1,965,431 203,804 226,372
----------- ---------- ----------
Total revenues........................ 15,628,070 3,389,997 3,413,022
Cost of revenues:
Cost of equipment rentals, excluding
equipment rental depreciation.......... 3,809,895 834,400 1,051,236
Depreciation, equipment rentals......... 3,475,710 758,568 783,393
Cost of rental equipment sales.......... 336,664 186,153 170,128
Cost of parts, supplies and new
equipment sales........................ 1,001,695 138,994 159,831
----------- ---------- ----------
Total cost of revenues................ 8,623,964 1,918,115 2,164,588
----------- ---------- ----------
Gross profit.......................... 7,004,106 1,471,882 1,248,434
Selling, general and administrative
expenses................................. 4,725,084 1,159,283 1,226,219
Non-rental depreciation................... 304,895 69,072 91,525
----------- ---------- ----------
Operating income (loss)............... 1,974,127 243,527 (69,310)
Interest expense.......................... 159,488 23,739 12,321
Interest (income)......................... (61,651) (15,784) (19,445)
Other (income), net....................... (37,427) 7,053 9,785
----------- ---------- ----------
Net income (loss)..................... $ 1,913,717 $ 228,519 $ (71,971)
=========== ========== ==========
</TABLE>
See accompanying notes.
F-164
<PAGE>
VALLEY RENTALS, INC.
COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY AND PARTNERS' CAPITAL
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL PARTNERS'
-------------- PAID-IN RETAINED CAPITAL
SHARES AMOUNT CAPITAL EARNINGS (DEFICIT)
------ ------- ---------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1997.... 3,633 $58,650 $1,854,431 $ 8,819,142 $(10,877)
Net income.................. 1,906,175 7,542
Stockholder distributions... (1,034,094)
----- ------- ---------- ----------- --------
Balance at December 31, 1997.. 3,633 58,650 1,854,431 9,691,223 (3,335)
Net loss (Unaudited)........ (71,971)
Stockholder distributions
(Unaudited)................ (626,617)
----- ------- ---------- ----------- --------
Balance at March 31, 1998
(Unaudited).................. 3,633 $58,650 $1,854,431 $ 8,992,635 $ (3,335)
===== ======= ========== =========== ========
</TABLE>
See accompanying notes.
F-165
<PAGE>
VALLEY RENTALS, INC.
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED MARCH 31,
DECEMBER 31, -----------------------
1997 1997 1998
------------ ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Cash flows from operating activities
Net income (loss)...................... $ 1,913,717 $ 228,519 $ (71,971)
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation......................... 3,780,605 827,640 874,918
Gain on rental equipment sales....... (327,112) (15,644) (180,975)
Changes in assets and liabilities:
(Increase) decrease in accounts
receivable......................... (245,964) (72,829) 161,284
Decrease (increase) in inventory.... 1,557 (2,500) (1,600)
(Increase) decrease in prepaid
expenses and other assets.......... (27,197) 34,521 43,201
Decrease in accounts payable,
accrued expenses and other
liabilities........................ (26,197) (358,397) (248,047)
----------- ---------- -----------
Cash provided by operating activities.. 5,069,409 641,310 576,810
Cash flows from investing activities
Purchase of rental equipment........... (3,479,228) (287,751) (1,006,687)
Proceeds from sale of rental
equipment............................. 663,776 201,797 351,103
Purchases of property and equipment.... (364,461) (127,632) (63,264)
----------- ---------- -----------
Cash used in investing activities...... (3,179,913) (213,586) (718,848)
Cash flows from financing activities
Stockholder distribution............... (1,034,094) (1,471,458) (626,617)
Principal payments on debt............. (2,706,431) (178,032) (253,043)
Borrowings under credit facilities..... 2,193,000 1,000,000 445,000
----------- ---------- -----------
Cash used in financing activities...... (1,547,525) (649,490) (434,660)
----------- ---------- -----------
Increase (decrease) in cash............ 341,971 (221,766) (576,698)
Cash balance at beginning of period.... 321,569 321,569 663,540
----------- ---------- -----------
Cash balance at end of period.......... $ 663,540 $ 99,803 $ 86,842
=========== ========== ===========
</TABLE>
See accompanying notes.
F-166
<PAGE>
VALLEY RENTALS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1997
(THE INFORMATION AS OF MARCH 31, 1998 AND FOR THE THREE MONTHS ENDED MARCH 31,
1997 AND 1998 IS UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The combined financial statements of Valley Rentals, Inc. include the
accounts of Valley Rentals, Inc. ("Valley") and Valley Equipment Leasing, LLC
("Valley Equipment") (collectively the "Companies"). The Companies are
affiliated through common ownership. All significant intercompany accounts and
transactions have been eliminated in combination.
These combined financial statements are prepared on a historical cost basis
and do not include any adjustments that may result from the acquisition of the
Companies by United Rentals, Inc. ("United") as more fully described in Note
10.
BUSINESS ACTIVITIES
The Companies rent, sell and repair construction equipment for use by
contractor, industrial and homeowners markets. The rentals are on a daily,
weekly or monthly basis. The Companies have three locations (Longview,
Vancouver and Turnwater) and the principal market area is Washington State.
The nature of the Companies' business is such that short-term obligations are
typically met by cash flow generated from long-term assets. Consequently,
consistent with industry practice, the balance sheet is presented on an
unclassified basis.
INTERIM FINANCIAL STATEMENTS
The accompanying combined balance sheet at March 31, 1998 and the combined
statements of income, stockholders' equity and partners' capital and cash
flows for the three-month periods ended March 31, 1997 and 1998 are unaudited
and have been prepared on the same basis as the audited combined financial
statements included herein. In the opinion of management, such unaudited
combined financial statements include all adjustments necessary to present
fairly the information set forth therein, which consist solely of normal
recurring adjustments. The results of operations for such interim period are
not necessarily indicative of results for the full year.
INVENTORY
Inventories consists primarily of equipment, general replacement parts and
fuel for the equipment and are stated at the lower of cost, determined under
the first-in, first-out method, or market.
RENTAL EQUIPMENT
Rental equipment is recorded at cost. Rental equipment costing less than
$1,500 is immediately expensed at the date of purchase. Depreciation for
rental equipment is computed using the straight-line method over an estimated
five to seven-year useful life with no salvage value. Ordinary maintenance and
repair costs are charged to operations as incurred. Proceeds from the disposal
and the related net book value of the equipment are recognized in the period
of disposal and reported as revenue from sales of rental equipment and cost of
sales of rental equipment, respectively, in the combined statement of income.
F-167
<PAGE>
VALLEY RENTALS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost. The Company capitalizes all
property and equipment purchases greater than $1,500. Depreciation of property
and equipment is computed on the straight-line method over estimated useful
lives of 5 to 10 years with no salvage value. Leasehold improvements are
amortized using the straight-line method over the estimated lives of the
improvements or the remaining life of the lease, whichever is shorter.
Ordinary maintenance and repair costs are charged to operations as incurred.
The cost of assets sold, retired, or otherwise disposed of, and the related
accumulated depreciation is eliminated from the accounts and any resulting
gain or loss is included in operations.
RENTAL REVENUE
Rental revenue is recorded as earned under the operating method.
ADVERTISING COSTS
The Companies advertise primarily through trade journals, trade associations
and phone directories. All advertising costs are expensed as incurred.
Advertising expense amounted to $250,984, $49,386 and $51,026 in the year
ended December 31, 1997 and for the three months ended March 31, 1997 and
1998, respectively.
INCOME TAXES
Valley has elected, by unanimous consent of its shareholders, to be taxed
under the provisions of Subchapter S of the Internal Revenue Code for federal
purposes. Under those provisions, Valley does not pay federal income taxes;
instead, the shareholders are liable for individual income taxes on Valley's
profits. Valley Equipment, an LLC, is not a taxable entity and, therefore,
incurs no income tax liability. Any profits and losses of Valley Equipment
flow through to the individual members.
ACCOUNTING ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
2. CONCENTRATIONS OF CREDIT RISK
The Companies maintain cash balances with a quality financial institution
and, consequently, management believes funds maintained there are secure.
Concentrations of credit risk with respect to customer receivables are limited
due to the large number of customers comprising the Companies' customer base
and their credit policy.
3. RENTAL EQUIPMENT
Rental equipment and related accumulated depreciation consists of the
following:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1997 1998
------------ -----------
(UNAUDITED)
<S> <C> <C>
Rental equipment................................... $22,504,852 $22,858,436
Less accumulated depreciation...................... 12,807,952 13,011,473
----------- -----------
Rental equipment, net.............................. $ 9,696,900 $ 9,846,963
=========== ===========
</TABLE>
F-168
<PAGE>
VALLEY RENTALS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
4. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1997 1998
------------ -----------
(UNAUDITED)
<S> <C> <C>
Land................................................ $ 463,000 $ 463,000
Building and building improvements.................. 431,313 431,313
Transportation equipment............................ 1,360,766 1,424,030
Furniture, fixtures and equipment................... 487,153 487,153
Leasehold improvements.............................. 557,781 557,781
---------- ----------
3,300,013 3,363,277
Less accumulated depreciation....................... 1,508,665 1,600,190
---------- ----------
Total............................................... $1,791,348 $1,763,087
========== ==========
</TABLE>
5. DEBT
Debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1997 1998
------------ -----------
(UNAUDITED)
<S> <C> <C>
Columbia State Bank--Various notes with combined
monthly payments of $21,148 including interest of
9%................................................ $ 779,050 $ 739,337
Columbia State Bank--Revolving line of credit loan
of $1,500,000 expiring on June 1, 1998 and bearing
interest at 0.5% over prime....................... 0 445,000
John Deere Credit--Various notes with combined
monthly payments of $31,093 including interest
from 5.5% to 5.9%................................. 262,918 206,202
Ingersoll Rand--Various non-interest bearing notes
with combined monthly payments of $14,253......... 67,739 41,732
---------- ----------
$1,109,707 $1,432,271
========== ==========
</TABLE>
Substantially all assets collateralize the above notes.
All debt was paid off in connection with the acquisition discussed in Note
10.
6. OPERATING LEASES
The Companies lease two store locations on long term leases. The Companies
are responsible for all operating expenses of the facilities including
property taxes, assessments, insurance, repairs and maintenance. These leases
have various terms and extend through December 2001.
Total rent expense for the year ended December 31, 1997 and for the three
months ended March 31, 1997 and 1998 was approximately $136,100, $33,900 and
$33,900, respectively.
F-169
<PAGE>
VALLEY RENTALS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
At December 31, 1997, minimum lease commitments under all operating leases,
with initial or remaining lease terms of more than one year, are as follows:
<TABLE>
<S> <C>
1998................................................................ $225,452
1999................................................................ 218,252
2000................................................................ 204,300
2001................................................................ 58,710
2002................................................................ 0
--------
Total............................................................... $706,714
========
</TABLE>
7. RELATED PARTY TRANSACTIONS
The Companies lease two of its three operating facilities from the president
and a majority stockholder of the Companies on a five year lease basis
expiring October 31, 2000 and December 31, 2001. The Companies are responsible
for all operating expenses of the facilities including property taxes,
assessment, insurance, repairs and maintenance. Total rent expense for the
year ended December 31, 1997 and for the three months ended March 31, 1997 and
1998 was approximately $124,800, $31,200 and $31,200, respectively.
In connection with the acquisition discussed in Note 10, the lease terms
have been renegotiated.
The Companies paid $50,000, $0 and $0 during the year ended December 31,
1997, and the three months ended March 31, 1997 and 1998, respectively, to the
members of the board of directors, who are also shareholders.
The Companies also have a note payable to its majority stockholder totaling
$137,385 and $103,675 at December 31, 1997 and March 31, 1998, respectively,
bearing interest at 8.75%. No repayment schedule has been established.
In January and April 1998, the Companies made payments of $627,542 on behalf
of its Stockholders to the Internal Revenue Service.
8. SUPPLEMENTAL CASH FLOW INFORMATION
For the year ended December 31, 1997 and for the three months ended March
31, 1997 and 1998 total interest paid was $159,517, $25,499 and $14,050,
respectively.
During 1997 the Companies purchased $508,830 of equipment which was financed
and $72,993 of equipment which was traded in like-kind exchanges. During the
three months ended March 31, 1997 and 1998 the Companies purchased $187,737
and $96,897 of equipment, respectively, which was financed.
9. PENSION AND PROFIT-SHARING PLANS
The Companies have a defined contribution 401(k) pension plan which covers
substantially all employees. The Companies match 10% up to the first six
percent of the employees contribution. Companies contributions to the plan
were $9,773, $2,762 and $3,577 for the year ended December 31, 1997 and for
the three months ended March 31, 1997 and 1998, respectively.
In addition, Valley maintains a profit-sharing plan which covers
substantially all employees. Valley's contributions are discretionary and
amounted to $140,000, $30,000 and $34,500 for the year ended December 31, 1997
and for the three months ended March 31, 1997 and 1998, respectively.
10. SUBSEQUENT EVENT
On April 22, 1998, under the terms of the stock purchase agreement, United
purchased all of the issued and outstanding capital stock of the Companies.
F-170
<PAGE>
INDEPENDENT ACCOUNTANTS' REPORT
To the Board of Directors and Stockholders of Lift Systems, Inc.
We have audited the balance sheet of Lift Systems, Inc. as of December 31,
1997 and the related statements of income, changes in stockholders' equity,
and cash flows for the year then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Lift Systems, Inc. as of
December 31, 1997 and the results of its operations and cash flows for the
year then ended, in conformity with generally accepted accounting principles.
/s/ Altschuler, Melvoin and Glasser
LLP
Chicago, Illinois
March 12, 1998, except for Note 8 as to which the date is July 28, 1998
F-171
<PAGE>
LIFT SYSTEMS, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER JULY 28,
31, 1997 1998
----------- -----------
ASSETS (UNAUDITED)
<S> <C> <C>
Rental Equipment:
Cost................................................. $20,050,950 $22,132,912
Less accumulated depreciation........................ 8,931,693 9,912,355
----------- -----------
11,119,257 12,220,557
----------- -----------
Cash and Cash Equivalents.............................. 176,993 48,043
Accounts Receivable, Net of Allowances of $135,000
(1997) and $135,000 (1998)............................ 3,359,585 3,129,623
Equipment Held for Resale.............................. 233,152 188,830
Other Assets........................................... 619,874 603,766
----------- -----------
4,389,604 3,970,262
----------- -----------
Other Depreciable Equipment, At Cost:
Vehicles............................................. 1,624,753 1,660,927
Mobile radio equipment............................... 19,134 19,134
Shop tools and equipment............................. 158,615 167,260
Maintenance equipment................................ 160,783 157,927
Office furniture and equipment....................... 162,785 162,864
Computer systems..................................... 390,873 390,502
----------- -----------
2,516,943 2,558,614
Less accumulated depreciation........................ 1,293,400 1,449,459
----------- -----------
1,223,543 1,109,155
----------- -----------
Land, Building and Improvements:
Cost................................................. 1,532,442 1,545,120
Less accumulated depreciation........................ 111,194 136,355
----------- -----------
1,421,248 1,408,765
----------- -----------
$18,153,652 $18,708,739
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Long-term Debt Secured by Rental Equipment............. $ 9,267,350 $ 8,965,510
Bank Line of Credit Note Payable....................... 0
Trade Accounts Payable................................. 198,935 857,523
Other Accrued Liabilities.............................. 543,229 378,427
Deferred State Income Taxes............................ 93,475 35,025
Other Long-term Debt................................... 1,366,636 1,337,888
----------- -----------
11,469,625 11,574,373
----------- -----------
Stockholders' Equity:
Common stock:
$1.00 par value; 100,000 shares authorized; 800
shares issued and outstanding..................... 800 800
Additional paid-in capital........................... 79,200 114,225
Retained earnings.................................... 6,604,027 7,019,341
----------- -----------
6,684,027 7,134,366
----------- -----------
$18,153,652 $18,708,739
=========== ===========
</TABLE>
The accompanying notes are an integral part of this statement.
F-172
<PAGE>
LIFT SYSTEMS, INC.
STATEMENT OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED 209 DAY PERIODS
DECEMBER 31, ENDED JULY 28,
1997 1998 1997
------------ ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
Operating Revenue:
Equipment sales...................... $2,812,545 $2,077,354 $ 1,655,935
Rentals.............................. 10,020,489 5,994,508 5,479,955
Transport............................ 1,030,373 647,914 555,513
Service and parts sales.............. 651,546 476,161 421,372
Other................................ 23,998 42,674 4,568
---------- ---------- -----------
14,538,951 9,238,611 8,117,344
Less cost of equipment sold.......... 1,734,679 1,200,550 981,070
---------- ---------- -----------
Gross Operating Profit................. 12,804,272 8,038,061 7,136,274
---------- ---------- -----------
Operating Expenses:
Direct cost of rental revenue (except
depreciation)....................... 1,817,749 964,109 1,049,802
External costs of transport revenue.. 29,767 31,982 605
Costs of service revenue and parts
sales............................... 427,230 261,500 269,604
Personnel costs, not charged to di-
rect costs above.................... 3,093,421 2,259,844 1,683,850
General and administrative expenses.. 940,036 727,807 525,820
Insurance based on revenue........... 113,627 80,424 78,176
Occupancy expenses................... 123,877 76,307 60,998
Provision for bad debts.............. 73,076 89,713 34,672
---------- ---------- -----------
6,618,783 4,491,686 3,703,527
---------- ---------- -----------
Income from Operations................. 6,185,489 3,546,375 3,432,747
Other Income (Expense):
Interest expense..................... (857,800) (512,066) (476,376)
Interest income...................... 28,897 17,737 15,705
Discretionary compensation........... (435,900) (113,301) (162,000)
Profit-sharing contribution.......... (212,622) (1,098) (86,274)
Gain (Loss) on sale of property and
equipment........................... 9,335 6,665 13,498
Other................................ 6,926 23,372 3,695
---------- ---------- -----------
Income before Depreciation,
Amortization and Income Taxes......... 4,724,325 2,967,684 2,740,994
Depreciation and Amortization.......... (3,824,466) (2,499,153) 2,128,033
Provision for Deferred State Income
Taxes................................. (15,000) 46,783 (10,000)
---------- ---------- -----------
Net Income............................. $ 884,859 $ 515,314 $ 602,961
========== ========== ===========
</TABLE>
The accompanying notes are an integral part of this statement.
F-173
<PAGE>
LIFT SYSTEMS, INC.
STATEMENT OF CHANGES IN STOCKHOLDER'S EQUITY
<TABLE>
<CAPTION>
ADDITIONAL
COMMON PAID-IN RETAINED
STOCK CAPITAL EARNINGS TOTAL
------ ---------- ---------- ----------
<S> <C> <C> <C> <C>
Balance, January 1, 1997............ $800 $ 79,200 $5,823,929 $5,903,929
Net Income for 1997................. 884,859 884,859
Redemption of Common Stock.......... (4,761) (4,761)
Dividends........................... (100,000) (100,000)
---- -------- ---------- ----------
Balance, December 31, 1997.......... 800 79,200 6,604,027 6,684,027
Net Income for the 209 day Period
Ended July 28, 1998 (unaudited).... 515,314 515,314
Additional paid-in capital pledged.. 35,025
Dividends........................... (100,000) (100,000)
---- -------- ---------- ----------
Balance, July 28, 1998 (unaudited).. $800 $114,225 $7,019,341 $7,134,366
==== ======== ========== ==========
</TABLE>
The accompanying notes are an integral part of this statement.
F-174
<PAGE>
LIFT SYSTEMS, INC.
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
209 DAY PERIOD
YEAR ENDED ENDED JULY 28,
DECEMBER 31,
1997 1998 1997
------------ ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Collections from customers............ $12,312,047 $ 8,315,773 $ 6,630,049
Interest income collected............. 28,897 16,365 15,704
Commissions collected................. 23,997 42,674 4,568
Other income collected................ 6,926 23,372 3,695
Cash paid to suppliers................ (5,357,199) (3,313,052) (1,863,642)
Cash paid to employees................ (3,534,083) (2,146,085) (1,861,019)
Interest paid......................... (857,800) (517,375) (511,443)
State income taxes paid............... (6,000) (11,667) (6,000)
----------- ----------- -----------
Net cash provided by operating
activities........................... 2,616,785 2,410,005 2,411,912
----------- ----------- -----------
Cash Flows from Investing Activities:
Proceeds from sales of rental
equipment............................ 1,453,297 1,203,051 1,200,245
Proceeds from sale of nonrental
property............................. 45,391 29,736 43,891
Purchases of rental equipment......... (5,274,037) (3,191,723) (3,640,472)
Purchases of other depreciable
property............................. (309,438) (136,753) (231,137)
Payments for land and building
improvements......................... 0 (12,678) 0
----------- ----------- -----------
Net cash used in investing
activities........................... (4,084,787) (2,108,367) (2,627,473)
----------- ----------- -----------
Cash Flows from Financing Activities:
Proceeds from bank loans for rental
equipment............................ 4,149,000 1,406,000 1,221,000
Proceeds from line of credit.......... 1,699,000 883,000 650,000
Payments on rental equipment loans.... (2,989,158) (1,707,840) (1,806,365)
Payments on line of credit............ (2,199,000) (883,000) (800,000)
Payments on other long-term debt...... (20,183) (6,416) (16,580)
Payments on real estate mortgage
loan................................. (13,987) (8,332) (8,016)
Payments on noncompete agreement...... (14,000) (14,000) 0
Payments on stock purchase............ (4,761) 0 0
Payments of dividends................. (100,000) (100,000) (100,000)
----------- ----------- -----------
Net cash provided by (used in)
financing activities................. 506,911 (430,588) (859,961)
----------- ----------- -----------
Net (Decrease) Increase in Cash and Cash
Equivalents............................ (961,091) (128,950) (1,075,522)
Cash and Cash Equivalents, Beginning of
Period................................. 1,138,084 176,993 1,138,084
----------- ----------- -----------
Cash and Cash Equivalents, End of
Period................................. $ 176,993 $ 48,043 $ 62,562
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of this statement.
F-175
<PAGE>
LIFT SYSTEMS, INC.
STATEMENT OF CASH FLOWS (CONTINUED)
<TABLE>
<CAPTION>
209 DAY PERIODS
ENDED JULY 28,
YEAR-ENDED
DECEMBER 31,
1997 1998 1997
------------ ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Reconciliation of Net Income to Net
Cash Provided by Operating
Activities:
Net income.......................... $ 884,859 $ 515,314 $ 602,961
----------- ---------- ----------
Adjustments to reconcile net
income to net cash provided by
operating activities:
Depreciation and amortization... 3,824,466 2,499,153 2,128,034
Provision for bad debts......... 73,076 (123,733) (126,920)
Provision for profit-sharing
contribution................... 212,622 1,098 86,273
Loss (Gain) on sale of other
depreciable property........... (9,335) (6,665) (13,498)
Purchases of equipment for
resale ........................ (233,152) (475,212) --
Proceeds from sales of rental
equipment...................... (1,453,297) (1,203,051) (1,200,245)
Original cost of rental
equipment sold................. 2,037,886 1,779,810 1,573,096
Accumulated depreciation of
rental equipment sold.......... (1,366,834) (1,206,748) (988,856)
Decrease (Increase) in accounts
receivable..................... (1,139,008) 140,249 (418,222)
Decrease (Increase) in other
assets......................... (57,006) (157,894) 192,684
Increase (Decrease) in accounts
payable........................ (6,875) 658,588 509,626
Increase (Decrease) in deferred
state income taxes............. 9,000 (58,450) 4,000
Decrease in other accrued
liabilities.................... (159,617) 47,546 62,979
----------- ---------- ----------
Total adjustments............. 1,731,926 1,894,691 1,808,951
----------- ---------- ----------
Net Cash Provided by Operating
Activities........................... $ 2,616,785 $2,410,005 $2,411,912
=========== ========== ==========
Supplemental Schedule of Noncash
Financing Activities:
During 1997, the Company did like-
kind exchanges of rental equipment
- one with a customer and nine
with a manufacturer/supplier. The
gross acquired cost and
accumulated depreciation of the
equipment given up in these
exchanges were $121,965 and
$38,326, respectively, yielding a
capitalized cost of $83,639 for
the items of equipment acquired.
During 1997, the Company entered
into financing leases totaling
$214,255 (see Note 5).
</TABLE>
The accompanying notes are an integral part of this statement.
F-176
<PAGE>
LIFT SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 (THE INFORMATION AS OF JULY 28, 1998 AND FOR THE
209-DAY PERIODS ENDED JULY 28, 1998 AND 1997 IS UNAUDITED)
Lift Systems, Inc. sells, services, rents and transports aerial lift
equipment. Its primary customers are specialty construction contractors and
industrial maintenance departments in Northeast Illinois, Southeast Wisconsin
and Northwest Indiana. In management's opinion, the Company has no current
risk of significant vulnerability due to dependence on individual suppliers or
concentrations of revenue streams or receivables in a single or a limited
number of customers.
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
In preparing financial statements in conformity with generally accepted
accounting principles, management makes estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosures of contingent
assets and liabilities at the date of the financial statements, as well as the
reported amounts of revenue and expenses during the reporting period. Actual
results could differ from those estimates.
These financial statements are prepared on a historical cost basis and do
not include any adjustments that may result from the acquisition of the
Company by United Rentals, Inc. ("United") as more fully described in Note 8.
Interim Financial Statements
The accompanying balance sheet at July 28, 1998 and the statements of
income, stockholders' equity and cash flows for the 209-day periods ended July
28, 1998 and 1997 are unaudited and have been prepared on the same basis as
the audited financial statements included herein. In the opinion of
management, such unaudited financial statements include all adjustments
necessary to present fairly the information set forth therein, which consist
solely of normal recurring adjustments. The results of operations for such
interim periods are not necessarily indicative of results for the full year.
Rental Revenue
Rental revenue is recognized on a daily basis under operating leases
covering rental equipment. Such leases typically range from one day to several
months.
Depreciation and Amortization
Amounts capitalized to components of the headquarters facility, other than
land, are being depreciated on a straight-line basis with lives ranging from 5
to 39 years for both financial and tax reporting purposes. For financial
reporting purposes, all other depreciation is provided on a straight-line
basis over seven years for shop tools and equipment and office furniture and
equipment, and over five years for rental equipment and most other depreciable
assets. Total depreciation expense reflected in these financial statements for
1997 and for the 209-day periods ended July 28, 1998 and 1997 is $3,789,843,
$2,478,956 and $2,107,836, respectively. For tax purposes, equipment
depreciation is computed over the same lives but using the maximum rates
allowed by the Internal Revenue Code.
The cost of the noncompete agreement (see Note 3) is being amortized monthly
on a straight-line basis over five years, the term of the agreement. The
amount of such amortization reflected in these financial statements for 1997
and for the 209-day periods ended July 28, 1998 and 1997 is $34,000, $19,833
and $19,833, respectively.
F-177
<PAGE>
LIFT SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1997 (THE INFORMATION AS OF JULY 28, 1998 AND FOR THE
209-DAY PERIODS ENDED JULY 28, 1998 AND 1997 IS UNAUDITED)
Total mortgage acquisition costs of $15,594 (see Note 5) are being amortized
over 25 years on a straight line basis.
Income Taxes
Lift Systems, Inc. has elected to be taxed as a Subchapter S corporation
whereby corporate taxable income is allocated to the stockholders and reported
on their individual income tax returns. Accordingly, no provision for federal
income taxes is required in the accompanying financial statements. However,
the Company is subject to Illinois, Wisconsin and Indiana state income taxes.
For income tax purposes, the Company reports income on a modified cash basis
and uses accelerated methods of depreciation as described above. Accordingly,
deferred state income taxes have been provided on the temporary differences in
reporting income for financial statement and tax reporting purposes.
Cash and Cash Equivalents
Cash and cash equivalents consist of unrestricted funds in checking accounts
and an interest bearing money market account.
NOTE 2--LAND AND BUILDING
On September 13, 1994, the Company purchased eight acres of land and a
masonry building of 22,500 square feet to serve as the Company's headquarters
and primary operating facility for the foreseeable future. The primary
financing for this property was provided by a purchase money mortgage secured
by a promissory note as more fully described in Note 5 below. The closing
purchase price of this property was $1.2 million. Operations recommenced from
the new location on Monday, January 30, 1995. At December 31, 1997 the
capitalized costs consisted of the following:
<TABLE>
<CAPTION>
ACCUMULATED NET BOOK
COST DEPRECIATION VALUE
---------- ------------ ----------
<S> <C> <C> <C>
Land................................... $ 407,512 -- $ 407,512
Building............................... $ 804,524 $ 59,137 $ 745,387
Land Improvements...................... $ 320,406 $ 52,057 $ 268,349
---------- -------- ----------
$1,532,442 $111,194 $1,421,248
========== ======== ==========
</TABLE>
NOTE 3--NONCOMPETE AGREEMENT
Included in Other Assets is the cost of a noncompete agreement, net of
accumulated amortization, which amortization method is described above. The
gross cost of this agreement was $170,000 consisting of an immediate payment
of $100,000 and annual installments of $14,000 to be paid on or about July 1
of each year for five years with the first installment due on July 1, 1994,
provided that the former shareholder is in compliance with the terms of the
agreement. The noncompete agreement arose concurrently with, as an integral
part of, and in partial consideration for, a Stock Redemption Agreement as
more fully described in Note 6 below. The liability related to the noncompete
agreement was $14,000 at December 31,1997 and zero at July 28, 1998. This
liability is included in Other Long-Term Debt.
F-178
<PAGE>
LIFT SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1997 (THE INFORMATION AS OF JULY 28, 1998 AND FOR THE
209-DAY PERIODS ENDED JULY 28, 1998 AND 1997 IS UNAUDITED)
NOTE 4--SHORT-TERM LINES OF CREDIT
The Company has in place an overall credit facility as further described in
Note 5 below, under which the Company has available a $500,000 revolving line
of credit for working capital purposes. Amounts borrowed under this credit
agreement bear interest at a floating rate of .25% over the bank's prime rate.
There were no amounts outstanding under this line of credit at December 31,
1997 or at July 28, 1998.
Under the same bank credit facility, the Company may borrow up to $400,000
under a revolving equipment loan agreement. The purpose of this facility is to
provide short-term rental equipment financing until the total borrowed under
this facility reaches at least $350,000 or amounts have been outstanding under
this facility for six months. At such times, the total outstanding under this
revolving equipment loan will be converted to a five or seven year term note
bearing a fixed interest rate as further described below. Amounts outstanding
under this revolving agreement bear interest computed daily at a floating rate
of .25% over the bank's prime rate. There were no amounts outstanding under
this line of credit at December 31, 1997 or at July 28, 1998.
These credit facilities were renewed on April 30, 1998 for 90 days at the
same terms.
NOTE 5--LONG TERM DEBT AND LINES OF CREDIT
As of December 31, 1997, Lift Systems, Inc. had established an overall
credit facility of $12,000,000. This consists of a $500,000 revolving loan
commitment as described under Note 4 above and an $12,000,000 equipment loan
commitment. The $12,000,000 commitment amount is the maximum amount of
principal that may be outstanding under the short-term revolving equipment
loan arrangement and any long-term equipment loans owed to the bank. Long-term
equipment loans, other than "Large Equipment Term Loans", are repayable in
sixty equal monthly installments of principal and interest fixed at a rate of
2.5% or 2.25% over the five year Treasury rate at the time the loan is
established. Large Equipment Term Loans are defined as term loans up to the
aggregate maximum principal amount of $750,000, the proceeds of which are used
to finance or refinance the purchase price of booms and scissors-lifts that
are 50 feet and over in height and have a net cost exceeding $60,000. Such
Large Equipment Term Loans will be repayable over five years based on a seven
year amortization in equal monthly installments of principal and interest
fixed at a rate of 2.5% over the five year Treasury rate at the time the loan
is established.
The proceeds of all amounts borrowed under the equipment loan commitment
must be used to finance or refinance the purchase price of new rental
equipment inventory at not more than 80% of the net cost of such equipment.
Any term loan may be voluntarily prepaid in whole or in part, at any time,
provided that any voluntary prepayment in full prior to maturity must be
accompanied by a voluntary prepayment penalty of 3% if paid within one year of
original funding, 2.5% if between one and two years, 2% between two and three
years and 1% between three and four years. Mandatory prepayments, with no
penalty, must be made when any item of equipment listed as specific collateral
on a term loan is sold.
Among other covenants, the Company must maintain its principal accounts at
the lending bank, furnish the bank with audited annual financial statements
and unaudited quarterly financial statements and at all times maintain; a
tangible net worth of at least $4,500,000; a ratio of Unsubordinated
Liabilities to Tangible Net Worth of not more than 3 to 1; and a Debt Service
Coverage Ratio of at least 1.25 to 1.0.
F-179
<PAGE>
LIFT SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1997 (THE INFORMATION AS OF JULY 28, 1998 AND FOR THE
209-DAY PERIODS ENDED JULY 28, 1998 AND 1997 IS UNAUDITED)
In addition to the equipment term loans being specifically collateralized by
various items of rental equipment any amounts borrowed under the overall
credit facility are secured by a blanket security interest in substantially
all the assets of the Company and the personal guarantee of the majority
stockholder of Lift Systems, Inc.
On September 13, 1994, the Company purchased property as more fully
described in Note 2 above. The funds to close this purchase were obtained
through a purchase money mortgage secured by a promissory note with a variable
rate. Installment payments of principal and interest are payable on the first
day of each calendar month beginning November 1, 1994, and all principal and
interest must be paid on or before 25 years from the date of the Note,
September 13, 1994. The variable interest rate is determined as 2% over the
prime rate as published in the Wall Street Journal. The first business day of
each calendar quarter constitutes an interest rate change date. The initial
interest rate from September 13 through October 2, 1994, was 9.25% per annum.
On December 31, 1997 and June 30, 1998, the interest rate in effect was 10.5%
per annum. Under Section 7(a) of the Small Business Act, the U.S. Small
Business Administration has guaranteed 62.5% of this loan to the lender. This
loan is also secured by the personal guarantee of each of the three
officer/employee/stockholders of Lift Systems, Inc. The remaining principal
balance of $1,162,394 and $1,154,083 at December 31, 1997 and July 28, 1998,
respectively, is also included under Other Long-term Debt.
During 1997, Lift Systems, Inc. entered into a Term Lease Master Agreement
with IBM Credit Corporation to provide financing for many of the out-of-pocket
costs incurred in acquiring and converting to the Company's new central
computer system. The first funding under this arrangement was a principal
amount of $186,040 on June 26, 1997 to be repaid at a monthly total amount of
$3,720 over 60 months (through June 2002) which includes interest at an
effective annual rate of 7.67%. The second funding occurred on October 21,
1997 for a principal amount of $28,215 to be repaid at a monthly total amount
of $601 over 59 months (through September 2002) which includes interest at an
effective annual rate of 9.97%. Inasmuch as these leases provide for $1
purchase options on the hardware items, these transactions have been recorded
as financing leases in these financial statements with the assets acquired
capitalized under Computer Systems and the net principal balance owing
included under Other Long-Term Debt on the balance sheet.
Principal amounts of all long-term debt outstanding at December 31, 1997,
are due as follows:
<TABLE>
<S> <C>
1998........................................................ $ 2,705,148
1999........................................................ 2,460,496
2000........................................................ 2,112,185
2001........................................................ 1,524,455
2002........................................................ 760,020
2003 through 2007........................................... 153,000
2008 through 2012........................................... 258,048
2013 through 2017........................................... 435,224
2018 through 2022........................................... 225,410
-----------
$10,633,986
===========
</TABLE>
NOTE 6--COMMITMENTS
Lease Commitments
Rental expenses on all facilities leased by Lift Systems, Inc. during 1997
and through July 28, 1998 were immaterial. On February 13, 1998 Lift Systems,
Inc. entered into a lease for a branch facility
F-180
<PAGE>
LIFT SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1997 (THE INFORMATION AS OF JULY 28, 1998 AND FOR THE
209-DAY PERIODS ENDED JULY 28, 1998 AND 1997 IS UNAUDITED)
in Rockford, Illinois commencing April 1, 1998 for a fixed term of three
years. Annual basic rents are $48,000 for the first year payable $4,000 on the
first day of each month, $51,600 for the second year payable $4,300 on the
first day of each month, and $55,200 for the third year payable $4,600 on the
first day of each month. There is one option to extend the lease for two years
at the same rental amount as the third year stated above. The Company is
responsible for all real estate taxes, utility expenses, and all routine
maintenance and operating costs during the lease term and any extensions
thereof. The lessor is responsible for certain structural and mechanical
systems repair and maintenance costs. The Company has the option to purchase
the leased property during the first three years of the lease for $430,000
with a binding contract for purchase and sale to be completed six months prior
to the expiration of the initial lease term. The Company has an additional
option to purchase the property on these same conditions during the option
period at a purchase price $445,000.
Redemption Agreement
On July 1, 1993, Lift Systems, Inc. acquired and retired all 200 shares of
stock owned by a then 20% stockholder. Concurrently with and as conditions of
the Stock Redemption Agreement, the selling stockholder entered into a
Noncompete Agreement with Lift Systems, Inc. and the Company executed a
Contingent Promissory Note for the purchase price of the stock. The potential
maximum consideration for the stock is $330,000 (all of which has been paid or
accrued as of December 31, 1997), payable in accordance with the terms and
provisions and subject to the conditions, restrictions and contingencies
provided for in the Contingent Promissory Note. The Contingent Promissory Note
provides, in general, for an annual anniversary payment to be made on or after
July 1, of each year until the total payments equal $330,000 or until July 1,
2001, at which time any amount not computed to be payable up to the Maximum
Aggregate Amount of $330,000 would be extinguished as an obligation of Lift
Systems, Inc. The amount to be paid each year is defined as the lesser of 50%
of modified net income or the Annual Amount (as defined).
For each of the years ended December 31, 1993 through 1997, the Annual
Amount was due under this agreement on or after July 1 of the following year.
At December 31, 1997, the $4,761 present value of the final payment has been
recorded in Other Accrued Liabilities and as a cost of the stock redemption.
NOTE 7--PROFIT SHARING PLAN
The Company established a qualified profit-sharing plan effective January 1,
1993, primarily to provide retirement benefits for substantially all full time
employees with a minimum of one year of service. Contributions to the plan are
made in discretionary amounts as determined by the Company's Board of
Directors, limited to the maximum amount deductible for federal income tax
purposes.
NOTE 8--SUBSEQUENT EVENTS
The Company is defendant in certain litigation matters arising in the normal
course of business. In the opinion of management, the ultimate resolution of
such matters will not have a material effect on the financial position or
results of operations of the Company.
The stockholders of Lift Systems, Inc. sold all of the outstanding stock in
the Company to United Rentals, Inc. on July 28, 1998.
F-181
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors of
Perco Group Ltd.
We have audited the consolidated balance sheet of Perco Group Ltd. as at
December 31, 1997 and the consolidated statements of earnings, retained
earnings and changes in financial position for the year then ended. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation.
In our opinion, these consolidated financial statements present fairly, in
all material respects, the financial position of Perco Group Ltd. as at
December 31, 1997 and the results of its operations and the changes in its
financial position for the year then ended in accordance with generally
accepted accounting principles in Canada.
Generally accepted accounting principles in Canada vary in certain
significant respects from generally accepted accounting principles in the
United States. Application of generally accepted accounting principles in the
United States would have affected results of operations for the year ended
December 31, 1997 and stockholders' equity as at December 31, 1997 to the
extent summarized in note 12 to the consolidated financial statements.
KPMG
Montreal, Canada
February 2, 1998, except as to note 14 which
is as of May 22, 1998
F-182
<PAGE>
PERCO GROUP LTD.
CONSOLIDATED BALANCE SHEET
(EXPRESSED IN CANADIAN DOLLARS)
<TABLE>
<CAPTION>
DECEMBER 31, MAY 19,
1997 1998
------------ -----------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash............................................... $ 373,650 $ 530,617
Accounts receivable (note 2)....................... 4,373,577 3,256,006
Income taxes receivable............................ 183,914 693,930
Inventories........................................ 1,588,724 1,792,572
Prepaid expenses................................... 75,770 34,217
----------- -----------
6,595,635 6,307,342
Fixed assets (note 3)................................ 12,915,691 14,791,687
Deferred financing costs, at cost less accumulated
amortization........................................ 85,807 74,307
----------- -----------
$19,597,133 $21,173,336
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Bank indebtedness (note 4)......................... $ 771,465 $ 2,013,896
Accounts payable................................... 993,820 861,171
Accrued liabilities................................ 582,365 602,670
Current portion of long-term debt (note 5)......... 2,295,000 2,453,000
Current portion of obligation under capital leases
(note 6).......................................... 229,678 197,678
----------- -----------
4,872,328 6,128,415
Long-term debt (note 5).............................. 6,742,512 7,430,691
Obligation under capital leases (note 6)............. 171,042 150,579
Deferred income taxes................................ 1,753,145 1,823,983
Non-controlling interest............................. 1,004,523 916,084
Redeemable shares (note 7)........................... 1,062,500 1,062,500
Shareholders' equity:
Capital stock (note 8)............................. 312,500 862,500
Retained earnings.................................. 3,678,583 2,798,584
----------- -----------
3,991,083 3,661,084
Commitments (note 9).................................
Subsequent event (note 14)...........................
----------- -----------
$19,597,133 $21,173,336
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-183
<PAGE>
PERCO GROUP LTD.
CONSOLIDATED STATEMENT OF EARNINGS
(EXPRESSED IN CANADIAN DOLLARS)
<TABLE>
<CAPTION>
PERIOD FROM PERIOD FROM
JANUARY 1, JANUARY 1,
1998 1997
YEAR ENDED THROUGH THROUGH
DECEMBER 31, MAY 19, MAY 19,
1997 1998 1997
------------ ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
Revenues:
Rental income......................... $14,509,900 $3,806,126 $4,190,553
Sales................................. 4,334,959 1,950,448 1,584,392
Gain on disposal of fixed assets...... 647,352 231,616 324,940
----------- ---------- ----------
19,492,211 5,988,190 6,099,885
Direct rental expenses, excluding
equipment rental depreciation.......... 5,659,124 1,664,660 1,931,926
Depreciation on rental equipment........ 1,776,368 747,819 660,160
Cost of goods sold...................... 3,344,842 1,484,590 1,263,506
----------- ---------- ----------
10,780,334 3,897,069 3,855,592
----------- ---------- ----------
Earnings before undernoted items........ 8,711,877 2,091,121 2,244,293
Operating expenses:
Selling and administrative expenses... 5,516,606 2,305,247 2,097,712
Non-rental depreciation............... 411,626 134,082 152,915
Interest on long-term debt and
obligation under capital leases...... 837,963 348,449 279,915
Other financial expenses.............. 37,907 13,683 43,915
----------- ---------- ----------
6,804,102 2,801,461 2,574,457
----------- ---------- ----------
Earnings (loss) before income taxes and
non-controlling interest............... 1,907,775 (710,340) (330,164)
Income taxes:
Current (notes 10 and 11)............. 767,053 (362,740) (126,927)
Deferred.............................. 103,371 70,838 5,000
----------- ---------- ----------
870,424 (291,902) (121,927)
----------- ---------- ----------
Earnings (loss) before non-controlling
interest............................... 1,037,351 (418,438) (208,237)
Non-controlling interest................ 131,507 (88,439) (52,524)
----------- ---------- ----------
Net earnings (loss)..................... $ 905,844 $ (329,999) $ (155,713)
=========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-184
<PAGE>
PERCO GROUP LTD.
CONSOLIDATED STATEMENT OF RETAINED EARNINGS
(EXPRESSED IN CANADIAN DOLLARS)
<TABLE>
<CAPTION>
PERIOD FROM
JANUARY 1,
1998
YEAR ENDED THROUGH
DECEMBER 31, MAY 19,
1997 1998
------------ -----------
(UNAUDITED)
<S> <C> <C>
Retained earnings, beginning of period................ $2,772,739 $3,678,583
Net earnings (loss)................................... 905,844 (329,999)
Transfer to paid-up capital of the outstanding Class B
shares
(note 8)............................................. -- (550,000)
---------- ----------
Retained earnings, end of period...................... $3,678,583 $2,798,584
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-185
<PAGE>
PERCO GROUP LTD.
CONSOLIDATED STATEMENT OF CHANGES IN FINANCIAL POSITION
(EXPRESSED IN CANADIAN DOLLARS)
<TABLE>
<CAPTION>
PERIOD FROM PERIOD FROM
JANUARY 1, JANUARY 1,
YEAR ENDED 1998 1997
DECEMBER THROUGH MAY THROUGH MAY
31, 1997 19, 1998 19, 1997
----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
Cash provided by (used in):
Operations:
Net earnings (loss)................... $ 905,844 $ (329,999) $ (155,713)
Items not involving cash:
Gain on disposal of fixed assets..... (647,352) (231,616) (324,940)
Depreciation of fixed assets......... 2,187,994 881,901 813,074
Amortization of deferred charges..... 27,600 11,500 9,200
Deferred income taxes................ 103,371 70,838 5,000
Non-controlling interest............. 131,507 (88,439) (52,524)
Net change in non-cash operating
working capital:
Accounts receivable.................. (296,315) 1,117,571 702,850
Income taxes receivable.............. (183,914) (510,016) (288,650)
Inventories.......................... (168,676) (203,848) (308,566)
Prepaid expenses..................... (27,975) 41,553 (97,906)
Accounts payable..................... 14,272 (132,649) 309,283
Accrued liabilities.................. 56,010 20,305 82,393
Income taxes payable................. (165,307) -- (165,307)
----------- ----------- -----------
1,937,059 647,101 528,194
Financing:
Increase in long-term debt............ 2,199,387 1,593,853 1,539,000
Decrease in long-term debt............ (2,008,686) (747,674) (498,098)
Decrease in obligation under capital
leases............................... (163,372) (52,463) (56,896)
----------- ----------- -----------
27,329 793,716 984,006
Investing:
Acquisition of fixed assets........... (3,561,771) (2,982,984) (2,297,799)
Proceeds of disposal of fixed assets.. 895,007 456,703 420,142
----------- ----------- -----------
(2,666,764) (2,526,281) (1,877,657)
----------- ----------- -----------
Decrease in cash........................ (702,376) (1,085,464) (365,457)
Cash (bank indebtedness net of cash),
beginning of
period................................. 304,561 (397,815) 304,561
----------- ----------- -----------
Bank indebtedness net of cash, end of
period................................. $ (397,815) $(1,483,279) $ (60,896)
=========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-186
<PAGE>
PERCO GROUP LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(EXPRESSED IN CANADIAN DOLLARS)
YEAR ENDED DECEMBER 31, 1997
(THE INFORMATION AT MAY 19, 1998 AND FOR THE PERIOD FROM JANUARY 1, THROUGH
MAY 19, 1998 AND 1997 IS UNAUDITED.)
The Company, incorporated under Part 1A of the Quebec Companies Act, is
involved primarily in the rental of industrial and building equipment in
Canada.
1. SIGNIFICANT ACCOUNTING POLICIES:
(a) Basis of presentation:
The accompanying consolidated financial statements are presented in
accordance with accounting principles generally accepted in Canada (Canadian
GAAP).
As described in note 14, the Company was acquired by United Rentals of
Canada (Quebec), Inc. These financial statements are prepared on the basis of
their predecessor historical costs and do not include any adjustments that may
result from the acquisition of the Company by United Rentals of Canada
(Quebec), Inc.
(b) Basis of consolidation:
The consolidated financial statements include the accounts of Perco Group
Ltd. and its subsidiary, 2633-4680 Quebec Inc.
(c) Interim financial statements:
The accompanying balance sheet at May 19, 1998 and the statements of
earnings, retained earnings and changes in financial position for the period
from January 1, through May 19, 1998 and 1997 are unaudited and have been
prepared on a basis that is consistent with the audited consolidated financial
statements included herein. In the opinion of management, such unaudited
financial statements include all adjustments necessary to present fairly the
information set forth therein, which consist solely of normal recurring
adjustments. The results of operation for such interim periods are not
necessarily indication of results for a full year.
(d) Inventories:
Goods and equipment for resale and supplies are valued at the lower of cost
and net realizable value. Spare parts and supplies are valued at the lower of
cost and replacement cost less an allowance for obsolescence. Cost is
determined using the first in, first out method.
(e) Fixed assets:
Fixed assets are stated at cost. Depreciation and amortization are provided
using the following methods and annual rates:
<TABLE>
<CAPTION>
ASSET METHOD RATE/PERIOD
----- ----------------- -------------
<S> <C> <C>
Buildings.................................. Declining balance 4%
Rental equipment........................... Straight-line 6 2/3% to 100%
Cars and trucks............................ Declining balance 30%
Furniture and fixtures..................... Declining balance 20%
Leasehold improvements..................... Straight-line 5 years
Computer hardware and software............. Declining balance 30%
Cars and trucks under capital leases....... Declining balance 30%
</TABLE>
F-187
<PAGE>
PERCO GROUP LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(EXPRESSED IN CANADIAN DOLLARS)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
(f) Deferred financing costs:
The costs of obtaining bank and other debt financing are deferred and
amortized on a straight-line basis over the effective life of the debt to
which they relate.
(g) Use of estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
2. ACCOUNTS RECEIVABLE:
Accounts receivable are net of allowance for doubtful accounts of $380,837
at December 31, 1997 and $443,318 at May 19, 1998.
3. FIXED ASSETS:
<TABLE>
<CAPTION>
DECEMBER 31, MAY 19,
1997 1998
------------ -----------
<S> <C> <C>
Land............................................... $ 901,503 $ 901,503
Buildings.......................................... 2,439,276 2,446,545
Rental equipment................................... 23,225,446 25,282,753
Cars and trucks.................................... 1,376,234 2,109,987
Furniture and fixtures............................. 466,277 476,007
Leasehold improvements............................. 752,424 809,584
Computer hardware and software..................... 382,148 402,221
Cars and trucks under capital leases............... 1,134,888 460,015
----------- -----------
30,678,196 32,888,615
Less accumulated depreciation and amortization..... 17,762,505 18,096,928
----------- -----------
$12,915,691 $14,791,687
=========== ===========
</TABLE>
4. BANK INDEBTEDNESS GUARANTEES:
The bank indebtedness and the long-term debt of the Company described in
note 5 are secured by hypothecs on inventories and accounts receivable, a
movable hypothec of $10,700,000 on all corporeal and incorporeal movable
property, including a hypothec of $10,700,000 on the all-risks insurance
coverage relating to the assets pledged as security to the bank.
F-188
<PAGE>
PERCO GROUP LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(EXPRESSED IN CANADIAN DOLLARS)
5. LONG-TERM DEBT:
<TABLE>
<CAPTION>
DECEMBER 31, MAY 19,
1997 1998
------------ ----------
<S> <C> <C>
Revolving term loan maturing in 2000, bearing interest
at the bank's Canadian base rate plus 1.5%, payable
in 24 monthly instalments of principal of $84,524,
with a final payment covering the principal balance.. $2,178,437 $2,393,086
Term loan maturing in 2000, bearing interest at the
bank's Canadian base rate plus 1%, payable in 35
equal monthly instalments of $20,286, (principal
only) with a final payment of $507,159............... 1,217,174 1,136,032
Loan from the Federal Business Development Bank
maturing in 1999, bearing interest at the bank's base
rate plus 2.5% and additional interest equal to 0.25%
of the Company's total annual revenue, payable in
monthly instalments of $16,700 (principal only)...... 388,200 321,400
Term loan maturing in 2001, bearing interest at the
bank's Canadian base rate plus 1%, payable in 47
equal monthly instalments of $18,335, (principal
only) with a final payment of $458,325............... 1,320,070 1,246,730
Term loan maturing in 2002, bearing interest at the
bank's Canadian base rate plus 1%, payable in 59
monthly instalments of $25,000 (principal only), with
a final payment of $625,000 covering the principal
balance.............................................. 2,100,000 2,000,000
Credit facility for acquisition of fixed assets
convertible in December 1998 into a term loan
maturing in 2003, bearing interest at the bank's
Canadian base rate plus 1%, payable in equal monthly
instalments (principal only), with a final payment to
be determined covering the principal balance......... -- 729,000
First mortgage loan in the amount of $1,000,000 and
second mortgage in the amount of $450,000 secured by
land and buildings with a net book value of
$1,222,596 as at December 31, 1997, 8.75%, payable in
monthly instalments of $15,137 (principal and
interest combined), renegotiable in December 1999,
maturing in April 2004............................... 871,903 835,826
First mortgage loan in the amount of $1,200,000
secured by land and a building with a net book value
of $1,113,832 as at December 31, 1997, 7.3%, payable
in monthly instalments of $10,770 (principal and
interest combined), renegotiable in December 1999,
maturing in December 2005............................ 784,480 753,905
Term loan maturing in 2003, bearing interest at the
bank's Canadian base rate plus 1% in 60 monthly
instalments of $2,893 (principal only), with a final
payment of $69,420 covering the principal balance.... -- 237,214
Conditional sale contracts maturing in 2001 and 2002,
bearing interest at various rates from 7% to 8.70%,
payable in monthly instalments of $4,274, including
interest. These debts are secured by trucks and
equipment............................................ 177,248 230,498
---------- ----------
9,037,512 9,883,691
Less current portion of long-term debt................ 2,295,000 2,453,000
---------- ----------
$6,742,512 $7,430,691
========== ==========
</TABLE>
F-189
<PAGE>
PERCO GROUP LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(EXPRESSED IN CANADIAN DOLLARS)
The term loans and the Federal Business Development Bank loan are secured by
various assets, as described in note 4. Under the term loan agreements, the
Company is committed to maintain certain financial ratios.
5. LONG-TERM DEBT (CONTINUED):
Repayments of the long-term debt for each of the next five years are as
follows:
<TABLE>
<CAPTION>
DECEMBER 31, MAY 19,
1997 1998
------------ ---------
<S> <C> <C>
1998.................................................. $2,295,000 $ --
1999.................................................. 2,210,000 2,453,000
2000.................................................. 1,573,000 2,530,000
2001.................................................. 1,240,000 1,608,000
2002.................................................. 1,165,000 1,338,000
2003.................................................. -- 1,431,000
</TABLE>
6. OBLIGATION UNDER CAPITAL LEASES:
Total future minimum payments under capital leases are as follows as at:
<TABLE>
<CAPTION>
DECEMBER 31, MAY 19,
1997 1998
------------ --------
<S> <C> <C>
1998................................................. $263,371 $ --
1999................................................. 100,242 228,410
2000................................................. 62,846 98,401
2001................................................. 26,066 51,171
2002................................................. -- 5,641
-------- --------
Total minimum lease payments......................... 452,525 383,623
Less amount representing interest at rates varying
from 9% to 12.2%.................................... 51,805 35,366
-------- --------
Balance of obligation................................ 400,720 348,257
Less current portion................................. 229,678 197,678
-------- --------
Obligation under capital leases...................... $171,042 $150,579
======== ========
</TABLE>
7. REDEEMABLE SHARES:
An unlimited number of authorized:
Class C shares, voting, without par value, mandatorily redeemable by the
Company at death of holder
Class D shares, non-voting, without par value, conveying one monthly
preferred, non-cumulative 1% dividend on the redemption value, redeemable
at the option of the holder and issuer at the paid-up capital and in the
case of Class A shares being converted into Class D shares equal to the
difference between the paid-up capital and the fair market value at the
time of exchange
Class E shares, non-voting, without par value, conveying one monthly
preferred, non-cumulative 1% dividend on the redemption value, redeemable
at the option of the holder and issuer at the fair market value of the
consideration received at issuance
F-190
<PAGE>
PERCO GROUP LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(EXPRESSED IN CANADIAN DOLLARS)
7. REDEEMABLE SHARES (CONTINUED):
Class F shares, non-voting, without par value, conveying one yearly,
preferred, non-cumulative dividend of $1 per share, redeemable at the
option of the holder and issuer at the paid-up capital
Class G shares, non-voting, without par value, conveying one yearly,
preferred, non-cumulative dividend of $1 per share, redeemable at the
option of the issuer at the paid-up capital
Issued and fully paid:
<TABLE>
<CAPTION>
DECEMBER 31, MAY 19,
1997 1998
------------ ----------
<S> <C> <C>
62,500 Class D shares, redeemable at $62,500........ $ 62,500 $ 62,500
100,000 Class G shares, redeemable at $1,000,000.... 1,000,000 1,000,000
---------- ----------
$1,062,500 $1,062,500
========== ==========
</TABLE>
8. CAPITAL STOCK:
An unlimited number of authorized:
Class A shares, voting, participating, without par value, convertible
into Class D shares only with the joint approval of the Board and positive
vote of Class A and D holders
Class B shares, voting, participating, without par value
Issued and fully paid:
<TABLE>
<CAPTION>
DECEMBER 31, MAY 19,
1997 1998
------------ --------
<S> <C> <C>
312,500 Class A shares (250,000 shares on May 19,
1998).............................................. $312,500 $250,000
62,500 Class B shares .............................. -- 612,500
-------- --------
$312,500 $862,500
======== ========
</TABLE>
During the period ended May 19, 1998, 62,500 Class A shares were converted
into 62,500 Class B shares and the paid-up capital of these shares was
increased by $550,000.
9. COMMITMENTS:
The Company is committed under lease contracts for premises expiring at
various dates from January 1, 1998 to January 31, 2001. The minimum lease
payments for each of the next four years are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, MAY 19,
1997 1998
------------ --------
<S> <C> <C>
1998................................................... $163,000 $ --
1999................................................... 153,000 176,000
2000................................................... 61,000 139,000
2001................................................... 4,000 58,000
-------- --------
$381,000 $373,000
======== ========
</TABLE>
F-191
<PAGE>
PERCO GROUP LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(EXPRESSED IN CANADIAN DOLLARS)
10. INCOME TAXES:
The effective income tax rate differs from the statutory rate that would be
obtained by applying the combined basic federal and provincial tax rate to
earnings before income taxes. These differences result from the following
items:
<TABLE>
<CAPTION>
DECEMBER 31, MAY 19, MAY 19,
1997 1998 1997
------------ ------- -------
<S> <C> <C> <C>
Combined basic federal and provincial tax rate.... 38.7% 38.7% 38.7%
Increase (decrease) in income tax rate resulting
from:
Permanent differences as a result of purchase
accounting and non-deductible expenses......... (4.8) 2.4 3.4
Previous years' reassessment.................... 11.7 -- --
Manufacturing and processing profits deduction.. -- -- (5.2)
---- ---- ----
Effective income tax rate......................... 45.6% 41.1% 36.9%
==== ==== ====
</TABLE>
11. INCOME TAXES REASSESSMENT:
The Company has been reassessed for the tax credits (manufacturing and
processing profits deduction) it claimed in 1996 and in respect of the years
1994 to 1996 inclusive. The reassessment amounts to $224,000 and is included
in the December 31, 1997 current income taxes.
12. UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES:
The company follows Canadian generally accepted accounting principles
(Canadian GAAP) which are different in some respects from those applicable in
the United States (U.S. GAAP).
(a) The following table presents a reconciliation of stockholder's equity
from Canadian GAAP to U.S. GAAP:
<TABLE>
<CAPTION>
PERIOD
FROM
JANUARY 1,
1998
YEAR ENDED THROUGH
DECEMBER 31, MAY 19,
1997 1998
------------ ----------
<S> <C> <C>
Stockholders' equity:
Per Canadian GAAP................................. $3,991,083 $3,661,084
Decrease in fixed assets net (i).................. (820,253) (721,123)
Decrease in deferred income taxes (ii)............ 784,933 743,298
---------- ----------
Per U.S. GAAP....................................... $3,955,763 $3,683,259
========== ==========
</TABLE>
(i) Under Canadian GAAP, as a result of negative goodwill from a business
combination accounted for as a purchase, the Company reduced the value of
fixed assets. Under U.S. GAAP, assets acquired in a purchase business
combination are recorded at their gross fair values, with separate deferred
tax assets and liabilities recognized for the tax effect of the differences
between such fair values and the tax bases.
(ii) The income tax provision in Canada is based on the deferral method
and adjustments are generally not made for changes in income tax rates.
Under U.S. GAAP, deferred tax liabilities are measured using the enacted
tax rate expected to apply to taxable income in the periods in which the
deferred tax asset on liability is expected to be settled. A U.S. GAAP
difference arises for the Company due to timing differences resulting from
the application of the purchase accounting adjustments described above.
F-192
<PAGE>
PERCO GROUP LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(EXPRESSED IN CANADIAN DOLLARS)
12. UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (CONTINUED):
(b) The following table presents a reconciliation of net earnings from
Canadian GAAP to U.S. GAAP:
<TABLE>
<CAPTION>
PERIOD FROM PERIOD FROM
JANUARY 1, 1998 JANUARY 1, 1997
YEAR ENDED THROUGH THROUGH
DECEMBER 31, MAY 19, MAY 19,
1997 1998 1997
------------ --------------- ---------------
<S> <C> <C> <C>
Net (loss) earnings under
Canadian GAAP................ $ 905,844 $(329,999) $(155,713)
Income tax adjustment under
the asset and liability
method....................... (154,252) (41,635) (36,540)
Lower depreciation on fixed
assets....................... 258,546 99,130 99,389
---------- --------- ---------
Net earnings (loss) under U.S.
GAAP......................... $1,010,138 $(272,504) $ (92,864)
========== ========= =========
</TABLE>
(c) Statement of change in financial position:
Under U.S. GAAP, a statement of cash flow is required while a statement of
changes in financial position is required under Canadian GAAP. There are no
differences in the amounts presented in the accompanying statement of changes
in financial position from a cash flow statement prepared under U.S. GAAP,
except for the presentation of bank indebtedness. Under Canadian GAAP, cash in
the statement of changes in financial position is shown net of bank
indebtedness. Under U.S. GAAP, the net change in bank indebtedness, with
original maturities of 90 days or less, is presented as a financing activity.
<TABLE>
<CAPTION>
PERIOD FROM PERIOD FROM
JANUARY 1, 1998 JANUARY 1, 1997
YEAR ENDED THROUGH THROUGH
DECEMBER 31, MAY 19, MAY 19,
1997 1998 1997
------------ --------------- ---------------
<S> <C> <C> <C>
Financing activity under
Canadian GAAP............... $ 27,329 $ 793,716 $ 984,006
Bank indebtedness increase... 724,833 1,242,431 353,368
-------- ---------- ----------
Financing activity under U.S.
GAAP........................ $752,162 $2,036,147 $1,337,374
======== ========== ==========
The reclassification results
in:
Cash at end of year under
U.S. GAAP................. $373,650 $ 530,617 $ 339,104
======== ========== ==========
</TABLE>
13. FINANCIAL INSTRUMENTS:
(a) Fair value:
The carrying value of the Company's accounts receivable, bank indebtedness,
accounts payable and accrued liabilities approximates their fair values due to
their demand nature or relatively short periods to maturity.
The fair value of the Company's long-term debt and obligation under capital
leases has been determined to be equal to their carrying values, as the
current financing arrangements represent the borrowing rate presently
available to the Company for loans with similar terms and maturities.
F-193
<PAGE>
PERCO GROUP LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(EXPRESSED IN CANADIAN DOLLARS)
13. FINANCIAL INSTRUMENTS: (CONTINUED)
(b) Credit risk:
Financial instruments that potentially subject the Company to significant
concentration risk consist principally of trade accounts receivable. Credit
risk with respect to trade accounts receivable is generally diversified due to
the large number of entities comprising the Company's customer base. The
Company performs ongoing credit evaluations of its customers' financial
condition. The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions regarding the provision for doubtful accounts. However, actual
results could differ from those estimates.
14. SUBSEQUENT EVENT:
On May 21, 1998, all of the outstanding Class G shares were redeemed for a
cash consideration of $1,000,000.
On May 19, 1998 the Company entered into a stock purchase agreement with
United Rentals, Inc. Under the terms of the stock purchase agreement, the
transaction closed on May 22, 1998 and all of the remaining outstanding
capital stock described in notes 7 and 8 and all the shares held in 2633-4680
Quebec Inc. by the non-controlling interest were acquired by United Rentals of
Canada (Quebec), Inc. after Perco Group Ltd. amalgamated with its subsidiary,
2633-4680 Quebec Inc., and all outstanding shares were converted into shares
of the amalgamated company.
F-194
<PAGE>
AUDITORS' REPORT
To the Directors of
Reitzel Rentals Ltd.
We have audited the balance sheet of Reitzel Rentals Ltd. as at February 28,
1998 and the statements of operations, shareholders' equity and cash flow for
the year then ended. These audited financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation.
In our opinion, these financial statements present fairly, in all material
respects, the financial position of the Company as at February 28, 1998 and
the results of its operations and cash flows for the year then ended in
accordance with generally accepted accounting principles in the United States.
PricewaterhouseCoopers Chartered Accountants
Kitchener, Canada
July 27, 1998
F-195
<PAGE>
REITZEL RENTALS LTD.
BALANCE SHEETS
(IN CANADIAN DOLLARS)
<TABLE>
<CAPTION>
FEBRUARY
28, MAY 31,
1998 1998
----------- -----------
(UNAUDITED)
<S> <C> <C>
ASSETS
Cash................................................... $ 46,301 $ --
Accounts receivable--trade, net of allowance for
doubtful accounts
of $84,980 ($93,292 as of May 31, 1998)............... 2,033,118 2,204,300
Inventory.............................................. 1,175,302 1,833,371
Rental equipment, net (Note 3)......................... 11,003,382 11,906,195
Property and equipment, net (Note 4)................... 2,264,061 1,552,663
Other assets........................................... 1,088,343 1,322,032
----------- -----------
$17,610,507 $18,818,561
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Bank operating line (Note 5)........................... $ -- $ 891,005
Accounts payable--trade................................ 860,221 1,969,854
Accrued management and staff bonuses................... 2,014,079 503,070
Other liabilities...................................... 348,468 1,415,692
Long-term debt (Note 6)................................ 5,423,076 5,008,469
Due to shareholders and related party (Note 7)......... 707,278 280,058
Deferred income taxes (Note 9)......................... 2,778,000 2,931,000
----------- -----------
12,130,122 12,999,148
Mandatorily redeemable shares (Note 8)................. 947,990 947,990
Commitments (Note 10)
Share capital (Note 8)................................. 56,050 56,050
Retained earnings...................................... 4,475,345 4,815,373
----------- -----------
4,531,395 4,871,423
----------- -----------
$17,610,507 $18,818,561
=========== ===========
</TABLE>
See accompanying notes to financial statements.
F-196
<PAGE>
REITZEL RENTALS LTD.
STATEMENTS OF OPERATIONS
(IN CANADIAN DOLLARS)
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS THREE MONTHS
FEBRUARY ENDED ENDED
28, MAY 31, MAY 31,
1998 1997 1998
---------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
Revenues:
Equipment rentals....................... $9,695,641 $1,832,811 $2,278,718
Sales of rental equipment............... 1,544,982 517,409 303,742
Sales of new equipment, merchandise and
other revenues......................... 5,977,848 1,712,996 1,469,432
---------- ---------- ----------
Total revenues........................ 17,218,471 4,063,216 4,051,892
Cost of revenues:
Cost of equipment rentals, excluding
depreciation........................... 3,639,956 688,077 855,481
Depreciation of rental equipment........ 857,104 214,276 214,276
Cost of rental equipment sales.......... 668,717 223,951 131,469
Cost of new equipment and merchandise
sales and other operating costs........ 4,232,725 1,212,918 1,040,458
---------- ---------- ----------
Total cost of revenues................ 9,398,502 2,339,222 2,241,684
---------- ---------- ----------
Gross profit............................. 7,819,969 1,723,994 1,810,208
Selling, general and administrative
expenses................................ 3,154,852 1,031,807 732,798
Non-rental depreciation and
amortization............................ 376,240 76,585 76,400
---------- ---------- ----------
Operating income......................... 4,288,877 615,802 1,001,010
Interest expense......................... 515,705 115,218 197,154
Management and staff bonuses............. 2,014,445 -- --
(Gain) loss on sale of property and
equipment............................... (363,928) (362,784) 31,847
---------- ---------- ----------
Income before provision for income
taxes................................... 2,123,015 863,368 772,009
Provision for income taxes............... 918,470 385,000 344,000
---------- ---------- ----------
Net income............................... $1,204,545 $ 478,368 $ 428,009
========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
F-197
<PAGE>
REITZEL RENTALS LTD.
STATEMENTS OF SHAREHOLDERS' EQUITY
(IN CANADIAN DOLLARS)
<TABLE>
<CAPTION>
COMMON RETAINED
SHARES EARNINGS TOTAL
------- ---------- ----------
<S> <C> <C> <C>
Balance, March 1, 1997.......................... $56,050 $3,270,800 $3,326,850
Net income...................................... -- 1,204,545 1,204,545
------- ---------- ----------
Balance, February 28, 1998...................... 56,050 4,475,345 4,531,395
Cash dividends.................................. -- (87,981) (87,981)
Net income (unaudited).......................... -- 428,009 428,009
------- ---------- ----------
Balance, May 31, 1998 (unaudited)............... $56,050 $4,815,373 $4,871,423
======= ========== ==========
</TABLE>
See accompanying notes to financial statements.
F-198
<PAGE>
REITZEL RENTALS LTD.
STATEMENTS OF CASH FLOWS
(IN CANADIAN DOLLARS)
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS THREE MONTHS
FEBRUARY ENDED ENDED
28, MAY 31, MAY 31,
1998 1997 1998
----------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income............................. $ 1,204,545 $ 478,368 $ 428,009
Items not requiring cash
Amortization.......................... 1,233,344 290,661 290,676
Gain on sale of rental equipment...... (876,265) (293,458) (172,273)
(Gain) loss on disposal of property
and equipment........................ (363,928) (362,784) 31,847
Deferred income taxes................. 842,000 211,000 153,000
Changes in non-cash operating items
Accounts receivable--trade............ (175,759) 114,617 (171,182)
Inventory............................. (122,884) (668,672) (658,069)
Accounts payable--trade and other
liabilities.......................... 554,478 (130,275) 1,095,828
----------- --------- -----------
2,295,531 (360,543) 997,836
Cash flows from investing activities
Purchase of property and equipment..... (161,975) (20,188) (90,017)
Proceeds of disposal of property and
equipment............................. 309,604 299,604 189,793
Proceeds on sale of rental equipment... 1,544,982 517,409 303,742
Purchase of rental equipment........... (1,863,221) (689,756) (502,709)
(Increase) decrease in other assets.... 20,956 40,634 (160,314)
----------- --------- -----------
(149,654) 147,703 (259,505)
Cash flows from financing activities
Increase in bank operating line........ -- 877,892 891,005
Repayment of long-term debt............ (2,222,275) (593,973) (1,160,436)
Increase (decrease) in shareholder
loans................................. 122,699 (71,079) (427,220)
Cash dividend.......................... -- -- (87,981)
----------- --------- -----------
(2,099,576) 212,840 (784,632)
----------- --------- -----------
Net cash increase (decrease) during the
period................................. 46,301 -- (46,301)
Cash beginning of period................ -- -- 46,301
----------- --------- -----------
Cash end of period...................... $ 46,301 $ -- $ --
=========== ========= ===========
</TABLE>
See accompanying notes to financial statements.
F-199
<PAGE>
REITZEL RENTALS LTD.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED WITH RESPECT TO THE PERIODS ENDED MAY 31, 1997 AND 1998)
1.ORGANIZATION AND BASIS OF PRESENTATION
Reitzel Rentals Ltd. (the "Company") was incorporated in January 1987 under
the laws of Ontario, Canada. The Company rents a broad array of equipment to a
diverse customer base that includes construction industry participants,
industrial companies, homeowners and others in Ontario. The Company also
engages in related activities such as selling used rental equipment, acting as
a distributor for certain new equipment and selling related merchandise and
parts. The nature of the Company's business is such that short-term
obligations are typically met by cash flow generated from long-term assets.
Consequently, consistent with industry practice, the accompanying balance
sheet is presented on an unclassified basis.
Comparative financial statements have not been presented as these financial
statements have been prepared solely for inclusion in the offering memorandum
issued by United Rentals Holdings, Inc. and management of United Rental
Holdings, Inc. have advised that comparative information is not required.
The financial statements have been prepared in accordance with United States
Generally Accepted Accounting Principles. All amounts are in Canadian dollars.
2.SIGNIFICANT ACCOUNTING POLICIES
Inventory
Inventory consists of equipment, tools, parts, fuel and related supply
items. Inventory is stated at the lower of average weighted cost or market.
Rental equipment
Rental equipment is recorded at cost and depreciated over the estimated
useful lives of the equipment using the straight-line method. The range of
useful lives estimated by management for rental equipment is two to ten years.
Rental equipment is depreciated to a salvage value of zero to ten percent of
cost. Rental equipment having a cost of $500 or less is expensed at the time
of purchase. Maintenance and repair costs are charged to operations as
incurred.
Revenue recognition
Revenue related to the sale of equipment is recognized at the time of sale
which coincides with delivery. Revenue related to rental equipment is
recognized over the contract term on a straight-line basis.
Property and equipment
Property and equipment are recorded at cost and depreciated over their
estimated useful lives using the straight-line method. The range of useful
lives estimated by management for property and equipment is two to ten years.
Maintenance and repair costs are charged to operations as incurred.
Fair value of financial instruments
The carrying amounts reported in the balance sheet for accounts receivable,
accounts payable, and other liabilities approximate fair value due to the
immediate to short-term maturity of these financial instruments. The fair
value of long-term debt and amounts due to shareholders and related party are
determined using current interest rates for similar instruments as of period
ended.
F-200
<PAGE>
REITZEL RENTALS LTD.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED WITH RESPECT TO THE PERIODS ENDED MAY 31, 1997 AND 1998)
Income taxes
The Company uses the liability method of accounting for income taxes. Under
this method, deferred tax assets and liabilities are determined based on the
differences between financial statement and tax bases of assets and
liabilities and are measured using the enacted tax rates and laws that are
expected to be in effect when the differences are expected to reverse.
Recognition of deferred tax assets is limited to amounts considered by
management to be more likely than not of realization in future periods.
Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Concentration of credit risk
Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist principally of accounts receivable.
Concentrations of credit risk with respect to accounts receivable are limited
because a large number of customers make up the Company's customer base. The
Company controls credit risk through credit approvals, credit lines, and
monitoring procedures.
Twelve customers represent ten percent of revenues in the year ended
February 28, 1998 (nine customers as of May 31, 1998 and one as of May 31,
1997) and twelve customers represented ten percent of accounts receivable--
trade as of February 28, 1998 (twelve customers as of May 31, 1998 and eleven
as of May 31, 1997).
Impact of recently issued Accounting Standards
In June 1997, the Financial Accounting Standards Board issued SFAS No. 130,
"Reporting Comprehensive Income," and SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information." The Company is required to
adopt the provisions of these Statements in fiscal year 1999. The Company is
currently evaluating the reporting formats recommended under both these
Statements.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 132,
"Employer Disclosure about Pensions and other Post Retirement Benefits" and
SFAS No. 133, "Accounting for Derivatives and Other Hedging Activities." The
Company is currently evaluating the effects of these Statements.
Interim financial statements
The accompanying balance sheet and statement of shareholders' equity at May
31, 1998 and the statement of operations, shareholders' equity and cash flows
for the three months ended May 31, 1997 and 1998 are unaudited and have been
prepared on a basis that is consistent with the audited financial statements
included herein. In the opinion of management, such unaudited financial
statements include all adjustments necessary to present fairly the information
set forth therein, which consist solely of normal recurring adjustments. The
results of operations for such interim periods are not necessarily indicative
of results for the full year.
F-201
<PAGE>
REITZEL RENTALS LTD.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED WITH RESPECT TO THE PERIODS ENDED MAY 31, 1997 AND 1998)
3.RENTAL EQUIPMENT
<TABLE>
<CAPTION>
MAY 31,
FEBRUARY 28, 1998 1998
----------------- -----------
(UNAUDITED)
<S> <C> <C>
Rental equipment.............................. $13,186,212 $13,769,978
Amortization.................................. (2,182,830) (1,863,783)
----------- -----------
Net......................................... $11,003,382 $11,906,195
=========== ===========
</TABLE>
4.PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
FEBRUARY 28, 1998
----------------------------------
ACCUMULATED NET BOOK
COST AMORTIZATION VALUE
---------- ------------ ----------
<S> <C> <C> <C>
Land..................................... $ 370,717 $ -- $ 370,717
Buildings................................ 2,268,773 1,328,578 940,195
Vehicles................................. 1,277,240 933,579 343,661
Furniture and equipment.................. 1,055,267 784,614 270,653
Radio equipment.......................... 156,124 136,902 19,222
Pavement................................. 122,914 47,687 75,227
Leasehold improvements................... 476,480 240,887 235,593
Electric signs........................... 36,647 27,854 8,793
---------- ---------- ----------
$5,764,162 $3,500,101 $2,264,061
========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
MAY 31, 1998
----------------------------------
ACCUMULATED NET BOOK
COST AMORTIZATION VALUE
---------- ------------ ----------
(UNAUDITED)
<S> <C> <C> <C>
Land..................................... $ 90,892 $ -- $ 90,892
Buildings................................ 1,632,137 1,048,338 583,799
Vehicles................................. 1,208,838 905,959 302,879
Furniture and equipment.................. 988,582 734,813 253,769
Radio equipment.......................... 156,124 138,103 18,021
Pavement................................. 115,414 46,153 69,261
Leasehold improvements................... 477,910 251,813 226,097
Electric signs........................... 31,558 23,613 7,945
---------- ---------- ----------
$4,701,455 $3,148,792 $1,552,663
========== ========== ==========
</TABLE>
5.AVAILABLE LINE OF CREDIT
The Company has available a $1,500,000 line of credit that bears interest of
prime rate plus 3/4% per annum which was 5.65% as of February 28, 1998 and is
secured, together with Bank Loans (Note 6) by a general assignment of accounts
receivable--trade, a general security agreement and a fixed charge debenture
of $4,000,000 over all property and equipment subordinated to the First
Mortgages in the amount of $299,000. No amount was outstanding under the line
of credit at February 28, 1998 and no standby fees apply.
F-202
<PAGE>
REITZEL RENTALS LTD.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED WITH RESPECT TO THE PERIODS ENDED MAY 31, 1997 AND 1998)
6.LONG-TERM DEBT
<TABLE>
<CAPTION>
FEBRUARY MAY 31,
28, 1998 1998
---------- -----------
(UNAUDITED)
<S> <C> <C>
Equipment Loans, secured by the equipment financed,
repayable in monthly instalments of principal and
interest at floating and fixed annual rates ranging
from 4.0% to 10.35%, maturing in 1998 to 2002....... $2,296,720 $2,149,606
Bank Loans, secured by a fixed charge over the
Company's land and buildings, including a general
assignment of accounts receivable and acknowledged
assignment of fire insurance coverage, repayable in
monthly instalments of principal and interest at
floating and fixed annual rates ranging from 7.45%
demand in certain circumstances..................... 1,850,245 2,105,152
First Mortgages, secured by certain of the Company's
real estate, repayable in monthly instalments of
principal and interest at annual rates ranging from
8.25% to 11.875%, maturing 1998 to 1999............. 835,300 378,103
Note Payable, repayable in monthly instalments of
principal and interest of $8,155 per month at annual
interest rate of 7.2%, maturing July 2002........... 375,185 375,608
Promissory Note, repayable in monthly principal
payments of $4,375 plus interest, calculated monthly
at prime plus 1%, maturing in May 1999.............. 65,626 --
---------- ----------
$5,423,076 $5,008,469
========== ==========
</TABLE>
Cash interest paid on long-term debt during the period amounted to $447,326
($159,950 in the three months ended May 31, 1998 and $115,218 in the three
months ended May 31, 1997).
Approximate principal payments as of February 28, 1998 due with the next
five years are as follows:
<TABLE>
<S> <C>
1999.............................................................. $1,806,860
2000.............................................................. 1,599,398
2001.............................................................. 1,090,079
2002.............................................................. 293,154
2003.............................................................. 110,325
</TABLE>
7.DUE TO SHAREHOLDERS AND RELATED PARTY
<TABLE>
<CAPTION>
FEBRUARY 28, MAY 31,
1998 1998
------------ -----------
(UNAUDITED)
<S> <C> <C>
Notes payable to shareholders, no specified
repayment terms, with interest calculated monthly
at the Company's average annual cost of borrowing
and paid annually within six months of the year-
end............................................... $699,278 $280,058
Note payable to affiliated company, interest-free
with no specified repayment terms................. 8,000 --
-------- --------
$707,278 $280,058
======== ========
</TABLE>
In the period ended May 31, 1998, obligations to certain shareholders were
satisfied by the transfer of the other assets and certain equipment at fair
market value as determined by independent appraisal.
F-203
<PAGE>
REITZEL RENTALS LTD.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED WITH RESPECT TO THE PERIODS ENDED MAY 31, 1997 AND 1998)
8.SHARE CAPITAL
The Company is authorized to issue 251 non-voting, Class A shares and no
Class A shares were outstanding (none outstanding as of May 31, 1998). The
Class A shares rank in priority over Class B and common shares. Dividends are
cumulative on the Class A shares and are payable at a rate that will provide
the holder, assuming the holder is in the highest Ontario personal income tax
bracket, with the same after-tax rate of return on the Class A share dividend
as if the holder had received interest from a Canadian Chartered Bank at the
average of that Bank's prime lending rate each month for the twelve months in
the Company's fiscal year minus 20% of that average rate. The dividends paid
on Class A shares in any year may not exceed net earnings of the Company or
ten percent of the retained earnings of the Company as of the preceding fiscal
year-end.
The Class A shares are redeemable and retractable at the price of $470 per
Class A share (the "Redemption Price") subject to certain restrictions. The
number of Class A shares to be redeemed is limited (the "Redemption Limit") in
any one year to one-eighteen of $117,970 or the lesser of one-third of the
After-Tax Net Profits of the Company for the fiscal year previous to the
redemption notice and the After-Tax Net Profits of the Company for the fiscal
year previous to the redemption notice less dividends paid on Class A shares
in that previous fiscal year or an amount that will not contravene any banking
covenants the Company entered into at that particular time. Where the
redemption request exceeds the Redemption Limit, the Company will only redeem
Class A shares such that the total of Class A shares redeemed and the
dividends paid on Class A shares in the year of request falls below the
Redemption Limit. Notwithstanding the foregoing, all Class A shares must be
redeemed before December 31, 2007. Class A shareholders are entitled to the
same redemption amount as Class B shareholders in any one year without regard
to the Redemption Limit. Class A shares are redeemable only at the end of the
fiscal year.
The Company is authorized to issue 2,017 non-voting Class B shares of which
2,017 were outstanding at February 28, 1998 (2,017 outstanding as of May 31,
1998). The Class B shares are subordinate to Class A shares but rank in
priority to common shares. Class B shares are entitled to non-cumulative
dividends at a rate of 10% of the Redemption Amount, being $470 per Class B
share. The Aggregate Redemption Amount of Class A shares is $947,990. The
number of Class B shares redeemable in any one year is limited to an amount
that will not contravene any banking covenants the Company entered into at
that particular time. Class B shares are redeemable only at the end of the
fiscal year.
The Class B shares have been disclosed as a liability of the Company at
their redemption amount of $947,990 as Mandatorily Redeemable Shares with a
corresponding charge at their date of issue.
The Company is authorized to issue 37,000 common shares at no par value of
which 3,250 were outstanding at February 28, 1998 (3,250 were outstanding as
of May 31, 1998).
9.INCOME TAXES
<TABLE>
<CAPTION>
FEBRUARY 28, MAY 31, MAY 31,
1998 1997 1998
------------ ------- -------
(UNAUDITED)
<S> <C> <C> <C>
Combined federal and provincial income tax
rate........................................ 44.6% 44.6% 44.6%
Reduction by the small business deduction.... (2.0) -- --
Other differences............................ 0.6 -- --
---- ---- ----
Effective income tax rate.................... 43.3% 44.6% 44.6%
==== ==== ====
</TABLE>
The Company is taxable in one jurisdiction.
F-204
<PAGE>
REITZEL RENTALS LTD.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED WITH RESPECT TO THE PERIODS ENDED MAY 31, 1997 AND 1998)
The provision for income taxes consists of current tax expense of $76,470
($191,000 as of May 31, 1998 and $174,000 as of May 31, 1997) and deferred tax
expense of $842,000 ($153,000 as of May 31, 1998 and $211,000 as of May 31,
1997).
The deferred tax credit balance of $2,778,000 ($2,931,000 as of May 31, 1998
and $2,147,000 as of May 31, 1997) represents amounts deducted for tax
depreciation in excess of accounting depreciation of $6,229,000 ($6,572,000 as
of May 31, 1998 and $4,814,000 as of May 31, 1997). There are no other
differences in accounting and tax basis.
10.LEASE COMMITMENTS
Minimum rental commitments under operating leases are as follows:
<TABLE>
<S> <C>
1999................................................................ $442,000
2000................................................................ 420,000
2001................................................................ 374,000
2002................................................................ 300,000
2003................................................................ 264,000
</TABLE>
Operating lease expense for the year ended February 28, 1998 was $356,000
($110,000 as of May 31, 1998 and $89,000 as of May 31, 1997).
11.SUPPLEMENTAL CASH DISCLOSURES
<TABLE>
<CAPTION>
FEBRUARY 28, MAY 31,
1998 1998
------------ -----------
(UNAUDITED)
<S> <C> <C>
Supplemental schedule of non-cash activities:
Accounts payable--trade and other liabilities.... $ -- $(430,000)
Proceeds on disposal of property and equipment... 330,000 521,000
Purchase of rental equipment..................... (2,427,400) (745,829)
Increase in other assets......................... (330,000) (91,000)
Proceeds of long-term debt....................... 2,427,400 745,829
</TABLE>
12.SUBSEQUENT EVENT
As of May 31, 1998, all the outstanding shares of the Company were purchased
by United Rentals Inc.
F-205
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Stockholders
Channel Equipment Holding, Inc.
We have audited the accompanying combined balance sheet of Channel Equipment
Holding Inc. (see Note 1) (the "Companies") as of December 31, 1997 and the
related combined statements of operations, stockholders' equity (deficit) and
cash flows for the year then ended. These financial statements are the
responsibility of the Companies' management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined financial position of Channel
Equipment Holding Inc. at December 31, 1997, and the combined results of their
operations and their cash flows for the year then ended in conformity with
generally accepted accounting principles.
/s/ Ernst & Young LLP
MetroPark, New Jersey
April 21, 1998
F-206
<PAGE>
CHANNEL EQUIPMENT HOLDING, INC.
COMBINED BALANCE SHEET
DECEMBER 31, 1997
<TABLE>
<S> <C>
ASSETS
Cash ............................................................. $ 63,589
Accounts receivable, net of allowance for doubtful accounts of
$244,787......................................................... 1,274,432
Inventory......................................................... 617,793
Rental equipment, net............................................. 8,233,933
Property and equipment, net....................................... 546,798
Prepaid expenses and other assets................................. 27,567
-----------
Total assets.................................................. $10,764,112
===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Liabilities:
Accounts payable, accrued expenses and other liabilities........ $ 997,055
Due to stockholders............................................. 745,650
Debt............................................................ 9,241,162
Deferred gain................................................... 121,980
-----------
Total liabilities............................................. 11,105,847
Commitments and contingencies
Stockholders' equity (deficit):
Common stock, Channel Equipment, $1.00 par value, 1,000,000
shares authorized, 1,000 issued and outstanding; River City,
$1.00 par value, 100,000 shares authorized, 1,000 issued and
outstanding; and Contractors, $1.00 par value, 1,000,000 shares
authorized, 1,250 issued and outstanding....................... 3,250
Additional paid-in capital...................................... 238,836
Retained earnings (deficit)..................................... (538,821)
-----------
(296,735)
Treasury stock.................................................. (45,000)
-----------
Total stockholders' equity (deficit).......................... (341,735)
-----------
Total liabilities and stockholders' equity (deficit).......... $10,764,112
===========
</TABLE>
See accompanying notes.
F-207
<PAGE>
CHANNEL EQUIPMENT HOLDING, INC.
COMBINED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997
<TABLE>
<S> <C>
Revenue:
Equipment rentals............................................... $ 4,680,867
Rental equipment sales.......................................... 2,265,294
Sales of parts, supplies and new equipment...................... 3,836,954
-----------
Total revenues................................................ 10,783,115
Cost of revenues:
Cost of equipment rentals, excluding equipment rental
depreciation................................................... 1,459,268
Depreciation, equipment rentals................................. 2,092,035
Cost of rental equipment sales.................................. 2,016,654
Cost of parts, supplies and new equipment sales................. 3,138,237
-----------
Total cost of revenues........................................ 8,706,194
-----------
Gross profits................................................. 2,076,921
Selling, general and administrative expenses...................... 2,085,283
Non-rental depreciation........................................... 40,067
-----------
Operating loss.................................................... (48,429)
Interest expense.................................................. 714,705
-----------
Loss before provisions for income taxes........................... (763,134)
Provision for income taxes........................................ 3,040
-----------
Net loss.......................................................... $ (766,174)
===========
</TABLE>
See accompanying notes.
F-208
<PAGE>
CHANNEL EQUIPMENT HOLDING, INC.
COMBINED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL RETAINED
-------------- PAID IN EARNINGS TREASURY
SHARES AMOUNTS CAPITAL (DEFICIT) STOCK
------ ------- ---------- --------- --------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1997...... 3,250 $3,250 $238,836 $ 227,353 $(45,000)
Net loss...................... (766,174)
----- ------ -------- --------- --------
Balance at December 31, 1997.... 3,250 $3,250 $238,836 $(538,821) $(45,000)
===== ====== ======== ========= ========
</TABLE>
See accompanying notes.
F-209
<PAGE>
CHANNEL EQUIPMENT HOLDING, INC.
COMBINED STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1997
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss......................................................... $ (766,174)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation................................................... 2,132,102
Gain on rental equipment sales................................. (248,640)
Changes in assets and liabilities:
Increase in accounts receivable............................... (254,454)
Increase in inventory......................................... (176,462)
Decrease in prepaid expenses and other assets................. 39,219
Increase in accounts payable, accrued expenses and other
liabilities.................................................. 420,460
Increase in deferred gain..................................... 121,980
-----------
Cash provided by operating activities............................ 1,268,031
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of rental equipment..................................... (846,817)
Proceeds from sale of rental equipment........................... 1,936,072
Purchases of property and equipment.............................. (40,712)
-----------
Cash provided by investing activities............................ 1,048,543
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments on debt....................................... (4,525,576)
Proceeds from stockholders loans................................. 411,600
Borrowings under credit facilities............................... 1,803,455
-----------
Cash used in financing activities................................ (2,310,521)
-----------
Increase in cash................................................. 6,053
Cash balance at beginning of year................................ 57,536
-----------
Cash balance at end of year...................................... $ 63,589
===========
</TABLE>
See accompanying notes.
F-210
<PAGE>
CHANNEL EQUIPMENT HOLDING, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1997
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The combined financial statements of Channel Equipment Holding, Inc. include
the accounts of Channel Equipment Holding, Inc. ("Channel"), River City
Machinery Co., Inc. ("River City") and Contractors Sales & Rentals, Inc.
("Contractors") (collectively the "Companies"). The Companies are affiliated
through common ownership. All significant intercompany accounts and
transactions have been eliminated in combination.
These combined financial statements are prepared on a historical cost basis
and do not include any adjustments that may result from the acquisition of the
Companies by United Rentals, Inc. ("United") as more fully described in Note
9.
Business Activity
The Companies rent, sell and repair construction equipment for use by
contractor, industrial and homeowners markets. The rentals are on a daily,
weekly or monthly basis. The Companies are located in three different cities
(Houston, Austin and Georgetown) and their principal market area is the state
of Texas. The nature of the Companies business is such that short-term
obligations are typically met by cash flow generated from long-term assets.
Consequently, consistent with industry practice, the balance sheet is
presented on an unclassified basis.
Inventory
Inventories consist primarily of general replacement parts, hydraulic tubing
and equipment held for resale and are stated at the lower of cost, determined
under the first-in, first-out method, or market.
Rental Equipment
Rental equipment is recorded at cost. Depreciation for rental equipment is
computed using the straight-line method over an estimated five-year useful
life with no salvage value.
Ordinary maintenance and repair costs are charged to operations as incurred.
Proceeds from the disposal and the related net book value of the equipment are
recognized in the period of disposal and reported as revenue from sales of
equipment and cost of sales of equipment, respectively, in the combined
statement of operations.
Property and Equipment
Property and equipment is stated at cost. Depreciation of property and
equipment is computed on the straight-line method over an estimated five-year
useful life. Leasehold improvements are amortized using the straight-line
method over the estimated lives of the improvements or the remaining life of
the lease, whichever is shorter.
Ordinary maintenance and repair costs are charged to operations as incurred.
The cost of assets sold, retired, or otherwise disposed of, and the related
accumulated depreciation is eliminated from the accounts and any resulting
gain or loss is included in operations.
Rental Revenue
Rental revenue is recorded as earned under the operating method.
F-211
<PAGE>
CHANNEL EQUIPMENT HOLDING, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
Advertising Costs
The Companies advertise primarily through trade journals, trade associations
and phone directories. All advertising costs are expensed as incurred.
Advertising expense amounted to approximately $56,300 in the year ended
December 31, 1997.
Income Taxes
Both Channel and River City have elected, by unanimous consent of its
stockholders, to be taxed under the provisions of Subchapter S of the Internal
Revenue Code, for federal purposes. Under those provisions both Channel and
River City do not have to pay federal income taxes; instead, the stockholders
are liable for individual income taxes on both Channel and River City's
profits. Therefore, no provision for federal income taxes is included in the
accompanying combined financial statements for Channel or River City.
Contractors, a C Corporation for federal tax purposes uses the "liability
method" of accounting for income taxes. Accordingly, deferred tax liabilities
and assets are determined based on the difference between the financial
statement and tax bases of assets and liabilities, using enacted tax rates in
effect for the year in which differences are expected to reverse.
ACCOUNTING ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
2. CONCENTRATIONS OF CREDIT RISK
The Companies maintain cash balances with a quality financial institution
and, consequently, management believes funds maintained there are secure.
Concentrations of credit risk with respect to customer receivables are limited
due to the large number of customers comprising the Companies customer base
and its credit policy.
3. RENTAL EQUIPMENT
Rental equipment and related accumulated depreciation consisted of the
following at December 31, 1997:
<TABLE>
<S> <C>
Rental equipment................................................ $12,095,388
Less accumulated depreciation.................................. (3,861,455)
-----------
Rental equipment, net.......................................... $ 8,233,933
===========
</TABLE>
4. PROPERTY AND EQUIPMENT
Property and equipment consists of the following at December 31, 1997:
<TABLE>
<S> <C>
Land............................................................... $218,428
Building........................................................... 213,736
Transportation equipment........................................... 134,443
Leasehold improvements............................................. 9,250
Furniture and fixtures............................................. 28,953
--------
604,810
Less accumulated depreciation...................................... (58,012)
--------
Total.............................................................. $546,798
========
</TABLE>
F-212
<PAGE>
CHANNEL EQUIPMENT HOLDING, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
5. DEBT
Debt consists of the following at December 31, 1997:
<TABLE>
<S> <C>
AEL Leasing Co., Inc.--Various notes dated from February 1997 to
June 1997 with annual interest rates ranging from 8% to 10.2%
due in monthly installments ranging from $933 to $4,616........ $ 213,149
The Associates--Two notes dated October 1997 with an annual
interest rate due in full in June 1998......................... 768,589
CIT Group--Various notes dated from April 1995 to August 1997
with annual interest rates ranging from 7.5% to 10.0% due in
monthly installments ranging from $533 to $6,007............... 1,626,743
CAT Financial--Various notes dated from April 1995 to July 1997
with annual interest rates ranging from 5.1% to 8.1% due in
monthly installments ranging from $912 to $6,180............... 619,776
Deutsche Financial--Various notes dated from April 1996 to April
1997 with annual interest rates ranging from 9.6% to 9.9% due
in monthly installments ranging from $930 to $2,893............ 564,160
NICE International Corporation--Various notes dated November
1997 with annual interest rates ranging from 9.4% to 10.9% due
in monthly installments ranging from $634 to $5,199............ 665,255
Chicago Pneumatic--Various notes dated from March 1997 to July
1997 with annual interest rates ranging from 7.5% to 9.5% due
in monthly installments ranging from $427 to $1,827............ 39,095
debis Financial Services, Inc.--Non-interest bearing line-of-
credit......................................................... 89,481
Newcourt Financial USA, Inc.--Various notes dated from June 1997
to September 1997 with an annual interest rate of 9.3% due in
monthly installments ranging from $1,751 to $20,107............ 549,994
First Prosperity--Various notes dated from April 1995 to
September 1997 with annual interest rates ranging from 7.8% to
10.0% due in monthly installments ranging from $415 to $1,178.. 144,631
Financial Federal--Various notes dated from January 1996 to
November 1997 with an annual interest rate of 11% due in
monthly installments ranging from $430 to $21,465.............. 2,984,398
Norwest Bank--Various notes dated November 1996 with an annual
interest rate of 9% due in monthly installments ranging from
$277 to $380................................................... 20,998
Case Credit--Various notes dated from August 1995 to November
1996 with annual interest rates ranging from 7.9% to 9.0% due
in monthly installments ranging from $481 to $6,935............ 207,007
KDC Financial--Various notes dated from March 1995 to May 1997
with annual interest rates ranging from 7.5% to 10.0% due in
monthly installments ranging from $722 to $4,576............... 571,885
JCB Financial--Various notes dated from June 1995 to October
1997 with annual interest rates ranging from 7.0% to 9.5% due
in monthly installments ranging from $782 to $1,554............ 134,272
PACCAR--Note dated June 1997 with an annual interest rate of
8.0% due in monthly installments of $1,540..................... 41,729
----------
$9,241,162
==========
</TABLE>
Substantially all rental equipment and fixed assets collateralize the above
notes.
All debt at December 31, 1997 was paid off in connection with the
acquisition discussed in Note 9.
F-213
<PAGE>
CHANNEL EQUIPMENT HOLDING, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
6. RELATED PARTY TRANSACTIONS
River City leases its Georgetown operating facility and Channel leases its
operating facilities from its stockholders on a month to month basis. Both
Channel and River City are responsible for all operating expenses of the
facilities including property taxes, assessments, insurance, repairs and
maintenance. Total rent expense for 1997 was approximately $160,100.
In connection with the acquisition discussed in Note 9, the lease terms have
been renegotiated.
The Companies also had a non-interest bearing note payable from its
stockholders totaling $745,650 at December 31, 1997. No repayment schedule has
been established.
7. SUPPLEMENTAL CASH FLOW INFORMATION
For the year ended December 31, 1997 total interest and income taxes paid
were $705,700 and $3,040, respectively.
During 1997 the Companies purchased $4,240,540 of equipment which was
financed.
8. EMPLOYEE BENEFIT PLAN
The Companies have a defined contribution 401(k) pension plan which covers
substantially all employees. The Companies match 100% up to the first six
percent of the employees contribution. The Companies contributions to the plan
were $8,850 for the year ended December 31, 1997.
9. SUBSEQUENT EVENT
On January 23, 1998, under the terms of the stock purchase agreement, United
purchased all of the issued and outstanding capital stock of the Channel and
River City. On January 23, 1998, under the terms of the asset purchase
agreement, United purchased certain assets of Contractors.
F-214
<PAGE>
LNDEPENDENT AUDITOR'S REPORT
To the Board of Directors
Paul E. Carlson, Inc.
(d/b/a Carlson Equipment Company)
Roseville, Minnesota
We have audited the accompanying balance sheet of Paul E. Carlson, Inc.
(d/b/a Carlson Equipment Company) as of February 28, 1998, and the related
statements of operations, stockholders' equity, and cash flow for the year
then ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Paul E. Carlson, Inc.
(d/b/a Carlson Equipment Company) as of February 28, 1998, and the results of
its operations and its cash flow for the year then ended in conformity with
generally accepted accounting principles.
McGladrey & Pullen, LLP
St. Paul, Minnesota April 21, 1998
F-215
<PAGE>
PAUL E. CARLSON, INC.
(D/B/A CARLSON EQUIPMENT COMPANY)
BALANCE SHEETS
FEBRUARY 28, 1998 AND JUNE 30, 1998
<TABLE>
<CAPTION>
FEBRUARY JUNE 30,
28, 1998 1998
---------- -----------
(UNAUDITED)
<S> <C> <C>
ASSETS (NOTES 3 AND 4)
Current Assets
Cash.................................................. $ 168,100 $ 492,186
Receivables:
Trade accounts, less allowance for doubtful accounts
of $125,000 and $176,000 at February 28 and June 30,
1998, respectively.................................. 848,365 1,326,603
Due from stockholder................................. 43,000 43,000
Inventories (Note 2).................................. 1,615,701 2,263,715
Prepaid expenses...................................... 34,330 37,148
Deferred income taxes (Note 6)........................ 146,000 146,000
---------- ----------
Total current assets.............................. 2,855,496 4,308,652
---------- ----------
Rental Equipment, at cost (Note 5)...................... 7,137,174 7,556,112
Less accumulated depreciation......................... 2,922,730 3,050,438
---------- ----------
4,214,444 4,505,674
---------- ----------
Property and Equipment, at cost (Note 5)
Computer equipment.................................... 153,373 153,373
Transportation equipment.............................. 378,472 380,472
Furniture and equipment............................... 217,838 227,475
Leasehold improvements................................ 115,484 115,484
---------- ----------
865,167 876,804
Less accumulated depreciation......................... 426,798 468,798
---------- ----------
438,369 408,006
---------- ----------
$7,508,309 $9,222,332
========== ==========
</TABLE>
See Notes to Financial Statements.
F-216
<PAGE>
PAUL E. CARLSON, INC.
(D/B/A CARLSON EQUIPMENT COMPANY)
BALANCE SHEETS (CONTINUED)
FEBRUARY 28, 1998 AND JUNE 30, 1998
<TABLE>
<CAPTION>
FEBRUARY 28, JUNE 30,
1998 1998
------------ -----------
(UNAUDITED)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Bank line of credit (Notes 3 and 10)................ $ -- $4,500,000
Current maturities of long-term debt................ 273,914 468,708
Accounts payable.................................... 257,289 612,160
Accrued expenses:
Compensation, vacation, and related taxes......... 160,940 64,969
Profit sharing (Note 7)........................... 150,000 --
Real estate taxes................................. 45,660 41,586
Interest.......................................... 32,067 33,542
Other............................................. 30,894 --
Income taxes payable................................ 155,861 148,861
---------- ----------
Total current liabilities....................... 1,106,625 5,869,826
---------- ----------
Deferred Income Taxes (Note 6)........................ 380,000 380,000
---------- ----------
Long-Term Debt, less current maturities (Notes 3, 4, 5
and 10)
Bank line of credit................................. 3,700,000 --
Finance companies and capital lease obligations..... 338,925 715,103
Subordinated note to former stockholder............. 735,448 726,249
---------- ----------
4,774,373 1,441,352
---------- ----------
Commitments (Notes 5, 7 and 8)
Stockholders' Equity (Notes 8 and 10)
Common stock, par value $1 per share; authorized
100,000 shares; issued and outstanding 2,550
shares............................................. 2,550 2,550
Retained earnings................................... 1,244,761 1,528,604
---------- ----------
1,247,311 1,531,154
---------- ----------
$7,508,309 $9,222,332
========== ==========
</TABLE>
See Notes to Financial Statements.
F-217
<PAGE>
PAUL E. CARLSON, INC.
(D/B/A CARLSON EQUIPMENT COMPANY)
STATEMENTS OF OPERATIONS
YEAR ENDED FEBRUARY 28, 1998 AND THE FOUR
MONTHS ENDED JUNE 30, 1997 AND 1998
<TABLE>
<CAPTION>
FOUR MONTHS ENDED JUNE
YEAR ENDED 30,
FEBRUARY 28, ------------------------
1998 1997 1998
------------ ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
Sales and rental income................ $10,695,366 $4,173,049 $4,023,720
Cost of sales.......................... 6,085,129 2,477,742 2,400,219
----------- ---------- ----------
Gross profit....................... 4,610,237 1,695,307 1,623,501
Operating expenses..................... 3,550,240 1,119,606 970,324
----------- ---------- ----------
Operating income................... 1,059,997 575,701 653,177
----------- ---------- ----------
Nonoperating:
Interest expense..................... (528,266) (176,025) (176,334)
Gain on sale of other equipment...... 19,270 -- --
----------- ---------- ----------
(508,996) (176,025) (176,334)
----------- ---------- ----------
Income before income taxes......... 551,001 399,676 476,843
Federal and state income taxes (Note
6).................................... 244,000 162,000 193,000
----------- ---------- ----------
Net income $ 307,001 $ 237,676 $ 283,843
=========== ========== ==========
</TABLE>
See Notes to Financial Statements.
F-218
<PAGE>
PAUL E. CARLSON, INC.
(D/B/A CARLSON EQUIPMENT COMPANY)
STATEMENTS OF STOCKHOLDERS' EQUITY
YEAR ENDED FEBRUARY 28, 1998 AND THE FOUR
MONTHS ENDED JUNE 30, 1998
<TABLE>
<CAPTION>
COMMON STOCK
------------- RETAINED
SHARES AMOUNT EARNINGS TOTAL
------ ------ ---------- ----------
<S> <C> <C> <C> <C>
Balance, February 28, 1997................. 2,550 $2,550 $ 937,760 $ 940,310
Net income............................... -- -- 307,001 307,001
----- ------ ---------- ----------
Balance, February 28, 1998................. 2,550 2,550 1,244,761 1,247,311
Net income (unaudited)................... -- -- 283,843 283,843
----- ------ ---------- ----------
Balance, June 30, 1998 (unaudited)......... 2,550 $2,550 $1,528,604 $1,531,154
===== ====== ========== ==========
</TABLE>
See Notes to Financial Statements.
F-219
<PAGE>
PAUL E. CARLSON, INC.
(D/B/A CARLSON EQUIPMENT COMPANY)
STATEMENTS OF CASH FLOW
YEAR ENDED FEBRUARY 28, 1998 AND THE FOUR MONTHS ENDED JUNE 30, 1997 AND 1998
<TABLE>
<CAPTION>
YEAR ENDED FOUR MONTHS ENDED JUNE 30,
FEBRUARY 28, -----------------------------
1998 1997 1998
------------ ------------- -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
Cash Flows From Operating Activities
Net Income........................ $ 307,001 $ 237,676 $ 283,843
Adjustments to reconcile net in-
come to net cash provided by
(used in) operating activities:
Depreciation.................... 1,482,371 455,303 515,329
Gross margin contribution from
rental equipment sales......... (592,674) (225,377) (291,460)
Gain on sale of other equip-
ment........................... (19,270) -- --
Net increase in deferred income
taxes.......................... 82,000 -- --
Changes in current assets and
liabilities:
Trade accounts receivable..... (26,690) (743,676) (478,238)
Inventories................... (133,318) (342,995) (648,014)
Prepaid expenses.............. (8,579) (14,634) (2,818)
Accounts payable.............. 182,051 662,178 354,871
Accrued expenses.............. 194,834 (23,145) (279,464)
Income taxes payable.......... 89,926 94,789 (7,000)
---------- ------------- -------------
Net cash provided by (used
in) operating
activities.................. 1,557,652 100,119 (552,951)
---------- ------------- -------------
Cash Flows From Investing Activities
Proceeds from sales of rental
equipment........................ 1,578,609 618,710 748,027
Purchases of rental equipment..... (2,473,274) (1,013,823) (1,221,126)
Purchases of property and equip-
ment............................. (144,253) (26,678) (11,637)
Proceeds from sales of other
equipment........................ 21,778 -- --
Increase in receivable from stock-
holder........................... (43,000) (12,000) --
---------- ------------- -------------
Net cash used in investing
activities................. (1,060,140) (433,791) (484,736)
---------- ------------- -------------
Cash Flows From Financing Activities
Proceeds from long-term borrow-
ing.............................. -- -- 659,707
Payments of long-term debt........ (1,576,236) (398,975) (97,934)
Net increase in bank line of
credit debt...................... 1,100,000 900,000 800,000
---------- ------------- -------------
Net cash provided by (used
in) financing activities... (476,236) 501,025 1,361,773
---------- ------------- -------------
Net increase in cash........ 21,276 167,353 324,086
Cash
Beginning......................... 146,824 146,824 168,100
---------- ------------- -------------
Ending............................ $ 168,100 $ 314,177 $ 492,186
========== ============= =============
</TABLE>
See Notes to Financial Statements (Additional Cash Flow Information -- Note 9).
F-220
<PAGE>
PAUL E. CARLSON, INC.
(D/B/A CARLSON EQUIPMENT COMPANY)
NOTES TO FINANCIAL STATEMENTS
(INFORMATION APPLICABLE TO THE FOUR MONTH PERIODS
ENDED JUNE 30, 1997 AND 1998, IS UNAUDITED)
NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
Nature of business: Carlson Equipment Co. is engaged in the short-term
rental and sales of construction equipment to contractor, industrial, and
municipal clients in the St. Paul/Minneapolis metropolitan area, primarily on
credit terms established on an individual customer basis.
Revenue recognition: The Company recognizes revenue upon delivery of the
rental equipment to customers. The Company recognizes revenue from the rental
agreements as earned and related expenses as incurred.
Cash: The Company maintains cash in bank deposit accounts which, at times,
may exceed federally insured limits. The Company has not experienced any
losses in such accounts.
Fair value of financial instruments: The financial statements include the
following financial instruments and the methods and assumptions used in
estimating their fair value: for cash and cash equivalents, the carrying
amount is fair value; for trade accounts receivable and accounts payable, the
carrying amounts approximate their fair values due to the short term nature of
these instruments, and for the notes payable and long-term debt, fair value
has been estimated based on discounted cash flows using interest rates being
offered for similar borrowings. No separate comparison of fair values versus
carrying values is presented for the aforementioned financial instruments
since their fair values are not significantly different than their balance
sheet carrying amounts. In addition, the aggregate fair values of the
financial instruments would not represent the underlying value of the Company.
Inventories: Inventories consisting of parts, supplies, and new machinery
and equipment are stated at the lower of cost or market. The cost of
serialized machinery and equipment is determined on a specific-identification
basis. All other inventory is valued using an average-cost method which
approximates the first-in, first-out method.
Accounting for long-lived assets: Management has and will continue, on a
periodic basis, to closely evaluate its equipment to determine potential
impairment by comparing its carrying value with the estimated future net
undiscounted cash flows expected to result from the use of the assets,
including cash flows from disposition. Should the sum of the expected future
net cash flows be less than the carrying value, the Company would recognize an
impairment loss at that date. An impairment loss would be measured by
comparing the amount by which the carrying value exceeds the fair value
(estimated discounted future cash flows or appraisal of assets) of the long-
lived assets. To date, management has determined that no impairment of long-
lived assets exists.
Property and equipment depreciation methods: Depreciation is provided using
the straight-line method over the following estimated useful lives:
<TABLE>
<CAPTION>
YEARS
-----
<S> <C>
Computer equipment............................... 5
Transportation equipment......................... 5
Furniture and equipment.......................... 5-10
Leasehold improvements........................... 5-31
</TABLE>
F-221
<PAGE>
PAUL E. CARLSON, INC.
(D/B/A CARLSON EQUIPMENT COMPANY)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION APPLICABLE TO THE FOUR MONTH PERIODS
ENDED JUNE 30, 1997 AND 1998, IS UNAUDITED)
NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES--CONTINUED
Rental equipment and related depreciation methods: Rental units are created
by the transfer of new equipment, valued at acquisition cost, from inventories
to rental equipment. Rental equipment depreciation begins at the point of
transfer. Depreciation is provided using the straight-line method over five
years, the estimated useful life of the equipment. Sales of rental equipment
are accounted for by including the proceeds in sales and by transferring the
net book value of the equipment sold to cost of sales.
Reclassification of rental equipment depreciation expense: In prior years
and in previous February 28, 1998, financial statements, the Company included
rental equipment depreciation expense in operating expenses. Rental equipment
depreciation expense of $1,359,467 has been reclassified to cost of goods sold
for the year ended February 28, 1998.
The proceeds and related net book value of rental equipment sold during the
year ended February 28, 1998, and for the four months ended June 30, 1997 and
1998, were as follows:
<TABLE>
<CAPTION>
FOUR MONTHS
YEAR ENDED ENDED JUNE 30,
FEBRUARY 28, -----------------------
1998 1997 1998
------------ ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
Proceeds of rental equipment
sales............................. $1,578,609 $618,710 $ 748,027
Net book value..................... 985,935 393,333 456,567
---------- -------- ---------
Gross margin from rental equipment
sales............................. $ 592,674 $225,377 $ 291,460
========== ======== =========
</TABLE>
Income taxes: Deferred taxes are provided on an asset and liability method
whereby deferred tax assets are recognized for deductible temporary
differences and tax credit carryforwards and deferred tax liabilities are
recognized for taxable temporary differences. Temporary differences are the
differences between the reported amounts of assets and liabilities and their
tax basis. Deferred tax assets are reduced by a valuation allowance when, in
the opinion of management, it is more likely than not that some portion or all
of the deferred tax assets will not be realized. Deferred tax assets and
liabilities are adjusted for the effects of changes in tax laws and rates on
the date of enactment.
Use of estimates: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results may differ from those estimates.
New accounting pronouncements: In June 1997, SFAS No. 130, Reporting
Comprehensive income, and SFAS No. 131, Disclosures About Segments of an
Enterprise and Related Information, were issued. SFAS No. 130 establishes
standards for reporting and display of comprehensive income and its
components. SFAS No. 131 redefines how operating segments are determined and
requires disclosures of certain financial and descriptive information about
the Company's operating segments. SFAS Nos. 130 and 131 are effective for
fiscal years beginning after December 15, 1997. The Company believes that
adoption of SFAS Nos. 130 and 131 will not have any significant effect on its
financial statements.
F-222
<PAGE>
PAUL E. CARLSON, INC.
(D/B/A CARLSON EQUIPMENT COMPANY)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION APPLICABLE TO THE FOUR MONTH PERIODS
ENDED JUNE 30, 1997 AND 1998, IS UNAUDITED)
NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES--CONTINUED
Interim financial information (unaudited): The financial statements and
notes related thereto as of June 30, 1998, and for the four months ended June
30, 1997 and 1998, are unaudited but, in the opinion of management, include
all adjustments, consisting only of normal recurring adjustments, necessary
for a fair presentation of the financial position and results of operations.
The operating results for the interim periods are not indicative of the
operating results to be expected for a full year or for other interim periods.
NOTE 2. INVENTORIES
The composition of inventories at February 28, 1998, and June 30, 1998 is as
follows:
<TABLE>
<CAPTION>
FEBRUARY 28, JUNE 30,
1998 1998
------------ -----------
(UNAUDITED)
<S> <C> <C>
Equipment........................................ $ 937,879 $1,508,695
Supplies......................................... 516,552 613,421
Parts............................................ 161,270 141,599
---------- ----------
$1,615,701 $2,263,715
========== ==========
</TABLE>
NOTE 3. REVOLVING LINE OF CREDIT AGREEMENT
The Company had a revolving credit agreement with a bank which provided a
$4,500,000 line of credit. The availability of credit was determined by a
borrowing base formula consisting of eligible receivables, inventories, and
rental equipment. Advances under the line of credit accrued interest at 0.25
percent above the prime interest rate (8.5 percent as of February 28, 1998).
The line was due on March 31, 1999, and was secured by substantially all of
the Company's assets and the personal guarantees of the Company's
stockholders. Since the Company did not intend to reduce the $3,700,000
outstanding balance under this line of credit prior to February 28, 1999, nor
did it anticipate a reduction in the borrowing base during this same period,
the revolving credit agreement was reflected as long-term debt as of February
28, 1998. At June 30, 1998, the outstanding balance has been reflected as a
current liability since it was due within the subsequent 12 months. On July 9,
1998, the revolving credit agreement was paid in full and terminated (see Note
10).
The agreement contained certain restrictive financial covenants relative to
maintaining a minimum amount of net worth and maintaining a certain debt to
net worth ratio.
F-223
<PAGE>
PAUL E. CARLSON, INC.
(D/B/A CARLSON EQUIPMENT COMPANY)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION APPLICABLE TO THE FOUR MONTH PERIODS
ENDED JUNE 30, 1997 AND 1998, IS UNAUDITED)
NOTE 4. LONG-TERM DEBT
Capital lease obligations and long-term debt with finance companies and a
former stockholder at February 28, 1998 and June 30, 1998, consisted of the
following:
<TABLE>
<CAPTION>
FEBRUARY 28, JUNE 30,
1998 1998
------------ -----------
(UNAUDITED)
<S> <C> <C>
Capitalized lease obligations, due in monthly
installments varying from $521 to $9,704, including
interest at 9.2% to 12.3%, through May 2001, secured
by related equipment, personally guaranteed by the
Company's stockholders (Note 5)..................... $416,739 $ 376,637
Notes payable, due in monthly installments varying
from $5,259 to $10,016, plus interest at 8.75% to
10.75%, through March 2003, secured by related
equipment........................................... 170,265 780,468
-------- ---------
587,004 1,157,105
Less current maturities.............................. 248,079 442,002
-------- ---------
$338,925 $ 715,103
======== =========
Note payable to former stockholder, due in monthly
installments of $8,400 to March 2000, when monthly
payments become $13,662 to February 2005, when the
remaining principal balance is due, plus interest at
1.0% over prime, secured by accounts receivable,
inventories, equipment, and stock, personally
guaranteed by the Company's stockholders,
subordinated to bank line of credit (1)............. $761,283 $ 752,955
Less current maturities.............................. 25,835 26,706
-------- ---------
$735,448 $ 726,249
======== =========
</TABLE>
- --------
(1) On July 9, 1998, the remaining debt balance was paid in full (see Note 10).
The approximate aggregate annual future maturities of all long-term debt as
of February 28, 1998, including the line of credit and capital leases, were as
follows:
<TABLE>
<S> <C>
Years ending February:
1999............................ $ 274,000
2000............................ 3,907,000
2001............................ 229,000
2002............................ 137,000
2003............................ 119,000
Thereafter...................... 382,000
----------
$5,048,000
==========
</TABLE>
F-224
<PAGE>
PAUL E. CARLSON, INC.
(D/B/A CARLSON EQUIPMENT COMPANY)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION APPLICABLE TO THE FOUR MONTH PERIODS
ENDED JUNE 30, 1997 AND 1998, IS UNAUDITED)
NOTE 5. LEASE COMMITMENTS
Capitalized leases: The Company leases certain rental and other equipment
under capitalized leases as follows:
<TABLE>
<CAPTION>
FEBRUARY 28,
1998
------------
<S> <C>
Rental and other equipment................................. $641,448
Less accumulated amortization.............................. 221,066
--------
$420,382
========
The following is a schedule by year of the future minimum lease payments
under capital leases together with the present value of the net minimum lease
payments as of February 28, 1998:
Years ending February:
1999..................................................... $171,094
2000..................................................... 139,677
2001..................................................... 140,473
2002..................................................... 29,113
--------
Total minimum payments..................................... 480,357
Less amount representing interest.......................... 63,618
--------
Present value of net minimum payments, included in long-
term debt................................................. $416,739
========
Operating leases: The Company leases its operating facilities under
arrangements which are classified as operating leases. The New Hope facility
is leased pursuant to an agreement which expires November 1999 and requires
monthly lease payments of $6,096. The Roseville facility, which is leased on a
month-to-month basis from the Company's former majority stockholder, requires
monthly lease payments of $9,624 (see Note 10 relative to a new lease on the
Roseville facility). The Bloomington facility is leased under an agreement
which expires December 1999 and requires monthly lease payments of $4,463.
Future aggregate minimum payments as of February 28, 1998 under operating
leases are as follows:
Years ending February:
1999..................................................... $133,000
2000..................................................... 102,000
--------
$235,000
========
</TABLE>
Total rent expense for fiscal year 1998 was approximately $233,000. During
fiscal year 1998, approximately $115,000 of total rent expense was paid to the
Company's former majority stockholder, whose shares were redeemed in 1995.
F-225
<PAGE>
PAUL E. CARLSON, INC.
(D/B/A CARLSON EQUIPMENT COMPANY)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION APPLICABLE TO THE FOUR MONTH PERIODS
ENDED JUNE 30, 1997 AND 1998, IS UNAUDITED)
NOTE 6. INCOME TAX MATTERS
Net deferred tax liabilities consist of the following components as of
February 28, 1998:
<TABLE>
<S> <C>
Deferred tax assets:
Inventory reserve.......................................... $ 51,000
Receivable allowance....................................... 51,000
Accrued compensation....................................... 44,000
AMT credit carryforward.................................... 18,000
----------
164,000
Deferred tax liabilities:
Property and equipment..................................... (398,000)
----------
Net deferred tax liabilities................................. $ (234,000)
==========
Alternative minimum tax credits may be carried forward indefinitely to
reduce future tax liabilities.
The deferred tax amounts mentioned above have been classified on the
accompanying balance sheet as of February 28, 1998, as follows:
Current assets............................................... $ 146,000
Noncurrent liabilities....................................... (380,000)
----------
$ (234,000)
==========
The provision for income taxes for the year ended February 28, 1998, is
comprised of the following:
Currently payable............................................ $ 162,000
Deferred..................................................... 82,000
----------
Federal and state income taxes............................... $ 244,000
==========
The Company's income tax expense for the year ended February 28, 1998,
differed from the statutory federal rate as follows:
Statutory rate applied to income before income taxes......... $ 187,000
State income tax expense net of federal tax effect........... 34,000
Nondeductible expense........................................ 11,000
Other........................................................ 12,000
----------
$ 244,000
==========
</TABLE>
F-226
<PAGE>
PAUL E. CARLSON, INC.
(D/B/A CARLSON EQUIPMENT COMPANY)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION APPLICABLE TO THE FOUR MONTH PERIODS
ENDED JUNE 30, 1997 AND 1998, IS UNAUDITED)
NOTE 7. PROFIT SHARING AND 401(K) PLAN
The Company had a profit sharing and 401(k) plan for all employees who met
the eligibility requirements set forth in the plan. The plan incorporated the
provisions of Internal Revenue Code Section 401(k) under which the employees
could contribute up to 20 percent of their salary to the plan. The Company
matched up to 50 percent of the participant's voluntary contribution up to 5
percent of the participant's salary. In addition, the plan allowed for
additional discretionary contributions. The Company communicated its intention
and historically distributed 20 percent of pretax, preprofit sharing income as
an annual discretionary profit sharing contribution (see Note 10 relative to
the subsequent termination of the profit sharing and 401(k) plan).
Company contributions for the year ended February 28, 1998, and for the four
months ended June 30, 1997 and 1998, were as follows:
<TABLE>
<CAPTION>
FOUR MONTHS
YEAR ENDED ENDED JUNE 30,
FEBRUARY 28, -----------------------
1998 1997 1998
------------ ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
Discretionary...................... $150,000 $109,000 $ --
Matching........................... 37,400 10,953 8,438
-------- -------- --------
$187,400 $119,953 $ 8,438
======== ======== ========
NOTE 8. STOCK REDEMPTION AGREEMENT
In the event of the death or disability of a stockholder prior to July 9,
1998, the Company was obligated to purchase the outstanding stock of the
affected stockholder, should the other stockholder not exercise the right of
first purchase. The purchase price of the stock was based on the value of the
Company, as defined per the shareholder agreement. The purchase price was to
be paid in 120 equal monthly installments (see Note 10 relative to the
subsequent termination of the stock redemption agreement).
NOTE 9. ADDITIONAL CASH FLOW INFORMATION
<CAPTION>
FOUR MONTHS
YEAR ENDED ENDED JUNE 30,
FEBRUARY 28, -----------------------
1998 1997 1998
------------ ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
Supplemental disclosures of cash
flow information:
Cash payments for interest....... $519,265 $173,072 $174,859
Cash payments for income taxes... 72,074 72,000 200,000
======== ======== ========
Supplemental schedule of noncash
investing and financing
activities:
Capital lease obligations
incurred for use of equipment... $ 81,124 $ -- $ --
======== ======== ========
</TABLE>
F-227
<PAGE>
PAUL E. CARLSON, INC.
(D/B/A CARLSON EQUIPMENT COMPANY)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION APPLICABLE TO THE FOUR MONTH PERIODS
ENDED JUNE 30, 1997 AND 1998, IS UNAUDITED)
NOTE 10. EVENTS SUBSEQUENT TO JUNE 30, 1998 (UNAUDITED)
On July 9, 1998, the Company's stockholders entered into an agreement,
effective July 1, 1998, whereby United Rentals Inc. purchased all of the
Company's outstanding common stock.
In conjunction with the aforementioned agreement, the note payable to former
stockholder and the outstan~ding balance on the revolving line of cre~dit were
paid in full on July 9, 1998. In addition, the revolving credit agreement was
terminated at that time. The stock redemption agreement (Note 8) a~nd the
profit sharing and 401(k) p~lan (Note 7) were also terminated effective June
30,1998.
On July 9, 1998, the Company entered into a ten-year lease for its Roseville
facility with a former stockholder. The lease requires monthly lease payments
of $9,624 and has a five-year option to renew.
F-228
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
West Main Rentals and Sales, Incorporated
We have audited the accompanying balance sheet of West Main Rentals and
Sales, Incorporated (an S corporation) as of December 31, 1997, and the
related statements of income, stockholders' equity, and cash flows for the
year then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of West Main Rentals and
Sales, Incorporated as of December 31, 1997, and the results of its operations
and its cash flows for the year then ended in conformity with generally
accepted accounting principles.
Moss Adams LLP
Eugene, Oregon
April 22, 1998
F-229
<PAGE>
WEST MAIN RENTALS AND SALES, INCORPORATED
BALANCE SHEET
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1997 1998
------------ -----------
(UNAUDITED)
<S> <C> <C>
CURRENT ASSETS
Cash................................................. $ 134,924 $ 155,238
Accounts receivable.................................. 1,014,677 936,423
Inventory for resale................................. 634,249 630,729
Rental fleet expected to be sold..................... 402,000 402,000
Prepaid expenses..................................... 57,920 15,271
Current portion of notes receivable.................. 2,432 6,753
---------- ----------
Total current assets............................... 2,246,202 2,146,414
---------- ----------
NOTES RECEIVABLE, less current portion................. 55,954 69,160
---------- ----------
PROPERTY AND EQUIPMENT
Rental fleet......................................... 6,121,168 6,246,646
Leasehold improvements............................... 513,278 528,353
Equipment............................................ 1,246,218 1,344,013
Equipment held under capital leases.................. 1,067,217 1,067,217
---------- ----------
8,947,881 9,186,229
Less accumulated depreciation and amortization....... 3,554,875 3,739,962
---------- ----------
5,393,006 5,446,267
---------- ----------
$7,695,162 $7,661,841
========== ==========
</TABLE>
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable....................................... $ 137,446 $ 414,808
Accrued liabilities.................................... 198,517 198,162
Notes payable.......................................... 478,616 428,198
Current portion:
Long-term debt....................................... 1,145,640 1,210,636
Obligations under capital leases..................... 206,000 214,000
---------- ----------
Total current liabilities.......................... 2,166,219 2,465,804
---------- ----------
LONG-TERM DEBT, less current portion..................... 3,184,201 3,539,421
---------- ----------
OBLIGATIONS UNDER CAPITAL LEASES, less current portion... 648,146 619,353
---------- ----------
COMMITMENTS
STOCKHOLDERS' EQUITY
Common stock, no par value; 1,000 shares authorized,
100 shares issued and outstanding..................... 130,841 130,841
Retained earnings...................................... 1,565,755 906,422
---------- ----------
1,696,596 1,037,263
---------- ----------
$7,695,162 $7,661,841
========== ==========
</TABLE>
See accompanying notes.
F-230
<PAGE>
WEST MAIN RENTALS AND SALES, INCORPORATED
STATEMENT OF INCOME
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED MARCH 31,
DECEMBER 31, ----------------------
1997 1998 1997
------------ ---------- ----------
(UNAUDITED)
<S> <C> <C> <C>
REVENUES
Rental................................. $7,167,252 $1,067,808 $1,208,955
Retail sales........................... 1,286,872 366,341 303,444
Other sales............................ 1,061,874 202,658 180,800
Gain on sale of rental equipment....... 238,793 47,209 82,399
---------- ---------- ----------
9,754,791 1,684,016 1,775,598
---------- ---------- ----------
COST OF OPERATIONS
Rental................................. 5,064,324 1,267,400 848,479
Retail cost of sales................... 916,670 279,002 212,656
Other cost of sales.................... 252,472 45,276 46,242
---------- ---------- ----------
6,233,466 1,591,678 1,107,377
---------- ---------- ----------
GROSS PROFIT............................. 3,521,325 92,338 668,221
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES................................ 2,515,654 564,480 589,522
---------- ---------- ----------
INCOME (LOSS) FROM OPERATIONS............ 1,005,671 (472,142) 78,699
---------- ---------- ----------
OTHER INCOME (EXPENSE)
Interest income........................ 6,094 1,576 1,952
Gain on sale of equipment.............. 9,067 -- 1,117
Interest expense....................... (540,064) (141,267) (114,070)
---------- ---------- ----------
(524,903) (139,691) (111,001)
---------- ---------- ----------
NET INCOME (LOSS)........................ $ 480,768 $ (611,833) $ (32,302)
========== ========== ==========
</TABLE>
See accompanying notes.
F-231
<PAGE>
WEST MAIN RENTALS AND SALES, INCORPORATED
STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON RETAINED
STOCK EARNINGS TOTAL
-------- ---------- ----------
<S> <C> <C> <C>
BALANCE, December 31, 1996..................... $130,841 $1,404,987 $1,535,828
Net income..................................... -- 480,768 480,768
Dividends...................................... -- (320,000) (320,000)
-------- ---------- ----------
BALANCE, December 31, 1997..................... 130,841 1,565,755 1,696,596
Net loss (unaudited)........................... -- (611,833) (611,833)
Dividends (unaudited).......................... -- (47,500) (47,500)
-------- ---------- ----------
BALANCE, March 31, 1998 (unaudited)............ $130,841 $ 906,422 $1,037,263
======== ========== ==========
</TABLE>
See accompanying notes.
F-232
<PAGE>
WEST MAIN RENTALS AND SALES, INCORPORATED
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
DECEMBER MARCH 31,
31, -------------------
1997 1998 1997
----------- --------- --------
(UNAUDITED)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss).......................... $ 480,768 $(611,833) $(32,302)
Adjustments to reconcile net income (loss)
to net cash from operating activities:
Depreciation and amortization............ 1,129,015 307,895 244,383
Net gain from sale of property........... (247,860) (47,209) (83,516)
Changes in:
Accounts receivable.................... (329,061) 78,254 5,396
Inventory for resale................... 32,228 3,520 (144,037)
Prepaid expenses....................... (17,756) 42,649 (12,866)
Accounts payable....................... (286,115) 277,362 (160,215)
Accrued liabilities.................... 27,723 (355) 7,708
----------- --------- --------
Net cash from operating activities......... 788,942 50,283 (175,449)
----------- --------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment......... (2,261,854) (492,384) (608,559)
Proceeds from sale of equipment............ 625,362 178,437 620,775
Net principal repayments (advances) on
notes receivable.......................... 480 (17,527) 325
----------- --------- --------
Net cash from investing activities......... (1,636,012) (331,474) 12,541
----------- --------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Net borrowings (payments) on notes
payable................................... 478,616 (50,418) 190,000
Proceeds from long-term borrowings and
capital lease obligations................. 1,818,217 670,403 142,412
Principal payments on long-term debt and
capital lease obligations................. (1,078,345) (270,980) (96,132)
Dividends paid............................. (320,000) (47,500) --
----------- --------- --------
Net cash from financing activities......... 898,488 301,505 236,280
----------- --------- --------
NET INCREASE IN CASH......................... 51,418 20,314 73,372
CASH, beginning of period.................... 83,506 134,924 83,506
----------- --------- --------
CASH, end of period.......................... $ 134,924 $ 155,238 $156,878
=========== ========= ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION
Cash paid during the period for interest... $ 532,245 $ 135,866 $110,846
=========== ========= ========
</TABLE>
See accompanying notes.
F-233
<PAGE>
WEST MAIN RENTALS AND SALES, INCORPORATED
NOTES TO FINANCIAL STATEMENTS
NOTE 1--DESCRIPTION OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
DESCRIPTION OF OPERATIONS--The Company primarily rents heavy equipment to
contractors. The Company provides wholesale and retail rental services and
sales from four Oregon locations and two in California. The second California
location was opened in May 1997. The Company extends credit to all customer
types once a credit contract has been completed by the customer. This credit
contract includes trade references, which are consulted, and personal
guarantees, when deemed necessary. All charges are due in full 30 days from
the transaction date. Past due items are assessed a carrying charge. Cash
transactions require a deposit for a portion of the rental charge. A minimum
of one day's rent is required.
RESTATEMENT OF FINANCIAL INFORMATION--The Company has restated its 1997
financial statements primarily to capitalize certain equipment leases entered
into during 1996 and 1997. In the opinion of management, all material
adjustments necessary to correct the financial statements have been recorded.
The impact of these adjustments did not have a material effect on beginning
retained earnings.
INTERIM FINANCIAL STATEMENTS--The accompanying financial statements as of
March 31, 1998, and for the three months ended March 31, 1997 and 1998 are
unaudited and have been prepared on the same basis as the audited financial
statements included herein. In the opinion of management, such unaudited
financial statements include all adjustments necessary to present fairly the
information set forth therein, which consists solely of normal recurring
adjustments. The results of operations for such interim periods are not
necessarily indicative of results for the full year.
REVENUE RECOGNITION--Revenues from the daily and monthly rental of equipment
are accounted for as operating leases. Credit risk associated with accounts
receivable is periodically reviewed by management and an allowance for
doubtful accounts, if required, is established. The allowance was $20,000 at
December 31, 1997 and March 31, 1998 (unaudited).
INVENTORY FOR RESALE--The inventory for resale consists of equipment parts
and supplies and is stated at the lower of cost or market. Cost is determined
on the first-in, first-out (FIFO) method.
RENTAL FLEET EXPECTED TO BE SOLD--An estimate of rental fleet equipment
expected to be sold in the next year is presented as a current asset.
PROPERTY AND EQUIPMENT--Property and equipment is stated at cost.
Depreciation and amortization is computed using the straight-line method over
the following estimated useful lives:
<TABLE>
<S> <C>
Rental fleet............................................... 5 to 10 years
Leasehold improvements..................................... 5 to 31 years
Equipment.................................................. 3 to 10 years
Equipment held under capital leases........................ 3 to 5 years
</TABLE>
ADVERTISING AND PROMOTION--All costs associated with advertising and
promotion are expensed as incurred. Advertising and promotion expense totaled
$141,200 in 1997, and was $59,100 (unaudited) and $32,400 (unaudited) for the
three month periods ended March 31, 1998 and 1997, respectively.
INCOME TAXES--The Company has elected to be taxed under the provisions of
Subchapter S of the Internal Revenue Code, whereby income of the Company is
taxable directly to the individual stockholders. Accordingly, no provision for
income taxes is included in these financial statements.
F-234
<PAGE>
WEST MAIN RENTALS AND SALES, INCORPORATED
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE 1--DESCRIPTION OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED)
FAIR VALUE OF FINANCIAL INSTRUMENTS--The fair value of financial
instruments, consisting of cash, receivables, accounts payable, and debt
instruments, is based on interest rates available to the Company and
discounted cash flow analysis. The fair value of these financial instruments
approximates carrying value.
USE OF ESTIMATES--The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements
and accompanying notes. Actual results will differ from those estimates.
RECENTLY ISSUED ACCOUNTING STANDARDS--In 1997, the Company implemented
Statement of Financial Accounting Standards (SFAS) No. 129, "Disclosure of
Information about Capital Structure," that continues the existing requirements
to disclose pertinent rights and privileges of all securities other than
common stock, but expands the number of companies subject to portions of its
requirements. The Company's current capital structure does not require any
additional disclosures as a result of this pronouncement.
In June 1997, the Financial Accounting Standards Board (FASB) issued SFAS
No. 130 "Reporting Comprehensive Income" which the Company is required to
adopt for years beginning after December 15, 1997. This statement establishes
standards for reporting and display of comprehensive income and its components
(revenues, expenses, gains and losses) in a full set of financial statements.
This statement will require that all items that are required to be recognized
under accounting standards as components of comprehensive income be reported
in a financial statement that is displayed with the same prominence as other
financial statements.
Other issued but not yet required FASB statements are not currently
applicable to the Company's operations.
NOTE 2--NOTES RECEIVABLE
The Company has two unsecured notes receivable from stockholders. These
notes require interest only payments with the balance due in 2000. The
interest rate is fixed at 8%, requiring monthly payments of $361.
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1997 1998
------------ -----------
(UNAUDITED)
<S> <C> <C>
Stockholder notes receivable........................... $54,255 $54,255
Other notes receivable................................. 4,131 21,658
------- -------
58,386 75,913
Less current portion................................... 2,432 6,753
------- -------
Long-term portion...................................... $55,954 $69,160
======= =======
</TABLE>
NOTE 3--NOTES PAYABLE
The Company has a revolving credit line available totaling $600,000 at prime
plus 1% (9.5% at December 31, 1997 and March 31, 1998). Outstanding borrowings
under the line of credit are subject to the same collateral and restrictive
covenant provisions as the term notes described in Note 4, and totaled
$430,000 at December 31, 1997 and $390,000 (unaudited) at March 31, 1998.
The Company also has a short term note payable to a finance company. The
outstanding balance on this note was $48,616 at December 31, 1997 and $38,198
(unaudited) at March 31, 1998.
F-235
<PAGE>
WEST MAIN RENTALS AND SALES, INCORPORATED
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE 4--LONG-TERM DEBT
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1997 1998
------------ -----------
(UNAUDITED)
<S> <C> <C>
Note payable to bank, payable in monthly (excepting
January and February) installments of $33,334 plus
interest at prime plus 1.25% (9.75% at December 31,
1997 and March 31, 1998), due December 1999......... $ 666,640 $ 633,306
Note payable to bank, payable in monthly installments
of $20,934 including interest at 9.36%, due March
2001................................................ 704,108 657,444
Note payable to bank, payable in monthly (excepting
January and February) installments of $7,000 plus
interest at prime plus 1.25% (9.75% at December 31,
1997 and March 31, 1998), due December 1999......... 126,000 105,000
Unsecured notes payable to stockholders, payable in
monthly interest only installments at 12%, due
October 2000. Subordinated to the bank debt......... 591,162 591,162
Note payable to bank, payable in monthly installments
of $5,334 plus interest at 10.7%, due November
1999................................................ 122,642 106,640
Unsecured notes payable to stockholders, all with
interest at 10% payable annually, due October 2000.
Subordinated to the bank debt....................... 114,545 114,545
Note payable to bank, payable in monthly installments
of $16,667 beginning November 1997 plus interest at
prime plus 1.25% (9.75% at December 31, 1997 and
March 31, 1998), due October 2002................... 966,667 916,667
Note payable to bank, payable in monthly payments of
$10,348 plus interest at 8.87%, due April 2002...... 427,566 396,523
Note payable to bank, payable in monthly interest
only payments through March 1998, then in monthly
installments of $11,231 including interest at prime
plus 2.00% (10.50% at March 31, 1998), due March
2006................................................ -- 600,000
Other notes payable, due in varying installments
including interest at various rates, collateral
provided by equipment and vehicles.................. 610,511 628,770
---------- ----------
4,329,841 4,750,057
Less current portion................................. 1,145,640 1,210,636
---------- ----------
$3,184,201 $3,539,421
========== ==========
</TABLE>
Substantially all cash, accounts receivable, inventories, property and
equipment, and general intangibles are pledged as collateral for the Company's
short and long-term borrowing arrangements. The stockholders have also
personally guaranteed outstanding bank borrowings. In addition, the Company's
bank loan agreements contain provisions which, among other things, require
maintenance of certain financial ratios, restrict dividend payments and
property and equipment purchases, and provide for prepayment penalties.
Annual payments of long-term debt for the years subsequent to December 31,
1997 are due as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------
<S> <C>
1998............................................................ $1,145,640
1999............................................................ 1,097,900
2000............................................................ 1,326,200
2001............................................................ 552,500
2002............................................................ 202,600
2003 and thereafter............................................. 5,001
----------
$4,329,841
==========
</TABLE>
F-236
<PAGE>
WEST MAIN RENTALS AND SALES, INCORPORATED
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE 4--LONG-TERM DEBT (CONTINUED)
Interest expense to stockholders on notes payable and long-term debt totaled
approximately $81,920 during 1997 and $20,600 (unaudited) and $20,500
(unaudited) for the three month periods ended March 31, 1998 and 1997,
respectively.
NOTE 5--OBLIGATIONS UNDER CAPITAL LEASES
The Company leases equipment under long-term leases and has the option to
purchase the equipment at the termination of the lease. Included in property
and equipment are the following assets held under capital leases:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1997 1998
------------ -----------
(UNAUDITED)
<S> <C> <C>
Equipment held under capital leases.................... $1,067,217 $1,067,217
Less accumulated amortization.......................... 222,011 282,320
---------- ----------
$ 845,206 $ 784,897
========== ==========
</TABLE>
Future minimum lease payments for assets under capital leases at December
31, 1997 are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------
<S> <C>
1998........................................................... $ 283,500
1999........................................................... 256,900
2000........................................................... 205,000
2001........................................................... 197,600
2002........................................................... 103,016
----------
Total minimum lease payments..................................... 1,046,016
Less amount representing interest................................ 191,870
----------
Present value of net minimum lease payments...................... 854,146
Less current maturities.......................................... 206,000
----------
$ 648,146
==========
</TABLE>
NOTE 6--COMMITMENTS
RELATED PARTY LEASES--The Company leases facilities under five separate
agreements from a partnership owned by the Company stockholders. These
agreements expire between 1999 and 2011. The lease agreements provide for
payment of a minimum amount plus taxes, insurance and other costs. The monthly
rental payments can be adjusted annually. Total rents paid for the year ended
December 31, 1997 were $220,350, and were $87,600 (unaudited) and $48,450
(unaudited) for the three month periods ended March 31, 1998 and 1997,
respectively.
GRANTS PASS, OREGON LEASE--The Company leased facilities in Grants Pass,
Oregon under an agreement which expired in 1997. Rental expense on this lease
was $34,930 in 1997, and was $8,700 (unaudited) for the three month period
ended March 31, 1997.
EUREKA, CALIFORNIA LEASE--During 1997, the Company began leasing facilities
in Eureka, California under a month-to-month agreement. Monthly rent is
$3,850. A long-term agreement at the current location is expected in 1998.
F-237
<PAGE>
WEST MAIN RENTALS AND SALES, INCORPORATED
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE 6--COMMITMENTS (CONTINUED)
Aggregate future minimum lease commitments for real property, substantially
all of which are with related parties, are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------
<S> <C>
1998............................................................ $ 350,400
1999............................................................ 283,100
2000............................................................ 174,000
2001............................................................ 54,000
2002............................................................ 54,000
Thereafter........................................................ 459,000
----------
$1,374,500
==========
</TABLE>
EQUIPMENT LEASES--The Company leases equipment under several operating lease
arrangements. Monthly payments on these leases total approximately $130,300,
with maturities extending to 2002. Rental expense totaled $982,500 for the
year ended December 31, 1997, and was $177,000 (unaudited) and $95,200
(unaudited) for the three months ended March 31, 1998 and 1997, respectively.
A significant portion of the leased equipment is returnable to the vendor with
thirty days notice without penalty from the lessor. Additionally, the
shareholders have guaranteed these lease commitments.
Aggregate future minimum lease commitments for equipment are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------
<S> <C>
1998............................................................ $1,303,000
1999............................................................ 1,274,100
2000............................................................ 1,256,400
2001............................................................ 942,600
2002............................................................ 293,600
----------
$5,069,700
==========
</TABLE>
STOCK REPURCHASE AGREEMENT--The Company and the stockholders have entered
into an agreement whereby the Company will purchase the shares of a deceased
stockholder at a value to be determined as set forth in the agreement.
NOTE 7--RETIREMENT PLAN
A defined contribution plan covers all employees who meet age and service
requirements. The defined contribution plan is a 401(k) profit-sharing plan.
The plan allows employee contributions. The Company, at its discretion, may
also contribute to the plan. In 1997, the Company contributed $40,000; $24,400
was allocated to the profit-share portion of the plan and $15,600 was
allocated to match employee contributions at 50%. There were no Company
contributions for the three month periods ended March 31, 1998 and 1997.
NOTE 8--SUBSEQUENT EVENTS
DIVIDENDS--On January 2, 1998 the Board of Directors declared a dividend of
$475 per share of outstanding common stock, payable to shareholders of record
as of January 2, 1998.
Also, on April 10, 1998 an additional dividend was declared of $750 per
share, to shareholders of record on that date.
F-238
<PAGE>
WEST MAIN RENTALS AND SALES, INCORPORATED
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE 8--SUBSEQUENT EVENTS (CONTINUED)
NEW DEBT--On March 4, 1998 the Company obtained additional financing from
its bank. This debt is in addition to existing bank liabilities. The new
agreement provides for an aggregate commitment of $1,000,000 and expires in
2006. This note has been guaranteed by the stockholders.
SALE OF COMPANY STOCK--On March 20, 1998 a Letter of Intent was received
from United Rentals, Inc. to acquire all outstanding stock of the Company.
Under the terms of the agreement, all indebtedness of the Company, including
long-term debt and notes payable, but excluding leases, is to be paid in full
at closing. The agreement also provided for real estate leases described in
Note 6 to be extended for an additional ten years. This transaction was closed
on April 22, 1998.
Acquisition of the Company stock by United Rentals, Inc. resulted in the
termination of the Company's election to be taxed under Subchapter S of the
Internal Revenue Code.
F-239
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Stockholders
Mission Valley Rentals, Inc.
We have audited the balance sheets of Mission Valley Rentals, Inc. as of
June 30, 1996 and 1997 and the related statements of operations, stockholders'
equity and cash flows for the years then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Mission Valley Rentals,
Inc. at June 30, 1996 and 1997, and the results of its operations and its cash
flows for the years then ended in conformity with generally accepted
accounting principles.
/s/ Ernst & Young LLP
MetroPark, New Jersey
January 23, 1998
F-240
<PAGE>
MISSION VALLEY RENTALS, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30
--------------------- DECEMBER 31,
1996 1997 1997
---------- ---------- ------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
------
Cash........................................ $ 144,491 $ 527,922 $ 505,541
Accounts receivable, net.................... 470,736 662,006 721,252
Inventory................................... 37,539 58,949 88,965
Rental equipment, net....................... 3,004,111 5,158,789 5,667,659
Property and equipment, net................. 124,597 155,001 138,343
Prepaid expenses and other assets........... 34,850 180,875 165,599
Intangible assets, net...................... 776,003 765,841
---------- ---------- ----------
Total assets............................ $3,816,324 $7,519,545 $8,053,200
========== ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Liabilities:
Accounts payable, accrued expenses and
other liabilities........................ $ 246,536 $ 404,689 $ 805,462
Income taxes payable...................... 53,303 (54,283)
Debt...................................... 1,512,074 5,102,143 5,536,280
Deferred income taxes..................... 188,774 319,869 235,744
---------- ---------- ----------
Total liabilities....................... 2,000,687 5,826,701 6,523,203
Commitments and contingencies
Stockholders' equity:
Common stock, no par value and $1.00
stated value, 10,000 shares authorized,
1,000 issued and outstanding at June 30,
1996 and 1997, and December 31, 1997..... 1,000 1,000 1,000
Retained earnings......................... 1,814,637 1,691,844 1,528,997
---------- ---------- ----------
Total stockholders' equity.............. 1,815,637 1,692,844 1,529,997
---------- ---------- ----------
Total liabilities and stockholders'
equity................................. $3,816,324 $7,519,545 $8,053,200
========== ========== ==========
</TABLE>
See accompanying notes.
F-241
<PAGE>
MISSION VALLEY RENTALS, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED JUNE 30 DECEMBER 31
---------------------- ----------------------
1996 1997 1996 1997
---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Revenues:
Equipment rentals........... $4,851,942 $6,798,752 $3,365,276 $4,419,275
Sales of rental equipment... 96,987 413,481 346,540 74,642
Sales of parts and
supplies................... 399,156 558,034 264,193 329,496
---------- ---------- ---------- ----------
Total revenues............ 5,348,085 7,770,267 3,976,009 4,823,413
Cost of revenues:
Cost of equipment rentals,
excluding depreciation..... 1,893,655 2,876,589 1,392,173 1,952,185
Depreciation of rental
equipment.................. 738,229 1,599,457 586,675 733,558
Cost of rental equipment
sales...................... 61,810 413,481 346,540 55,168
Cost of sales of parts and
supplies................... 214,802 377,047 153,444 171,949
---------- ---------- ---------- ----------
Total cost of revenues.... 2,908,496 5,266,574 2,478,832 2,912,860
---------- ---------- ---------- ----------
Gross profit.................. 2,439,589 2,503,693 1,497,177 1,910,553
Selling, general and
administrative expenses...... 1,640,442 2,222,524 1,086,303 1,926,386
Non-rental depreciation....... 25,355 30,154 15,117 16,658
---------- ---------- ---------- ----------
Operating income (loss)....... 773,792 251,015 395,757 (32,491)
Interest expense.............. 139,925 390,047 171,923 215,848
Other (income), net........... (58,767) (62,016) (31,956) (31,209)
---------- ---------- ---------- ----------
Income (loss) before provision
(benefit) for income taxes... 692,634 (77,016) 255,790 (217,130)
Provision (benefit) for income
taxes........................ 299,259 45,777 64,295 (54,283)
---------- ---------- ---------- ----------
Net income (loss)............. $ 393,375 $ (122,793) $ 191,495 $ (162,847)
========== ========== ========== ==========
</TABLE>
See accompanying notes.
F-242
<PAGE>
MISSION VALLEY RENTALS, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK
-------------- RETAINED
SHARES AMOUNTS EARNINGS
------ ------- ----------
<S> <C> <C> <C>
Balance at July 1, 1995.............................. 1,000 $1,000 $1,421,262
Net income......................................... 393,375
----- ------ ----------
Balance at June 30, 1996............................. 1,000 1,000 1,814,637
Net loss........................................... (122,793)
----- ------ ----------
Balance at June 30, 1997............................. 1,000 1,000 1,691,844
Net loss (unaudited)............................... (162,847)
----- ------ ----------
Balance at December 31, 1997 (unaudited)............. 1,000 $1,000 $1,528,997
===== ====== ==========
</TABLE>
See accompanying notes.
F-243
<PAGE>
MISSION VALLEY RENTALS, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED JUNE 30 DECEMBER 31
----------------------- --------------------
1996 1997 1996 1997
---------- ----------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES
Net income (loss).............. $ 393,375 $ (122,793) $ 191,495 $(162,847)
Adjustments to reconcile net
income (loss) to net cash
provided by operating
activities:
Depreciation and
amortization................ 763,584 1,646,105 611,009 760,378
Gain on equipment sales...... (35,177) (19,474)
Deferred taxes............... 81,859 131,318 87,014 (84,125)
Changes in assets and
liabilities:
Increase in accounts
receivable.................. (81,581) (191,270) (206,289) (59,246)
Increase in inventory........ (10,437) (21,410) (48,417) (30,016)
(Decrease) increase in
prepaid expenses and other
assets...................... 50,884 (146,248) (104,458) 15,276
Increase in accounts payable,
accrued expenses and other
liabilities................. 119,054 158,153 65,881 400,773
(Decrease) increase in income
taxes payable............... 53,303 (53,303) 10,992 (54,283)
---------- ----------- --------- ---------
Total adjustments.............. 941,489 1,523,345 415,732 929,283
---------- ----------- --------- ---------
Cash provided by operating
activities.................. 1,334,864 1,400,552 607,227 766,436
CASH FLOWS FROM INVESTING
ACTIVITIES
Purchase of rental equipment... (388,116)
Proceeds from sale of rental
equipment..................... 96,987 413,481 346,540 74,642
---------- ----------- --------- ---------
Cash provided by (used in)
investing activities........ (291,129) 413,481 346,540 74,642
CASH FLOWS FROM FINANCING
ACTIVITIES
Principal payments on debt..... (957,424) (4,567,552) (741,982) (863,459)
Principal payments on capital
lease obligations............. (32,258)
Borrowings under credit
facility...................... 3,169,208
---------- ----------- --------- ---------
Cash used in financing
activities.................. (957,424) (1,430,602) (741,982) (863,459)
---------- ----------- --------- ---------
Increase (decrease) in cash.... 86,311 383,431 211,785 (22,381)
Cash balance at beginning of
year........................ 58,180 144,491 144,491 527,922
---------- ----------- --------- ---------
Cash balance at end of year.. $ 144,491 $ 527,922 $ 356,276 $ 505,541
========== =========== ========= =========
</TABLE>
See accompanying notes.
F-244
<PAGE>
MISSION VALLEY RENTALS, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1996 AND 1997
(THE INFORMATION AS OF DECEMBER 31, 1997 AND FOR THE SIX
MONTHS ENDED DECEMBER 31, 1996 AND 1997 IS UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business Activity
Mission Valley Rentals, Inc. (the "Company") rents, sells and repairs
construction equipment for use by contractor, industrial and homeowner
markets. The rentals are on a daily, weekly or monthly basis. The Company has
four locations in Northern California and its principal market area is the
entire Bay Area and the San Joaquin Valley. The nature of the Company's
business is such that short-term obligations are typically met by cash flow
generated from long-term assets. Consequently, consistent with industry
practice, the balance sheets are presented on an unclassified basis.
On September 1, 1996, the Company acquired for $2,320,000 a substantial
amount of rental equipment and fixed assets from Rental World, Inc. and
assumed all operations. The Company utilized the funds available under its
line of credit to finance the purchase. The acquisition has been accounted for
as a purchase and, accordingly, at such date the Company recorded the assets
acquired at their estimated fair values.
The acquired assets have been recorded at their estimated fair value at the
date of the acquisition of $1,527,503 with the excess purchase price of
$792,497 being recorded as goodwill.
Interim Financial Statements
The accompanying balance sheet at December 31, 1997 and the statements of
income, stockholders' equity and cash flows for the six-month periods ended
December 31, 1996 and 1997 are unaudited and have been prepared on the same
basis as the audited financial statements included herein. In the opinion of
management, such unaudited financial statements include all adjustments
necessary to present fairly the information set forth therein, which consist
solely of normal recurring adjustments. The results of operations for such
interim period are not necessarily indicative of results for the full year.
Inventory
Inventory consists primarily of general replacement parts and fuel for the
equipment and are stated at the lower of cost, determined under the first-in,
first-out method, or market.
Rental Equipment
Rental equipment is recorded at cost. Depreciation for rental equipment is
computed using the straight-line method over an estimated five-year useful
life with a 10% salvage value.
Ordinary maintenance and repair costs are charged to operations as incurred.
Proceeds from the disposal and the related net book value of the equipment are
recognized in the period of disposal and reported as revenue from sales of
equipment and cost of sales of equipment, respectively, in the statements of
operations.
Property and Equipment
Property and equipment is stated at cost. Depreciation of property and
equipment is computed on the straight-line method over estimated useful lives
of 5 to 10 years.
F-245
<PAGE>
MISSION VALLEY RENTALS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Ordinary maintenance and repair costs are charged to operations as incurred.
The cost of assets sold, retired, or otherwise disposed of, and the related
accumulated depreciation is eliminated from the accounts and any resulting
gain or loss is included in operations.
Intangible assets
Intangible assets are recorded at cost and consist of goodwill, which is
being amortized by the straight line method over its estimated useful life of
forty years. Accumulated amortization at June 30, 1997 and December 31, 1997
is $16,494 and $26,656, respectively.
Rental Revenue
Rental revenue is recorded as earned under the operating method.
Advertising Costs
The Company advertises primarily through phone directories and the
distribution of promotional items. All advertising costs are expensed as
incurred. Advertising expenses amounted to approximately $63,800 and $104,500
in the years ended June 30, 1996 and 1997, respectively, and $52,000 and
$42,000 for the six months ended December 31, 1996 and 1997, respectively.
Income Taxes
The Company uses the "liability method" of accounting for income taxes.
Accordingly, deferred tax liabilities and assets are determined based on the
difference between the financial statement and tax bases of assets and
liabilities, using enacted tax rates in effect for the year in which the
differences are expected to reverse.
Accounting Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
2. CONCENTRATIONS OF CREDIT RISK
The Company maintains cash balances with a quality financial institution
and, consequently, management believes funds maintained there are secure.
Concentrations of credit risk with respect to customer receivables are limited
due to the large number of customers comprising the Company's customer base
and its credit policy.
3. RENTAL EQUIPMENT
Rental equipment and related accumulated depreciation consisted of the
following:
<TABLE>
<CAPTION>
JUNE 30
--------------------- DECEMBER 31,
1996 1997 1997
---------- ---------- ------------
(UNAUDITED)
<S> <C> <C> <C>
Rental equipment....................... $6,384,287 $9,793,816 $10,454,616
Less accumulated depreciation.......... 3,380,176 4,635,027 4,786,957
---------- ---------- -----------
Rental equipment, net.................. $3,004,111 $5,158,789 $ 5,667,659
========== ========== ===========
</TABLE>
F-246
<PAGE>
MISSION VALLEY RENTALS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
4. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
JUNE 30
----------------- DECEMBER 31,
1996 1997 1997
-------- -------- ------------
(UNAUDITED)
<S> <C> <C> <C>
Furniture and fixtures..................... $237,744 $273,686 $273,686
Leasehold improvements..................... 268,939 293,557 293,557
-------- -------- --------
506,683 567,243 567,243
Less accumulated depreciation.............. 382,086 412,242 428,900
-------- -------- --------
Total.................................... $124,597 $155,001 $138,343
======== ======== ========
</TABLE>
5. DEBT AND CAPITAL LEASE OBLIGATIONS
Debt and capital lease obligations consist of the following:
<TABLE>
<CAPTION>
JUNE 30
--------------------- DECEMBER 31,
1996 1997 1997
---------- ---------- ------------
(UNAUDITED)
<S> <C> <C> <C>
Ingersoll-Rand--Various notes with combined
monthly payments of $3,514 including
interest from 7.9% to 10%................. $ 53,296 $ 100,980 $ 167,744
Clark Equipment Credit Co.--Various notes
with combined monthly payments of $5,217
including interest from 7.9% to 9.9%...... 35,443 194,304 156,550
Fremont Bank--Various notes with combined
monthly payments of $52,073 including
interest from 8.75% to 9.35%.............. 784,633 2,874,127 3,017,141
Ford Motor Credit--Various notes with
combined monthly payments of $1,908
including interest from 8.75% to 9.25%.... 64,948 333,237 374,384
Ford New Holland--Various notes with
combined monthly payments of $3,849
including interest 10.5%.................. 123,539 79,366 55,493
Orix Credit--Various notes with combined
monthly payments of $3,864 including
interest from 6.3% to 9.3%................ 10,264 71,764 51,293
Case Credit--Various notes with combined
monthly payments of $20,216 including
interest from 7.7% to 7.9%................ 209,397 567,827 486,188
Caterpillar Financial Services--Various
notes with combined monthly payments of
$3,615 including interest of 6.6%......... -- 150,936 133,994
Country Ford--Various leases with combined
monthly payments of $6,685 including
interest of 8.0%.......................... -- 351,683 325,197
John Deere--Three notes with combined
monthly payments of $3,038 including
interest of 4.9%.......................... 14,073 53,471 45,788
Associates--Various notes with combined
monthly payments of $5,314 including
interest from 7.5% to 8.98%............... 147,925 182,165 366,594
GMAC--One note with a monthly payment of
$886 including interest of 9.99%.......... -- 20,627 16,254
AEL Lease--Two notes with a combined
monthly payment of $2,736 including
interest of 8.25%......................... 3,244 40,705 82,129
M.E.L. Enterprises--One note with a monthly
payment of $2,595 including interest of
9.0%...................................... 65,312 38,984 24,909
AT&T Finance Corp.--Three notes with a
combined monthly payment of $4,028
including interest of 7.35%............... -- -- 194,253
Other...................................... -- 41,967 38,369
---------- ---------- ----------
$1,512,074 $5,102,143 $5,536,280
========== ========== ==========
</TABLE>
F-247
<PAGE>
MISSION VALLEY RENTALS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Substantially all rental equipment collateralize the above notes.
Subsequent to June 30, 1997, the Company paid $2,766,372 on certain amounts
outstanding under the debt and capital lease agreements. The remaining balance
of $2,335,771 is scheduled for payment in fiscal year 1998.
6. CAPITAL LEASES
The Company leases certain rental equipment under leases accounted for as
capital leases. The following is an analysis of the leased property.
<TABLE>
<CAPTION>
JUNE 30 DECEMBER 31,
1997 1997
-------- ------------
(UNAUDITED)
<S> <C> <C>
Rental equipment.................................... $383,874 $383,874
Less accumulated amortization....................... 39,688 59,688
-------- --------
Net............................................... $344,186 $324,186
======== ========
</TABLE>
Total depreciation expense on assets under capital leases was $39,688 and
$20,000 in the year ended June 30, 1997 and for the six months ended December
31, 1997, respectively.
The following is a schedule by years of future lease payments under capital
leases together with the present value of the net minimum lease payments as of
June 30, 1997:
<TABLE>
<S> <C>
Year ended June 30, 1998........................................ $ 80,223
1999.......................................................... 80,233
2000.......................................................... 80,223
2001.......................................................... 80,223
2002.......................................................... 80,223
Thereafter.................................................... 33,426
--------
Net minimum lease payment....................................... 434,541
Less amount representing interest............................... 82,858
--------
Present value of net minimum lease payments..................... $351,683
========
</TABLE>
7. OPERATING LEASES
The Company leases four store locations on long term leases. The Company is
responsible for all operating expenses of the facilities including property
taxes, assessments, insurance, repairs and maintenance.
Rent expense under these leases totaled $216,725 and $334,725 for the years
ended June 30, 1996 and 1997 and $166,363 and $169,963 for the six months
ended December 31, 1996 and 1997, respectively. Under the lease agreements,
aggregate rent is payable in monthly installments of approximately $28,560.
Under certain lease agreements, the rent shall be increased annually to
reflect the then current fair market rent for the premises, provided that each
annual increase shall not exceed a specific percentage, as defined in the
agreements, of the previous year's rental rate. Future minimum rent
commitments are $342,725 each for years ended June 30, 1998 to June 30, 2004
and $217,563 and $21,000 for fiscal 2005 and 2006 respectively, provided there
is no increase in fair market rent for the premises.
F-248
<PAGE>
MISSION VALLEY RENTALS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
8. INCOME TAXES
The provision (benefit) for income taxes consists of the following:
<TABLE>
<CAPTION>
JUNE 30 DECEMBER 31
----------------- ------------------
1996 1997 1996 1997
-------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C>
Current:
Federal................................ $184,790 $(85,541) $(22,719) $ 29,842
State.................................. 32,610 -- --
-------- -------- -------- --------
217,400 (85,541) (22,719) 29,842
Deferred:
Federal................................ 69,580 111,620 74,407 (71,507)
State.................................. 12,279 19,698 12,607 (12,618)
-------- -------- -------- --------
81,859 131,318 87,014 (84,125)
-------- -------- -------- --------
Total.................................. $299,259 $ 45,777 $ 64,295 $(54,283)
======== ======== ======== ========
</TABLE>
Significant components of the Company's deferred tax liability at June 30,
1996 and 1997 and December 31, 1997 (unaudited) are as follows:
<TABLE>
<CAPTION>
JUNE 30
------------------ DECEMBER 31,
1996 1997 1997
-------- -------- ------------
(UNAUDITED)
<S> <C> <C> <C>
Difference in basis of accounting............ $(33,025) $(41,185) $ --
Cumulative tax depreciation in excess of
book........................................ 188,774 319,869 235,744
-------- -------- --------
Deferred tax liability, net.................. $155,749 $278,684 $235,744
======== ======== ========
</TABLE>
Deferred tax assets at June 30, 1996 and 1997, are included in prepaid
expenses and other assets on the accompanying balance sheet.
9. SUPPLEMENTAL CASH FLOW INFORMATION
For the years ended June 30, 1996 and 1997 and the six months ended December
31, 1996 and 1997, total interest paid was $139,925 and $367,561 and $171,923
and $238,334, respectively.
For the years ended June 30, 1996 and 1997 and the six months ended December
31, 1996 and 1997, total taxes paid were $120,000 and $127,611 and $84,358 and
$ -- , respectively.
For the years ended June 30, 1996 and 1997 and for the six months ended
December 31, 1996 and 1997, the Company purchased $857,779, $3,844,300,
$3,156,404 and $1,297,596, respectively, of equipment which was financed.
For the year ended June 30, 1997 and the six months ended December 31, 1996,
the Company entered into capital lease agreements for rental equipment
totaling $383,874.
10. EMPLOYEE BENEFIT PLAN
On January 1, 1996, the Company established a defined contribution 401(k)
retirement plan which covers substantially all full time employees. The
employees may contribute up to 15% of their weekly
F-249
<PAGE>
MISSION VALLEY RENTALS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
gross pay. The Company matches 20% of the employees contribution. Effective
September 1997, the Company's match increased to 70%. Company contributions to
the plan were $7,674, $15,211, $7,807 and $33,159 for the years ended June 30,
1996 and 1997 and for the six month periods ended December 31, 1996 and 1997,
respectively.
11. SUBSEQUENT EVENT
On January 13, 1998, the Company entered into a stock purchase agreement
with United Rentals, Inc. ("United"). Under the terms of the stock purchase
agreement, United purchased all of the issued and outstanding capital stock of
the Company.
F-250
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Stockholders
Pro Rentals, Inc.
We have audited the accompanying balance sheet of Pro Rentals, Inc. as of
December 31, 1997 and the related statements of income, stockholders' equity
and cash flows for the year then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Pro Rentals, Inc. at
December 31, 1997, and the results of its operations and its cash flows for
the year then ended in conformity with generally accepted accounting
principles.
/s/ Ernst & Young LLP
MetroPark, New Jersey
April 22, 1998
F-251
<PAGE>
PRO RENTALS, INC.
BALANCE SHEET
DECEMBER 31, 1997
<TABLE>
<S> <C>
ASSETS
Cash............................................................... $ 2,700
Accounts receivable, net of allowance for doubtful accounts of
$38,000........................................................... 582,034
Inventory.......................................................... 499,826
Rental equipment, net.............................................. 4,308,589
Property and equipment, net........................................ 210,889
Prepaid expenses and other assets.................................. 5,315
Due from stockholder............................................... 60,643
----------
Total assets................................................... $5,669,996
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Accounts payable................................................. 334,829
Accrued expenses and other liabilities........................... 182,281
Debt............................................................. 3,456,278
----------
Total liabilities.............................................. 3,973,388
Commitments and contingencies
Stockholders' equity:
Common stock, $4.00 par value, 50,000 shares authorized,
1,000 shares issued and outstanding............................. 4,000
Retained earnings................................................ 1,692,608
----------
Total stockholders' equity..................................... 1,696,608
----------
Total liabilities and stockholders' equity..................... $5,669,996
==========
</TABLE>
See accompanying notes.
F-252
<PAGE>
PRO RENTALS, INC.
STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 1997
<TABLE>
<S> <C>
Revenues:
Equipment rentals................................................. $3,980,013
Sales of rental equipment......................................... 581,820
Sales of parts, supplies and new equipment........................ 1,309,778
----------
Total revenues.................................................. 5,871,611
Cost of revenues:
Cost of equipment rentals, excluding equipment rental
depreciation..................................................... 889,536
Depreciation, equipment rentals................................... 578,897
Cost of rental equipment sales.................................... 403,475
Cost of parts, supplies and new equipment sales................... 1,147,579
----------
Total cost of revenues.......................................... 3,019,487
----------
Gross profit.................................................... 2,852,124
Selling, general and administrative expenses........................ 2,137,103
Non-rental depreciation............................................. 58,327
----------
Operating income.................................................... 656,694
Interest expense.................................................... 440,998
----------
Net income...................................................... $ 215,696
==========
</TABLE>
See accompanying notes.
F-253
<PAGE>
PRO RENTALS, INC.
STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK
------------- RETAINED
SHARES AMOUNT EARNINGS
------ ------ ----------
<S> <C> <C> <C>
Balance at January 1, 1997............................. 1,000 $4,000 $1,476,912
Net income........................................... 215,696
----- ------ ----------
Balance at December 31, 1997........................... 1,000 $4,000 $1,692,608
===== ====== ==========
</TABLE>
See accompanying notes.
F-254
<PAGE>
PRO RENTALS, INC.
STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1997
<TABLE>
<S> <C>
Cash flows from operating activities
Net income....................................................... $ 215,696
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation................................................... 637,224
Gain on rental equipment sales................................. (178,345)
Changes in assets and liabilities:
Increase in accounts receivable.............................. (189,727)
Decrease in inventory........................................ 676,854
Decrease in prepaid expenses and other assets................ 157,506
Decrease in accounts payable................................. (4,745)
Increase in accrued expenses and other liabilities........... 69,357
-----------
Cash provided by operating activities............................ 1,383,820
Cash flows from investing activities
Proceeds from sale of rental equipment........................... 581,820
Purchase of property and equipment............................... (2,399)
-----------
Cash provided by investing activities............................ 579,421
Cash flows from financing activities
Principal payments on debt....................................... (2,553,206)
Borrowings under credit facility................................. 589,965
-----------
Cash used in financing activities................................ (1,963,241)
-----------
Increase in cash................................................. --
Cash at beginning of year........................................ 2,700
-----------
Cash at end of year.............................................. $ 2,700
===========
</TABLE>
See accompanying notes.
F-255
<PAGE>
PRO RENTALS, INC.
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS ACTIVITY
The Company rents, sells and repairs construction equipment for use by
contractor, industrial and homeowners markets. The rentals are on a daily,
weekly or monthly basis. The Company has six locations (East Bremerton, West
Bremerton, Port Angeles, Gig Harbor, Port Orchard and Lakewood) and the
principal market area is Northern Washington. The nature of the Company's
business is such that short-term obligations are typically met by cash flow
generated from long-term assets. Consequently, consistent with industry
practice, the balance sheet is presented on an unclassified basis.
These financial statements are prepared on a historical cost basis and do
not include any adjustments that may result from the acquisition of the
Company by United Rentals, Inc. ("United") as more fully described in Note 9.
INVENTORY
Inventories consists primarily of equipment, general replacement parts and
fuel for the equipment and are stated at the lower of cost, determined under
the first-in, first-out method, or market.
RENTAL EQUIPMENT
Rental equipment is recorded at cost. Rental equipment costing less than
$1,000 is immediately expensed at the date of purchase. Depreciation for
rental equipment is computed using the straight-line method over an estimated
seven-year useful life with a 35% salvage value. Ordinary maintenance and
repair costs are charged to operations as incurred. Proceeds from the disposal
and the related net book value of the equipment are recognized in the period
of disposal and reported as revenue from the sales of rental equipment and
cost of sales of rental equipment, respectively, in the statement of income.
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost. The company capitalizes all
property and equipment purchases greater than $1,000. Depreciation of property
and equipment is computed on the straight-line method over estimated useful
lives of 5 to 10 years with no salvage value. Leasehold improvements are
amortized using the straight-line method over the estimated lives of the
improvements or the remaining life of the lease, whichever is shorter.
Ordinary maintenance and repair costs are charged to operations as incurred.
The cost of assets sold, retired, or otherwise disposed of, and the related
accumulated depreciation is eliminated from the accounts and any resulting
gain or loss is included in operations.
RENTAL REVENUE
Rental revenue is recorded as earned under the operating method.
ADVERTISING COSTS
The Companies advertise primarily through trade journals, trade associations
and phone directories. All advertising costs are expensed as incurred.
Advertising expense amounted to $61,405 in the year ended December 31, 1997.
INCOME TAXES
Pro Rentals has elected, by unanimous consent of its shareholders, to be
taxed under the provisions of Subchapter S of the Internal Revenue Code for
federal purposes. Under those provisions, the Company does not pay federal
income taxes; instead, the shareholders are liable for individual income taxes
on the Company's profits.
F-256
<PAGE>
PRO RENTALS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
ACCOUNTING ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
2. CONCENTRATIONS OF CREDIT RISK
The Companies maintain cash balances with a quality financial institution
and, consequently, management believes funds maintained there are secure.
Concentrations of credit risk with respect to customer receivables are limited
due to the large number of customers comprising the Companies' customer base
and their credit policy.
3. RENTAL EQUIPMENT
Rental equipment and related accumulated depreciation consisted of the
following at December 31, 1997:
<TABLE>
<S> <C>
Rental equipment................................................. $6,326,420
Less accumulated depreciation.................................... 2,017,831
----------
Rental equipment, net............................................ $4,308,589
==========
</TABLE>
4. PROPERTY AND EQUIPMENT
Property and equipment consists of the following at December 31, 1997:
<TABLE>
<S> <C>
Furniture and fixtures............................................. $ 30,363
Office equipment................................................... 237,868
Vehicles........................................................... 336,457
Leasehold improvements............................................. 11,218
--------
615,906
Less accumulated depreciation ..................................... 405,017
--------
Total.............................................................. $210,889
========
</TABLE>
5. DEBT
Debt consists of the following at December 31, 1997:
<TABLE>
<S> <C>
Deutsche Financial Services--Various notes with combined monthly
payments of $37,489 including interest from 7.9% to 10.25%..... $1,116,338
John Deere--Various notes with combined monthly payments of
$10,699 including interest from 6.9% to 10.24%................. 558,677
American Equipment Leasing (AEL)--Various notes with combined
monthly payments of $34,763 including interest from 8% to
12.25%......................................................... 648,835
Financial Federal Credit, Inc.--Various notes with combined
monthly payments of $7,291 including interest of 10.25%........ 183,757
Associates Commercial Corporation--Various notes with combined
monthly payments of $6,436 including interest from 8.3% to
10.25%......................................................... 166,780
AEL--$150,000 revolving line of credit due October 14, 1998 with
monthly interest payments at prime plus 2.17%.................. 150,000
Kitsap Bank--$150,000 revolving line of credit due July 7, 1998
with monthly interest payments at prime plus 2%. This line is
personally guaranteed by the Company's shareholders............ 75,000
Other........................................................... 556,891
----------
Total....................................................... $3,456,278
==========
</TABLE>
F-257
<PAGE>
PRO RENTALS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Substantially all rental equipment and inventory collateralized the above
notes. All debt at December 31, 1997 was paid off in connection with the
acquisition discussed in Note 9.
6. OPERATING LEASES
The Company leases six store locations. Three of the locations are on long
term leases, while the other three are on a month-to-month basis. The Company
is responsible for all operating expenses of the facilities including property
taxes, assessments, insurance, repairs and maintenance. These leases have
various terms and extend through December 2007 and include scheduled base rent
increases over the term of the leases. The total amount of the base rent
payments is being charged to expense on the straight-line method over the
terms of the leases.
Total rent expense for 1997 was approximately $294,893.
At December 31, 1997, minimum lease commitments under all operating leases,
with initial or remaining lease terms of more than one year are as follows:
<TABLE>
<S> <C>
1998.............................................................. $ 318,360
1999.............................................................. 299,037
2000.............................................................. 273,144
2001.............................................................. 223,364
Thereafter........................................................ 1,432,800
----------
Total............................................................. $2,546,705
==========
</TABLE>
7. RELATED PARTIES
Three of the Company's locations are leased from the Company's shareholders.
Total rent paid to the shareholders under these leases amounted to $177,412 in
1997. At December 31, 1997 Pro Rentals has a non-interest bearing amount due
from one of the Company's shareholders of $60,643.
8. SUPPLEMENTAL CASH FLOW INFORMATION
For the year ended December 31, 1997 total interest paid was $440,998.
During 1997 the Companies purchased $607,902 of rental equipment and
$524,333 of inventory which was financed.
9. SUBSEQUENT EVENT
On January 22, 1998, under the terms of the stock purchase agreement, United
purchased all of the issued and outstanding capital stock of the Company.
F-258
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Stockholders
ASC Equipment Company, Inc.
We have audited the accompanying balance sheet of ASC Equipment Company,
Inc. as of December 31, 1997 and the related statements of income,
stockholders' equity and cash flows for the year then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of ASC Equipment Company,
Inc. at December 31, 1997, and the results of its operations and its cash
flows for the year then ended in conformity with generally accepted accounting
principles.
/s/ Ernst & Young LLP
MetroPark, New Jersey
April 22, 1998
F-259
<PAGE>
ASC EQUIPMENT COMPANY, INC.
BALANCE SHEET
DECEMBER 31, 1997
<TABLE>
<S> <C>
ASSETS
Cash............................................................... $ 13,365
Accounts receivable, net of allowance for doubtful accounts of
$51,217........................................................... 623,370
Inventory.......................................................... 619,187
Rental equipment, net.............................................. 2,721,279
Property and equipment, net........................................ 313,827
Prepaid expenses and other assets.................................. 33,883
----------
Total assets................................................... $4,324,911
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Accounts payable, accrued expenses and other liabilities......... $ 490,454
Debt............................................................. 2,436,503
Deferred compensation............................................ 52,615
Deferred income taxes............................................ 206,109
----------
Total liabilities.............................................. 3,185,681
Commitments and contingencies
Stockholders' equity:
Common stock, $1.00 par value, 100,000 shares authorized, 3,210
shares issued and outstanding................................... 3,210
Preferred stock, $1.00 par value, 1,000 shares authorized, 55
shares issued and outstanding................................... 55
Additional paid-in capital....................................... 19,595
Retained earnings................................................ 1,188,370
----------
1,211,230
Treasury stock................................................... (72,000)
----------
Total stockholders' equity..................................... 1,139,230
----------
Total liabilities and stockholders' equity..................... $4,324,911
==========
</TABLE>
See accompanying notes.
F-260
<PAGE>
ASC EQUIPMENT COMPANY, INC.
STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 1997
<TABLE>
<S> <C>
Revenues:
Equipment rentals................................................ $3,209,936
Rental equipment sales........................................... 291,618
Sales of parts, supplies and new equipment....................... 1,963,901
----------
Total revenues................................................. 5,465,455
Cost of revenues:
Cost of equipment rentals, excluding equipment rental
depreciation.................................................... 1,248,757
Depreciation, equipment rentals.................................. 949,526
Cost of rental equipment sales................................... 136,712
Cost of parts, supplies and new equipment sales.................. 1,480,339
----------
Total cost of revenues......................................... 3,815,334
----------
Gross profit................................................... 1,650,121
Selling, general and administrative expenses....................... 1,328,977
Non-rental depreciation............................................ 105,503
----------
Operating income................................................... 215,641
Interest expense................................................... 214,983
Other (income)..................................................... (116,188)
----------
Income before provision for income taxes........................... 116,846
Provision for income taxes......................................... 87,861
----------
Net income......................................................... $ 28,985
==========
</TABLE>
See accompanying notes.
F-261
<PAGE>
ASC EQUIPMENT COMPANY, INC.
STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
PREFERRED
COMMON STOCK STOCK ADDITIONAL
------------- ------------- PAID IN RETAINED TREASURY
SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS STOCK
------ ------ ------ ------ ---------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1,
1997................... 3,210 $3,210 55 $55 $19,595 $1,159,385 $(72,000)
Net income............ 28,985
----- ------ --- --- ------- ---------- --------
Balance at December 31,
1997................... 3,210 $3,210 55 $55 $19,595 $1,188,370 $(72,000)
===== ====== === === ======= ========== ========
</TABLE>
See accompanying notes.
F-262
<PAGE>
ASC EQUIPMENT COMPANY, INC.
STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1997
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income....................................................... $ 28,985
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation................................................... 1,055,029
Gain on rental equipment sales................................. (26,631)
Deferred taxes................................................. 75,333
Changes in assets and liabilities:
Increase in accounts receivable.............................. (123,786)
Increase in inventory........................................ (57,506)
Decrease in prepaid expenses and other assets................ 47,521
Increase in accounts payable accrued expenses and other
liabilities................................................. 141,880
Increase in deferred compensation............................ 3,895
-----------
Cash provided by operating activities............................ 1,144,720
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of rental equipment..................................... (1,597,801)
Proceeds from sale of rental equipment........................... 262,130
Purchases of property and equipment.............................. (190,245)
-----------
Cash used in investing activities................................ (1,525,916)
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments on debt....................................... (2,933,065)
Borrowings under credit facilities............................... 3,325,064
-----------
Cash provided by financing activities............................ 391,999
-----------
Increase in cash................................................. 10,803
Cash balance at beginning of year................................ 2,562
-----------
Cash balance at end of year...................................... $ 13,365
===========
</TABLE>
See accompanying notes.
F-263
<PAGE>
ASC EQUIPMENT COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS ACTIVITY
ASC Equipment Company, Inc. (the "Company") rents, sells and repairs
construction equipment for use by contractor, industrial and homeowners
markets. The rentals are on a daily, weekly or monthly basis. The Company has
three locations (Fayetteville, Goldsboro and Jacksonville) and their principal
market area is eastern North Carolina. The nature of the Company's business is
such that short-term obligations are typically met by cash flow generated from
long-term assets. Consequently, consistent with industry practice, the balance
sheet is presented on an unclassified basis.
These financial statements are prepared on a historical cost basis and do
not include any adjustments that may result from the acquisition of the
Company by United Rentals, Inc. ("United") as more fully described in Note 10.
INVENTORY
Inventories consists primarily of general replacement parts and equipment
held for resale and are stated at the lower of cost, determined under the
first-in, first-out method, or market.
RENTAL EQUIPMENT
Rental equipment is recorded at cost. Depreciation for rental equipment is
computed using the straight-line method over an estimated five-year useful
life with no salvage value.
Ordinary maintenance and repair costs are charged to operations as incurred.
Proceeds from the disposal and the related net book value of the equipment are
recognized in the period of disposal and reported as revenue from sales of
equipment and cost of sales of equipment, respectively, in the statement of
income.
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost. Depreciation of property and
equipment is computed on the straight-line method over an estimated five-year
useful life. Leasehold improvements are amortized using the straight-line
method over the estimated lives of the improvements or the remaining life of
the lease, whichever is shorter.
Ordinary maintenance and repair costs are charged to operations as incurred.
The cost of assets sold, retired, or otherwise disposed of, and the related
accumulated depreciation is eliminated from the accounts and any resulting
gain or loss is included in operations.
RENTAL REVENUE
Rental revenue is recorded as earned under the operating method.
ADVERTISING COSTS
The Companies advertise primarily through trade journals, trade associations
and phone directories. All advertising costs are expensed as incurred.
Advertising expense amounted to approximately $34,900 in the year ended
December 31, 1997.
F-264
<PAGE>
ASC EQUIPMENT COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
INCOME TAXES
The Company uses the "liability method" of accounting for income taxes.
Accordingly, deferred tax liabilities and assets are determined based on the
difference between the financial statement and tax bases of assets and
liabilities, using enacted tax rates in effect for the year in which
differences are expected to reverse.
ACCOUNTING ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
2. CONCENTRATIONS OF CREDIT RISK
The company maintains cash balances with a quality financial institution
and, consequently, management believes funds maintained there are secure.
Concentrations of credit risk with respect to customer receivables are limited
due to the large number of customers comprising the Company's customer base
and its credit policy.
3. RENTAL EQUIPMENT
Rental equipment and related accumulated depreciation consisted of the
following at December 31, 1997:
<TABLE>
<S> <C>
Rental equipment............................................... $ 5,640,041
Less accumulated depreciation.................................. (2,918,762)
-----------
Rental equipment, net.......................................... $ 2,721,279
===========
</TABLE>
4. PROPERTY AND EQUIPMENT
Property and equipment consists of the following at December 31, 1997:
<TABLE>
<S> <C>
Transportation equipment.......................................... $ 571,054
Furniture and fixtures............................................ 36,317
Leasehold improvements............................................ 32,622
---------
639,993
Less accumulated depreciation..................................... (326,166)
---------
Total............................................................. $ 313,827
=========
</TABLE>
5. DEBT
Debt consists of the following at December 31, 1997:
<TABLE>
<S> <C>
First Citizens Bank; three notes; payable in monthly
installments of $37,770 including interest at prime 8.5% at
December 31, 1997, collateralized by equipment and real
estate........................................................ $ 936,404
First Citizens Bank; line of credit of $1,550,000; payable in
monthly installments of interest only at prime, collateralized
by equipment and inventory.................................... 1,446,292
Financial Federal; payable in monthly installments of $2,230
including interest at 6.75%; collateralized by equipment...... 53,807
----------
$2,436,503
==========
</TABLE>
All debt at December 31, 1997 was paid off in connection with the
acquisition discussed in Note 10.
F-265
<PAGE>
ASC EQUIPMENT COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
6. INCOME TAXES
The provision for income taxes consists of the following for the year ended
December 31, 1997:
<TABLE>
<S> <C>
Current:
Federal............................................................ $10,270
State.............................................................. 2,258
-------
12,528
Deferred:
Federal............................................................ 61,773
State.............................................................. 13,560
-------
75,333
-------
$87,861
=======
</TABLE>
Significant components of the Company's deferred tax liability at December
31, 1997 are as follows:
<TABLE>
<S> <C>
Difference in basis of accounting................................. $(20,487)
Cumulative tax depreciation in excess of book..................... 226,596
--------
Deferred tax liability, net..................................... $206,109
========
</TABLE>
7. RELATED PARTY TRANSACTIONS
The Company leases its three operating facilities from the president and a
stockholder of the Company on a month to month basis. The Company is
responsible for all operating expenses of the facilities including property
taxes, assessments, insurance, repairs and maintenance. Total rent expense for
1997 was approximately $99,100.
In connection with the acquisition discussed in Note 10, the lease terms
have been renegotiated.
The Company also had a non-interest bearing note receivable from its
stockholders totaling $14,971 at December 31, 1997 and is included in prepaid
expenses and other assets on the accompanying balance sheet. No repayment
schedule has been established.
8. SUPPLEMENTAL CASH FLOW INFORMATION
For the year ended December 31, 1997 total interest and income taxes paid
were $200,457 and $29,000, respectively.
During 1997, the Company purchased $72,500 of equipment which was financed.
9. EMPLOYEE BENEFIT PLAN
The Company has a defined contribution 401(k) pension plan which covers
substantially all employees. The Company matches 100% up to the first five
percent of the employees contribution. Company contributions to the plan were
$33,980 for the year ended December 31, 1997.
10. SUBSEQUENT EVENT
On January 27, 1998, under the terms of the stock purchase agreement, United
purchased all of the issued and outstanding capital stock of the Company.
F-266
<PAGE>
INDEPENDENT AUDITOR'S REPORT
MERCER Equipment Company:
We have audited the accompanying balance sheets of MERCER Equipment Company
as of December 31, 1996 and October 24, 1997 and the related statements of
income and retained earnings and of cash flows for each of the two years in
the period ended December 31, 1996, and for the period from January 1, 1997 to
October 24, 1997. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of MERCER Equipment Company
as of December 31, 1996, and October 24, 1997 and the results of its
operations and its cash flows for each of the two years in the period ended
December 31, 1996 and for the period from January 1, 1997 to October 24, 1997
in conformity with generally accepted accounting principles.
/s/ Webster, Duke & Co. PA
Charlotte, North Carolina
January 21, 1998
F-267
<PAGE>
MERCER EQUIPMENT COMPANY
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, OCTOBER 24,
------------ -----------
1996 1997
------------ -----------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash................................................ $ 276,639 $ 85,384
Accounts receivable (less allowance for doubtful
accounts: 1996-$182,425, 1997-$254,073)............ 1,819,581 2,398,926
Inventory (Notes 2, 5 and 8)........................ 2,417,425 2,299,512
Miscellaneous receivables........................... 16,604 29,508
Prepaid expenses.................................... -- 17,965
----------- -----------
Total current assets.............................. 4,530,249 4,831,295
----------- -----------
RENTAL EQUIPMENT (Notes 2, 5, 8, 9, 10 and 15):
Rental equipment.................................... 14,030,584 15,392,093
Less accumulated depreciation....................... 3,717,218 4,322,744
----------- -----------
Rental equipment, net............................. 10,313,366 11,069,349
----------- -----------
OTHER PROPERTY (Notes 2, 8 and 11):
Other property...................................... 1,003,079 1,091,365
Less accumulated depreciation....................... 395,658 498,962
----------- -----------
Other property, net............................... 607,421 592,403
----------- -----------
OTHER ASSETS (Note 13):
Deposits and other assets........................... 68,639 42,889
Notes receivable-officers........................... 69,980 67,453
----------- -----------
Total other assets................................ 138,619 110,342
----------- -----------
TOTAL............................................. $15,589,655 $16,603,389
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Line of credit (Note 4)............................. -- --
Note payable-Bank (Note 4).......................... $ 494,245 $ 5,017,953
Short-term equipment notes (Note 5)................. 189,528 3,619,830
Notes payable-individuals (Notes 6 and 13).......... 609,000 142,000
Current portion of long-term debt................... 2,253,562 56,411
Current portion of capital leases................... 167,445 86,597
Accounts payable.................................... 2,161,340 3,174,282
Accrued expenses.................................... 140,361 254,444
----------- -----------
Total current liabilities......................... 6,015,481 12,351,517
----------- -----------
LONG-TERM DEBT (Non-current Portion):
Revolving credit note (Note 7)...................... 2,430,000 --
Notes payable to bank (Note 8)...................... 1,513,000 --
Notes payable on rental equipment (Note 9).......... 2,195,238 --
Capital leases on rental equipment (Note 10)........ 119,183 176,047
Notes payable on other property..................... 138,543 82,208
----------- -----------
Total long-term debt.............................. 6,395,964 258,255
----------- -----------
STOCKHOLDERS' EQUITY:
Common stock (Notes 2 and 12)....................... 500,001 500,001
Retained earnings (Note 8).......................... 2,678,209 3,493,616
----------- -----------
Total stockholders' equity........................ 3,178,210 3,993,617
----------- -----------
TOTAL............................................. $15,589,655 $16,603,389
=========== ===========
</TABLE>
See notes to financial statements.
F-268
<PAGE>
MERCER EQUIPMENT COMPANY
STATEMENTS OF INCOME AND RETAINED EARNINGS
<TABLE>
<CAPTION>
PERIOD FROM
JANUARY 1,
YEAR ENDED DECEMBER 31, 1997 TO
------------------------ OCTOBER 24,
1995 1996 1997
----------- ----------- -----------
<S> <C> <C> <C>
REVENUE:
Sales of new equipment................. $ 2,479,358 $ 3,415,523 $3,709,356
Sales of supplies and parts............ 1,558,273 2,067,403 1,831,345
----------- ----------- ----------
Total goods sold..................... 4,037,631 5,482,926 5,540,701
Sales of rental equipment.............. 872,621 1,102,621 1,876,001
Rental revenues........................ 4,950,614 7,380,137 6,891,972
Service department revenues............ 357,039 488,216 764,738
----------- ----------- ----------
Total revenues....................... 10,217,905 14,453,900 15,073,412
----------- ----------- ----------
DIRECT COSTS OF REVENUE:
Cost of goods sold..................... 3,171,168 4,469,790 4,677,328
Cost of rental equipment sold, net..... 530,102 702,254 1,218,507
Rental department expenses (including
depreciation of $1,035,352, $1,492,131
and $1,428,312)....................... 2,226,420 3,589,936 3,728,374
Service department expenses............ 460,382 648,882 706,958
----------- ----------- ----------
Total direct costs of revenue........ 6,388,072 9,410,862 10,331,167
----------- ----------- ----------
GROSS MARGIN............................. 3,829,833 5,043,038 4,742,245
----------- ----------- ----------
OPERATING EXPENSES:
Sales expenses......................... 752,722 1,386,812 1,345,705
Administrative and general expenses.... 1,930,124 2,247,556 2,014,205
----------- ----------- ----------
Total operating expenses............. 2,682,846 3,634,368 3,359,910
----------- ----------- ----------
MARGIN FROM OPERATIONS................... 1,146,987 1,408,670 1,382,335
----------- ----------- ----------
OTHER INCOME (EXPENSE):
Miscellaneous income................... 78,258 110,340 147,362
Interest expense....................... (486,976) (813,339) (686,512)
----------- ----------- ----------
Total other income (expense)......... (408,718) (702,999) (539,150)
----------- ----------- ----------
NET INCOME............................... 738,269 705,671 843,185
BEGINNING RETAINED EARNINGS.............. 1,450,936 2,045,871 2,678,209
----------- ----------- ----------
Total................................ 2,189,205 2,751,542 3,521,394
LESS DIVIDENDS PAID...................... 143,334 73,333 27,778
----------- ----------- ----------
ENDING RETAINED EARNINGS................. $ 2,045,871 $ 2,678,209 $3,493,616
=========== =========== ==========
</TABLE>
See notes to financial statements.
F-269
<PAGE>
MERCER EQUIPMENT COMPANY
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM
JANUARY 1,
YEAR ENDED DECEMBER 31, 1997 TO
------------------------ OCTOBER 24,
1995 1996 1997
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income............................. $ 738,269 $ 705,671 $ 843,185
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation and amortization........ 1,117,783 1,610,918 1,542,966
Cost of rental equipment sold, net... 530,102 702,254 1,218,507
Cost of other property sold, net..... 14,800
Changes in assets and liabilities:
Accounts receivable, net........... (418,132) (398,900) (579,345)
Inventory.......................... (900,532) (325,339) 117,913
Miscellaneous receivables.......... (5,437) (4,065) (12,904)
Prepaid expenses................... (17,965)
Other assets....................... (16,000) (24,239) 14,400
Accounts payable................... 651,668 558,903 944,210
Accrued expenses................... 29,098 24,329 114,083
----------- ----------- ----------
Net cash provided by operating
activities...................... 1,726,819 2,864,332 4,185,050
----------- ----------- ----------
CASH FLOWS (TO) INVESTING ACTIVITIES:
Purchase of rental equipment........... (2,466,039) (2,001,083) (1,601,703)
Purchase of other property............. (131,695) (171,319) (81,117)
Increase in other asset................ (1,650)
----------- ----------- ----------
Net cash (to) investing
activities...................... (2,599,384) (2,172,402) (1,682,820)
----------- ----------- ----------
CASH FLOWS FROM (TO) FINANCING
ACTIVITIES:
Repayments of notes receivable--
officers.............................. 2,264 3,019 2,527
Repayments by stockholders............. 220,602
Loans to stockholders.................. (247,729)
Repayments under line of credit........ (125,000) (8,792)
Borrowings under line of credit........ --
Repayments of short-term equipment
notes................................. (130,301) (618,854) (597,500)
Repayments of notes payable--
individuals........................... (52,500) (491,000)
Repayments of long term debt........... (1,051,070) (1,950,688) (1,794,942)
Repayments of capital leases........... (22,009) (150,279)
Net borrowings under note payable--
bank.................................. 465,200 29,045 --
Borrowings under revolving credit
note.................................. 1,000,000 1,700,000 200,000
Proceeds from bank loans............... 1,120,588
Proceeds from notes payable
individuals........................... 305,000 23,000 24,000
Dividends paid......................... (143,334 ) (73,333) (27,778)
----------- ----------- ----------
Net cash from (to) financing
activities...................... 1,173,609 (869,988) (2,693,485)
----------- ----------- ----------
NET INCREASE (DECREASE) IN CASH.......... 301,044 (178,058) (191,255)
BEGINNING CASH BALANCE................... 153,653 454,697 276,639
----------- ----------- ----------
ENDING CASH BALANCE...................... $ 454,697 $ 276,639 $ 85,384
=========== =========== ==========
</TABLE>
See notes to financial statements
F-270
<PAGE>
MERCER EQUIPMENT COMPANY
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1996 AND OCTOBER 24, 1997
1. ORGANIZATION AND BUSINESS
Organization--MERCER Equipment Company (MERCER) is a North Carolina
corporation. For income tax purposes, it has elected treatment under
Subchapter S of the Internal Revenue Code of 1986.
Business--MERCER sells, rents, and repairs construction equipment, primarily
to contractors, industry, utilities, and municipalities. MERCER operates two
branches in the Charlotte, North Carolina area and one branch in Greensboro,
North Carolina.
2. ACCOUNTING PRINCIPLES
Basis of Accounting--MERCER prepares its financial statements on the accrual
basis of accounting.
Use of Estimates--The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reported period. Actual results could differ from those estimates.
Inventory--Inventory consists of new equipment and merchandise for resale
and of parts for resale or repair of equipment.
MERCER records inventory using the last-in, first-out (LIFO) cost
assumptions. MERCER maintains separate LIFO pools for new equipment,
merchandise, and parts; and uses government indices to determine the cost of
LIFO layers.
At December 31, 1996 and October 24, 1997, the difference between LIFO and
first-in, first-out cost was $310,346 and $347,936 respectively.
Rental Equipment--MERCER records rental equipment at cost and depreciates
that cost using the straight-line method over 60 months (50 months for rental
equipment purchased after December 31, 1995). MERCER estimates the salvage
value on rental equipment to be 28% (50% for rental equipment purchased after
December 31, 1995). (See Note 15).
Other Property--MERCER records other property at cost and depreciates that
cost using the straight-line method over lives of 5 or 7 years.
Notes Receivable--Officers--At December 31, 1996, and October 24, 1997 the
notes receivable from officers are due in monthly payments of $600, including
principal and interest, for 15 years. At December 31, 1995, the notes
receivable from officers were due in quarterly installments of $1,264,
including principal and interest, for 14 years.
Common Stock--MERCER has two classes of common stock: Class A common stock
which has voting rights and Class B common stock which has no voting rights.
The preferences, limitations, and relative rights of classes are the same
except the nonvoting stock has no voting rights other than in those cases in
which nonvoting stock is expressly granted voting rights under North Carolina
law.
F-271
<PAGE>
MERCER EQUIPMENT COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
At December 31, 1996 and October 24, 1997, the number of shares authorized
and outstanding of each class of stock was as follows:
<TABLE>
<CAPTION>
AUTHORIZED OUTSTANDING
---------- -----------
<S> <C> <C>
Class A, voting....................................... 25,000 16,667
Class B, nonvoting.................................... 175,000 150,000
</TABLE>
Rental Revenue--MERCER generally rents equipment under short-term agreements
of one month or less and accounts for these agreements as operating leases.
Lease Expense--MERCER leases its facilities and certain delivery vehicles
under leases classified as operating leases. MERCER leases certain rental
equipment and new equipment inventory under leases classified as capital
leases.
Income Taxes--MERCER has elected taxation under Subchapter S of the Internal
Revenue Code of 1986 and its stockholders report the taxable income or loss of
the company on their individual income tax returns. For income tax purposes,
MERCER generally uses accelerated depreciation methods (without salvage value)
and deducts bad debts as they are written off.
Statement of Cash Flows--MERCER considers all instruments with a maturity of
three months or less to be cash equivalents. MERCER paid interest expense and
purchase various assets through incurrence of notes payable as follows:
<TABLE>
<CAPTION>
PERIOD FROM
JANUARY 1,
YEAR ENDED DECEMBER 1997 TO
31 OCTOBER 24,
1995 1996 1997
---------- ---------- -----------
<S> <C> <C> <C>
Interest paid................................ $ 464,090 $ 807,169 $ 683,596
Debt incurred to purchase:
Inventory.................................. 357,306 88,509
Rental equipment........................... 2,300,291 2,530,234 1,801,029
Fixed assets............................... 142,174 163,756 7,169
</TABLE>
3. PURCHASE OF BUSINESS
On September 29, 1995, MERCER acquired the branch retail operations of
Builders Equipment & Tool Co., Inc. (BETCO) in a transaction accounted for as
a purchase. The accompanying financial statements include the results of the
Greensboro operation from that date. MERCER purchased substantially all of the
resale and rental inventory and the fixed assets at the branch. The purchase
price was $600,000. There were no intangible assets purchased nor are there
any contingent payments or commitments.
4. NOTE PAYABLE--BANK
At December 31, 1996, MERCER had a note payable to a bank that is due May
31, 1997. The note provides for monthly payment of interest at the bank's
prime rate plus 1/2%. The original amount of the note was $500,000.
In connection with the purchase of MERCER's common stock (see Note 16),
substantially all of the outstanding debt at October 24, 1997 was paid off.
5. SHORT-TERM EQUIPMENT NOTES
MERCER has purchased rental equipment and inventory with short-term (less
than 12 months) notes payable with a nominal interest charge. At December 31,
1996, rental equipment and inventory with a cost of $434,972 and $135,522,
respectively, is pledged as collateral.
F-272
<PAGE>
MERCER EQUIPMENT COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
In connection with the purchase of MERCERs common stock (see Note 16),
substantially all of the outstanding debt at October 24, 1997 was paid off.
6. NOTES PAYABLE--INDIVIDUALS
Notes payable--individuals provide for quarterly interest payments at the
Wall Street prime rate plus one percent and allows MERCER to delay payment of
principal for up to one year and a day after request. At December 31, 1996 and
October 24, 1997, $178,000 and $ -- , respectively, of this amount was due
stockholders.
7. REVOLVING CREDIT NOTES
MERCER has a $3,000,000 revolving credit note with a bank. At December 31,
1996 MERCER had termed the revolver's outstanding balance and will repay the
principal over 36 months beginning in June 1997. The repayment provides for
monthly payment of $45,000 principal plus interest at the bank's prime rate
plus 1/4%. At December 31, 1995 and during 1996, only interest payments were
due on the note (see Note 9 for collateral).
In connection with the purchase of MERCERs common stock (see Note 16),
substantially all of the outstanding debt at October 24, 1997 was paid off.
8. NOTES PAYABLE TO BANK
MERCER's note payable to bank consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
1996
------------
<S> <C>
Bank note--8.25%, principal of $49,750 plus interest paid
monthly through November 1998; balance of $635,750 due December
1998........................................................... $1,780,000
Bank note--interest at prime plus 1/2%, principal of $10,000
plus interest paid monthly through August 1998; $250,000 due
September 30, 1998............................................. 450,000
----------
Total........................................................... 2,230,000
Less current portion............................................ 717,000
----------
Noncurrent portion.............................................. $1,513,000
==========
</TABLE>
All accounts receivable and inventory and rental equipment, unless otherwise
encumbered, are given as security for the notes payable to bank.
The loan agreement with the bank provides for maintenance of certain
absolute and ratio amounts relating to working capital, net worth, cash flow
coverage, and debt/equity and limits amounts that can be paid in dividends. At
December 31, 1996, MERCER had obtained a waiver on the cash flow coverage
ratio.
In connection with the purchase of MERCERs common stock (see Note 16),
substantially all of the outstanding debt at October 24, 1997 was paid off.
9. NOTES PAYABLE ON RENTAL EQUIPMENT
MERCER finances purchases of rental equipment and inventory through various
arrangements with vendors, their related finance entities, and other lenders.
These notes provide for monthly payments of either a fixed principal plus
interest or a level payment of principal and interest.
These note have terms of 36 to 60 months and generally provide for
accelerated repayment if the underlying equipment is sold. At December 31,
1995 and 1996, the weighted interest rates were 10.1%, and 8.6%, respectively.
F-273
<PAGE>
MERCER EQUIPMENT COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
At December 31, 1996, $480,801 of floor plan notes, which have not yet begun
to require payments of principal or interest, are included in notes payable on
rental equipment. The financial statements assume their conversion upon
expiration of the floor plan period.
At December 31, 1996, rental equipment and inventory of $4,637,033 and
$88,509, respectively, were collateral for all of the above notes.
In connection with the purchase of MERCER's common stock (see Note 16),
substantially all of the outstanding debt at October 24, 1997 was paid off.
10. CAPITAL LEASES
MERCER leases certain rental equipment under leases accounted for as capital
leases. The following is an analysis of the leased property:
<TABLE>
<CAPTION>
DECEMBER 31, OCTOBER 24,
------------ -----------
1996 1997
------------ -----------
<S> <C> <C>
Rental equipment.................................... $408,081 $386,153
Less accumulated amortization....................... 78,561 138,706
-------- --------
Net............................................... $329,520 $247,447
======== ========
</TABLE>
The following is a schedule by years of future lease payments under capital
leases together with the present value of the net minimum lease payments as of
October 24, 1997:
<TABLE>
<S> <C>
Year ended December 31, 1997....................................... $106,795
1998............................................................. 98,730
1999............................................................. 74,158
2000............................................................. 23,177
--------
Net minimum lease payments......................................... 302,860
Less amount representing interest.................................. 40,216
--------
Present value of net minimum lease payments........................ 262,644
Less current portion............................................... 86,597
--------
Long-term portion.................................................. $176,047
========
</TABLE>
11. NOTES PAYABLE ON OTHER PROPERTY
The notes payable on other property provide for monthly payment of principal
and interest at rates from 9.0% to 10.8%. At December 31, 1996 and October 24,
1997, related assets with a cost of $287,430 and $232,599 are collateral for
the notes.
The annual amounts of principal due for the next five years is as follows:
1997--$56,411; 1998--$50,318; 1999--$25,082; and 2000--$6,808.
12. COMMITMENTS AND CONTINGENCIES
As of December 31, 1996 and October 24, 1997, MERCER's cash balance had
$100,000 of FDIC insurance and is at one bank.
F-274
<PAGE>
MERCER EQUIPMENT COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
As of October 24, 1997, MERCER leased all of its facilities from a limited
liability company (LLC) whose members own 72% of MERCER's outstanding stock.
The leases provided for initial terms of five to seven years; two of the
leases provide for annual cost of living increases and have renewal options of
five years. MERCER is also responsible for the property taxes, insurance, and
repairs (see Note 13). In connection with the sale of MERCER's common stock
(see Note 16), the leases were rewritten to provide for an initial term of ten
years with two five-year options. The leases provide for minimum rentals of
$28,000 per month, after five years, minimum rents will be adjusted for
changes in the Consumer Price Index. MERCER has also guaranteed debt of
approximately $2,000,000 that the LLC has borrowed against the buildings.
MERCER had a stock repurchase agreement with two stockholders, each owning
30,000 shares of the outstanding Class B common stock. Among other provisions,
the stock repurchase agreement allows MERCER first refusal on a sale of such
shares at no less than the book value per share of the stock. At December 31,
1996 the minimum purchase price under this plan was $1,121,950. MERCER had a
salary continuation agreement with the same two stockholders. MERCER has
agreed to pay these stockholders' beneficiaries an amount equal to twice the
prior year's wages. This amount is payable over 24 months, and at December 31,
1996, the potential obligation under the salary continuation plan was
$672,672. In connection with the Purchase of MERCER's common stock both of
these agreements were canceled. (See Note 16)
13. RELATED PARTIES
At December 31, 1996 and October 24, 1997, other assets includes rental
deposits of $42,889 and $42,889, respectively, with the LLC described in Note
12. For the years ended December 31, 1995 and 1996 and for the period from
January 1, 1997 to October 24, 1997, MERCER paid building rentals to the LLC
of $149,500, $278,000 and $273,000, respectively.
For the years ended December 31, 1995 and 1996 and for period from January
1, 1997 to October 24, 1997, MERCER paid interest of $17,808, $15,672 and
$14,576, respectively to stockholders on the notes payable--individuals.
14. PROFIT-SHARING PLAN
MERCER has adopted a profit-sharing plan that covers substantially all
employees and provides for discretionary employer and voluntary employee
contributions. For the years ended December 31, 1995, and 1996, and for the
period from January 1, 1997 to October 24, 1997, no profit-sharing
contribution was made. For the years ended December 31, 1995, and 1996, and
for the period from January 1, 1997 to October 24, 1997, MERCER made matching
payments of $21,969, $14,777, and $24,287, respectively under Section 401(k)
of the Internal Revenue Code of 1986.
15. CHANGE IN ACCOUNTING ESTIMATE
In 1996 MERCER changed the depreciable life and estimated salvage value of
its rental equipment purchased after December 31, 1995 from 60 months to 50
months and from 28% to 50%. The effect of these changes in estimated life and
salvage value was to decrease depreciation on rental equipment by $58,859.
16. SUBSEQUENT EVENT
On October 24, 1997, United Rentals, Inc. purchased all of MERCER's issued
and outstanding common stock.
F-275
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
A&A Tool Rentals & Sales, Inc.:
We have audited the accompanying consolidated balance sheets of A&A Tool
Rentals & Sales, Inc. and subsidiary as of October 31, 1996 and October 19,
1997 and the related consolidated statements of operations, stockholders'
equity, and cash flows for the years ended October 31, 1995 and 1996, and the
period from November 1, 1996 to October 19, 1997. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of A&A Tool
Rentals & Sales, Inc. and subsidiary as of October 31, 1996 and October 19,
1997 and the results of their operations and their cash flows for the years
ended October 31, 1995 and 1996, and the period from November 1, 1996 to
October 19, 1997, in conformity with generally accepted accounting principles.
/s/ KPMG Peat Marwick LLP
Sacramento, California
November 20, 1997
F-276
<PAGE>
A & A TOOL RENTALS & SALES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
OCTOBER 31, OCTOBER 19, JULY 31,
1996 1997 1997
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Cash....................................... $ 308,331 $ 108,327 $ 187,082
Trade accounts receivable, less allowance
for doubtful accounts of $80,000 at
October 31, 1996 and at October 19, 1997,
and $94,608 at July 31, 1997
(notes 2 and 3)........................... 1,416,142 1,415,775 1,324,684
Merchandise inventory...................... 847,035 862,200 906,969
Rental equipment, primarily machinery, at
cost, net of accumulated depreciation and
amortization of $5,909,751 at October 31,
1996, $6,822,441 at October 19, 1997, and
$6,727,264 at July 31, 1997
(notes 2 and 3)........................... 3,190,093 2,780,854 3,133,863
Operating property and equipment, net of
accumulated depreciation and amortization
of $912,230 at October 31, 1996, $955,007
at October 19, 1997, and $975,498 at July
31, 1997 (notes 2 and 3).................. 384,759 281,593 306,415
Due from related party (note 5)............ 228,737 332,613 316,364
Prepaid expenses and other assets.......... 234,976 303,553 152,251
---------- ---------- ----------
Total assets........................... $6,610,073 $6,084,915 $6,327,628
========== ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Short-term debt (note 2)................... $ 90,400 $ 449,670 $ 484,700
Accounts payable........................... 766,465 1,040,494 703,583
Accrued liabilities........................ 244,938 203,709 221,763
Income tax payable......................... 6,019 12,262 2,992
Long-term debt and capital lease
obligations (note 3)...................... 4,351,394 3,463,807 3,868,069
---------- ---------- ----------
Total liabilities...................... 5,459,216 5,169,942 5,281,107
---------- ---------- ----------
Commitments (notes 6 and 9)................
Stockholders' equity:
Common stock, Class A--voting par value
$.10. Authorized 2,000,000 shares;
issued and outstanding 720,000 shares... 72,000 72,000 72,000
Common stock, Class B--nonvoting.
Authorized 5,000,000 shares; issued and
outstanding 277,172 shares at October
31, 1996, 272,491 shares at October 19,
1997, and 275,242 shares at July 31,
1997.................................... 395,201 378,714 393,058
Retained earnings........................ 683,656 464,259 581,463
---------- ---------- ----------
Total stockholders' equity............. 1,150,857 914,973 1,046,521
---------- ---------- ----------
Total liabilities and stockholders'
equity................................ $6,610,073 $6,084,915 $6,327,628
========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-277
<PAGE>
A & A TOOL RENTALS & SALES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD FROM
NOVEMBER 1, NINE MONTHS
YEAR ENDED OCTOBER 31, 1996 TO ENDED JULY 31,
----------------------- OCTOBER 19, ----------------------
1995 1996 1997 1996 1997
----------- ---------- ----------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Equipment rentals..... $ 4,800,767 $5,918,148 $6,022,196 $4,165,881 $4,501,537
New equipment sales... 4,283,294 4,463,117 4,355,965 3,310,409 3,228,472
Sales of parts,
supplies and
rental equipment..... 848,193 1,027,943 778,141 824,910 657,572
Other................. 237,205 296,926 290,140 198,144 215,542
----------- ---------- ---------- ---------- ----------
Total revenues.......... 10,169,459 11,706,134 11,446,442 8,499,344 8,603,123
----------- ---------- ---------- ---------- ----------
Costs of Revenues:
Cost of equipment
rentals, excluding
equipment rental
depreciation and
amortization......... 2,049,172 2,542,965 2,583,884 1,976,183 2,097,280
Depreciation and amor-
tization, equipment
rentals.............. 1,040,233 1,382,048 1,465,586 902,347 1,193,986
Cost of new equipment
sales................ 4,054,467 4,304,301 4,148,874 3,234,457 3,016,957
Cost of sales of
parts, supplies, and
equipment............ 598,545 622,956 595,424 330,714 296,725
Other................. 38,358 32,582 31,339 24,337 33,115
----------- ---------- ---------- ---------- ----------
Total costs of
revenues............... 7,780,775 8,884,852 8,825,107 6,468,038 6,638,063
----------- ---------- ---------- ---------- ----------
Gross Profit............ 2,388,684 2,821,282 2,621,335 2,031,306 1,965,060
Selling, general and
administration....... 2,063,730 2,215,936 2,178,383 1,614,263 1,696,104
Non-rental
depreciation and
amortization......... 107,390 120,757 124,648 88,896 95,171
----------- ---------- ---------- ---------- ----------
Operating income
(loss)................. 217,564 484,589 318,304 328,147 173,785
Other income
(expense)............ 50,090 116,539 80,080 61,119 105,777
----------- ---------- ---------- ---------- ----------
Income before interest
and taxes.............. 267,654 601,128 398,384 389,266 279,562
----------- ---------- ---------- ---------- ----------
Interest income....... 56,053 54,993 39,967 51,898 34,590
Interest expense...... (324,957) (401,204) (642,478) (264,613) (410,345)
----------- ---------- ---------- ---------- ----------
Net interest
expense............ (268,904) (346,211) (602,511) (212,715) (375,755)
----------- ---------- ---------- ---------- ----------
Income (loss) before
income taxes........... (1,250) 254,917 (204,127) 176,551 (96,193)
Income tax expense
(note 4)............. (1,600) (7,619) (15,270) (1,600) (6,000)
----------- ---------- ---------- ---------- ----------
Income (loss) from
continuing operations.. (2,850) 247,298 (219,397) 174,951 (102,193)
Loss from operation of
discontinued
subsidiary (note 1).. (55,929) -- -- -- --
Loss from disposal of
discontinued
subsidiary (note 1).. -- (44,269) -- (16,318) --
----------- ---------- ---------- ---------- ----------
Net income (loss)....... $ (58,779) $ 203,029 $ (219,397) $ 158,633 $ (102,193)
=========== ========== ========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-278
<PAGE>
A & A TOOL RENTALS & SALES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON COMMON
STOCK STOCK
CLASS A CLASS B
--------------- ----------------- RETAINED
SHARES AMOUNT SHARES AMOUNT EARNINGS TOTAL
------- ------- ------- -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balances at October 31,
1994................... 720,000 $72,000 363,433 $487,609 $539,406 $1,099,015
Purchase Class B common
stock from ESOP........ -- -- (27,847) (29,796) -- (29,796)
Net loss................ -- -- -- -- (58,779) (58,779)
------- ------- ------- -------- -------- ----------
Balances at October 31,
1995................... 720,000 72,000 335,586 457,813 480,627 1,010,440
Purchase Class B common
stock from ESOP........ -- -- (58,414) (62,612) -- (62,612)
Net income.............. -- -- -- -- 203,029 203,029
------- ------- ------- -------- -------- ----------
Balances at October 31,
1996................... 720,000 72,000 277,172 395,201 683,656 1,150,857
Purchase Class B common
stock from ESOP........ -- -- (4,681) (16,487) -- (16,487)
Net loss................ -- -- -- -- (219,397) (219,397)
------- ------- ------- -------- -------- ----------
Balances at October 19,
1997................... 720,000 $72,000 272,491 $378,714 $464,259 $ 914,973
======= ======= ======= ======== ======== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-279
<PAGE>
A & A TOOL RENTALS & SALES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM
YEAR ENDED OCTOBER 31, NOVEMBER 1, 1996 NINE MONTHS ENDED JULY 31,
----------------------- TO OCTOBER 19, ----------------------------
1995 1996 1997 1996 1997
---------- ----------- ---------------- ----------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM
OPERATING ACTIVITIES:
Net income (loss)...... $ (58,779) $ 203,029 $ (219,397) $ 158,633 $ (102,193)
Adjustments to
reconcile net income
(loss) to net cash
provided by operating
activities:
Depreciation and
amortization.......... 1,147,623 1,502,805 1,590,234 991,243 1,289,157
Provision for bad
debts................. 71,600 96,216 73,894 52,515 59,985
Provision for write-
down of inventory..... 31,709 -- 35,403 -- 35,403
Gain on sale of equip-
ment.................. (213,049) (364,504) (220,017) (196,325) (167,944)
Changes in operating
assets:
(Increase) decrease
in trade accounts
receivable........... (282,115) (151,882) (73,527) (190,069) 31,473
(Increase) decrease
in related party
receivables.......... (54,741) 748 (103,876) (30,385) (87,627)
(Increase) decrease
in merchandise
inventory............ 38,955 (96,479) (50,568) (348,187) (95,337)
(Increase) decrease
in prepaid expenses
and other assets..... (29,102) 10,934 (174,821) (42,445) (50,309)
Increase (decrease)
in accounts payable,
trade................ 18,196 61,005 274,029 114,982 (62,882)
Increase (decrease)
in accrued liabili-
ties................. 52,801 9,680 (41,229) (39,228) (23,175)
Decrease in deferred
revenue.............. (4,440) -- -- -- --
Increase (decrease)
in income tax pay-
able................. -- 6,019 6,243 -- (3,027)
---------- ----------- ---------- ----------- ----------
Net cash provided by
operating
activities.......... 718,658 1,277,571 1,096,368 470,734 823,524
---------- ----------- ---------- ----------- ----------
CASH FLOWS FROM
INVESTING ACTIVITIES:
Proceeds from the sale
of rental equipment
and operating property
and equipment......... 277,390 469,489 348,374 245,232 213,013
Purchases of rental
equipment and
operating property
and equipment......... (1,620,011) (2,689,358) (1,206,186) (2,042,083) (1,199,652)
Proceeds from sale of
marketable securi-
ties.................. 4,954 2,514 -- 2,514 --
---------- ----------- ---------- ----------- ----------
Net cash used in
investing
activities.......... (1,337,667) (2,217,355) (857,812) (1,794,337) (986,639)
---------- ----------- ---------- ----------- ----------
CASH FLOWS FROM
FINANCING ACTIVITIES:
Borrowings on long-term
debt.................. 788,967 3,062,482 855,435 3,224,342 828,345
Payments on long-term
debt.................. (574,595) (1,121,435) (1,743,022) (572,655) (1,311,670)
Net borrowings (pay-
ments) on short-term
debt.................. 513,771 (901,881) 359,270 (1,553,999) 394,300
Premiums paid for offi-
cers' life insurance.. (60,042) (64,743) (93,756) (50,799) (66,966)
Drawings on cash
surrender value of
officers' life
insurance............. -- -- 200,000 -- 200,000
Purchase of Class B
common stock.......... (29,796) (62,612) (16,487) (59,590) (2,143)
---------- ----------- ---------- ----------- ----------
Net cash provided by
(used in) financing
activities.......... 638,305 911,811 (438,560) 987,299 41,866
---------- ----------- ---------- ----------- ----------
Net increase (de-
crease) in cash..... 19,296 (27,973) (200,004) (336,304) (121,249)
Cash at beginning of
period................. 317,008 336,304 308,331 336,304 308,331
---------- ----------- ---------- ----------- ----------
Cash at end of period... $ 363,304 $ 308,331 $ 108,327 $ -- $ 187,082
========== =========== ========== =========== ==========
SUPPLEMENTAL SCHEDULE OF
CASH FLOW INFORMATION:
Cash paid during the
period for:
Interest............... $ 324,957 $ 401,204 $ 516,307 $ 264,613 $ 410,345
========== =========== ========== =========== ==========
Income taxes........... $ 1,600 $ 1,600 $ 4,606 $ 1,600 $ 10,627
========== =========== ========== =========== ==========
NONCASH INVESTING AND
FINANCING ACTIVITIES:
Sale of property and
equipment for
promissory note....... $ 10,000 $ -- $ -- $ -- $ --
========== =========== ========== =========== ==========
Conversion of short-
term debt to long-term
debt.................. $ -- $ 686,963 $ -- $ -- $ --
========== =========== ========== =========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-280
<PAGE>
A & A TOOL RENTALS & SALES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 1995 AND 1996 AND PERIOD FROM NOVEMBER 1, 1996 TO OCTOBER 19, 1997
(THE INFORMATION AS OF JULY 31, 1997 AND FOR THE NINE MONTHS ENDED JULY 31,
1997 AND 1996 IS UNAUDITED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Organization and Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
the Company and its wholly owned subsidiary Operations Management Systems,
Inc. (OMS). The Company rents and sells construction and industrial supplies
and power equipment in Northern California. OMS marketed and sold computer
hardware and software to construction related businesses. All significant
intercompany accounts and transactions were eliminated in consolidation. The
nature of the Company's business is such that short-term obligations are
typically met by cash flow generated from long-term assets. Consequently,
consistent with industry practice, the accompanying consolidated balance
sheets are presented on an unclassified basis.
As of October 31, 1995, the Company decided to discontinue the operations of
its subsidiary, OMS. Certain assets of OMS were sold as of October 31, 1995.
The Company disposed of the remaining assets and liabilities of OMS, which
included cash, accounts receivable, inventory, property and equipment,
accounts payable and accrued liabilities, during fiscal year 1996. The Company
recognized a loss on disposal of the remaining assets. The loss from the
disposal of OMS assets was $44,269 for the year ended October 31, 1996 and
$16,318 for the nine months ended July 31, 1996. The loss from operations of
OMS was $55,929 for the year ending October 31, 1995.
(b) Interim Financial Statements
The accompanying consolidated balance sheet at July 31, 1997 and the
consolidated statements of operations and cash flows for the nine month
periods ended July 31, 1996 and 1997 are unaudited and have been prepared on
the same basis as the audited consolidated financial statements included
herein. In the opinion of management, such unaudited consolidated financial
statements include all adjustments necessary to present fairly the information
set forth therein, which consist solely of normal recurring adjustments. The
results of operations for such interim periods are not necessarily indicative
of results for the full year.
(c) Merchandise Inventory
Merchandise inventory is stated at the lower of cost or market. Cost is
determined using the weighted-average method.
(d) Revenue Recognition
Revenue related to the sale of construction and industrial supplies and
power equipment is recognized at the point of sale. Revenue related to the
rental of construction and industrial power equipment is recognized at the
time of return for rentals of twenty-eight days or less, and ratably over the
contract term for rentals in excess of twenty-eight days.
(e) Property and Equipment
Property and equipment are stated at cost and consist of rental equipment
and operating property and equipment. Property and equipment under capital
leases are stated at the present value of minimum lease payments.
Depreciation on property and equipment is calculated using an accelerated
method.
F-281
<PAGE>
A & A TOOL RENTALS & SALES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Depreciation for property and equipment is taken over the asset's useful
life of 5 years, except for leasehold improvements which are amortized over 10
to 20 years.
(f) Other Assets
Other assets consist primarily of the cash surrender value of officers' life
insurance net of loans against the cash surrender value of the policies and
unbilled rental revenue. The loans outstanding were $410,000 at October 31,
1996, and $610,000 at October 19, 1997 and July 31, 1997. The Company is named
beneficiary under the life insurance policy. Unbilled rental revenue
represents the revenue recognized on contracts over twenty-eight days, but not
billed. At October 19, 1997 unbilled rental revenue was $180,178.
(g) Income Taxes
The Company accounts for income taxes using the asset and liability method
under which deferred tax assets and liabilities are recognized for the future
tax consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax
rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled. Under the asset
and liability method, the effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.
(h) Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
(i) Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of
The Company adopted the provisions of SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of,
on November 1, 1996. This Statement requires that long-lived assets and
certain identifiable intangibles be reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future net cash flows
expected to be generated by the asset. If such assets are considered to be
impaired, the impairment to be recognized is measured by the amount by which
the carrying amount of the assets exceed the fair value of the assets. Assets
to be disposed of are reported at the lower of the carrying amount or fair
value less costs to sell. Adoption of this statement did not have a material
impact on the Company's financial position, results of operations, or
liquidity.
(j) Reclassifications
Certain amounts in the 1995 and 1996 consolidated financial statements have
been reclassified to conform to the 1997 consolidated financial statement
presentation.
(2) SHORT-TERM DEBT
As of October 31, 1996, the Company had borrowed $90,400, on a credit
facility that allows the Company to borrow up to $500,000 at the bank's prime
rate (8.25% at October 31, 1996) plus 2%. Borrowings under this facility are
collateralized by trade accounts receivable.
F-282
<PAGE>
A & A TOOL RENTALS & SALES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
In 1997, the Company had borrowed on a credit facility that allows the
Company to borrow up to $500,000 at the bank's prime rate (8.5% at October 19,
1997 and July 31, 1997) plus 2%. At October 19, 1997 and July 31, 1997, the
amounts outstanding were $449,670 and $484,700, respectively.
(3) LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS
Long-term debt and capital lease obligations consist of the following:
<TABLE>
<CAPTION>
OCTOBER 31, OCTOBER 19, JULY 31,
1996 1997 1997
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
CURRENT PAYOR AND TERMS
Union Safe Deposit Bank--Various notes
with combined monthly payments of
$54,592 including interest at prime
plus 2%, due from 1996 through 1999.
Collateralized by equipment and
accounts receivable................... $1,382,482 $ 851,741 $ 989,334
American Equipment Leasing--Various
leases with combined monthly payments
of $24,149 including interest ranging
from 11.5% to 12%, due from 1997
through 1998. Collateralized by
equipment............................. 510,567 377,619 381,122
Atlas Copco, Inc.--Various notes with a
combined monthly payment of $22,212
including interest ranging from 8.5%
to 12.36%, due from 1996 through 1998.
Collateralized by equipment........... 352,446 257,875 323,727
Clark Equipment Credit Co.--Various
notes with a combined monthly payment
of $3,546 including interest ranging
from 8.7% to 12.39%, due from 1996
through 1999. Collateralized by
equipment............................. 105,889 39,083 45,433
Ingersoll-Rand--One note with a monthly
payment of $3,254 including interest
at 9.75%, due in 1999. Collateralized
by equipment.......................... 91,121 52,069 61,832
Prospect Leasing--Two leases with a
combined monthly payment of $1,798
including interest at 10%, due in
1998. Collateralized by equipment..... 36,364 18,712 24,106
Miller Electric Finance--Two notes with
a combined monthly payment of $3,964
including interest ranging from 10.25%
to 11.3%, due in 1999. Collateralized
by equipment.......................... 72,746 89,813 101,704
The Associates--Various notes and
leases with a combined monthly payment
of $35,365 including interest ranging
from 9% to 13.5%, due from 1996
through 2000. Collateralized by
equipment............................. 924,064 1,002,327 1,175,627
JI Case Credit Corporation--Three notes
with combined monthly payments of
$14,428 including interest ranging
from 6.9% to 8.2%, due from 1997
through 2000. Collateralized by
equipment............................. 515,184 349,235 346,540
John Deere--One note with a monthly
payment of $885 including interest at
8.75%, due in 1998. Collateralized by
equipment............................. 14,159 3,540 6,195
</TABLE>
F-283
<PAGE>
A & A TOOL RENTALS & SALES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
OCTOBER 31, OCTOBER 19, JULY 31,
1996 1997 1997
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
CURRENT PAYOR AND TERMS--(CONTINUED)
Caterpillar Financial Services--Various
notes with a combined monthly payment
of $12,279 including interest ranging
from 9.4% to 11.3%, due from 1998
through 2001. Collateralized by
equipment.............................. 546,420 458,438 493,833
Colonial Pacific Leasing--One note with
a monthly payment of $1,323 including
interest at 10%, due in 1997.
Collateralized by equipment............ 5,293 -- --
Newcourt Financial--Two notes with a
combined monthly payment of $4,207
including interest ranging from 10% to
11%, due in 1998 and 2001.
Collateralized by equipment............ 196,194 148,508 158,329
Other................................... 80,773 62,181 105,030
---------- ---------- ----------
Total long-term debt.................... 4,833,702 3,711,141 4,212,812
Less amounts representing interest...... 482,308 247,334 344,743
---------- ---------- ----------
Long-term debt, net of interest......... $4,351,394 $3,463,807 $3,868,069
========== ========== ==========
</TABLE>
Subsequent to October 19, 1997, all amounts outstanding under the long-term
debt agreements and capital lease agreements were paid except for $18,546 which
is scheduled for payment in fiscal year 1998.
(4) INCOME TAXES
Income tax expense consists of the following:
<TABLE>
<CAPTION>
PERIOD FROM
YEAR ENDED NOVEMBER 1, NINE MONTHS
OCTOBER 31, 1996 TO ENDED JULY 31,
------------- OCTOBER 19, ---------------
1995 1996 1997 1996 1997
------ ------ ----------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Current............................ $1,600 $7,619 $15,270 $ 1,600 $ 6,000
Deferred........................... -- -- -- -- --
------ ------ ------- ------- -------
$1,600 $7,619 $15,270 $ 1,600 $ 6,000
====== ====== ======= ======= =======
</TABLE>
F-284
<PAGE>
A & A TOOL RENTALS & SALES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Deferred tax assets and deferred tax liabilities are comprised of the
following:
<TABLE>
<CAPTION>
OCTOBER 31, OCTOBER 19, JULY 31,
1996 1997 1997
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Current deferred tax assets:
Allowance for bad debts.............. $ 34,600 $ 34,600 $ 41,000
Inventory reserve.................... -- 6,600 --
Noncurrent deferred tax assets:
Depreciation and amortization
expense............................. 12,000 14,000 11,300
Net operating loss................... 188,300 236,800 198,800
Alternative minimum taxes............ 25,500 39,000 29,900
--------- --------- ---------
Total deferred tax assets............ 260,400 331,000 281,000
Less: Valuation allowance............ (260,400) (331,000) (281,000)
--------- --------- ---------
Total deferred tax assets............ -- -- --
Total deferred tax liabilities....... -- -- --
--------- --------- ---------
Net deferred tax asset/liability... $ -- $ -- $ --
========= ========= =========
</TABLE>
The effective rate for income tax expense differs from the statutory tax
rate of 34% when applied to income (loss) from continuing operations before
income taxes as a result of the following:
<TABLE>
<CAPTION>
OCTOBER
31,
----------- OCTOBER 19, JULY 31,
1995 1996 1997 1997
---- ---- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Expected U.S. Federal income tax....... (34%) 34% (34%) (34%)
State franchise tax, net............... 128% 1% -- 2%
Net operating loss carryforward........ -- (34%) -- --
Effect of valuation allowance.......... 34% -- 34% 34%
Alternative minimum tax................ -- 2% 7% 4%
--- --- --- ---
Total.............................. 128% 3% 7% 6%
=== === === ===
</TABLE>
The net change in the total valuation allowance for the year ended October
31, 1995 and 1996 and the period from November 1, 1996 to October 19, 1997 was
an increase of $8,000, a decrease of $100,600 and an increase of $70,600,
respectively.
(5) RELATED PARTY TRANSACTIONS
Building
The Company leased its Stockton, California premises from officers and
stockholders of the Company. The Company executed a new five year lease on
June 1, 1993 with monthly rent of $21,500. On October 20, 1997, this lease was
amended for an additional five years with monthly rent of $17,000. In
addition, the Company as lessee is to pay all taxes and insurance relating to
the property. At October 19, 1997, the remaining commitment under this lease,
as amended, is $1,020,000 plus property taxes and insurance.
F-285
<PAGE>
A & A TOOL RENTALS & SALES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Due From Related Party
Due from related party comprise the following:
<TABLE>
<CAPTION>
OCTOBER 31, OCTOBER 19, JULY 31,
1996 1997 1997
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
President and shareholder................ $228,737 $317,613 $316,364
Vice president and shareholder........... -- 15,000 --
-------- -------- --------
$228,737 $332,613 $316,364
======== ======== ========
</TABLE>
The amounts due from related parties were paid subsequent to October 19,
1997.
(6) OPERATING LEASES
The Company leases vehicles from various unrelated companies through 1999.
The vehicle leases, as well as the lease for the Company's business premises,
are classified as operating leases. At October 19, 1997, future minimum lease
payments under the operating leases including amounts amended as discussed in
note (5) are:
<TABLE>
<CAPTION>
YEAR ENDING OCTOBER 31
----------------------
<S> <C>
1998............................................................ $ 442,636
1999............................................................ 305,036
2000............................................................ 204,000
2001............................................................ 204,000
2002............................................................ 204,000
----------
$1,359,672
==========
</TABLE>
Operating lease expense aggregated $520,210, $533,619 and $501,473 in 1995,
1996 and for the period from November 1, 1996 to October 19, 1997,
respectively, and $167,032 and $359,378 for the nine months ended July 31,
1996 and 1997, respectively.
(7) EMPLOYEE STOCK OWNERSHIP PLAN
Effective October 31, 1972, the Company established an Employee Stock
Ownership Plan (ESOP) for the benefit of its eligible employees. The ESOP is
designed to invest primarily in the stock of the Company. Contributions to the
ESOP are determined annually by the Board of Directors, however, in no case
may the contribution exceed the lesser of (a) fifteen percent (15%) of the
compensation of eligible employees, or (b) $30,000 for each participant. No
contributions were made in the years ended October 31, 1995 and 1996 or the
period from November 1, 1996 to October 19, 1997.
The ESOP measures compensation for Plan purposes as the Company's
contribution to the Plan. No compensation cost was recognized by the Plan for
the years ended October 31, 1995 and 1996, or the period from November 1, 1996
to October 19, 1997.
The ESOP held 277,172, 272,491 and 275,242 allocated shares at October 31,
1996, October 19, 1997, and July 31, 1997, respectively. No committed-to-be-
released or suspense shares were held by the ESOP at October 31, 1996, October
19, 1997, or at July 31, 1997.
Following termination of employment, participants receive a distribution of
their vested ESOP account balance in the form of cash or Company shares in
accordance with the provisions of the ESOP. If shares are distributed to the
participant, the participant has the right to sell the shares back to the
Company, for a limited period of time, at the fair market value of the shares.
F-286
<PAGE>
A & A TOOL RENTALS & SALES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(8) PROFIT SHARING PLAN
In August 1995, the Company established a Profit Sharing/401(k) Savings Plan
(Plan) under Section 401 and 501 of the Internal Revenue Code. Substantially
all employees are eligible for the Plan. Yearly employer contributions to the
Plan are discretionary. Employees may also elect to contribute to the Plan.
For the years ended October 31, 1995 and 1996, and the period from November 1,
1996 to October 19, 1997, the Company contributed, $8,245, $27,422, and
$27,064, respectively to the Plan and $19,780 and $19,779 for the nine months
ended July 31, 1996 and 1997.
(9) COMMITMENTS
Litigation, contingent liabilities, and claims, all arising in the ordinary
course of business, are not expected to involve any amounts that could be
material to the Company's financial position or results of operations.
(10) SUBSEQUENT EVENT
On October 17, 1997, the Company entered into a stock purchase agreement
with United Rentals, Inc. (United). The transaction closed on October 20, 1997
and under the terms of the stock purchase agreement, United purchased all of
the issued and outstanding common stock of the Company.
F-287
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Stockholders
J & J Rental Services, Inc.
We have audited the balance sheets of the predecessor companies to J & J
Rental Services, Inc. (see Note 1) as of December 31, 1996 and for J&J Rental
Services, Inc. as of October 22, 1997 and the related statements of income,
stockholders' equity and partners' capital and cash flows for each of the two
years in the period ended December 31, 1996, the six months ended June 30,
1997 and for the period from July 1, 1997 to October 22, 1997. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of the predecessor companies
to J & J Rental Services, Inc. at December 31, 1996, and for J&J Rental
Services, Inc. as of October 22, 1997 and the results of their operations and
their cash flows for each of the two years in the period ended December 31,
1996, the six months ended June 30, 1997 and for the period from July 1, 1997
to October 22, 1997 in conformity with generally accepted accounting
principles.
/s/ Ernst & Young LLP
MetroPark, New Jersey
January 23, 1998
F-288
<PAGE>
J & J RENTAL SERVICES, INC.
BALANCE SHEETS
(NOTE 1)
<TABLE>
<CAPTION>
PREDECESSORS COMPANY
------------ -----------
DECEMBER 31, OCTOBER 22,
1996 1997
------------ -----------
<S> <C> <C>
ASSETS
Cash................................................. $ 666,153 $ 1,431,287
Accounts receivable, net of allowance for doubtful
accounts of $428,270, and $226,273 at 1996 and 1997,
respectively........................................ 1,502,119 1,470,608
Trade notes receivable, net of allowance for doubtful
accounts of $93,337 at 1996......................... 37,081
Rental equipment, net................................ 6,669,365 7,961,850
Property and equipment, net.......................... 467,460 319,219
Investments in marketable equity securities.......... 81,175
Due from Predecessor Stockholder..................... 120,000
Due from Related Party............................... 354,388
Prepaid expenses and other assets.................... 126,221 4,006
Intangible assets, net............................... 3,270,614
---------- -----------
Total assets................................... $9,669,574 $14,811,972
========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY AND PARTNERS'
CAPITAL
Liabilities:
Accounts payable................................... $ 628,252 $ 936,725
Accrued expenses................................... 336,884 360,990
Income tax payable................................. 24,814
Deferred tax liability............................. 430,000
Debt............................................... 5,766,651 14,078,932
Due to Predecessor Stockholder..................... 336,498
---------- -----------
Total liabilities.............................. 7,523,099 15,376,647
Commitments and contingencies
Stockholders' equity and partners' capital:
Stockholder's equity--J & J Equipment, Inc.
Common stock, $1.00 par value, 50,000 shares
authorized, issued and outstanding.............. 50,000
Unrealized gain on marketable equity securities.. 1,165
Retained earnings................................ 981,955
----------
1,033,120
Partners' capital--Tri-Star Rentals, Ltd........... 1,113,355
----------
Stockholders' equity--J & J Rental Services, Inc.
Common stock, no par value, 1,000,000 shares
authorized, 77,500 shares issued and
outstanding..................................... 1,000
Accumulated deficit.............................. (565,675)
-----------
Total stockholders' equity (deficit) and partners'
capital............................................. 2,146,475 (564,675)
---------- -----------
Total liabilities and stockholders' equity and
partners' capital............................... $9,669,574 $14,811,972
========== ===========
</TABLE>
See accompanying notes.
F-289
<PAGE>
J & J RENTAL SERVICES, INC.
STATEMENTS OF INCOME
(NOTE 1)
<TABLE>
<CAPTION>
PREDECESSORS COMPANY
------------------------------------------ ---------------
THE PERIOD FROM
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JULY 1, TO
------------------------ JUNE 30, OCTOBER 22,
1995 1996 1997 1997
----------- ----------- ---------------- ---------------
<S> <C> <C> <C> <C>
Revenues:
Equipment rentals................................................. $7,573,784 $7,769,716 $3,823,790 $2,544,233
Sales of equipment and parts...................................... 1,810,400 1,243,297 573,450 129,963
----------- ----------- ---------- ----------
Total revenues.................................................. 9,384,184 9,013,013 4,397,240 2,674,196
Cost of revenues:
Cost of revenues, excluding depreciation.......................... 3,906,336 3,544,040 1,629,299 1,363,085
Depreciation, equipment rentals................................... 2,048,619 2,389,929 1,171,685 359,672
Cost of revenues of equipment and parts........................... 898,190 452,522 326,847 46,653
----------- ----------- ---------- ----------
Total cost of revenues.......................................... 6,853,145 6,386,491 3,127,831 1,769,410
----------- ----------- ---------- ----------
Gross profit........................................................ 2,531,039 2,626,522 1,269,409 904,786
Selling, general and administrative expenses........................ 1,840,973 1,521,562 713,488 786,907
Non-rental depreciation............................................. 125,004 123,971 78,643 7,629
----------- ----------- ---------- ----------
Operating income................................................ 565,062 980,989 477,278 110,250
Interest expense.................................................... 411,731 478,341 180,769 378,231
Other (income), net................................................. (45,103) (27,523) (11,418) (26,306)
----------- ----------- ---------- ----------
Income (loss) before provision for income taxes................. 198,434 530,171 307,927 (241,675)
Provision for income taxes.......................................... 35,678 49,685 98,000 --
----------- ----------- ---------- ----------
Net income (loss)............................................... $ 162,756 $ 480,486 $ 209,927 $ (241,675)
=========== =========== ========== ==========
</TABLE>
See accompanying notes.
F-290
<PAGE>
J & J RENTAL SERVICES, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY AND PARTNERS' CAPITAL
(NOTE 1)
<TABLE>
<CAPTION>
UNREALIZED
(LOSS) GAIN ON
COMMON STOCK MARKETABLE RETAINED PARTNERS'
SHARES AMOUNT SECURITIES EARNINGS CAPITAL
------ ------- -------------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Predecessors:
Balance at January 1,
1995.................. 50,000 $50,000 $(6,500) $ 796,096 $ 927,272
Net income............. 75,762 86,994
Distributions paid to
partners.............. (169,741)
Unrealized gain on
marketable
securities............ 9,250
------ ------- ------- ---------- ----------
Balance at December 31,
1995.................. 50,000 50,000 2,750 871,858 844,525
Net income............. 110,097 370,389
Distributions paid to
partners.............. (101,559)
Unrealized loss on
marketable
securities............ (1,585)
------ ------- ------- ---------- ----------
Balance at December 31,
1996.................. 50,000 50,000 1,165 981,955 1,113,355
Net income (loss) from
January 1, 1997 to
June 30, 1997......... 311,262 (101,335)
Distributions paid to
partners.............. (50,500)
------ ------- ------- ---------- ----------
Balance at June 30,
1997.................. 50,000 $50,000 $ 1,165 $1,293,217 $ 961,520
====== ======= ======= ========== ==========
Company:
Issuance of common
stock................. 77,500 $ 1,000
Net loss from July 1,
1997 to October 22,
1997.................. $ (241,675)
Basis adjustment....... (324,000)
------ ------- ------- ---------- ----------
Balance at October 22,
1997.................. 77,500 $ 1,000 $ (565,675)
====== ======= ======= ========== ==========
</TABLE>
See accompanying notes.
F-291
<PAGE>
J & J RENTAL SERVICES, INC.
STATEMENTS OF CASH FLOWS
(NOTE 1)
<TABLE>
<CAPTION>
PREDECESSORS COMPANY
------------------------------------- -----------
THE PERIOD
SIX MONTHS FROM JULY 1
YEAR ENDED DECEMBER 31, ENDED TO
------------------------ JUNE 30, OCTOBER 22,
1995 1996 1997 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)....................................................... $ 162,756 $ 480,486 $ 209,927 $ (241,675)
Adjustments to reconcile net income to net cash provided by (used in)
operating activities:
Depreciation and amortization........................................... 2,173,623 2,513,900 1,250,328 396,823
Bad debt expense (recovery)............................................. 128,092 (57,621) 7,214 226,273
Gain on sale of rental equipment........................................ (396,704) (369,379) (210,390) (43,878)
Gain on sale of property and equipment.................................. (2,809) (6,591) -- --
Deferred taxes.......................................................... 23,000 12,000 -- --
Changes in assets and liabilities:
Increase in accounts receivable........................................ (64,895) (10,430) (512,942) (1,696,881)
(Increase) decrease in trade notes receivable.......................... (170,337) 39,859 37,081 --
Increase in prepaid expenses and other assets.......................... (31,561) (84,918) (26,028) (4,006)
Increase (decrease) in accounts payable................................ 46,476 (41,052) 372,230 936,725
Increase in accrued expenses........................................... 53,632 1,919 123,765 360,990
Increase in income tax payable......................................... 7,613 17,201 73,186 --
Increase in Related Party receivable................................... (354,388)
----------- ----------- ----------- -----------
Cash provided by (used in) operating activities....................... 1,928,886 2,495,374 1,324,371 (420,017)
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of property and equipment................................... (270,369) (195,823) (614,414) (548,346)
Proceeds from sale of rental equipment.................................. 930,860 755,122 1,227,501 232,148
Proceeds from sale of property and equipment............................ 24,634 74,585 -- --
Purchase of other company, net of cash acquired......................... (7,238,924)
Unrealized gain/(loss) on marketable securities......................... 9,250 (1,585) -- --
Purchase of marketable securities....................................... (9,250) (28,425) -- --
Payments on loans to Predecessor Stockholder............................ (21,573) (73,724) (79,254) --
Proceeds received on Predecessor Stockholder loans...................... 94,857 -- 6,884 --
Loan to Predecessor Stockholder......................................... (120,000) -- -- --
----------- ----------- ----------- -----------
Cash provided by (used in) investing activities....................... 638,409 530,150 540,717 (7,555,122)
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowing under credit facilities....................................... 871,496 351,958 -- 10,000,000
Principal payments on debt.............................................. (3,117,926) (3,171,213) (1,920,472) (593,574)
Distributions paid...................................................... (169,741) (101,559) (50,500) --
----------- ----------- ----------- -----------
Cash provided by (used in) financing activities....................... (2,416,171) (2,920,814) (1,970,972) 9,406,426
----------- ----------- ----------- -----------
Increase (decrease) in cash ............................................. 151,124 104,710 (105,884) 1,431,287
Cash at beginning of year................................................ 410,319 561,443 666,153 --
----------- ----------- ----------- -----------
Cash at end of year................................................... $ 561,443 $ 666,153 $ 560,269 $ 1,431,287
=========== =========== =========== ===========
</TABLE>
See accompanying notes.
F-292
<PAGE>
J & J RENTAL SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1996
AND OCTOBER 22, 1997
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
J & J Rental Services, Inc. (the "Company") was formed in May 1997, and
pursuant to the terms of an Asset Purchase Agreement (the "Agreement"), on
June 30, 1997 acquired all of the rental equipment and property and equipment
from J & J Equipment, Inc. ("J & J"), and Tri-Star Rentals, Ltd. ("Tri-Star")
(collectively, the "Predecessors") and assumed all operations of the
Predecessors (the "Acquisition"). The purchase price of $10,700,000 consisted
of cash of $7,200,000 and a promissory note payable for $3,500,000. The sole
stockholder and partner of J & J and Tri-Star, respectively, (the "Predecessor
Stockholder") has, on a fully-diluted basis, a 9% ownership interest in the
outstanding common stock of the Company, and has continued in a management
role as chief operating officer.
The accompanying financial statements as of December 31, 1996 and for the
years ended December 31, 1995 and 1996, and for the six month period ended
June 30, 1997 present the accounts and results of operations of the
Predecessors on a combined, historical cost basis. Although the financial
statements of the Predecessors have been combined, the balance sheets and
statements of income and cash flows do not represent those of a single legal
entity. All significant intercompany accounts and transactions have been
eliminated in combination.
The financial statements as of October 22, 1997 and for the period from July
1 to October 22, 1997 present the accounts and results of operations of the
Company since the Acquisition.
The Acquisition has been accounted for as a purchase effective July 1, 1997
and, accordingly, at such date the Company recorded the assets acquired at
their estimated fair values, adjusted for the impact of the Predecessor
Stockholder's continuing residual interest as described below. The assets
acquired have been reduced by $324,000 representing the Predecessor
Stockholder's continuing residual interest in the Company with a corresponding
charge against the Company's retained earnings.
The adjusted purchase price and the preliminary allocation of the adjusted
purchase price to the historical assets of the Company as of July 1, 1997 are
as follows:
<TABLE>
<S> <C>
Purchase price................................................. $10,739,000
Adjustment necessary to value Predecessor Stockholder's
continuing residual interest at Predecessor's basis........... 324,000
-----------
Adjusted purchase price........................................ $10,415,000
===========
Allocation of adjusted purchase price:
Net assets acquired, at fair values.......................... $ 7,115,000
Covenant not to compete...................................... 50,000
Goodwill..................................................... 3,250,000
-----------
Total adjusted purchase price allocation................... $10,415,000
===========
</TABLE>
Business Activity
The Company rents and sells light weight and heavy off-road construction
equipment for use by construction and maintenance companies, and has ancillary
sales of parts and supplies. The rentals are on a daily, weekly or monthly
basis. The Company has two locations in Houston, Texas and its
F-293
<PAGE>
J & J RENTAL SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
principal market area is the state of Texas. The nature of the Company's
business is such that short-term obligations are typically met by cash flow
generated from long-term assets. Consequently, consistent with industry
practice, the balance sheets are presented on an unclassified basis.
Rental Equipment
Rental equipment is recorded at cost. Depreciation for rental equipment is
computed using the straight-line method over estimated useful lives of three
to five years through June 30, 1997 and two to ten years subsequent to June
30, 1997 with no salvage value. Rental equipment costing less than $500 is
immediately expensed at the date of purchase. Equipment rental revenue is
recorded as earned under the operating method. Equipment rental revenue in the
statements of operations includes revenues earned on equipment rentals, and
related fuel sales and rental equipment delivery fees. Proceeds from the
disposal and the related net book value of the equipment are recognized in the
period of disposal and reported as revenue from rental equipment sales in the
statements of operations. Ordinary maintenance and repair costs are charged to
operations as incurred.
Property and Equipment
Property and equipment is stated at cost. Depreciation of property and
equipment is computed on the straight-line method over estimated useful lives
of 5 to 10 years.
The cost of assets sold, retired, or otherwise disposed of, and the related
accumulated depreciation is eliminated from the accounts and any resulting
gain or loss is included in operations. Ordinary maintenance and repair costs
are charged to operations as incurred.
Advertising Costs
The Company advertises primarily through trade journals, phone directories
and the distribution of promotional items. All advertising costs are expensed
as incurred. Advertising expenses amounted to approximately $40,095 and
$52,483 in the years ended December 31, 1995 and 1996, respectively, $1,297 in
the six months ended June 30, 1997, and $9,433 from July 1 to October 22,
1997.
Income Taxes
J & J applied an asset and liability approach to accounting for income
taxes. Deferred income tax assets and liabilities arise from differences
between the tax basis of an asset or liability and its reported amount in the
financial statements. Deferred tax balances are determined by using tax rates
expected to be in effect when the taxes will actually be paid or refunds
received. Under federal and state income tax law, Tri-Star, a partnership, is
not a taxable entity and, therefore, incurs no income tax liability. Any
profits and losses of Tri-Star flow through to the individual partners.
Investments
The Company's investments consist of marketable equity securities and are
classified as available for sale. Any unrealized gains or losses are excluded
from income and are presented as a component of stockholders' equity.
Intangible assets
Intangible assets are recorded at cost and consist of goodwill of $3,250,134
and covenant not to compete of $50,000. Goodwill is being amortized by the
straight-line method over its estimated useful life of forty years. The
covenant not to compete reflects an agreement made regarding confidentiality
and restricting competitive activity and is being amortized by the straight-
line method over the period of the agreement, which is 5 years. Amortization
expense was $29,520 for the period from July 1 to October 22, 1997.
F-294
<PAGE>
J & J RENTAL SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Accounting Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
2. CONCENTRATIONS OF CREDIT RISK
The Company maintains cash balances with a quality financial institution
and, accordingly, management believes this mitigates the amount of credit
risk. Concentrations of credit risk with respect to customer receivables are
limited due to the large number of customers comprising the Company's customer
base and its credit policy.
3. RENTAL EQUIPMENT
Rental equipment and related accumulated depreciation consists of the
following:
<TABLE>
<CAPTION>
DECEMBER 31, OCTOBER 22,
1996 1997
------------ -----------
<S> <C> <C>
Rental equipment.................................... $12,520,482 $8,313,840
Less accumulated depreciation....................... 5,851,117 351,990
----------- ----------
Rental equipment, net............................... $ 6,669,365 $7,961,850
=========== ==========
</TABLE>
4. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, OCTOBER 22,
1996 1997
------------ -----------
<S> <C> <C>
Transportation equipment............................ $763,402 $166,003
Furniture, fixtures and office equipment............ 92,082 59,760
Shop equipment...................................... 39,356
Leasehold improvements.............................. 38,386
Construction in progress............................ 101,085
-------- --------
933,226 326,848
Less accumulated depreciation....................... 465,766 7,629
-------- --------
Total............................................... $467,460 $319,219
======== ========
</TABLE>
F-295
<PAGE>
J & J RENTAL SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
5. DEBT
Debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, OCTOBER 22,
1996 1997
------------ -----------
<S> <C> <C>
CIT Group--Various notes dated from September 21,
1995 through August 5, 1997, with annual interest
rates ranging from 8% to 9.4% due in monthly
payments ranging from $867 to $43,987. ............. $1,246,231 $637,956
The Associates--Note dated April 1, 1996, with annual
interest of 8.8% due in monthly payments of
$3,609. ............................................ 110,450
Case Power & Equipment--Various notes dated from
January 1, 1992 through December 30, 1996, with
annual interest rates ranging from 5.5% to 7.9% due
in monthly payments ranging from $408 to $7,747. ... 795,344
Sterling Bank--Various notes dated from January 26,
1994 through December 20, 1996, with annual interest
rates ranging from 8% to 11% due in monthly payments
ranging from $582 to $2,084. ....................... 306,708
KDC Financial--Various notes dated from June 14, 1993
through December 31, 1996, with annual interest
rates ranging from 4.5% to 9.5% due in monthly
payments ranging from $840 to $4,691. .............. 1,443,971
John Deere Financial--Notes dated December 31, 1995
and September 10, 1996, with annual interest rates
of 7.9% and 6.9% due in monthly payments of $807 and
$1,083. ............................................ 69,247
Frost National Bank--Various notes dated from January
25, 1995 through August 15, 1995, with annual
interest rates ranging from 8.75% to 9.5% due in
monthly principal payments ranging from $582 to
$8,492. ............................................ 101,771
Citicorp--Note dated June 15, 1993, with an annual
interest rate of 5.9% due in monthly payments of
$921. .............................................. 5,433
First Prosperity Bank--Various notes dated from
September 8, 1994 through December 13, 1996, with
annual interest ranging from 7.25% through 9.9% due
in monthly payments ranging from $354 to $1,039. ... 55,139
CAT Financial--Notes dated June 2, 1995 and December
31, 1994, with annual interest rates of 9.69% and
9.5% due in monthly payments of $4,227 and
$3,036. ............................................ 152,293
CAT Financial--Notes dated October 11, 1996 and
November 25, 1996, non-interest bearing, with
monthly payments of $1,205 and $3,522. ............. 161,102
Chase/Clark Credit--Various notes dated from March
17, 1994 through September 28, 1994, with annual
interest rates ranging from 9.75% to 12.765% due in
monthly installments ranging from $194 to $1,430. .. 30,232
First Prosperity--Various notes dated from August 16,
1993 through December 13, 1996, with annual interest
rates ranging from 6.4% to 11% due in monthly
installments ranging from $423 to $4,205............ 171,518
Associates Commercial Credit Corp.--Various notes
dated from May 16, 1994 through July 8, 1996, with
annual interest rates ranging from 7.75% to 11.25%
due in monthly installments ranging from $912 to
$6,656.............................................. 246,570
</TABLE>
F-296
<PAGE>
J & J RENTAL SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31, OCTOBER 22,
1996 1997
------------ -----------
<S> <C> <C>
Ingersoll-Rand Company--Various notes dated from June
30, 1992 through September 8, 1996 with annual
interest rates ranging from 7% to 9.5% due in
monthly installments ranging from $301 to $7,794.... 316,003
Wacker Corporation--Various notes dated from January
7, 1994 through May 25, 1996, with annual interest
rates ranging from 6.25% to 10.25% due in monthly
installments ranging from $854 to $2,889............ 99,666
AEL Leasing Co., Inc.--Various notes dated from April
21, 1994 through May 20, 1996, with annual interest
rates ranging from 8.72% to 12.93% due in monthly
installments ranging from $371 to $4,883............ 261,043
AEL Leasing Co., Inc.--Various non-interest bearing
notes dated from April 21, 1994 through February 26,
1996, due in 12 principal installments ranging from
$8,022 to $18,249................................... 36,498
Shandee--Note dated August 31, 1995, with an annual
interest rate of 11.25% due in monthly installments
of $2,803........................................... 21,510
Sterling Bank--Note dated January 2, 1996, with an
annual interest rate of 9.5% due in 24 principal
installments of $4,118.............................. 53,538
Miller Financing--Various notes dated from February
15, 1996 through June 1, 1996, with annual interest
rates ranging from 9.25 % to 10.25% due in monthly
installments ranging from $375 to $2,922............ 82,384
Toyota Motor Credit Corp.--Notes dated July 12 and
August 28, 1997, with annual interest rates of 5.4%
and 6.9%, respectively, due in monthly installments
of $543 and $ 561, respectively..................... 47,460
AEL Leasing Co., Inc.--Note dated October 10, 1997
with annual interest of 9.33% due in monthly
payments of $3,345.................................. 157,807
Case Credit--Various notes dated June 30, 1997 with
an annual interest rate of 7.9% due in monthly
installments ranging from $1,685 to $2,254.......... 290,260
Case Credit--Term note dated June 30, 1997, with
interest due monthly at prime plus .75% (9.25% at
September 30, 1997). Principal is due June 30, 2002.
This note is secured by all of the Company's rental
assets and property, plant and equipment, and is
personally guaranteed by the majority owners of the
Company............................................. 7,445,449
J & J and Tri-Star--Promissory note dated June 30,
1997 with an annual interest rate of 7.5%. Principal
payments of $175,000 are due quarterly beginning
October 1, 2000..................................... 3,500,000
Equus II Incorporated--Senior subordinated note dated
June 30, 1997, with interest to be paid monthly on
the unpaid principal balance at a variable rate not
to exceed 10% (10% at September 30, 1997). Principal
is to be paid in four annual installments of
$500,000 beginning June 30, 2001.................... 2,000,000
---------- -----------
$5,766,651 $14,078,932
========== ===========
</TABLE>
Substantially all rental equipment collateralize the above notes.
F-297
<PAGE>
J & J RENTAL SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
All debt at October 22, 1997, except for $200,000 of the J & J and Tri-Star
note, were paid off by October 31, 1997 as a result of the acquisition
discussed in Note 10.
6. INCOME TAXES
The provision for income taxes relates to the operating results of J & J
before July 1, 1997 and consists of the following:
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS
DECEMBER 31, ENDED JUNE
--------------- 30,
1995 1996 1997
------- ------- ----------
<S> <C> <C> <C>
Current:
Federal............................................ $ 7,216 $32,054 $86,500
State.............................................. 5,462 5,631 11,500
------- ------- -------
12,678 37,685 98,000
Deferred:
Federal............................................ 20,300 10,600 --
State.............................................. 2,700 1,400 --
------- ------- -------
23,000 12,000 --
------- ------- -------
Total............................................ $35,678 $49,685 $98,000
======= ======= =======
</TABLE>
Tri-Star is a pass-through entity and, therefore incurs no tax liability.
Significant components of J & J's deferred tax liability at December 31, 1996
is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1996
------------
<S> <C> <C>
Difference in basis of accounting......................... $221,000
Cumulative tax depreciation in excess of book............. 209,000
--------
Deferred tax liability $430,000
========
</TABLE>
Effective July 1, 1997, the Company and its shareholders have elected to be
taxed under the provisions of Subchapter S of the Internal Revenue Code for
federal tax purposes. Under those provisions the Company does not pay federal
income taxes; instead, the shareholders are liable for individual income taxes
on the Company's profit. Therefore, no provision for federal income taxes is
included in the Company's financial statements for the period from July 1 to
October 22, 1997.
7. SUPPLEMENTAL CASH FLOW INFORMATION
For the years ended December 31, 1995 and 1996; the six months ended June
30, 1997; and the period from July 1 to October 22, 1997, total interest paid
was $411,731 and $478,341; $180,769; and $259,705, respectively.
For the years ended December 31, 1995 and 1996; the six months ended June
30, 1997; and the period from July 1 to October 22, 1997, total income taxes
paid was $ -- and $ --; $24,814; and $ --, respectively.
During the years ended December 31, 1995 and 1996, and the six months ended
June 30, 1997, and for the period from July 1 to October 22, 1997 the Company
purchased $3,738,807, and $3,160,914; $1,172,917; and $1,172,506,
respectively, of equipment which was financed.
F-298
<PAGE>
J & J RENTAL SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
8. EMPLOYEE BENEFIT PLAN
The Predecessor sponsored a defined contribution 401(k) retirement plan,
which was implemented during 1995 and covers substantially all full time
employees. The Predecessor matched a portion of the participants'
contributions. Predecessor contributions to the plan were $9,272, $6,395, $--,
and $ -- for the years ended December 31, 1995, and 1996, for the six month
period ended June 30, 1997 and for the period from July 1 to October 22, 1997,
respectively.
9. RELATED PARTY TRANSACTIONS
On November 27, 1995, Tri-Star loaned $120,000 to the Predecessor
Stockholder. This non-interest bearing note is unsecured, and is due on
demand. The outstanding balance on this note receivable at December 31, 1996
was $120,000.
On November 30, 1995, Tri-Star issued a $100,000 note payable to the
Predecessor Stockholder, which bears interest at 11.4% per annum, requires
monthly principal and interest payments of $6,097, and is unsecured. The
outstanding balance on this note at December 31, 1996 was $79,254.
J & J has a note payable outstanding to the Predecessor Stockholder, which
required interest to be paid quarterly at 6.5% per annum, and is due on
January 1, 1998. The outstanding balance on this note payable at December 31,
1996 was $257,244.
During the period from July 1 to October 22, 1997 the Company made payments
of $354,388 on behalf of another Company owned by the Company's Stockholder.
The Company leases its operating facilities from the Predecessor
Stockholder, and paid monthly rent of $8,600 through June 30, 1997. These
leases are month-to-month and can be canceled by either party.
10. SUBSEQUENT EVENT
On October 23, 1997, the Company entered into a stock purchase agreement
with United Rentals, Inc. ("United"). Under the terms of the stock purchase
agreement, United purchased all of the issued and outstanding capital stock of
the Company.
F-299
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
Coran Enterprises, Inc.
and
Monterey Bay Equipment Rental, Inc.
We have audited the accompanying combined statements of earnings,
stockholders' equity, and cash flows of Coran Enterprises, Inc., dba A-1
Rents, and Monterey Bay Equipment Rental, Inc. for the years ended
December 31, 1995 and 1996. We have also audited the combined statements of
earnings, stockholders' equity, and cash flows for the period from January 1,
1997 through October 24, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the combined results of operations and combined cash
flows of Coran Enterprises, Inc. dba A-1 Rents, and Monterey Bay Equipment
Rental, Inc. for the years ended December 31, 1995 and 1996, and also for the
period from January 1, 1997 through October 24, 1997, in conformity with
generally accepted accounting principles.
/s/ Grant Thornton LLP
San Jose, California
January 21, 1998
F-300
<PAGE>
CORAN ENTERPRISES, INC.
DBA A-1 RENTS AND
MONTEREY BAY EQUIPMENT RENTAL, INC.
COMBINED STATEMENTS OF EARNINGS
<TABLE>
<CAPTION>
PERIOD FROM
JANUARY 1,
1997
YEAR ENDED DECEMBER 31, THROUGH
----------------------- OCTOBER 24,
1995 1996 1997
----------- ----------- -----------
<S> <C> <C> <C>
Revenues:
Equipment rentals........................ $ 6,962,130 $ 7,679,713 $6,743,497
Sales of parts, supplies and rental
equipment............................... 565,586 738,330 974,713
----------- ----------- ----------
Total revenues......................... 7,527,716 8,418,043 7,718,210
Costs:
Cost of equipment rentals................ 3,835,982 4,254,243 3,764,346
Rental equipment depreciation............ 611,577 1,304,847 1,328,193
Cost of sales of supplies................ 200,746 257,500 204,248
Other.................................... 49,523 115,758 53,590
----------- ----------- ----------
Total costs............................ 4,697,828 5,932,348 5,350,377
----------- ----------- ----------
Gross margin........................... 2,829,888 2,485,695 2,367,833
Selling, general and administrative........ 1,786,650 2,062,246 1,768,439
Non-rental depreciation.................... 28,435 17,202 15,370
----------- ----------- ----------
Operating Income....................... 1,014,803 406,247 584,024
Interest expense........................... 21,120 96,464 170,183
----------- ----------- ----------
Earnings before income taxes........... 993,683 309,783 413,841
Provision for income taxes................. 12,275 8,221 276,383
----------- ----------- ----------
Net earnings............................. $ 981,408 $ 301,562 $ 137,458
=========== =========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
F-301
<PAGE>
CORAN ENTERPRISES, INC.
DBA A-1 RENTS AND
MONTEREY BAY EQUIPMENT RENTAL, INC.
COMBINED STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
SHARES ISSUED
-------------
CEI MBERI
------ ------ ADDITIONAL
$1 PAR NO PAR COMMON PAID-IN RETAINED
VALUE VALUE STOCK CAPITAL EARNINGS TOTAL
------ ------ -------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1,
1995..................... 75,000 10,000 $275,000 $37,920 $1,691,541 $2,004,461
Net earnings............ -- -- -- -- 981,408 981,408
------ ------ -------- ------- ---------- ----------
Balance at December 31,
1995..................... 75,000 10,000 275,000 37,920 2,672,949 2,985,869
Net earnings............ -- -- -- -- 301,562 301,562
Dividends paid to
stockholders........... -- -- -- -- (750,000) (750,000)
------ ------ -------- ------- ---------- ----------
Balance at December 31,
1996..................... 75,000 10,000 275,000 37,920 2,224,511 2,537,431
Net earnings January 1,
1997 through October 24,
1997................... -- -- -- -- 137,458 137,458
Dividends paid to
stockholders........... -- -- -- -- (781,852) (781,852)
Stock redemption........ -- (2,500) (50,000) -- (200,000) (250,000)
------ ------ -------- ------- ---------- ----------
Balance at October 24,
1997..................... 75,000 7,500 $225,000 $37,920 $1,380,117 $1,643,037
====== ====== ======== ======= ========== ==========
</TABLE>
The accompanying notes are an integral part of this statement.
F-302
<PAGE>
CORAN ENTERPRISES, INC.
DBA A-1 RENTS AND MONTEREY BAY EQUIPMENT RENTAL, INC.
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD
JANUARY 1,
YEAR ENDED 1997
DECEMBER 31, THROUGH
---------------------- OCTOBER 24,
1995 1996 1997
--------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings............................ $ 981,408 $ 301,562 $ 137,458
Adjustments to reconcile net earnings to
net cash provided by operating activi-
ties:
Depreciation and amortization......... 640,012 1,322,049 1,343,563
Gain on sale of equipment............. (85,747) (163,753) (446,621)
Change in assets and liabilities:
Accounts receivable................. (210,091) 60,246 (61,976)
Other assets........................ 5,220 (3,108) 59,276
Accounts payable and accrued liabil-
ities.............................. 36,638 32,355 625,287
--------- ----------- -----------
Net cash provided by operating ac-
tivities......................... 1,367,440 1,549,351 1,656,987
Cash flows from investing activities:
Purchases of rental equipment........... (633,519) (4,017,946) (315,346)
Proceeds from sale of equipment......... 110,273 205,639 492,977
--------- ----------- -----------
Net cash provided by (used in)
investing activities............. (523,246) (3,812,307) 177,631
Cash flows from financing activities:
Change in bank overdraft................ (15,760) -- --
Borrowings on equipment loans........... 244,235 1,096,820 --
Payments on equipment loans............. (46,853) (158,893) (42,649)
Payment of dividends.................... -- (750,000) (781,853)
Stock redemption........................ -- -- (250,000)
Borrowings on notes payable--stockhold-
ers.................................... -- 1,249,988 --
Payments on notes payable--stockhold-
ers.................................... (95,888) -- (538,156)
--------- ----------- -----------
Net cash provided by (used in)
financing activities............. 85,734 1,437,915 (1,612,658)
--------- ----------- -----------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS............. 929,928 (825,041) 221,960
Cash and cash equivalents--beginning of
period................................... 35,259 965,187 140,146
--------- ----------- -----------
Cash and cash equivalents--end of period.. $ 965,187 $ 140,146 $ 362,106
========= =========== ===========
Supplementary disclosures of cash flow in-
formation:
Cash paid during the period for:
Interest.............................. $ 21,120 $ 95,958 $ 151,792
========= =========== ===========
Income taxes.......................... $ 1,600 $ 23,047 $ 800
========= =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-303
<PAGE>
CORAN ENTERPRISES, INC.
DBA A-1 RENTS ANDMONTEREY BAY EQUIPMENT RENTAL, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995 AND 1996
AND THE PERIOD FROM JANUARY 1, 1997 THROUGH OCTOBER 24, 1997
NOTE A--SUMMARY OF ACCOUNTING POLICIES
1. Nature of Business and Basis of Presentation
The combined financial statements include the accounts of Coran Enterprises,
Inc. and Monterey Bay Equipment Rental, Inc. (collectively the "Company").
Coran Enterprises, Inc. ("CEI") and Monterey Bay Equipment Rental, Inc.
("MBERI") are combined due to common ownership and operations which are
complimentary. All significant intercompany balances and transactions have
been eliminated in combination.
The Company leases equipment for home and contractors' use under short-term
rental agreements principally in the Northern California area.
2. Property and Equipment
The Company provides for depreciation in amounts sufficient to relate the
costs of depreciable assets to operations over their estimated service lives
using the double-declining balance method. Leasehold improvements are
amortized on a straight-line basis over the lives of the improvements or the
term of the lease, whichever is shorter. Maintenance and repairs costs are
expensed as incurred. Supplies and replacement parts are expensed when
purchased.
3. Cash and Cash Equivalents
For purposes of the statement of cash flows, the Company considers all
highly liquid debt instruments purchased with a maturity of three months or
less to be cash equivalents.
4. Use of estimates
In preparing financial statements in conformity with generally accepted
accounting principles, management is required to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the financial
statements, as well as revenues and expenses during the reporting period.
Actual results could differ from those estimates.
NOTE B--RELATED PARTY TRANSACTIONS
The Company leases facilities from its stockholders on a month-to-month
basis. Total rent expense on the facilities was $662,880 and $667,638 for the
years ended December 31, 1995 and 1996. Total rent expense for the period from
January 1, 1997 through October 24, 1997 was $545,702.
The Company incurred interest expense of $17,755 and $27,627, respectively,
for the years ended December 31, 1995 and 1996, related to notes payable to
stockholders. For the period from January 1, 1997 through October 24, 1997 the
interest expense related to the stockholder notes was $80,693.
NOTE C--INCOME TAXES
The stockholders of the Company have elected "S" Corporation status for
income tax purposes. Therefore, income or loss for federal and California
state income tax purposes is reported on the shareholders' individual income
tax returns. Although the "S" Corporation tax treatment is recognized by the
State of California, the net corporate income is subject to a 1.5% corporate
surtax. (See Note E)
F-304
<PAGE>
CORAN ENTERPRISES, INC.
DBA A-1 RENTS AND
MONTEREY BAY EQUIPMENT RENTAL, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED DECEMBER 31, 1995 AND 1996
AND THE PERIOD FROM JANUARY 1, 1997 THROUGH OCTOBER 24, 1997
NOTE D--EQUIPMENT LOANS
Equipment loans consist of notes payable, collateralized by equipment, due
in monthly installments ranging from $1,095 to $5,375 with interest rates from
5.75% to 8.75%. These loans were paid in full as of October 31, 1997. Interest
expense on the equipment loans aggregated $3,365 and $68,837, respectively,
for the years ended December 31, 1995 and 1996. Interest expense on the
equipment loans was $89,455 for the period January 1, 1997 through October 24,
1997.
NOTE E--CHANGE IN OWNERSHIP
Effective October 24, 1997, the stockholders of CEI and MBERI sold 100% of
the outstanding shares of each company to United Rentals, Inc. The Company
provided $270,000 for state income taxes resulting from the stock sale.
F-305
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Stockholders
Bronco Hi-Lift, Inc.
We have audited the balance sheets of Bronco Hi-Lift, Inc. as of December
31, 1996 and October 24, 1997 and the related statements of income,
stockholders' equity and cash flows for the years ended December 31, 1995 and
1996, and the period from January 1, 1997 to October 24, 1997. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Bronco Hi-Lift, Inc. at
December 31, 1996 and October 24, 1997, and the results of its operations and
its cash flows for the years ended December 31, 1995 and 1996, and the period
from January 1, 1997 to October 24, 1997 in conformity with generally accepted
accounting principles.
/s/ Ernst & Young LLP
MetroPark, New Jersey
January 19, 1998
F-306
<PAGE>
BRONCO HI-LIFT, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, OCTOBER
1996 24, 1997
------------ ----------
<S> <C> <C>
ASSETS
Cash................................................... $ 305,506 $ 180,745
Accounts receivable, net............................... 826,849 998,467
Unbilled receivables................................... 40,722 283,865
Inventory.............................................. 67,825 273,119
Rental equipment, net.................................. 1,972,910 2,725,464
Property and equipment, net............................ 234,914 423,918
Due from related party................................. -- --
Prepaid expenses and other assets...................... 13,530 44,273
---------- ----------
Total assets....................................... $3,462,256 $4,929,851
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Accounts payable, accrued expenses and other
liabilities......................................... $ 90,584 $ 277,651
Debt................................................. 3,051,711 3,473,516
---------- ----------
Total liabilities.................................. 3,142,295 3,751,167
Commitments and contingencies
Stockholders' equity:
Common stock, $.01 par value and $1.00 stated value,
100,000 shares authorized, 10,000 issued and
outstanding at December 31, 1996, and October 24,
1997................................................ 10,000 10,000
Additional paid-in capital........................... 598,000 598,000
Notes receivable from stockholders................... (300,000) --
Retained earnings.................................... 11,961 570,684
---------- ----------
Total stockholders' equity......................... 319,961 1,178,684
---------- ----------
Total liabilities and stockholders' equity......... $3,462,256 $4,929,851
========== ==========
</TABLE>
See accompanying notes.
F-307
<PAGE>
BRONCO HI-LIFT, INC.
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
PERIOD
FROM
JANUARY 1,
YEAR ENDED DECEMBER 31 1997 TO
------------------------ OCTOBER
1995 1996 24, 1997
----------- ----------- ----------
<S> <C> <C> <C>
Revenues:
Equipment rentals...................... $ 3,427,596 $ 4,313,855 $4,330,000
New equipment sales.................... 266,308 611,033 533,370
Sales of parts, supplies and rental
equipment............................. 155,331 410,957 375,451
Other.................................. 147,214 194,469 182,355
----------- ----------- ----------
Total revenues....................... 3,996,449 5,530,314 5,421,176
Cost of revenues:
Cost of equipment rentals, excluding
depreciation.......................... 335,028 699,455 374,845
Depreciation, equipment rentals........ 637,766 736,525 660,598
Cost of new equipment sales............ 206,268 479,920 412,592
Cost of sales of parts, supplies and
equipment............................. 107,989 293,987 148,464
Other.................................. 32,418 119,315 112,107
----------- ----------- ----------
Total cost of revenues............... 1,319,469 2,329,202 1,708,606
----------- ----------- ----------
Gross profit............................. 2,676,980 3,201,112 3,712,570
Selling, general and administrative
expenses................................ 2,540,699 2,359,326 2,353,924
Non-rental depreciation.................. 84,463 99,669 85,707
----------- ----------- ----------
Operating income..................... 51,818 742,117 1,272,939
Interest expense......................... 171,305 334,035 229,154
Other (income), net...................... (26,575) (46,175) (29,938)
----------- ----------- ----------
Net income (loss).................... $ (92,912) $ 454,257 $1,073,723
=========== =========== ==========
</TABLE>
See accompanying notes.
F-308
<PAGE>
BRONCO HI-LIFT, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK NOTES RECEIVABLE RETAINED
----------------- PAID-IN FROM EARNINGS
SHARES AMOUNT CAPITAL STOCKHOLDERS (DEFICIT)
------- -------- --------- ---------------- -----------
<S> <C> <C> <C> <C> <C>
Balance at January 1,
1995................... 20,000 $ 20,000 $ 345,020 $ -- $ 693,596
Purchase and
retirement of common
stock................ (12,000) (12,000) (345,020) (1,042,980)
Issuance of common
stock................ 2,000 2,000 598,000 (500,000)
Net loss.............. (92,912)
------- -------- --------- --------- -----------
Balance at December 31,
1995................... 10,000 10,000 598,000 (500,000) (442,296)
Payment on notes
receivable from
stockholders......... 200,000
Net income............ 454,257
------- -------- --------- --------- -----------
Balance at December 31,
1996................... 10,000 10,000 598,000 (300,000) 11,961
Payments on notes
receivable from
stockholders......... 300,000
Net income............ 1,073,723
Dividends paid........ (515,000)
------- -------- --------- --------- -----------
Balance at October 24,
1997................... 10,000 $ 10,000 $ 598,000 $ -- $ 570,684
======= ======== ========= ========= ===========
</TABLE>
See accompanying notes.
F-309
<PAGE>
BRONCO HI-LIFT, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM
JANUARY 1,
YEAR ENDED DECEMBER 31 1997 TO
------------------------ OCTOBER 24,
1995 1996 1997
----------- ------------ -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)..................... $ (92,912) $ 454,257 $ 1,073,723
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation........................ 722,229 836,194 746,305
Gain on equipment sales............. (317,871) (302,777) (355,159)
Interest expense not requiring
cash............................... 17,500
Changes in assets and liabilities:
Increase in accounts receivable... (132,976) (235,655) (171,618)
Decrease (increase) in unbilled
receivables...................... 5,646 27,632 (243,143)
(Increase) decrease in inventory.. (102,542) 89,645 (205,294)
Decrease (increase) in prepaid
expenses and other assets........ 30,774 20,171 (30,743)
(Decrease) increase in accounts
payable, accrued expenses and
other liabilities................ (60,113) (14,377) 187,067
---------- ------------ -----------
Total adjustments............... 145,147 438,333 (72,585)
---------- ------------ -----------
Cash provided by operating
activities..................... 52,235 892,590 1,001,138
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of rental equipment.......... (92,727) (1,368,253) (1,631,309)
Proceeds from sale of rental
equipment............................ 350,739 745,687 573,316
Purchases of property and equipment,
net.................................. (101,985) (90,932) (304,711)
---------- ------------ -----------
Cash provided by (used in)
investing activities........... 156,027 (713,498) (1,362,704)
CASH FLOWS FROM FINANCING ACTIVITIES
Cash dividends paid................... (485,000)
Issuance of stock..................... 100,000
Re-payments on notes due from
stockholders......................... 200,000 300,000
Principal payments on debt............ (742,891) (802,358) (278,195)
Principal payments on capital lease
obligations.......................... (32,711)
Advances to related party............. (412,113)
Borrowings under credit facility...... 900,000 500,000 700,000
---------- ------------ -----------
Cash provided by (used) in
financing activities........... (187,715) (102,358) 236,805
---------- ------------ -----------
Increase (decrease) in cash........... 20,547 76,734 (124,761)
Cash balance at beginning
period......................... 208,225 228,772 305,506
---------- ------------ -----------
Cash balance at end of period... $ 228,772 $ 305,506 $ 180,745
========== ============ ===========
</TABLE>
See accompanying notes.
F-310
<PAGE>
BRONCO HI-LIFT, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1996 AND OCTOBER 24, 1997
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business Activity
Bronco Hi-Lift, Inc. (the "Company") rents, sells and repairs aerial lift
equipment for use by construction companies and maintenance and media crews.
The rentals are on a daily, weekly or monthly basis. The Company is located in
Denver, Colorado and its principal market area is the state of Colorado. The
nature of the Company's business is such that short-term obligations are
typically met by cash flow generated from long-term assets. Consequently,
consistent with industry practice, the balance sheets are presented on an
unclassified basis.
Inventory
Inventories consists primarily of general replacement parts and fuel for the
equipment and are stated at the lower of cost, determined under the first-in,
first-out method, or market.
Rental Equipment
Rental equipment is recorded at cost. Depreciation for rental equipment is
computed using the straight-line method over an estimated five-year useful
life with no salvage value.
Ordinary maintenance and repair costs are charged to operations as incurred.
Proceeds from the disposal and the related net book value of the equipment are
recognized in the period of disposal and reported as revenue from sales of
equipment and cost of sales of equipment, respectively, in the statements of
operations.
Property and Equipment
Property and equipment is stated at cost. Depreciation of property and
equipment is computed on the straight-line method over estimated useful lives
of 5 to 10 years.
Ordinary maintenance and repair costs are charged to operations as incurred.
The cost of assets sold, retired, or otherwise disposed of, and the related
accumulated depreciation is eliminated from the accounts and any resulting
gain or loss is included in operations.
Rental Revenue
Rental revenue is recorded as earned under the operating method.
Advertising Costs
The Company advertises primarily through trade journals, trade associations
and phone directories. All advertising costs are expensed as incurred.
Advertising expenses amounted to approximately $74,400 and $43,000 in the
years ended December 31, 1995 and 1996, respectively, and $49,500 in the
period from January 1, 1997 to October 24, 1997.
Income Taxes
The Company has elected, by unanimous consent of its shareholders, to be
taxed under the provisions of Subchapter S of the Internal Revenue Code for
both federal and state purposes. Under those provisions the Company does not
pay federal or state income taxes; instead, the shareholders are liable for
individual income taxes on the Company's profits. Therefore, no provision for
federal or state income taxes is included in the accompanying financial
statements.
F-311
<PAGE>
BRONCO HI-LIFT, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Accounting Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
2. CONCENTRATIONS OF CREDIT RISK
The Company maintains cash balances with a quality financial institution
and, accordingly, management believes this mitigates the amount of credit
risk. Concentrations of credit risk with respect to customer receivables are
limited due to the large number of customers comprising the Company's customer
base and its credit policy.
3. RENTAL EQUIPMENT
Rental equipment and related accumulated depreciation consisted of the
following:
<TABLE>
<CAPTION>
OCTOBER
DECEMBER 31, 24,
1996 1997
------------ ----------
<S> <C> <C>
Rental equipment.................................... $5,176,658 $5,943,569
Less accumulated depreciation....................... 3,203,748 3,218,105
---------- ----------
Rental equipment, net............................... $1,972,910 $2,725,464
========== ==========
</TABLE>
4. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, OCTOBER 24,
1996 1997
------------ -----------
<S> <C> <C>
Furniture and fixtures.............................. $ 59,572 $172,839
Transportation equipment............................ 520,356 664,543
Shop equipment...................................... 37,591 37,591
-------- --------
617,519 874,973
Less accumulated depreciation....................... 382,605 451,055
-------- --------
Total............................................. $234,914 $423,918
======== ========
</TABLE>
F-312
<PAGE>
BRONCO HI-LIFT, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
5. DEBT
Debt consists of the following:
<TABLE>
<CAPTION>
OCTOBER
DECEMBER 31 24,
1996 1997
----------- ----------
<S> <C> <C>
Citicorp Dealer Finance Agreement.................... $1,585,000 $2,135,000
GMAC note dated October 27, 1994 paid in full in
August 1997......................................... 17,564 --
Kenworth/Trial-EZE dated July 11, 1994 paid in full
in September 1997................................... 49,147 --
Notes payable to a former shareholder for $900,000
and $500,000 at an annual interest rate of 9%. The
$900,000 note requires monthly interest payments
through January 31, 1998 at which time the note is
due in full. The $500,000 note requires monthly
interest payments through January 31, 1997.
Beginning February 1, 1997, the note is payable in
60 monthly installments of principal and interest of
$10,379 through December 31, 2001. The above
$500,000 note is subordinated to the Citicorp Dealer
Finance Agreement................................... 1,400,000 1,338,516
---------- ----------
$3,051,711 $3,473,516
========== ==========
</TABLE>
Substantially all of the Company's assets collateralize the debt outstanding
under the Financing Agreement. All debt at October 24, 1997 was paid off in
connection with the acquisition discussed in Note 10.
6. OPERATING LEASES
During 1994, the Company leased 7,000 square feet of office and shop space
on a twelve month lease, renewable annually. For the period from January 1,
1995 to April 30, 1995, the Company leased approximately 7,000 square feet of
office and shop space under a new month to month lease. Effective May 1, 1995,
the Company moved to a new location and entered into a lease agreement with a
related party, Coyote Investments, LLC ("Coyote") (see Note 9). The facility
consists of 17,000 square feet of office and shop area located on 1.8 acres.
The 15 year lease expires April 30, 2010. The Company is responsible for all
operating expenses of the facility including property taxes, assessments,
insurance, repairs and maintenance.
Rent expense under these leases totaled $52,000 and $78,000 for the years
ended December 31, 1995 and 1996 and $65,000 for the period from January 1,
1997 to October 24, 1997. Under the lease agreement with Coyote, rent is
payable in monthly installments of $6,500 for the first two years of the
lease. Thereafter the rent shall be increased annually to reflect the then
current fair market rent for the premises, provided that each annual increase
shall not exceed 10% of the previous year's rental rate. Future minimum rent
commitments are $78,000 each for years ended December 31, 1998 to December 31,
2009 and $26,000 for January 1, 2010 to April 30, 2010, provided there is no
increase in fair market rent for the premises.
7. COMMITMENTS
The Company has employment agreements, which expire in 1998, with three
officers which grant certain severance pay rights to these officers provided
that certain conditions of employment are met.
F-313
<PAGE>
BRONCO HI-LIFT, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Under terms of the employment agreements, the officers received approximately
$253,000, $703,000, and $521,000 for the years ended December 31, 1995 and
1996 and for the period from January 1, 1997 to October 24, 1997,
respectively. Additional compensation to be paid to the officers, until the
agreements expire, amounts to approximately $100,000 for the two months ended
December 31, 1997 and $270,000 during 1998.
The Company guarantees Coyote's debt on the building leased by the Company
(see Note 9).
8. SUPPLEMENTAL CASH FLOW INFORMATION
For the years ended December 31, 1995 and 1996 and for the period from
January 1, 1997 to October 24, 1997, total interest paid was $171,305,
$335,686 and $224,016, respectively.
During 1995, the Company purchased $726,355, of equipment which was
financed. There were no purchases in 1996 or for the period from January 1,
1997 to October 24, 1997.
On December 20, 1995, the Company purchased and retired 12,000 shares of its
stock for two notes totaling $1,400,000. On December 21, 1995, the Company
issued 2,000 shares of its stock to two officers of the Company in exchange
for $100,000 cash and $500,000 of notes receivable from these officers. During
1996, the officers repaid $200,000 in accordance with the note agreements. In
October of 1997, the notes were repaid in full.
During 1997, the Company paid dividends of $515,000, of which $30,000
represented a non-cash transfer of a fixed asset.
9. RELATED PARTY TRANSACTIONS
Coyote is owned by the shareholders of the Company. The Company leases its
office and shop facility from Coyote (see Note 6). All stockholders and the
Company have guaranteed Coyote's debt on the facility. The amount of debt
principal on the facility was $555,080 at December 31, 1996 and $540,200 at
October 24, 1997.
Advances to Coyote were $412,113 at December 31, 1995. Coyote paid $3,434 of
interest to the Company during 1996. As part of the Citicorp Amendment No. 1
Refinancing Agreement, the Company owed Coyote $152,187, which it paid with
interest of $7,990 during August 1996. These obligations were fulfilled with a
non-cash transaction in connection with the above mentioned amended agreement.
On December 21, 1995 the Company issued 2,000 shares to two officers of the
Company in exchange for $100,000 cash and two notes for $250,000 each. The
notes bear interest at 9% per annum and are payable bi-annually. Principal on
each note is payable $100,000 in 1996, $100,000 in 1997 and $50,000 in 1998.
Interest paid to the Company during 1996 by these stockholders was $42,400. In
October of 1997, the notes were repaid in full.
10. SUBSEQUENT EVENT
On October 24, 1997, the Company entered into a stock purchase agreement
with United Rentals, Inc. ("United"). Under the terms of the stock purchase
agreement, United purchased all of the issued and outstanding capital stock of
the Company.
F-314
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE EXCHANGE OFFER COVERED BY THIS PROSPECTUS. IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NO BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER
TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, THE EXCHANGE NOTES OR
GUARANTEES IN ANY JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL
TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS
NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN
IMPLICATION THAT THERE HAS NOT BEEN ANY CHANGES IN THE FACTS SET FORTH IN THIS
PROSPECTUS OR IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.
-----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information..................................................... 1
Cautionary Notice Regarding Forward Looking Statements.................... 1
Prospectus Summary........................................................ 2
Risk Factors.............................................................. 16
The Exchange Offer........................................................ 24
Registration Rights Agreement............................................. 31
Use of Proceeds........................................................... 34
Capitalization............................................................ 35
Selected Historical and Pro Forma Consolidated Financial Information...... 36
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 38
Business.................................................................. 48
Management................................................................ 56
Certain Transactions...................................................... 62
Principal Stockholders.................................................... 63
Description of the Notes.................................................. 66
Plan of Distribution...................................................... 96
Legal Matters............................................................. 97
Experts................................................................... 97
Index to Financial Statements............................................. F-1
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
$205,000,000
US Rentals
UNITED RENTALS (NORTH AMERICA), INC.
OFFER TO EXCHANGE
8.80% SENIOR SUBORDINATED
NOTES DUE 2008, SERIES B
FOR 8.80% SENIOR SUBORDINATED
NOTES DUE 2008, SERIES A
--------------------------------
PROSPECTUS
--------------------------------
, 1998
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
ITEM 20 INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Certificate of Incorporation (the "Certificate") of the company provides
that a director will not be personally liable to the Company or its
stockholders for monetary damages for breach of fiduciary duty as a director,
except for liability (i) for any breach of the director's duty of loyalty to
the corporation or its stockholders, (ii) for acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law,
(iii) under Section 174 of the Delaware General Corporation Law (the "Delaware
Law"), which concerns unlawful payments of dividends, stock purchases or
redemptions, or (iv) for any transaction from which the director derived an
improper personal benefit. If the Delaware Law is subsequently amended to
permit further limitation of the personal liability of directors, the
liability of a director of the Company will be eliminated or limited to the
fullest extent permitted by the Delaware Law as amended.
The Registrant, as a Delaware corporation, is empowered by Section 145 of
the Delaware Law, subject to the procedures and limitation stated therein, to
indemnify any person against expenses (including attorneys' fees), judgments,
fines and amounts paid in settlement actually and reasonably incurred by him
in connection with any threatened, pending or completed action, suit or
proceeding in which such person is made a party by reason of his being or
having been a director, officer, employee or agent of the Registrant. The
statute provides that indemnification pursuant to its provisions is not
exclusive of other rights of indemnification to which a person may be entitled
under any by-law, agreement, vote of stockholders or disinterested directors,
or otherwise. The Company has entered into indemnification agreements with
certain of its directors and officers. In general, these agreements require
the Company to indemnify each of such persons against expenses, judgments,
fines, settlements and other liabilities incurred in connection with any
proceeding (including a derivative action) to which such person may be made a
party by reason of the fact that such person is or was a director, officer or
employee of the Company or guaranteed any obligations of the Company, provided
that the right of an indemnitee to receive indemnification is subject to the
following limitations: (i) an indemnitee is not entitled to indemnification
unless he acted in good faith and in a manner that he reasonably believed to
be in or not opposed to the best interests of the Company, and, with respect
to any criminal action or proceeding, had no reasonable cause to believe such
conduct was unlawful and (ii) in the case of a derivative action, an
indemnitee is not entitled to indemnification in the event that he is judged
in a final non-appealable decision of a court of competent jurisdiction to be
liable to the Company due to willful misconduct in the performance of his
duties to the Company (unless and only to the extent that the court determines
that the indemnitee is fairly and reasonably entitled to indemnification).
Pursuant to Section 145 of the Delaware Law, the Registrant has purchased
insurance on behalf of its present and former directors and officers against
any liability asserted against or incurred by them in such capacity or arising
out of their status as such. The Registrant has entered into indemnification
agreements with certain members of its management in the form filed as an
exhibit to this registration statement.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S>
2(a) Amended and Restated Agreement and Plan of Merger dated as of August
31, 1998, among United Rentals, Inc., UR Acquisition Corporation and
U.S. Rentals, Inc. (incorporated by reference to Exhibit 2 of the
Registration Statement on Form S-4 filed by United Rentals, Inc.,
Registration No. 333-63171)
3(a) Amended and Restated Certificate of Incorporation of the Registrant,
in effect as of the date hereof (incorporated by reference to exhibit
3.3 of the Registrant's Report on Form 10-Q for the quarter ended June
30, 1998)
3(b) By-laws of the Registrant, in effect as of the date hereof
(incorporated by reference to exhibit 3.4 of the Registrant's Report
on Form 10-Q for the quarter ended June 30, 1998)
</TABLE>
II-1
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S>
4(a) Indenture dated August 12, 1998, among the Registrant, the Guarantors
named therein and State Street Bank and Trust Company, as trustee
(incorporated by reference to Exhibit 10(bb) of the Registration
Statement on Form S-4 filed by United Rentals, Inc., Registration No.
333-63171)
4(b) Notes Registration Rights Agreement dated as of August 12, 1998, among
the Registrant, the subsidiaries of the Registrant named therein, and
Merrill Lynch & Co. (incorporated by reference to Exhibit 10(cc) of
the Registration Statement on Form S-4 filed by United Rentals, Inc.,
Registration No. 333-63171)
5(a)* Opinion of Ehrenreich Eilenberg Krause & Zivian LLP
10(a) Credit Agreement dated as of September 29, 1998, between the
Registrant, various financial institutions, Bank of America Canada, as
Canadian agent, and Bank of America National Trust, as U.S. Agent
(incorporated by reference to Exhibit 10.2 of the Registrant's Report
on Form 10-Q for the quarter ended September 30, 1998)
10(b) 1997 Stock Option Plan (incorporated by reference to the
correspondingly numbered exhibit of the United Rentals, Inc.
Registration Statement on Form S-1, Registration No. 333-39117)
10(c) Form of Warrant Agreement (incorporated by reference to the
correspondingly numbered exhibit of the United Rentals, Inc.
Registration Statement on Form S-1, Registration No. 333-39117)(1)
10(d) Form of Private Placement Purchase Agreement entered into by certain
officers in connection with purchasing shares and warrants from United
Rentals, Inc., together with the form of Amendment No. 1 thereto (the
Private Placement Purchase Agreement is incorporated by reference to
the correspondingly numbered exhibit of the United Rentals, Inc.
Registration Statement on Form S-1, Registration No. 333-39117; and
Amendment No. 1 is incorporated by reference to Exhibit 10.2 to the
United Rentals, Inc. Report on Form 10-Q for the quarterly period
ended March 31, 1998)(2)
10(e) Form of Subscription Agreement for September 1997 Private Placement
(incorporated by reference to the correspondingly numbered exhibit of
the United Rentals, Inc. Registration Statement on Form S-1,
Registration No. 333-39117)(3)
10(f) Form of Indemnification Agreement for Officers and Directors
(incorporated by reference to the correspondingly numbered exhibit of
the United Rentals, Inc. Registration Statement on Form S-1,
Registration No. 333-39117)
10(g) Employment Agreement with Bradley S. Jacobs, dated as of September 19,
1997 (incorporated by reference to the correspondingly numbered
exhibit of the United Rentals, Inc. Registration Statement on Form S-
1, Registration No. 333-39117)
10(h) Employment Agreement with John N. Milne, dated as of September 19,
1997 (incorporated by reference to the correspondingly numbered
exhibit of the United Rentals, Inc. Registration Statement on Form S-
1, Registration No. 333-39117)
10(i) Employment Agreement with Michael J. Nolan, dated as of October 14,
1997 (incorporated by reference to the correspondingly numbered
exhibit of the United Rentals, Inc. Registration Statement on Form S-
1, Registration No. 333-39117)
10(j) Employment Agreement with Robert P. Miner, dated as of October 10,
1997 (incorporated by reference to the correspondingly numbered
exhibit of the United Rentals, Inc. Registration Statement on
Form S-1, Registration No. 333-39117)
10(k) Stock Purchase Agreement, dated as of October 24, 1997, with the
shareholders of Mercer Equipment Company (incorporated by reference to
the correspondingly numbered exhibit of the United Rentals, Inc.
Registration Statement on Form S-1, Registration No. 333-39117)+
10(l) Stock Purchase Agreement, dated as of October 24, 1997, with the
shareholders of Bronco Hi-Lift Inc. (incorporated by reference to the
correspondingly numbered exhibit of the United Rentals, Inc.
Registration Statement on Form S-1, Registration No. 333-39117)+
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S>
10(m) Stock Purchase Agreement, dated as of October 24, 1997, with Coran
Enterprises, Inc., Monterey Bay Equipment Rentals, Inc., James M.
Shade, Carol A. Shade, James M. Shade and Carol Anne Shade, Trustees
under the James M. Shade and Carol A Shade Trust Agreement dated
September 14, 1982, Randall Shade and Corey Shade (incorporated by
reference to the correspondingly numbered exhibit of the United
Rentals, Inc. Registration Statement on Form S-1, Registration No.
333-39117)+
10(n) Stock Purchase Agreement, dated as of October 24, 1997, with the
shareholders of Rent-It Center, Inc. (incorporated by reference to the
correspondingly numbered exhibit of the United Rentals, Inc.
Registration Statement on Form S-1, Registration No. 333-39117)+
10(o) Stock Purchase Agreement, dated as of October 20, 1997, with A&A Tool
Rentals & Sales, Inc., Joseph E. Doran, Patrick J. Doran, and A&A Tool
Rentals & Sales, Inc. Employee Stock Ownership Plan (incorporated by
reference to the correspondingly numbered exhibit of the United
Rentals, Inc. Registration Statement on Form S-1, Registration No.
333-39117)+
10(p) Agreement and Plan of Merger, dated as of October 23, 1997, with UR
Acquisition Subsidiary, Inc. and J&J Rental Services, Inc.
(incorporated by reference to the correspondingly numbered exhibit of
the United Rentals, Inc. Registration Statement on Form S-1,
Registration No. 333-39117)+
10(q) Convertible Note dated October 24, 1997 (incorporated by reference to
the correspondingly numbered exhibit of the United Rentals, Inc.
Registration Statement on Form S-1, Registration No. 333-39117)
10(r) Subscription Agreement dated November 14, 1997, from Wayland R. Hicks
(incorporated by reference to the correspondingly numbered exhibit of
the United Rentals, Inc. Registration Statement on Form S-1,
Registration No. 333-39117)
10(s) Agreement dated November 14, 1997, with Wayland R. Hicks (incorporated
by reference to the correspondingly numbered exhibit of the United
Rentals, Inc. Registration Statement on Form S-1, Registration No.
333-39117)
10(t) Purchase Agreement, dated as of January 22, 1998, with United Rentals
of Canada, Inc., Access Rentals, Inc., Reinhart Leasing, LLC and the
Stockholders of Access Rentals, Inc., (incorporated by reference to
Exhibit 10(t) to the United Rentals, Inc. Registration Statement on
Form S-1, Registration No. 333-45605)+
10(u) Stock Purchase Agreement, dated as of January 13, 1998, with Mission
Valley Rentals, Inc., Charles F. Journey and Connie J. Journey
(incorporated by reference to Exhibit 10(u) to the United Rentals,
Inc. Registration Statement on Form S-1, Registration No. 333-45605)+
10(v) Stock Purchase Agreement, dated as of January 22, 1998, with United
Rentals of Canada, Inc. and BNR Equipment Limited and Affiliates
(incorporated by reference to Exhibit 10(v) to the United Rentals,
Inc. Registration Statement on Form S-1, Registration No. 333-45605)+
10(w) Stock Purchase Agreement, dated as of June 9, 1998, with the
shareholders of Power Rental Co., Inc. (incorporated by reference to
Exhibit 10 to the United Rentals, Inc. Report on Form 8-K dated June
18, 1998)+
10(x) Form of U.S. Purchase Agreement for the public offering completed by
United Rentals, Inc. on March 11, 1998 (incorporated by reference to
Exhibit 1(a) to the United Rentals, Inc. Registration Statement on
Form S-1, Registration No. 333-45605)
10(y) Form of International Repurchase Agreement for the public offering
completed by United Rentals, Inc. on March 11, 1998 (incorporated by
reference to Exhibit 1(b) to the United Rentals, Inc. Registration
Statement on Form S-1, Registration No. 333-45605)
10(z) Form of U.S. Purchase Agreement for the United Rentals, Inc. initial
public offering (incorporated by reference to Exhibit 1(a) to the
United Rentals, Inc. Registration Statement on Form S-1, Registration
No. 333-39117)
10(aa) Form of International Purchase Agreement for the United Rentals, Inc.
initial public offering (incorporated by reference to Exhibit 1(b) to
the United Rentals, Inc. Registration Statement on Form S-1,
Registration No. 333-39117)
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S>
10(bb) Purchase Agreement dated May 19, 1998 relating to the initial sale by
the Registrant of $200 million aggregate principal amount of 9 1/2%
Senior Subordinated Notes due 2008 (incorporated by reference to the
correspondingly numbered exhibit of the Registrant's Registration
Statement on Form S-4, Registration No. 333-60467)
10(cc) Indenture dated May 22, 1998, among the Registrant, the Guarantors
named therein and State Street Bank and Trust Company, as trustee
(incorporated by reference to Exhibit 4(a) of the Registrant's
Registration Statement on Form S-4, Registration No. 333-60467)
10(dd) Notes Registration Rights Agreement dated as of May 22, 1998, among
the Registrant, the subsidiaries of the Registrant named therein,
Merrill Lynch & Co. and the other initial purchasers named therein
(incorporated by reference to Exhibit 4(b) of the Registrant's
Registration Statement on Form S-4, Registration No. 333-60467)
10(ee) Agreement among the Registrant, United Rentals of New Jersey, Inc., HR
Merger Corp., SMSV Acquisition Corp., Equipment Supply Company, Inc.,
High Reach Co., Inc., Space Maker of Va., Inc. and the Stockholders of
Rylan, Inc., High Reach Co., Inc. and Space Maker Systems of Va.,
Inc., dated as of June 30, 1998+ (incorporated by reference to Exhibit
10(cc) of the Registrant's Registration Statement on Form S-4,
Registration No. 333-60467)
10(ff) First Amendment to the Term Loan Agreement dated as of September 29,
1998 among the Registrant, various financial institutions and Bank of
America National Trust and Savings Association, as Agent (incorporated
by reference to Exhibit 10.3 of the Registrant's Report on Form 10-Q
for the quarter ended September 30, 1998)
10(gg) Share Purchase Agreement dated July 30, 1998 among the Registrant and
the parties listed therein for all of the outstanding shares of
McClinch Equipment Services, Inc. (incorporated by reference to
Exhibit 10(ll) of the Registration Statement on Form S-4 filed by
United Rentals, Inc., Registration No. 333-63171)
10(hh) Share purchase Agreement dated July 30, 1998 among the Registrant and
the parties listed therein for all of the outstanding shares of Grey
Fox Equipment, Inc. (incorporated by reference to Exhibit 10(mm) of
the Registration Statement on Form S-4 filed by United Rentals, Inc.,
Registration No. 333-63171)
10(ii) Share Purchase Agreement dated July 30, 1998 among the Registrant and
the parties listed therein for all of the outstanding shares of
McClinch, Inc. (incorporated by reference to Exhibit 10(dd) of the
Registration Statement on Form S-4 filed by United Rentals, Inc.,
Registration No. 333-63171)
10(jj) Purchase Agreement dated July 30, 1998 relating to the initial sale by
United Rentals Trust I of $300 million aggregate principal amount of 6
1/2% Convertible Quarterly Income Preferred Securities convertible
into common stock of United Rentals, Inc. (incorporated by reference
to Exhibit 10(hh) of Amendment No. 1 to the Registrant's Registration
Statement on Form S-4, Registration No. 333-60467)
10(kk) Indenture dated August 5, 1998 by and between United Rentals, Inc. and
The Bank of New York, as Trustee (incorporated by reference to Exhibit
10(hh) of the Registration Statement on Form S-4 filed by United
Rentals, Inc., Registration No. 333-63171)
10(ll) Amended and Restated Trust Agreement dated August 5, 1998 among United
Rentals, Inc., The Bank of New York, as Property Trustee, The Bank of
New York (Delaware), as Delaware Trustee, and the Administrative
Trustees named therein (incorporated by reference to Exhibit 10(ii) of
the Registration Statement on Form S-4 filed by United Rentals, Inc.,
Registration No. 333-63171)
10(mm) Guarantee Agreement dated August 5, 1998 between United Rentals, Inc.
and The Bank of New York (incorporated by reference to Exhibit 10(jj)
of the Registration Statement on Form S-4 filed by United Rentals,
Inc., Registration No. 333-63171)
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S>
10(nn) Registration Rights Agreement dated August 5, 1998 between United
Rentals, Inc., the Registrant, United Rentals Trust I, Goldman, Sachs
& Co. and the other purchasers named therein (incorporated by
reference to Exhibit 10(kk) of the Registration Statement on Form S-4
filed by United Rentals, Inc., Registration No. 333-63171)
10(oo) Purchase Agreement dated August 7, 1998 relating to the initial sale
by the Registrant of $205 million aggregate principal amount of 8.80%
Senior Subordinated Notes due 2008 (incorporated by reference to
Exhibit 10(mm) of Amendment No. 1 to the Registrant's Registration
Statement on Form S-4, Registration No. 333-60467)
10(pp) Form of Employment Agreement with William Berry (incorporated by
reference to Exhibit 10(ee) of the Registration Statement on Form S-4
filed by United Rentals, Inc., Registration No. 333-63171)(4)
10(qq) Form of Employment Agreement with John McKinney (incorporated by
reference to Exhibit 10(ff) of the Registration Statement on Form S-4
filed by United Rentals, Inc., Registration No. 333-63171)(4)
10(rr) Form of Registration Rights Agreement with certain affiliates of U.S.
Rentals (incorporated by reference to Exhibit 10(gg) of the
Registration Statement on Form S-4 filed by United Rentals, Inc.,
Registration No. 333-63171)
10(ss) 1998 Stock Option Plan of United Rentals, Inc. (incorporated by
reference to Exhibit 99.1 to the Registration Statement on Form S-4
filed by United Rentals, Inc., Registration No. 333-63171)
10(tt)* Purchase Agreement dated December 8, 1998 relating to the initial sale
by the Registrant of $300 million aggregate principal amount of 9 1/4%
Senior Subordinated Notes due 2009
10(uu)* Indenture dated December 15, 1998 among the Registrant, the
subsidiaries of the Registrant named therein and State Street Bank and
Trust Company, as trustee
10(vv)* Notes Registration Rights Agreement dated as of December 15, 1998
among the Registrant, the subsidiaries of the Registrant named therein
and Goldman, Sachs & Co.
12* Statement re computation of ratios of earnings to fixed charges
12(a)* Statement re computation of supplemental pro forma ratio of earnings
to fixed charges
21* Subsidiaries of the Registrant
23(a)* Consent of Ehrenreich Eilenberg Krause & Zivian LLP (included in
opinion filed as Exhibit 5)
23(b)* Consent of Ernst & Young LLP
23(c)* Consent of KPMG Peat Marwick LLP
23(d)* Consent of Webster Duke & Co.
23(e)* Consent of Grant Thornton LLP
23(f)* Consent of KPMG LLP
23(g)* Consent of KPMG LLP
23(h)* Consent of Battaglia, Andrews, & Moag, P.C.
23(i)* Consent of Moss Adams LLP
23(j)* Consent of PricewaterhouseCoopers LLP
23(k)* Consent of PricewaterhouseCoopers LLP
23(l)* Consent of BDO Seidman, LLP
23(m)* Consent of PricewaterhouseCoopers LLP
23(n)* Consent of Altschuler, Melvoin and Glasser LLP
23(o)* Consent of Beene Garter LLP
23(p)* Consent of McGladrey & Pullen, LLP
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S>
23(q)* Consent of Schalleur & Surgent, LLC
24(a) Power of Attorney (included in Part II of the Registration Statement
under the caption "Signatures") (previously filed)
25(a)* Form T-1 Statement of Eligibility under the Trust Indenture Act of
1939 of State Street Bank and Trust Company
99(a)* Form of Letter of Transmittal
</TABLE>
- --------
*Filed herewith.
+Filed without exhibits and schedules (to be provided supplementally upon
request of the Commission).
(1) United Rentals, Inc. issued a warrant in this form to the following
officers of United Rentals, Inc. (or in certain cases to an entity
controlled by such officer) for the number of shares indicated: Bradley S.
Jacobs (5,000,000); John N. Milne (714,286); Michael J. Nolan (285,715);
Robert P. Miner (142,857); Sandra E. Welwood (50,000); Joseph J. Kondrup,
Jr. (50,000); Kai E. Nyby (50,000); and Richard A. Volonino (50,000).
(2) Each officer of United Rentals, Inc. who purchased securities of United
Rentals, Inc. prior to December 18, 1997, other than Messrs. Jacobs and
Hicks, entered into a Private Placement Purchase Agreement in this form
(modified, in the case of Messrs. Barker and Imig, to reflect the fact
that said officers did not purchase warrants) with respect to the shares
of Common Stock and warrants purchased by such officer from United
Rentals, Inc. as described under "Management--Capital Contributions by
Officers and Directors." United Rentals, Inc. entered into Amendment No. 1
with each of Mr. Milne, Mr. Nolan and Mr. Miner.
(3) Each purchaser of shares of Common Stock in United Rentals, Inc.'s
September 1997 private placement entered into a Subscription Agreement in
this form with respect to the shares purchased.
ITEM 22. UNDERTAKINGS
A. The registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the Registration Statement (or the most recent post-
effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
Registration Statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in volume and
price represent no more than a 20% change in the maximum aggregate offering
price set forth in the "Calculation of Registration Fee" table in the
effective Registration Statement.
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or any
material change to such information in the Registration Statement;
provided, however, that paragraphs (A)(1)(i) and (A)(1)(ii) do not apply if
the registration statement is on Form S-3, Form S-8 or F-3, and the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed by the registrant pursuant
to Section 13 or Section 15(d) of the Securities Exchange Act of 1934 that are
incorporated by reference in this Registration Statement.
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
Registration Statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
II-6
<PAGE>
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of
the offering.
B. (1) The undersigned registrant hereby undertakes as follows: that prior
to any public reoffering of the securities registered hereunder through use of
a prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145, the
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other items of the applicable form.
(2) The registrant undertakes that every prospectus: (i) that is filed
pursuant to paragraph (1) immediately preceding, or (ii) that purports to meet
the requirements of Section 10(a)(3) of the Securities Act of 1933 and is used
in connection with an offering of securities subject to Rule 415, will be
filed as a part of an amendment to the registration statement and will not be
used until such amendment is effective, and that, for purposes of determining
any liability under the Securities Act of 1933, each such post-effective
amendment shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
C. Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the provisions described under Item 20 above, or
otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the registrant of expense incurred or paid by a director, officer
or controlling person of the registrant in the successful defense of any
action, suit or proceeding) is asserted against the registrant by such
director, officer or controlling person in connection with the securities
being registered, the registrant will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the
final adjudication of such issue.
D. The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11, or 13 of this form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through
the date of responding to the request.
E. The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, State of New
York, on December 17, 1998.
United Rentals (North America), Inc.
Michael J. Nolan
By: __________________________________
MICHAEL J. NOLAN
CHIEF FINANCIAL OFFICER
<TABLE>
<S> <C> <C>
</TABLE>
SIGNATURES TITLE DATE
Chairman, Chief
* Executive Officer December 17,
- ------------------------------------ and Director 1998
BRADLEY S. JACOBS (Principal
Executive Officer)
Director
* December 17,
- ------------------------------------ 1998
JOHN N. MILNE
Director
* December 17,
- ------------------------------------ 1998
WAYLAND R. HICKS
Director
* December 17,
- ------------------------------------ 1998
RONALD M. DEFEO
Director
* December 17,
- ------------------------------------ 1998
RICHARD J. HECKMANN
Director
* December 17,
- ------------------------------------ 1998
GERALD TSAI, JR.
- ------------------------------------
Director
CHRISTIAN M. WEYER
- ------------------------------------ Director
WILLIAM F. BERRY
- ------------------------------------ Director
JOHN S. MCKINNEY
- ------------------------------------
Director
RICHARD D. COLBURN
Chief Financial
/s/ Michael J. Nolan Officer (Principal December 17,
- ------------------------------------ Financial Officer) 1998
MICHAEL J. NOLAN
Vice President,
/s/ Sandra E. Welwood Corporate December 17,
- ------------------------------------ Controller 1998
SANDRA E. WELWOOD (Principal
Accounting
Officer)
/s/ Michael J. Nolan December 17,
1998
*By: __________________________
MICHAEL J. NOLAN
ATTORNEY-IN-FACT
<TABLE>
<S> <C> <C>
</TABLE>
II-8
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, each co-
registrant listed on the cover page of this Registration Statement has duly
caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, State of New
York, State of New York, on December 17, 1998.
THE CO-REGISTRATION LISTED ON
THE COVER PAGE OF THIS REGISTRATION
STATEMENT
By: Michael J. Nolan
----------------------------------
Michael J. Nolan
Vice President
of Each Co-Registrant
SIGNATURES TITLE DATE
John N. Milne President and
- ------------------------------------- Director of each December 17,
JOHN N. MILNE Co-Registrant 1998
(Principal
Executive Officer)
Michael J. Nolan Vice President of
- ------------------------------------- each Co-Registrant December 17,
MICHAEL J. NOLAN (Principal 1998
Financial Officer)
Sandra E. Welwood Vice President of
- ------------------------------------- each Co-Registrant December 17,
SANDRA E. WELWOOD (Principal 1998
Accounting Officer)
II-9
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT PAGE
------- ---------------------- ----
<C> <S> <C>
2(a) Amended and Restated Agreement and Plan of Merger dated as of
August 31, 1998, among United Rentals, Inc., UR Acquisition
Corporation and U.S. Rentals, Inc. (incorporated by reference
to Exhibit 2 of the Registration Statement on Form S-4 filed by
United Rentals, Inc., Registration No. 333-63171)
3(a) Amended and Restated Certificate of Incorporation of the
Registrant, in effect as of the date hereof (incorporated by
reference to exhibit 3.3 of the Registrant's Report on Form 10-
Q for the quarter ended June 30, 1998)
3(b) By-laws of the Registrant, in effect as of the date hereof
(incorporated by reference to exhibit 3.4 of the Registrant's
Report on Form 10-Q for the quarter ended June 30, 1998)
4(a) Indenture dated August 12, 1998, among the Registrant, the
Guarantors named therein and State Street Bank and Trust
Company, as trustee (incorporated by reference to Exhibit
10(bb) of the Registration Statement on Form S-4 filed by
United Rentals, Inc., Registration No. 333-63171)
4(b) Notes Registration Rights Agreement dated as of August 12,
1998, among the Registrant, the subsidiaries of the Registrant
named therein, and Merrill Lynch & Co. (incorporated by
reference to Exhibit 10(cc) of the Registration Statement on
Form S-4 filed by United Rentals, Inc., Registration No. 333-
63171)
5(a)* Opinion of Ehrenreich Eilenberg Krause & Zivian LLP
10(a) Credit Agreement dated as of September 29, 1998, between the
Registrant, various financial institutions, Bank of America
Canada, as Canadian agent, and Bank of America National Trust,
as U.S. Agent (incorporated by reference to Exhibit 10.2 of the
Registrant's Report on Form
10-Q for the quarter ended September 30, 1998)
10(b) 1997 Stock Option Plan (incorporated by reference to the
correspondingly numbered exhibit of the United Rentals, Inc.
Registration Statement on Form S-1, Registration No. 333-39117)
10(c) Form of Warrant Agreement (incorporated by reference to the
correspondingly numbered exhibit of the United Rentals, Inc.
Registration Statement on Form S-1, Registration No. 333-
39117)(1)
10(d) Form of Private Placement Purchase Agreement entered into by
certain officers in connection with purchasing shares and
warrants from United Rentals, Inc., together with the form of
Amendment No. 1 thereto (the Private Placement Purchase
Agreement is incorporated by reference to the correspondingly
numbered exhibit of the United Rentals, Inc. Registration
Statement on Form S-1, Registration No. 333-39117; and
Amendment No. 1 is incorporated by reference to Exhibit 10.2 to
the United Rentals, Inc. Report on Form 10-Q for the quarterly
period ended March 31, 1998)(2)
10(e) Form of Subscription Agreement for September 1997 Private
Placement (incorporated by reference to the correspondingly
numbered exhibit of the United Rentals, Inc. Registration
Statement on Form S-1, Registration No. 333-39117)(3)
10(f) Form of Indemnification Agreement for Officers and Directors
(incorporated by reference to the correspondingly numbered
exhibit of the United Rentals, Inc. Registration Statement on
Form
S-1, Registration No. 333-39117)
10(g) Employment Agreement with Bradley S. Jacobs, dated as of
September 19, 1997 (incorporated by reference to the
correspondingly numbered exhibit of the United Rentals, Inc.
Registration Statement on Form S-1, Registration No. 333-39117)
10(h) Employment Agreement with John N. Milne, dated as of September
19, 1997 (incorporated by reference to the correspondingly
numbered exhibit of the United Rentals, Inc. Registration
Statement on Form S-1, Registration No. 333-39117)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT PAGE
------- ---------------------- ----
<C> <S> <C>
10(i) Employment Agreement with Michael J. Nolan, dated as of October
14, 1997 (incorporated by reference to the correspondingly
numbered exhibit of the United Rentals, Inc. Registration
Statement on Form S-1, Registration No. 333-39117)
10(j) Employment Agreement with Robert P. Miner, dated as of October
10, 1997 (incorporated by reference to the correspondingly
numbered exhibit of the United Rentals, Inc. Registration
Statement on Form S-1, Registration No. 333-39117)
10(k) Stock Purchase Agreement, dated as of October 24, 1997, with
the shareholders of Mercer Equipment Company (incorporated by
reference to the correspondingly numbered exhibit of the United
Rentals, Inc. Registration Statement on Form S-1, Registration
No. 333-39117)+
10(l) Stock Purchase Agreement, dated as of October 24, 1997, with
the shareholders of Bronco Hi-Lift Inc. (incorporated by
reference to the correspondingly numbered exhibit of the United
Rentals, Inc. Registration Statement on Form S-1, Registration
No. 333-39117)+
10(m) Stock Purchase Agreement, dated as of October 24, 1997, with
Coran Enterprises, Inc., Monterey Bay Equipment Rentals, Inc.,
James M. Shade, Carol A. Shade, James M. Shade and Carol Anne
Shade, Trustees under the James M. Shade and Carol A Shade
Trust Agreement dated September 14, 1982, Randall Shade and
Corey Shade (incorporated by reference to the correspondingly
numbered exhibit of the United Rentals, Inc. Registration
Statement on Form S-1, Registration No. 333-39117)+
10(n) Stock Purchase Agreement, dated as of October 24, 1997, with
the shareholders of Rent-It Center, Inc. (incorporated by
reference to the correspondingly numbered exhibit of the United
Rentals, Inc. Registration Statement on Form S-1, Registration
No. 333-39117)+
10(o) Stock Purchase Agreement, dated as of October 20, 1997, with
A&A Tool Rentals & Sales, Inc., Joseph E. Doran, Patrick J.
Doran, and A&A Tool Rentals & Sales, Inc. Employee Stock
Ownership Plan (incorporated by reference to the
correspondingly numbered exhibit of the United Rentals, Inc.
Registration Statement on Form S-1, Registration No. 333-
39117)+
10(p) Agreement and Plan of Merger, dated as of October 23, 1997,
with UR Acquisition Subsidiary, Inc. and J&J Rental Services,
Inc. (incorporated by reference to the correspondingly numbered
exhibit of the United Rentals, Inc. Registration Statement on
Form S-1, Registration No. 333-39117)+
10(q) Convertible Note dated October 24, 1997 (incorporated by
reference to the correspondingly numbered exhibit of the United
Rentals, Inc. Registration Statement on Form S-1, Registration
No. 333-39117)
10(r) Subscription Agreement dated November 14, 1997, from Wayland R.
Hicks (incorporated by reference to the correspondingly
numbered exhibit of the United Rentals, Inc. Registration
Statement on Form S-1, Registration No. 333-39117)
10(s) Agreement dated November 14, 1997, with Wayland R. Hicks
(incorporated by reference to the correspondingly numbered
exhibit of the United Rentals, Inc. Registration Statement on
Form
S-1, Registration No. 333-39117)
10(t) Purchase Agreement, dated as of January 22, 1998, with United
Rentals of Canada, Inc., Access Rentals, Inc., Reinhart
Leasing, LLC and the Stockholders of Access Rentals, Inc.,
(incorporated by reference to Exhibit 10(t) to the United
Rentals, Inc. Registration Statement on Form S-1, Registration
No. 333-45605)+
10(u) Stock Purchase Agreement, dated as of January 13, 1998, with
Mission Valley Rentals, Inc., Charles F. Journey and Connie J.
Journey (incorporated by reference to Exhibit 10(u) to the
United Rentals, Inc. Registration Statement on Form S-1,
Registration No. 333-45605)+
10(v) Stock Purchase Agreement, dated as of January 22, 1998, with
United Rentals of Canada, Inc. and BNR Equipment Limited and
Affiliates (incorporated by reference to Exhibit 10(v) to the
United Rentals, Inc. Registration Statement on Form S-1,
Registration No. 333-45605)+
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT PAGE
------- ---------------------- ----
<C> <S> <C>
10(w) Stock Purchase Agreement, dated as of June 9, 1998, with the
shareholders of Power Rental Co., Inc. (incorporated by
reference to Exhibit 10 to the United Rentals, Inc. Report on
Form 8-K dated June 18, 1998)+
10(x) Form of U.S. Purchase Agreement for the public offering
completed by United Rentals, Inc. on March 11, 1998
(incorporated by reference to Exhibit 1(a) to the United
Rentals, Inc. Registration Statement on Form S-1, Registration
No. 333-45605)
10(y) Form of International Repurchase Agreement for the public
offering completed by United Rentals, Inc. on March 11, 1998
(incorporated by reference to Exhibit 1(b) to the United
Rentals, Inc. Registration Statement on Form S-1, Registration
No. 333-45605)
10(z) Form of U.S. Purchase Agreement for the United Rentals, Inc.
initial public offering (incorporated by reference to Exhibit
1(a) to the United Rentals, Inc. Registration Statement on Form
S-1, Registration No. 333-39117)
10(aa) Form of International Purchase Agreement for the United
Rentals, Inc. initial public offering (incorporated by
reference to Exhibit 1(b) to the United Rentals, Inc.
Registration Statement on Form S-1, Registration No. 333-39117)
10(bb) Purchase Agreement dated May 19, 1998 relating to the initial
sale by the Registrant of $200 million aggregate principal
amount of 9 1/2% Senior Subordinated Notes due 2008
(incorporated by reference to the correspondingly numbered
exhibit of the Registrant's Registration Statement on Form S-4,
Registration No. 333-60467)
10(cc) Indenture dated May 22, 1998, among the Registrant, the
Guarantors named therein and State Street Bank and Trust
Company, as trustee (incorporated by reference to Exhibit 4(a)
of the Registrant's Registration Statement on Form S-4,
Registration No. 333-60467)
10(dd) Notes Registration Rights Agreement dated as of May 22, 1998,
among the Registrant, the subsidiaries of the Registrant named
therein, Merrill Lynch & Co. and the other initial purchasers
named therein (incorporated by reference to Exhibit 4(b) of the
Registrant's Registration Statement on Form S-4, Registration
No. 333-60467)
10(ee) Agreement among the Registrant, United Rentals of New Jersey,
Inc., HR Merger Corp., SMSV Acquisition Corp., Equipment Supply
Company, Inc., High Reach Co., Inc., Space Maker of Va., Inc.
and the Stockholders of Rylan, Inc., High Reach Co., Inc. and
Space Maker Systems of Va., Inc., dated as of June 30, 1998+
(incorporated by reference to Exhibit 10(cc) of the
Registrant's Registration Statement on Form S-4, Registration
No. 333-60467)
10(ff) First Amendment to the Term Loan Agreement dated as of
September 29, 1998 among the Registrant, various financial
institutions and Bank of America National Trust and Savings
Association, as Agent (incorporated by reference to Exhibit
10.3 of the Registrant's Report on Form 10-Q for the quarter
ended September 30, 1998)
10(gg) Share Purchase Agreement dated July 30, 1998 among the
Registrant and the parties listed therein for all of the
outstanding shares of McClinch Equipment Services, Inc.
(incorporated by reference to Exhibit 10(ll) of the
Registration Statement on Form S-4 filed by United Rentals,
Inc., Registration No. 333-63171)
10(hh) Share purchase Agreement dated July 30, 1998 among the
Registrant and the parties listed therein for all of the
outstanding shares of Grey Fox Equipment, Inc. (incorporated by
reference to Exhibit 10(mm) of the Registration Statement on
Form S-4 filed by United Rentals, Inc., Registration No. 333-
63171)
10(ii) Share Purchase Agreement dated July 30, 1998 among the
Registrant and the parties listed therein for all of the
outstanding shares of McClinch, Inc. (incorporated by reference
to Exhibit 10(dd) of the Registration Statement on Form S-4
filed by United Rentals, Inc., Registration No. 333-63171)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT PAGE
------- ---------------------- ----
<C> <S> <C>
10(jj) Purchase Agreement dated July 30, 1998 relating to the initial
sale by United Rentals Trust I of $300 million aggregate
principal amount of 6 1/2% Convertible Quarterly Income
Preferred Securities convertible into common stock of United
Rentals, Inc. (incorporated by reference to Exhibit 10(hh) of
Amendment No. 1 to the Registrant's Registration Statement on
Form S-4, Registration No. 333-60467)
10(kk) Indenture dated August 5, 1998 by and between United Rentals,
Inc. and The Bank of New York, as Trustee (incorporated by
reference to Exhibit 10(hh) of the Registration Statement on
Form S-4 filed by United Rentals, Inc., Registration No. 333-
63171)
10(ll) Amended and Restated Trust Agreement dated August 5, 1998 among
United Rentals, Inc., The Bank of New York, as Property
Trustee, The Bank of New York (Delaware), as Delaware Trustee,
and the Administrative Trustees named therein (incorporated by
reference to Exhibit 10(ii) of the Registration Statement on
Form S-4 filed by United Rentals, Inc., Registration No. 333-
63171)
10(mm) Guarantee Agreement dated August 5, 1998 between United
Rentals, Inc. and The Bank of New York (incorporated by
reference to Exhibit 10(jj) of the Registration Statement on
Form S-4 filed by United Rentals, Inc., Registration No. 333-
63171)
10(nn) Registration Rights Agreement dated August 5, 1998 between
United Rentals, Inc., the Registrant, United Rentals Trust I,
Goldman, Sachs & Co. and the other purchasers named therein
(incorporated by reference to Exhibit 10(kk) of the
Registration Statement on Form S-4 filed by United Rentals,
Inc., Registration No. 333-63171)
10(oo) Purchase Agreement dated August 7, 1998 relating to the initial
sale by the Registrant of $205 million aggregate principal
amount of 8.80% Senior Subordinated Notes due 2008
(incorporated by reference to Exhibit 10(mm) of Amendment No. 1
to the Registrant's Registration Statement on Form S-4,
Registration No. 333-60467)
10(pp) Form of Employment Agreement with William Berry (incorporated
by reference to Exhibit 10(ee) of the Registration Statement on
Form S-4 filed by United Rentals, Inc., Registration No. 333-
63171)
10(qq) Form of Employment Agreement with John McKinney (incorporated
by reference to Exhibit 10(ff) of the Registration Statement on
Form S-4 filed by United Rentals, Inc., Registration No.
333-63171)
10(rr) Form of Registration Rights Agreement with certain affiliates
of U.S. Rentals (incorporated by reference to Exhibit 10(gg) of
the Registration Statement on Form S-4 filed by United Rentals,
Inc., Registration No. 333-63171)
10(ss) 1998 Stock Option Plan of United Rentals, Inc. (incorporated by
reference to Exhibit 99.1 to the Registration Statement on Form
S-4 filed by United Rentals, Inc., Registration No. 333-63171)
10(tt)* Purchase Agreement dated December 8, 1998 relating to the
initial sale by the Registrant of $300 million aggregate
principal amount of 9 1/4% Senior Subordinated Notes due 2009
10(uu)* Indenture dated December 15, 1998 among the Registrant, the
subsidiaries of the Registrant named therein and State Street
Bank and Trust Company, as trustee
10(vv)* Notes Registration Rights Agreement dated as of December 15,
1998 among the Registrant, the subsidiaries of the Registrant
named therein and Goldman, Sachs & Co.
12* Statement re computation of ratios of earnings to fixed charges
12(a)* Statement re computation of supplemental pro forma ratio of
earnings to fixed charges
21* Subsidiaries of the Registrant
23(a)* Consent of Ehrenreich Eilenberg Krause & Zivian LLP (included
in opinion filed as Exhibit 5)
23(b)* Consent of Ernst & Young LLP
23(c)* Consent of KPMG Peat Marwick LLP
23(d)* Consent of Webster Duke & Co.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT PAGE
------- ---------------------- ----
<C> <S> <C>
23(e)* Consent of Grant Thornton LLP
23(f)* Consent of KPMG LLP
23(g)* Consent of KPMG LLP
23(h)* Consent of Battaglia, Andrews, & Moag, P.C.
23(i)* Consent of Moss Adams LLP
23(j)* Consent of PricewaterhouseCoopers LLP
23(k)* Consent of PricewaterhouseCoopers LLP
23(l)* Consent of BDO Seidman, LLP
23(m)* Consent of PricewaterhouseCoopers LLP
23(n)* Consent of Altschuler, Melvoin and Glasser LLP
23(o)* Consent of Beene Garter LLP
23(p)* Consent of McGladrey & Pullen, LLP
23(q)* Consent of Schalleur & Surgent, LLC
24(a) Power of Attorney (included in Part II of the Registration
Statement under the caption "Signatures") (previously filed)
25(a)* Form T-1 Statement of Eligibility under the Trust Indenture Act
of 1939 of State Street Bank and Trust Company
99(a)* Form of Letter of Transmittal
</TABLE>
- --------
*Filed herewith.
+Filed without exhibits and schedules (to be provided supplementally upon
request of the Commission).
(1) United Rentals, Inc. issued a warrant in this form to the following
officers of United Rentals, Inc. (or in certain cases to an entity
controlled by such officer) for the number of shares indicated: Bradley S.
Jacobs (5,000,000); John N. Milne (714,286); Michael J. Nolan (285,715);
Robert P. Miner (142,857); Sandra E. Welwood (50,000); Joseph J. Kondrup,
Jr. (50,000); Kai E. Nyby (50,000); and Richard A. Volonino (50,000).
(2) Each officer of United Rentals, Inc. who purchased securities of United
Rentals, Inc. prior to December 18, 1997, other than Messrs. Jacobs and
Hicks, entered into a Private Placement Purchase Agreement in this form
(modified, in the case of Messrs. Barker and Imig, to reflect the fact
that said officers did not purchase warrants) with respect to the shares
of Common Stock and warrants purchased by such officer from United
Rentals, Inc. as described under "Management--Capital Contributions by
Officers and Directors." United Rentals, Inc. entered into Amendment No. 1
with each of Mr. Milne, Mr. Nolan and Mr. Miner.
(3) Each purchaser of shares of Common Stock in United Rentals, Inc.'s
September 1997 private placement entered into a Subscription Agreement in
this form with respect to the shares purchased.
<PAGE>
EXHIBIT 5(a)
[Letterhead of Ehrenreich Eilenberg Krause & Zivian LLP]
December 17, 1998
United Rentals (North America), Inc.
Four Greenwich Office Park
Greenwich, Connecticut 06830
Ladies and Gentlemen:
We have acted as counsel for United Rentals (North America), Inc. (the
"Company") in connection with the registration statement on Form S-4 (Reg. No.
333-64227), as amended, (the "Registration Statement"), filed by the Company
with the Securities and Exchange Commission (the "Commission") relating to the
proposed offer (the "Exchange Offer") by the Company to exchange $205,000,000
aggregate principal amount of 8.80% Senior Subordinated Notes due 2008, Series B
(the "Exchange Notes") of the Company for a like amount of outstanding 8.80%
Senior Subordinated Notes due 2008, Series A (the "Original Notes"). The
Exchange Notes will be issued pursuant to the Indenture (the "Indenture") dated
August 12, 1998 among the Company, certain subsidiaries of the Company, as
guarantors (the "Guarantors"), and State Street Bank and Trust Company as
trustee (the "Trustee"). All capitalized terms not otherwise defined herein have
the same meanings given to such terms in the Registration Statement.
In connection with the foregoing, we have examined, among other things, (i)
the Registration Statement, (ii) the Indenture, (iii) the form of Exchange Notes
to be issued pursuant to the Indenture and (iv) originals, photocopies or
conformed copies of all such corporate records, agreements, instruments and
documents of the Company, certificates of public officials and other
certificates and
1
<PAGE>
opinions, and have made such other investigations as we have deemed necessary
for the purpose of rendering the opinion set forth herein. In our examination,
we have assumed the genuineness of all signatures, the authenticity of all
documents submitted to us as originals, the conformity to originals of all
documents submitted to us as photocopies or conformed copies, and the
authenticity of the originals of such latter documents. We have relied, to the
extent we deem such reliance proper, upon representations, statements or
certificates of public officials and officers and representatives of the
Company.
We are opining herein as to the effect on the subject transaction only of
the internal laws of the state of New York, and we express no opinion with
respect to the applicability thereto, or the effect thereon, of the laws of any
other jurisdiction or as to any matters of municipal law or the laws of any
other local agencies within the state.
Based upon and subject to the foregoing, we are of the opinion that:
1. The Exchange Notes have been duly authorized by the Company and, when
issued and delivered in exchange for the Original Notes in the manner
set forth in the Registration Statement and executed and authenticated
in accordance with the terms and conditions of the Indenture will
constitute legal, valid and binding obligations of the Company.
2. The Guarantees, when executed in accordance with the terms of the
Indenture and upon due execution, authentication and delivery of the
Exchange Notes by or on behalf of the Company, will be legally valid
and binding obligations of the respective Guarantors, enforceable
against the Guarantors in accordance with their terms.
The opinions rendered in paragraphs 1 and 2 are subject to the following
exceptions, limitations and qualifications: (i) the effect of bankruptcy,
insolvency, fraudulent transfer, fraudulent conveyance, reorganization,
moratorium or other similar laws now or hereafter in effect relating to or
affecting the rights and remedies of creditors; (ii) the effect on the Company
and the Guarantors of general principles of equity, whether enforcement is
considered in a proceeding in equity or law, and the discretion of the court
before which any proceeding therefor may be brought; (iii) the unenforceability
under certain circumstances under law or court decisions of provisions providing
for the indemnification of or contribution to a party with respect to a
liability where such indemnification or contribution is contrary to public
policy; and (iv) we express no opinion concerning the enforceability of any
waiver of rights or defenses contained in the Indenture.
To the extent that the obligations of the Company and the Guarantors under
the Indenture may be dependent upon such matters, we assume for purposes of this
opinion that the Trustee is duly organized, validly existing and in good
standing under the laws of its jurisdiction of organization; that the Trustee is
duly qualified to engage in the activities contemplated by the Indenture; that
the Indenture has been duly authorized, executed and delivered by the Trustee
and constitutes the legally valid, binding and enforceable obligation of the
Trustee enforceable against the Trustee in
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accordance with its terms; that the Trustee is in compliance, generally and with
respect to acting as a trustee under the Indenture, with all applicable laws and
regulations; and that the Trustee has the requisite organizational and legal
power and authority to perform its obligations under the Indenture.
We hereby consent to the use of this opinion as an exhibit to the
Registration Statement and to the reference to our firm under the heading "Legal
Matters" in the prospectus that forms a part thereof.
Very truly yours,
/s/ Ehrenreich Eilenberg Krause & Zivian LLP
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EXHIBIT 10(tt)
UNITED RENTALS (NORTH AMERICA), INC.
$300,000,000
9 1/4% SENIOR SUBORDINATED NOTES DUE 2009, SERIES A
PURCHASE AGREEMENT
------------------
December 8, 1998
Goldman, Sachs & Co.
85 Broad Street
New York, New York 10004
Ladies and Gentlemen:
United Rentals (North America), Inc., a Delaware corporation (the
"Company"), proposes, subject to the terms and conditions stated herein, to
issue and sell to Goldman, Sachs & Co. (the "Purchaser") an aggregate of
$300,000,000 principal amount of the 9 1/4% Senior Subordinated Notes due 2009,
Series A specified above (the "Securities"). The Securities are to be issued
pursuant to an indenture (the "Indenture") to be dated as of the Time of
Delivery (as defined below), between the Company, the United States subsidiaries
of the Company (the "Guarantors") and State Street Bank and Trust Company, as
trustee (the "Trustee"). Pursuant to the Indenture and certain guarantees (the
"Guarantees"), the Guarantors have agreed to guaranty the Company's payment and
other obligations under the Indenture and the Securities.
The Company understands that the Purchaser proposes to make an offering of
the Securities on the terms and in the manner set forth herein and agrees that
the Purchaser may resell, subject to the conditions set forth herein, all or a
portion of the Securities to purchasers at any time after the execution and
delivery of this Agreement. The Securities are to be offered and sold through
the Purchaser without being registered under the Securities Act of 1933, as
amended (the "Act"), in reliance upon exemptions therefrom. Pursuant to the
terms of the Securities and the Indenture, investors that acquire Securities may
only resell or otherwise transfer such Securities if such Securities are
hereafter registered under the Act or if an exemption from the registration
requirements of the Act is available (including the exemption afforded by Rule
144A ("Rule 144A") of the rules and regulations promulgated under the Act by the
Securities and Exchange Commission (the "Commission")).
Holders (including subsequent transferees) of the Securities will have the
registration rights set forth in the Notes Registration Rights Agreement (the
"Notes Registration Rights Agreement") to be dated as of the Time of Delivery
among the Company, the Guarantors and the Purchaser and so long as such
Securities constitute "Transfer Restricted Notes" (as defined in such
agreement). Pursuant to the Notes Registration Rights Agreement, the Company
will agree to file with the Commission, under the circumstances set forth
therein, (i) a registration statement under the Act (the "Exchange Offer
Registration Statement") relating to the Company's 9 1/4% Senior Subordinated
Notes due 2009 Series B (the "Exchange Securities"), to be offered in exchange
for the Securities (such offer to exchange being referred to as the "Exchange
Offer") and (ii) under certain circumstances, a shelf registration statement
pursuant to Rule 415
<PAGE>
under the Act (the "Shelf Registration Statement" and, together with the
Exchange Offer Registration Statement, the "Notes Registration Statements")
relating to the resale by certain holders of the Securities and to use its best
efforts to cause such Notes Registration Statements to be declared and remain
effective and usable for the periods specified in the Notes Registration Rights
Agreement and to consummate the Exchange Offer.
The Company is preparing and will deliver to the Purchaser copies of a final
offering circular dated December 8, 1998 (the "Final Offering Circular") for use
by the Purchaser in connection with its solicitation of purchases of, or
offering of, the Securities. "Offering Circular" means, with respect to any
date or time referred to in this Agreement, the Final Offering Circular, or any
amendment or supplement thereto, including exhibits thereto and documents
incorporated therein by reference, if any, which has been prepared and delivered
by the Company to the Purchaser in connection with the Purchaser's solicitation
of purchases of, or offering of, the Securities.
All references in this Agreement to financial statements and schedules and
other information which is "contained," "included" or "stated" in the Offering
Circular (or other references of like import) shall be deemed to mean and
include all such financial statements and schedules and other information which
are incorporated by reference in the Offering Circular, if any; and all
references in this Agreement to amendments or supplements to the Offering
Circular shall be deemed to mean and include the filing of any document under
the Securities Exchange Act of 1934, as amended (the "Exchange Act") which is
incorporated by reference in the Offering Circular.
1. The Company represents and warrants to, and agrees with, the Purchaser
that:
(a) The Company has not, directly or indirectly, solicited any offer to buy
or offered to sell, and will not, directly or indirectly, solicit any offer to
buy or offer to sell, in the United States or to any United States citizen or
resident, any security which is or would be integrated with the sale of the
Securities in a manner that would require the Securities to be registered under
the Act.
(b) The Offering Circular as of its date and at the Time of Delivery will
not include an untrue statement of a material fact or omit to state a material
fact necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading; provided that this
representation, warranty and agreement shall not apply to statements in or
omissions from the Offering Circular made in reliance upon and in conformity
with information furnished to the Company in writing by the Purchaser expressly
for use in the Offering Circular.
(c) The documents incorporated or deemed to be incorporated by reference in
the Offering Circular, if any, at the time they were or hereafter are filed
with the Commission complied and will comply in all material respects with the
requirements of the Exchange Act and the rules and regulations of the Commission
(the "Exchange Act Regulations"), and, when read together with the other
information in the Offering Circular, at the date of the Offering Circular and
at the Time of Delivery, will not include an untrue statement of a material fact
or omit to state a material fact required to be stated therein or
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<PAGE>
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading.
(d) The accountants who certified the financial statements and supporting
schedules included in the Offering Circular are independent certified public
accountants with respect to the Company and its subsidiaries within the meaning
of Regulation S-X under the Act.
(e) Each of the historical financial statements to be included in the
Offering Circular, together with related schedules and notes, present fairly (on
a consolidated basis where so indicated) the financial condition of the entity
or entities to which such financial statement purports to relate (the "Reported
Entity") at the date(s) indicated and the statement of operations (or income or
earnings as indicated in the applicable financial statement) and cash flows and
(in the case of a Reported Entity for which a statement of stockholders' equity
is included) stockholders' equity (and partners' capital if so indicated in the
applicable financial statement) of the Reported Entity for the period(s)
specified; said financial statements have been prepared in conformity with
generally accepted accounting principles ("GAAP") applied on a consistent basis
throughout the periods involved (except as otherwise indicated in such financial
statements). Any supporting schedules to be included in the Offering Circular
present fairly in accordance with GAAP the information required to be stated
therein. The selected historical financial information and the summary
historical financial information to be included in the Offering Circular present
fairly the information shown therein and, in the case of historical financial
data or information of the Company, have been compiled on a basis consistent
with that of the audited financial statements included in the Offering Circular.
The pro forma financial statements and the related notes thereto to be included
in the Offering Circular present fairly the information shown therein, have been
prepared in accordance with the Commission's rules and guidelines with respect
to pro forma financial statements and have been properly compiled on the bases
described therein, and the assumptions used in the preparation thereof are
reasonable and the adjustments used therein are appropriate to give effect to
the transactions and circumstances referred to therein.
(f) The Company has not taken or caused to be taken and will not take or
cause to be taken, either directly or indirectly, any action designed to cause
or result in, or which action constitutes or which might reasonably be expected
to constitute, the stabilization or manipulation of the market price of any
security in contravention of any applicable law, including but not limited to
those actions prohibited by Section 9(a) of the Exchange Act, the Exchange Act
Regulations and Regulation M promulgated by the Commission.
(g) Neither the Company nor any of the Subsidiaries (as defined below) has
sustained since the date of the latest financial statements to be included or
incorporated by reference in the Offering Circular any loss or interference with
its business from fire, explosion, flood or other calamity, whether or not
covered by insurance, or from any labor dispute or court or governmental action,
order or decree which would be material to the Company and the Subsidiaries
taken as a whole, otherwise than as reserved for as disclosed in the Company's
financial statements or financial statements of certain Subsidiaries to be
included in the Offering Circular; and since the respective dates as of which
information is given in the Offering Circular, except as otherwise stated
therein, (A) there has been no material adverse change in the
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condition, financial or otherwise, or in the earnings, business affairs or
business prospects of the Company and its Subsidiaries considered as one
enterprise (a "Material Adverse Effect"), whether or not arising in the ordinary
course of business, (B) there has not been any change in the capital stock of
the Company or increase in the long-term debt (other than accretion or scheduled
repayments thereof) of the Company and the Subsidiaries taken as a whole, (C)
there have been no transactions entered into by the Company or any of the
Subsidiaries, other than those in the ordinary course of business, which are
material with respect to the Company and the Subsidiaries considered as one
enterprise, and (D) there has been no dividend or distribution (except as would
permitted under the covenants captioned "Description of the Notes -Limitation on
Restricted Payments" to be contained in the Offering Circular) of any kind
declared, paid or made by the Company on any class of its capital stock.
(h) The Company has been duly organized and is validly existing as a
corporation in good standing under the laws of the State of Delaware and has
corporate power and authority to own, lease and operate its properties and to
conduct its business as described in the Offering Circular and to enter into and
perform its obligations under this Agreement; and the Company is duly qualified
as a foreign corporation to transact business and is in good standing in each
other jurisdiction in which such qualification is required, whether by reason of
the ownership or leasing of property or the conduct of business, except where
the failure so to qualify or to be in good standing would not result in a
Material Adverse Effect.
(i) Each subsidiary of the Company (each, a "Subsidiary") has been duly
organized and is validly existing as a corporation in good standing under the
laws of the jurisdiction of its incorporation, has corporate power and authority
to own, lease and operate its properties and to conduct its business as
described in the Offering Circular and is duly qualified as a foreign
corporation to transact business and is in good standing in each jurisdiction in
which such qualification is required, whether by reason of the ownership or
leasing of property or the conduct of business, except where the failure so to
qualify or to be in good standing would not result in a Material Adverse Effect;
except as otherwise disclosed in the Offering Circular, all of the issued and
outstanding capital stock of each such Subsidiary has been duly authorized and
validly issued, is fully paid and non-assessable and is owned by the Company,
directly or through Subsidiaries, free and clear of any security interest,
mortgage, pledge, lien, encumbrance, claim or equity (except for any security
interest or pledge contemplated by the Credit Agreement dated September 29, 1998
among the Company, United Rentals, United Rentals of Canada, Inc. and Bank of
America National Trust and Savings Association ("B of A"), as U.S. Agent, Bank
of America Canada, as Canadian Agent, and various financial institutions (the
"Credit Agreement") and the Term Loan Agreement dated July 10, 1998 between the
Company, certain financial institutions and B of A, as agent, as amended by the
First Amendment to the Term Loan Agreement, dated September 29, 1998 (the "Term
Loan Agreement")); none of the outstanding shares of capital stock of any
Subsidiary was issued in violation of the preemptive or similar rights of any
security holder of such Subsidiary. The only Subsidiaries of the Company (other
than inactive Subsidiaries) are the Subsidiaries listed in a certificate of
officers of the Company to be delivered to the Purchaser prior to the Time of
Delivery and each Subsidiary of the Company which constitutes a "significant
subsidiary" (as such term is defined in Rule 1-02 of Regulation S-X under the
Act); provided, however, that such determination shall be made by reference to
-------- -------
the Company's pro forma financial statements as permitted by Rule 3-05(b)(3) of
Regulation S-X (each, a "Significant Subsidiary"), is marked with a "*" in such
certificate.
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<PAGE>
(j) The authorized capital stock of the Company consists of 3,000 shares of
common stock, par value $0.01 per share (the "Common Stock"). As of the date
hereof, there were 1,000 shares of Common Stock outstanding. The shares of
issued and outstanding capital stock of the Company have been duly authorized
and validly issued and are fully paid and non-assessable; none of the
outstanding shares of capital stock of the Company was issued in violation of
the preemptive or other similar rights of any security holder of the Company.
All of the outstanding capital stock of the Company is owned by United Rentals,
Inc., a corporation duly organized and validly existing under the laws of the
State of Delaware ("United Rentals"), free and clear of any security interest,
mortgage, pledge, lien, encumbrance, claim or equity (except for any security
interest or pledge contemplated by the Credit Agreement or the Term Loan
Agreement).
(k) This Agreement has been duly authorized, executed and delivered by the
Company.
(l) The Indenture has been duly authorized by the Company and each
Guarantor, and, at the Time of Delivery, will have been duly executed and
delivered by the Company and each such Guarantor and will constitute a valid and
binding agreement of the Company and each such Guarantor, enforceable against
the Company and each such Guarantor in accordance with its terms, except as the
enforcement thereof may be limited by bankruptcy, insolvency (including, without
limitation, all laws relating to fraudulent transfers), reorganization,
moratorium or other similar laws relating to or affecting enforcement of
creditors' rights generally, or by general principles of equity (regardless of
whether enforcement is considered in a proceeding in equity or at law).
(m) The Securities have been duly authorized and, at the Time of Delivery,
will have been duly executed by the Company and, when authenticated in the
manner provided for in the Indenture and delivered against payment of the
purchase price therefor will constitute valid and binding obligations of the
Company, enforceable against the Company in accordance with their terms, except
as the enforcement thereof may be limited by bankruptcy, insolvency (including,
without limitation, all laws relating to fraudulent transfers), reorganization,
moratorium or other similar laws relating to or affecting enforcement of
creditors' rights generally, or by general principles of equity (regardless of
whether enforcement is considered in a proceeding in equity or at law), and will
be in the form contemplated by, and, subject to the foregoing limitations,
entitled to the benefits of, the Indenture. At the Time of Delivery, the
Securities will conform in all material respects to the description thereof
contained in the Offering Circular.
(n) Each Guaranty has been duly authorized by the applicable Guarantor
under the laws of its state of incorporation, and, at the Time of Delivery, each
Guaranty relating to Securities being issued as of Time of Delivery that appears
on or is attached to such Securities, will have been duly executed by such
Guarantor and, when issued in the manner provided for in the Indenture and
delivered in accordance with this Agreement, will constitute a valid and binding
obligation of such Guarantor, enforceable against such Guarantor in accordance
with its terms, except as the enforcement thereof may be limited by bankruptcy,
insolvency (including, without limitation, all laws relating to fraudulent
transfers), reorganization, moratorium or other similar laws relating to or
affecting enforcement of creditors' rights generally, or by general principles
of equity (regardless of whether enforcement is considered in a proceeding in
equity or
5
<PAGE>
at law), and will be in the form contemplated by, and, subject to the foregoing
limitations, entitled to the benefits of, the Indenture. At the Time of
Delivery, the Guarantees will conform in all material respects to the
description thereof contained in the Offering Circular.
(o) The Exchange Securities have been duly authorized by the Company. When
the Exchange Securities are issued, executed and authenticated in the manner
provided for by the terms of the Exchange Offer and the Indenture, the Exchange
Securities will constitute valid and binding obligations of the Company,
enforceable against the Company in accordance with their terms, except as the
enforcement thereof may be limited by bankruptcy, insolvency (including, without
limitation, all laws relating to fraudulent transfers), reorganization,
moratorium or other similar laws relating to or affecting enforcement of
creditors' rights generally, or by general principles of equity (regardless of
whether enforcement is considered in a proceeding in equity or at law), and will
be in the form contemplated by, and, subject to the foregoing limitations,
entitled to the benefits of, the Indenture.
(p) The Notes Registration Rights Agreement has been duly authorized by the
Company and each Guarantor, and, at the Time of Delivery, will have been duly
executed and delivered by the Company and each Guarantor, and will constitute
valid and binding obligations of the Company and each Guarantor, enforceable
against the Company and each such Guarantor in accordance with its terms except
as the enforcement thereof may be limited by bankruptcy, insolvency (including,
without limitation, all laws relating to fraudulent transfers), reorganization,
moratorium or other similar laws relating to or affecting enforcement of
creditors' rights generally, or by general principles of equity (regardless of
whether enforcement is considered in a proceeding in equity or at law). At the
Time of Delivery, the Notes Registration Rights Agreement will conform in all
material respects to the description thereof contained in the Offering Circular.
(q) The Securities, the Guarantees and the Indenture will conform in all
material respects to the respective statements relating thereto contained in the
Offering Circular.
(r) Neither the Company nor any of its Subsidiaries is in violation of its
charter or by-laws or in default in the performance or observance of any
obligation, agreement, covenant or condition contained in any contract,
indenture, mortgage, deed of trust, loan or credit agreement, note, lease or
other agreement or instrument to which the Company or any of its Subsidiaries is
a party or by which any of them may be bound, or to which any of the property or
assets of the Company or any of its Subsidiaries is subject (collectively,
"Agreements and Instruments") except for such defaults that would not result in
a Material Adverse Effect; and the execution, delivery and performance of this
Agreement, the Indenture, the Securities, the Guarantees, the Notes Registration
Rights Agreement, and any other agreement or instrument entered into or issued
or to be entered into or issued by the Company in connection with the
transactions contemplated hereby or thereby or in the Offering Circular and the
consummation of the transactions contemplated herein and in the Offering
Circular and compliance by the Company with its obligations hereunder have been
duly authorized by all necessary corporate action and do not and will not,
whether with or without the giving of notice or passage of time or both,
conflict with or constitute a breach of, or default or a Repayment Event (as
defined below) under, or result in the creation or imposition of any lien,
charge or encumbrance upon any property or assets of the Company or any of its
Subsidiaries pursuant
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<PAGE>
to, the Agreements and Instruments except for such conflicts, breaches or
defaults or liens, charges or encumbrances that, singly or in the aggregate,
would not result in a Material Adverse Effect, nor will such action result in
any violation of the provisions of the charter or by-laws of the Company or any
of its Subsidiaries or any applicable law, statute, rule, regulation, judgment,
order, writ or decree of any government, government instrumentality or court,
domestic or foreign, having jurisdiction over the Company or any of its
Subsidiaries or any of their assets or properties. As used herein, a "Repayment
Event" means any event or condition which gives the holder of any note,
debenture or other evidence of indebtedness (or any person acting on such
holder's behalf) the right to require the repurchase, redemption or repayment of
all or a portion of such indebtedness by the Company or any of its Subsidiaries.
(s) No labor dispute with the employees of the Company or any of its
Subsidiaries exists or, to the knowledge of the Company, is imminent, and the
Company is not aware of any existing or imminent labor disturbance by the
employees of any of its or any of its Subsidiaries' principal suppliers,
manufacturers, customers or contractors, which, in either case, may reasonably
be expected to result in a Material Adverse Effect.
(t) There is no action, suit, proceeding, inquiry or investigation before
or by any court or governmental agency or body, domestic or foreign, now
pending, or, to the knowledge of the Company, threatened, against or affecting
the Company or any Subsidiary thereof which is required to be disclosed in the
Offering Circular (other than as will be disclosed therein), or which might
reasonably be expected to result in a Material Adverse Effect, or which might
reasonably be expected to materially and adversely affect the consummation of
this Agreement or the performance by the Company of its obligations hereunder.
The aggregate of all pending legal or governmental proceedings to which the
Company or any Subsidiary thereof is a party or of which any of their respective
property or assets is the subject which are not described in the Offering
Circular, including ordinary routine litigation incidental to the business,
could not reasonably be expected to result in a Material Adverse Effect.
(u) To the knowledge of the Company, the representations and warranties
made by each of the Acquired Companies (as defined in the Offering Circular) and
the selling stockholders in the respective agreements pursuant to which the
Company acquired the Acquired Companies did not as of the respective dates
thereof contain any inaccuracies that might, singly or in the aggregate,
reasonably be expected to have a Material Adverse Effect.
(v) There are no contracts or documents which are required to be described
in the Offering Circular which will not be so described.
(w) The Company and its Subsidiaries own or possess, or can acquire on
reasonable terms, adequate patents, patent rights, licenses, inventions,
copyrights, know-how (including trade secrets and other unpatented and/or
unpatentable proprietary or confidential information, systems or procedures),
trademarks, service marks, trade names or other intellectual property
(collectively, "Intellectual Property") necessary to carry on the business now
operated by them, and neither the Company nor any of its Subsidiaries has
received any notice or is otherwise aware of any infringement of or conflict
with asserted rights of others with respect to any Intellectual Property or of
any facts or circumstances which would
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render any Intellectual Property invalid or inadequate to protect the interest
of the Company or any of its Subsidiaries therein, and which infringement or
conflict (if the subject of any unfavorable decision, ruling or finding) or
invalidity or inadequacy, singly or in the aggregate, would result in a Material
Adverse Effect.
(x) No filing with, or authorization, approval, consent, license, order,
registration, qualification or decree of, any court or governmental authority or
agency is necessary or required for the performance by the Company of its
obligations hereunder or by the Company or any Guarantor in connection with the
offering, issuance or sale of the Securities and Guarantees hereunder or the
consummation of the transactions contemplated by this Agreement, except (i) for
filings and qualifications contemplated by the Notes Registration Rights
Agreement, (ii) such as may be required under foreign or state securities or
blue sky laws and (iii) such as may be required after the Time of Delivery
pursuant to the Company's periodic reporting requirements on its Annual Report
on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K to
be filed with the Commission under Sections 13 and 15(d), respectively, of the
Exchange Act.
(y) The Company and its Subsidiaries possess such permits, licenses,
approvals, consents and other authorizations (collectively, "Governmental
Licenses") issued by the appropriate federal, state, local or foreign regulatory
agencies or bodies necessary to conduct the business now operated by them,
except where the failure to so possess such Government Licenses would not,
singly or in the aggregate, have a Material Adverse Effect; the Company and its
Subsidiaries are in compliance with the terms and conditions of all such
Governmental Licenses, except where the failure so to comply would not, singly
or in the aggregate, have a Material Adverse Effect; all of the Governmental
Licenses are valid and in full force and effect, except when the invalidity of
such Governmental Licenses or the failure of such Governmental Licenses to be in
full force and effect would not have, singly or in the aggregate, a Material
Adverse Effect; and neither the Company nor any of its Subsidiaries has received
any notice of proceedings relating to the revocation or modification of any such
Governmental Licenses which, singly or in the aggregate, if the subject of an
unfavorable decision, ruling or finding, would result in a Material Adverse
Effect.
(z) The Company and its Subsidiaries have good and marketable title to all
real property to be described in the Offering Circular as owned by the Company
and its Subsidiaries and good title to all other properties described in the
Offering Circular as owned by them, in each case, free and clear of all mortgag
es, pledges, liens, security interests, claims, restrictions or encumbrances of
any kind except such as (a) are pursuant to the Credit Agreement and the Term
Loan Agreement as described in the Offering Circular or (b) do not, singly or in
the aggregate, materially interfere with the use made and proposed to be made of
such property by the Company or any of its Subsidiaries; and all of the leases
and subleases material to the business of the Company and its Subsidiaries,
considered as one enterprise, and under which the Company or any of its
Subsidiaries holds properties described in the Offering Circular, are in full
force and effect, and neither the Company nor any Subsidiary has any notice of
any material claim of any sort that has been asserted by anyone adverse to the
rights of the Company or any Subsidiary under any of the leases or subleases
mentioned above, or affecting or questioning the rights of the Company or such
Subsidiary to the continued possession of the leased or subleased premises under
any such lease or sublease, which claim, if upheld, would result in a Material
Adverse Effect.
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(aa) Neither the Company nor any Guarantor is, or upon the issuance and
sale of the Securities as herein contemplated and the application of the net
proceeds therefrom as described in the Offering Circular will be, an "investment
company" or an entity "controlled" by an "investment company" as such terms are
defined in the Investment Company Act of 1940, as amended (the "1940 Act").
(bb) Except as described in the Offering Circular or except as would not,
singly or in the aggregate, result in a Material Adverse Effect: (A) neither
the Company nor any of its Subsidiaries is in violation of any federal, state,
local or foreign statute, law, rule, regulation, ordinance, code, policy or rule
of common law or any judicial or administrative interpretation thereof,
including any judicial or administrative order, consent, decree or judgment,
relating to pollution or protection of human health, the environment (including,
without limitation, ambient air, surface water, groundwater, land surface or
subsurface strata) or wildlife, including, without limitation, laws and
regulations relating to the release or threatened release of chemicals,
pollutants, contaminants, wastes, toxic substances, hazardous substances,
petroleum or petroleum products (collectively, "Hazardous Materials") or to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of Hazardous Materials (collectively, "Environmental
Laws"), (B) neither the Company nor any of its Subsidiaries is lacking any
permits, authorizations and approvals required under any applicable
Environmental Laws or are in violation of the requirements of such Environmental
Laws, (C) there are no pending or, to the best knowledge of the Company,
threatened administrative, regulatory or judicial actions, suits, demands,
demand letters, claims, liens, notices of noncompliance or violation,
investigation or proceedings relating to any Environmental Law against the
Company or any of its Subsidiaries and (D) to the knowledge of the Company there
are no events or circumstances that might reasonably be expected to form the
basis of an order for clean-up or remediation, or an action, suit or proceeding
by any private party or governmental body or agency, against or affecting the
Company or any of its Subsidiaries relating to Hazardous Materials or any
Environmental Laws.
(cc) Nothing has come to the attention of the Company that has caused the
Company to believe that the statistical and market-related data to be included
in the Offering Circular are not based on or derived from sources that are
reliable and accurate in all material respects.
(dd) The Company and each of its Subsidiaries have filed all necessary
federal, state, local and foreign income, payroll, franchise and other tax
returns (after giving effect to extensions) and have paid all taxes shown as due
thereon (except where the failure to so file or pay would not, singly or in the
aggregate, have a Material Adverse Effect), and there is no tax deficiency that
has been, or to the knowledge of the Company is likely to be, asserted against
the Company, any of its Subsidiaries or any of their properties or assets that
would result in a Material Adverse Effect, except for taxes that are being
contested in good faith by appropriate proceedings and with respect to which the
Company has established adequate reserves in accordance with GAAP.
(ee) The Securities are eligible for resale pursuant to Rule 144A and will
not be, at the Time of Delivery, of the same class as securities listed on a
national securities exchange registered under Section 6 of the Exchange Act, or
quoted in a U.S. automated interdealer quotation system.
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(ff) None of the Company, its affiliates, as such term is defined in Rule
501(b) under the Act ("Affiliates"), or any person acting on its or any of their
behalf (other than the Purchaser, as to whom the Company makes no
representation) has engaged or will engage, in connection with the offering of
the Securities, in any form of general solicitation or general advertising
within the meaning of Rule 502(c) under the Act.
(gg) Assuming the accuracy of the representations and warranties of the
Purchaser set forth in Section 3 hereof and compliance by the Purchaser with the
provisions of Sections 3 hereof, it is not necessary in connection with the
offer, sale and delivery of the Securities to the Purchaser and to any
subsequent purchaser in the manner contemplated by this Agreement and the
Offering Circular to register the Securities under the Act or to qualify the
Indenture under the Trust Indenture Act of 1939, as amended (the "1939 Act").
(hh) Neither the Company, United Rentals nor any of its Subsidiaries is or
has ever been a Personal Holding Company within the meaning of Section 542 of
the Internal Revenue Code of 1986, as amended.
(ii) Neither the Company nor any Subsidiary has received notice from any
insurer providing insurance coverage for the Company and its Subsidiaries or
agent of such insurer that capital improvements or other expenditures will have
to be made in order to continue present insurance coverage, except such as could
not reasonably be expected, singularly or in the aggregate, to have a Material
Adverse Effect.
(jj) The Company and its Subsidiaries maintain a system of internal
accounting controls sufficient to provide reasonable assurances that (i)
transactions are executed in accordance with management's general or specific
authorization; (ii) transactions are recorded as necessary to permit preparation
of financial statements in conformity with generally accepted accounting
principles and to maintain accountability for assets; (iii) access to assets is
permitted only in accordance with management's general or specific
authorization; and (iv) the recorded accountability for assets is compared with
existing assets at reasonable intervals and appropriate action is taken with
respect to any differences.
(kk) Other than pursuant to this Agreement, there are no contracts,
agreements or understandings between either the Company, United Rentals or its
Subsidiaries and any person that give rise to a valid claim against the Company,
United Rentals, any of its Subsidiaries or the Purchaser for a brokerage
commission, finder's fee or other like payment relating to the transactions
contemplated hereby.
(ll) There are no persons with registration rights or other similar rights
to have any debt securities registered pursuant to any registration statement or
otherwise registered by the Company under the Act, except persons having such
rights pursuant to the Notes Registration Rights Agreement, the Notes
Registration Rights Agreement dated August 12, 1998 between the Company, certain
of the Subsidiaries and the initial purchasers named therein and the Notes
Registration Rights Agreement dated May 22, 1998 between the Company, certain of
the Subsidiaries and the initial purchasers named therein.
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(mm) Neither the Company, any of its Subsidiaries or any agent thereof
acting on the behalf of any of them, has taken, and none of them will take, any
action that might cause this Agreement or the issuance or sale of the Securities
to violate Regulation T (12 C.F.R. Part 220), Regulation U (12 C.F.R. Part 221)
or Regulation X (12 C.F.R. Part 224) of the Board of Governors of the Federal
Reserve System.
(nn) The Offering Circular, as of its date, will contain all the
information specified in, and meeting the requirements of, Rule 144A(d)(4) under
the Act.
(oo) Neither the Company nor any of its Subsidiaries has violated any
provisions of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), or the rules and regulations promulgated thereunder, except for such
violations which, singly or in the aggregate, would not have a Material Adverse
Effect. If any such plan is adopted, the execution and delivery of this
Agreement and the sale of the Securities will not involve any non-exempt
prohibited transaction within the meaning of Section 406 of ERISA or Section
4975 of the Internal Revenue Code of 1986, as amended. The representations made
in the preceding sentence are made in reliance upon and subject to the accuracy
of, and compliance with, the representations and covenants to be made or deemed
to be made by the purchasers of the Securities as set forth in the Offering
Circular.
(pp) There are, and as of the Time of Delivery, there will be no agreements
containing any limitation on dividends or any other payment restrictions of the
type referred to in clause (vii) of the covenant captioned "Description of the
Notes - Limitation on Dividends and other Payment Restrictions Affecting
Restricted Subsidiaries" to be contained in the Offering Circular.
(qq) Except as listed on a certificate of officers of the Company to be
delivered to the Purchaser prior to the Time of Delivery, there are and as of
the Time of Delivery, there will be no agreements of the type referred to in
clause (vi) of the second paragraph of the covenant captioned "Description of
the Notes -Limitation on Transactions with Affiliates" to be contained in the
Offering Circular.
(rr) To the best of the Company's knowledge and belief, except as listed on
a certificate of officers of the Company to be delivered to the Purchaser prior
to the Time of Delivery, there are, and as of the Time of Delivery, there will
be no agreements existing of the type referred to in clause (c) of the
definition of "Permitted Indebtedness" under "Description of Notes - Certain
Definitions" to be contained in the Offering Circular. As of the Time of
Delivery, but without giving effect to the issuance of the Securities and the
application of the net proceeds therefrom, the aggregate outstanding
Indebtedness (as defined in the Offering Circular under "Description of Notes --
Certain Definitions") of the Company and its Subsidiaries will not exceed $1.4
billion.
(ss) All information contained in the certificates of officers of the
Company to be delivered pursuant to (i), (qq) and (rr) of this Section 1 which
would be required to be disclosed in the Offering Circular if the Offering
Circular was a prospectus forming part of a registration statement filed with
the Commission under the Act, has been disclosed in the Offering Circular.
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(tt) Any certificate signed by any officer of the Company or any of its
Subsidiaries delivered to the Purchaser or to counsel for the Purchaser pursuant
to this Agreement shall be deemed a representation and warranty by the Company
to the Purchaser as to the matters covered thereby.
2. Subject to the terms and conditions herein set forth, the Company
agrees to issue and sell to the Purchaser, and the Purchaser agrees to purchase
from the Company, at a purchase price set forth in Schedule II hereto, the
principal amount of Securities set forth opposite the name of the Purchaser in
Schedule I hereto.
3. The Purchaser proposes to offer the Securities for sale upon the terms
and conditions set forth in this Agreement and the Offering Circular and the
Purchaser hereby represents and warrants to, and agrees with the Company that:
(a) It will offer and sell the Securities only to: (i) persons who it
reasonably believes are "qualified institutional buyers" ("QIBs") within the
meaning of Rule 144A under the Act in transactions meeting the requirements of
Rule 144A or (ii) upon the terms and conditions set forth in Annex I to this
Agreement;
(b) It is an institution that is an accredited investor with the meaning of
Rule 501 under the Act; and
(c) It will not offer or sell the Securities by any form of general
solicitation or general advertising, including but not limited to the methods
described in Rule 502(c) under the Act.
4. (a) The Securities to be purchased by the Purchaser shall be
delivered by or on behalf of the Company to Goldman, Sachs & Co., through the
facilities of The Depository Trust Company ("DTC"), for the account of such
Purchaser, against payment by or on behalf of such Purchaser of the purchase
price therefor by wire transfer in same day funds or certified or official bank
check or checks, payable to the order of the Company in immediately available
funds. The Company will cause the certificates representing the Securities to
be made available for checking at least twenty-four hours prior to the Time of
Delivery (as defined below) at the office of DTC or its designated custodian
(the "Designated Office"). The Securities to be purchased by the Purchaser
hereunder will be represented by one or more definitive global Securities in
book-entry form which will be deposited by or on behalf of the Trustee with DTC
or its designated custodian. The time and date of such delivery and payment
shall be 9:30 a.m., New York City time, on December 15, 1998 or such other time
and date as Goldman, Sachs & Co. and the Company may agree upon in writing.
Such time and date are herein called the "Time of Delivery."
(b) The documents to be delivered at the Time of Delivery by or on behalf
of the parties hereto pursuant to Section 7 hereof, including the cross-receipt
for the Securities and any additional documents requested by the Purchaser
pursuant to Section 7(i) hereof, will be delivered at such time and date at the
offices of Skadden, Arps, Slate, Meagher & Flom LLP, 919 Third Avenue, New York,
New York 10022 (the "Closing Location"), and the Securities will be delivered at
the Designated Office, all at the Time of
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Delivery. A meeting will be held at the Closing Location prior to the Time of
Delivery, at which meeting the final drafts of the documents to be delivered
pursuant to the preceding sentence will be available for review by the parties
hereto.
5. The Company agrees with the Purchaser:
(a) To prepare the Offering Circular in a form reasonably approved by you;
to make no amendment or any supplement to the Offering Circular which shall be
reasonably disapproved by you promptly after reasonable notice thereof; and to
furnish you with as many copies thereof as you shall reasonably request;
(b) Promptly from time to time to take such action as you may reasonably
request to qualify the Securities for offering and sale under the securities
laws of such jurisdictions as you may request and to comply with such laws so as
to permit the continuance of sales and dealings therein in such jurisdictions
for as long as may be necessary to complete the distribution of the Securities,
provided that in connection therewith the Company shall not be required to
qualify as a foreign corporation or to file a general consent to service of
process in any jurisdiction;
(c) To furnish the Purchaser with copies of the Offering Circular and each
amendment or supplement thereto in such quantities as you may from time to time
reasonably request, and if, at any time prior to earlier of (i) completion of
the distribution of the Securities, as notified to you by Goldman, Sachs & Co.,
and (ii) the expiration of nine months after the date of the Offering Circular,
any event shall have occurred as a result of which the Offering Circular as then
amended or supplemented would include an untrue statement of a material fact or
omit to state any material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made when such
Offering Circular is delivered, not misleading, or, if for any other reason it
shall be necessary or desirable during such same period to amend or supplement
the Offering Circular, to notify you and upon your request to prepare and
furnish without charge to the Purchaser and to any dealer in securities as many
copies as you may reasonably request of an amended Offering Circular or a
supplement to the Offering Circular which will correct such statement or
omission or effect such compliance;
(d) During the period beginning from the date hereof and continuing 120
days from the date of the Offering Circular, not to offer, sell contract to sell
or otherwise dispose of, except as provided hereunder, any securities of the
Company that are substantially similar to the Securities without the prior
written consent of the Purchaser;
(e) Not to be or become, at any time prior to the expiration of two years
after the Time of Delivery, an open-end investment company, unit investment
trust, closed-end investment company or face-amount certificate company that is
or is required to be registered under Section 8 of the Investment Company Act;
(f) At any time when the Company is not subject to Section 13 or 15(d) of
the Exchange Act, for the benefit of holders from time to time of Securities, to
furnish at its expense, upon request, to holders
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of Securities and prospective purchasers of securities information (the
"Additional Issuer Information") satisfying the requirements of subsection
(d)(4)(i) of Rule 144A under the Act;
(g) To use its best efforts to cause the Securities to be eligible for the
PORTAL trading system of the National Association of Securities Dealers, Inc.;
(h) During a period of five years from the date of the Offering Circular,
to furnish to you copies of all reports or other communications (financial or
other) furnished to stockholders of the Company, and to deliver to you (i) as
soon as they are available, copies of any reports and financial statements
furnished to or filed with the Commission or any securities exchange on which
the Securities or any class of securities of the Company is listed; and (ii)
such additional public information concerning the business and financial
condition of the Company as you may from time to time reasonably request (such
financial statements to be on a consolidated basis to the extent the accounts of
the Company and its subsidiaries are consolidated in reports furnished to its
stockholders generally or to the Commission);
(i) During the period of two years after the Time of Delivery, the Company
will not, and will not permit any of its "affiliates" (as defined in Rule 144
under the Securities Act) to, resell any of the Securities which constitute
"restricted securities" under Rule 144 that have been reacquired by any of them;
(j) The Company shall file, on or prior to 90 days after the date hereof,
and use its reasonable best efforts to cause to be declared or become effective
under the Act, on or prior to 150 days after the date hereof, a registration
statement providing for the registration of the Exchange Securities, all in
accordance with the terms of the Notes Registration Rights Agreement; and
(k) To use the net proceeds received by it from the sale of the Securities
pursuant to this Agreement in the manner specified in the Offering Circular
under the caption "Use of Proceeds".
6. The Company covenants and agrees with the Purchaser that the Company
will pay or cause to be paid the following: (i) the fees, disbursements and
expenses of the Company's counsel and accountants in connection with the issue
of the Securities and all other expenses in connection with the preparation,
printing and filing of the Offering Circular and any amendments and supplements
thereto and the mailing and delivering of copies thereof to the Purchaser and
dealers; (ii) the cost of printing or producing any Agreement among Purchasers,
this Agreement, the Indenture, the Notes Registration Rights Agreement, the Blue
Sky and Legal Investment Memoranda, closing documents (including any
compilations thereof) and any other documents in connection with the offering,
purchase, sale and delivery of the Securities; (iii) all expenses in connection
with the qualification of the Securities for offering and sale under state
securities laws as provided in Section 5(b) hereof, including the fees and
disbursements of counsel for the Purchaser in connection with such qualification
and in connection with the Blue Sky and legal investment surveys; (iv) any fees
charged by securities rating services for rating the Securities; (v) the cost of
preparing the Securities; (vi) the fees and expenses of the Trustee and any
agent of the Trustee and the fees and disbursements of counsel for the Trustee
in connection with the Indenture and the Securities; (vii) any cost incurred in
connection with the designation of the Securities for trading in PORTAL; and
(viii) all other costs and expenses incident to the performance of its
obligations hereunder
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which are not otherwise specifically provided for in this Section. It is
understood, however, that, except as provided in this Section, and Sections 8
and 11 hereof, the Purchaser will pay all of their own costs and expenses,
including the fees of their counsel, transfer taxes on resale of any of the
Securities by them, and any advertising expenses connected with any offers they
may make.
7. The obligations of the Purchaser hereunder shall be subject, in its
discretion, to the condition that all representations and warranties and other
statements of the Company herein are, at and as of the Time of Delivery, true
and correct, the condition that the Company shall have performed all of its
obligations hereunder theretofore to be performed, and the following additional
conditions:
(a) Skadden, Arps, Slate, Meagher & Flom LLP, counsel for the Purchaser,
shall have furnished to you such opinion or opinions, dated the Time of
Delivery, with respect to the matters as you may reasonably request, and such
counsel shall have received such papers and information as they may reasonably
request to enable them to pass upon such matters;
(b) Ehrenreich Eilenberg Krause & Zivian LLP, counsel for the Company,
shall have furnished to you their written opinion, dated the Time of Delivery,
in form and substance satisfactory to you, to the effect set forth in Annex II
hereto;
(c) Weil, Gotshal & Manges LLP, counsel for the Company, shall have
furnished to you their written opinion, dated the Time of Delivery, in form and
substance satisfactory to you, to the effect set forth in Annex III hereto;
(d) Prior to the Time of Delivery, each accounting firm whose report is
included in the Offering Circular shall have furnished to you a letter or
letters, dated the respective dates of delivery thereof, in form and substance
satisfactory to you, to the effect set forth in Annex IV hereto;
(e) (i) Neither the Company nor any of the Subsidiaries shall have
sustained since the date of the latest audited financial statements included in
the Offering Circular any loss or interference with its business from fire,
explosion, flood or other calamity, whether or not covered by insurance, or from
any labor dispute or court or governmental action, order or decree, which would
be material to the Company and the Subsidiaries taken as a whole otherwise than
as set forth or contemplated in the Offering Circular or reserved for as
disclosed in the Company's financial statements or financial statements of
certain Subsidiaries included in the Offering Circular, and (ii) since the
respective dates as of which information is given in the Offering Circular there
shall not have been any change in the capital stock or long-term debt (other
than accretion thereof and other than borrowings in the ordinary course of
business under the Credit Facility with respect to working capital requirements
for the ongoing operation of the Company and the Subsidiaries) of the Company
and the Subsidiaries taken as a whole or any change, or any development
involving a prospective change, in or affecting the general affairs, management,
financial position, stockholders' equity or results of operations of the Company
and the Subsidiaries taken as a whole, otherwise than as set forth or
contemplated in the Offering Circular, the effect of which, in any such case
described in Clause (i) or (ii), is in the judgment of Goldman, Sachs & Co. so
material and adverse as to
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make it impracticable or inadvisable to proceed with the offering or the
delivery of the Securities on the terms and in the manner contemplated in this
Agreement and in the Offering Circular;
(f) On or after the date hereof (i) no downgrading shall have occurred in
the rating accorded the Company's debt securities by any "nationally recognized
statistical rating organization", as that term is defined by the Commission for
purposes of Rule 436(g)(2) under the Act, and (ii) no such organization shall
have publicly announced that it has under surveillance or review, with possible
negative implications, its rating of any of the Securities or any of the
Company's debt securities;
(g) On or after the date hereof there shall not have occurred any of the
following: (i) a suspension or material limitation in trading in securities
generally on the New York Stock Exchange ("NYSE") or on the National Association
of Securities Dealers Automated Quotation System; (ii) a suspension or material
limitation in trading in United Rentals' securities on the NYSE; (iii) a general
moratorium on commercial banking activities declared by either Federal or New
York State authorities; or (iv) the outbreak or escalation of hostilities
involving the United States or the declaration by the United States of a
national emergency or war, if the effect of any such event specified in this
Clause (iv) in the judgment of Goldman, Sachs & Co. makes it impracticable or
inadvisable to proceed with the offering or the delivery of the Securities on
the terms and in the manner contemplated in the Offering Circular;
(h) The Securities have been designated for trading on PORTAL; and
(i) The Company shall have furnished or caused to be furnished to you at
the Time of Delivery certificates of officers of the Company satisfactory to you
as to the accuracy of the representations and warranties of the Company herein
at and as of such Time of Delivery, as to the performance by the Company of all
of its obligations hereunder to be performed at or prior to such Time of
Delivery, as to the matters set forth in subsections (e) of this Section and as
to such other matters as you may reasonably request.
8. (a) The Company will indemnify and hold harmless the Purchaser
against any losses, claims, damages or liabilities, joint or several, to which
the Purchaser may become subject, under the Act or otherwise, insofar as such
losses, claims, damages or liabilities (or actions in respect thereof) arise out
of or are based upon an untrue statement or alleged untrue statement of a
material fact contained in the Offering Circular, or any amendment or supplement
thereto, or arise out of or are based upon the omission or alleged omission to
state therein a material fact necessary to make the statements therein not
misleading, and will reimburse the Purchaser for any legal or other expenses
reasonably incurred by the Purchaser in connection with investigating or
defending any such action or claim as such expenses are incurred; provided,
however, that the Company shall not be liable in any such case to the extent
that any such loss, claim, damage or liability arises out of or is based upon an
untrue statement or alleged untrue statement or omission or alleged omission
made in the Offering Circular or any such amendment or supplement in reliance
upon and in conformity with written information furnished to the Company by the
Purchaser expressly for use therein.
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(b) The Purchaser will indemnify and hold harmless the Company against any
losses, claims, damages or liabilities to which the Company may become subject,
under the Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon an
untrue statement or alleged untrue statement of a material fact contained in the
Offering Circular, or any amendment or supplement thereto, or arise out of or
are based upon the omission or alleged omission to state therein a material fact
necessary to make the statements therein not misleading, in each case to the
extent, but only to the extent, that such untrue statement or alleged untrue
statement or omission or alleged omission was made in the Offering Circular or
any such amendment or supplement in reliance upon and in conformity with written
information furnished to the Company by the Purchaser expressly for use therein;
and will reimburse the Company for any legal or other expenses reasonably
incurred by the Company in connection with investigating or defending any such
action or claim as such expenses are incurred.
(c) Promptly after receipt by an indemnified party under Section 8(a) or
8(b) above of notice of the commencement of any action, such indemnified party
shall, if a claim in respect thereof is to be made against the indemnifying
party under such subsection, notify the indemnifying party in writing of the
commencement thereof; but the omission so to notify the indemnifying party shall
not relieve it from any liability which it may have to any indemnified party
otherwise than under such subsection. In case any such action shall be brought
against any indemnified party and it shall notify the indemnifying party of the
commencement thereof, the indemnifying party shall be entitled to participate
therein and, to the extent that it shall wish, jointly with any other
indemnifying party similarly notified, to assume the defense thereof, with
counsel satisfactory to such indemnified party (who shall not, except with the
consent of the indemnified party, be counsel to the indemnifying party), and,
after notice from the indemnifying party to such indemnified party of its
election so to assume the defense thereof, the indemnifying party shall not be
liable to such indemnified party under such subsection for any legal expenses of
other counsel or any other expenses, in each case subsequently incurred by such
indemnified party, in connection with the defense thereof other than reasonable
costs of investigation. No indemnifying party shall, without the written
consent of the indemnified party, effect the settlement or compromise of, or
consent to the entry of any judgment with respect to, any pending or threatened
action or claim in respect of which indemnification or contribution may be
sought hereunder (whether or not the indemnified party is an actual or potential
party to such action or claim) unless such settlement, compromise or judgment
(i) includes an unconditional release of the indemnified party from all
liability arising out of such action or claim and (ii) does not include a
statement as to, or an admission of, fault, culpability or a failure to act, by
or on behalf of any indemnified party. An indemnifying party shall not be
required to indemnify an indemnified party hereunder with respect to any
settlement or compromise of, or consent to entry of any judgment with respect
to, any pending or threatened action or claim in respect of which
indemnification or contribution may be sought hereunder if (i) such settlement,
compromise or consent is entered into or made or given by the indemnified party
without the consent of the indemnifying party; and (ii) the indemnifying party
has not unreasonably withheld or delayed any such consent.
(d) If the indemnification provided for in this Section 8 is unavailable to
or insufficient to hold harmless an indemnified party under subsection (a) or
(b) above in respect of any losses, claims, damages or liabilities (or actions
in respect thereof) referred to therein, then each indemnifying party shall
contribute
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to the amount paid or payable by such indemnified party as a result of such
losses, claims, damages or liabilities (or actions in respect thereof) in such
proportion as is appropriate to reflect the relative benefits received by the
indemnifying parties on the one hand and the indemnified parties on the other
from the offering of the Securities. If, however, the allocation provided by the
immediately preceding sentence is not permitted by applicable law or if the
indemnified party failed to give the notice required under Section 8(c) above,
then each indemnifying party shall contribute to such amount paid or payable by
such indemnified party in such proportion as is appropriate to reflect not only
such relative benefits but also the relative fault of the indemnifying parties
on the one hand and the indemnified parties on the other in connection with the
statements or omissions which resulted in such losses, claims, damages or
liabilities (or actions in respect thereof), as well as any other relevant
equitable considerations. The relative benefits received by the Company on the
one hand and the Purchaser on the other shall be deemed to be in the same
proportion as the total net proceeds from the offering (before deducting
expenses) received by the Company bear to the total discounts and commissions
received by the Purchaser, in each case as set forth in the Offering Circular.
The relative fault of a party shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the Company on the one hand or the Purchaser on the other and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission. The Company and the Purchaser
agree that it would not be just and equitable if contribution pursuant to this
subsection (d) were determined by pro rata allocation or by any other method of
allocation which does not take account of the equitable considerations referred
to above in this subsection (d). The amount paid or payable by an indemnified
party as a result of the losses, claims, damages or liabilities (or actions in
respect thereof) referred to above in this subsection (d) shall be deemed to
include 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 subsection (d), the Purchaser shall not
be required to contribute any amount in excess of the amount by which the
Securities purchased by the Purchaser exceeds the amount of any damages which
the Purchaser has otherwise been required to pay by reason of such untrue or
alleged untrue statement or omission or alleged omission.
(e) The obligations of the Company under this Section 8 shall be in
addition to any liability which the Company may otherwise have and shall extend,
upon the same terms and conditions, to each person, if any, who controls any
Purchaser within the meaning of the Act; and the obligations of the Purchaser
under this Section 8 shall be in addition to any liability which the Purchaser
may otherwise have and shall extend, upon the same terms and conditions, to each
officer and director of the Company and to each person, if any, who controls the
Company within the meaning of the Act.
9. The respective indemnities, agreements, representations, warranties
and other statements of the Company and the Purchaser, as set forth in this
Agreement or made by or on behalf of them, respectively, pursuant to this
Agreement, shall remain in full force and effect, regardless of any
investigation (or any statement as to the results thereof) made by or on behalf
of the Purchaser or any controlling person of the Purchaser, or the Company, or
any officer or director or controlling person of the Company, and shall survive
delivery of and payment for the Securities.
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10. The Purchaser, prior to the Time of Delivery, shall have the right to
terminate this Agreement and the transactions contemplated hereby if the
Purchaser reasonably objects to any information contained in the Offering
Circular not previously disclosed by the Company in any document filed by the
Company with the Commission pursuant to Sections 13(a), 13(c), 14 or 15 of the
Exchange Act prior to the date of this Agreement. If the Purchaser terminates
this Agreement in accordance with this Section 10, the Purchaser shall have no
liability to the Company or any of its affiliates.
11. If the Securities are not delivered by or on behalf of the Company as
provided herein, the Company will reimburse the Purchaser for all out-of-pocket
expenses, including fees and disbursements of counsel, reasonably incurred by
the Purchaser in making preparations for the purchase, sale and delivery of the
Securities, but the Company shall then be under no further liability to the
Purchaser except as provided in Sections 6 and 8 hereof.
12. All statements, requests, notices and agreements hereunder shall be in
writing, and if to the Purchaser shall be delivered or sent by mail, telex or
facsimile transmission to you as the representatives in care of Goldman, Sachs &
Co., 32 Old Slip, 9/th/ Floor, New York, New York 10004, Attention: Registration
Department; and if to the Company shall be delivered or sent by mail, telex or
facsimile transmission to the address of the Company set forth in the Offering
Circular, Attention: Chief Financial Officer. Any such statements, requests,
notices or agreements shall take effect upon receipt thereof.
13. This Agreement shall be binding upon, and inure solely to the benefit
of, the Purchaser, the Company and, to the extent provided in Sections 8 and 9
hereof, the officers and directors of the Company and each person who controls
the Company or the Purchaser, and their respective heirs, executors,
administrators, successors and assigns, and no other person shall acquire or
have any right under or by virtue of this Agreement. No purchaser of any of the
Securities from the Purchaser shall be deemed a successor or assign by reason
merely of such purchase.
14. Time shall be of the essence of this Agreement.
15. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH
THE LAWS OF THE STATE OF NEW YORK.
16. This Agreement may be executed by any one or more of the parties
hereto in any number of counterparts, each of which shall be deemed to be an
original, but all such respective counterparts shall together constitute one and
the same instrument.
19
<PAGE>
If the foregoing is in accordance with your understanding, please sign and
return to ten counterparts hereof, and upon the acceptance hereof by you, this
letter and such acceptance hereof shall constitute a binding agreement between
the Purchaser and the Company.
Very truly yours,
UNITED RENTALS (NORTH AMERICA), INC.
By:
------------------------------
Name:
Title:
Accepted as of the date hereof:
Goldman, Sachs & Co.
By:
------------------------------
(Goldman, Sachs & Co.)
20
<PAGE>
SCHEDULE I
PRINCIPAL AMOUNT
OF SECURITIES
PURCHASER TO BE PURCHASED
- --------- ---------------
Goldman, Sachs & Co .................................. $300,000,000
21
<PAGE>
EXHIBIT 10(uu)
UNITED RENTALS(NORTH AMERICA), INC.
as the Company
and
THE SUBSIDIARIES NAMED HEREIN
as Guarantors
to
STATE STREET BANK AND TRUST COMPANY
as Trustee
Indenture
Dated as of December 15, 1998
$300,000,000
93% Senior Subordinated Notes due 2009, Series A
$300,000,000
93% Senior Subordinated Notes due 2009, Series B
<PAGE>
CROSS REFERENCE TABLE1
<TABLE>
<CAPTION>
Trust Indenture Act Indenture
Section Section
- --------------------- --------------------
<S> <C>
310(a)(1)....................................................... 6.9
310(a)(2)....................................................... 6.9
310(a)(3)....................................................... N.A2
310(a)(4)....................................................... N.A.
310(a)(5)....................................................... N.A.
310(b).......................................................... 6.8;
6.10
310(c).......................................................... N.A.
311(a).......................................................... 6.13
311(b).......................................................... 6.13
311(c).......................................................... N.A.
312(a).......................................................... 7.1;
7.2
312(b).......................................................... 7.2
312(c).......................................................... 7.2
313(a).......................................................... 7.3
313(b).......................................................... 7.3
313(c).......................................................... 1.6
313(d).......................................................... 7.3
314(a).......................................................... 7.4
314(b).......................................................... N.A.
</TABLE>
<PAGE>
1. Note: This Cross Reference Table shall not, for any
purpose, be deemed part of this Indenture.
2. Not Applicable.
<TABLE>
<CAPTION>
Trust Indenture Act Indenture
Section Section
- --------------------- --------------------
<S> <C>
314(c)(1)....................................................... 1.2
314(c)(2)....................................................... 1.2
314(c)(3)....................................................... N.A.
314(d).......................................................... N.A.
314(e).......................................................... 1.2
314(f).......................................................... N.A.
315(a).......................................................... 6.1
315(b).......................................................... 6.2
315(c).......................................................... 6.1
315(d).......................................................... 6.1
315(e).......................................................... 5.14
316(a)(1)(A).................................................... 5.12
316(a)(1)(B).................................................... 5.13
316(a)(2)....................................................... N.A.
316(a)(last sentence)........................................... 1.13
316(b).......................................................... 5.7;
5.8
316(c).......................................................... 1.4
317(a)(1)....................................................... 5.3
317(a)(2)....................................................... 5.4
317(b).......................................................... 10.3
317(a).......................................................... 1.7
</TABLE>
3. Definition of "Outstanding."
<PAGE>
TABLE OF CONTENTS
ARTICLE I
Definitions and Other Provisions
of General Application
Page
----
SECTION 1.1 Definitions..... 2
8.80% Notes................... 3
41/2% Notes..................... 3
Acquired Indebtedness......... 3
Act........................... 3
Affiliate..................... 3
Asset Acquisition............. 3
Asset Sale.................... 4
Asset Sale Offer.............. 4
Asset Sale Offer Price........ 4
Asset Sale Purchase Date...... 4
Authenticating Agent.......... 4
Average Life to Stated
Maturity..................... 4
Board of Directors............ 5
Board Resolution.............. 5
Business Day.................. 5
Capital Stock................. 5
Capitalized Lease Obligation.. 5
Cash Equivalents.............. 6
Cedel......................... 6
Change of Control............. 6
Change of Control Offer....... 7
Change of Control Purchase
Date......................... 8
Change of Control Purchase
Price........................ 8
Note: This table of contents shall not, for any purpose, be deemed to be a part
of the Indenture.
i
<PAGE>
Code.......................... 8
Commission.................... 8
Common Stock.................. 8
Company....................... 8
Company Request............... 8
Company Order................. 8
Consolidated Cash Flow
Available for Fixed Charges.. 8
Consolidated Fixed Charge
Coverage Ratio............... 9
Consolidated Fixed Charges.... 10
Consolidated Income Tax
Expense...................... 10
Consolidated Interest Expense. 10
Consolidated Net Income....... 11
Consolidated Non-cash Charges. 11
Consolidated Rental Payments.. 11
control....................... 12
Corporate Trust Office........ 12
corporation................... 12
Covenant Defeasance........... 13
Credit Facility............... 13
Default....................... 13
Defeasance.................... 13
Depositary.................... 13
Designated Guarantor Senior
Indebtedness................. 13
Designated Senior Indebtedness 13
Disinterested Member of the
Board of Directors of the
Company...................... 14
Distribution Compliance Period 14
Euroclear..................... 14
Event of Default.............. 14
Excess Proceeds............... 14
Exchange Act.................. 14
Exchange Securities........... 14
Note: This table of contents shall not, for any purpose, be deemed to be a part
of the Indenture.
ii
<PAGE>
Expiration Date............... 14
Fair Market Value............. 14
Federal Bankruptcy Code....... 14
GAAP.......................... 14
Global Securities............. 15
guarantee..................... 15
Guarantor Senior Indebtedness. 15
Guarantor Subordinated
Indebtedness................. 16
Guaranty...................... 16
Guaranty Obligations.......... 16
Holder........................ 17
Holdings...................... 17
Indebtedness.................. 17
Indenture..................... 18
Initial Purchaser............. 18
Initial Securities............ 18
Interest Payment Date......... 18
Interest Rate Protection
Agreement.................... 18
Interest Rate Protection
Obligations.................. 19
Investment.................... 19
Issue Date.................... 19
Lien.......................... 19
Maturity Date................. 19
Moody's....................... 19
Net Cash Proceeds............. 19
Non-U.S. Person............... 20
Notice of Default............. 20
Offer......................... 20
Offer to Purchase............. 20
Offering Circular............. 23
Officer's Certificate......... 23
144A Global Security.......... 24
Opinion of Counsel............ 24
Note: This table of contents shall not, for any purpose, be deemed to be a part
of the Indenture.
iii
<PAGE>
Outstanding................... 24
Paying Agent.................. 25
Permitted Holder.............. 25
Permitted Indebtedness........ 25
Permitted Investments......... 29
Permitted Liens............... 29
Person........................ 32
Preferred Stock............... 32
Private Placement Legend...... 32
Public Equity Offering........ 32
Purchase Amount............... 32
Purchase Date................. 32
Qualified Equity Interest..... 32
Qualified Institutional Buyer. 33
Record Expiration Date........ 33
Redeemable Capital Stock...... 33
Redemption Date............... 33
Redemption Price.............. 33
Registrable Securities........ 33
Registration Rights Agreement. 33
Regular Record Date........... 33
Regulation S.................. 33
Regulation S Global Security.. 34
Reorganization................ 34
Replacement Assets............ 34
Required Filing Dates......... 34
Responsible Officer........... 34
Restricted Payments........... 34
Restricted Security........... 34
Restricted Subsidiary......... 35
Revocation.................... 35
Rule 144A..................... 35
S&P........................... 35
Note: This table of contents shall not, for any purpose, be deemed to be a part
of the Indenture.
iv
<PAGE>
Securities.................... 35
Securities Act................ 35
Security Register............. 35
Security Registrar............ 35
Senior Indebtedness........... 35
Significant Subsidiary........ 36
Special Record Date........... 36
Stated Maturity............... 36
Subordinated Indebtedness..... 37
Subsidiary.................... 37
Tangible Assets............... 37
Term Loan..................... 37
Trust Indenture Act........... 38
Trustee....................... 38
Unrestricted Securities....... 38
Unrestricted Subsidiary....... 38
U.S. Government Obligation.... 38
Vice President................ 38
Voting Stock.................. 38
Wholly-Owned Restricted
Subsidiary................... 38
<TABLE>
<CAPTION>
<S> <C> <C>
SECTION 1.2 Compliance Certificates and Opinions.............................. 39
SECTION 1.3 Form of Documents Delivered to Trustee............................ 40
SECTION 1.4 Acts of Holders; Record Dates..................................... 40
SECTION 1.5 Notices to Trustee, the Company or a Guarantor.................... 44
SECTION 1.6 Notice to Holders; Waiver......................................... 44
SECTION 1.7 Conflict with Trust Indenture Act................................. 45
SECTION 1.8 Effect of Headings and Table of Contents.......................... 45
SECTION 1.9 Successors and Assigns............................................ 45
SECTION 1.10 Separability Clause............................................... 45
SECTION 1.11 Benefits of Indenture............................................. 46
Note: This table of contents shall not, for any purpose, be deemed to be a part
of the Indenture.
</TABLE>
v
<PAGE>
<TABLE>
<CAPTION>
Page
------
<S> <C> <C>
SECTION 1.12 Governing Law..................................................... 46
SECTION 1.13 Legal Holidays.................................................... 46
ARTICLE II
Security Forms
SECTION 2.1 Forms Generally................................................... 46
ARTICLE III
The Securities
SECTION 3.1 Title and Terms................................................... 47
SECTION 3.2 Denominations..................................................... 48
SECTION 3.3 Execution, Authentication, Delivery and Dating.................... 48
SECTION 3.4 Temporary Securities.............................................. 50
SECTION 3.5 Registration, Registration of Transfer and Exchange............... 50
SECTION 3.6 Mutilated, Destroyed, Lost and Stolen Securities.................. 52
SECTION 3.7 Payment of Interest; Rights Preserved............................. 53
SECTION 3.8 Persons Deemed Owners............................................. 54
SECTION 3.9 Cancellation...................................................... 55
SECTION 3.10 Computation of Interest........................................... 55
SECTION 3.11 CUSIP and CINS Numbers............................................ 55
SECTION 3.12 Deposits of Monies................................................ 56
SECTION 3.13 Book-Entry Provisions for Global Securities....................... 56
SECTION 3.14 Special Transfer Provisions....................................... 57
</TABLE>
Note: This table of contents shall not, for any purpose, be deemed to be a part
of the Indenture.
vi
<PAGE>
Page
----
Satisfaction and Discharge
SECTION 4.1 Satisfaction and Discharge of Indenture................. 61
SECTION 4.2 Application of Trust Money.............................. 63
ARTICLE V
Remedies
SECTION 5.1 Events of Default....................................... 63
SECTION 5.2 Acceleration of Maturity; Rescission
and Annulment........................................... 66
SECTION 5.3 Collection of Indebtedness and Suits
for Enforcement by Trustee.............................. 67
SECTION 5.4 Trustee May File Proofs of Claim........................ 69
SECTION 5.5 Trustee May Enforce Claims Without
Possession of Securities................................ 69
SECTION 5.6 Application of Money Collected.......................... 70
SECTION 5.7 Limitation on Suits..................................... 70
SECTION 5.8 Unconditional Right of Holders to
Receive Principal, Premium and Interest................. 71
SECTION 5.9 Restoration of Rights and Remedies...................... 72
SECTION 5.10 Rights and Remedies Cumulative.......................... 72
SECTION 5.11 Delay or Omission Not Waiver............................ 72
SECTION 5.12 Control by Holders...................................... 73
SECTION 5.13 Waiver of Past Defaults................................. 73
SECTION 5.14 Undertaking for Costs................................... 73
SECTION 5.15 Waiver of Stay or Extension Laws........................ 74
ARTICLE VI
The Trustee
Note: This table of Contents shall not, for any purpose, be deemed to be
a part of the Indenture.
vii
<PAGE>
Page
----
SECTION 6.1 Certain Duties and Responsibilities..................... 75
SECTION 6.2 Notice of Defaults...................................... 76
SECTION 6.3 Certain Rights of Trustee............................... 76
SECTION 6.4 Not Responsible for Recitals or
Issuance of Securities.................................. 78
SECTION 6.5 May Hold Securities..................................... 78
SECTION 6.6 Money Held in Trust..................................... 79
SECTION 6.7 Compensation and Reimbursement.......................... 79
SECTION 6.8 Conflicting Interests................................... 80
SECTION 6.9 Corporate Trustee Required;
Eligibility............................................. 80
SECTION 6.10 Resignation and Removal; Appointment of
Successor............................................... 81
SECTION 6.11 Acceptance of Appointment by Successor.................. 83
SECTION 6.12 Merger, Conversion, Consolidation or
Succession to Business.................................. 83
SECTION 6.13 Preferential Collection of Claims
Against the Company or a Guarantor...................... 84
SECTION 6.14 Appointment of Authenticating Agent..................... 84
ARTICLE VII
Holders' Lists and Reports by Trustee and Company
SECTION 7.1 Company to Furnish Trustee Names and
Addresses of Holders.................................... 86
SECTION 7.2 Preservation of Information;
Communications to Holders............................... 87
SECTION 7.3 Reports by Trustee...................................... 87
SECTION 7.4 Reports by Company...................................... 87
ARTICLE VIII
Note: This table of Contents shall not, for any purpose, be deemed to be
a part of the Indenture.
viii
<PAGE>
Page
----
Consolidation, Merger, Conveyance, Transfer or Lease
SECTION 8.1 Company May Consolidate, Etc. Only on
Certain Terms........................................... 88
SECTION 8.2 Successor Substituted................................... 90
ARTICLE IX
Amendments; Waivers; Supplemental Indentures
SECTION 9.1 Amendments, Waivers and Supplemental
Indentures Without Consent of Holders................... 91
SECTION 9.2 Modifications, Amendments and Supplemental
Indentures with Consent of Holders...................... 92
SECTION 9.3 Execution of Supplemental Indentures.................... 93
SECTION 9.4 Effect of Supplemental Indentures....................... 94
SECTION 9.5 Conformity with Trust Indenture Act..................... 94
SECTION 9.6 Reference in Securities to Supplemental
Indentures.............................................. 94
SECTION 9.7 Waiver of Certain Covenants............................. 94
SECTION 9.8 No Liability for Certain Persons........................ 95
ARTICLE X
Covenants
SECTION 10.1 Payment of Principal, Premium and
Interest................................................ 95
SECTION 10.2 Maintenance of Office or Agency......................... 96
SECTION 10.3 Money for Security Payments to be Held
in Trust................................................ 96
SECTION 10.4 Existence; Activities................................... 98
Note: This table of Contents shall not, for any purpose, be deemed to be
a part of the Indenture.
ix
<PAGE>
Page
----
SECTION 10.5 Maintenance of Properties.............................. 98
SECTION 10.6 Payment of Taxes and Other Claims...................... 99
SECTION 10.7 Maintenance of Insurance............................... 99
SECTION 10.8 Limitation on Indebtedness............................. 99
SECTION 10.9 Limitation on Restricted Payments...................... 100
SECTION 10.10 Limitation on Preferred Stock of
Restricted Subsidiaries................................ 105
SECTION 10.11 Limitation on Transactions with
Affiliates............................................. 105
SECTION 10.12 Limitation on Liens.................................... 107
SECTION 10.13 Change of Control...................................... 107
SECTION 10.14 Disposition of Proceeds of
Asset Sales............................................ 108
SECTION 10.15 Limitation on Dividends and Other
Payment Restrictions Affecting Restricted
Subsidiaries........................................... 111
SECTION 10.16 Limitation on Issuance of Subordinated
Indebtedness........................................... 113
SECTION 10.17 Additional Subsidiary Guarantees....................... 113
SECTION 10.18 Limitations on Designation of
Unrestricted Subsidiaries.............................. 114
SECTION 10.19 Provision of Financial Information..................... 116
SECTION 10.20 Statement by Officers as to Default;
Compliance Certificates................................ 116
ARTICLE XI
Redemption of Securities
SECTION 11.1 Right of Redemption.................................... 117
SECTION 11.2 Applicability of Article............................... 117
SECTION 11.3 Election to Redeem; Notice to
Trustee................................................ 117
Note: This table of Contents shall not, for any purpose, be deemed to be
a part of the Indenture.
x
<PAGE>
Page
----
SECTION 11.4 Selection by Trustee of Securities to
Be Redeemed............................................ 118
SECTION 11.5 Notice of Redemption................................... 118
SECTION 11.6 Deposit of Redemption Price............................ 119
SECTION 11.7 Securities Payable on Redemption Date.................. 120
SECTION 11.8 Securities Redeemed in Part............................ 120
ARTICLE XII
Defeasance and Covenant Defeasance
SECTION 12.1 Company's Option to Effect Defeasance
or Covenant Defeasance................................. 121
SECTION 12.2 Defeasance and Discharge............................... 121
SECTION 12.3 Covenant Defeasance.................................... 122
SECTION 12.4 Conditions to Defeasance or Covenant
Defeasance............................................. 122
SECTION 12.5 Deposited Money and U.S. Government
Obligations to Be Held in Trust;
Miscellaneous Provisions............................... 125
SECTION 12.6 Reinstatement.......................................... 126
ARTICLE XIII
Guaranty
SECTION 13.1 Guaranty............................................... 127
SECTION 13.2 Limitation on Liability................................ 130
SECTION 13.3 Execution and Delivery of Guarantees................... 130
SECTION 13.4 Guarantors May Consolidate, Etc., on
Certain Terms.......................................... 131
SECTION 13.5 Release of Guarantors.................................. 131
SECTION 13.6 Successors and Assigns................................. 132
Note: This table of Contents shall not, for any purpose, be deemed to be
a part of the Indenture.
xi
<PAGE>
Page
----
SECTION 13.7 No Waiver, etc......................................... 132
SECTION 13.8 Modification, etc...................................... 132
SECTION 13.9 Subordination of Guarantees............................ 133
ARTICLE XIV
Subordination
SECTION 14.1 Securities Subordinate to Senior
Indebtedness and Senior to Subordinated
Indebtedness........................................... 133
SECTION 14.2 Payment Over of Proceeds Upon
Dissolution, Etc....................................... 133
SECTION 14.3 No Payment When Designated Senior
Indebtedness in Default................................ 134
SECTION 14.4 Subrogation to Rights of Holders of
Senior Indebtedness.................................... 136
SECTION 14.5 Provisions Solely to Define Relative
Rights................................................. 136
SECTION 14.6 Trustee to Effectuate Subordination.................... 137
SECTION 14.7 No Waiver of Subordination Provisions.................. 137
SECTION 14.8 Notice to Trustee...................................... 138
SECTION 14.9 Reliance on Judicial Order or
Certificate of Liquidating Agent....................... 139
SECTION 14.10 Trustee Not Fiduciary for Holders of
Senior Indebtedness.................................... 139
SECTION 14.11 Rights of Trustee as Holder of Senior
Indebtedness; Preservation of Trustee's
Rights................................................. 139
SECTION 14.12 Article Applicable to Paying Agents.................... 140
Note: This table of Contents shall not, for any purpose, be deemed to be
a part of the Indenture.
xii
<PAGE>
Page
----
Schedule A The Guarantors
Exhibit A-1 Form of Series A Security
Exhibit A-2 Form of Series B Security
Exhibit B Global Securities Legend
Exhibit C Transfer Letter
Exhibit D Form of Notation on Security Relating
to Guaranty
Note: This table of Contents shall not, for any purpose, be deemed to be
a part of the Indenture.
xiii
<PAGE>
INDENTURE, dated as of December 15, 1998, between United Rentals
(North America), Inc., a corporation duly organized and existing under the laws
of the State of Delaware (herein called the "Company"), having its principal
office at Four Greenwich Office Park, Greenwich, Connecticut 06830, the
Subsidiaries of the Company named in Schedule A (herein called the "Guarantors")
----------
and State Street Bank and Trust Company, a Massachusetts chartered trust company
having its principal office at Two International Place, Boston, MA 02110, as
trustee (herein called the "Trustee").
RECITALS OF THE COMPANY
The Company has duly authorized the creation of an issue of 9 1/4%
Senior Subordinated Notes due 2009 (the "Securities") of substantially the tenor
and amount hereinafter set forth, and to provide therefor the Company has duly
authorized the execution and delivery of this Indenture.
Each Guarantor desires to make the Guaranty provided herein and has
duly authorized the execution and delivery of this Indenture.
All things necessary to make the Securities, when executed by the
Company, authenticated and delivered hereunder and duly issued by the Company,
and each Guaranty, when executed and delivered hereunder by each Guarantor, the
valid obligations of the Company and each Guarantor, and to make this Indenture
a valid agreement of the Company and each Guarantor, in accordance with their
and its terms, have been done.
NOW, THEREFORE, THIS INDENTURE WITNESSETH:
For and in consideration of the premises and the purchase of the
Securities by the Holders (as defined herein) thereof, it is mutually covenanted
and
<PAGE>
agreed, for the equal and proportionate benefit of all Holders of the
Securities, as follows:
ARTICLE I
Definitions and Other Provisions
of General Application
SECTION 1.1 Definitions.
-----------
For all purposes of this Indenture, except as otherwise expressly
provided or unless the context otherwise requires:
(1) the terms defined in this Article have the meanings assigned to
them in this Article and include the plural as well as the singular;
(2) all other terms used herein which are defined in the Trust
Indenture Act, either directly or by reference therein, have the meanings
assigned to them therein;
(3) all accounting terms not otherwise defined herein have the
meanings assigned to them in accordance with GAAP (whether or not such is
indicated herein);
(4) unless the context otherwise requires, any reference to an
"Article" or a "Section" refers to an Article or Section, as the case may
be, of this Indenture;
(5) the words "herein," "hereof" and "hereunder" and other words of
similar import refer to this Indenture as a whole and not to
2
<PAGE>
any particular Article, Section or other sub-division; and
(6) each reference herein to a rule or form of the Commission shall
mean such rule or form and any rule or form successor thereto, in each case
as amended from time to time.
Whenever this Indenture requires that a particular ratio or amount be
calculated with respect to a specified period after giving effect to certain
transactions or events on a pro forma basis, such calculation shall be made as
if the transactions or events occurred on the first day of such period, unless
otherwise specified.
"8.80% Notes" means the $205 million aggregate principal amount of
-----------
8.80% Senior Subordinated Notes due 2008 issued by the Company under the
indenture, dated as of August 12, 1998, among the Company, as issuer, its United
States subsidiaries, as guarantors, and the Trustee.
"9 1/2% Notes" means the $200 million aggregate principal amount
------------
of 9 1/2% Senior Subordinated Notes due 2008 issued by the Company under the
indenture, dated as of May 22, 1998, among the Company, as issuer, its United
States subsidiaries, as guarantors, and the Trustee.
"Acquired Indebtedness" means Indebtedness of a Person (a) assumed in
---------------------
connection with an Asset Acquisition from such Person or (b) existing at the
time such Person becomes a Subsidiary of any other Person and not incurred in
connection with, or in contemplation of, such Asset Acquisition or such Person
becoming a Subsidiary.
3
<PAGE>
"Act," when used with respect to any Holder, has the meaning specified
---
in Section 1.4.
"Affiliate" means, with respect to any specified Person, (i) any other
---------
Person directly or indirectly controlling or controlled by or under direct or
indirect common control with such specified Person, (ii) any other Person that
owns, directly or indirectly, 10% or more of such specified Person's Capital
Stock, (iii) any officer or director of (A) any such specified Person, (B) any
Subsidiary of such specified Person or (C) any Person described in clauses (i)
or (ii) above.
"Asset Acquisition" means (a) an Investment by the Company or any
-----------------
Restricted Subsidiary of the Company in any other Person pursuant to which such
Person shall become a Restricted Subsidiary of the Company or any Restricted
Subsidiary of the Company, or shall be merged with or into the Company or any
Restricted Subsidiary of the Company, or (b) the acquisition by the Company or
any Restricted Subsidiary of the Company of the assets of any Person which
constitute all or substantially all of the assets of such Person, any division
or line of business of such Person or any other properties or assets of such
Person other than in the ordinary course of business.
"Asset Sale" means any sale, issuance, conveyance, transfer, lease or
----------
other disposition by the Company or any Restricted Subsidiary of the Company to
any Person other than the Company or a Restricted Subsidiary of the Company, of
(a) any Capital Stock of any Restricted Subsidiary of the Company; (b) all or
substantially all of the properties and assets of any division or line of
business of the Company or any Restricted Subsidiary of the Company; or (c) any
other properties or assets of the Company or any Restricted Subsidiary of the
Company, other than (i) sales of obsolete, damaged or used equipment or other
equipment
4
<PAGE>
or inventory sales in the ordinary course of business, (ii) sales of assets in
one or a series of related transactions for an aggregate consideration of less
than $1,000,000, (iii) sales of Permitted Investments, and (iv) sales of
accounts receivable for financing purposes. For the purposes of this definition,
the term "Asset Sale" shall not include any sale, issuance, conveyance,
transfer, lease or other disposition of properties or assets that is governed by
the provisions of Article VIII.
"Asset Sale Offer" has the meaning specified in Section 10.14.
----------------
"Asset Sale Offer Price" has the meaning specified in Section 10.14.
----------------------
"Asset Sale Purchase Date" has the meaning specified in Section 10.14.
------------------------
"Authenticating Agent" means any Person authorized by the Trustee
--------------------
pursuant to Section 6.14 hereof to act on behalf of the Trustee to authenticate
Securities.
"Average Life to Stated Maturity" means, with respect to any
-------------------------------
Indebtedness, as at any date of determination, the quotient obtained by dividing
(i) the sum of the products of (a) the number of years from such date to the
date or dates of each successive scheduled principal payment (including, without
limitation, any sinking fund requirements) of such Indebtedness and (b) the
amount of each such principal payment by (ii) the sum of all such principal
payments.
"Board of Directors" means the board of directors of a company or its
------------------
equivalent, including managers of a limited liability company, general partners
of a partnership or trustees of a business trust, or any duly authorized
committee thereof.
5
<PAGE>
"Board Resolution" means a copy of a resolution certified by the
----------------
Secretary or an Assistant Secretary of a company to have been duly adopted by
the Board of Directors of such company and to be in full force and effect on the
date of such certification, and delivered to the Trustee.
"Business Day" means each Monday, Tuesday, Wednesday, Thursday and
------------
Friday which is not a day on which banking institutions in the Borough of
Manhattan, The City of New York or Hartford, Connecticut are authorized or
obligated by law or executive order to close.
"Capital Stock" means, with respect to any Person, any and all shares,
-------------
interests, participations, rights in or other equivalents (however designated)
of such Person's capital stock or equity participations, and any rights (other
than debt securities convertible into capital stock), warrants or options
exchangeable for or convertible into such capital stock and, including, without
limitation, with respect to partnerships, limited liability companies or
business trusts, ownership interests (whether general or limited) and any other
interest or participation that confers on a Person the right to receive a share
of the profits and losses of, or distributions of assets of, such partnerships,
limited liability companies or business trusts.
"Capitalized Lease Obligation" means any obligation under a lease of
---------------------------
(or other agreement conveying the right to use) any property (whether real,
personal or mixed) that is required to be classified and accounted for as a
capital lease obligation under GAAP, and, for the purpose of this Indenture, the
amount of such obligation at any date shall be the capitalized amount thereof at
such date, determined in accordance with GAAP.
6
<PAGE>
"Cash Equivalents" means, at any time, (a) any evidence of
----------------
Indebtedness, maturing not more than one year after such time, issued or
guaranteed by the United States Government or any agency thereof, (b) commercial
paper, maturing not more than one year from the date of issue, or corporate
demand notes, in each case rated at least A-1 by S&P or P-1 by Moody's, (c) any
certificate of deposit (or time deposits represented by such certificates of
deposit) or bankers' acceptance, maturing not more than one year after such
time, or overnight Federal Funds transactions that are issued or sold by a
commercial banking institution that is a member of the Federal Reserve System
and has a combined capital and surplus and undivided profits of not less than
$500,000,000, (d) any repurchase agreement entered into with any commercial
banking institution of the stature referred to in clause (c) which (i) is
secured by a fully perfected security interest in any obligation of the type
described in any of clauses (a) through (c) and (ii) has a market value at the
time such repurchase agreement is entered into of not less than 100% of the
repurchase obligation of such commercial banking institution thereunder, and (e)
investments in short term asset management accounts managed by any bank party to
the Credit Facility or the Term Loan which are invested in indebtedness of any
state or municipality of the United States or of the District of Columbia and
which are rated under one of the two highest ratings then obtainable from S&P or
by Moody's or investments of the types described in clauses (a) through (d)
above, and (f) investments in funds investing primarily in investments of the
types described in clauses (a) through (e) above.
"Cedel" means Cedel Bank, societe anonyme.
----- ------- -------
"Change of Control" means the occurrence of any of the following
-----------------
events: (a) any "person" or "group" (as such terms are used in Sections 13(d)
and 14(d) of
7
<PAGE>
the Exchange Act), excluding Permitted Holders, is or becomes the
"beneficial owner" (as defined in Rules 13d-3 and 13d-5 under the Exchange Act,
except that a person shall be deemed to have "beneficial ownership" of all
securities that such person has the right to acquire, whether such right is
exercisable immediately or only after the passage of time), directly or
indirectly, of more than 50% of the total Voting Stock of the Company or
Holdings; provided, however, that a "Change of Control" shall not be deemed to
-------- -------
have occurred under this subclause (a) unless the Permitted Holders do not have
the right or ability by voting power, contract or otherwise to elect or
designate for election a majority of the Board of Directors of the Company or
Holdings; (b) the Company or Holdings consolidates with, or merges with or into,
another Person or sells, assigns, conveys, transfers, leases or otherwise
disposes of all or substantially all of its assets to any Person, or any Person
consolidates with, or merges with or into, the Company (or Holdings), in any
such event pursuant to a transaction in which the outstanding Voting Stock of
the Company or Holdings is converted into or exchanged for cash, securities or
other property, other than any such transaction where (i) the outstanding Voting
Stock of the Company or Holdings is converted into or exchanged for Voting Stock
(other than Redeemable Capital Stock) of the surviving or transferee corporation
and (ii) immediately after such transaction no "person" or "group" (as such
terms are used in Section 13(d) and 14(d) of the Exchange Act), excluding
Permitted Holders, is the "beneficial owner" (as defined in Rules 13d-3 and 13d-
5 under the Exchange Act, except that a person shall be deemed to have
"beneficial ownership" of all securities that such person has the right to
acquire, whether such right is exercisable immediately or only after the passage
of time), directly or indirectly, of more than 50% of the total Voting Stock of
the surviving or transferee corporation; (c) during any consecutive two-year
period, individuals who at the beginning of such period
8
<PAGE>
constituted the Board of Directors of the Company or Holdings (together with any
new directors whose election by such Board of Directors or whose nomination for
election by the stockholders of the Company or Holdings was approved by a vote
of 66-2/3% of the directors then still in office who were either directors at
the beginning of such period or whose election or nomination for election was
previously so approved) cease for any reason to constitute a majority of the
Board of Directors of the Company or Holdings then in office; or (d) the Company
is liquidated or dissolved or adopts a plan of liquidation.
"Change of Control Offer" has the meaning specified in Section 10.13.
-----------------------
"Change of Control Purchase Date" has the meaning specified in Section
-------------------------------
10.13.
"Change of Control Purchase Price" has the meaning specified in
--------------------------------
Section 10.13.
"Code" means the Internal Revenue Code of 1986, as amended from time
----
to time, and the rules and regulations thereunder.
"Commission" means the Securities and Exchange Commission, as from
----------
time to time constituted, created under the Exchange Act, or, if at any time
after the execution of this instrument such Commission is not existing and
performing the duties now assigned to it under the Trust Indenture Act, then the
body performing such duties at such time.
"Common Stock" means the common stock, par value $.01 per share, of
------------
Holdings.
"Company" means the Person named as the "Company" in the first
-------
paragraph of this instrument until a
9
<PAGE>
successor Person shall have become such pursuant to the applicable provisions of
this Indenture and thereafter "Company" shall mean such successor Person.
"Company Request" or "Company Order" means a written request or order
--------------- -------------
signed in the name of the Company by its Chairman of the Board, its Chief
Executive Officer, its Chief Financial Officer, its President or a Vice
President, and by its Treasurer, an Assistant Treasurer, its Secretary or an
Assistant Secretary, and delivered to the Trustee or Paying Agent, as
applicable.
"Consolidated Cash Flow Available for Fixed Charges" means, with
--------------------------------------------------
respect to any Person for any period, (i) the sum of, without duplication, the
amounts for such period, taken as a single accounting period, of (a)
Consolidated Net Income, (b) Consolidated Non-cash Charges, (c) Consolidated
Interest Expense, (d) Consolidated Income Tax Expense (other than income tax
expense (either positive or negative) attributable to extraordinary gains or
losses), (e) one-third of Consolidated Rental Payments, and (f) if any Asset
Sale or Asset Acquisition shall have occurred since the first day of any four
quarter period for which "Consolidated Cash Flow Available for Fixed Charges" is
being calculated (including to the date of calculation) (A) the cost of any
compensation, remuneration or other benefit paid or provided to any employee,
consultant, Affiliate or equity owner of the entity involved in any such Asset
Acquisition to the extent such costs are eliminated or reduced (or public
announcement has been made of the intent to eliminate or reduce such costs)
prior to the date of such calculation and not replaced and (B) the amount of any
reduction in general, administrative or overhead costs of the entity involved in
any such Asset Acquisition or Asset Sale, to the extent such amounts under
clauses (A) and (B) would be permitted to be eliminated in a pro forma income
statement prepared in accordance with Rule 11-02 of Regulation S-X, less (ii)(x)
10
<PAGE>
non-cash items increasing Consolidated Net Income and (y) all cash payments
during such period relating to non-cash charges that were added back in
determining Consolidated Cash Flow Available for Fixed Charges in the most
recent Four Quarter Period (as defined in the definition of "Consolidated Fixed
Charge Coverage Ratio").
"Consolidated Fixed Charge Coverage Ratio" means, with respect to any
----------------------------------------
Person, the ratio of the aggregate amount of Consolidated Cash Flow Available
for Fixed Charges of such Person for the four full fiscal quarters, treated as
one period, for which financial information in respect thereof is available
immediately preceding the date of the transaction (the "Transaction Date")
giving rise to the need to calculate the Consolidated Fixed Charge Coverage
Ratio (such four full fiscal quarter period being referred to herein as the
"Four Quarter Period") to the aggregate amount of Consolidated Fixed Charges of
such Person for the Four Quarter Period. In calculating "Consolidated Fixed
Charges" for purposes of determining the denominator (but not the numerator) of
this "Consolidated Fixed Charge Coverage Ratio," (i) interest on outstanding
Indebtedness determined on a fluctuating basis as of the Transaction Date and
which will continue to be so determined thereafter shall be deemed to have
accrued at a fixed rate per annum equal to the rate of interest on such
Indebtedness in effect on the Transaction Date; and (ii) if interest on any
Indebtedness actually incurred on the Transaction Date may optionally be
determined at an interest rate based upon a factor of a prime or similar rate, a
eurocurrency interbank offered rate, or other rates, then the interest rate in
effect on the Transaction Date will be deemed to have been in effect during the
Four Quarter Period. If such Person or any of its Restricted Subsidiaries
directly or indirectly guarantees Indebtedness of a third Person, the above
clause shall give effect to the incurrence of such guaranteed Indebtedness
11
<PAGE>
as if such Person or such Subsidiary had directly incurred or otherwise assumed
such guaranteed Indebtedness.
"Consolidated Fixed Charges" means, with respect to any Person for any
--------------------------
period, the sum of, without duplication, the amounts for such period of (i)
Consolidated Interest Expense, (ii) the aggregate amount of dividends and other
distributions paid or accrued during such period in respect of Redeemable
Capital Stock of such Person and its Restricted Subsidiaries on a consolidated
basis and (iii) one-third of Consolidated Rental Payments.
"Consolidated Income Tax Expense" means, with respect to any Person
-------------------------------
for any period, the provision for federal, state, local and foreign income taxes
of such Person and its Restricted Subsidiaries for such period as determined on
a consolidated basis in accordance with GAAP.
"Consolidated Interest Expense" means, with respect to any Person for
-----------------------------
any period, without duplication, the sum of (i) the interest expense of such
Person and its Restricted Subsidiaries for such period as determined on a
consolidated basis in accordance with GAAP, including, without limitation, (a)
any amortization of debt discount, (b) the net cost under Interest Rate
Protection Obligations (including any amortization of discounts), (c) the
interest portion of any deferred payment obligation, (d) all commissions,
discounts and other fees and charges owed with respect to letters of credit,
bankers' acceptance financing or similar facilities and (e) all accrued interest
and (ii) the interest component of Capitalized Lease Obligations paid, accrued
and/or scheduled to be paid or accrued by such Person and its Restricted
Subsidiaries during such period as determined on a consolidated basis in
accordance with GAAP.
12
<PAGE>
"Consolidated Net Income" means, with respect to any Person, for any
-----------------------
period, the consolidated net income (or loss) of such Person and its Restricted
Subsidiaries for such period as determined in accordance with GAAP, adjusted, to
the extent included in calculating such net income, by excluding, without
duplication, (i) all extraordinary gains or losses (net of fees and expenses
relating to the transaction giving rise thereto), (ii) the portion of net income
of such Person and its Restricted Subsidiaries allocable to minority interests
in unconsolidated Persons or to Investments in Unrestricted Subsidiaries to the
extent that cash dividends or distributions have not actually been received by
such Person or one of its Restricted Subsidiaries, (iii) net income (or loss) of
any Person combined with such Person or one of its Restricted Subsidiaries on a
"pooling of interests" basis attributable to any period prior to the date of
combination, (iv) gains or losses in respect of any Asset Sales by such Person
or one of its Restricted Subsidiaries (net of fees and expenses relating to the
transaction giving rise thereto), on an after-tax basis, (v) the net income of
any Restricted Subsidiary of such Person to the extent that the declaration of
dividends or similar distributions by that Restricted Subsidiary of that income
is not at the time permitted, directly or indirectly, by operation of the terms
of its charter or any agreement, instrument, judgment, decree, order, statute,
rule or governmental regulations applicable to that Restricted Subsidiary or its
stockholders and (vi) any gain or loss realized as a result of the cumulative
effect of a change in accounting principles.
"Consolidated Non-cash Charges" means, with respect to any Person for
-----------------------------
any period, the aggregate depreciation, amortization (including amortization of
goodwill and other intangibles) and other non-cash expenses of such Person and
its Restricted Subsidiaries reducing Consolidated Net Income of such Person and
its
13
<PAGE>
Restricted Subsidiaries for such period, determined on a consolidated basis
in accordance with GAAP (excluding any such charges constituting an
extraordinary item or loss).
"Consolidated Rental Payments" of any Person means, for any period,
----------------------------
the aggregate rental obligations of such Person and its Restricted Subsidiaries
(not including taxes, insurance, maintenance and similar expenses that the
lessee is obligated to pay under the terms of the relevant leases), determined
on a consolidated basis in accordance with GAAP, payable in respect of such
period (net of income from subleases thereof, not including taxes, insurance,
maintenance and similar expenses that the sublessee is obligated to pay under
the terms of such sublease), whether or not such obligations are reflected as
liabilities or commitments on a consolidated balance sheet of such Person and
its Restricted Subsidiaries or in the notes thereto, excluding, however, in any
--------- -------
event, (i) that portion of Consolidated Interest Expense of such Person
representing payments by such Person or any of its Restricted Subsidiaries in
respect of Capitalized Lease Obligations (net of payments to such Person or any
of its Restricted Subsidiaries under subleases qualifying as capitalized lease
subleases to the extent that such payments would be deducted in determining
Consolidated Interest Expense) and (ii) the aggregate amount of amortization of
obligations of such Person and its Restricted Subsidiaries in respect of such
Capitalized Lease Obligations for such period (net of payments to such Person or
any of its Restricted Subsidiaries and subleases qualifying as capitalized lease
subleases to the extent that such payments could be deducted in determining such
amortization amount).
"control" when used with respect to any specified Person means the
-------
power to direct the management and policies of such Person, directly or
indirectly, whether
14
<PAGE>
through ownership of voting securities, by contract or otherwise; and the terms
"controlling" and "controlled" have meanings correlative to the foregoing.
"Corporate Trust Office" means the office of the Trustee at which at
----------------------
any particular time its corporate trust business shall be administered, which
address as of the date of this Indenture is located at Goodwin Square, 23rd
Floor, 225 Asylum Street, Hartford, CT 06103, Attention: Corporate Trust,
Administration.
"corporation" means (except in the definition of "Subsidiary") a
-----------
corporation, association, company, joint-stock company or business trust.
"Covenant Defeasance" has the meaning specified in Section 12.3.
-------------------
"Credit Facility" means the Credit Agreement dated as of September 29,
---------------
1998, among the Company, Holdings, United Rentals of Canada, Inc., various
financial institutions, Bank of America Canada, as Canadian Agent, and Bank of
America National Trust and Savings Association, as U.S. Agent, including any
notes, guarantees, collateral documents, instruments and agreements executed in
connection therewith, and in each case as amended (including any amendment and
restatement thereof), modified, renewed, refunded, replaced or refinanced from
time to time, including any agreement extending the maturity of, refinancing,
replacing or otherwise restructuring (including increasing the amount of
available borrowings thereunder or adding Subsidiaries of the Company as
additional borrowers or guarantors thereunder) all or any portion of the
Indebtedness under such agreement or any successor or replacement agreement and
whether by the same or any other agents, lender or group of lenders.
15
<PAGE>
"Default" means any event that is, or after notice or passage of time,
-------
or both, would be, an Event of Default.
"Defeasance" has the meaning specified in Section 12.2.
----------
"Depositary" means The Depository Trust Company, or its successor.
----------
"Designated Guarantor Senior Indebtedness" means, with respect to a
----------------------------------------
Guarantor, amounts owing by such Guarantor under the Credit Facility or the Term
Loan and guarantees by such Guarantor of Designated Senior Indebtedness.
"Designated Senior Indebtedness" means (i) all Indebtedness under the
------------------------------
Credit Facility and the Term Loan and (ii) any other issue of Senior
Indebtedness which (a) at the time of the determination is equal to or greater
than $25,000,000 in aggregate principal amount and (b) is specifically
designated by the Company in the instrument evidencing such Senior Indebtedness
as "Designated Senior Indebtedness."
"Disinterested Member of the Board of Directors of the Company" means,
-------------------------------------------------------------
with respect to any transaction or series of transactions, a member of the Board
of Directors of the Company other than a member who has any material direct or
indirect financial interest in or with respect to such transaction or series of
transactions or who is an Affiliate, officer, director or an employee of any
Person (other than the Company or Holdings) who has any direct or indirect
financial interest in or with respect to such transaction or series of
transactions.
"Distribution Compliance Period" has the meaning set forth in Section
------------------------------
3.14.
16
<PAGE>
"Euroclear" means Morgan Guaranty Trust Company of New York, Brussels
---------
Office, as operator of the Euroclear System.
"Event of Default" has the meaning specified in Section 5.1.
----------------
"Excess Proceeds" has the meaning specified in Section 10.14.
---------------
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
------------
"Exchange Securities" has the meaning specified in the form of the
-------------------
Security in Exhibit A.
"Expiration Date" shall have the meaning set forth in the definition
---------------
of "Offer to Purchase."
"Fair Market Value" means, with respect to any asset, the price which
-----------------
could be negotiated in an arm's-length free market transaction, for cash,
between a willing seller and a willing buyer, neither of which is under pressure
or compulsion to complete the transaction. Fair Market Value shall be
determined by the Board of Directors of the Company in good faith.
"Federal Bankruptcy Code" means Title 11, U.S. Code.
-----------------------
"GAAP" means generally accepted accounting principles set forth in the
----
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as may be approved by a significant segment of the accounting
profession of the United States of America, which are applicable at the date of
the Indenture.
17
<PAGE>
"Global Securities" means one or more Regulation S Global Securities
-----------------
and 144A Global Securities.
"guarantee" means, as applied to any obligation, (i) a guarantee
---------
(other than by endorsement of negotiable instruments for collection in the
ordinary course of business), direct or indirect, in any manner, of any part or
all of such obligation and (ii) an agreement, direct or indirect, contingent or
otherwise, the practical effect of which is to assure in any way the payment or
performance (or payment of damages in the event of nonperformance) of all or any
part of such obligation, including, without limiting the foregoing, the payment
of amounts available to be drawn down under letters of credit of another Person.
The term "guarantee" used as a verb has a corresponding meaning. The term
"guarantor" shall mean any Person providing a guarantee of any obligation.
"Guarantor Senior Indebtedness" of a Guarantor means the principal of,
-----------------------------
premium, if any, and interest on any Indebtedness of such Guarantor, whether
outstanding on the Issue Date or thereafter created, incurred or assumed,
unless, in the case of any particular Indebtedness, the instrument creating or
evidencing the same or pursuant to which the same is outstanding expressly
provides that such Indebtedness shall not be senior in right of payment to the
Notes or such Guarantor's Guaranty. Without limiting the generality of the
foregoing, (x) "Guarantor Senior Indebtedness" shall include the principal of,
premium, if any, and interest on all obligations of every nature of such
Guarantor from time to time owed to the lenders under the Credit Facility and
the Term Loan, including, without limitation, principal of and interest on, and
all fees, indemnities and expenses payable under the Credit Facility and the
Term Loan, and (y) in the case of Designated Senior Indebtedness, "Guarantor
Senior Indebtedness" shall include interest accruing thereon subsequent to the
18
<PAGE>
occurrence of any Event of Default specified in clause (7) or (8) of Section 5.1
relating to such Guarantor, whether or not the claim for such interest is
allowed under any applicable bankruptcy laws. Notwithstanding the foregoing,
"Guarantor Senior Indebtedness" shall not include (a) Indebtedness evidenced by
the Notes or the Guarantees, (b) Indebtedness that is expressly subordinate or
junior in right of payment to any Indebtedness of such Guarantor, including the
Guarantor's Guarantee of the 9 1/2% Notes and the 8.80% Notes, (c) Indebtedness
which, when incurred and without respect to any election under Section 1111(b)
of Title 11, United States Code, is without recourse to such Guarantor, (d)
Indebtedness which is represented by Redeemable Capital Stock, (e) Indebtedness
for goods, materials or services purchased in the ordinary course of business or
Indebtedness consisting of trade payables or other current liabilities (other
than any current liabilities owing under the Credit Facility, or the current
portion of any long-term Indebtedness (including the Term Loan) which would
constitute Guarantor Senior Indebtedness but for the operation of this clause
(e)), (f) Indebtedness of or amounts owed by such Guarantor for compensation to
employees or for services rendered to such Guarantor, (g) any liability for
federal, state, local or other taxes owed or owing by such Guarantor, (h)
Indebtedness of such Guarantor to the Company or a Subsidiary of the Company or
any other Affiliate of the Company or any of such Affiliate's Subsidiaries, (i)
that portion of any Indebtedness which is incurred by such Guarantor in
violation of this Indenture and (j) amounts owing under leases.
"Guarantor Subordinated Indebtedness" means, with respect to a
-----------------------------------
Guarantor, indebtedness and other obligations of such Guarantor which are
expressly subordinated in right of payment to such Guarantor's Guaranty.
19
<PAGE>
"Guaranty" means each guaranty of the Securities contained in Article
--------
XIII given by each Guarantor.
"Guaranty Obligations" means, with respect to each Guarantor, the
--------------------
obligations of such Guarantor under Article XIII.
"Holder" means a Person in whose name a Security is registered in the
------
Security Register.
"Holdings" means United Rentals, Inc., a corporation duly organized
--------
and existing under the laws of the State of Delaware.
"Indebtedness" means, with respect to any Person, without duplication,
------------
(a) all liabilities of such Person for borrowed money or for the deferred
purchase price of property or services, excluding any trade payables and other
accrued current liabilities incurred in the ordinary course of business, but
including, without limitation, all obligations, contingent or otherwise, of such
Person in connection with any letters of credit, banker's acceptance or other
similar credit transaction, (b) all obligations of such Person evidenced by
bonds, notes, debentures or other similar instruments, (c) all indebtedness
created or arising under any conditional sale or other title retention agreement
with respect to property acquired by such Person (even if the rights and
remedies of the seller or lender under such agreement in the event of default
are limited to repossession or sale of such property), but excluding trade
accounts payable arising in the ordinary course of business, (d) all Capitalized
Lease Obligations of such Person, (e) all Indebtedness referred to in the
preceding clauses of other Persons and all dividends of other Persons, the
payment of which is secured by (or for which the holder of such Indebtedness has
an existing right, contingent or otherwise, to be secured by) any Lien upon
property (including, without limitation,
20
<PAGE>
accounts and contract rights) owned by such Person, even though such Person has
not assumed or become liable for the payment of such Indebtedness (the amount of
such obligation being deemed to be the lesser of the value of such property or
asset or the amount of the obligation so secured), (f) all guarantees of
Indebtedness referred to in this definition by such Person, (g) all Redeemable
Capital Stock of such Person valued at the greater of its voluntary or
involuntary maximum fixed repurchase price plus accrued dividends, (h) all
obligations under or in respect of Interest Rate Protection Obligations of such
Person, and (i) any amendment, supplement, modification, deferral, renewal,
extension, refinancing or refunding of any liability of the types referred to in
clauses (a) through (h) above; provided, however, that Indebtedness shall not
-------- -------
include (i) any holdback or escrow of the purchase price of property, services,
businesses or assets or (ii) any contingent payment obligations incurred in
connection with the acquisition of assets or business, which are contingent on
the performance of the assets or businesses so acquired. For purposes hereof,
the "maximum fixed repurchase price" of any Redeemable Capital Stock which does
not have a fixed repurchase price shall be calculated in accordance with the
terms of such Redeemable Capital Stock as if such Redeemable Capital Stock were
purchased on any date on which Indebtedness shall be required to be determined
pursuant hereto, and if such price is based upon, or measured by, the fair
market value of such Redeemable Capital Stock, such fair market value shall be
approved in good faith by the Board of Directors of the issuer of such
Redeemable Capital Stock. In the case of Indebtedness of other Persons, the
payment of which is secured by a Lien on property owned by a Person as referred
to in clause (e) above, the amount of the Indebtedness of such Person
attributable to such Lien at any date shall be the lesser of the Fair Market
Value at such date of any asset subject to such Lien and the amount of the
Indebtedness secured.
21
<PAGE>
"Indenture" means this instrument as originally executed or as it may
---------
from time to time be supplemented or amended by one or more indentures
supplemental hereto entered into pursuant to the applicable provisions hereof,
including, for all purposes of this instrument and any such supplemental
indenture, the provisions of the Trust Indenture Act that are deemed to be a
part of and govern this instrument and any such supplemental indenture,
respectively.
"Initial Purchaser" means Goldman, Sachs & Co.
-----------------
"Initial Securities" means the 93% Senior Subordinated Notes due 2009,
------------------
Series A, of the Company.
"Interest Payment Date" means the Stated Maturity of an installment of
---------------------
interest on the Securities.
"Interest Rate Protection Agreement" means, with respect to any
----------------------------------
Person, any arrangement with any other Person whereby, directly or indirectly,
such Person is entitled to receive from time to time periodic payments
calculated by applying either a floating or a fixed rate of interest on a stated
notional amount in exchange for periodic payments made by such Person calculated
by applying a fixed or a floating rate of interest on the same notional amount
and shall include, without limitation, interest rate swaps, caps, floors,
collars and similar agreements.
"Interest Rate Protection Obligations" means the obligations of any
------------------------------------
Person pursuant to any Interest Rate Protection Agreements.
"Investment" means, with respect to any Person, any direct or indirect
----------
loan or other extension of credit (including, without limitation, a guarantee)
or capital contribution to (by means of any transfer of cash or other property
to others or any payment for
22
<PAGE>
property or services for the account or use of others), or any purchase or
acquisition by such Person of any Capital Stock, bonds, notes, debentures or
other securities or evidences of Indebtedness issued by, any other Person.
"Issue Date" means the original date of issuance of the Initial
----------
Securities.
"Lien" means any mortgage, charge, pledge, lien (statutory or other),
----
security interest, hypothecation, assignment for security, claim, or preference
or priority or other encumbrance upon or with respect to any property of any
kind. A Person shall be deemed to own subject to a Lien any property which such
Person has acquired or holds subject to the interest of a vendor or lessor under
any conditional sale agreement, capital lease or other title retention
agreement.
"Maturity Date" means January 15, 2009.
------------
"Moody's" means Moody's Investors Service, Inc. and its successors.
-------
"Net Cash Proceeds" means, with respect to any Asset Sale, the
-----------------
proceeds thereof in the form of cash or Cash Equivalents including payments in
respect of deferred payment obligations when received in the form of cash or
Cash Equivalents (except to the extent that such obligations are financed or
sold with recourse to the Company or any Restricted Subsidiary of the Company)
net of (i) brokerage commissions and other fees and expenses (including, without
limitation, fees and expenses of legal counsel and investment bankers, recording
fees, transfer fees and appraisers' fees) related to such Asset Sale, (ii)
provisions for all taxes payable as a result of such Asset Sale, (iii) amounts
required to be paid to any Person (other than the Company or any Restricted
Subsidiary of the Company) owning a beneficial
23
<PAGE>
interest in the assets subject to the Asset Sale, (iv) payments made to retire
Indebtedness where payment of such Indebtedness is secured by the assets or
properties the subject of such Asset Sale, and (v) appropriate amounts to be
provided by the Company or any Restricted Subsidiary of the Company, as the case
may be, as a reserve required in accordance with GAAP against any liabilities
associated with such Asset Sale and retained by the Company or any Restricted
Subsidiary of the Company, as the case may be, after such Asset Sale, including,
without limitation, pension and other post-employment benefit liabilities,
liabilities related to environmental matters and liabilities under any
indemnification obligations associated with such Asset Sale, all as reflected in
an Officer's Certificate delivered to the Trustee.
"Non-U.S. Person" means a Person that is not a U.S. Person as such
---------------
term is defined in Regulation S.
"Notice of Default" means a written notice of the kind specified in
-----------------
Section 5.2.
"Offer" means a Change of Control Offer or an Asset Sale Offer.
-----
"Offer to Purchase" means an Offer sent by or on behalf of the Company
-----------------
by first-class mail, postage prepaid, to each Holder of Securities at its
address appearing in the register for the Securities on the date of the Offer
offering to purchase up to the principal amount of Securities specified in such
Offer at the purchase price specified in such Offer (as determined pursuant to
this Indenture). Unless otherwise provided in Section 10.13 or 10.14 or
otherwise required by applicable law, the Offer shall specify an expiration date
(the "Expiration Date") of the Offer to Purchase, which shall be not less than
---------------
20 Business Days nor more than 60 days after the date of such Offer (or such
later date as
24
<PAGE>
may be necessary for the Company to comply with the Exchange Act), and a
settlement date (the "Purchase Date") for purchase of Securities to occur
-------------
no later than five Business Days after the Expiration Date. The Company shall
notify the Trustee at least 15 Business Days (or such shorter period as is
acceptable to the Trustee) prior to the mailing of the Offer of the Company's
obligation to make an Offer to Purchase, and the Offer shall be mailed by the
Company or, at the Company's request, by the Trustee in the name and at the
expense of the Company. The Offer shall contain all the information required by
applicable law to be included therein. The Offer shall contain all instructions
and materials necessary to enable such Holders to tender Securities pursuant to
the Offer to Purchase. The Offer shall also state:
(1) the Section of this Indenture pursuant to which the Offer to
Purchase is being made;
(2) the Expiration Date and the Purchase Date;
(3) the purchase price to be paid by the Company for each $1,000
aggregate principal amount of Securities accepted for payment (as
specified pursuant to this Indenture) (the "Purchase Price"); and the
--------------
amount of accrued and unpaid interest to be paid;
(4) that the Holder may tender all or any portion of the
Securities registered in the name of such Holder and that any portion
of a Security tendered must be tendered in an integral multiple of
$1,000 principal amount;
25
<PAGE>
(5) the place or places where Securities are to be surrendered
for tender pursuant to the Offer to Purchase;
(6) that interest on any Security not tendered or tendered but
not purchased by the Company pursuant to the Offer to Purchase will
continue to accrue;
(7) that on the Purchase Date the Purchase Price will become due
and payable upon each Security being accepted for payment pursuant to
the Offer to Purchase and that interest thereon shall cease to accrue
on and after the Purchase Date;
(8) that each Holder electing to tender all or any portion of a
Security pursuant to the Offer to Purchase will be required to
surrender such Security at the place or places specified in the Offer
prior to the close of business on the Expiration Date (such Security
being, if the Company or the Trustee so requires, duly endorsed by, or
accompanied by a written instrument of transfer in form satisfactory
to the Company and the Trustee duly executed by the Holder thereof or
his attorney duly authorized in writing);
(9) that Holders will be entitled to withdraw all or any portion
of Securities tendered if the Company (or its Paying Agent) receives,
not later than the close of business on the fifth Business Day next
preceding the Expiration Date, a facsimile transmission or letter
setting forth the name of the Holder, the principal amount of the
Security the Holder tendered, the certificate number of the Security
the Holder tendered and a statement
26
<PAGE>
that such Holder is withdrawing all or a portion of his tender;
(10) that (a) if Securities purchasable at an aggregate Purchase
Price less than or equal to the Purchase Amount are duly tendered and
not withdrawn pursuant to the Offer to Purchase, the Company shall
purchase all such Securities and (b) if Securities purchasable at an
aggregate Purchase Price in excess of the Purchase Amount are tendered
and not withdrawn pursuant to the Offer to Purchase, the Company shall
purchase Securities on a pro rata basis based on the Purchase Price
--------
therefor or such other method as the Trustee shall deem fair and
appropriate (subject in each case to applicable rules of the
Depositary and any securities exchange upon which the Securities may
then be listed), with such adjustments as may be deemed appropriate so
that only Securities in denominations of $1,000 principal face amount
or integral multiples thereof shall be purchased; notwithstanding the
foregoing, if the Company is required to commence an Asset Sale Offer
at any time when securities of the Company ranking pari passu in right
of payment with the Securities are outstanding and the terms of such
securities provide that a similar offer must be made with respect to
such other securities, then the Asset Sale Offer for the Securities
shall be made concurrently with such other offers and securities of
each issue will be accepted on a pro rata basis in proportion to the
aggregate principal amount of securities of each issue which the
holders thereof elect to have purchased; and
27
<PAGE>
(11) that in the case of a Holder whose Security is purchased
only in part, the Company shall execute and the Trustee shall
authenticate and deliver to the Holder of such Security without
service charge, a new Security or Securities, of any authorized
denomination as requested by such Holder, in an aggregate principal
amount equal to and in exchange for the unpurchased portion of the
Security so tendered.
An Offer to Purchase shall be governed by and effected in accordance with the
provisions of this Indenture pertaining to the type of Offer to which it
relates.
"Offering Circular" means the Offering Circular dated December 8, 1998
-----------------
pursuant to which the Securities were offered, and any supplement thereto.
"Officer's Certificate" means a certificate signed by the Chairman of
---------------------
the Board, the Chief Executive Officer, the President or a Vice President, the
Chief Financial Officer, the Treasurer, an Assistant Treasurer, the Secretary or
an Assistant Secretary, of the Company, and delivered to the Trustee. One of
the officers signing an Officer's Certificate given pursuant to Section 10.20
shall be the principal executive, financial or accounting officer of the
Company.
"144A Global Security" means a permanent global security in registered
--------------------
form representing the aggregate principal amount of Securities sold in reliance
on Rule 144A under the Securities Act.
"Opinion of Counsel" means a written opinion of counsel, who may be
------------------
counsel for the Company, and who shall be reasonably acceptable to the Trustee.
28
<PAGE>
"Outstanding," when used with respect to Securities, means, as of the
-----------
date of determination, all Securities theretofore authenticated and delivered
under this Indenture, except:
------
(i) Securities theretofore cancelled by the Trustee or delivered to
the Trustee for cancellation;
(ii) Securities for whose payment or redemption money in the
necessary amount has been theretofore deposited with the Trustee or any
Paying Agent (other than the Company) in trust or set aside and segregated
in trust by the Company (if the Company shall act as its own Paying Agent)
for the Holders of such Securities; provided that, if such Securities are
-------- ----
to be redeemed, notice of such redemption has been duly given pursuant to
this Indenture or provision therefor satisfactory to the Trustee has been
made;
(iii) Securities which have been paid pursuant to Section 3.6 or in
exchange for or in lieu of which other Securities have been authenticated
and delivered pursuant to this Indenture, other than any such Securities in
respect of which there shall have been presented to the Trustee proof
satisfactory to it that such Securities are held by a bona fide purchaser
in whose hands such Securities are valid obligations of the Company; and
(iv) Securities as to which Defeasance has been effected pursuant to
Section 12.2;
provided, however, that in determining whether the Holders of the requisite
- -------- -------
principal amount of the Outstanding Securities have given, made or taken any
request, demand,
29
<PAGE>
authorization, direction, notice, consent, waiver or other action hereunder as
of any date, Securities owned by the Company or any other obligor upon the
Securities or any Affiliate of the Company or of such other obligor shall be
disregarded and deemed not to be Outstanding (it being understood that
Securities to be acquired by the Company pursuant to an Offer or other offer to
purchase shall not be deemed to be owned by the Company until legal title to
such Securities passes to the Company), except that, in determining whether the
Trustee shall be protected in relying upon any such request, demand,
authorization, direction, notice, consent, waiver or other action, only
Securities which a Responsible Officer of the Trustee actually knows to be so
owned shall be so disregarded. Securities so owned which have been pledged in
good faith may be regarded as Outstanding if the pledgee establishes to the
satisfaction of the Trustee the pledgee's right so to act with respect to such
Securities and that the pledgee is not the Company or any other obligor upon the
Securities or any Affiliate of the Company or of such other obligor.
"Paying Agent" means any Person authorized by the Company to pay the
------------
principal of (and premium, if any) or interest on any Securities on behalf of
the Company.
"Permitted Holder" means (i) Holdings and (ii) Bradley S. Jacobs, John
----------------
N. Milne, Michael J. Nolan and their respective Affiliates, and trusts
established for the benefit of a Permitted Holder or members of his immediate
family.
"Permitted Indebtedness" means, without duplication:
----------------------
(a) Indebtedness of the Company and the Guarantors evidenced by up to
$300,000,000 principal
30
<PAGE>
amount of the Securities and the Guarantees, respectively;
(b) Indebtedness of the Company and Restricted Subsidiaries under (i)
the Credit Facility in an aggregate principal amount at any one time
outstanding not to exceed the greater of (x) $850,000,000 or (y) 100% of
Tangible Assets, less, in either case, any amounts permanently repaid in
accordance with Section 10.14 and (ii) the Term Loan in an aggregate amount
not to exceed $250,000,000, less the amount of any repayments of the Term
Loan;
(c) Indebtedness of the Company or any Restricted Subsidiary
outstanding on the Issue Date, including the 9 1/2% Notes, the 8.80% Notes
and the respective guarantees thereof;
(d) Indebtedness of the Company or any Restricted Subsidiary of the
Company incurred in respect of performance bonds, bankers' acceptances and
letters of credit in the ordinary course of business, including
Indebtedness evidenced by letters of credit issued in the ordinary course
of business consistent with past practice to support the insurance or self-
insurance obligations of the Company or any of its Restricted Subsidiaries
(including to secure workers' compensation and other similar insurance
coverages), in the aggregate amount not to exceed $10,000,000 at any time;
but excluding letters of credit issued in respect of or to secure money
borrowed;
(e) (i) Interest Rate Protection Obligations of the Company covering
Indebtedness of the Company and (ii) Interest Rate Protection Obligations
of any Restricted Subsidiary covering Permitted Indebtedness of such
Restricted Subsidiary provided that, in the case of either clause (i) or
-------- ----
(ii), (x)
31
<PAGE>
any Indebtedness to which any such Interest Rate Protection Obligations
correspond bears interest at fluctuating interest rates and is otherwise
permitted to be incurred under Section 10.8 and (y) the notional principal
amount of any such Interest Rate Protection Obligations that exceeds the
principal amount of the Indebtedness to which such Interest Rate Protection
Obligations relate shall not constitute Permitted Indebtedness;
(f) Indebtedness of a Restricted Subsidiary owed to and held by the
Company or another Restricted Subsidiary, except that (i) any transfer of
such Indebtedness by the Company or a Restricted Subsidiary (other than to
the Company or another Restricted Subsidiary) and (ii) the sale, transfer
or other disposition by the Company or any Restricted Subsidiary of the
Company of Capital Stock of a Restricted Subsidiary (other than to the
Company or a Restricted Subsidiary) which is owed Indebtedness of another
Restricted Subsidiary shall, in each case, be an incurrence of Indebtedness
by such Restricted Subsidiary subject to the other provisions hereof;
(g) Indebtedness of the Company owed to and held by a Restricted
Subsidiary which is unsecured and subordinated in right of payment to the
payment and performance of the obligations of the Company under this
Indenture and the Securities, except that (i) any transfer of such
Indebtedness by the Restricted Subsidiary (other than to another Restricted
Subsidiary) and (ii) the sale, transfer or other disposition by the Company
or any Restricted Subsidiary of the Company (other than to the Company or a
Restricted Subsidiary) of Capital Stock of a Restricted Subsidiary which is
owed Indebtedness of the Company shall, in each case, be an
32
<PAGE>
incurrence of Indebtedness by the Company, subject to the other provisions
hereof;
(h) Indebtedness arising from the honoring by a bank or other
financial institution of a check, draft or similar instrument inadvertently
(except in the case of daylight overdrafts) drawn against insufficient
funds in the ordinary course of business; provided, however, that such
-------- -------
Indebtedness is extinguished within five Business Days of incurrence;
(i) Indebtedness of the Company or any Restricted Subsidiary under
equipment purchase or lines of credit or for Capitalized Lease Obligations
not to exceed $25,000,000 in aggregate principal amount outstanding at any
time;
(j) Indebtedness of the Company or any Restricted Subsidiary, in
addition to that described in clauses (a) through (i) of this definition,
in an aggregate principal amount outstanding at any time not to exceed
$15,000,000;
(k) (i) Indebtedness of the Company the proceeds of which are used
solely to refinance (whether by amendment, renewal, extension or refunding)
Indebtedness of the Company or any of its Restricted Subsidiaries and (ii)
Indebtedness of any Restricted Subsidiary of the Company the proceeds of
which are used solely to refinance (whether by amendment, renewal,
extension or refunding) Indebtedness of such Restricted Subsidiary,
provided, however, that (x) the principal amount of Indebtedness incurred
-------- -------
pursuant to this clause (k) (or, if such Indebtedness provides for an
amount less than the principal amount thereof to be due and payable upon a
declaration of acceleration of the maturity thereof, the original issue
price of
33
<PAGE>
such Indebtedness) shall not exceed the sum of principal amount of
Indebtedness so refinanced, plus the amount of any premium required to be
paid in connection with such refinancing pursuant to the terms of such
Indebtedness or the amount of any premium reasonably determined by the
Company as necessary to accomplish such refinancing by means of a tender
offer or privately negotiated purchase, plus the amount of expenses in
connection therewith, and (y) in the case of Indebtedness incurred by the
Company pursuant to this clause (k) to refinance Subordinated Indebtedness,
such Indebtedness (A) has no scheduled principal payment prior to the 91st
day after the Maturity Date, (B) has an Average Life to Stated Maturity
greater than the remaining Average Life to Stated Maturity of the
Securities and (C) is subordinated to the Securities in the same manner and
to the same extent that the Subordinated Indebtedness being refinanced is
subordinated to the Securities;
(l) Indebtedness arising from agreements of the Company or any
Restricted Subsidiary providing for indemnification, adjustment or holdback
of purchase price or similar obligations, in each case, incurred or assumed
in connection with the acquisition or disposition of any business, assets
or a Subsidiary, other than guarantees of Indebtedness incurred by any
Person acquiring all or any portion of such business, assets or Subsidiary
for the purpose of financing such acquisition; and
(m) guarantees by the Company or a Restricted Subsidiary of
Indebtedness that was permitted to be incurred under this Indenture.
"Permitted Investments" means any of the following: (i) Investments in
---------------------
the Company or in a Restricted Subsidiary; (ii) Investments in another Person,
if as
34
<PAGE>
a result of such Investment (A) such other Person becomes a Restricted
Subsidiary or (B) such other Person is merged or consolidated with or into, or
transfers or conveys all or substantially all of its assets to the Company or a
Restricted Subsidiary; (iii) Investments representing Capital Stock or
obligations issued to the Company or a Restricted Subsidiary in settlement of
claims against any other Person by reason of a composition or readjustment of
debt or a reorganization of any debtor of the Company or such Restricted
Subsidiary; (iv) Investments in Interest Rate Protection Agreements on
commercially reasonable terms entered into by the Company or any of its
Subsidiaries in the ordinary course of business in connection with the
operations of the business of the Company or its Restricted Subsidiaries to
hedge against fluctuations in interest rates on its outstanding Indebtedness;
(v) Investments in the Securities; (vi) Investments in Cash Equivalents; (vii)
Investments acquired by the Company or any Restricted Subsidiary in connection
with an Asset Sale permitted under Section 10.14 to the extent such Investments
are non-cash proceeds as permitted under Section 10.14; (viii) advances to
employees or officers of the Company in the ordinary course of business; (ix)
any Investment to the extent that the consideration therefor is Capital Stock
(other than Redeemable Capital Stock) of the Company and (x) other Investments
not to exceed $5,000,000 at any time outstanding.
"Permitted Liens" means the following types of Liens:
---------------
(a) any Lien existing as of the Issue Date;
(b) Liens securing Senior Indebtedness;
(c) any Lien securing Acquired Indebtedness created prior to (and not
created in connection with, or in contemplation of) the incurrence of
35
<PAGE>
such Indebtedness by the Company or any Restricted Subsidiary, if such Lien
does not attach to any property or assets of the Company or any Restricted
Subsidiary other than the property or assets subject to the Lien prior to
such incurrence;
(d) Liens in favor of the Company or a Restricted Subsidiary;
(e) Liens on and pledges of the Capital Stock of any Unrestricted
Subsidiary securing any Indebtedness of such Unrestricted Subsidiary;
(f) Liens for taxes, assessments or governmental charges or claims either
(i) not delinquent or (ii) contested in good faith by appropriate
proceedings and as to which the Company or its Restricted Subsidiaries
shall have set aside on its books such reserves as may be required pursuant
to GAAP;
(g) statutory Liens of landlords and Liens of carriers, warehousemen,
mechanics, suppliers, materialmen, repairmen and other Liens imposed by law
incurred in the ordinary course of business for sums not yet delinquent or
being contested in good faith, if such reserve or other appropriate
provision, if any, as shall be required by GAAP shall have been made in
respect thereof;
(h) Liens incurred or deposits made in the ordinary course of business in
connection with workers' compensation, unemployment insurance and other
types of social security, or to secure the performance of tenders,
statutory obligations, surety and appeal bonds, bids, leases, government
contracts, performance and return-of-money bonds and other similar
obligations (exclusive of obligations for the payment of borrowed money);
36
<PAGE>
(i) judgment Liens not giving rise to an Event of Default so long as such
Lien is adequately bonded and any appropriate legal proceedings which may
have been duly initiated for the review of such judgment shall not have
been finally terminated or the period within which such proceedings may be
initiated shall not have expired;
(j) easements, rights-of-way, zoning restrictions and other similar
charges or encumbrances in respect of real property not interfering in any
material respect with the ordinary conduct of the business of the Company
or any of its Restricted Subsidiaries;
(k) any interest or title of a lessor under any Capitalized Lease
Obligation or operating lease;
(l) purchase money Liens to finance property or assets of the Company or
any Restricted Subsidiary of the Company acquired in the ordinary course of
business; provided, however, that (i) the related purchase money
-------- -------
Indebtedness shall not be secured by any property or assets of the Company
or any Subsidiary of the Company other than the property and assets so
acquired and (ii) the Lien securing such Indebtedness shall be created
within 90 days of such acquisition;
(m) Liens securing reimbursement obligations with respect to commercial
letters of credit which encumber documents and other property relating to
such letters of credit and products and proceeds thereof;
(n) Liens securing refinancing Indebtedness permitted under clause (k) of
the definition of "Permitted Indebtedness", provided such Liens do
--------
37
<PAGE>
not exceed the Liens replaced in connection with such refinanced
Indebtedness;
(o) Liens incurred in the ordinary course of business by the Company or
any Restricted Subsidiary with respect to obligations that do not exceed
$5,000,000 at any time outstanding;
(p) Liens encumbering deposits made to secure obligations arising from
statutory, regulatory, contractual, or warranty requirements of the
Company or any of its Restricted Subsidiaries, including rights of offset
and set-off;
(q) Liens securing Interest Rate Protection Obligations which Interest
Rate Protection Obligations relate to Indebtedness that is secured by Liens
otherwise permitted under this Indenture; and
(r) Liens created in favor of the Trustee pursuant to Section 6.7 hereof.
"Person" means any individual, corporation, partnership, limited
------
liability company, joint venture, association, joint stock company, trust,
unincorporated organization or government or any agency or political subdivision
thereof.
"Preferred Stock," as applied to any Person, means Capital Stock of any
---------------
class or classes (however designated) which is preferred as to the payment of
dividends or distributions, or as to the distribution of assets upon any
voluntary or involuntary liquidation or dissolution of such Person, over shares
of Capital Stock of any other class of such Person.
"Private Placement Legend" shall mean the legend initially set forth on
------------------------
the Securities in the form set forth on Exhibit A-1.
-----------
38
<PAGE>
"Public Equity Offering" means an underwritten public offering of Common
----------------------
Stock pursuant to a registration statement filed with the Commission in
accordance with the Securities Act, which public equity offering results in net
cash proceeds to the Company.
"Purchase Amount" means, with respect to an Offer to Purchase, the
---------------
maximum aggregate amount payable by the Company for Securities under the terms
of such Offer to Purchase, if such Offer to Purchase were accepted in respect of
all Securities.
"Purchase Date" shall have the meaning set forth in the definition of
-------------
"Offer to Purchase."
"Qualified Equity Interest" in a Person means any interest in Capital
-------------------------
Stock of such Person, other than Redeemable Capital Stock.
"Qualified Institutional Buyer" or "QIB" has the meaning specified in
----------------------------- ---
Rule 144A under the Securities Act.
"Record Expiration Date" has the meaning specified in Section 1.4.
----------------------
"Redeemable Capital Stock" means any class or series of Capital Stock
------------------------
that, either by its terms, by the terms of any security into which it is
convertible or exchangeable or by contract or otherwise, is or upon the
happening of an event or passage of time would be, required to be redeemed prior
to the Maturity Date or is redeemable at the option of the holder thereof at any
time prior to the Maturity Date, or is convertible into or exchangeable for debt
securities at any time prior to the Maturity Date; provided that Capital Stock
-------- ----
will not constitute Redeemable Capital Stock solely because the holders thereof
have the right to require the Company to repurchase or redeem such Capital Stock
upon the occurrence of a Change of Control or an Asset Sale.
39
<PAGE>
"Redemption Date," when used with respect to any Security to be redeemed,
---------------
means the date fixed for such redemption by or pursuant to this Indenture.
"Redemption Price," when used with respect to any Security to be
----------------
redeemed, means the price at which it is to be redeemed pursuant to this
Indenture.
"Registrable Securities" has the meaning set forth in the Registration
----------------------
Rights Agreement.
"Registration Rights Agreement" means the Notes Registration Rights
-----------------------------
Agreement dated as of December 15, 1998 by and among the Company, the Guarantors
and the Initial Purchaser, as the same may be amended, supplemented or otherwise
modified from time to time in accordance with the terms thereof.
"Regular Record Date" for the interest payable on any Interest Payment
-------------------
Date means the January 1 or July 1 (whether or not a Business Day), as the case
may be, next preceding such Interest Payment Date.
"Regulation S" means Regulation S under the Securities Act.
------------
"Regulation S Global Security" means a permanent global Security in
----------------------------
registered form representing the aggregate principal amount of Securities sold
in reliance on Regulation S under the Securities Act.
"Reorganization" means the reorganization of the Company and Holdings,
--------------
consummated on August 5, 1998, pursuant to which (i) the Company became a
wholly-owned subsidiary of Holdings; (ii) the name of the Company was changed to
"United Rentals (North America), Inc." and the name of Holdings was changed to
"United Rentals, Inc.;"(iii) the then outstanding common stock of the Company
was automatically converted, on a share-for-share
40
<PAGE>
basis, to common stock of Holdings and (iv) the common stock of Holdings
commenced trading on the New York Stock Exchange under the symbol "URI," instead
of the common stock of the Company.
"Replacement Assets" has the meaning specified in Section 10.14.
------------------
"Required Filing Dates" has the meaning specified in Section 10.19.
---------------------
"Responsible Officer," when used with respect to the Trustee, means any
-------------------
officer within the Corporate Trust Office, including, any vice president, any
assistant vice president, any assistant secretary, any assistant treasurer, or
any other officer of the Trustee customarily performing functions similar to
those performed by any of the above designated officers and also means, with
respect to a particular corporate trust matter, any other officer to whom such
matter is referred because of his knowledge of and familiarity with the
particular subject.
"Restricted Payments" has the meaning specified in Section 10.9.
-------------------
"Restricted Security" means a Security that constitutes a "restricted
-------------------
security" within the meaning of Rule 144(a)(3) under the Securities Act;
provided, however, that the Trustee shall be entitled to request and
- -------- -------
conclusively rely on an opinion of counsel with respect to whether any Security
constitutes a Restricted Security.
"Restricted Subsidiary" means any Subsidiary of the Company that is not
---------------------
an Unrestricted Subsidiary.
"Revocation" has the meaning set forth in Section 10.18.
----------
41
<PAGE>
"Rule 144A" means Rule 144A under the Securities Act.
---------
"S&P" means Standard & Poor's Ratings Group, and its successors.
---
"Securities" means securities designated in the first paragraph of the
----------
RECITALS OF THE COMPANY.
"Securities Act" means the Securities Act of 1933 and any statute
-------------
successor thereto, in each case as amended from time to time.
"Security Register" and "Security Registrar" have the respective meanings
----------------- ------------------
specified in Section 3.5.
"Senior Indebtedness" means the principal of, premium, if any, and
-------------------
interest on any Indebtedness of the Company, whether outstanding on the Issue
Date or thereafter created, incurred or assumed, unless, in the case of any
particular Indebtedness, the instrument creating or evidencing the same or
pursuant to which the same is outstanding expressly provides that such
Indebtedness shall not be senior in right of payment to the Securities. Without
limiting the generality of the foregoing, (x) "Senior Indebtedness" shall
include the principal of, premium, if any, and interest on all obligations of
every nature of the Company from time to time owed to the lenders under the
Credit Facility and the Term Loan, including, without limitation, principal of
and interest on, and all fees, indemnities and expenses payable under the Credit
Facility and the Term Loan and (y) in the case of Designated Senior
Indebtedness, "Senior Indebtedness" shall include interest accruing thereon
subsequent to the occurrence of any Event of Default specified in clause (7) or
(8) under Section 5.1, whether or not the claim for such interest is allowed
under any applicable bankruptcy law. Notwithstanding the foregoing, "Senior
Indebtedness" shall not include (a)
42
<PAGE>
Indebtedness evidenced by the Securities, (b) Indebtedness that is expressly
subordinate or junior in right of payment to any Indebtedness of the Company,
including the Company's 9 1/2% Notes and the 8.80% Notes, (c) Indebtedness
which, when incurred and without respect to any election under Section 1111(b)
of Title 11, United States Code, is without recourse to the Company, (d)
Indebtedness which is represented by Redeemable Capital Stock, (e) Indebtedness
for goods, materials or services purchased in the ordinary course of business or
Indebtedness consisting of trade payables or other current liabilities (other
than any current liabilities owing under the Credit Facility, or the current
portion of any long-term Indebtedness (including the Term Loan) which would
constitute Senior Indebtedness but for the operation of this clause (e)), (f)
Indebtedness of or amounts owed by the Company for compensation to employees or
for services rendered to the Company, (g) any liability for federal, state,
local or other taxes owed or owing by the Company, (h) Indebtedness of the
Company to a Subsidiary of the Company or any other Affiliate of the Company or
any of such Affiliate's Subsidiaries, (i) that portion of any Indebtedness which
is incurred by the Company in violation of this Indenture and (j) amounts owing
under leases.
"Significant Subsidiary" of any Person means, as of any date of
----------------------
determination, a Restricted Subsidiary of such Person which would be a
significant subsidiary of such Person as of such date as determined in
accordance with the definition in Rule 1-02(w) of Article I of Regulation S-X
promulgated by the Commission and as in effect on the date of this Indenture.
"Special Record Date" for the payment of any Defaulted Interest means a
-------------------
date fixed by the Trustee pursuant to Section 3.7.
43
<PAGE>
"Stated Maturity" means, when used with respect to any Security or any
---------------
installment of interest thereon, the date specified in such Security as the
fixed date on which the principal of such Security or such installment of
interest is due and payable, and when used with respect to any other
Indebtedness, means the date specified in the instrument governing such
Indebtedness as the fixed date on which the principal of such Indebtedness, or
any installment of interest thereon, is due and payable.
"Subordinated Indebtedness" means, with respect to the Company,
-------------------------
Indebtedness of the Company which is expressly subordinated in right of payment
to the Securities.
"Subsidiary" means, with respect to any Person, (i) a corporation a
----------
majority of whose Voting Stock is at the time, directly or indirectly, owned by
such Person, by one or more Subsidiaries of such Person or by such Person and
one or more Subsidiaries thereof and (ii) any other Person (other than a
corporation), including, without limitation, a partnership, limited liability
company, business trust or joint venture, in which such Person, one or more
Subsidiaries thereof or such Person and one or more Subsidiaries thereof,
directly or indirectly, at the date of determination thereof, has at least
majority ownership interest entitled to vote in the election of directors,
managers or trustees thereof (or other Person performing similar functions).
For purposes of this definition, any directors' qualifying shares or investments
by foreign nationals mandated by applicable law shall be disregarded in
determining the ownership of a Subsidiary.
"Tangible Assets" means all assets of the Company and its Subsidiaries,
---------------
excluding all Intangible Assets. For purposes of the foregoing, "Intangible
Assets" means goodwill, patents, trade names, trade marks, copyrights,
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franchises, organization expenses and any other assets properly classified as
intangible assets in accordance with GAAP.
"Term Loan" means the Term Loan Agreement, dated as of July 10, 1998, as
---------
amended on September 29, 1998, among the Company, various financial institutions
and Bank of America National Trust and Savings Association, as agent, including
any notes, guarantees, collateral documents, instruments and agreements executed
in connection therewith, and in each case as amended (including any amendment
and restatement thereof), modified, renewed, refunded, replaced or refinanced
from time to time, including any agreement extending the maturity of,
refinancing, replacing or otherwise restructuring (including increasing the
amount of available borrowings thereunder or adding additional guarantors
thereunder) all or any portion of the Indebtedness under such agreement or any
successor or replacement agreement and whether by the same or any other agent,
lender or group of lenders.
"Trust Indenture Act" means the Trust Indenture Act of 1939 as in force
-------------------
at the date as of which this instrument was executed; provided, however, that in
-------- -------
the event the Trust Indenture Act of 1939 is amended after such date, "Trust
Indenture Act" means, to the extent required by any such amendment, the Trust
Indenture Act of 1939 as so amended.
"Trustee" means the Person named as the "Trustee" in the first paragraph
-------
of this instrument until a successor Trustee shall have become such pursuant to
the applicable provisions of this Indenture, and thereafter "Trustee" shall mean
such successor Trustee.
"Unrestricted Securities" means one or more Securities in the form set
-----------------------
forth in Exhibit A-2, including, without limitation, the Exchange Securities,
-----------
that
45
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do not and are not required to bear the Private Placement Legend.
"Unrestricted Subsidiary" means each Subsidiary of the Company designated
-----------------------
as such pursuant to and in compliance with Section 10.18.
"U.S. Government Obligation" has the meaning specified in Section 12.4.
--------------------------
"Vice President," when used with respect to the Company or the Trustee,
--------------
means any vice president, whether or not designated by a number or a word or
words added before or after the title "vice president."
"Voting Stock" means any class or classes of Capital Stock pursuant to
------------
which the holders thereof have the general voting power under ordinary
circumstances to elect at least a majority of the board of directors, managers
or trustees of any Person (irrespective of whether or not, at the time, stock of
any other class or classes shall have, or might have, voting power by reason of
the happening of any contingency).
"Wholly-Owned Restricted Subsidiary" means any Restricted Subsidiary of
----------------------------------
the Company of which 100% of the outstanding Capital Stock is owned by the
Company or another Wholly-Owned Restricted Subsidiary of the Company. For
purposes of this definition, any directors' qualifying shares or investments by
foreign nationals mandated by applicable law shall be disregarded in determining
the ownership of a Subsidiary.
SECTION 1.2 Compliance Certificates and Opinions.
------------------------------------
Upon any application or request by the Company or a Guarantor to the
Trustee to take any action under any provision of this Indenture, the Company or
the Guarantor shall furnish to the Trustee such certificates and
46
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opinions as may be required under the Trust Indenture Act. Each such certificate
or opinion shall be given in the form of an Officer's Certificate, if to be
given by an officer of the Company or a Guarantor, or an Opinion of Counsel, if
to be given by counsel, and shall comply with the requirements of the Trust
Indenture Act and any other requirement set forth in this Indenture.
Every certificate or opinion with respect to compliance with a condition
or covenant provided for in this Indenture shall include
(i) a statement that each individual signing such certificate or opinion
has read such covenant or condition and the definitions herein relating
thereto;
(ii) a brief statement as to the nature and scope of the examination or
investigation upon which the statements or opinions contained in such
certificate or opinion are based;
(iii) a statement that, in the opinion of each such individual, he has
made such examination or investigation as is necessary to enable him to
express an informed opinion as to whether or not such covenant or condition
has been complied with; and
(iv) a statement as to whether, in the opinion of each such individual,
such condition or covenant has been complied with.
SECTION 1.3 Form of Documents Delivered to Trustee.
--------------------------------------
In any case where several matters are required to be certified by, or
covered by an opinion of, any specified Person, it is not necessary that all
such matters be certified by, or covered by the opinion of, only one
47
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such Person, or that they be so certified or covered by only one document, but
one such Person may certify or give an opinion with respect to some matters and
one or more other such Persons as to other matters, and any such Person may
certify or give an opinion as to such matters in one or several documents.
Any certificate or opinion of an officer of the Company or a Guarantor
may be based, insofar as it relates to legal matters, upon a certificate or
opinion of, or representations by, counsel, unless such officer knows, or in the
exercise of reasonable care should know, that the certificate or opinion or
representations with respect to the matters upon which his certificate or
opinion is based are erroneous. Any such certificate or opinion of counsel may
be based, insofar as it relates to factual matters, upon a certificate or
opinion of, or representations by, an officer or officers of the Company or a
Guarantor stating that the information with respect to such factual matters is
in the possession of the Company or such Guarantor, unless such counsel knows,
or in the exercise of reasonable care should know, that the certificate or
opinion or representations with respect to such matters are erroneous.
Where any Person is required to make, give or execute two or more
applications, requests, consents, certificates, statements, opinions or other
instruments under this Indenture, they may, but need not, be consolidated and
form one instrument.
SECTION 1.4 Acts of Holders; Record Dates.
-----------------------------
Any request, demand, authorization, direction, notice, consent, waiver or
other action provided or permitted by this Indenture to be given or taken by
Holders may be embodied in and evidenced by one or more instruments of
substantially similar tenor signed by such Holders in person or by agent duly
appointed in
48
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writing; and, except as herein otherwise expressly provided, such action shall
become effective when such instrument or instruments are delivered to the
Trustee and, where it is hereby expressly required, to the Company or a
Guarantor, as applicable. Such instrument or instruments (and the action
embodied therein and evidenced thereby) are herein sometimes referred to as the
"Act" of the Holders signing such instrument or instruments. Proof of execution
of any such instrument or of a writing appointing any such agent shall be
sufficient for any purpose of this Indenture and (subject to Section 6.1)
conclusive in favor of the Trustee and the Company, if made in the manner
provided in this Section.
The fact and date of the execution by any Person of any such instrument
or writing may be proved by the affidavit of a witness of such execution or by a
certificate of a notary public or other officer authorized by law to take
acknowledgments of deeds, certifying that the individual signing such instrument
or writing acknowledged to him the execution thereof. Where such execution is
by a signer acting in a capacity other than his individual capacity, such
certificate or affidavit shall also constitute sufficient proof of his
authority. The fact and date of the execution of any such instrument or
writing, or the authority of the Person executing the same, may also be proved
in any other manner which the Trustee deems sufficient.
The ownership of Securities shall be proved by the Security Register.
Any request, demand, authorization, direction, notice, consent, waiver or
other Act of the Holder of any Security shall bind every future Holder of the
same Security and the Holder of every Security issued upon the registration of
transfer thereof or in exchange therefor or in lieu thereof in respect of
anything done, omitted or suffered to be done by the Trustee, the Company
49
<PAGE>
or a Guarantor in reliance thereon, whether or not notation of such action is
made upon such Security.
The Company may set any day as a record date for the purpose of
determining the Holders of Outstanding Securities entitled to give or take any
request, demand, authorization, direction, notice, consent, waiver or other
action provided or permitted by this Indenture to be given or taken by Holders
of Securities, provided that the Company may not set a record date for, and the
-------- ----
provisions of this paragraph shall not apply with respect to, the giving or
making of any notice, declaration, request or direction referred to in the next
paragraph. If any record date is set pursuant to this paragraph, the Holders of
Outstanding Securities on such record date, and no other Holders, shall be
entitled to take the relevant action, whether or not such Holders remain Holders
after such record date; provided that no such action shall be effective
-------- ----
hereunder unless taken on or prior to the applicable Record Expiration Date by
Holders of the requisite principal amount of Outstanding Securities on such
record date. Nothing in this paragraph shall prevent the Company from setting a
new record date for any action for which a record date has previously been set
pursuant to this paragraph (whereupon the record date previously set shall
automatically and with no action by any Person be cancelled and of no effect),
nor shall anything in this paragraph be construed to render ineffective any
action taken pursuant to or in accordance with any other provision of this
Indenture by Holders of the requisite principal amount of Outstanding Securities
on the date such action is taken. Promptly after any record date is set
pursuant to this paragraph, the Company, at its own expense, shall cause notice
of such record date, the proposed action by Holders and the applicable Record
Expiration Date to be given to the Trustee in writing and to each Holder of
Securities in the manner set forth in Section 1.6.
50
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The Trustee may but need not set any day as a record date for the purpose
of determining the Holders of Outstanding Securities entitled to join in the
giving or making of (i) any Notice of Default, (ii) any declaration of
acceleration referred to in Section 5.2, (iii) any request to institute
proceedings referred to in Section 5.7(2) or (iv) any direction referred to in
Section 5.12. If any record date is set pursuant to this paragraph, the Holders
of Outstanding Securities on such record date, and no other Holders, shall be
entitled to join in such notice, declaration, request or direction, whether or
not such Holders remain Holders after such record date; provided that no such
-------- ----
action shall be effective hereunder unless taken on or prior to the applicable
Record Expiration Date by Holders of the requisite principal amount of
Outstanding Securities on such record date. Nothing in this paragraph shall be
construed to prevent the Trustee from setting a new record date for any action
(whereupon the record date previously set shall automatically and without any
action by any Person be cancelled and of no effect), nor shall anything in this
paragraph be construed to render ineffective any action taken pursuant to or in
accordance with any other provision of this Indenture by Holders of the
requisite principal amount of Outstanding Securities on the date such action is
taken. Promptly after any record date is set pursuant to this paragraph, the
Trustee, at the Company's expense, shall cause notice of such record date, the
matter(s) to be submitted for potential action by Holders and the applicable
Record Expiration Date to be given to the Company in writing and to each Holder
of Securities in the manner set forth in Section 1.6.
With respect to any record date set pursuant to this Section, the party
hereto that sets such record date may designate any day as the "Record
Expiration Date" and from time to time may change the Record Expiration Date to
any earlier or later day, provided that
-------- ----
51
<PAGE>
no such change shall be effective unless notice of the proposed new Record
Expiration Date is given to the other party hereto in writing, and to each
Holder of Securities in the manner set forth in Section 1.6, on or before the
existing Record Expiration Date. If a Record Expiration Date is not designated
with respect to any record date set pursuant to this Section, the party hereto
that set such record date shall be deemed to have initially designated the 180th
day after such record date as the Record Expiration Date with respect thereto,
subject to its right to change the Record Expiration Date as provided in this
paragraph. Notwithstanding the foregoing, no Record Expiration Date shall be
later than the 180th day after the applicable record date.
Without limiting the foregoing, a Holder entitled hereunder to take any
action hereunder with regard to any particular Security may do so with regard to
all or any part of the principal amount of such Security or by one or more duly
appointed agents each of which may do so pursuant to such appointment with
regard to all or any part of such principal amount.
SECTION 1.5 Notices to Trustee,
the Company or a Guarantor.
--------------------------
Any request, demand, authorization, direction, notice, consent, waiver or
Act of Holders or other document provided or permitted by this Indenture to be
made upon, given or furnished to, or filed with,
(i) the Trustee by any Holder or by the Company or a Guarantor shall be
sufficient for every purpose hereunder if made, given, furnished or filed
in writing and mailed, first-class postage prepaid, to or with the Trustee
at its Corporate Trust Office, Attention: Corporate Trust Administration,
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(ii) the Company or a Guarantor by the Trustee or by any Holder shall be
sufficient for every purpose hereunder (unless otherwise herein expressly
provided) if in writing and mailed, first-class postage prepaid, to the
Company or such Guarantor addressed to it at the address of the Company's
principal office specified in the first paragraph of this instrument, or at
any other address previously furnished in writing to the Trustee by the
Company.
SECTION 1.6 Notice to Holders; Waiver.
-------------------------
Where this Indenture provides for notice to Holders of any event, such
notice shall be sufficiently given (unless otherwise herein expressly provided)
if in writing and mailed, first-class postage prepaid, to each Holder affected
by such event, at his address as it appears in the Security Register, not later
than the latest date (if any), and not earlier than the earliest date (if any),
prescribed for the giving of such notice. In any case where notice to Holders
is given by mail, neither the failure to mail or receive such notice, nor any
defect in any such notice, to any particular Holder shall affect the sufficiency
or validity of such notice. Where this Indenture provides for notice in any
manner, such notice may be waived in writing by the Person entitled to receive
such notice, either before or after the event, and such waiver shall be the
equivalent of such notice. Waivers of notice by Holders shall be filed with the
Trustee, but such filing shall not be a condition precedent to the validity of
any action taken in reliance upon such waiver.
In case by reason of the suspension of regular mail service or by reason
of any other cause it shall be impracticable to give such notice by mail, then
such notification as shall be made with the approval of the
53
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Trustee shall constitute a sufficient notification for every purpose hereunder.
SECTION 1.7 Conflict with Trust Indenture Act.
---------------------------------
If any provision hereof limits, qualifies or conflicts with a provision
of the Trust Indenture Act that is required under the Trust Indenture Act to be
part of and govern this Indenture, such provision of the Trust Indenture Act
shall control. If any provision of this Indenture modifies or excludes any
provision of the Trust Indenture Act that may be so modified or excluded, such
provision shall be deemed to be so modified or excluded, as the case may be.
SECTION 1.8 Effect of Headings and Table of Contents.
----------------------------------------
The Article and Section headings herein and the Table of Contents are for
convenience only and shall not affect the construction hereof.
SECTION 1.9 Successors and Assigns.
----------------------
Without limiting Articles VIII and XIII hereof, all covenants and
agreements in this Indenture by each of the Company or the Guarantors shall bind
their respective successors and assigns, whether so expressed or not.
SECTION 1.10 Separability Clause.
-------------------
In case any provision in this Indenture or in the Securities shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
54
<PAGE>
SECTION 1.11 Benefits of Indenture.
---------------------
Nothing in this Indenture or in the Securities, express or implied, shall
give to any Person, other than the parties hereto and their successors hereunder
and the Holders of Securities, any benefit or any legal or equitable right,
remedy or claim under this Indenture.
SECTION 1.12 Governing Law.
-------------
This Indenture and the Securities shall be governed by and construed in
accordance with the laws of the State of New York, without regard to the
conflicts of laws principles thereof.
SECTION 1.13 Legal Holidays.
--------------
In any case where any Interest Payment Date, Redemption Date, Purchase
Date or Stated Maturity of any Security shall not be a Business Day, then
(notwithstanding any other provision of this Indenture or of the Securities)
payment of interest or principal (and premium, if any) need not be made on such
date, but may be made on the next succeeding Business Day with the same force
and effect (including with respect to the accrual of interest) as if made on the
Interest Payment Date, Redemption Date or Purchase Date, or at the Stated
Maturity.
ARTICLE II
Security Forms
SECTION 2.1 Forms Generally.
---------------
The Securities and the Trustee's certificates of authentication shall be
in substantially the forms set forth or referenced in Exhibit A-1 and
-----------
Exhibit A-2 annexed
- -----------
55
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hereto, with such appropriate insertions, omissions, substitutions and other
variations as are required or permitted by this Indenture, and may have such
letters, numbers or other marks of identification and such legends or
endorsements placed thereon as may be required to comply with the rules of any
securities exchange or the Depositary or as may, consistently herewith, be
determined by the officers executing such Securities, as evidenced by their
execution thereof.
ARTICLE III
The Securities
SECTION 3.1 Title and Terms.
---------------
The aggregate principal amount of Securities which may be authenticated
and delivered under this Indenture is limited to $300,000,000 principal amount
of Initial Securities and up to $300,000,000 principal amount of Securities
exchanged therefor in accordance with the Registration Rights Agreement, except
for Securities authenticated and delivered upon registration or transfer of, or
in exchange for, or in lieu of, other Securities pursuant to Section 3.4, 3.5,
3.6, 9.6 or 11.8 or in connection with an Offer pursuant to Sections 10.13 or
10.14.
The Securities shall be known and designated as the "93% Senior
Subordinated Notes due 2009" of the Company. Their Stated Maturity for payment
of principal shall be January 15, 2009. Interest on the Securities shall accrue
at the rate of 9.25% per annum and shall be payable semi-annually on each
January 15 and July 15, commencing July 15, 1999, to the Holders of record of
Securities at the close of business on the January 1 and July 1, respectively,
immediately preceding such Interest Payment Date. Interest on the Securities
will
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accrue from the most recent date to which interest has been paid or, if no
interest has been paid, from the Issue Date of such Securities. Interest will
be computed on the basis of a 360-day year comprised of twelve 30-day months.
The principal of (and premium, if any) and interest on the Securities
shall be payable at the office or agency of the Trustee in the Borough of
Manhattan, The City of New York or such other office maintained by the Trustee
for such purpose and at any other office or agency maintained by the Company for
such purpose; provided, however, that, at the option of the Company, payment of
-------- -------
interest may be made by check mailed to the address of the Person entitled
thereto as such address shall appear in the Security Register.
The Company may be required to make a Change of Control Offer as provided
in Section 10.13, or an Asset Sale Offer as provided in Section 10.14.
The Securities shall be redeemable as provided in Article XI and the
Securities.
The Securities shall be subject to Defeasance and/or Covenant Defeasance
as provided in Article XII.
SECTION 3.2 Denominations.
-------------
The Securities shall be issuable only in registered form without coupons
and only in denominations of $1,000 principal amount and any integral multiple
thereof.
57
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SECTION 3.3 Execution, Authentication,
Delivery and Dating.
-------------------
The Initial Securities and the Trustee's certificate of authentication
shall be substantially in the form of Exhibit A-1 hereto. The Exchange
-----------
Securities and the Trustee's certificate of authentication shall be
substantially in the form of Exhibit A-2 hereto.
-----------
The terms and provisions contained in the Securities annexed hereto as
Exhibits A-1 and A-2 shall constitute, and are hereby expressly made, a part of
- ------------ ---
this Indenture and, to the extent applicable, the Company and the Trustee, by
their execution and delivery of this Indenture, expressly agree to such terms
and provisions and to be bound thereby.
Securities offered and sold in reliance on Rule 144A and Securities
offered and sold in reliance on Regulation S shall be issued initially in the
form of one or more Global Securities, substantially in the form set forth in
Exhibit A-1, deposited with the Trustee, as custodian for the Depositary, duly
- -----------
executed by the Company and authenticated by the Trustee as hereinafter provided
and shall bear the legend set forth in Exhibit B. The aggregate principal
---------
amount of the Global Securities may from time to time be increased or decreased
by adjustments made on the records of the Trustee, as custodian for the
Depositary, as hereinafter provided.
All Securities shall remain in the form of a Global Security, except as
provided herein.
The Securities shall be executed on behalf of the Company by its Chairman
of the Board, its Chief Executive Officer, its President or one of its Vice
Presidents, or its Chief Financial Officer, attested by its Secretary or one of
its Assistant Secretaries. The
58
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signature of any of these officers on the Securities may be manual or facsimile.
Securities bearing the manual or facsimile signatures of individuals who
were at any time the proper officers of the Company shall bind the Company,
notwithstanding that such individuals or any of them have ceased to hold such
offices prior to the authentication and delivery of such Securities or did not
hold such offices at the date of such Securities.
At any time and from time to time after the execution and delivery of
this Indenture, the Company may deliver Securities executed by the Company to
the Trustee for authentication, together with a Company Order for the
authentication and delivery of such Securities; and the Trustee in accordance
with such Company Order shall authenticate and deliver such Securities as in
this Indenture provided and not otherwise.
Each Security shall be dated the date of its authentication.
No Security shall be entitled to any benefit under this Indenture or be
valid or obligatory for any purpose unless there appears on such Security a
certificate of authentication substantially in the form provided for herein
executed by the Trustee by manual signature, and such certificate upon any
Security shall be conclusive evidence, and the only evidence, that such Security
has been duly authenticated and delivered hereunder.
SECTION 3.4 Temporary Securities.
--------------------
Pending the preparation of definitive Securities, the Company may
execute, and upon Company Order the Trustee shall authenticate and deliver,
temporary Securities which are printed, lithographed, typewritten,
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<PAGE>
mimeographed or otherwise produced, in any authorized denomination,
substantially of the tenor of the definitive Securities in lieu of which they
are issued and with such appropriate insertions, omissions, substitutions and
other variations as the officers executing such Securities may determine, as
evidenced by their execution of such Securities.
If temporary Securities are issued, the Company will cause definitive
Securities to be prepared without unreasonable delay. After the preparation of
definitive Securities, the temporary Securities shall be exchangeable for
definitive Securities upon surrender of the temporary Securities at any office
or agency of the Company designated pursuant to Section 10.2, without charge to
the Holder. Upon surrender for cancellation of any one or more temporary
Securities the Company shall execute and the Trustee shall authenticate and
deliver in exchange therefor a like principal amount of definitive Securities of
authorized denominations and of a like tenor. Until so exchanged the temporary
Securities shall in all respects be entitled to the same benefits under this
Indenture as definitive Securities.
SECTION 3.5 Registration, Registration of
Transfer and Exchange.
---------------------
The Company shall cause to be kept at the Corporate Trust Office of the
Trustee a register (the register maintained in such office and in any other
office or agency designated pursuant to Section 10.2 being herein sometimes
collectively referred to as the "Security Register") in which, subject to such
reasonable regulations as the Company may prescribe, the Company shall provide
for the registration of Securities and of transfers of Securities. The Trustee
is hereby appointed the initial "Security Registrar" for the purpose of
registering Securities and transfers of Securities as herein provided.
60
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Subject to Sections 3.13 and 3.14 of this Indenture, upon surrender for
registration of transfer of any Security at an office or agency of the Company
designated pursuant to Section 10.2 for such purpose, the Company shall execute,
and the Trustee shall authenticate and deliver, in the name of the designated
transferee or transferees, one more or more new Securities of any authorized
denominations and of a like aggregate principal amount and tenor.
At the option of the Holder, Securities may be exchanged for other
Securities of any authorized denominations and of a like aggregate principal
amount and tenor, upon surrender of the Securities to be exchanged at such
office or agency. Whenever any Securities are so surrendered for exchange, the
Company shall execute, and the Trustee shall authenticate and deliver, the
Securities which the Holder making the exchange is entitled to receive.
All Securities issued upon any registration of transfer or exchange of
Securities shall be the valid obligations of the Company, evidencing the same
debt, and entitled to the same benefits under this Indenture, as the Securities
surrendered upon such registration of transfer or exchange.
Every Security presented or surrendered for registration of transfer or
for exchange shall (if so required by the Company or the Trustee) be duly
endorsed, or be accompanied by a written instrument of transfer in form
satisfactory to the Company and the Security Registrar duly executed by the
Holder thereof or his attorney duly authorized in writing.
No service charge shall be made for any registration of transfer or
exchange of Securities, but the Company may require payment of a sum sufficient
to cover any tax or other governmental charge that may be imposed
61
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in connection with any registration of transfer or exchange of Securities, other
than exchanges pursuant to Section 3.4, 9.6 or 11.8 or in accordance with any
Change of Control Offer pursuant to Section 10.13 or any Asset Sale Offer
pursuant to Section 10.14, and in any such case not involving any transfer.
The Company shall not be required (i) to issue, register the transfer of
or exchange any Security during a period beginning at the opening of business 15
days before the day of the mailing of a notice of redemption of Securities
selected for redemption under Section 11.4 and ending at the close of business
on the day of such mailing, (ii) to register the transfer of or exchange any
Security so selected for redemption in whole or in part, except the unredeemed
portion of any Security being redeemed in part or (iii) to register the transfer
of any Securities other than Securities having a principal amount of $1,000 or
integral multiples thereof.
SECTION 3.6 Mutilated, Destroyed,
Lost and Stolen Securities.
--------------------------
If any mutilated Security is surrendered to the Trustee, the Company
shall execute and the Trustee shall authenticate and deliver in exchange
therefor a new Security of like tenor and principal amount and bearing a number
not contemporaneously outstanding.
If there shall be delivered to the Company and the Trustee (i) evidence
to their satisfaction of the destruction, loss or theft of any Security and (ii)
such security or indemnity as may be required by them to save each of them and
any agent of each of them harmless, then, in the absence of notice to the
Company or the Trustee that such Security has been acquired by a bona fide
purchaser, the Company shall execute, and upon its request the Trustee shall
authenticate and deliver, in lieu of any such destroyed, lost or stolen
Security, a
62
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new Security of like tenor and principal amount and bearing a number not
contemporaneously outstanding.
In case any such mutilated, destroyed, lost or stolen Security has become
or is about to become due and payable, the Company in its discretion may,
instead of issuing a new Security, pay such Security.
Upon the issuance of any new Security under this Section, the Company may
require the payment of a sum sufficient to cover any tax or other governmental
charge that may be imposed in relation thereto and any other expenses (including
the fees and expenses of the Trustee) connected therewith.
Every new Security issued pursuant to this Section in lieu of any
destroyed, lost or stolen Security shall constitute an original additional
contractual obligation of the Company, whether or not the destroyed, lost or
stolen Security shall be at any time enforceable by anyone, and shall be
entitled to all the benefits of this Indenture equally and proportionately with
any and all other Securities duly issued hereunder.
The provisions of this Section are exclusive and shall preclude (to the
extent lawful) all other rights and remedies with respect to the replacement or
payment of mutilated, destroyed, lost or stolen Securities.
SECTION 3.7 Payment of Interest; Rights Preserved.
-------------------------------------
Interest on any Security which is payable, and is punctually paid or duly
provided for, on any Interest Payment Date shall be paid to the Person in whose
name that Security (or one or more predecessor securities) is registered at the
close of business on the Regular Record Date for such interest payment.
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Any interest on any Security which is payable, but is not punctually paid
or duly provided for, on any Interest Payment Date (herein called "Defaulted
Interest") shall forthwith cease to be payable to the Holder on the relevant
Regular Record Date by virtue of having been such Holder, and such Defaulted
Interest may be paid by the Company, at its election in each case, as provided
in clause (1) or (2) below:
(1) The Company may elect to make payment of any Defaulted Interest to
the Persons in whose names the Securities (or their respective predecessor
Securities) are registered at the close of business on a Special Record
Date for the payment of such Defaulted Interest, which shall be fixed in
the following manner. The Company shall notify the Trustee in writing of
the amount of Defaulted Interest proposed to be paid on each Security and
the date of the proposed payment, and at the same time the Company shall
deposit with the Trustee an amount of money equal to the aggregate amount
proposed to be paid in respect of such Defaulted Interest or shall make
arrangements satisfactory to the Trustee for such deposit prior to the date
of the proposed payment, such money when deposited to be held in trust for
the benefit of the Persons entitled to such Defaulted Interest as in this
clause provided. Thereupon the Trustee shall fix a Special Record Date for
the payment of such Defaulted Interest which shall be not more than 15 days
and not less than 10 days prior to the date of the proposed payment and not
less than 15 days after the receipt by the Trustee of the notice of the
proposed payment. The Trustee shall promptly notify the Company of such
Special Record Date and, in the name and at the expense of the Company,
shall cause notice of the proposed payment of such Defaulted Interest and
the Special Record Date therefor to be given to each Holder in the manner
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specified in Section 1.6, not less than 10 days prior to such Special
Record Date. Notice of the proposed payment of such Defaulted Interest and
the Special Record Date therefor having been so mailed, such Defaulted
Interest shall be paid to the Persons in whose names the Securities (or
their respective predecessor Securities) are registered at the close of
business on such Special Record Date and shall no longer be payable
pursuant to the following clause (2).
(2) The Company may make payment of any Defaulted Interest in any other
lawful manner not inconsistent with the requirements of any securities
exchange on which the Securities may be listed, and upon such notice as may
be required by such exchange, if, after notice given by the Company to the
Trustee of the proposed payment pursuant to this Clause, such manner of
payment shall be deemed practicable by the Trustee.
Subject to the foregoing provisions of this Section, each Security
delivered under this Indenture upon registration of transfer of or in exchange
for or in lieu of any other Security shall carry the rights to interest accrued
and unpaid, and to accrue, which were carried by such other Security.
SECTION 3.8 Persons Deemed Owners.
---------------------
Prior to due presentment of a Security for registration of transfer, the
Company, the Trustee and any agent of the Company or the Trustee may treat the
Person in whose name such Security is registered as the owner of such Security
for the purpose of receiving payment of principal of (and premium, if any) and
(subject to Section 3.7) interest on such Security and for all other purposes
whatsoever, whether or not such Security be overdue, and neither the Company,
the Trustee nor any
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agent of the Company or the Trustee shall be affected by notice to the contrary.
SECTION 3.9 Cancellation.
------------
All Securities surrendered for payment, redemption, registration of
transfer or exchange or tendered and accepted pursuant to any Change of Control
Offer pursuant to Section 10.13 or any Asset Sale Offer pursuant to Section
10.14 shall, if surrendered to any Person other than the Trustee, be delivered
to the Trustee and shall be promptly cancelled by it. The Company may at any
time deliver to the Trustee for cancellation any Securities previously
authenticated and delivered hereunder which the Company may have acquired in any
manner whatsoever, and all Securities so delivered shall be promptly cancelled
by the Trustee. No Securities shall be authenticated in lieu of or in exchange
for any Securities cancelled as provided in this Section, except as expressly
permitted by this Indenture. All cancelled Securities held by the Trustee shall
be disposed of in the customary manner by the Trustee unless otherwise directed
by a Company Order.
SECTION 3.10 Computation of Interest.
-----------------------
Interest on the Securities shall be computed on the basis of a 360-day
year comprised of twelve 30-day months.
SECTION 3.11 CUSIP and CINS Numbers.
----------------------
The Company in issuing the Securities may use "CUSIP" and "CINS" numbers
(if then generally in use), and, if so, the Trustee shall use the CUSIP or CINS
numbers in notices of redemption or repurchase as a convenience to Holders;
provided that any such notice may state that no representation is made as to the
- -------- ----
correctness of such numbers either as printed on the Securities
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or as contained in any notice of a redemption or repurchase and that reliance
may be placed only on the other identification numbers printed on the
Securities, and any such redemption or repurchase shall not be affected by any
defect in or omission of such numbers.
SECTION 3.12 Deposits of Monies.
------------------
Except to the extent payment of interest is made by the Company's check
pursuant to Section 3.1, prior to 11:00 a.m. New York City time on each Interest
Payment Date, Redemption Date, Stated Maturity, and Purchase Date, the Company
shall deposit with the Paying Agent in immediately available funds money
sufficient to make cash payments, if any, due on such Interest Payment Date,
Redemption Date, Stated Maturity and Purchase Date, as the case may be, in a
timely manner which permits the Paying Agent to remit payment to the Holders on
such Interest Payment Date, Redemption Date, Stated Maturity, and Purchase Date,
as the case may be.
SECTION 3.13 Book-Entry Provisions
for Global Securities.
---------------------
(a) The Global Securities initially shall (i) be registered in the name
of the Depositary or the nominee of such Depositary, (ii) be delivered to
the Trustee as custodian for such Depositary and (iii) bear legends as set
forth in Exhibit B hereto.
---------
Members of, or participants in, the Depositary ("Agent Members") shall
have no rights under this Indenture with respect to any Global Security
held on their behalf by the Depositary, or the Trustee as its custodian, or
under any Global Security, and the Depositary may be treated by the
Company, the Trustee and any agent of the Company or the Trustee as the
absolute owner of the Global Securities for
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all purposes whatsoever. Notwithstanding the foregoing, nothing herein
shall prevent the Company, the Trustee or any agent of the Company or the
Trustee from giving effect to any written certification, proxy or other
authorization furnished by the Depositary or impair, as between the
Depositary and its Agent Members, the operation of customary practices
governing the exercise of the rights of a Holder of any Security.
(b) Interests of beneficial owners in a Global Security may be
transferred in accordance with the applicable rules and procedures of the
Depositary and the provisions of Section 3.14. Transfer of Global
Securities shall be limited to transfers in whole, but not in part, to the
Depositary, its successors or their respective nominees. Interests of
beneficial owners in the Global Securities may not be transferred or
exchanged for physical securities, except that physical securities shall be
transferred to all beneficial owners in exchange for their beneficial
interests in Global Securities if (i) the Depositary notifies the Company
that it is unwilling or unable to continue as Depositary for any Global
Security, or that it will cease to be a "Clearing Agency" under the
Exchange Act, and in either case a successor Depositary is not appointed by
the Company within 90 days of such notice or (ii) an Event of Default has
occurred and is continuing and the Security Registrar has received a
written request from the Depositary to issue physical securities.
(c) The Holder of any Global Security may grant proxies and otherwise
authorize any Person, including Agent Members and Persons that may hold
interests through Agent Members, to take any action which a Holder is
entitled to take under this Indenture or the Securities.
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SECTION 3.14 Special Transfer Provisions.
---------------------------
(a) Transfers to Non-U.S. Persons. The following additional provisions
-----------------------------
shall apply with respect to the registration of any proposed transfer of
and the transfer of the beneficial interest in an Initial Security to any
Non-U.S. Person:
(i) the Security Registrar shall register the transfer of any Initial
Security, whether or not such Security bears the Private Placement
Legend, and a transfer of the beneficial interest in an Initial Security
may be made if (x) the requested transfer is after the second anniversary
of the Issue Date; provided, however, that neither the Company nor any
-------- -------
Affiliate of the Company has held any beneficial interest in such
Security, or portion thereof, at any time on or prior to the second
anniversary of the Issue Date and such transfer can otherwise be lawfully
made under the Securities Act without registering such Initial Security
thereunder or (y) the proposed transferor has delivered to the Security
Registrar a certificate substantially in the form of Exhibit C hereto;
---------
and
(ii) if the proposed transferor is an Agent Member seeking to transfer
an interest in a 144A Global Security, upon receipt by the Security
Registrar of (x) written instructions given in accordance with the
Depositary's and the Security Registrar's procedures and (y) the
appropriate certificate, if any, required by paragraph (i) above, the
Security Registrar shall register the transfer and reflect on its books
and records the date and (A) a decrease in the principal amount of the
144A Global Security from which such interests are to be transferred in
an amount equal to the principal amount of the Securities
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to be transferred and (B) an increase in the principal amount of the
Regulation S Global Security in an amount equal to the principal amount
of the Global Security to be transferred.
(b) Transfers to QIBs. The following provisions shall apply with
-----------------
respect to the registration of any proposed transfer of, and the transfer
of the beneficial interest in, an Initial Security to a QIB (excluding Non-
U.S. Persons):
(i) the Security Registrar shall register the transfer of any Initial
Security, whether or not such Security bears the Private Placement
Legend, and the transfer of the beneficial interest in an Initial
Security may be made if (x) the requested transfer is after the second
anniversary of the Issue Date; provided, however, that neither the
-------- -------
Company nor any Affiliate of the Company has held any beneficial interest
in such Security, or portion thereof, at any time on or prior to the
second anniversary of the Issue Date and such transfer can otherwise be
lawfully made under the Securities Act without registering such Initial
Security thereunder or (y) such transfer is being made by a proposed
transferor who has checked the box provided for on the form of Security
stating, or has otherwise advised the Company and the Security Registrar
in writing, that the sale has been made in compliance with the provisions
of Rule 144A to a transferee who has signed the certification provided
for on the form of Security stating, or has otherwise advised the Company
and the Security Registrar in writing, that it is purchasing the Security
for its own account or an account with respect to which it exercises sole
investment discretion and that it and any such account is a QIB within
the meaning of Rule 144A, and is aware that the sale to it is
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being made in reliance on Rule 144A and acknowledges that it has received
such information regarding the Company as it has requested pursuant to
Rule 144A or has determined not to request such information and that it
is aware that the transferor is relying upon its foregoing
representations in order to claim the exemption from registration
provided by Rule 144A; and
(ii) if the proposed transferor is an Agent Member seeking to transfer
an interest in a Regulation S Global Security, upon receipt by the
Security Registrar of written instructions given in accordance with the
Depositary's and the Security Registrar's procedures, the Security
Registrar shall register the transfer and reflect on its books and
records the date and (A) a decrease in the principal amount of the
Regulation S Global Security from which interests are to be transferred
in an amount equal to the principal amount of the Securities to be
transferred and (B) an increase in the principal amount of the 144A
Global Security in an amount equal to the principal amount of the Global
Security to be transferred.
Notwithstanding the other provisions of this Section 3.14, until the 41st
day after the Issue Date (the "Distribution Compliance Period"), an owner
of a beneficial interest in the Regulation S Global Security may not
transfer such interest to a transferee that is a U.S. Person or for the
account or benefit of a U.S. Person within the meaning of Rule 902(o) of
the Securities Act. Subject to the other provisions of this Section
3.14(b), during the Distribution Compliance Period, all beneficial
interests in the Regulation S Global Security shall be transferred only
through Cedel or Euroclear, either directly
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if the transferor and transferee are participants in such systems, or
indirectly through organizations that are participants therein.
(c) Private Placement Legend. Upon the registration of transfer,
------------------------
exchange or replacement of Securities not bearing the Private Placement
Legend, the Security Registrar shall deliver Securities that do not bear
the Private Placement Legend. Upon the registration of transfer, exchange
or replacement of Securities bearing the Private Placement Legend, the
Security Registrar shall deliver only Securities that bear the Private
Placement Legend unless (i) the circumstances contemplated by paragraph
(a)(i)(x) or (b)(i)(x) of this Section 3.14 exists, (ii) there is delivered
to the Security Registrar an opinion of counsel reasonably satisfactory to
the Company and the Trustee to the effect that neither such legend nor the
related restrictions on transfer are required in order to maintain
compliance with the provisions of the Securities Act or (iii) such Security
has been sold pursuant to an effective registration statement under the
Securities Act.
(d) Other Transfers. If a Holder proposes to transfer a Security
---------------
constituting a Restricted Security pursuant to any exemption from the
registration requirements of the Securities Act other than as provided for
by Section 3.14(a), (b) and (c), the Security Registrar shall only register
such transfer or exchange if such transferor delivers an opinion of counsel
satisfactory to the Company and the Security Registrar that such transfer
is in compliance with the Securities Act and the terms of this Indenture.
(e) General. By its acceptance of any Security bearing the Private
-------
Placement Legend and by its
72
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ownership of a beneficial interest therein, each Holder of such a Security
and each owner of a beneficial interest therein acknowledges the
restrictions on transfer of such Security and of beneficial interests
therein set forth in this Indenture and in the Private Placement Legend and
agrees that it will transfer such Security and beneficial interests therein
only as provided in this Indenture.
The Security Registrar shall retain copies of all letters, notices and
other written communications received pursuant to Section 3.13 or this Section
3.14. The Company shall have the right to inspect and make copies of all such
letters, notices or other written communications at any reasonable time upon the
giving of reasonable prior written notice to the Security Registrar.
ARTICLE IV
Satisfaction and Discharge
SECTION 4.1 Satisfaction and Discharge of Indenture.
---------------------------------------
This Indenture shall cease to be of further effect (except as to any
surviving rights of registration of transfer or exchange of Securities herein
expressly provided for), and the Trustee, on demand of and at the expense of the
Company, shall execute proper instruments acknowledging satisfaction and
discharge of this Indenture, when
(1) either
(A) all Securities theretofore authenticated and delivered (other than
(i) Securities which have been destroyed, lost or stolen and which
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have been replaced or repaid as provided in Section 3.6 and (ii)
Securities for whose payment money has theretofore been deposited in
trust or segregated and held in trust by the Company and thereafter
repaid to the Company or discharged from such trust, as provided in
Section 10.3) have been delivered to the Trustee for cancellation; or
(B) all such Securities not theretofore delivered to the Trustee for
cancellation (other than Securities which have been destroyed, lost or
stolen and which have been replaced or repaid as provided in Section
3.6),
(i) have become due and payable, or
(ii) will become due and payable at their Stated Maturity within one
year, or
(iii) are to be called for redemption within one year under
arrangements satisfactory to the Trustee for the giving of notice of
redemption by the Trustee in the name, and at the expense, of the
Company,
and the Company, in the case of (i), (ii) or (iii) above, has irrevocably
deposited or caused to be deposited with the Trustee as trust funds in
trust for the purpose an amount sufficient to pay and discharge the
entire Indebtedness on such Securities not theretofore delivered to the
Trustee for cancellation, for principal (and premium, if any) and
interest on the Securities to the date of such deposit (in the case of
Securities which have become due and payable) or to the Stated Maturity
or Redemption Date, as the case may be, together with irrevocable
instructions from the Company directing the Trustee to
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apply such funds to the payment thereof at maturity or redemption, as the
case may be;
(2) the Company has paid or caused to be paid all other sums payable
hereunder by the Company or the Guarantors; and
(3) the Company has delivered to the Trustee an Officer's Certificate and
an Opinion of Counsel, each stating that all conditions precedent herein
provided for relating to the satisfaction and discharge of this Indenture
have been complied with.
Notwithstanding the satisfaction and discharge of this Indenture pursuant to
this Article IV, the obligations of the Company to the Trustee under Section
6.7, the obligations of the Company to any Authenticating Agent under Section
6.14 and, if money shall have been deposited with the Trustee pursuant to
subclause (B) of clause (1) of this Section, the obligations of the Trustee
under Section 4.2 and the last paragraph of Section 10.3 shall survive.
SECTION 4.2 Application of Trust Money.
--------------------------
Subject to the provisions of the last paragraph of Section 10.3, all
money deposited with the Trustee pursuant to Section 4.1 shall be held in trust
and applied by it, in accordance with the provisions of the Securities and this
Indenture, to the payment, either directly or through any Paying Agent
(including the Company acting as its own Paying Agent) as the Trustee may
determine, to the Persons entitled thereto, of the principal (and premium, if
any) and interest for whose payment such money has been deposited with the
Trustee.
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ARTICLE V
Remedies
SECTION 5.1 Events of Default.
-----------------
"Event of Default," wherever used herein, means any one of the following
events (whatever the reason for such Event of Default and whether it shall be
voluntary or involuntary or be effected by operation of law or pursuant to any
judgment, decree or order of any court or any order, rule or regulation of any
administrative or governmental body):
(1) default in the payment of the principal of or premium, if any, when
due and payable, on any of the Securities (at Stated Maturity, upon
optional redemption, required purchase or otherwise); or
(2) default in the payment of an installment of interest on any of the
Securities, when due and payable, for 30 days; or
(3) default in the performance, or breach, of any covenant or agreement
of the Company under this Indenture (other than a default in the
performance or breach of a covenant or agreement which is specifically
dealt with in clauses (1), (2) or (4)) and such default or breach shall
continue for a period of 30 days after written notice has been given, by
certified mail, (x) to the Company by the Trustee or (y) to the Company and
the Trustee by the holders of at least 25% in aggregate principal amount of
the Outstanding Securities; or
(4) (a) there shall be a default in the performance or breach of the
provisions of Section 8.1 with respect to the Company; (b) the Company
shall have failed to make or consummate an Asset
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Sale Offer in accordance with the provisions of Section 10.14; or (c) the
Company shall have failed to make or consummate a Change of Control Offer
in accordance with the provisions of Section 10.13; or
(5) default or defaults under one or more agreements, instruments,
mortgages, bonds, debentures or other evidences of Indebtedness under which
the Company or any Restricted Subsidiary of the Company then has
outstanding Indebtedness in excess of $15,000,000, individually or in the
aggregate, and either (a) such Indebtedness is already due and payable in
full or (b) such default or defaults have resulted in the acceleration of
the maturity of such Indebtedness; or
(6) one or more judgments, orders or decrees of any court or regulatory
or administrative agency of competent jurisdiction for the payment of money
in excess of $15,000,000, either individually or in the aggregate, shall be
entered against the Company or any Restricted Subsidiary of the Company or
any of their respective properties and shall not be discharged and there
shall have been a period of 60 days after the date on which any period for
appeal has expired and during which a stay of enforcement of such judgment,
order or decree, shall not be in effect; or
(7) the entry of a decree or order by a court having jurisdiction in the
premises (A) for relief in respect of the Company or any Significant
Subsidiary in an involuntary case or proceeding under the Federal
Bankruptcy Code or any other federal, state or foreign bankruptcy,
insolvency, reorganization or similar law or (B) adjudging the Company or
any Significant Subsidiary bankrupt or insolvent, or seeking
reorganization, arrangement, adjustment or composition of or in respect of
the
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Company or any Significant Subsidiary under the Federal Bankruptcy Code or
any other similar federal, state or foreign law, or appointing a custodian,
receiver, liquidator, assignee, trustee, sequestrator (or other similar
official) of the Company or any Significant Subsidiary or of any
substantial part of any of their properties, or ordering the winding up or
liquidation of any of their affairs, and the continuance of any such decree
or order unstayed and in effect for a period of 60 consecutive days; or
(8) the institution by the Company or any Significant Subsidiary of a
voluntary case or proceeding under the Federal Bankruptcy Code or any other
similar federal, state or foreign law or any other case or proceedings to
be adjudicated a bankrupt or insolvent, or the consent by the Company or
any Significant Subsidiary to the entry of a decree or order for relief in
respect of the Company or any Significant Subsidiary in any involuntary
case or proceeding under the Federal Bankruptcy Code or any other similar
federal, state or foreign law or to the institution of bankruptcy or
insolvency proceedings against the Company or any Significant Subsidiary,
or the filing by the Company or any Significant Subsidiary of a petition or
answer or consent seeking reorganization or relief under the Federal
Bankruptcy Code or any other similar federal, state or foreign law, or the
consent by it to the filing of any such petition or to the appointment of
or taking possession by a custodian, receiver, liquidator, assignee,
trustee or sequestrator (or other similar official) of any of the Company
or any Significant Subsidiary or of any substantial part of its property,
or the making by it of an assignment for the benefit of creditors, or the
admission by it in writing of its inability to pay its debts generally as
they become due or the
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taking of corporate action by the Company or any Significant Subsidiary in
furtherance of any such action; or
(9) any of the Guarantees ceases to be in full force and effect or any of
the Guarantees is declared to be null and void and unenforceable or any of
the Guarantees is found to be invalid or any of the Guarantors denies its
liability under its Guaranty (other than by reason of release of a
Guarantor in accordance with the terms of this Indenture).
SECTION 5.2 Acceleration of Maturity;
Rescission and Annulment.
------------------------
If an Event of Default (other than those covered by clause (7) or (8)
of Section 5.1 with respect to the Company) shall occur and be continuing, the
Trustee, by notice to the Company and the representatives of the holders of
Designated Senior Indebtedness, or the Holders of at least 25% in aggregate
principal amount of the Securities then Outstanding, by notice to the Trustee,
the Company and the representatives of the holders of Designated Senior
Indebtedness, may declare the principal of, premium, if any, and accrued and
unpaid interest, if any, on all of the outstanding Securities due and payable
immediately, upon which declaration, all amounts payable in respect of the
Securities shall be due and payable as of the date which is five business days
after the giving of such notice to representatives of the holders of Designated
Senior Indebtedness. If an Event of Default specified in clause (7) or (8) of
Section 5.1 with respect to the Company or a Significant Subsidiary occurs and
is continuing, then the principal of, premium, if any, and accrued and unpaid
interest, if any, on all the Outstanding Securities shall ipso facto become and
be immediately due and payable without any declaration or
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other act on the part of the Trustee or any Holder of Securities.
After a declaration of acceleration under the Indenture, but before a
judgment or decree for payment of the money due has been obtained by the
Trustee, the Holders of a majority in aggregate principal amount of the
Outstanding Securities, by written notice to the Company and the Trustee, may
rescind such declaration if
(1) the Company or any Guarantor has paid or deposited with the
Trustee a sum sufficient to pay
(A) all sums paid or advanced by the Trustee under this Indenture
and the reasonable compensation, expenses, disbursements and advances
of the Trustee, its agents and counsel,
(B) all overdue interest on all Securities,
(C) the principal of and premium, if any, on any Securities which
have become due otherwise than by such declaration of acceleration and
interest thereon at the rate borne by the Securities, and
(D) to the extent that payment of such interest is lawful,
interest upon overdue interest and overdue principal at the rate set
forth in the Securities which has become due otherwise than by such
declaration of acceleration;
(2) the rescission would not conflict with any judgment or decree of a
court of competent jurisdiction; and
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(3) all Events of Default, other than the non-payment of principal of,
premium, if any, and interest on the Securities that have become due solely
by such declaration of acceleration, have been cured or waived.
No such rescission shall affect any subsequent default or impair any
right consequent thereto.
SECTION 5.3 Collection of Indebtedness
and Suits for Enforcement by Trustee.
------------------------------------
The Company and each Guarantor covenants that if
(i) default is made in the payment of any interest on any Security
when such interest becomes due and payable and such default continues for a
period of 30 days, or
(ii) default is made in the payment of the principal of (or premium,
if any, on) any Security on the due date for payment thereof, including,
with respect to any Security required to have been purchased pursuant to a
Change of Control Offer or an Asset Sale Offer made by the Company, at the
Purchase Date thereof,
the Company or such Guarantor will, upon demand of the Trustee, pay to it, for
the benefit of the Holders of such Securities, the whole amount then due and
payable on such Securities for principal (and premium, if any) and interest,
and, to the extent that payment of such interest shall be legally enforceable,
interest on any overdue principal (and premium, if any) and on any overdue
interest, at the rate provided by the Securities, and, in addition thereto, such
further amount as shall be sufficient to cover the costs and expenses of
collection, including the reasonable compensation, expenses,
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disbursements and advances of the Trustee, its agents and counsel.
In addition to the rights and powers set forth in Section 317(a) of
the Trust Indenture Act, the Trustee shall be entitled to file such other papers
or documents as may be necessary or advisable in order to have the claims of the
Trustee and of the Holders of the Securities allowed in any judicial proceeding
relative to the Company, any Guarantor or any other obligor upon the Securities,
its creditors, or its property, and to collect and receive any moneys or other
property payable or deliverable on any such claims, and to distribute the same
after the deduction of its charges and expenses; and any receiver, assignee or
trustee in bankruptcy or reorganization is hereby authorized by each of the
Holders to make such payments to the Trustee, and, in the event that the Trustee
shall consent to the making of such payments directly to the Holders, to pay to
the Trustee any amount due it for compensation and expenses, including counsel
fees incurred by it up to the date of such distribution.
If an Event of Default occurs and is continuing, the Trustee may in
its discretion proceed to protect and enforce its rights and the rights of the
Holders by such appropriate judicial proceedings as the Trustee shall deem most
effectual to protect and enforce any such rights, whether for the specific
enforcement of any covenant or agreement in this Indenture or in aid of the
exercise of any power granted herein, or to enforce any other proper remedy.
SECTION 5.4 Trustee May File Proofs of Claim.
--------------------------------
In case of any judicial proceeding relative to the Company, a
Guarantor (or any other obligor upon the Securities), its property or its
creditors, the Trustee shall be entitled and empowered, by intervention in such
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proceeding or otherwise, to take any and all actions authorized under the Trust
Indenture Act in order to have claims of the Holders and the Trustee allowed in
any such proceeding. In particular, the Trustee shall be authorized to collect
and receive any moneys or other property payable or deliverable on any such
claims and to distribute the same; and any custodian, receiver, assignee,
trustee, liquidator, sequestrator or other similar official in any such judicial
proceeding is hereby authorized by each Holder to make such payments to the
Trustee and, in the event that the Trustee shall consent to the making of such
payments directly to the Holders, to pay to the Trustee any amount due it for
the reasonable compensation, expenses, disbursements and advances of the
Trustee, its agents and counsel, and any other amounts due the Trustee under
Section 6.7.
No provision of this Indenture shall be deemed to authorize the
Trustee to authorize or consent to or accept or adopt on behalf of any Holder
any plan of reorganization, arrangement, adjustment or composition affecting the
Securities or the rights of any Holder thereof or to authorize the Trustee to
vote in respect of the claim of any Holder in any such proceeding; provided,
--------
however, that the Trustee may, on behalf of the Holders, vote for the election
- -------
of a trustee in bankruptcy or similar official and be a member of a creditors'
or other similar committee.
SECTION 5.5 Trustee May Enforce Claims
Without Possession of Securities.
--------------------------------
All rights of action and claims under this Indenture or the Securities
may be prosecuted and enforced by the Trustee without the possession of any of
the Securities or the production thereof in any proceeding relating thereto, and
any such proceeding instituted by the Trustee shall be brought in its own name
as trustee of an express trust, and any recovery of judgment shall,
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after provision for the payment of the reasonable compensation, expenses,
distributions and advances of the Trustee, its agents and counsel, be for the
ratable benefit of the Holders of the Securities in respect of which such
judgment has been recovered.
SECTION 5.6 Application of Money Collected.
------------------------------
Any money collected by the Trustee pursuant to this Article shall be
applied in the following order, at the date or dates fixed by the Trustee and,
in case of the distribution of such money on account of principal (or premium,
if any) or interest, upon presentation of the Securities and the notation
thereon of the payment if only partially paid and upon surrender thereof if
fully paid:
FIRST: To the payment of all amounts due the Trustee under Section
6.7;
SECOND: To the payment of the amounts then due and unpaid for
principal of (and premium, if any) and interest on the Securities in
respect of which or for the benefit of which such money has been collected,
ratably, without preference or priority of any kind, according to the
amounts due and payable on such Securities for principal (and premium, if
any) and interest, respectively;
THIRD: To the payment of any and all other amounts due under the
Indenture, the Securities or the Guarantees; and
FOURTH: To the Company (or such other Person as a court of competent
jurisdiction may direct).
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SECTION 5.7 Limitation on Suits.
-------------------
Subject to Section 5.8, no Holder of any Security shall have any right
to institute any proceeding, judicial or otherwise, with respect to this
Indenture, or for the appointment of a receiver or trustee, or for any other
remedy hereunder, unless
(i) such Holder has previously given written notice to the Trustee of
a continuing Event of Default;
(ii) the Holders of not less than 25% in principal amount of the
Outstanding Securities shall have made written request to the Trustee to
institute proceedings in respect of such Event of Default in its own name
as Trustee hereunder;
(iii) such Holder or Holders have offered to the Trustee reasonable
indemnity against the costs, expenses and liabilities to be incurred in
compliance with such request;
(iv) the Trustee for 45 days after its receipt of such notice, request
and offer of indemnity has failed to institute any such proceeding; and
(v) no direction inconsistent with such written request has been given
to the Trustee during such 45-day period by the Holders of a majority in
principal amount of the Outstanding Securities;
it being understood and intended that no one or more Holders shall have any
right in any manner whatever by virtue of, or by availing of, any provision of
this Indenture to affect, disturb or prejudice the rights of any other Holders,
or to obtain or to seek to obtain priority or preference over any other Holders
or to enforce any right under this Indenture, except in the
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manner herein provided and for the equal and ratable benefit of all the Holders.
SECTION 5.8 Unconditional Right of Holders to
Receive Principal, Premium and Interest.
---------------------------------------
Notwithstanding any other provision in this Indenture, the Holder of
any Security shall have the right, which is absolute and unconditional, to
receive payment of the principal of (and premium, if any) and (subject to
Section 3.7) interest on such Security on the respective Stated Maturities
expressed in such Security (or, in the case of redemption, on the Redemption
Date or in the case of a Change of Control Offer or an Asset Sale Offer made by
the Company and required to be accepted as to such Security, on the relevant
Purchase Date) and to institute suit for the enforcement of any such payment,
and such rights shall not be impaired without the consent of such Holder.
SECTION 5.9 Restoration of Rights and Remedies.
----------------------------------
If the Trustee or any Holder has instituted any proceeding to enforce
any right or remedy under this Indenture and such proceeding has been
discontinued or abandoned for any reason, or has been determined adversely to
the Trustee or to such Holder, then and in every such case, subject to any
determination in such proceeding, the Company, each Guarantor, the Trustee and
the Holders shall be restored severally and respectively to their former
positions hereunder and thereafter all rights and remedies of the Trustee and
the Holders shall continue as though no such proceeding had been instituted,
subject to the determination in such proceeding.
SECTION 5.10 Rights and Remedies Cumulative.
------------------------------
Except as otherwise provided with respect to the replacement or
payment of mutilated, destroyed, lost
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or stolen Securities in the last paragraph of Section 3.6, no right or remedy
herein conferred upon or reserved to the Trustee or to the Holders is intended
to be exclusive of any other right or remedy, and every right and remedy shall,
to the extent permitted by law, be cumulative and in addition to every other
right and remedy given hereunder or now or hereafter existing at law or in
equity or otherwise. The assertion or employment of any right or remedy
hereunder, or otherwise, shall not prevent the concurrent assertion or
employment of any other appropriate right or remedy.
SECTION 5.11 Delay or Omission Not Waiver.
----------------------------
No delay or omission of the Trustee or of any Holder of any Security
to exercise any right or remedy accruing upon any Event of Default shall impair
any such right or remedy or constitute a waiver of any such Event of Default or
an acquiescence therein. Every right and remedy given by this Article or by law
to the Trustee or to the Holders may be exercised from time to time, and as
often as may be deemed expedient, by the Trustee or by the Holders, as the case
may be.
SECTION 5.12 Control by Holders.
------------------
The Holders of a majority in principal amount of the Outstanding
Securities shall have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Trustee or exercising
any trust or power conferred on the Trustee, provided that
-------- ----
(i) such direction shall not be in conflict with any rule of law or
with this Indenture, and
(ii) the Trustee may take any other action deemed proper by the
Trustee which is not inconsistent with such direction.
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SECTION 5.13 Waiver of Past Defaults.
-----------------------
The Holders of not less than a majority in principal amount of the
Outstanding Securities may on behalf of the Holders of all the Securities waive
any past default hereunder and its consequences, except a default
(i) in the payment of the principal of (or premium, if any) or
interest on any Security (including any Security which is required to have
been purchased pursuant to a Change of Control Offer or an Asset Sale Offer
which has been made by the Company), or
(ii) in respect of a covenant or provision hereof which under Article
IX cannot be modified or amended without the consent of the Holder of each
Outstanding Security affected.
Upon any such waiver, such default shall cease to exist, and any Event
of Default arising therefrom shall be deemed to have been cured, for every
purpose of this Indenture; but no such waiver shall extend to any subsequent or
other default or impair any right consequent thereon.
SECTION 5.14 Undertaking for Costs.
---------------------
In any suit for the enforcement of any right or remedy under this
Indenture, or in any suit against the Trustee for any action taken, suffered or
omitted by it as Trustee, a court may require any party litigant in such suit to
file an undertaking to pay the costs of such suit, and may assess costs against
any such party litigant, in the manner and to the extent provided in the Trust
Indenture Act; provided, that neither this Section nor the Trust Indenture Act
-------- ----
shall be deemed to authorize any court to require such an undertaking or to
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make such an assessment in any suit instituted by the Company or a Guarantor, in
any suit instituted by the Trustee, in any suit instituted by any Holder or
group of Holders, holding in the aggregate more than 10% in principal amount of
the Outstanding Securities, or in any suit instituted by any Holder for the
enforcement of the payment of the principal of (or premium, if any) or interest
on any Security on or after the Stated Maturity expressed in such Security (or,
in the case of redemption, on or after the Redemption Date or, in the case of a
Change of Control Offer or an Asset Sale Offer, made by the Company and required
to be accepted as to such Security, on the applicable Purchase Date, as the case
may be).
SECTION 5.15 Waiver of Stay or Extension Laws.
--------------------------------
The Company and each Guarantor covenants (to the extent that it may
lawfully do so) that it will not at any time insist upon, or plead, or in any
manner whatsoever claim or take the benefit or advantage of, any usury, stay or
extension law wherever enacted, now or at any time hereafter in force, which may
affect the covenants or the performance of this Indenture; and the Company and
each Guarantor (to the extent that it may lawfully do so) hereby expressly
waives all benefit or advantage of any such law and covenants that it will not
hinder, delay or impede the execution of any power herein granted to the
Trustee, but will suffer and permit the execution of every such power as though
no such law had been enacted.
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ARTICLE VI
The Trustee
SECTION 6.1 Certain Duties and Responsibilities.
-----------------------------------
(a) Except during the continuance of an Event of Default,
(i) the Trustee undertakes to perform such duties and only such
duties as are specifically set forth in this Indenture, and no implied
covenants or obligations shall be read into this Indenture against the
Trustee; and
(ii) in the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the correctness of
the opinions expressed therein, upon certificates or opinions furnished to
the Trustee and conforming to the requirements of this Indenture; but in
the case of any such certificates or opinions which by the provisions
hereof are specifically required to be furnished to the Trustee, the
Trustee shall be under a duty to examine the same to determine whether or
not they conform to the requirements of this Indenture but need not verify
the contents thereof.
(b) In case an Event of Default has occurred and is continuing, the
Trustee shall exercise such of the rights and powers vested in it by this
Indenture, and use the same degree of care and skill in their exercise, as
a prudent Person would exercise or use under the circumstances in the
conduct of such Person's own affairs.
(c) No provision of this Indenture shall be construed to relieve the
Trustee from liability for
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its own negligent misconduct, except that no provision of this Indenture
shall require the Trustee to expend or risk its own funds or otherwise
incur any financial liability in the performance of any of its duties
hereunder, or in the exercise of any of its rights or powers under this
Indenture, unless the Trustee has received security and indemnity
satisfactory to it against any loss, liability or expense. The Trustee
shall not be liable for any error of judgment unless it is proved that the
Trustee was negligent in the performance of its duties hereunder.
(d) Whether or not therein expressly so provided, every provision of
this Indenture relating to the conduct or affecting the liability of or
affording protection to the Trustee shall be subject to the provisions of
this Section 6.1.
SECTION 6.2 Notice of Defaults.
------------------
Within 30 days after the occurrence of any Default, the Trustee shall
transmit by mail to all Holders, as their names and addresses appear in the
Security Register, notice of such Default hereunder known to the Trustee, unless
such Default shall have been cured or waived; provided, however, that, except in
-------- -------
the case of a Default in the payment of the principal of, premium, if any, or
interest on any Security, the Trustee shall be protected in withholding such
notice if and so long as a trust committee of Responsible Officers of the
Trustee in good faith determines that the withholding of such notice is in the
interest of the Holders.
SECTION 6.3 Certain Rights of Trustee.
-------------------------
Subject to the provisions of Section 6.1:
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(a) the Trustee may conclusively rely as to the truth of the
statements and correctness of the opinions expressed therein and shall be
fully protected in acting or refraining from acting upon any resolution,
Officer's Certificate, certificate of auditors or any other certificate,
statement, instrument, opinion, report, notice, request, direction,
consent, order, bond, debenture, note, other evidence of indebtedness or
other paper or document believed by it to be genuine and to have been
signed or presented by the proper party or parties;
(b) any request or direction of the Company mentioned herein shall be
sufficiently evidenced by a Company Request or Company Order and any
resolution of the Board of Directors of the Company may be sufficiently
evidenced by a Board Resolution of the Company;
(c) whenever in the administration of this Indenture the Trustee shall
deem it desirable that a matter be proved or established prior to taking,
suffering or omitting any action hereunder, the Trustee (unless other
evidence be herein specifically prescribed) may, in the absence of bad
faith on its part, rely upon an Officer's Certificate;
(d) the Trustee may consult with counsel of its selection and the
advice of such counsel or any Opinion of Counsel shall be full and complete
authorization and protection in respect of any action taken, suffered or
omitted by it hereunder in good faith and in reliance thereon;
(e) the Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by this Indenture at the request or direction
of any of the Holders pursuant to this Indenture, unless such Holders shall
have offered to the
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Trustee reasonable security or indemnity against the costs, expenses and
liabilities which might be incurred by it in compliance with such request
or direction;
(f) the Trustee shall not be bound to make any investigation into the
facts or matters stated in any resolution, certificate, statement,
instrument, opinion, report, notice, request, direction, consent, order,
bond, debenture, note, other evidence of indebtedness or other paper or
document, but the Trustee, in its discretion, may make such further inquiry
or investigation into such facts or matters as it may see fit, and, if the
Trustee shall determine to make such further inquiry or investigation, it
shall be entitled (subject to reasonable confidentiality arrangements as
may be proposed by the Company or any Guarantor) to make reasonable
examination (upon prior notice and during regular business hours) of the
books, records and premises of the Company or a Guarantor, personally or by
agent or attorney;
(g) the Trustee may execute any of the trusts or powers hereunder or
perform any duties hereunder either directly or by or through agents or
attorneys or custodians or nominees and the Trustee shall not be
responsible for the supervision of, or any misconduct or negligence on the
part of any agent or attorney appointed with due care by it hereunder;
(h) the Trustee shall not be liable for any action taken, suffered, or
omitted to be taken by it in good faith and reasonably believed by it to be
authorized or within the discretion or rights or powers conferred upon it
by this Indenture; and
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(i) in the event that the Trustee is also acting as Authenticating
Agent, Paying Agent or Security Registrar hereunder, the rights and
protections afforded to the Trustee pursuant to this Article VI shall also
be afforded to such Authenticating Agent, Paying Agent and Security
Registrar.
SECTION 6.4 Not Responsible for Recitals
or Issuance of Securities.
-------------------------
The recitals contained herein and in the Securities, except the
Trustee's certificates of authentication, shall be taken as the statements of
the Company, and the Trustee or any Authenticating Agent assumes no
responsibility for their correctness. The Trustee makes no representations as to
the validity or sufficiency of this Indenture or of the Securities. The Trustee
shall not be accountable for the use or application by the Company of Securities
or the proceeds thereof.
SECTION 6.5 May Hold Securities.
-------------------
The Trustee, any Authenticating Agent, any Paying Agent, any Security
Registrar or any other agent of the Company or any Guarantor, in its individual
or any other capacity, may become the owner or pledgee of Securities and,
subject to Sections 6.8 and 6.13, may otherwise deal with the Company or a
Guarantor with the same rights it would have if it were not Trustee,
Authenticating Agent, Paying Agent, Security Registrar or such other agent.
SECTION 6.6 Money Held in Trust.
-------------------
Money held by the Trustee in trust hereunder need not be segregated
from other funds except to the extent required by law. The Trustee shall be
under no liability for interest on any money received by it hereunder
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except as otherwise agreed in writing with the Company.
SECTION 6.7 Compensation and Reimbursement.
------------------------------
The Company agrees
(1) to pay to the Trustee from time to time such reasonable
compensation as the Company and the Trustee shall from time to time agree
in writing for all services rendered by it hereunder (which compensation
shall not be limited by any provision of law in regard to the compensation
of a trustee of an express trust);
(2) except as otherwise expressly provided herein, to promptly
reimburse the Trustee upon its request for all reasonable expenses,
disbursements and advances incurred or made by the Trustee in accordance
with any provision of this Indenture (including the reasonable compensation
and the expenses and disbursements of its agents and counsel), except any
such expense, disbursement or advance as may be attributable to its
negligence or bad faith; and
(3) to indemnify the Trustee, its directors, officers, agents and
employees for, and to hold them harmless against, any and all loss, damage,
claim, liability or expense incurred without negligence or bad faith on its
part, including taxes (other than taxes based upon, measured by or
determined by the revenue or income of the Trustee), arising out of or in
connection with the acceptance or administration of this trust, including
the costs and expenses of defending itself against any claim or liability
in connection with the exercise or performance of any of its powers or
duties hereunder.
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The Trustee shall have a lien prior to the Securities as to all
property and funds held by it hereunder for any amount owing to it pursuant to
this Section 6.7, except with respect to funds held in trust for the benefit of
the Holders of particular Securities.
When the Trustee incurs expenses or renders services in connection
with an Event of Default specified in Section 5.1(7) or Section 5.1(8), the
expenses (including the reasonable charges and expenses of its counsel) and the
compensation for the services are intended to constitute expenses of
administration under any applicable Federal or State bankruptcy, insolvency or
other similar law.
The provisions of this Section shall survive any termination of this
Indenture.
SECTION 6.8 Conflicting Interests.
---------------------
If the Trustee has or shall acquire a conflicting interest within the
meaning of the Trust Indenture Act, the Trustee shall either eliminate such
interest or resign, to the extent and in the manner provided by, and subject to
the provisions of, the Trust Indenture Act and this Indenture.
SECTION 6.9 Corporate Trustee Required; Eligibility.
---------------------------------------
There shall at all times be a Trustee hereunder which shall be a
Person that is eligible pursuant to the Trust Indenture Act to act as such and
has, or is a wholly-owned subsidiary of a bank holding company that has, a
combined capital and surplus of at least $100,000,000 and a Corporate Trust
Office in the Borough of Manhattan, The City of New York. If such Person
publishes reports of condition at least annually, pursuant to law or to the
requirements of a Federal or State supervising or examining authority, then for
the purposes
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of this Section and to the extent permitted by the Trust Indenture
Act, the combined capital and surplus of such Person shall be deemed to be its
combined capital and surplus as set forth in its most recent report of condition
so published. If at any time the Trustee shall cease to be eligible in
accordance with the provisions of this Section, it shall resign immediately in
the manner and with the effect hereinafter specified in this Article.
SECTION 6.10 Resignation and Removal;
Appointment of Successor.
------------------------
(a) No resignation or removal of the Trustee and no appointment of a
successor Trustee pursuant to this Article shall become effective until the
acceptance of appointment by the successor Trustee in accordance with the
applicable requirements of Section 6.11.
(b) The Trustee may resign at any time by giving written notice
thereof to the Company. If an instrument of acceptance by a successor
Trustee in accordance with the applicable requirements of Section 6.11
shall not have been delivered to the Company and the resigning Trustee
within 30 days after the giving of such notice of resignation, the
resigning Trustee may petition any court of competent jurisdiction for the
appointment of a successor Trustee.
(c) The Trustee may be removed at any time by Act of the Holders of a
majority in principal amount of the Outstanding Securities, delivered to
the Trustee and to the Company.
(d) If at any time:
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(i) the Trustee shall fail to comply with Section 6.8 after written
request therefor by the Company or by any Holder who has been a bona fide
Holder of a Security for at least six months, or
(ii) the Trustee shall cease to be eligible under Section 6.9 and
shall fail to resign after written request therefor by the Company, any
Guarantor or by any such Holder, or
(iii) the Trustee shall become incapable of acting or shall be
adjudged a bankrupt or insolvent or a receiver of the Trustee or of its
property shall be appointed or any public officer shall take charge or
control of the Trustee or of its property or affairs for the purpose of
rehabilitation, conservation or liquidation,
then, in any such case, (i) the Company or any Guarantor, in each case by a
Board Resolution, may remove the Trustee, or (ii) subject to Section 5.14, any
Holder who has been a bona fide Holder of a Security for at least six months
may, on behalf of himself and all others similarly situated, petition any court
of competent jurisdiction for the removal of the Trustee and the appointment of
a successor Trustee.
(e) If the Trustee shall resign, be removed or become incapable of
acting, or if a vacancy shall occur in the office of Trustee for any cause,
the Company, by a Board Resolution, shall promptly appoint a successor
Trustee. If, within one year after such resignation, removal or
incapability, or the occurrence of such vacancy, a successor Trustee shall
be appointed by Act of the Holders of a majority in principal amount of the
Outstanding Securities delivered to the Company and the retiring Trustee,
the successor Trustee so appointed shall, forthwith upon its acceptance of
such appointment
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in accordance with the applicable requirements of Section 6.11, become the
successor Trustee and supersede the successor Trustee appointed by the
Company. If no successor Trustee shall have been so appointed by the
Company or the Holders and accepted appointment in accordance with the
applicable requirements of Section 6.11, any Holder who has been a bona
fide Holder of a Security for at least six months may, on behalf of himself
and all others similarly situated, petition any court of competent
jurisdiction for the appointment of a successor Trustee.
(f) The Company shall give notice of each resignation and each
removal of the Trustee and each appointment of a successor Trustee to all
Holders in the manner provided in Section 1.6. Each notice shall include
the name of the successor Trustee and the address of its Corporate Trust
Office.
(g) The resignation or removal of the Trustee pursuant to this
Section 6.10 shall not affect the obligation of the Company to indemnify
the Trustee pursuant to Section 6.7(3) in connection with the exercise or
performance by the Trustee prior to its resignation or removal of any of
its powers or duties hereunder.
(h) No Trustee under this Indenture shall be liable for any action or
omission of any successor Trustee.
SECTION 6.11 Acceptance of Appointment by Successor.
--------------------------------------
Every successor Trustee appointed hereunder shall execute, acknowledge
and deliver to the Company and to the retiring Trustee an instrument accepting
such appointment, and thereupon the resignation or removal of
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the retiring Trustee shall become effective and such successor Trustee, without
any further act, deed or conveyance, shall become vested with all the rights,
powers, trusts and duties of the retiring Trustee; but, on request of the
Company or the successor Trustee, such retiring Trustee shall, upon payment of
its charges, execute and deliver an instrument transferring to such successor
Trustee all the rights, powers and trusts of the retiring Trustee and shall duly
assign, transfer and deliver to such successor Trustee all property and money
held by such retiring Trustee hereunder. Upon request of any such successor
Trustee, the Company shall execute any and all instruments for more fully and
certainly vesting in and confirming to such successor Trustee all such rights,
powers and trusts.
No successor Trustee shall accept its appointment unless at the time
of such acceptance such successor Trustee shall be qualified and eligible under
this Article.
SECTION 6.12 Merger, Conversion, Consolidation
or Succession to Business.
-------------------------
Any corporation into which the Trustee may be merged or converted or
with which it may be consolidated, or any corporation resulting from any merger,
conversion or consolidation to which the Trustee shall be a party, or any
corporation succeeding to all or substantially all the corporate trust business
of the Trustee, shall be the successor of the Trustee hereunder, provided such
--------
corporation shall be otherwise qualified and eligible under this Article,
without the execution or filing of any paper or any further act on the part of
any of the parties hereto. In case any Securities shall have been
authenticated, but not delivered, by the Trustee then in office, any successor
by merger, conversion or consolidation to such authenticating Trustee may adopt
such authentication and deliver the Securities so
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authenticated with the same effect as if such successor Trustee had itself
authenticated such Securities.
SECTION 6.13 Preferential Collection of Claims
Against the Company or a Guarantor.
----------------------------------
If and when the Trustee shall be or become a creditor of the Company
or a Guarantor (or any other obligor upon the Securities), the Trustee shall be
subject to the provisions of the Trust Indenture Act regarding the collection of
claims against the Company or such Guarantor (or any such other obligor).
SECTION 6.14 Appointment of Authenticating Agent.
-----------------------------------
The Trustee may appoint an Authenticating Agent or Agents which shall
be authorized to act on behalf of the Trustee to authenticate Securities issued
upon original issue and upon exchange, registration of transfer or partial
redemption or partial purchase or pursuant to Section 3.6, and Securities so
authenticated shall be entitled to the benefits of this Indenture and shall be
valid and obligatory for all purposes as if authenticated by the Trustee
hereunder. Wherever reference is made in this Indenture to the authentication
and delivery of Securities by the Trustee or the Trustee's certificate of
authentication, such reference shall be deemed to include authentication and
delivery on behalf of the Trustee by an Authenticating Agent and a certificate
of authentication executed on behalf of the Trustee by an Authenticating Agent.
Each Authenticating Agent shall be acceptable to the Company and shall at all
times be a corporation organized and doing business under the laws of the United
States of America, any State thereof or the District of Columbia, authorized
under such laws to act as Authenticating Agent, having a combined capital and
surplus of not less than $100,000,000 and subject to supervision or examination
by Federal or State authority. If such Authenticating
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Agent publishes reports of condition at least annually, pursuant to law or to
the requirements of said supervising or examining authority, then for the
purposes of this Section, the combined capital and surplus of such
Authenticating Agent shall be deemed to be its combined capital and surplus as
set forth in its most recent report of condition so published. If at any time an
Authenticating Agent shall cease to be eligible in accordance with the
provisions of this Section, such Authenticating Agent shall resign immediately
in the manner and with the effect specified in this Section.
Any corporation into which an Authenticating Agent may be merged or
converted or with which it may be consolidated, or any corporation resulting
from any merger, conversion or consolidation to which such Authenticating Agent
shall be a party, or any corporation succeeding to all or substantially all of
the corporate agency or corporate trust business of an Authenticating Agent,
shall continue to be an Authenticating Agent, provided such corporation shall be
--------
otherwise eligible under this Section, without the execution or filing of any
paper or any further act on the part of the Trustee or the Authenticating Agent.
An Authenticating Agent may resign at any time by giving written
notice thereof to the Trustee and to the Company. The Trustee may at any time
terminate the agency of an Authenticating Agent by giving written notice thereof
to such Authenticating Agent and to the Company. Upon receiving such a notice
of resignation or upon such a termination, or in case at any time such
Authenticating Agent shall cease to be eligible in accordance with the
provisions of this Section, the Trustee may appoint a successor Authenticating
Agent which shall be acceptable to the Company and shall give notice of such
appointment in the manner provided in Section 1.6, to all Holders as their names
and addresses appear in the Security Register. Any successor Authenticating
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Agent upon acceptance of its appointment hereunder shall become vested with all
the rights, powers and duties of its predecessor hereunder, with like effect as
if originally named as an Authenticating Agent. No successor Authenticating
Agent shall be appointed unless eligible under the provisions of this Section.
The Company agrees to pay to each Authenticating Agent from time to
time reasonable compensation for its services under this Section.
If an appointment is made pursuant to this Section, the Securities may
have endorsed thereon, in addition to the Trustee's certificate of
authentication, an alternative certificate of authentication in the following
form:
This is one of the Securities described in the within-mentioned
Indenture.
Dated:
State Street Bank and Trust Company
As Trustee
By: ____________________________________
As Authenticating Agent
By: ____________________________________
Authorized Signatory
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ARTICLE VII
Holders' Lists and Reports by Trustee and Company
SECTION 7.1 Company to Furnish Trustee
Names and Addresses of Holders.
------------------------------
The Company will furnish or cause to be furnished to the Trustee a
list of the names and addresses of the Holders in such form as the Trustee may
reasonably request in writing, within 30 days after the receipt by the Company
of any such request, as of a date not more than 15 days prior to the time such
list is furnished; excluding from any such list names and addresses received by
---------
the Trustee in its capacity as Security Registrar.
SECTION 7.2 Preservation of Information;
Communications to Holders.
-------------------------
(a) The Trustee shall preserve, in as current a form as is reasonably
practicable, the names and addresses of Holders contained in the most recent
list furnished to the Trustee as provided in Section 7.1 and the names and
addresses of Holders received by the Trustee in its capacity as Security
Registrar, if so acting.
(b) The rights of Holders to communicate with other Holders with
respect to their rights under this Indenture or under the Securities, and the
corresponding rights and duties of the Trustee, shall be as provided by the
Trust Indenture Act.
(c) Every Holder of Securities, by receiving and holding the same,
agrees with the Company and the Trustee that neither the Company, any Guarantor
nor the Trustee nor any agent of either of them shall be held
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accountable by reason of any disclosure of information as to the names and
addresses of Holders made pursuant to the Trust Indenture Act.
SECTION 7.3 Reports by Trustee.
------------------
(a) Within 60 days after May 15 of each year commencing May 15, 1999,
the Trustee shall transmit to Holders such reports concerning the Trustee and
its actions under this Indenture to the extent required pursuant to the Trust
Indenture Act at the times and in the manner provided pursuant thereto.
(b) A copy of each such report shall, at the time of such transmission
to Holders, be filed by the Trustee with each stock exchange upon which the
Securities are listed, with the Commission and with the Company. The Company
will promptly notify the Trustee when the Securities are listed on any stock
exchange.
SECTION 7.4 Reports by Company.
------------------
The Company shall file with the Trustee and the Commission, and
transmit to Holders, such information, documents and other reports, and such
summaries thereof, as may be required pursuant to the Trust Indenture Act at the
times and in the manner provided pursuant to the Trust Indenture Act; provided
--------
that any such information, documents or reports required to be filed with the
- ----
Commission pursuant to Section 13 or 15(d) of the Exchange Act shall be filed
with the Trustee within 15 days after the same is so required to be filed with
the Commission.
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ARTICLE VIII
Consolidation, Merger, Conveyance, Transfer or Lease
SECTION 8.1 Company May Consolidate,
Etc. Only on Certain Terms.
--------------------------
(A) The Company will not, in any transaction or series of
transactions, merge or consolidate with or into, or sell, assign, convey,
transfer, lease or otherwise dispose of all or substantially all of its
properties and assets as an entirety to, any Person or Persons, and (B) the
Company will not permit any of its Restricted Subsidiaries to enter into any
such transaction or series of transactions if such transaction or series of
transactions, in the aggregate, would result in a sale, assignment, conveyance,
transfer, lease or other disposition of all or substantially all of the
properties and assets of the Company or the Company and its Restricted
Subsidiaries, taken as a whole, to any other Person or Persons, unless, in each
of cases (A) and (B), at the time and after giving effect thereto:
(1) either:
(x) if the transaction or transactions is a merger or consolidation,
the Company, or such Restricted Subsidiary, as the case may be, shall
be the surviving Person of such merger or consolidation, or
(y) the Person formed by such consolidation or into which the Company,
or such Restricted Subsidiary, as the case may be, is merged or to
which the properties and assets of the Company or such Restricted
Subsidiary, as the case may be, substantially as an entirety, are
transferred (any such surviving Person or
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transferee Person being the "Surviving Entity") shall be a corporation
organized and existing under the laws of the United States of America,
any state thereof or the District of Columbia and shall expressly
assume by a supplemental indenture executed and delivered to the
Trustee, in form satisfactory to the Trustee, all the obligations of
the Company or such Restricted Subsidiary, as the case may be, under
the Securities, this Indenture and the Registration Rights Agreement
and this Indenture, the Securities, the Guarantees and the
Registration Rights Agreement shall remain in full force and effect;
(2) immediately after giving effect to such transaction or series of
transactions on a pro forma basis (including, without limitation, any
Indebtedness incurred or anticipated to be incurred in connection with or
in respect of such transaction or series of transactions), no Default or
Event of Default shall have occurred and be continuing; and
(3) except in the case of any merger of the Company with any wholly-owned
Subsidiary of the Company or any merger of a wholly owned Restricted
Subsidiary of the Company with and into a Guarantor or merger of Guarantors
(and in each case, with no other Persons), the Company or the Surviving
Entity, as the case may be, after giving effect to such transaction or
series of transactions on a pro forma basis (including, without limitation,
any Indebtedness incurred or anticipated to be incurred in connection with
or in respect of such transaction or series of transactions), could incur
$1.00 of additional Indebtedness (other than Permitted Indebtedness) under
Section 10.8 (assuming a market rate of interest with respect to such
additional Indebtedness).
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In connection with any consolidation, merger, transfer, lease,
assignment or other disposition contemplated by the foregoing provisions of this
Section 8.1, the Company shall deliver, or cause to be delivered, to the
Trustee, in form and substance reasonably satisfactory to the Trustee, an
Officer's Certificate and an Opinion of Counsel, each stating that such
consolidation, merger, transfer, lease, assignment, or other disposition and the
supplemental indenture in respect thereof (required under clause (1)(y) of this
Section 8.1) comply with the requirements of this Indenture. Each such
Officer's Certificate shall set forth the manner of determination of the ability
to incur Indebtedness in accordance with clause (3) of this Section 8.1.
SECTION 8.2 Successor Substituted.
---------------------
Except as otherwise provided by Section 13.5, upon any consolidation
or merger, or any sale, assignment, conveyance, transfer, lease or disposition
of all or substantially all of the properties and assets of the Company in
accordance with Section 8.1, the successor Person formed by such consolidation
or into which the Company or a Restricted Subsidiary, as the case may be, is
merged or the successor Person to which such sale, assignment, conveyance,
transfer, lease or disposition is made shall succeed to, and be substituted for,
and may exercise every right and power of the Company under the Securities, this
Indenture and/or the Registration Rights Agreement, as applicable, with the same
effect as if such successor had been named as the Company in the Securities,
this Indenture and/or in the Registration Rights Agreement, as the case may be
and, except in the case of a lease, the Company, or such Restricted Subsidiary,
as the case may be, shall be released and discharged from its obligations
thereunder.
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For all purposes of this Indenture and the Securities (including the
provisions of this Article VIII and Sections 10.8, 10.9 and 10.12), Subsidiaries
of any Surviving Entity shall, upon consummation of such transaction or series
of related transactions, become Restricted Subsidiaries unless and until
designated Unrestricted Subsidiaries pursuant to and in accordance with Section
10.18 and all Indebtedness, and all Liens on property or assets, of the Company,
and the Restricted Subsidiaries, as the case may be, in existence immediately
prior to such transaction or series of related transactions will be deemed to
have been incurred upon consummation of such transaction or series of related
transactions.
ARTICLE IX
Amendments; Waivers; Supplemental Indentures
SECTION 9.1 Amendments, Waivers and Supplemental
Indentures Without Consent of Holders.
-------------------------------------
Without the consent of any Holders, the Company and each Guarantor,
when authorized by Board Resolutions, and the Trustee, at any time and from time
to time, may together amend, waive or supplement this Indenture, for any of the
following purposes:
(i) to evidence the succession of another Person to the Company or a
Guarantor and the assumption by any such successor of the covenants of the
Company or such Guarantor herein and in the Securities or such Guarantor's
Guaranty and to evidence the assumption of obligations under this Indenture
and a Guaranty pursuant to Section 10.17; or
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(ii) to add to the covenants of the Company or a Guarantor for the
benefit of the Holders, or to surrender any right or power herein conferred
upon the Company or a Guarantor; or
(iii) to secure the Securities pursuant to the requirements of Section
10.12 or otherwise; or
(iv) to comply with any requirements of the Commission in order to
effect or maintain the qualification of this Indenture under the Trust
Indenture Act; or
(v) to cure any ambiguity, to correct or supplement any provision
herein which may be defective or inconsistent with any other provision
herein, or to make any other provisions with respect to matters or
questions arising under this Indenture which shall not be inconsistent with
the provisions of this Indenture,
provided that (a) such amendment, waiver or supplement does not adversely affect
- -------- ----
the rights of any Holder of Securities and (b) the Company shall have delivered
to the Trustee an Opinion of Counsel stating that such action pursuant to
clauses (i), (ii), (iii), (iv) or (v) above is permitted by this Indenture. The
Trustee shall not be obligated to enter into any such amendment or supplemental
indenture that adversely affects its own rights, duties or immunities under this
Indenture or otherwise.
SECTION 9.2 Modifications, Amendments and
Supplemental Indentures with Consent of Holders.
------------------------------------------------
With the consent of the Holders of not less than a majority in
principal amount of the Outstanding Securities, by Act of said Holders delivered
to the Company and the Trustee, the Company and the Guarantors,
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when authorized by Board Resolutions, and the Trustee may together modify, amend
or supplement this Indenture for the purpose of adding any provisions to or
changing in any manner or eliminating any of the provisions of this Indenture or
of modifying in any manner the rights of the Holders under this Indenture;
provided, however, that no such modification, amendment or supplemental
- -------- -------
indenture shall, without the consent of the Holder of each Outstanding Security
affected thereby,
(i) reduce the principal amount of, extend the Stated Maturity of or
alter the redemption provisions of, the Securities,
(ii) change the currency in which any Securities or any premium or the
interest thereon is payable,
(iii) reduce the percentage in principal amount of Outstanding
Securities that must consent to an amendment, supplement or waiver or
consent to take any action under the Indenture or the Securities or any
Guaranty,
(iv) impair the right to institute suit for the enforcement of any
payment on or with respect to the Securities or any Guaranty,
(v) waive a default in payment with respect to the Securities or any
Guaranty,
(vi) amend, change or modify the obligation of the Company to make and
consummate a Change of Control Offer in the event of a Change of Control or
make and consummate an Asset Sale Offer with respect to any Asset Sale or
modify any of the provisions or definitions with respect thereto,
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(vii) reduce or change the rate or time for payment of interest on the
Securities, or
(viii) modify or change any provision of this Indenture affecting the
ranking of the Securities or any Guaranty in a manner adverse to the
Holders of the Securities.
It shall not be necessary for any Act of Holders under this Section to
approve the particular form of any proposed amendment or supplemental indenture,
but it shall be sufficient if such Act shall approve the substance thereof.
The Trustee shall join with the Company and each Guarantor in the
execution of such amended or supplemental indenture unless such amended or
supplemental indenture affects the Trustee's own rights, duties or immunities
under this Indenture or otherwise, in which case the Trustee may in its
discretion but shall not be obligated to enter into such amendment or
supplemental indenture.
In addition, no modification, amendment or supplement to the
provisions of Article XIV which is adverse to the interests of the lenders under
the Credit Facility or the Term Loan shall be made without the consent of the
representatives of such lenders.
SECTION 9.3 Execution of Supplemental Indentures.
------------------------------------
In executing, or accepting the additional trusts created by, any
supplemental indenture permitted by this Article or the modifications thereby of
the trusts created by this Indenture, the Trustee shall be entitled to receive,
and (subject to Section 6.1) shall be fully protected in relying upon, an
Opinion of Counsel stating that the execution of such supplemental indenture is
authorized or permitted by this Indenture.
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The Trustee may, but shall not be obligated to, enter into any such supplemental
indenture which affects the Trustee's own rights, duties or immunities under
this Indenture or otherwise; provided that the Trustee shall enter into and
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execute all other supplemental indentures which satisfy all applicable
conditions under this Article IX.
SECTION 9.4 Effect of Supplemental Indentures.
---------------------------------
Upon the execution of any supplemental indenture under this Article,
this Indenture shall be modified in accordance therewith, and such supplemental
indenture shall form a part of this Indenture for all purposes; and every Holder
of Securities theretofore or thereafter authenticated and delivered hereunder
shall be bound thereby.
SECTION 9.5 Conformity with Trust Indenture Act.
-----------------------------------
Every supplemental indenture executed pursuant to this Article shall
conform to the requirements of the Trust Indenture Act as then in effect.
SECTION 9.6 Reference in Securities
to Supplemental Indentures.
--------------------------
Securities authenticated and delivered after the execution of any
supplemental indenture pursuant to this Article may, and shall if required by
the Trustee, bear a notation in form approved by the Trustee as to any matter
provided for in such supplemental indenture, provided that any failure by the
-------- ----
Trustee to make such notation shall not affect the validity of the matter
provided for in such supplemental indenture or any Security or Guarantee
hereunder. If the Company shall so determine, new Securities or Guarantees so
modified as to conform, in the opinion of the Trustee, the Guarantors and the
Company, to any such supplemental indenture
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may be prepared and executed by the Company or Guarantor and authenticated and
delivered by the Trustee in exchange for Outstanding Securities.
SECTION 9.7 Waiver of Certain Covenants.
---------------------------
The Company may omit in any particular instance to comply with any
covenant or condition set forth in Section 8.1, provided pursuant to Section
9.1(ii) and set forth in Sections 10.4 to 10.12 and 10.15 to 10.18, inclusive,
if before the time for such compliance the Holders of at least a majority in
principal amount of the Outstanding Securities shall, by Act of such Holders,
either waive such compliance in such instance or generally waive compliance with
such covenant or condition, but no such waiver shall extend to or affect such
covenant or condition except to the extent so expressly waived, and, until such
waiver shall become effective, the obligations of the Company and the duties of
the Trustee in respect of any such covenant or condition shall remain in full
force and effect; provided, however, with respect to an Offer as to which an
-------- -------
Offer to Purchase has been mailed, no such waiver may be made or shall be
effective against any Holder tendering Securities pursuant to such Offer, and
the Company may not omit to comply with the terms of such Offer as to such
Holder.
SECTION 9.8 No Liability for Certain Persons.
--------------------------------
No director, officer, employee, or stockholder of Holdings or the Company,
nor any director, officer or employees of any Guarantor, as such, shall have any
liability for any obligations of the Company or any Guarantor under the
Securities, the Guarantees or this Indenture based on or by reason of such
obligations or their creation. Each Holder by accepting a Security waives and
releases all such liability. The foregoing waiver and release is an integral
part of the
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consideration for the issuance of the Securities and the Guarantees.
ARTICLE X
Covenants
SECTION 10.1 Payment of Principal,
Premium and Interest.
--------------------
The Company shall duly and punctually pay the principal of (and
premium, if any) and interest on the Securities in accordance with the terms of
the Securities and this Indenture.
SECTION 10.2 Maintenance of Office or Agency.
-------------------------------
The Company shall maintain in the Borough of Manhattan, The City of
New York, an office or agency where Securities may be presented or surrendered
for payment, where Securities may be surrendered for registration of transfer or
exchange and where notices and demands to or upon the Company or any Guarantor
in respect of the Securities, the Guarantees and this Indenture may be served.
The Company shall give prompt written notice to the Trustee of the location, and
any change in the location, of such office or agency. If at any time the
Company shall fail to maintain any such required office or agency or shall fail
to furnish the Trustee with the address thereof, such presentations, surrenders,
notices and demands may be made or served at a Corporate Trust Office of the
Trustee, and the Company hereby appoints the Trustee as its agent to receive all
such presentations, surrenders, notices and demands. In the event any such
notice or demands are so made or served on the Trustee, the Trustee shall
promptly forward copies thereof to the Company.
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The Company may also from time to time designate one or more other
offices or agencies (in or outside the Borough of Manhattan, The City of New
York) where the Securities may be presented or surrendered for any or all such
purposes and may from time to time rescind such designations; provided, however,
-------- -------
that no such designation or rescission shall in any manner relieve the Company
of its obligation to maintain an office or agency in the Borough of Manhattan,
The City of New York, for such purposes. The Company shall give prompt written
notice to the Trustee of any such designation or rescission and of any change in
the location of any such other office or agency.
SECTION 10.3 Money for Security Payments
to be Held in Trust.
-------------------
If the Company shall at any time act as its own Paying Agent, it will,
on or before each due date of the principal of (and premium, if any) or interest
on any of the Securities, segregate and hold in trust for the benefit of the
Persons entitled thereto a sum sufficient to pay the principal (and premium, if
any) or interest so becoming due until such sums shall be paid to such Persons
or otherwise disposed of as herein provided and will promptly notify the Trustee
of its action or failure so to act.
Whenever the Company shall have one or more Paying Agents, the Company
will, prior to 11:00 a.m. New York City time on each due date of the principal
of (and premium, if any) or interest on any Securities, deposit with a Paying
Agent a sum sufficient to pay the principal (and premium, if any) or interest so
becoming due, such sum to be held as provided by the Trust Indenture Act, and
(unless such Paying Agent is the Trustee) the Company will promptly notify the
Trustee of its action or failure so to act.
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The Company shall cause each Paying Agent other than the Trustee to
execute and deliver to the Trustee an instrument in which such Paying Agent
shall agree with the Trustee, subject to the provisions of this Section, that
such Paying Agent will: (i) comply with the provisions of the Trust Indenture
Act applicable to it as Paying Agent and (ii) during the continuance of any
default by the Company (or any other obligor upon the Securities) in the making
of any payment in respect of the Securities, upon the written request of the
Trustee, forthwith pay to the Trustee all sums held in trust by such Paying
Agent as such.
The Company may at any time, for the purpose of obtaining the
satisfaction and discharge of this Indenture or for any other purpose, pay, or
by Company Order direct any Paying Agent to pay, to the Trustee all sums held in
trust by such Paying Agent, such sums to be held by the Trustee upon the same
trusts as those upon which such sums were held by such Paying Agent; and, upon
such payment by any Paying Agent (other than the Company) to the Trustee, such
Paying Agent shall be released from all further liability with respect to such
money.
Any money deposited with the Trustee or any Paying Agent, or then held
by the Company, in trust for the payment of the principal of (and premium, if
any) or interest on any Security and remaining unclaimed for two years after
such principal (and premium, if any) or interest has become due and payable
shall be paid to the Company on Company Request, or (if then held by the
Company) shall be discharged from such trust; and the Holder of such Security
shall thereafter, as an unsecured general creditor, look only to the Company for
payment thereof, and all liability of the Trustee or such Paying Agent with
respect to such trust money, and all liability of the Company as trustee
thereof, shall thereupon cease; provided, however, that the Trustee or
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such Paying Agent, before being required to make any such repayment, may at the
expense of the Company cause to be published once, in a newspaper published in
the English language, customarily published on each Business Day and of general
circulation in The City of New York, notice that such money remains unclaimed
and that, after a date specified therein, which shall not be less than 30 days
from the date of such publication, any unclaimed balance of such money then
remaining will be repaid to the Company.
SECTION 10.4 Existence; Activities.
---------------------
Subject to Article VIII, the Company shall do or cause to be done all
things necessary to preserve and keep in full force and effect its existence,
rights (charter and statutory) and material franchises; provided, however, that
-------- -------
the Company shall not be required to preserve any such right or franchise if the
Board of Directors of the Company in good faith shall determine that the
preservation thereof is no longer desirable in the conduct of the business of
the Company and that the loss thereof is not disadvantageous in any material
respect to the Holders.
SECTION 10.5 Maintenance of Properties.
-------------------------
The Company shall cause all material properties used in the conduct of
its business or the business of any Restricted Subsidiary to be maintained and
kept in good condition, repair and working order (regular wear and tear
excepted), all as in the judgment of the Company may be necessary so that the
business carried on in connection therewith may be properly and advantageously
conducted at all times; provided, however, that nothing in this Section shall
-------- -------
prevent the Company from disposing of any asset (subject to compliance with
Section 10.14) or from discontinuing the operation or maintenance of any of such
material properties
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if such discontinuance is, as determined by the Company in good faith, desirable
in the conduct of its business or the business of any Restricted Subsidiary and
not disadvantageous in any material respect to the Holders.
SECTION 10.6 Payment of Taxes and Other Claims.
---------------------------------
The Company shall pay or discharge or cause to be paid or discharged,
before the same shall become delinquent, (1) all taxes, assessments and
governmental charges levied or imposed upon the Company or any of its Restricted
Subsidiaries or upon the income, profits or property of the Company or any of
its Restricted Subsidiaries, and (2) all lawful material claims for labor,
materials and supplies which, if unpaid, might by law become a lien upon
property of the Company or any of its Restricted Subsidiaries; provided,
--------
however, that the Company shall not be required to pay or discharge or cause to
- -------
be paid or discharged any such tax, assessment, charge or claim whose amount,
applicability or validity is being contested in good faith by appropriate
proceedings.
SECTION 10.7 Maintenance of Insurance.
------------------------
The Company shall, and shall cause its Restricted Subsidiaries to,
keep at all times all of their material properties which are of an insurable
nature insured against loss or damage with insurers believed by the Company to
be responsible to the extent that property of similar character is usually so
insured by corporations similarly situated and owning like properties in
accordance with good business practice. The Company shall, and shall cause its
Restricted Subsidiaries to, use the proceeds from any such insurance policy to
repair, replace or otherwise restore all material properties to which such
proceeds relate, provided, however, that the Company shall not be required to
-------- -------
repair, replace or otherwise restore any
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such material property if the Company in good faith determines that such
inaction is desirable in the conduct of the business of the Company or any
Restricted Subsidiary and not disadvantageous in any material respect to the
Holders.
SECTION 10.8 Limitation on Indebtedness.
--------------------------
The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, directly or indirectly, create, incur, issue, assume, guarantee
or in any manner become directly or indirectly liable, contingently or otherwise
(in each case, to "incur"), for the payment of any Indebtedness (including any
Acquired Indebtedness) other than Permitted Indebtedness; provided, however,
-------- -------
that (i) the Company and any Guarantor will be permitted to incur Indebtedness
(including Acquired Indebtedness), and (ii) a Restricted Subsidiary will be
permitted to incur Acquired Indebtedness, if in each case, after giving pro
forma effect to (1) the incurrence of such Indebtedness and (if applicable) the
application of the net proceeds therefrom, including to refinance other
Indebtedness, as if such Indebtedness were incurred at the beginning of the four
full fiscal quarters immediately preceding such incurrence, taken as one period;
(2) the incurrence, repayment or retirement of any other Indebtedness by the
Company and its Restricted Subsidiaries since the first day of such four-quarter
period as if such Indebtedness was incurred, repaid or retired at the beginning
of such four-quarter period (except that, in making such computation, the amount
of Indebtedness under any revolving credit facility shall be computed based upon
the average daily balance of such Indebtedness during such four-quarter period);
and (3) any Asset Sale or Asset Acquisition occurring since the first day of
such four-quarter period (including to the date of calculation) as if such
acquisition or disposition occurred at the beginning of such four-quarter
period,
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the Consolidated Fixed Charge Coverage Ratio of the Company is at least
2:1.
SECTION 10.9 Limitation on Restricted Payments.
---------------------------------
The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, directly or indirectly:
(a) declare or pay any dividend or make any other distribution or
payment on or in respect of Capital Stock of the Company or any of its
Restricted Subsidiaries or make any payment to the direct or indirect
holders (in their capacities as such) of Capital Stock of the Company or
any of its Restricted Subsidiaries (other than dividends or distributions
payable solely in Capital Stock of the Company (other than Redeemable
Capital Stock) or in options, warrants or other rights to purchase Capital
Stock of the Company (other than Redeemable Capital Stock)) (other than the
declaration or payment of dividends or other distributions to the extent
declared or paid to the Company or any Restricted Subsidiary);
(b) purchase, redeem, defease or otherwise acquire or retire for
value any Capital Stock of the Company or any of its Restricted
Subsidiaries or any options, warrants, or other rights to purchase any such
Capital Stock (other than any securities owned by the Company or a
Restricted Subsidiary);
(c) make any principal payment on, or purchase, defease, repurchase,
redeem or otherwise acquire or retire for value, prior to any scheduled
maturity, scheduled repayment, scheduled sinking fund payment or other
Stated Maturity, any Subordinated Indebtedness (other than any such
Subordinated
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Indebtedness owned by the Company or a Restricted Subsidiary); or
(d) make any Investment (other than any Permitted Investment) in any
Person,
(such payments or Investments described in the preceding clauses (a), (b),
(c) and (d) are collectively referred to as "Restricted Payments"), unless,
after giving effect to the proposed Restricted Payment (the amount of any
such Restricted Payment, if other than cash, shall be the Fair Market Value
of the asset(s) proposed to be transferred by the Company or such
Restricted Subsidiary, as the case may be, pursuant to such Restricted
Payment), (A) no Default or Event of Default shall have occurred and be
continuing, (B) immediately after giving effect to such Restricted Payment,
the Company would be able to incur $1.00 of additional Indebtedness (other
than Permitted Indebtedness) (assuming a market rate of interest with
respect to such additional Indebtedness) and (C) the aggregate amount of
all Restricted Payments declared or made from and after the Issue Date
would not exceed the sum of:
(1) 50% of the aggregate Consolidated Net Income of the Company
accrued on a cumulative basis during the period beginning on May 22, 1998
and ending on the last day of the fiscal quarter of the Company immediately
preceding the date of such proposed Restricted Payment (or, if such
aggregate cumulative Consolidated Net Income of the Company for such period
shall be a deficit, minus 100% of such deficit);
(2) the aggregate net cash proceeds received by the Company as
capital contributions to the Company after May 22, 1998 and which
constitute
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shareholders' equity of the Company in accordance with GAAP;
(3) the aggregate net cash proceeds received by the Company from the
issuance or sale of Capital Stock (excluding Redeemable Capital Stock) of
the Company to any Person (other than to a Subsidiary of the Company) after
May 22, 1998;
(4) the aggregate net cash proceeds received by the Company from any
Person (other than a Subsidiary of the Company) upon the exercise of any
options, warrants or rights to purchase shares of Capital Stock (other than
Redeemable Capital Stock) of the Company after May 22, 1998;
(5) the aggregate net cash proceeds received after May 22, 1998 by
the Company from any Person (other than a Subsidiary of the Company) for
debt securities that have been converted or exchanged into or for Capital
Stock of the Company (other than Redeemable Capital Stock) (to the extent
such debt securities were originally sold for cash) plus the aggregate
amount of cash received by the Company (other than from a Subsidiary of the
Company) in connection with such conversion or exchange;
(6) in the case of the disposition or repayment of any Investment
constituting a Restricted Payment after May 22, 1998, an amount equal to
the lesser of the return of capital with respect to such Investment and the
initial amount of such Investment, in either case, less the cost of the
disposition of such Investment; and
(7) so long as the Designation (as defined in Section 10.18) thereof
was treated as a Restricted Payment made after May 22, 1998, with respect
to any Unrestricted Subsidiary that has been
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redesignated as a Restricted Subsidiary after the Issue Date in accordance
with Section 10.18 below, the Fair Market Value of the Company's interest
in such Subsidiary, provided that such amount shall not in any case exceed
-------- ----
the Designation Amount (as defined in Section 10.18) with respect to such
Restricted Subsidiary upon its Designation,
minus:
the Designation Amount (measured as of the date of Designation) with
respect to any Restricted Subsidiary of the Company which has been
designated as an Unrestricted Subsidiary after May 22, 1998 in accordance
with Section 10.18 below.
For purposes of the preceding clause (C)(4), the value of the aggregate net
proceeds received by the Company upon the issuance of Capital Stock upon the
exercise of options, warrants or rights will be the net cash proceeds received
upon the issuance of such options, warrants or rights plus the incremental
amount received by the Company upon the exercise thereof.
None of the foregoing provisions shall prohibit, so long, in the case of
clauses (ii), (iii), (v), (vi) and (vii) below, as there is no Default or Event
of Default continuing, (i) the payment of any dividend or distribution within 60
days after the date of its declaration, if at the date of declaration such
payment would be permitted by the first paragraph of this covenant; (ii) the
redemption, repurchase or other acquisition or retirement of any shares of any
class of Capital Stock of the Company in exchange for, or out of the net cash
proceeds of, a substantially concurrent issue and sale of other shares of
Capital Stock of the Company (other than Redeemable Capital Stock) to any Person
(other than to a Subsidiary of the Company); provided, however, that such net
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cash proceeds are
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excluded from clause (C) of the first paragraph of this covenant; (iii) any
redemption, repurchase or other acquisition or retirement of Subordinated
Indebtedness by exchange for, or out of the net cash proceeds of, a
substantially concurrent issue and sale of (1) Capital Stock (other than
Redeemable Capital Stock) of the Company to any Person (other than to a
Subsidiary of the Company); provided, however, that any such net cash proceeds
-------- -------
are excluded from clause (C) of the first paragraph of this covenant; or (2)
Indebtedness of the Company so long as such Indebtedness is Subordinated
Indebtedness which (w) has no scheduled principal payment prior to the 91st day
after the Maturity Date, (x) has an Average Life to Stated Maturity greater than
the remaining Average Life to Stated Maturity of the Securities and (y) is
subordinated to the Securities in the same manner and to the same extent as the
Subordinated Indebtedness so purchased, exchanged, redeemed, acquired or
retired; (iv) Investments constituting Restricted Payments made as a result of
the receipt of non-cash consideration from any Asset Sale or other sale of
assets or property made pursuant to and in compliance with this Indenture; (v)
payments to purchase Capital Stock of the Company from officers of the Company,
pursuant to agreements in effect as of the Issue Date, in an amount not to
exceed $15,000,000 in the aggregate; (vi) payments (other than those covered by
clause (v)) to purchase Capital Stock of the Company from management or
employees of the Company or any of its Subsidiaries, or their authorized
representatives, upon the death, disability or termination of employment of such
employees, in aggregate amounts under this clause (vi) not to exceed $1,000,000
in any fiscal year of the Company,(vii) payments to Holdings in an amount
sufficient to permit it to make scheduled payments of interest on its 62%
Convertible Subordinated Debentures due August 1, 2028, issued to United Rentals
Trust I, (viii) payments to Holdings in an amount sufficient to enable Holdings
to pay (1) its taxes, legal, accounting,
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payroll, benefits and corporate overhead expenses (including Commission, stock
exchange and transfer agency fees and expenses), and expenses of United Rentals
Trust I payable by Holdings pursuant to the terms of the trust agreement
governing such trust, (2) trade, lease, payroll, benefits and other obligations
in respect of goods to be delivered to, services (including management and
consulting services) performed for and properties used by, the Company and its
Restricted Subsidiaries, (3) the purchase price for Investments in other
Persons, provided that promptly following such Investment either (x) such other
Person either becomes a Restricted Subsidiary or is merged or consolidated with,
or transfers or conveys all or substantially all of its assets to, the Company
or a Restricted Subsidiary, or (y) such Investment would otherwise be permitted
under this Indenture if made by the Company and such Investment is contributed
or transferred by Holdings to the Company or a Restricted Subsidiary and (4)
reasonable and customary incidental expenses (other than the expenses described
in the preceding clause (1)) not to exceed $500,000 in any fiscal year of the
Company and (ix) the payment of any dividend or distribution by a Restricted
Subsidiary to the holders of its Capital Stock on a pro rata basis. Any
--------
payments made pursuant to clauses (i), (v), (vi) or (vii) of this paragraph
shall be taken into account in calculating the amount of Restricted Payments
made from and after May 22, 1998.
SECTION 10.10 Limitation on Preferred Stock
of Restricted Subsidiaries.
--------------------------
The Company shall not permit any Restricted Subsidiary to issue any
Preferred Stock other than Preferred Stock issued to the Company or a wholly-
owned Restricted Subsidiary. The Company shall not sell, transfer or otherwise
dispose of Preferred Stock issued by a Restricted Subsidiary of the Company or
permit a Restricted Subsidiary to sell, transfer or otherwise
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dispose of Preferred Stock issued by a wholly-owned Restricted Subsidiary, other
than to the Company or a Restricted Subsidiary. Notwithstanding the foregoing,
nothing in this covenant shall prohibit Preferred Stock (other than Redeemable
Capital Stock) issued by a Person prior to the time (A) such Person becomes a
Restricted Subsidiary of the Company, (B) such Person merges with or into a
Restricted Subsidiary of the Company or (C) a Restricted Subsidiary of the
Company merges with or into such Person; provided, that such Preferred Stock was
-------- ----
not issued or incurred by such Person in anticipation of a transaction
contemplated by subclause (A), (B), or (C) above.
SECTION 10.11 Limitation on Transactions
with Affiliates.
---------------
The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, directly or indirectly, enter into any transaction or series of
related transactions (including, without limitation, the sale, transfer,
disposition, purchase, exchange or lease of assets, property or services) with,
or for the benefit of, any of its Affiliates (other than Restricted
Subsidiaries), except (a) on terms that are no less favorable to the Company or
such Subsidiary, as the case may be, than those which could have been obtained
in a comparable transaction at such time from Persons who are not Affiliates of
the Company, (b) with respect to a transaction or series of related transactions
involving aggregate payments or value equal to or greater than $2,000,000 the
Company shall have delivered an Officer's Certificate to the Trustee certifying
that such transaction or transactions comply with the preceding clause (a), and
(c) with respect to a transaction or series of related transactions involving
aggregate payments or value equal to or greater than $5,000,000, such
transaction or transactions shall have been approved by a majority
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of the Disinterested Members of the Board of Directors of the Company.
Notwithstanding the foregoing, the restrictions set forth in this
covenant shall not apply to (i) transactions with or among the Company and the
Restricted Subsidiaries of the Company, (ii) customary directors' fees,
indemnification and similar arrangements, consulting fees, employee salaries,
bonuses or employment agreements, compensation or employee benefit arrangements
and incentive arrangements with any officer, director or employee of the Company
or any Restricted Subsidiary entered into in the ordinary course of business,
(iii) any dividends made in compliance with Section 10.9, (iv) loans and
advances to officers, directors and employees of the Company or any Restricted
Subsidiary for travel, entertainment, moving and other relocation expenses, in
each case made in the ordinary course of business, (v) the incurrence of
intercompany Indebtedness which constitutes Permitted Indebtedness, (vi)
transactions pursuant to agreements in effect on the Issue Date, (vii) the
purchase of equipment for its Fair Market Value from Terex Corporation or its
Affiliates in the ordinary course of business of each of Terex Corporation and
the Company and (viii) transactions described in, or permitted by, clauses (vii)
and (viii) of the final paragraph of Section 10.9.
SECTION 10.12 Limitation on Liens.
-------------------
The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, create, incur, assume or suffer to exist any Liens of any kind
against or upon any of its property or assets, or any proceeds therefrom, unless
the Securities are equally and ratably secured (except that Liens securing
Subordinated Indebtedness shall be expressly subordinate to Liens securing the
Securities to the same extent such Subordinated
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Indebtedness is subordinate to the Securities), except for (a) Liens securing
Senior Indebtedness or Guarantor Senior Indebtedness; (b) Liens securing the
Securities; (c) Liens in favor of the Company on assets of any Subsidiary of the
Company; (d) Liens securing Indebtedness which is incurred to refinance
Indebtedness which has been secured by a Lien permitted under the Indenture and
which has been incurred in accordance with the provisions of this Indenture;
provided, however, that such Liens do not extend to or cover any property
- -------- -------
or assets of the Company or any its Restricted Subsidiaries not securing the
Indebtedness so refinanced; and (e) Permitted Liens.
SECTION 10.13 Change of Control.
-----------------
On or before the 30th day after the date of the occurrence of a Change
of Control (the "Change of Control Date"), the Company shall make an Offer to
Purchase (a "Change of Control Offer") on a Business Day not more than 60 nor
less than 30 days following the occurrence of the Change of Control, (the
"Change of Control Purchase Date") all of the then Outstanding Securities
tendered at a purchase price (the "Change of Control Purchase Price") equal to
101% of the principal amount thereof plus accrued and unpaid interest, if any,
thereon to the Change of Control Purchase Date. The Company shall be required
to purchase all Securities tendered into the Change of Control Offer and not
withdrawn.
On the Change of Control Purchase Date, the Company shall (i) accept
for payment Securities or portions thereof (not less than $1,000 principal
amount and integral multiples thereof) tendered pursuant to the Change of
Control Offer, (ii) deposit with the Paying Agent money, in immediately
available funds, sufficient to pay the purchase price of all Securities or
portions thereof so tendered and accepted and (iii) deliver to
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the Trustee the Securities so accepted together with an Officer's Certificate
setting forth the Securities or portions thereof tendered to and accepted for
payment by the Company. The Paying Agent shall promptly mail or deliver to the
Holders of Securities so accepted payment in an amount equal to the purchase
price, and the Trustee shall promptly authenticate and make available for
delivery to such Holders a new Security of like tenor equal in principal amount
to any unpurchased portion of the Security surrendered. Any Securities not so
accepted shall be promptly mailed or delivered by the Company to the Holder
thereof. The Company shall publicly announce the results of the Change of
Control Offer not later than the third Business Day following the Change of
Control Purchase Date.
The Company shall not be required to make a Change of Control Offer
upon a Change of Control if a third party makes the Change of Control Offer in
the manner, at the times and otherwise in compliance with the requirements
applicable to a Change of Control Offer made by the Company and purchases all
Securities validly tendered and not withdrawn under such Change of Control
Offer.
The Company shall comply with Rule 14e-1 under the Exchange Act and
any other securities laws and regulations thereunder, to the extent such laws or
regulations are applicable, in the event that a Change of Control occurs and the
Company is required to purchase Securities as described above.
SECTION 10.14 Disposition of Proceeds of Asset Sales.
--------------------------------------
The Company will not, and will not permit any of its Restricted
Subsidiaries to, make any Asset Sale unless (a) the Company or such Restricted
Subsidiary, as the case may be, receives consideration at the time of such Asset
Sale at least equal to the Fair Market Value
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of the shares or assets sold or otherwise disposed of and (b) at least 75% of
such consideration consists of cash or Cash Equivalents or Replacement Assets;
provided, however, that (i) the amount of any liabilities (as shown on the most
- -------- -------
recent balance sheet of the Company or such Restricted Subsidiary) of the
Company or such Restricted Subsidiary that are assumed by the transferee of such
assets and (ii) any securities, notes or other obligations received by the
Company or such Restricted Subsidiary from such transferee that are converted
within 30 days into cash or Cash Equivalents (to the extent of the cash or Cash
Equivalents received) shall be deemed to be cash for the purposes of this
provision; provided further, that the 75% limitation referred to in clause (b)
-------- -------
will not apply to any Asset Sale in which the cash or Cash Equivalent portion of
the consideration received therefrom, determined in accordance with the
foregoing provision, is equal to or greater than what the after-tax proceeds
would have been had such Asset Sale complied with the aforementioned 75%
limitation. To the extent that the Net Cash Proceeds of any Asset Sale are not
required to be applied to repay, and permanently reduce the commitments under,
Senior Indebtedness of the Company, or are not so applied, the Company or such
Restricted Subsidiary, as the case may be, may apply the Net Cash Proceeds from
such Asset Sale, within 360 days of such Asset Sale, to an investment in
properties and assets that replace the properties and assets that were the
subject of such Asset Sale or in properties and assets that are used or useful
in the business of the Company and its Restricted Subsidiaries conducted at such
time or in businesses reasonably related thereto or in Capital Stock of a
Person, the principal portion of whose assets consist of such property or assets
("Replacement Assets"). Any Net Cash Proceeds from any Asset Sale that are
neither used to repay, and permanently reduce the commitments under, Senior
Indebtedness of the Company, nor invested in Replacement Assets within such 360-
day period constitute
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"Excess Proceeds" subject to disposition as provided below.
When the aggregate amount of Excess Proceeds equals or exceeds $10,000,000,
the Company shall make an offer to purchase (an "Asset Sale Offer"), from all
holders of the Securities, an aggregate principal amount of Securities equal to
such Excess Proceeds, at a price in cash equal to 100% of the outstanding
principal amount thereof plus accrued and unpaid interest, if any, thereon to
the Purchase Date (the "Asset Sale Offer Price"). To the extent that the
aggregate principal amount of Securities tendered pursuant to an Asset Sale
Offer is less than the Excess Proceeds, the Company may use such deficiency for
general corporate purposes. The Securities shall be purchased by the Company,
at the option of the Holder thereof, in whole or in part in integral multiples
of $1,000, on a date that is not earlier than 30 days and not later than 60 days
from the date the notice is given to Holders, or such later date as may be
necessary for the Company to comply with the requirements under the Exchange
Act. If Securities purchasable at an aggregate Purchase Price in excess of the
Purchase Amount are tendered and not withdrawn pursuant to the Asset Sale Offer
to Purchase, the Company shall purchase Securities on a pro rata basis, based on
--------
the Purchase Price therefor, or such other method as the Trustee shall deem fair
and appropriate (subject in each case to applicable rules of the Depositary and
any securities exchange upon which the Securities may then be listed), with such
adjustments as may be deemed appropriate so that only Securities in
denominations of $1,000 principal face amount or integral multiples thereof
shall be purchased. Notwithstanding the foregoing, if the Company is required
to commence an Asset Sale Offer at any time when securities of the Company
ranking pari passu in right of payment with the Securities are outstanding and
the terms of such securities provide that a similar offer must be made with
respect to such
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other securities, then the Asset Sale Offer for the Securities shall be made
concurrently with such other offers and securities of each issue will be
accepted on a pro rata basis in proportion to the aggregate principal amount of
securities of each issue which the holders thereof elect to have purchased. Any
Asset Sale Offer will be made only to the extent permitted under, and subject to
prior compliance with, the terms of agreements governing Senior Indebtedness.
Upon completion of such Asset Sale Offer, the amount of Excess Proceeds shall be
reset to zero.
On the Asset Sale Offer Purchase Date, the Company shall (i) accept
for payment (subject to pro ration as described in the Offer to Purchase)
Securities or portions thereof tendered pursuant to the Asset Sale Offer, (ii)
deposit with the Paying Agent money, in immediately available funds, sufficient
to pay the purchase price of all Securities or portions thereof so tendered and
accepted and (iii) deliver to the Trustee the Securities so accepted together
with an Officer's Certificate setting forth the Securities or portions thereof
tendered to and accepted for payment by the Company. The Paying Agent shall
promptly mail or deliver to the Holders of Securities so accepted payment in an
amount equal to the purchase price, and the Trustee shall promptly authenticate
and make available for delivery to such Holders a new Security of like tenor
equal in principal amount to any unpurchased portion of the Security
surrendered. Any Securities not so accepted shall be promptly mailed or
delivered by the Company to the Holder thereof. The Company shall publicly
announce the results of the Asset Sale Offer not later than the third business
Day following the Asset Sale Offer Purchase Date.
Whenever the aggregate amount of Excess Proceeds received by the
Company and its Restricted Subsidiaries exceeds $10,000,000, such Excess
Proceeds shall,
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prior to the purchase of Securities, be set aside by the Company or such
Restricted Subsidiary, as the case may be, in a separate account pending (i)
deposit with the Paying Agent of the amount required to purchase the Securities
tendered in an Asset Sale Offer or (ii) delivery by the Company of the Asset
Sale Offer Price to the Holders of the Securities validly tendered and not
withdrawn pursuant to an Asset Sale Offer. Such Excess Proceeds may be invested
in Cash Equivalents, as directed by the Company, having a maturity date which is
not later than the earliest possible date for purchase of Securities pursuant to
the Asset Sale Offer. The Company will be entitled to any interest or dividends
accrued, earned or paid on such Cash Equivalents.
The Company shall comply with Rule 14e-1 under the Exchange Act and
any other securities laws and regulations thereunder, to the extent such laws
and regulations are applicable, in the event that an Asset Sale occurs and the
Company is required to purchase Securities as described above.
SECTION 10.15 Limitation on Dividends and
Other Payment Restrictions
Affecting Restricted Subsidiaries.
---------------------------------
The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, directly or indirectly, create or otherwise cause or suffer to
exist or become effective any consensual encumbrance or restriction on the
ability of any Restricted Subsidiary of the Company to (a) pay dividends, in
cash or otherwise, or make any other distributions on or in respect of its
Capital Stock or any other interest or participation in, or measured by, its
profits, (b) pay any Indebtedness owed to the Company or any other Restricted
Subsidiary of the Company, (c) make loans or advances to the Company or any
other Restricted Subsidiary of the Company, (d) transfer any of its properties
or assets to the
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Company or any other Restricted Subsidiary of the Company or (e) guarantee any
Indebtedness of the Company or any other Restricted Subsidiary of the Company,
except for such encumbrances or restrictions existing under or by reason of (i)
applicable law or any applicable rule, regulation or order, (ii) customary non-
assignment provisions of any contract or any lease governing a leasehold
interest of the Company or any Restricted Subsidiary of the Company, (iii)
customary restrictions on transfers of property subject to a Lien permitted
under this Indenture, (iv) the Credit Facility and the Term Loan, as in effect
on the Issue Date, (v) any agreement or other instrument of a Person acquired by
the Company or any Restricted Subsidiary of the Company in existence at the time
of such acquisition (but not created in contemplation thereof), which
encumbrance or restriction is not applicable to any Person, or the properties or
assets of any Person, other than the Person, or the property or assets of the
Person, so acquired, (vi) an agreement entered into for the sale or disposition
of Capital Stock or assets of a Restricted Subsidiary or an agreement entered
into for the sale of specified assets (in either case, so long as such
encumbrance or restriction, by its terms, terminates on the earlier of the
termination of such agreement or the consummation of such agreement and so long
as such restriction applies only to the Capital Stock or assets to be sold),
(vii) any agreement in effect on the Issue Date, (viii) this Indenture and the
Guarantees, (ix) the indentures governing the 9 1/2% Notes and the 8.80% Notes
and (x) any agreement that amends, extends, refinances, renews or replaces any
agreement described in the foregoing clauses, provided that the terms and
-------- ----
conditions of any such agreement are not materially less favorable to the
Holders of the Securities with respect to such dividend and payment restrictions
than those under or pursuant to the agreement amended, extended, refinanced,
renewed or replaced.
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SECTION 10.16 Limitation on Issuance of
Subordinated Indebtedness.
-------------------------
The Company shall not, directly or indirectly, incur any Indebtedness
(including Acquired Indebtedness) that is subordinate in right of payment to any
Indebtedness of the Company and senior in right of payment to the Securities.
SECTION 10.17 Additional Subsidiary Guarantees.
--------------------------------
If the Company or any of its Restricted Subsidiaries acquires, creates
or designates another United States Restricted Subsidiary, then such newly
acquired, created or designated Restricted Subsidiary shall, within 30 days
after the date of its acquisition, creation or designation, whichever is later,
(i) execute and deliver to the Trustee a supplemental indenture in form
reasonably satisfactory to the Trustee pursuant to which such Subsidiary shall
unconditionally guarantee all of the Company's obligations under the Securities
and this Indenture on the terms set forth in this Indenture and (ii) deliver to
the Trustee an opinion of counsel that such supplemental indenture has been duly
authorized, executed and delivered by such Subsidiary and constitutes a legal,
valid, binding and enforceable obligation of such Subsidiary, subject to normal
exceptions, provided that if such Subsidiary (a) is not incorporated or
-------- ----
organized in the State of New York or the State of Delaware and (b) is not a
significant Subsidiary (as defined in Rule 1-02(w) of Regulation S-X under the
Securities Act, provided, however, that this determination shall be made by
-------- -------
reference to the most recent pro forma consolidated financial statements of the
Company filed under the Exchange Act, as permitted by Rule 3-05(b)(3) of
Regulation S-X), of the Company, such opinion of counsel may assume due
authorization, execution and delivery of such supplemental indenture.
Thereafter, such Subsidiary shall be a Guarantor for all purposes of this
Indenture.
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SECTION 10.18 Limitations on Designation
of Unrestricted Subsidiaries.
----------------------------
(a) The Company may designate after the Issue Date any Restricted
Subsidiary as an "Unrestricted Subsidiary" under this Indenture (a
"Designation") only if:
(i) no Default shall have occurred and be continuing at the time of
or after giving effect to such Designation;
(ii) the Company would be permitted to make an Investment (other than
a Permitted Investment, except a Permitted Investment covered by
clause (x) of the definition thereof) at the time of Designation
(assuming the effectiveness of such Designation) pursuant to the first
paragraph of Section 10.9 in an amount (the "Designation Amount")
equal to the Fair Market Value of the Company's interest in such
Subsidiary on such date calculated in accordance with GAAP; and
(iii) the Company would be permitted under this Indenture to incur
$1.00 of additional Indebtedness (other than Permitted Indebtedness)
pursuant to Section 10.8 at the time of such Designation (assuming the
effectiveness of such Designation).
In the event of any such Designation, the Company shall be deemed to
have made an Investment constituting a Restricted Payment pursuant to Section
10.9 for all purposes of this Indenture in the Designation Amount.
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The Company shall not, and shall not cause or permit any Restricted
Subsidiary to, at any time (x) provide credit support for or subject any of its
property or assets (other than the Capital Stock of any Unrestricted Subsidiary)
to the satisfaction of, any Indebtedness of any Unrestricted Subsidiary
(including any undertaking, agreement or instrument evidencing such
Indebtedness), (y) be directly or indirectly liable for any Indebtedness of any
Unrestricted Subsidiary or (z) be directly or indirectly liable for any
Indebtedness which provides that the holder thereof may (upon notice, lapse of
time or both) declare a default thereon or cause the payment thereof to be
accelerated or payable prior to its final scheduled maturity upon the occurrence
of a default with respect to any Indebtedness of any Unrestricted Subsidiary
(including any right to take enforcement action against such Unrestricted
Subsidiary), except any non-recourse guarantee given solely to support the
pledge by the Company or any Restricted Subsidiary of the Capital Stock of an
Unrestricted Subsidiary. All Subsidiaries of Unrestricted Subsidiaries shall
automatically be deemed to be Unrestricted Subsidiaries.
(b) The Company may revoke any Designation of a Subsidiary as an
Unrestricted Subsidiary (a "Revocation") if:
(i) no Default shall have occurred and be continuing at the time of
and after giving effect to such Revocation, and
(ii) all Liens and Indebtedness of such Unrestricted Subsidiary
outstanding immediately following such Revocation would, if incurred
at such time by a Restricted Subsidiary, have been permitted to be
incurred for all purposes of this Indenture.
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(c) In the event the Company or a Restricted Subsidiary makes any
Investment in any Person which was not previously a Subsidiary and such
Person thereby becomes a Subsidiary, such Person shall automatically be an
Unrestricted Subsidiary and the Company may designate such Subsidiary as a
Restricted Subsidiary only if it meets the foregoing requirements of
clauses (i) and (ii) of paragraph (b).
(d) All Designations and Revocations must be evidenced by Board
Resolutions of the Company delivered to the Trustee certifying compliance
with the foregoing provisions.
SECTION 10.19 Provision of Financial Information.
----------------------------------
For so long as the Securities are outstanding, whether or not the
Company is subject to Section 13(a) or 15(d) of the Exchange Act, or any
successor provision thereto, the Company shall file with the Commission (if
permitted by Commission practice and applicable law and regulations) the annual
reports, quarterly reports and other documents which the Company would have been
required to file with the Commission pursuant to such Section 13(a) or 15(d) or
any successor provision thereto if the Company were so subject, such documents
to be filed with the Commission on or prior to the respective dates (the
"Required Filing Dates") by which the Company would have been required so to
file such documents if the Company were so subject. If, notwithstanding the
preceding sentence, filing such documents by the Company with the Commission is
not permitted by Commission practice or applicable law or regulations, the
Company will transmit (or cause to be transmitted) by mail to the Trustee and
all holders of the Securities, as their names and addresses appear in the
Securities Register, copies of such documents within 15 days after the Required
Filing Date. In addition, for so long as any
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Securities remain outstanding, the Company will furnish to the Holders of
Securities and to securities analysts and prospective investors, upon their
request, the information required to be delivered pursuant to Rule 144A(d)(4)
under the Securities Act, and, to any beneficial holder of Securities, if not
obtainable from the Commission, information of the type that would be filed with
the Commission pursuant to the foregoing provisions upon the request of any such
Holder.
SECTION 10.20 Statement by Officers as to
Default; Compliance Certificates .
--------------------------------
(a) The Company shall deliver to the Trustee, prior to March 31 in
each year commencing March 31, 1999, an Officer's Certificate, stating whether
or not to the best knowledge of the signers thereof the Company is in default in
the performance and observance of any of the terms, provisions and conditions of
this Indenture (without regard to any period of grace or requirement of notice
provided hereunder), and if the Company shall be in default, specifying all such
defaults and the nature and status thereof of which he may have knowledge.
(b) The Company shall deliver to the Trustee, as soon as possible and
in any event within five days after the Company becomes aware of the occurrence
of a Default or an Event of Default, an Officer's Certificate setting forth the
details of such Default or Event of Default, and the action which the Company
proposes to take with respect thereto.
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ARTICLE XI
Redemption of Securities
SECTION 11.1 Right of Redemption .
-------------------
The Securities may be redeemed at the election of the Company, in the
amounts, at the times, at the Redemption Prices (together with any applicable
accrued and unpaid interest to the Redemption Date), and subject to the
conditions specified in the form of Security and hereinafter set forth.
SECTION 11.2 Applicability of Article .
------------------------
Redemption of Securities at the election of the Company, as permitted
by this Indenture and the provisions of the Securities, shall be made in
accordance with such provisions and this Article.
SECTION 11.3 Election to Redeem; Notice to Trustee .
-------------------------------------
The election of the Company to redeem any Securities pursuant to
Section 11.1 shall be evidenced by a Board Resolution. In the event of any
redemption at the election of the Company pursuant to Section 11.1, the Company
shall notify the Trustee, in case of a redemption of less than all the
Securities, at least 60 days, and in the case of a redemption of all the
Securities, at least 40 days, prior to the Redemption Date fixed by the Company
(in each case, unless a shorter notice shall be satisfactory to the Trustee)of
such Redemption Date and of the principal amount of Securities to be redeemed.
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SECTION 11.4 Selection by Trustee of
Securities to Be Redeemed .
-------------------------
In the event that less than all of the Securities are to be redeemed
at any time, selection of such Securities for redemption will be made by the
Trustee in compliance with the requirements of the principal national securities
exchange, if any, on which the Securities are listed or, if the Securities are
not then listed on a national securities exchange, on a pro rata basis, by lot
--------
or by such method as the Trustee shall deem fair and appropriate (subject to the
rules of the Depositary); provided, however, that Securities shall only be
-------- -------
redeemable in amounts of $1,000 or an integral multiple of $1,000.
The Trustee shall promptly notify the Company and each Security
Registrar in writing of the Securities selected for redemption and, in the case
of any Securities selected for partial redemption, the principal amount thereof
to be redeemed.
For all purposes of this Indenture and of the Securities, unless the
context otherwise requires, all provisions relating to the redemption of
Securities shall relate, in the case of any Securities redeemed or to be
redeemed only in part, to the portion of the principal amount of such Securities
which has been or is to be redeemed.
SECTION 11.5 Notice of Redemption .
--------------------
Notice of redemption shall be given by first class mail, postage
prepaid, mailed not less than 30 nor more than 60 days prior to the Redemption
Date, to each Holder of Securities to be redeemed, at his address appearing in
the Security Register.
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All notices of redemption shall identify the Securities to be redeemed
(including, if used, CUSIP or CINS numbers) and shall state:
(i) the Redemption Date,
(ii) the Redemption Price,
(iii) if less than all the Outstanding Securities are to be redeemed,
the identification (and, in the case of partial redemption, the principal
amounts) of the particular Securities to be redeemed,
(iv) that on the Redemption Date the Redemption Price will become due
and payable upon each such Security to be redeemed and that interest
thereon will cease to accrue on and after such Redemption Date,
(v) the place or places where such Securities are to be surrendered
for payment of the Redemption Price, and
(vi) if the redemption is being made pursuant to the provisions of
the Securities regarding a Public Equity Offering, a brief description of
the transaction or transactions giving rise to such redemption, the nature
and amount of Qualified Equity Interests sold in such transaction or
transactions, the aggregate purchase price thereof and the net cash
proceeds therefrom available for such redemption, the date or dates on
which such transaction or transactions were completed and the percentage of
the aggregate principal amount of Outstanding Securities being redeemed.
Notice of redemption of Securities to be redeemed at the election of
the Company shall be given by
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the Company or, at the Company's request, by the Trustee in the name and at the
expense of the Company and shall be irrevocable.
SECTION 11.6 Deposit of Redemption Price .
---------------------------
Prior to any Redemption Date, the Company shall deposit with the
Trustee or with a Paying Agent (or, if the Company is acting as its own Paying
Agent, segregate and hold in trust as provided in Section 10.3) an amount of
money sufficient to pay the Redemption Price of, and (except if the Redemption
Date shall be an Interest Payment Date) any applicable accrued interest on, all
the Securities which are to be redeemed on that date.
SECTION 11.7 Securities Payable on Redemption Date .
-------------------------------------
Notice of redemption having been given as aforesaid, the Securities so
to be redeemed shall, on the Redemption Date, become due and payable at the
Redemption Price therein specified, and from and after such date (unless the
Company shall default in the payment of the Redemption Price and any applicable
accrued interest) such Securities shall not bear interest. Upon surrender of
any such Security for redemption in accordance with said notice, such Security
shall be paid by the Company at the Redemption Price, together with any
applicable accrued and unpaid interest to the Redemption Date; provided,
--------
however, that installments of interest whose Stated Maturity is on or prior to
- -------
the Redemption Date shall be payable to the Holders of such Securities, or one
or more predecessor securities, registered as such at the close of business on
the relevant record dates according to their terms and the provisions of Section
3.7.
If any Security called for redemption in accordance with the election
of the Company made pursuant
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to Section 11.1 shall not be so paid upon surrender thereof for redemption, the
principal (and premium, if any) shall, until paid, bear interest from the
Redemption Date at the rate provided by the Security.
SECTION 11.8 Securities Redeemed in Part .
---------------------------
Any Security which is to be redeemed only in part shall be surrendered
at an office or agency of the Company designated for that purpose pursuant to
Section 10.2 (with, if the Company or the Trustee so requires, due endorsement
by, or a written instrument of transfer in form satisfactory to the Company and
the Trustee duly executed by, the Holder thereof or his attorney duly authorized
in writing), and the Company shall execute, and the Trustee shall authenticate
and deliver to the Holder of such Security without service charge, a new
Security or Securities, of any authorized denomination as requested by such
Holder, in aggregate principal amount at Stated Maturity equal to and in
exchange for the unredeemed portion of the principal amount at Stated Maturity
of the Security so surrendered.
ARTICLE XII
Defeasance and Covenant Defeasance
SECTION 12.1 Company's Option to Effect
Defeasance or Covenant Defeasance.
---------------------------------
The Company may elect, at its option at any time, to have Section 12.2
or Section 12.3 applied to the Outstanding Securities (as a whole and not in
part) upon compliance with the conditions set forth below in this Article. Any
such election shall be evidenced by a Board Resolution.
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SECTION 12.2 Defeasance and Discharge.
------------------------
Upon the Company's exercise of its option to have this Section applied
to the Outstanding Securities (as a whole and not in part), the Company shall be
deemed to have been discharged from its obligations with respect to such
Securities as provided in this Section on and after the date the conditions set
forth in Section 12.4 are satisfied (hereinafter called "Defeasance"). For this
purpose, such Defeasance means that the Company shall be deemed to have paid and
discharged the entire Indebtedness represented by such Securities and to have
satisfied all its other obligations under such Securities and this Indenture
insofar as such Securities are concerned (and the Trustee, at the expense of the
Company, shall execute proper instruments acknowledging the same), subject to
the following which shall survive until otherwise terminated or discharged
hereunder: (1) the rights of Holders of Outstanding Securities to receive,
solely from the trust fund described in Section 12.4 and as more fully set forth
in such Section, payments in respect of the principal of, premium, if any, and
interest on such Securities when payments are due, (2) the Company's obligations
with respect to such Securities under Sections 3.4, 3.5, 3.6, 10.2 and 10.3, (3)
the rights, powers, trusts, duties and immunities of the Trustee hereunder and
(4) this Article. Subject to compliance with this Article, the Company may
exercise its option to have this Section applied to the Outstanding Securities
(as a whole and not in part) notwithstanding the prior exercise of its option to
have Section 12.3 applied to such Securities.
SECTION 12.3 Covenant Defeasance.
-------------------
Upon the Company's exercise of its option to have this Section applied
to the Outstanding Securities (as a whole and not in part), (i) the Company
shall be released from its obligations under Section 8.1(3),
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Sections 10.5 through 10.19, inclusive, and any covenant provided pursuant to
Section 9.1(ii) and the Guarantors shall be released from their obligations
under Article XIII and the Guarantees (ii) the occurrence of any event specified
in Sections 5.1(3) and 5.1(4) (with respect to Section 8.1(3) and any of
Sections 10.5 through 10.19, inclusive, and any such covenants provided pursuant
to Section 9.1(ii)), shall be deemed not to be or result in an Event of Default,
in each case with respect to such Securities as provided in this Section on and
after the date the conditions set forth in Section 12.4 are satisfied
(hereinafter called "Covenant Defeasance"). For this purpose, such Covenant
Defeasance means that, with respect to such Securities, the Company may omit to
comply with and shall have no liability in respect of any term, condition or
limitation set forth in any such specified Section (to the extent so specified
in the case of Section 5.1(3) or 5.1(4)), whether directly or indirectly, by
reason of any reference elsewhere herein to any such Section or by reason of any
reference in any such Section to any other provision herein or in any other
document, but the remainder of this Indenture and such Securities shall be
unaffected thereby.
SECTION 12.4 Conditions to Defeasance
or Covenant Defeasance.
-----------------------
The following shall be the conditions to the application of Section
12.2 or Section 12.3 to the Outstanding Securities:
(1) The Company shall irrevocably have deposited or caused to be
deposited with the Trustee (or another trustee which satisfies the
requirements contemplated by Section 6.9 and agrees to comply with the
provisions of this Article applicable to it) as trust funds in trust for
the purpose of making the following payments, specifically pledged as
security for, and dedicated solely to, the benefits
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of the Holders of such Securities, (A) money in an amount, or (B) U.S.
Government Obligations which through the scheduled payment of principal and
interest in respect thereof in accordance with their terms will provide,
not later than one day before the due date of any payment, money in an
amount, or (C) a combination thereof, in each case sufficient, in the
opinion of a nationally recognized firm of independent public accountants
expressed in a written certification thereof delivered to the Trustee, to
pay and discharge, and which shall be applied by the Trustee (or any such
other qualifying trustee) to pay and discharge, the principal of, premium,
if any, and any instalment of interest on such Securities on the respective
Stated Maturities thereof, in accordance with the terms of this Indenture
and such Securities. As used herein, "U.S. Government Obligation" means (x)
any security which is (i) a direct obligation of the United States of
America for the payment of which the full faith and credit of the United
States of America is pledged or (ii) an obligation of a Person controlled
or supervised by and acting as an agency or instrumentality of the United
States of America the payment of which is unconditionally guaranteed as a
full faith and credit obligation by the United States of America, which, in
either case (i) or (ii), is not callable or redeemable at the option of the
issuer thereof, and (y) any depositary receipt issued by a bank (as defined
in Section 3(a) (2) of the Securities Act) as custodian with respect to any
U.S. Government Obligation which is specified in clause (x) above and held
by such bank for the account of the holder of such depositary receipt, or
with respect to any specific payment of principal of or interest on any
U.S. Government Obligation which is so specified and held, provided that
-------- ----
(except as required by law) such custodian is not authorized to make any
deduction from the amount payable to the holder of such
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depositary receipt from any amount received by the custodian in respect of
the U.S. Government Obligation or the specific payment of principal or
interest evidenced by such depositary receipt.
(2) In the event of an election to have Section 12.2 apply to the
Outstanding Securities, the Company shall have delivered to the Trustee an
Opinion of Counsel stating that (A) the Company has received from, or there
has been published by, the Internal Revenue Service a ruling or (B) since
the date of this instrument, there has been a change in the applicable
Federal income tax law, in either case to the effect that, and based
thereon such opinion shall confirm that, the Holders of such Securities
will not recognize gain or loss for Federal income tax purposes as a result
of the deposit, Defeasance and discharge to be effected with respect to
such Securities and will be subject to Federal income tax on the same
amount, in the same manner and at the same times as would be the case if
such deposit, Defeasance and discharge were not to occur.
(3) In the event of an election to have Section 12.3 apply to the
Outstanding Securities, the Company shall have delivered to the Trustee an
Opinion of Counsel to the effect that the Holders of such Securities will
not recognize gain or loss for Federal income tax purposes as a result of
the deposit and Covenant Defeasance to be effected with respect to such
Securities and will be subject to Federal income tax on the same amount, in
the same manner and at the same times as would be the case if such deposit
and Covenant Defeasance were not to occur.
(4) No Default or Event of Default with respect to the Outstanding
Securities shall have occurred
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and be continuing at the time of such deposit (excluding a Default or Event
of Default due to a breach of Section 10.8 or 10.12 which arises due to the
borrowing of funds applied to such deposit).
(5) Such Defeasance or Covenant Defeasance shall not cause the Trustee
to have a conflicting interest with respect to any securities of the
Company or any Guarantor.
(6) Such Defeasance or Covenant Defeasance shall not result in a
breach or violation of, or constitute a default under, any other agreement
or instrument to which the Company or any Subsidiary is a party or by which
it is bound (excluding a Default or Event of Default due to a breach of
Section 10.8 or 10.12 which arises due to the borrowing of funds applied to
such deposit).
(7) The Company shall have delivered to the Trustee an Opinion of
Counsel (which opinion may be subject to customary assumptions and
exceptions) to the effect that after the 91st day following the deposit,
the trust funds will not be subject to the effect of any applicable
bankruptcy, insolvency, reorganization or similar laws affecting creditors'
rights generally.
(8) The Company shall have delivered to the Trustee an Officer's
Certificate stating that the deposit was not made by the Company with the
intent of preferring the Holders of the Securities over the other creditors
of the Company or any Guarantor with the intent of defeating, hindering,
delaying or defrauding creditors of the Company or any Guarantor or others.
(9) No event or condition shall exist that would prevent the Company
from making payments of
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the principal of, premium, if any, and interest on the Securities on the
date of such deposit or at any time ending on the 91st day after the date
of such deposit.
(10) The Company shall have delivered to the Trustee an Officer's
Certificate and an Opinion of Counsel, each stating that all conditions
precedent under this Indenture to either Defeasance or Covenant Defeasance,
as the case may be, have been complied with.
SECTION 12.5 Deposited Money and U.S. Government
Obligations to Be Held in Trust;
Miscellaneous Provisions.
-------------------------
Subject to the provisions of the last paragraph of Section 10.3, all
money and U.S. Government Obligations (including the proceeds thereof) deposited
with the Trustee or other qualifying trustee (solely for purposes of this
Section and Section 12.6, the Trustee and any such other trustee are referred to
collectively as the "Trustee") pursuant to Section 12.4 in respect of the
Outstanding Securities shall be held in trust and applied by the Trustee, in
accordance with the provisions of such Securities and this Indenture, to the
payment, either directly or through any such Paying Agent (including the Company
acting as its own Paying Agent) as the Trustee may determine, to the Holders of
such Securities, of all sums due and to become due thereon in respect of
principal and any premium and interest, but money so held in trust need not be
segregated from other funds except to the extent required by law.
The Company shall pay and indemnify the Trustee against any tax, fee
or other charge imposed on or assessed against the U.S. Government Obligations
deposited pursuant to Section 12.4 or the principal and interest
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received in respect thereof other than any such tax, fee or other charge which
by law is for the account of the Holders of Outstanding Securities.
Anything in this Article to the contrary notwithstanding, the Trustee
shall deliver or pay to the Company from time to time upon Company Request any
money or U.S. Government Obligations held by it as provided in Section 12.4
which, in the opinion of a nationally recognized firm of independent public
accountants expressed in a written certification thereof delivered to the
Trustee, are in excess of the amount thereof which would then be required to be
deposited to effect the Defeasance or Covenant Defeasance, as the case may be,
with respect to the Outstanding Securities.
SECTION 12.6 Reinstatement.
--------------
If the Trustee or the Paying Agent is unable to apply any money in
accordance with this Article with respect to any Securities by reason of any
order or judgment of any court or governmental authority enjoining, restraining,
or otherwise prohibiting such application, then the obligations under this
Indenture, such Securities and the Guarantees from which the Company and the
Guarantors have been discharged or released pursuant to Section 12.2 or 12.3
shall be revived and reinstated as though no deposit had occurred pursuant to
this Article with respect to such Securities, until such time as the Trustee or
Paying Agent is permitted to apply all money held in trust pursuant to Section
12.5 with respect to such Securities in accordance with this Article; provided,
--------
however, that if the Company makes any payment of principal of or any premium or
- -------
interest on any such Security following such reinstatement of its obligations,
the Company shall be subrogated to the rights (if any) of the Holders of such
Securities to receive such payment from the money so held in trust.
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ARTICLE XIII
Guaranty
SECTION 13.1 Guaranty.
---------
Each Guarantor hereby unconditionally and irrevocably guarantees on a
senior subordinated basis, jointly and severally, to each Holder and to the
Trustee and its successors and assigns (a) the full and prompt payment (within
applicable grace periods) of principal of and interest on the Securities when
due, whether at maturity, by acceleration, by redemption or otherwise, and all
other monetary obligations of the Company under this Indenture and the
Securities and (b) the full and prompt performance within applicable grace
periods of all other obligations of the Company under this Indenture and the
Securities (all the foregoing being hereinafter collectively called the
"Guaranty Obligations"). Each Guarantor further agrees that the Guaranty
Obligations may be extended or renewed, in whole or in part, without notice or
further assent from such Guarantor, and that such Guarantor will remain bound
under this Article XIII notwithstanding any extension or renewal of any Guaranty
Obligation.
To the extent that any Guarantor shall be required to pay any amounts
on account of the Securities pursuant to a Guaranty in excess of an amount
calculated as the product of (i) the aggregate amount payable by the Guarantors
on account of the Securities pursuant to the Guarantees times (ii) the
proportion (expressed as a fraction) that such Guarantor's net assets
(determined in accordance with GAAP) at the date enforcement of the Guarantees
is sought bears to the aggregate net assets (determined
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in accordance with GAAP) of all Guarantors at such date, then such Guarantor
shall be reimbursed by the other Guarantors for the amount of such excess,
prorata, in accordance with GAAP) of such other Guarantors at the date
- -------
enforcement of the Guarantees is sought. This paragraph is intended only to
define the relative rights of Guarantors as among themselves, and nothing set
forth in this paragraph is intended to or shall impair the joint and several
obligations of the Guarantors under their respective Guarantees.
The Guarantors shall have the right to seek contribution from any non-
paying Guarantor so long as the exercise of such right does not impair the
rights of the Holders under any Guaranty.
Each Guarantor waives presentation to, demand of payment from and
protest to the Company of any of the Guaranty Obligations and also waives notice
of protest for nonpayment. Each Guarantor waives notice of any default under
the Securities or the Guaranty Obligations. The obligations of each Guarantor
hereunder shall not be affected by (a) the failure of any Holder or the Trustee
to assert any claim or demand or to enforce any right or remedy against the
Company or any other Person under this Indenture, the Securities or any other
agreement or otherwise; (b) any extension or renewal of any thereof; (c) any
rescission, waiver, amendment or modification of any of the terms or provisions
of this Indenture, the Securities or any other agreement; (d) the release of any
security held by any Holder or the Trustee for the Guaranty Obligations or any
of them; (e) the failure of any Holder or Trustee to exercise any right or
remedy against any other guarantor of the Guaranty Obligations; or (f) any
change in the ownership of any Guarantor (subject to Section 13.5).
Each Guarantor further agrees that its Guaranty herein constitutes a
guaranty of payment, performance and compliance when due (and not a guaranty of
collection) and waives any right to require that any resort be
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had by any Holder or the Trustee to any security held for payment of the
Guaranty Obligations.
To the fullest extent permitted by law, the obligations of each
Guarantor hereunder shall not be subject to any reduction, limitation,
impairment or termination for any reason, including any claim of waiver,
release, surrender, alteration or compromise, and shall not be subject to any
defense of setoff, counterclaim, recoupment or termination whatsoever or by
reason of the invalidity, illegality or unenforceability of the Guaranty
Obligations or otherwise. Without limiting the generality of the foregoing, to
the fullest extent permitted by law, the obligations of each Guarantor herein
shall not be discharged or impaired or otherwise affected by the failure of any
Holder or the Trustee to assert any claim or demand or to enforce any remedy
under this Indenture, the Securities or any other agreement, by any waiver or
modification of any thereof, by any default, failure or delay, wilful or
otherwise, in the performance of the Guaranty Obligations, or by any other act
or thing or omission or delay to do any other act or thing which may or might in
any manner or to any extent vary the risk of such Guarantor or would otherwise
operate as a discharge of each Guarantor as a matter of law or equity.
Each Guarantor further agrees that its Guaranty herein shall continue
to be effective or be reinstated, as the case may be, if at any time payment, or
any part thereof, of principal of or interest on any Guaranty Obligation is
rescinded or must otherwise be restored by any Holder or the Trustee upon the
bankruptcy or reorganization of the Company or otherwise.
In furtherance of the foregoing and not in limitation of any other
right which any Holder or the Trustee has at law or in equity against each
Guarantor by virtue hereof, upon the failure of the Company to pay
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the principal of or interest on any Guaranty Obligation when and as the same
shall become due, whether at maturity, by acceleration, by redemption or
otherwise (within applicable grace periods), or to perform or comply with any
other Guaranty Obligation (within applicable grace periods), each Guarantor
hereby promises to and shall, upon receipt of written demand by the Trustee,
forthwith pay, or cause to be paid, in cash, to the Holders or the Trustee an
amount equal to the sum of (i) the unpaid principal amount of such Guaranty
Obligations, (ii) accrued and unpaid interest on such Guaranty Obligations (but
only to the extent not prohibited by law) and (iii) all other monetary Guaranty
Obligations of the Company to the Holders and the Trustee.
Each Guarantor agrees that it shall not be entitled to any right of
subrogation in relation to the Holders in respect of any Guaranty Obligations
guarantied hereby until payment in full of all Guaranty Obligations. Each
Guarantor further agrees that, as between the Guarantors, on the one hand, and
the Holders and the Trustee, on the other hand, (x) the maturity of the Guaranty
Obligations guarantied hereby may be accelerated as provided in Article V for
the purposes of its Guaranty herein, notwithstanding any stay, injunction or
other prohibition preventing such acceleration in respect of the Guaranty
Obligations guaranteed hereby, and (y) in the event of any declaration of
acceleration of such Guaranty Obligations as provided in Article V, such
Guaranty Obligations (whether or not due and payable) shall forthwith become due
and payable by each Guarantor for the purposes of this Section.
Each Guarantor also agrees to pay any and all costs and expenses
(including reasonable attorneys' fees and expenses) incurred by the Trustee or
any Holder in enforcing any rights under this Section.
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SECTION 13.2 Limitation on Liability.
-----------------------
Any term or provision of this Indenture to the contrary
notwithstanding, the maximum aggregate amount of the obligations guaranteed
hereunder by each Guarantor shall not exceed the maximum amount that can be
hereby guaranteed without rendering this Indenture, as it relates to such
Guarantor, voidable under applicable federal or state law relating to fraudulent
conveyance or fraudulent transfer.
SECTION 13.3 Execution and Delivery of Guarantees.
------------------------------------
The Guarantees to be endorsed on the Securities shall be in the form
set forth in Exhibit D. Each of the Guarantors hereby agrees to execute its
---------
Guaranty in such form, to be endorsed on each Security authenticated and
delivered by the Trustee.
Each Guaranty shall be executed on behalf of each respective Guarantor
by any one of such Guarantor's Chairman of the Board, Vice Chairman of the
Board, President, Chief Financial Officer, or Vice Presidents. The signature of
any or all of these officers on the Guaranty may be manual or facsimile.
A Guaranty bearing the manual or facsimile signatures of individuals
who were at any time the proper officers of a Guarantor shall bind such
Guarantor, notwithstanding that such individuals or any of them have ceased to
hold such offices prior to the authentication and delivery of the Security on
which such Guaranty is endorsed or did not hold such offices at the date of such
Guaranty.
Each Guaranty shall be registered, transferred, exchanged and
cancelled, and shall be held in definitive or global form, in the same manner
and together
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with, the Security to which it relates, in accordance with Article III.
The delivery of any Security by the Trustee, after the authentication
thereof hereunder, shall constitute due delivery of the Guaranty endorsed
thereon on behalf of the Guarantors. Each of the Guarantors hereby jointly and
severally agrees that its Guaranty set forth in Section 13.1 shall remain in
full force and effect notwithstanding any failure to endorse a Guaranty on any
Security.
SECTION 13.4 Guarantors May Consolidate, Etc.,
on Certain Terms.
-----------------
Nothing contained in this Indenture or in any of the Securities or any
Guaranty shall prevent any consolidation or merger of a Guarantor with or into
the Company or a Guarantor or the merger of a wholly owned Restricted Subsidiary
of the Company with and into a Guarantor or shall prevent any sale or conveyance
of the assets of a Guarantor as an entirety or substantially as an entirety or
the Capital Stock of a Guarantor to the Company or a Guarantor.
SECTION 13.5 Release of Guarantors.
---------------------
Upon the consummation of any transaction (whether involving a sale or
other disposition of securities, a merger, or otherwise, including any Asset
Sale) whereby any Guarantor ceases to be a Subsidiary of the Company and which
transaction is otherwise in compliance with the provisions of this Indenture,
such Guarantor shall automatically be released from all obligations under its
Guaranty endorsed on the Securities and under this Article XIII without need for
any further act or the execution or delivery of any document; and upon delivery
by the Company to the Trustee of an Officer's Certificate to the effect that
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such consolidation, merger, sale or conveyance was made in accordance with the
provisions hereof, the Trustee shall execute any documents reasonably required
in order to evidence the release of such Guarantor from its obligations under
its Guaranty endorsed on the Securities and under this Article XIII..
SECTION 13.6 Successors and Assigns.
----------------------
This Article XIII shall be binding upon each Guarantor and its
successors and assigns and shall inure to the benefit of the successors and
assigns of the Trustee and the Holders and, in the event of any transfer or
assignment of rights by any Holder or the Trustee, the rights and privileges
conferred upon that party in this Indenture and in the Securities shall
automatically extend to and be vested in such transferee or assignee, all
subject to the terms and conditions of this Indenture.
SECTION 13.7 No Waiver, etc.
---------------
Neither a failure nor a delay on the part of either the Trustee or the
Holders in exercising any right, power or privilege under this Article XIII
shall operate as a waiver thereof, nor shall a single or partial exercise
thereof preclude any other or further exercise of any right, power or privilege.
The rights, remedies and benefits of the Trustee and the Holders herein
expressly specified are cumulative and not exclusive of any other rights,
remedies or benefits which either may have under this Article XIII at law, in
equity, by statute or otherwise.
SECTION 13.8 Modification, etc.
------------------
No modification, amendment or waiver of any provision of this Article,
nor the consent to any departure by a Guarantor therefrom, shall in any event be
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effective unless the same shall be in writing and signed by the Trustee, and
then such waiver or consent shall be effective only in the specific instance and
for the purpose for which given. No notice to or demand on a Guarantor in any
case shall entitle such Guarantor or any other guarantor to any other or further
notice or demand in the same, similar or other circumstances.
SECTION 13.9 Subordination of Guarantees.
---------------------------
The obligations of each Guarantor pursuant to its Guaranty and this
Article XIII shall be (a) junior and subordinated in right of payment to the
prior payment in full in cash of all Guarantor Senior Indebtedness of such
Guarantor and (b) senior in right of payment to all existing and future
Guarantor Subordinated Indebtedness of such Guarantor, in each case on the same
basis as the Securities and the obligations of the Company hereunder are junior
and subordinated to all Senior Indebtedness and senior in right of payment to
all Subordinated Indebtedness. For the purposes of this Section 13.9, Article
XIV shall apply to the obligations of each Guarantor under its Guaranty, this
Article XIII and the other provisions of this Indenture as if references therein
to the Company, the Securities, Senior Indebtedness, Subordinated Indebtedness
and Designated Senior Indebtedness were references to such Guarantor, such
Guarantor's Guaranty, Guarantor Senior Indebtedness, Guarantor Subordinated
Indebtedness and Designated Guarantor Senior Indebtedness, respectively.
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ARTICLE XIV
Subordination
SECTION 14.1 Securities Subordinate to
Senior Indebtedness and Senior
to Subordinated Indebtedness.
------------------------------
The Company covenants and agrees, and each Holder of a Security, by
his acceptance thereof, likewise covenants and agrees that, to the extent and in
the manner hereinafter set forth in this Article XIV, the Indebtedness evidenced
by the Securities is hereby expressly made subordinate in right of payment to
the prior payment in full in cash of all Senior Indebtedness and senior in right
of payment to all existing and future Subordinated Indebtedness of the Company.
SECTION XIV.2 Payment Over of Proceeds
Upon Dissolution, Etc. __
----------------------
In the event of any insolvency or bankruptcy case or proceeding, or
any receivership, liquidation, reorganization or other similar case or
proceeding in connection therewith, relating to the Company or its assets, or
any liquidation, dissolution or other winding-up of the Company, whether
voluntary or involuntary, or any assignment for the benefit of creditors or
other marshalling of assets or liabilities of the Company, all Senior
Indebtedness (including, in the case of Designated Senior Indebtedness, any
interest accruing subsequent to the filing of a petition for
bankruptcy(regardless of whether such interest is an allowed claim in the
bankruptcy proceeding)) must be paid in full in cash before any payment(other
than payments in the form of Qualified Equity Interests or other securities the
payment of which is subordinated, at least to the same extent as the Securities,
to the payment of all Senior Indebtedness which may at the time be outstanding
and other than payments from a trust created pursuant to Article XII) is made on
account of the principal of, premium, if any, or interest on the Securities.
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SECTION 14.3 No Payment When Designated
Senior Indebtedness in Default.
------------------------------
During the continuance of any default in the payment of principal, or
premium, if any, or interest on any Senior Indebtedness, when the same becomes
due, and after receipt by the Trustee and the Company from representatives of
holders of such Senior Indebtedness of written notice of such default, no direct
or indirect payment (other than payments from trusts previously created pursuant
to Article XII) by or on behalf of the Company of any kind or character (other
than Qualified Equity Interests or other securities the payment of which is
subordinated, at least to the same extent as the Securities, to the payment of
all Senior Indebtedness which may at the time be outstanding) may be made on
account of the principal of, premium, if any, or interest on, or the purchase,
redemption or other acquisition of, the Securities unless and until such default
has been cured or waived or has ceased to exist or such Senior Indebtedness
shall have been discharged or paid in full in cash, after which the Company
shall resume making any and all required payments in respect of the Securities,
including any missed payments.
In addition, during the continuance of any other default with respect
to any Designated Senior Indebtedness that permits, or would permit with the
passage of time or the giving of notice or both, the maturity thereof to be
accelerated (a "Non-payment Default") and upon the earlier to occur of (a)
receipt by the Trustee and the Company from the representatives of holders of
such Designated Senior Indebtedness of a written notice of such Non-payment
Default or (b) if such Non-payment Default results from the acceleration of the
maturity of the Securities, the date of such acceleration, no payment (other
than payments from trusts previously created pursuant to Article XII) of any
kind or character (excluding Qualified Equity Interests
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or subordinated securities) may be made by the Company on account of the
principal of, premium, if any, or interest on, or the purchase, redemption, or
other acquisition of, the Securities for the period specified below (the
"Payment Blockage Period").
The Payment Blockage Period shall commence upon the receipt of notice
of a Non-payment Default by the Trustee and the Company from the representatives
of holders of Designated Senior Indebtedness or the date of the acceleration
referred to in clause (b) of the preceding paragraph, as the case may be, and
shall end on the earliest to occur of the following events: (i) 179 days have
elapsed since the receipt of such notice or the date of the acceleration
referred to in clause (b) of the preceding paragraph (provided the maturity of
--------
such Designated Senior Indebtedness shall not theretofore have been
accelerated), (ii) such default is cured or waived or ceases to exist or such
Designated Senior Indebtedness is discharged or paid in full in cash, or (iii)
such Payment Blockage Period shall have been terminated by written notice to the
Company or the Trustee from the representatives of holders of Designated Senior
Indebtedness initiating such Payment Blockage Period, after which the Company
shall promptly resume making any and all required payments in respect of the
Securities, including any missed payments. Only one Payment Blockage Period
with respect to the Securities may be commenced within any 360 consecutive day
period. No Non-payment Default with respect to Designated Senior Indebtedness
that existed or was continuing on the date of the commencement of any Payment
Blockage Period shall be, or can be, made the basis for the commencement of a
second Payment Blockage Period, whether or not within a period of 360
consecutive days, unless such default has been cured or waived for a period of
not less than 90 consecutive days. In no event shall a Payment Blockage Period
extend beyond 179 days from the date of the receipt by the Trustee of the notice
or the date of the
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<PAGE>
acceleration initiating such Payment Blockage Period and there must be a 180
consecutive day period in any 360 day period during which no Payment Blockage
Period is in effect.
SECTION 14.4 Subrogation to Rights of
Holders of Senior Indebtedness.
------------------------------
Subject to the payment in full in cash of all Senior Indebtedness, the
Holders of the Securities shall be subrogated to the extent of the payments or
distributions made to the holders of such Senior Indebtedness pursuant to the
provisions of this Article XIV to the rights of the holders of such Designated
Senior Indebtedness to receive payments and distributions of cash, property and
securities applicable to the Senior Indebtedness until the principal of,
premium, if any, and interest on the Securities shall be paid in full. For
purposes of such subrogation, no payments or distributions to the holders of the
Senior Indebtedness of any cash, property or securities to which the Holders of
the Securities or the Trustee would be entitled except for the provisions of
this Article XIV, and no payments over pursuant to the provisions of this
Article XIV to the holders of Senior Indebtedness by Holders of the Securities
or the Trustee, shall, as among the Company, its creditors other than holders of
Senior Indebtedness and the Holders of the Securities, be deemed to be a payment
or distribution by the Company to or on account of the Senior Indebtedness.
SECTION 14.5 Provisions Solely to Define
Relative Rights.
---------------
The provisions of this Article XIV are and are intended solely for the
purpose of defining the relative rights of the Holders of the Securities on the
one hand and the holders of Senior Indebtedness on the other hand. Nothing
contained in this Article XIV or elsewhere
164
<PAGE>
in this Indenture or in the Securities is intended to or shall (a) impair, as
among the Company, its creditors other than holders of Senior Indebtedness and
the Holders of the Securities, the obligation of the Company, which is absolute
and unconditional, to pay to the Holders of the Securities the principal of,
premium, if any and interest on the Securities as and when the same shall become
due and payable in accordance with their terms; (b) affect the relative rights
against the Company of the Holders of the Securities and creditors of the
Company other than the holders of Senior Indebtedness; or (c) prevent the
Trustee or the Holder of any Securities from exercising all remedies otherwise
permitted by applicable law upon default under this Indenture, subject to the
rights, if any, under this Article XIV of the holders of Senior Indebtedness to
receive cash, property and securities otherwise payable or deliverable to the
Trustee or such Holder.
SECTION 14.6 Trustee to Effectuate Subordination .
-----------------------------------
Each Holder of a Security by its acceptance thereof authorizes and
directs the Trustee on its behalf to take such action as may be necessary or
appropriate to effectuate the subordination provided in this Article XIV and
appoints the Trustee its attorney-in-fact for any and all such purposes.
SECTION 14.7 No Waiver of Subordination Provisions.
-------------------------------------
No right of any present or future holder of any Senior Indebtedness to
enforce subordination as herein provided shall at any time in any way be
prejudiced or impaired by any act or failure to act on the part of the Company
or by any act or failure to act, in good faith, by any such holder, or by any
non-compliance
165
<PAGE>
by the Company with the terms, provisions and covenants of this Indenture,
regardless of any knowledge thereof any such holder may have or be otherwise
charged with.
Without in any way limiting the generality of the foregoing paragraph,
the holders of Senior Indebtedness may, at any time and from time to time,
without the consent of or notice to the Trustee or the Holders of the
Securities, without incurring responsibility to the Holders of the Securities
and without impairing or releasing the subordination provided in this Article
XIV or the obligations hereunder of the Holders of the Securities to the holders
of Senior Indebtedness, do any one or more of the following: (i) change the
manner, place or terms of payment or extend the time of payment of, or renew or
alter, Senior Indebtedness, or otherwise amend or supplement in any manner
Senior Indebtedness or any instrument evidencing the same or any agreement under
which Senior Indebtedness is outstanding; (ii) sell, exchange, release or
otherwise deal with any property pledged, mortgaged or otherwise securing Senior
Indebtedness; (iii) release any Person liable in any manner for the collection
of Senior Indebtedness; and (iv) exercise or refrain from exercising any rights
against the Company and any other Person.
SECTION 14.8 Notice to Trustee.
-----------------
The Company shall give prompt written notice to the Trustee of any
fact known to the Company which would prohibit the making of any payment to or
by the Trustee in respect of the Securities. Notwithstanding the provisions of
this Article XIV or any other provision of this Indenture, the Trustee shall not
be charged with knowledge of the existence of any facts which would prohibit the
making of any payment to or by the Trustee in respect of the Securities, unless
and until the Trustee shall have received written notice thereof from the
Company or a holder of Designated Senior Indebtedness
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<PAGE>
or from any trustee therefor; and, prior to the receipt of any such written
notice, the Trustee, subject to the provisions of Section 6.1, shall be entitled
in all respects to assume that no such facts exist; provided, however, that if
-------- -------
the Trustee shall not have received at its Corporate Trust Office the notice
provided for in this Section at least three Business Days prior to the date upon
which by the terms hereof any money may become payable for any purpose
(including, without limitation, the payment in cash of the principal of,
premium, if any or interest on any Security), then, anything herein contained to
the contrary notwithstanding, the Trustee shall have full power and authority to
receive such money and to apply the same to the purpose for which such money was
received and shall not be affected by any notice to the contrary which may be
received by it within three Business Days prior to such date.
SECTION 14.9 Reliance on Judicial Order or
Certificate of Liquidating Agent.
--------------------------------
Upon any payment or distribution of assets of the Company referred to
in this Article XIV, the Trustee, subject to the provisions of Section 6.1, and
the Holders of the Securities shall be entitled to rely upon any order or decree
entered by any court of competent jurisdiction in which such insolvency,
bankruptcy, receivership, liquidation, reorganization, dissolution, winding up
or similar case or proceeding is pending, or a certificate of the trustee in
bankruptcy, receiver, liquidating trustee, custodian, assignee for the benefit
of creditors, agent or other Person making such payment or distribution,
delivered to the Trustee or to the Holders of Securities, for the purpose of
ascertaining the Persons entitled to participate in such payment or
distribution, the holders of Senior Indebtedness and other Indebtedness of the
Company, the amount thereof or payable thereon, the amount or amounts paid or
distributed
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<PAGE>
thereon and all other facts pertinent thereto or to this Article XIV.
SECTION 14.10 Trustee Not Fiduciary for
Holders of Senior Indebtedness.
------------------------------
The Trustee shall not be deemed to owe any fiduciary duty to the
holders of Senior Indebtedness and shall not be liable to any such holders if it
shall in good faith mistakenly pay over or distribute to Holders of Securities
or to the Company or to any other Person cash, property or securities to which
any holders of Senior Indebtedness shall be entitled by virtue of this Article
XIV or otherwise, except in the case of gross negligence or wilful misconduct on
the part of the Trustee.
SECTION 14.11 Rights of Trustee as Holder of
Senior Indebtedness; Preserva-
tion of Trustee's Rights.
-------------------------
The Trustee in its individual capacity shall be entitled to all the
rights set forth in this Article XIV with respect to any Senior Indebtedness
which may at any time be held by it, to the same extent as any other holder of
Senior Indebtedness, and nothing in this Indenture shall deprive the Trustee of
any of its rights as such holder.
Nothing in this Article XIV shall apply to claims of, or payments to,
the Trustee or its agent or counsel under or pursuant to Section 6.7.
SECTION 14.12 Article Applicable to Paying Agents.
-----------------------------------
In case at any time any Paying Agent other than the Trustee shall have
been appointed by the Company and be then acting hereunder, the term "Trustee"
as used in this Article XIV shall in such case (unless the
168
<PAGE>
context otherwise requires) be construed as extending to and including such
Paying Agent within its meaning as fully for all intents and purposes as if such
Paying Agent were named in this Article XIV in addition to or in place of the
Trustee; provided, however, that Section 14.11 shall not apply to the Company or
-------- -------
any Affiliate of the Company if it or such Affiliate acts as Paying Agent.
======================
This instrument may be executed in any number of counterparts, each of
which so executed shall be deemed to be an original, but all such counterparts
shall together constitute but one and the same instrument.
169
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be
duly executed and attested as of the day and year first above written.
UNITED RENTALS (NORTH AMERICA), INC.
By:
-----------------------------------
Name: Michael J. Nolan
Title: Chief Financial Officer
Attest:
STATE STREET BANK AND TRUST COMPANY
By:
-----------------------------------
Name:
Title:
Attest:
GUARANTORS:
A&A TOOL RENTALS & SALES, INC.
ACG, INC.
ADCO EQUIPMENT, INC.
ARROW EQUIPMENT COMPANY
AUSTINO'S LIFTRUCKS, INC.
BNR EQUIPMENT, INC.
CORAN ENTERPRISES, INCORPORATED
DEALERS SERVICE COMPANY
GRAND VALLEY EQUIPMENT CO.
HIGH REACH CO., INC.
INDEPENDENT SCISSOR LIFTS, INC.
JBK, INC.
170
<PAGE>
KUBOTA OF GRAND RAPIDS, INC.
LIFT, INC.
MADISON EQUIPMENT SALES AND RENTAL, INC.
MARK EQUIPMENT, INC.
MERCER EQUIPMENT COMPANY
MISCO RENTS, INC.
MISSION VALLEY RENTALS, INC.
PALMER EQUIPMENT COMPANY, INC.
PAUL E. CARLSON, INC.
POWERS RENTALS & SALES, INC.
RENTALS TOOLS & EQUIPMENT CO.
INTERNATIONAL, INC.
RENTALS UNLIMITED, INCORPORATED
ROSEDALE EQUIPMENT RENTAL, INC.
SPACE MAKER SYSTEMS OF VA., INC.
UNITED EQUIPMENT RENTAL OF HOUSTON, INC.
UNITED RENTALS, INC.
UNITED RENTALS AERIAL EQUIPMENT, INC.
UNITED RENTALS OF COLORADO, INC.
UNITED RENTALS OF KENTUCKY, INC.
UNITED RENTALS OF NEVADA, INC.
UNITED RENTALS OF NEW YORK, INC.
UNITED RENTALS OF SOUTHERN CALIFORNIA, INC.
UNITED RENTALS OF UTAH, INC.
UNITED RENTALS NORTHWEST, INC.
U.S. RENTALS, INC.
WYNNE SYSTEMS, INC.
By:
-----------------------------------
Name: Michael J. Nolan
Title: Vice President and
Secretary
Attest:
171
<PAGE>
Schedule A
----------
UNITED RENTALS (NORTH AMERICA), INC.
Except as otherwise indicated, 100% of the voting stock of each of the
Subsidiaries listed below is owned by its parent.
Name of Subsidiary State of
Incorporation
A&A Tool Rentals & Sales, Inc. California
ACG, Inc. Indiana
Adco Equipment, Inc. California
Arrow Equipment Corporation Illinois
Austino's Liftrucks, Inc. New Jersey
BNR Equipment, Inc. New York
Coran Enterprises, Incorporated (d/b/a A-1Rents) California
Dealers Service Company New Jersey
Grand Valley Equipment Co. Michigan
High Reach Co., Inc. Pennsylvania
Independent Scissor Lifts, Inc. California
JBK, Inc. Ohio
Kubota of Grand Rapids, Inc. Michigan
Lift, Inc. Maryland
Madison Equipment Sales and Rental, Inc. Alabama
Mark Equipment, Inc. Alabama
Mercer Equipment Company North Carolina
Misco Rents, Inc. Indiana
Mission Valley Rentals, Inc. California
Palmer Equipment Company, Inc. Michigan
Paul E. Carlson, Inc. Minnesota
Powers Rentals & Sales, Inc. California
Rentals Tools & Equipment Co. International, Inc. Maryland
Rentals Unlimited, Incorporated Rhode Island
Rosedale Equipment Rental, Inc. California
Space Maker Systems of Va., Inc. Virginia
United Equipment Rental of Houston, Inc. (formerly J&J Texas
Rentals Services Inc.)
United Rentals, Inc. Washington
United Rentals Aerial Equipment, Inc. (formerly United Delaware
Rentals of New Jersey, Inc.)
United Rentals of Colorado, Inc. Colorado
(formerly Santa Fe Supply & Rental, Inc.)
United Rentals of Kentucky, Inc. Kentucky
<PAGE>
Name of Subsidiary State of
Incorporation
United Rentals of Nevada, Inc. (formerly Nevada High Reach, Nevada
Inc.)
United Rentals of New York, Inc. New York
United Rentals of Southern California, Inc. (d/b/a Able California
Equipment) (formerly Rental Equipment, Inc.)
United Rentals of Utah, Inc. Utah
United Rentals Northwest, Inc. (formerly High Reach, Inc.) Oregon
U.S. Rentals, Inc. Delaware
Wynne Systems, Inc. California
<PAGE>
EXHIBIT A-1
-----------
[FORM OF SECURITY]
THE NOTES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE U.S. SECURITIES
ACT OF 1933 (THE "SECURITIES ACT") AND MAY NOT BE REOFFERED, RESOLD, PLEDGED OR
OTHERWISE TRANSFERRED EXCEPT (A)(1) TO A PERSON WHO SUCH PURCHASER REASONABLY
BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER WITHIN THE MEANING OF RULE 144A
UNDER THE SECURITIES ACT ACQUIRING FOR ITS OWN ACCOUNT OR THE ACCOUNT OF A
QUALIFIED INSTITUTIONAL BUYER IN A TRANSACTION COMPLYING WITH RULE 144A, (2) IN
AN OFFSHORE TRANSACTION COMPLYING WITH RULE 904 OF REGULATION S UNDER THE
SECURITIES ACT, (3) PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE
SECURITIES ACT PROVIDED BY RULE 144 THEREUNDER (IF AVAILABLE) OR (4) PURSUANT TO
AN EFFECTIVE REGISTRATION STATEMENT AND (B) IN ACCORDANCE WITH ALL APPLICABLE
SECURITIES LAWS OF THE STATES OF THE UNITED STATES AND OTHER JURISDICTIONS. THE
COMPANY, THE TRUSTEE, THE TRANSFER AGENT AND THE REGISTRAR SHALL HAVE THE RIGHT
PRIOR TO ANY SUCH OFFER, SALE, PLEDGE OR TRANSFER TO REQUIRE THAT A
CERTIFICATION OR TRANSFER IN THE FORM APPEARING ON THE OTHER SIDE OF THIS
SECURITY BE COMPLETED AND DELIVERED BY THE TRANSFEROR TO THE TRUSTEE.
United Rentals(North America), Inc.
93% Senior Subordinated Note due 2009, Series A
No. __________ $____ ____
CUSIP NO.
United Rentals (North America),Inc., a corporation duly organized and
existing under the laws of the State of Delaware (herein called the "Company,"
which term includes any successor Person under the Indenture hereinafter
referred to), for value received, hereby promises to pay to _______________ or
registered assigns, the principal sum of ____________ Dollars on January 15,
2009 and to pay interest thereon from December 15, 1998 or from the most recent
Interest Payment Date to which interest has been paid or duly provided for,
semi-annually in arrears on January 15 and July 15 in each year, commencing July
15, 1999 at the rate of 9.25% per annum, until the principal
A-1-1
<PAGE>
hereof is paid or duly provided for, provided that any principal and premium,
-------- ----
and any such installment of interest, which is overdue shall bear interest at
the rate of 9.25% per annum (to the extent that the payment of such interest
shall be legally enforceable), from the dates such amounts are due until they
are paid or duly provided for. The interest so payable and punctually paid or
duly provided for, on any Interest Payment Date will, as provided in such
Indenture, be paid to the Person in whose name this Security (or one or more
predecessor Securities) is registered at the close of business on the Regular
Record Date for such interest, which shall be the January 1 and July 1 (whether
or not a Business Day), as the case may be, next preceding such Interest Payment
Date. Any such interest not so punctually paid or duly provided for will
forthwith cease to be payable to the Holder on such Regular Record Date and may
either be paid to the Person in whose name this Security (or one or more
predecessor Securities) is registered at the close of business on a Special
Record Date for the payment of such Defaulted Interest to be fixed by the
Trustee, notice whereof shall be given to Holders of securities not less than 10
days prior to such Special Record Date, or be paid at any time in any other
lawful manner not inconsistent with the requirements of any securities exchange
on which the Securities may be listed, and upon such notice as may be required
by such exchange, all as more fully provided in said Indenture.
Payment of the principal of (and premium, if any) and interest on this
Security will be made at the office or agency of the Company maintained for that
purpose in the Borough of Manhattan, The City of New York, in such coin or
currency of the United States of America as at the time of payment is legal
tender for payment of public and private debts; provided, however, that, at the
-------- -------
option of the Company, payment of interest may be made by check mailed to the
address of the Person entitled thereto as such address shall appear in the
Security Register.
Reference is hereby made to the further provisions of this Security
set forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.
A-1-2
<PAGE>
Unless the certificate of authentication hereon has been executed by
the Trustee referred to on the reverse hereof by manual signature, this Security
shall not be entitled to any benefit under the Indenture or be valid or
obligatory for any purpose.
A-1-3
<PAGE>
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed and attested.
Attest: United Rentals(North America),Inc.
_____________________ By:______________________________
Title: Title:
Trustee's Certificate of Authentication
---------------------------------------
This is one of the Securities referred to in the within-mentioned
Indenture.
State Street Bank and Trust Company,
as Trustee
Dated: By:
----------------------------------
Authorized Signatory
<PAGE>
Form of Reverse of Security
---------------------------
This Security is one of a duly authorized issue of Securities of the
Company designated as 93% Senior Subordinated Notes due 2009, Series A (herein
called the "Initial Securities"), limited in aggregate principal amount at
Stated Maturity to $300,000,000 issued and to be issued under an Indenture,
dated as of December 15, 1998 (herein called the "Indenture," which term shall
have the meaning assigned to it in such instrument), among the Company, the
guarantors named therein and State Street Bank and Trust Company, as Trustee
(herein called the "Trustee," which term includes any successor trustee under
the Indenture), and reference is hereby made to the Indenture for a statement of
the respective rights, limitations of rights, duties and immunities thereunder
of the Company, the Trustee and the Holders of the Securities and of the terms
upon which the Securities are, and are to be, authenticated and delivered. The
Securities include the Initial Securities and the Exchange Securities referred
to below, issued in exchange for the Initial Securities pursuant to the
Registration Rights Agreement. The Initial Securities and the Exchange
Securities are treated as a single class of securities under the Indenture.
The terms of the Securities include those stated in the Indenture and
those made part of the Indenture by reference to the Trust Indenture Act of 1939
(15 U.S.C. '' 7aaa - 77bbbb (the "TIA"), as in effect on the date of the
Indenture. Notwithstanding anything to the contrary herein, the Securities are
subject to all such terms, and Holders of Securities are referred to the
Indenture and the TIA for a statement of such terms.
This Security is redeemable at the option of the Company, in whole or
in part, at any time on or after January 15, 2004, at the Redemption Prices
(expressed as percentages of principal amount) set forth below, plus accrued and
unpaid interest, if any, thereon to the Redemption Date, if redeemed during the
12-month period beginning January 15 of the years indicated below:
A-1-5
<PAGE>
Redemption
Year Price
---- ----------
2004 104.625%
2005 103.083%
2006 101.542%
2007 and thereafter 100.000%
In addition, at any time, or from time to time, on or prior to January
15, 2002, the Company may, at its option, use the net cash proceeds of one or
more Public Equity Offerings to redeem up to an aggregate of 35% of the
principal amount of the Securities originally issued, at a redemption price
equal to 109.25% of the principal amount thereof plus accrued and unpaid
interest, if any, thereon to the Redemption Date; provided that at least 65% of
-------- ----
the originally issued principal amount of Securities remains outstanding
immediately after the occurrence of such redemption. In order to effect the
foregoing redemption with the proceeds of any Public Equity Offering, the
Company shall send a redemption notice not later than 90 days after the
consummation of any such Public Equity Offering.
The Securities are not subject to any sinking fund.
The Indenture provides that the Company is obligated (a) upon the
occurrence of a Change in Control to make an offer to purchase all outstanding
Securities at a purchase price equal to 101% of the principal amount thereof,
plus accrued and unpaid interest, if any, thereon to the date of purchase and
(b) to make an offer to purchase Securities with a portion of the net cash
proceeds of certain sales or other dispositions of assets (not applied as
specified in the Indenture within the periods set forth therein) at a purchase
price equal to 100% of the principal amount thereof plus accrued and unpaid
interest, if any, to the date of purchase.
In the event of redemption or purchase of this Security in part only
pursuant to a Change of Control Offer or an Asset Sale Offer, a new Security or
Securities for the unredeemed or unpurchased portion hereof will be issued in
the name of the Holder hereof upon the cancellation hereof.
A-1-6
<PAGE>
The Indenture contains provisions for defeasance at any time of the
entire indebtedness of this Security or of certain restrictive covenants and
Events of Default with respect to this Security, in each case upon compliance
with certain conditions set forth in the Indenture.
If an Event of Default shall occur and be continuing, there may be
declared due and payable the principal of, premium, if any, and accrued and
unpaid interest, if any, on all of the outstanding Securities, in the manner and
with the effect provided in the Indenture.
The Indenture permits, with certain exceptions as therein provided,
the amendment thereof and the modification of the rights and obligations of the
Company and the rights of the Holders of the Securities under the Indenture at
any time by the Company and the Trustee with the consent of the Holders of a
majority in aggregate principal amount of the Securities at the time
Outstanding. The Indenture also contains provisions permitting the Holders of
specified percentages in aggregate principal amount of the Securities at the
time Outstanding, on behalf of the Holders of all the Securities, to waive
compliance by the Company with certain provisions of the Indenture and certain
past defaults under the Indenture and their consequences. Any such consent or
waiver by the Holder of this Security shall be conclusive and binding upon such
Holder and upon all future Holders of this Security and of any Security issued
upon the registration of transfer hereof or in exchange herefor or in lieu
hereof, whether or not notation of such consent or waiver is made upon this
Security.
As provided in and subject to the provisions of the Indenture, the
Holder of this Security shall not have the right to institute any proceeding
with respect to the Indenture or for the appointment of a receiver or trustee or
for any other remedy thereunder, unless such Holder shall have previously given
the Trustee written notice of a continuing Event of Default with respect to the
Securities, the Holders of not less than 25% in principal amount of the
Securities at the time Outstanding shall have made written request to the
Trustee to institute proceedings in respect of such Event of Default as Trustee
and offered the Trustee reasonable indemnity and the Trustee shall not have
received from the Holders of a majority in principal
A-1-7
<PAGE>
amount of Securities at the time Outstanding a direction inconsistent with such
request, and shall have failed to institute any such proceeding for 45 days
after receipt of such notice, request and offer of indemnity. The foregoing
shall not apply to certain suits described in the Indenture, including any suit
instituted by the Holder of this Security for the enforcement of any payment of
principal hereof or any premium or interest hereon on or after the respective
due dates expressed herein (or, in the case of redemption, on or after the
Redemption Date or, in the case of any purchase of this Security required to be
made pursuant to a Change of Control Offer or an Asset Sale Offer, on or after
the relevant Purchase Date).
No reference herein to the Indenture and no provision of this Security
or of the Indenture shall alter or impair the obligation of the Company, which
is absolute and unconditional, to pay the principal of (and premium, if any) and
interest on this Security at the times, place and rate, and in the coin or
currency, herein prescribed.
As provided in the Indenture and subject to certain limitations
therein set forth, the transfer of this Security is registrable in the Security
Register, upon surrender of this Security for registration of transfer at the
office or agency of the Company in the Borough of Manhattan, The City of New
York, duly endorsed by, or accompanied by a written instrument of transfer in
form satisfactory to the Company and the Security Registrar duly executed by,
the Holder hereof or his attorney duly authorized in writing, and thereupon one
or more new Securities, of authorized denominations and for the same aggregate
principal amount, will be issued to the designated transferee or transferees.
This Security is issuable only in registered form without coupons in
denominations of $1,000 and any integral multiple thereof. As provided in the
Indenture and subject to certain limitations therein set forth, Securities are
exchangeable for a like aggregate principal amount of Securities of like tenor
of a different authorized denomination, as requested by the Holder surrendering
the same.
No service charge shall be made for any such registration of transfer
or exchange, but the Company may require
A-1-8
<PAGE>
payment of a sum sufficient to cover any tax or other governmental charge
payable in connection therewith.
Prior to due presentment of this Security for registration of
transfer, the Company, the Trustee and any agent of the Company or the Trustee
may treat the Person in whose name this Security is registered as the owner
hereof for all purposes, whether or not this Security be overdue, and neither
the Company, the Trustee nor any such agent shall be affected by notice to the
contrary.
Pursuant to the Registration Rights Agreement by and among the Company
and the Initial Purchaser, the Company will be obligated to consummate an
exchange offer pursuant to which the Holder of this Security shall have the
right to exchange this Security for 93% Senior Subordinated Notes due 2009,
Series B, of the Company (herein called the "Exchange Securities"), which have
been registered under the Securities Act, in like principal amount and having
identical terms as the Initial Securities (other than as set forth in this
paragraph). The Holders of Initial Securities shall be entitled to receive
certain additional interest payments in the event such exchange offer is not
consummated and upon certain other conditions, all pursuant to and in accordance
with the terms of the Registration Rights Agreement. Such additional interest
will constitute liquidated damages and will be the exclusive monetary remedy
available to the Holder of this Security in respect of a Registration Default
(as defined in the Registration Rights Agreement), but without prejudice to any
non-monetary remedies otherwise available to such Holder, whether pursuant to
the Registration Rights Agreement or otherwise.
Interest on this Security shall be computed on the basis of a 360-day
year comprised of twelve 30-day months.
The obligations of the Company under the Indenture and this Security
are expressly subordinated to all Senior Indebtedness and senior in right of
payment to all Subordinated Indebtedness, in each case to the extent set forth
in Article XIV of the Indenture, and reference is hereby made to such Indenture
for the precise terms of such subordination.
A-1-9
<PAGE>
As provided in the Indenture and subject to certain limitations
therein set forth, the obligations of the Company under the Indenture and this
Security are Guaranteed pursuant to Guarantees endorsed hereon as provided in
the Indenture. Each Holder, by holding this Security, agrees to all of the
terms and provisions of said Guarantees. The Indenture provides that each
Guarantor shall be released from its Guaranty upon compliance with certain
conditions.
All terms used in this Security which are defined in the Indenture
shall have the meanings assigned to them in the Indenture.
The Indenture and this Security shall be governed by and construed in
accordance with the laws of the State of New York, without regard to the
conflicts of laws principles thereof.
A-1-10
<PAGE>
ASSIGNMENT FORM
If you, the Holder, want to assign this Security, fill in the form below and
have your signature guaranteed:
I (or we) assign and transfer this Security to
(Insert assignee's social security or tax ID number)
(Print or type assignee's name, address and zip code) and irrevocably appoint
agent to transfer this Security on the books of the Company. The agent may
substitute another to act for such agent.
In connection with any transfer of this Security occurring prior to
the date which is the earlier of (i) the date of the declaration by the
Commission of the effectiveness of a registration settlement under the
Securities Act of 1933, as amended (the "Securities Act"), covering resales of
--------------
this Security (which effectiveness shall not have been suspended or terminated
at the date of the transfer) and (ii) the date two years (or such shorter period
of time as permitted by Rule 144(k) under the Securities Act or any successor
provision thereunder) after the later of the original issuance date appearing on
the face of this Security (or any predecessor thereto) or the last date on which
the Company or any affiliate of the Company was the owner of this Security (or
any predecessor thereto), the undersigned confirms that it has not utilized any
general solicitation or general advertising in connection with the transfer and
that:
[Check One]
---------
A-1-11
<PAGE>
[ ] (a) this Security is being transferred in compliance with the
exemption from registration under the Securities Act provided by
Rule 144A thereunder.
[ ] (b) this Security is being transferred other than in accordance
with (a) above and documents, and a transferor certificate
substantially in the form of Exhibit C to the Indenture in the
---------
case of a transfer pursuant to Regulation S, are being furnished
which comply with the conditions of transfer set forth in this
Security and the Indenture.
If none of the foregoing boxes is checked and, in the case of (b) above, if the
appropriate document is not attached or otherwise furnished to the Trustee, the
Trustee or Security Registrar shall not be obliged to register this Security in
the name of any Person other than the Holder hereof unless and until the
conditions to any such transfer of registration set forth herein and in Section
3.14 of the Indenture shall have been satisfied.
Date: ________ Your Signature:
----------------------------
(Sign exactly as your name
appears on the other
side of this Security)
By:
----------------------------
NOTICE: To be executed
by an executive officer
Signature Guarantee: _____________________________
TO BE COMPLETED BY PURCHASER IF (a) ABOVE IS CHECKED
The undersigned represents and warrants that it is purchasing this
Security for its own account or an account with respect to which it exercises
sole investment discretion and that it and any such account is a "qualified
institutional buyer" within the meaning of Rule 144A under the Securities Act
and is aware that the sale to it is being made in reliance on
A-1-12
<PAGE>
Rule 144A and acknowledges that it has received such information regarding the
Company as the undersigned has requested pursuant to Rule 144A (including the
information specified in Rule 144A(d)(4)) or has determined not to request such
information and that it is aware that the transferor is relying upon the
undersigned's foregoing representations in order to claim the exemption from
registration provided by Rule 144A.
Dated:__________ _______________________________________________
NOTICE: To be executed by an executive officer
A-1-13
<PAGE>
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Security purchased in its entirety
by the Company pursuant to Section 10.13 or 10.14 of the Indenture, check the
applicable box:
Section 10.13 [ ]
Section 10.14 [ ]
If you want to elect to have only a part of the principal amount of
this Security purchased by the Company pursuant to Section 10.13 or 10.14 of the
Indenture, state the portion of such amount: $_____________
Dated: Your Signature:
---------------------------------
(Sign exactly as name appears on the
other side of this Security)
Signature Guarantee:
--------------------------------------------------------
(Signature must be guaranteed by a financial institution
that is a member of the Securities Transfer Agent Medallion
Program ("STAMP"), the Stock Exchange Medallion Program
("SEMP"), the New York Stock Exchange, Inc. Medallion
Signature Program ("MSP") or such other signature guarantee
program as may be determined by the Security Registrar in
addition to, or in substitution for, STAMP, SEMP or MSP, all
in accordance with the Securities Exchange Act of 1934, as
amended.)
A-1-14
<PAGE>
EXHIBIT A-2
-----------
United Rentals(North America), Inc.
93% Senior Subordinated Note due 2009, Series B
No. __________ $
CUSIP NO.
United Rentals (North America), Inc., a corporation duly organized and
existing under the laws of the State of Delaware (herein called the "Company,"
which term includes any successor Person under the Indenture hereinafter
referred to), for value received, hereby promises to pay to _____________ or
registered assigns, the principal sum of _____________ Dollars on January 15,
2009 and to pay interest thereon from December 15, 1998 or from the most recent
Interest Payment Date to which interest has been paid or duly provided for,
semi-annually in arrears on January 15 and July 15 in each year, commencing July
15, 1999 at the rate of 9.25% per annum, until the principal hereof is paid or
duly provided for, provided that any principal and premium, and any such
-------- ----
installment of interest, which is overdue shall bear interest at the rate of
9.25% per annum (to the extent that the payment of such interest shall be
legally enforceable), from the dates such amounts are due until they are paid or
duly provided for. The interest so payable and punctually paid or duly provided
for, on any Interest Payment Date will, as provided in such Indenture, be paid
to the Person in whose name this Security (or one or more predecessor
Securities) is registered at the close of business on the Regular Record Date
for such interest, which shall be the January 1 and July 1 (whether or not a
Business Day), as the case may be, next preceding such Interest Payment Date.
Any such interest not so punctually paid or duly provided for will forthwith
cease to be payable to the Holder on such Regular Record Date and may either be
paid to the Person in whose name this Security (or one or more predecessor
Securities) is registered at the close of business on a Special Record Date for
the payment of such Defaulted Interest to be fixed by the Trustee, notice
whereof shall be given to Holders of securities not less than 10 days prior to
such Special Record Date, or be
A-2-1
<PAGE>
paid at any time in any other lawful manner not inconsistent with the
requirements of any securities exchange on which the Securities may be listed,
and upon such notice as may be required by such exchange, all as more fully
provided in said Indenture.
Payment of the principal of (and premium, if any) and interest on this
Security will be made at the office or agency of the Company maintained for that
purpose in the Borough of Manhattan, The City of New York, in such coin or
currency of the United States of America as at the time of payment is legal
tender for payment of public and private debts; provided, however, that, at the
-------- -------
option of the Company, payment of interest may be made by check mailed to the
address of the Person entitled thereto as such address shall appear in the
Security Register.
Reference is hereby made to the further provisions of this Security
set forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.
Unless the certificate of authentication hereon has been executed by
the Trustee referred to on the reverse hereof by manual signature, this Security
shall not be entitled to any benefit under the Indenture or be valid or
obligatory for any purpose.
A-2-2
<PAGE>
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed and attested.
Attest: United Rentals(North America), Inc.
_____________________ By: ______________________
Title: Title:
Trustee's Certificate of Authentication
---------------------------------------
This is one of the Securities referred to in the within-mentioned
Indenture.
State Street Bank and Trust Company,
as Trustee
Dated: By: _________________________
Authorized Signatory
A-2-3
<PAGE>
Form of Reverse of Security
---------------------------
This Security is one of a duly authorized issue of Securities of the
Company designated as 93% Senior Subordinated Notes due 2009, Series B (herein
called the "Exchange Securities"), limited in aggregate principal amount at
Stated Maturity to $300,000,000 issued and to be issued under an Indenture,
dated as of December 15, 1998 (herein called the "Indenture," which term shall
have the meaning assigned to it in such instrument), among the Company, the
guarantors named therein and State Street Bank and Trust Company, as Trustee
(herein called the "Trustee," which term includes any successor trustee under
the Indenture), and reference is hereby made to the Indenture for a statement of
the respective rights, limitations of rights, duties and immunities thereunder
of the Company, the Trustee and the Holders of the Securities and of the terms
upon which the Securities are, and are to be, authenticated and delivered. The
Securities include the Initial Securities and the Exchange Securities, issued in
exchange for the Initial Securities pursuant to the Registration Rights
Agreement. The Initial Securities and the Exchange Securities are treated as a
single class of securities under the Indenture.
The terms of the Securities include those stated in the Indenture and
those made part of the Indenture by reference to the Trust Indenture Act of 1939
(15 U.S.C. '' 7aaa - 77bbbb (the "TIA")), as in effect on the date of the
Indenture. Notwithstanding anything to the contrary herein, the Securities are
subject to all such terms, and Holders of Securities are referred to the
Indenture and the TIA for a statement of such terms.
This Security is redeemable at the option of the Company, in whole or
in part, at any time on or after January 15, 2004, at the Redemption Prices
(expressed as percentages of principal amount) set forth below, plus accrued and
unpaid interest, if any, thereon to the Redemption Date, if redeemed during the
12-month period beginning January 15 of the years indicated below:
A-2-4
<PAGE>
Year Price
---- ----------
2004 104.625%
2005 103.083%
2006 101.542%
2007 and thereafter 100.000%
In addition, at any time, or from time to time, on or prior to January
15, 2002, the Company may, at its option, use the net cash proceeds of one or
more Public Equity Offerings to redeem up to an aggregate of 35% of the
principal amount of the Securities originally issued, at a redemption price
equal to 109.25% of the principal amount thereof plus accrued and unpaid
interest, if any, thereon to the Redemption Date; provided that at least 65% of
-------- ----
the originally issued principal amount of Securities remains outstanding
immediately after the occurrence of such redemption. In order to effect the
foregoing redemption with the proceeds of any Public Equity Offering, the
Company shall send the redemption notice not later than 90 days after the
consummation of any such Public Equity Offering.
The Securities are not subject to any sinking fund.
The Indenture provides that the Company is obligated (a) upon the
occurrence of a Change in Control to make an offer to purchase all outstanding
Securities at a purchase price equal to 101% of the principal amount thereof,
plus accrued and unpaid interest, if any, thereon to the date of purchase and
(b) to make an offer to purchase Securities with a portion of the net cash
proceeds of certain sales or other dispositions of assets (not applied as
specified in the Indenture within the periods set forth therein) at a purchase
price equal to 100% of the principal amount thereof plus accrued and unpaid
interest, if any, to the date of purchase.
In the event of redemption or purchase of this Security in part only
pursuant to a Change of Control Offer or an Asset Sale Offer, a new Security or
Securities for the unredeemed or unpurchased portion hereof will be issued in
the name of the Holder hereof upon the cancellation hereof.
The Indenture contains provisions for defeasance at any time of the
entire indebtedness of this Security or of
A-2-5
<PAGE>
certain restrictive covenants and Events of Default with respect to this
Security, in each case upon compliance with certain conditions set forth in the
Indenture.
If an Event of Default shall occur and be continuing, there may be
declared due and payable the principal of, premium, if any, and accrued and
unpaid interest, if any, on all of the outstanding Securities, in the manner and
with the effect provided in the Indenture.
The Indenture permits, with certain exceptions as therein provided,
the amendment thereof and the modification of the rights and obligations of the
Company and the rights of the Holders of the Securities under the Indenture at
any time by the Company and the Trustee with the consent of the Holders of a
majority in aggregate principal amount of the Securities at the time
Outstanding. The Indenture also contains provisions permitting the Holders of
specified percentages in aggregate principal amount of the Securities at the
time Outstanding, on behalf of the Holders of all the Securities, to waive
compliance by the Company with certain provisions of the Indenture and certain
past defaults under the Indenture and their consequences. Any such consent or
waiver by the Holder of this Security shall be conclusive and binding upon such
Holder and upon all future Holders of this Security and of any Security issued
upon the registration of transfer hereof or in exchange herefor or in lieu
hereof, whether or not notation of such consent or waiver is made upon this
Security.
As provided in and subject to the provisions of the Indenture, the
Holder of this Security shall not have the right to institute any proceeding
with respect to the Indenture or for the appointment of a receiver or trustee or
for any other remedy thereunder, unless such Holder shall have previously given
the Trustee written notice of a continuing Event of Default with respect to the
Securities, the Holders of not less than 25% in principal amount of the
Securities at the time Outstanding shall have made written request to the
Trustee to institute proceedings in respect of such Event of Default as Trustee
and offered the Trustee reasonable indemnity and the Trustee shall not have
received from the Holders of a majority in principal amount of Securities at the
time Outstanding a direction inconsistent with such request, and shall have
failed to
A-2-6
<PAGE>
institute any such proceeding for 15 days after receipt of such notice, request
and offer of indemnity. The foregoing shall not apply to certain suits described
in the Indenture, including any suit instituted by the Holder of this Security
for the enforcement of any payment of principal hereof or any premium or
interest hereon on or after the respective due dates expressed herein (or, in
the case of redemption, on or after the Redemption Date or, in the case of any
purchase of this Security required to be made pursuant to a Change of Control
Offer or an Asset Sale Offer, on or after the relevant Purchase Date).
No reference herein to the Indenture and no provision of this Security
or of the Indenture shall alter or impair the obligation of the Company, which
is absolute and unconditional, to pay the principal of (and premium, if any) and
interest on this Security at the times, place and rate, and in the coin or
currency, herein prescribed.
The obligations of the Company under the Indenture and this Security
are expressly subordinated to all Senior Indebtedness, in each case to the
extent set forth in Article XIV of the Indenture, and reference is hereby made
to such Indenture for the precise terms of such subordination.
As provided in the Indenture and subject to certain limitations
therein set forth, the transfer of this Security is registrable in the Security
Register, upon surrender of this Security for registration of transfer at the
office or agency of the Company in the Borough of Manhattan, The City of New
York, duly endorsed by, or accompanied by a written instrument of transfer in
form satisfactory to the Company and the Security Registrar duly executed by,
the Holder hereof or his attorney duly authorized in writing, and thereupon one
or more new Securities, of authorized denominations and for the same aggregate
principal amount, will be issued to the designated transferee or transferees.
This Security is issuable only in registered form without coupons in
denominations of $1,000 and any integral multiple thereof. As provided in the
Indenture and subject to certain limitations therein set forth, Securities are
exchangeable for a like aggregate principal amount of Securities
A-2-7
<PAGE>
of like tenor of a different authorized denomination, as requested by the Holder
surrendering the same.
No service charge shall be made for any such registration of transfer
or exchange, but the Company may require payment of a sum sufficient to cover
any tax or other governmental charge payable in connection therewith.
Prior to due presentment of this Security for registration of
transfer, the Company, the Trustee and any agent of the Company or the Trustee
may treat the Person in whose name this Security is registered as the owner
hereof for all purposes, whether or not this Security be overdue, and neither
the Company, the Trustee nor any such agent shall be affected by notice to the
contrary.
Interest on this Security shall be computed on the basis of a 360-day
year comprised of twelve 30-day months.
As provided in the Indenture and subject to certain limitations
therein set forth, the obligations of the Company under the Indenture and this
Security are Guaranteed pursuant to Guarantees endorsed hereon as provided in
the Indenture. Each Holder, by holding this Security, agrees to all of the
terms and provisions of said Guarantees. The Indenture provides that each
Guarantor shall be released from its Guaranty upon compliance with certain
conditions.
All terms used in this Security which are defined in the Indenture
shall have the meanings assigned to them in the Indenture.
The Indenture and this Security shall be governed by and construed in
accordance with the laws of the State of New York, without regard to the
conflicts of laws principles thereof.
A-2-8
<PAGE>
ASSIGNMENT FORM
If you, the Holder, want to assign this Security, fill in the form below and
have your signature guaranteed:
I (or we) assign and transfer this Security to
(Insert assignee's social security or tax ID number)
(Print or type assignee's name, address and zip code) and irrevocably appoint
agent to transfer this Security on the books of the Company. The agent may
substitute another to act for such agent.
Date: ________ Your Signature:
-----------------------------------------------
(Sign exactly as your name
appears on the other side of this Security)
By:
----------------------------------------------
NOTICE: To be executed
by an executive officer
Signature Guarantee:
----------------------------------
A-2-9
<PAGE>
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Security purchased in its entirety
by the Company pursuant to Section 10.13 or 10.14 of the Indenture, check the
applicable box:
Section 10.13 [ ]
Section 10.14 [ ]
If you want to elect to have only a part of the principal amount of
this Security purchased by the Company pursuant to Section 10.13 or 10.14 of the
Indenture, state the portion of such amount: $_____________
Dated: Your Signature:
----------------------------------
(Sign exactly as name appears on the
other side of this
Security)
Signature Guarantee: ________________________________
(Signature must be guaranteed by a financial institution
that is a member of the Securities Transfer Agent Medallion
Program ("STAMP"), the Stock Exchange Medallion Program
("SEMP"), the New York Stock Exchange, Inc. Medallion
Signature Program ("MSP") or such other signature guarantee
program as may be determined by the Security Registrar in
addition to, or in substitution for, STAMP, SEMP or MSP, all
in accordance with the Securities Exchange Act of 1934, as
amended.)
A-2-10
<PAGE>
EXHIBIT B
---------
FORM OF LEGEND FOR BOOK-ENTRY SECURITIES
Any Global Security authenticated and delivered hereunder shall bear a
legend (which would be in addition to any other legends required in the case of
a Restricted Security) in substantially the following form:
THIS SECURITY IS A GLOBAL SECURITY WITHIN THE MEANING OF THE INDENTURE
HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITARY OR A
NOMINEE OF A Depositary OR A SUCCESSOR DEPOSITARY. THIS SECURITY IS NOT
EXCHANGEABLE FOR SECURITIES REGISTERED IN THE NAME OF A PERSON OTHER THAN THE
DEPOSITARY OR ITS NOMINEE EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE
INDENTURE, AND NO TRANSFER OF THIS SECURITY (OTHER THAN A TRANSFER OF THIS
SECURITY AS A WHOLE BY THE Depositary TO A NOMINEE OF THE DEPOSITARY OR BY A
NOMINEE OF THE DEPOSITARY TO THE DEPOSITARY OR ANOTHER NOMINEE OF THE
DEPOSITARY) MAY BE REGISTERED EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN
THE INDENTURE.
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE
OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE COMPANY
OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY
CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME
AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE
TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER
HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
B-1
<PAGE>
EXHIBIT C
---------
Form of Certificate To Be Delivered
in Connection with Transfers
Pursuant to Regulation S
-----------------------------------
New York, New York
Attention: Corporate Trustee Administration
Re: United Rentals(North America), Inc.
(the "Company") - 93% Senior Subordinated
Notes due 2009 (the "Securities")
------------------------------------------
Ladies and Gentlemen:
In connection with our proposed sale of ___________ aggregate
principal amount of the Securities, we confirm that such sale has been effected
pursuant to and in accordance with Regulation S under the U.S. Securities Act of
1933, as amended (the "Securities Act"), and, accordingly, we represent that:
--------------
(1) the offer of the Securities was not made to a Person in the
United States;
(2) either (a) at the time the buy offer was originated, the
transferee was outside the United States or we and any Person acting on our
behalf reasonably believed that the transferee was outside the United
States, or (b) the transaction was executed in, on or through the
facilities of a designated offshore securities market described in Rule
902(a) of Regulation S and neither we nor any Person acting on our behalf
knows that the transaction has been pre-arranged with a buyer in the United
States;
(3) no directed selling efforts have been made in the United States
in contravention of the requirements of Rule 903(b) or Rule 904(b) of
Regulation S, as applicable;
C-1
<PAGE>
(4) the transaction is not part of a plan or scheme to evade the
registration requirements of the Securities Act;
(5) we have advised the transferee of the transfer restrictions
applicable to the Securities;
(6) if the circumstances set forth in rule 904(c) under the
Securities Act are applicable, we have complied with the additional
conditions therein, including (if applicable) sending a confirmation or
other notice stating that the Securities may be offered and sold during the
distribution compliance period specified in Rule 903(c)(2) or (3), as
applicable, only in accordance with the provisions of Regulation S;
pursuant to registration of the Securities under the Securities Act; or
pursuant to another available exemption from the registration requirements
under the Securities Act; and
(7) if the sale is made during a distribution compliance period and
the provisions of Rule 903(c)(3) are applicable thereto, we confirm that
such sale has been made in accordance with such provisions.
You and the Company are entitled to rely upon this letter and are
irrevocably authorized to produce this letter or a copy hereof to any interested
party in any administrative or legal proceedings or official inquiry with
respect to the matters covered hereby. Terms used in this certificate have the
meanings set forth in Regulation S.
Very truly yours,
[Name of Transferor]
By: ______________________
Authorized Signature
C-2
<PAGE>
EXHIBIT D
---------
[FORM OF NOTATION ON SECURITY RELATING TO
GUARANTY]
GUARANTY
______________, a __________ corporation (the "Guarantor," which term
includes any successor under the Indenture (the "Indenture") referred to in the
Security upon which this notation is endorsed), hereby unconditionally and
irrevocably guarantees on a senior subordinated basis, jointly and severally
with each other Guarantor of the Securities, to each Holder and to the Trustee
and its successors and assigns (a) the full and prompt payment (within
applicable grace periods) of principal of and interest on the Securities when
due, whether at maturity, by acceleration, by redemption or otherwise, and all
other monetary obligations of the Company under this Indenture and the
Securities and (b) the full and prompt performance within applicable grace
periods of all other obligations of the Company under the Indenture and the
Securities, subject to certain limitations set forth in the Indenture, (all the
foregoing being hereinafter collectively called the "Guaranty Obligations").
The Guarantor further agrees that the Guaranty Obligations may be extended or
renewed, in whole or in part, without notice or further assent from such
Guarantor, and that such Guarantor will remain bound under Article XIII of the
Indenture notwithstanding any extension or renewal of any Guaranty Obligation.
Capitalized terms used herein have the meanings assigned to them in the
Indenture unless otherwise indicated.
Subject to the terms of the Indenture, this Guaranty shall be binding
upon the Guarantor and its successors and assigns and shall inure to the benefit
of the successors and assigns of the Trustee and the Holders and, in the event
of any transfer or assignment of rights by any Holder or the Trustee, the rights
and privileges herein conferred upon that party shall automatically extend to
and be vested in such transferee or assignee, all subject to the terms and
conditions hereof.
D-1
<PAGE>
This Guaranty shall not be valid or obligatory for any purpose until
the certificate of authentication on the Security upon which this Guaranty is
noted shall have been executed by the Trustee under the Indenture by the
signature of one of its authorized officers.
The obligations of the Guarantor to the Holders of Securities and to
the Trustee pursuant to this Guaranty and the Indenture are expressly
subordinated to all Guarantor Senior Indebtedness and senior in right of payment
to all Guarantor Subordinated Indebtedness, in each case to the extent set forth
in Section 13.9 and Article XIV of the Indenture, and reference is hereby made
to such Indenture for the precise terms of such subordination.
Notwithstanding any other provision of the Indenture or this Guaranty,
under the Indenture and this Guaranty the maximum aggregate amount of the
obligations guaranteed by the Guarantor shall not exceed the maximum amount that
can be guaranteed without rendering the Indenture or this Guaranty, as it
relates to such Guarantor, voidable under applicable federal or state law
relating to fraudulent conveyance or fraudulent transfer. This Guaranty shall
be governed by the internal laws of the State of New York, without regard to
conflict of laws provisions thereof.
[Name of Guarantor]
By: ________________________
Name:
Title:
D-2
<PAGE>
EXHIBIT 10(vv)
NOTES REGISTRATION RIGHTS AGREEMENT
THIS NOTES REGISTRATION RIGHTS AGREEMENT (the "Agreement") is made and
---------
entered into as of December 15, 1998, by and among UNITED RENTALS (NORTH
AMERICA), INC., a Delaware corporation (the "Company"), the subsidiaries named
-------
in the Schedule hereto (the "Guarantors") and GOLDMAN, SACHS & CO. (the "Initial
---------- -------
Purchaser").
- ---------
This Agreement is made pursuant to the Purchase Agreement dated December 8,
1998 between the Company and the Initial Purchaser (the "Purchase Agreement"),
------------------
with respect to the issue and sale by the Company and the purchase by the
Initial Purchaser of $300,000,000 aggregate principal amount of the Company's
9 1/4% Senior Subordinated Notes due 2009, Series A in respect of which the
Guarantors have provided guarantees (together with such guarantees, the
"Notes"). In order to induce the Initial Purchaser to enter into the Purchase
-----
Agreement, the Company has agreed to provide to the Initial Purchaser and its
direct and indirect transferees and assigns the registration rights set forth in
this Agreement. The execution and delivery of this Agreement is a condition to
the closing under the Purchase Agreement.
In consideration of the foregoing, the parties hereto agree as follows:
1. Definitions. As used in this Agreement, the following capitalized
-----------
defined terms shall have the following meanings:
"1933 Act" shall mean the Securities Act of 1933, as amended from
--------
time to time, and the rules and regulations of the SEC promulgated
thereunder.
"1934 Act" shall mean the Securities Exchange Act of 1934, as amended
--------
from time to time, and the rules and regulations of the SEC promulgated
thereunder.
"Broker Prospectus Period" shall have the meaning set forth in
------------------------
Section 3(f)(C).
"Broker Shelf Registration Statement" shall have the meaning set
-----------------------------------
forth in Section 3(f)(E).
"Depositary" shall mean The Depository Trust Company, or any other
----------
depositary appointed by the Company; provided, however, that any such
depositary must have an address in the Borough of Manhattan, in the City of
New York.
"Exchange Notes" shall mean 9 1/4% Senior Subordinated Notes due
--------------
2009, Series B of the Company, including the guarantees thereof, containing
terms identical to the respective Notes (except that (i) interest on the
Exchange Notes shall accrue from the last date on which interest was paid
on the Notes or, if no such interest has been paid, from December 15, 1998,
(ii) the transfer restrictions thereon shall be eliminated and
<PAGE>
(iii) certain provisions relating to payment of additional interest shall
be eliminated) to be issued under the Indenture and offered to Holders in
exchange for Transfer Restricted Notes pursuant to the Exchange Offer.
"Exchange Offer" shall mean the exchange offer by the Company of
--------------
Exchange Notes for Transfer Restricted Notes pursuant to Section 2(a) and
the other provisions of this Agreement.
"Exchange Offer Registration" shall mean a registration under the
---------------------------
1933 Act effected pursuant to Section 2(a) hereof.
"Exchange Offer Registration Statement" shall mean an exchange offer
-------------------------------------
registration statement on Form S-4 (or, if applicable, on another
appropriate form), and all amendments and supplements to such registration
statement, in each case including the Prospectus contained therein, all
exhibits thereto and all material incorporated by reference therein.
"Exchange Period" shall have the meaning set forth in Section 2(a).
---------------
"Holders" shall mean the Initial Purchaser, for so long as it owns
-------
any Transfer Restricted Notes, and its successors, assigns and direct and
indirect transferees who become registered owners of Transfer Restricted
Notes under the Indenture.
"Holders' Counsel" shall mean an external United States counsel and
----------------
external local counsel designated by the underwriters (or if an offering is
not underwritten, by the Majority Holders) to represent them in connection
with a Shelf Registration Statement or Broker Shelf Registration Statement.
"Indenture" shall mean the Indenture relating to the Notes dated as
---------
of December 15, 1998, among the Company, the subsidiaries of the Company
listed therein and, State Street Bank and Trust Company, as trustee (the
"Trustee"), and as the same may be amended from time to time in accordance
-------
with the terms thereof.
"Initial Purchaser" shall have the meaning set forth in the preamble
-----------------
of this Agreement.
"Majority Holders" shall mean the Holders of a majority of the
----------------
aggregate principal amount of Transfer Restricted Notes outstanding;
provided that (a) whenever the consent or approval of Holders of a
specified percentage of Transfer Restricted Notes is required hereunder,
Transfer Restricted Notes held by the Company or any of its affiliates (as
such term is defined in Rule 405 under the 1933 Act) shall be disregarded
in determining whether such consent or approval was given by the Holders of
such required percentage or amount and (b) whenever the consent or approval
of the Majority Holders is required in relation to the filing of a Broker
Shelf Registration Statement, Holders (other than
2
<PAGE>
Participating Broker Dealers holding Notes registered thereunder) shall be
disregarded in determining whether such consent or approval was given by
Holders of such required percentage or amount.
"Original Issue Date" shall mean the date of original issuance of the
-------------------
Notes.
"Participating Broker-Dealer" shall have the meaning set forth in
---------------------------
Section 3(f).
"Person" shall mean any individual, corporation, limited liability
------
company, partnership, joint venture, association, joint-stock company,
trust, unincorporated organization or government or any agency or political
subdivision thereof.
"Prospectus" shall mean the prospectus included in a Registration
----------
Statement, including any preliminary prospectus, and any such prospectus as
amended or supplemented by any prospectus supplement, including a
prospectus supplement with respect to the terms of the offering of any
portion of the Transfer Restricted Notes covered by a Shelf Registration
Statement or a Broker Shelf Registration Statement, and by all other
amendments and supplements to a prospectus, including post-effective
amendments, and in each case including all material incorporated by
reference therein.
"Purchase Agreement" shall have the meaning set forth in the preamble
------------------
of this Agreement.
"Registration Default" shall have the meaning set forth in Section
--------------------
2(e).
"Registration Expenses" shall mean any and all expenses incident to
---------------------
performance of or compliance by the Company with this Agreement, including
without limitation: (i) all SEC, stock exchange or National Association of
Securities Dealers, Inc. ("NASD") registration and filing fees, (ii) all
fees and expenses incurred in connection with compliance with state or
other securities or blue sky laws and compliance with the rules of the NASD
(including, without limitation, in the case of an underwritten offering the
reasonable fees and disbursements of Holders' Counsel in connection with
state or other securities or blue sky qualification of any of the Exchange
Notes or Transfer Restricted Notes), (iii) all expenses (including without
limitation all word processing, duplicating and printing expenses,
messenger and delivery expenses) of any Persons in preparing, printing and
distributing any Registration Statement, any Prospectus, any amendments or
supplements thereto, any underwriting agreements, securities sales
agreements, certificates representing the Exchange Notes and other
documents relating to the performance of and compliance with this
Agreement, (iv) all rating agency fees, (v) all fees and expenses incurred
in connection with the listing, if any, of any of the Transfer Restricted
Notes on any securities exchange or exchanges, (vi) all fees and
disbursements relating to the qualification of the Indenture under
applicable securities laws, (vii) the reasonable fees and disbursements of
counsel for the Company and of the independent public accountants of the
Company and of any other experts retained by the Company,
3
<PAGE>
including the expenses of any special audits or "cold comfort" letters
required by or incident to such performance and compliance, (viii) premiums
and other costs of policies of insurance maintained by the Company against
liabilities arising out of the public offering of the Transfer Restricted
Notes being registered, (ix) the fees and expenses of a "qualified
independent underwriter" as defined by Conduct Rule 2720 of the NASD, if
required by the NASD rules, in connection with the offering of the Exchange
Notes or Transfer Restricted Notes in an underwritten offering, (x) the
reasonable fees and expenses of the Trustee, including its counsel, and any
escrow agent or custodian. Notwithstanding the foregoing, the holders of
the Exchange Notes or Transfer Restricted Notes being registered shall pay
all agency or brokerage fees and commissions and underwriting discounts and
commissions attributable to the sale of such Exchange Notes or Transfer
Restricted Notes and the fees and disbursements of any counsel or other
advisors or experts retained by such holders (severally or jointly)
(excluding advisors or other experts retained by the Company, as
aforesaid); provided, however, that in the case of a Shelf Registration
Statement under Section 2(b) hereof or a Broker Shelf Registration
Statement under Section 3(f) hereof, the Majority Holders may, in each
case, if they so elect, select Holders' Counsel to represent them (which
may be counsel to the Initial Purchaser), in which event Registration
Expenses shall include the reasonable fees and disbursements of such
counsel up to a maximum of $80,000 (including fees paid pursuant to clause
(ii) above).
"Registration Statement" shall mean any registration statement of the
----------------------
Company which covers any of the Exchange Notes or Transfer Restricted Notes
pursuant to the provisions of this Agreement, and all amendments and
supplements to any such Registration Statement, including post-effective
amendments, in each case including the Prospectus contained therein, all
exhibits thereto and all material incorporated by reference therein.
"SEC" shall mean the Securities and Exchange Commission.
---
"Shelf Registration" shall mean a registration effected pursuant to
------------------
Section 2(b) hereof.
"Shelf Registration Statement" shall mean a "shelf" registration
----------------------------
statement of the Company pursuant to the provisions of Section 2(b) of this
Agreement which covers all of the Transfer Restricted Notes on an
appropriate form under Rule 415 under the 1933 Act, or any similar rule
that may be adopted by the SEC, and all amendments and supplements to such
registration statement, including post-effective amendments, in each case
including the Prospectus contained therein, all exhibits thereto and all
material incorporated by reference therein.
"Transfer Restricted Notes" shall mean each Note until (i) the date
-------------------------
on which such Note has been exchanged by a person (other than a
Participating Broker-Dealer) for an Exchange Note in the Exchange Offer,
(ii) following the exchange by a Participating
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<PAGE>
Broker-Dealer in the Exchange Offer of a Note for an Exchange Note, the
date on which such Exchange Note is sold to a purchaser who receives from
such Participating Broker-Dealer on or prior to the date of such sale a
copy of the Prospectus contained in the Exchange Offer Registration
Statement,(iii) the date on which such Note has been effectively registered
under the 1933 Act and disposed of in accordance with the Shelf
Registration Statement or the Broker Shelf Registration Statement, (iv) the
date on which such Note is eligible for distribution to the public pursuant
to Rule 144(k) under the 1933 Act (or any similar provision then in force,
but not Rule 144A under the 1933 Act), (v) the date on which such Note
shall have been otherwise transferred by the Holder thereof and a new Note
not bearing a legend restricting further transfer shall have been delivered
by the Company and subsequent disposition of such Note shall not require
registration or qualification under the 1933 Act or any similar state law
then in force or (vi) such Note ceases to be outstanding.
"Trustee" shall mean the Trustee under the Indenture.
-------
2. Registration Under the 1933 Act. (a) Exchange Offer Registration.
------------------------------- ---------------------------
To the extent not prohibited by any applicable law or applicable interpretation
of the staff of the SEC, the Company shall (A) file an Exchange Offer
Registration Statement with the SEC within 90 days after the Original Issue Date
covering the offer by the Company to the Holders to exchange Exchange Notes for
all of their Transfer Restricted Notes, (B) use its best efforts to cause such
Exchange Offer Registration Statement to be declared effective under the 1933
Act within 150 days after the Original Issue Date, (C) commence the Exchange
Offer promptly after the Exchange Offer Registration Statement is declared
effective by the SEC and keep the Exchange Offer open for acceptance for the
Exchange Period, (D) use its best efforts to issue, promptly after the end of
the Exchange Period, Exchange Notes in exchange for all Transfer Restricted
Notes that have been properly tendered for exchange during the Exchange Period
and (E) use its best efforts to maintain the effectiveness of the Exchange Offer
Registration Statement during the Exchange Period and thereafter until such time
as the Company has issued Exchange Notes in exchange for all Transfer Restricted
Notes that have been properly tendered for exchange during the Exchange Period.
Upon the effectiveness of the Exchange Offer Registration Statement, the Company
shall promptly commence the Exchange Offer, it being the objective of such
Exchange Offer to enable each Holder (other than Participating Broker-Dealers)
eligible and electing to exchange Transfer Restricted Notes for Exchange Notes
(assuming that such Holder is not an affiliate of the Company within the meaning
of Rule 405 under the 1933 Act, acquires the Exchange Notes in the ordinary
course of such Holder's business and has no arrangements or understandings with
any person to participate in the Exchange Offer for the purpose of distributing
the Exchange Notes) to trade such Exchange Notes from and after their receipt
without any limitations or restrictions under the 1933 Act and without material
restrictions under the securities laws of a substantial proportion of the
several states of the United States. For the purposes of this Agreement, the
Exchange Offer will be deemed consummated if the Company makes the Exchange
Offer, the Exchange Offer remains open for a period (the "Exchange Period") of
20 business days after the date notice thereof is
5
<PAGE>
mailed to the Holders (or such longer period as may be required by law), and the
Company issues Exchange Notes in respect of all Notes that are properly tendered
during the Exchange Period.
In connection with the Exchange Offer, the Company shall:
(i) mail to each Holder a copy of the Prospectus forming part of the
Exchange Offer Registration Statement, together with an appropriate letter
of transmittal and related documents;
(ii) keep the Exchange Offer open for the Exchange Period;
(iii) use the services of the Depositary for the Exchange Offer with
respect to Notes evidenced by global certificates;
(iv) permit Holders to withdraw tendered Transfer Restricted Notes at
any time prior to the close of business, New York City time, on the last
business day on which the Exchange Offer shall remain open, by sending to
the institution specified in the notice, a telegram, telex, facsimile
transmission or letter setting forth the name of such Holder, the principal
amount of Transfer Restricted Notes delivered for exchange, and a statement
that such Holder is withdrawing its election to have such Notes exchanged;
and
(v) otherwise comply with all applicable laws relating to the Exchange
Offer.
Promptly after the close of the Exchange Offer, the Company shall use
its best efforts to:
(i) accept for exchange Transfer Restricted Notes duly tendered and
not validly withdrawn pursuant to the Exchange Offer in accordance with the
terms of the Exchange Offer Registration Statement and the letter of
transmittal which is an exhibit thereto;
(ii) deliver, or cause to be delivered, to the Trustee for
cancellation all Transfer Restricted Notes so accepted for exchange by the
Company; and
(iii) cause the Trustee promptly to authenticate and deliver Exchange
Notes to each Holder of Transfer Restricted Notes equal in principal amount
to the principal amount of the Transfer Restricted Notes of such Holder so
accepted for exchange.
The Exchange Offer shall not be subject to any conditions, other than
(i) that the Exchange Offer, or the making of any exchange by a Holder, does not
violate applicable law or any applicable interpretation of the staff of the SEC
and (ii) the tendering of Transfer Restricted Notes in accordance with the
Exchange Offer. Each Holder of Transfer Restricted Notes who wishes to exchange
such Transfer Restricted Notes for Exchange Notes in the Exchange Offer shall
have represented that (i) it is not an affiliate (as defined in Rule 405 under
the 1933 Act) of
6
<PAGE>
the Company, (ii) any Exchange Notes to be received by it were acquired in the
ordinary course of its business and, (iii) it has no arrangement with any person
to participate in the distribution (within the meaning of the 1933 Act) of the
Exchange Notes (except that a Participating Broker Dealer shall not be required
to make the representation provided by this clause (iii)). In addition each such
Holder shall be required to make such other representations as may be reasonably
necessary under applicable SEC rules, regulations or interpretations to render
the use of Form S-4 or another appropriate form under the 1933 Act available. To
the extent permitted by law and ascertainable by the Company, the Company shall
inform the Initial Purchaser of the names and addresses of the Holders to whom
the Exchange Offer is made, and the Initial Purchaser shall have the right to
contact such Holders and otherwise facilitate the tender of Transfer Restricted
Notes in the Exchange Offer. Notwithstanding anything to the contrary contained
herein, it is understood and agreed that no Holder may exchange in the Exchange
Offer any Transfer Restricted Notes, to the extent such Holder is not permitted
to do so by applicable law or SEC policy.
(b) Shelf Registration. If (i) the Company is not permitted to file
------------------
the Exchange Offer Registration Statement or to consummate the Exchange Offer
because the Exchange Offer is not permitted by applicable law or SEC policy;
(ii) for any other reason, the Exchange Offer is not consummated (as defined in
Section 2(a)) within 180 days after the Original Issue Date; (iii) any Holder of
Notes notifies the Company prior to the 20th day following consummation of the
Exchange Offer that (a) due to a change in law or SEC policy such Holder is not
entitled to participate in the Exchange Offer, (b) due to a change in law or SEC
policy such Holder may not resell the Exchange Notes acquired by it in the
Exchange Offer to the public without delivering a prospectus and the prospectus
contained in the Exchange Offer Registration Statement is not appropriate or
available for such resales by such Holder or (c) such Holder is a broker-dealer
and owns Notes acquired directly from the Company or an affiliate of the
Company; or (iv) the Holders of a majority in aggregate principal amount of the
Notes are not eligible to participate in the Exchange Offer and to receive
Exchange Notes that they may resell to the public without restriction under the
1933 Act and without restriction under applicable blue sky or state securities
laws, the Company shall, at its cost:
(A) use its best efforts to file with the SEC, on or prior to the
90/th/ day following the occurrence of any event specified in clauses (i)
through (iv) above, a Shelf Registration Statement relating to the offer
and sale of the Transfer Restricted Notes by the Holders from time to time
in accordance with the methods of distribution elected by the Majority
Holders of such Transfer Restricted Notes and set forth in such Shelf
Registration Statement, and use its best efforts to cause such Shelf
Registration Statement to be declared effective under the Securities Act
within 150 days after such filing obligation arises, provided that if the
obligation to file the Shelf Registration Statement arises because the
Exchange Offer has not been consummated within 180 days after the Original
Issue Date, then the Company will use its best efforts to file the Shelf
Registration Statement on or prior to the 30th day after such filing
obligation arises, provided further that, with respect to Exchange Notes
received by a broker-dealer in exchange for any securities that were
acquired by such broker-dealer as a result of market
7
<PAGE>
making or other trading activities, the Company may, if permitted by
current interpretations by the SEC's staff, file a post-effective amendment
to the Exchange Offer Registration Statement containing the information
required by Regulation S-K Items 507 and/or 508, as applicable, in
satisfaction of its obligations under this paragraph (A) solely with
respect to broker-dealers who acquired their Notes as a result of market
making or other trading activities, and any such Exchange Offer
Registration Statement, as so amended, shall be referred to herein as, and
governed by the provisions herein applicable to, a Shelf Registration
Statement. In the event that the Company is required to file a Shelf
Registration Statement, upon notice from any Holder not eligible to
participate in the Exchange Offer pursuant to clause (iii) above or
pursuant to clause (iv) above, the Company shall file and use its best
efforts to have declared effective by the SEC both an Exchange Offer
Registration Statement pursuant to Section 2(a) with respect to all
Transfer Restricted Notes that are eligible to participate in the Exchange
Offer and a Shelf Registration Statement (which may be a combined
Registration Statement with the Exchange Offer Registration Statement) with
respect to offers and sales of Transfer Restricted Notes held by such
Holder after completion of the Exchange Offer;
(B) use its best efforts to keep the Shelf Registration Statement
continuously effective in order to permit the Prospectus forming part
thereof to be usable by Holders for a period of two years after its
effective date (or until one year after the effective date of the Shelf
Registration Statement if such Shelf Registration Statement is filed
pursuant to clause (iv) above) or such shorter period which will terminate
when all of the Transfer Restricted Notes covered by the Shelf Registration
Statement have been sold pursuant to the Shelf Registration Statement; and
(C) notwithstanding any other provisions hereof, use its best efforts
to ensure that (i) any Shelf Registration Statement and any amendment
thereto and any Prospectus forming a part thereof and any supplement
thereto complies in all material respects with the 1933 Act and the rules
and regulations thereunder, (ii) any Shelf Registration Statement and any
amendment thereto does not, when it becomes effective, contain an untrue
statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein not
misleading, and (iii) any Prospectus forming part of any Shelf Registration
Statement, and any supplement to such Prospectus (as amended or
supplemented from time to time), does not include an untrue statement of a
material fact or omit to state a material fact necessary in order to make
the statements therein, in light of the circumstances under which they were
made, not misleading.
The Company further agrees, if necessary, to supplement or amend the
Shelf Registration Statement if reasonably requested by the Majority Holders
with respect to information relating to the Holders and otherwise as required by
Section 3(b) below, to use its best efforts to cause any such amendment to
become effective and such Shelf Registration to become usable as soon as
reasonably practicable thereafter and to furnish to the Holders of
8
<PAGE>
Transfer Restricted Notes copies of any such supplement or amendment promptly
after its being used or filed with the SEC.
(c) Expenses. Subject to Section 4(c) hereof, the Company shall pay
--------
all Registration Expenses in connection with the registration pursuant to
Section 2(a) and 2(b) and any registration of a Broker Shelf Registration
Statement pursuant to Section 3(f)(E). In the case of any Shelf Registration
Statement or Broker Shelf Registration Statement, the Majority Holders may, in
each case, if they so elect, select Holders' Counsel to represent them (which
may be counsel to the Initial Purchaser), in which event Registration Expenses
shall include the reasonable fees and disbursements of such counsel up to a
maximum of $80,000. Each Holder shall pay all expenses of its counsel other
than as set forth in the preceding sentence, underwriting discounts and
commissions and transfer taxes, if any, relating to the sale or disposition of
such Holder's Transfer Restricted Notes pursuant to the Shelf Registration
Statement or Broker Shelf Registration Statement.
(d) Effective Registration Statement. (i) The Company will be deemed
--------------------------------
not to have used its best efforts to cause a Registration Statement to become,
or to remain, effective during the requisite periods set forth herein if the
Company takes any action that could reasonably be expected to result in any such
Registration Statement not being declared effective or in the Holders of
Transfer Restricted Notes covered thereby not being able to exchange or offer
and sell such Transfer Restricted Notes during that period unless (A) such
action is required by applicable law or (B) such action is taken by the Company
in good faith and for valid business reasons (but not including avoidance of the
Company's obligations hereunder), including a material corporate transaction, so
long as the Company promptly complies with the requirements of Section 3(k)
hereof, if applicable.
(ii) An Exchange Offer Registration Statement pursuant to Section
2(a) hereof, a Shelf Registration Statement pursuant to Section 2(b) or a Broker
Shelf Registration Statement pursuant to Section 3(f)(E) hereof will not be
deemed to have become effective unless it has been declared effective by the
SEC; provided, however, that if, after it has been declared effective, the
offering of Transfer Restricted Notes pursuant to a Registration Statement is
interfered with by any stop order, injunction or other order or requirement of
the SEC or any other governmental agency or court, such Registration Statement
will be deemed not to have been effective during the period of such
interference, until the offering of Transfer Restricted Notes pursuant to such
Registration Statement may legally resume.
(iii) Subject to and without limiting the Company's obligations to pay
additional interest as provided in Section 2(e) and subject to Section 2(d)
hereof, the Company may suspend the availability of a Shelf Registration
Statement or Broker Shelf Registration Statement or, only during the Broker
Prospectus Period, an Exchange Offer Registration Statement, and the use of the
related Prospectus, as provided in Section 3(e)(v) and the penultimate paragraph
of Section 3 hereof, if any event shall occur as a result of which it shall be
necessary, in the good faith determination of the Company, to amend the Shelf
Registration Statement or Broker Shelf Registration Statement or Exchange Offer
Registration Statement or
9
<PAGE>
amend or supplement any prospectus or prospectus supplement thereunder in order
that each such document not include any untrue statement of fact or omit to
state a material fact necessary to make the statements therein not misleading in
light of the circumstances under which they were made. If the Company shall so
suspend the availability of a Shelf Registration Statement or Broker Shelf
Registration Statement or Exchange Offer Registration Statement as aforesaid or
if the Company shall give any notice to suspend the disposition of Transfer
Restricted Notes pursuant to a Shelf Registration Statement or Broker Shelf
Registration Statement or the disposition of Exchange Notes by Participating
Broker-Dealers pursuant to the Exchange Offer Registration Statement as a result
of the happening of any event or the discovery of any facts, each of the kind
described in Section 3(e)(v) hereof, the Company shall be deemed to have used
its best efforts to keep such Registration Statement effective during such
period of suspension; provided that the Company shall use its best efforts to
file and have declared effective (if an amendment) as soon as practicable an
amendment or supplement to such Registration Statement and shall extend the
period during which such Registration Statement shall be maintained effective
pursuant to this Agreement by the number of days during the period from and
including the date of the giving of such notice to and including the date when
the Holders shall have received copies of the supplemented or amended Prospectus
necessary to resume such dispositions. The Company may delay the filing of any
such amendment or supplement pursuant to this paragraph if the Company in good
faith has a valid business reason for such delay; provided, however, that any
delay pursuant to this sentence shall not exceed 60 days in any period of 365
days. Notwithstanding the foregoing, if, pursuant to this paragraph, a Shelf
Registration Statement or Broker Shelf Registration Statement or Exchange Offer
Registration Statement is suspended or otherwise not usable in connection with
resales of Notes covered thereby (or, in the case of the Exchange Offer
Registration Statement, resales of Exchange Notes by Participating Broker-
Dealers) for a period exceeding 60 days in the aggregate, whether or not
consecutive, a Registration Default shall be deemed to have occurred under
paragraph (iv) or (v), as the case may be, of the definition thereof in Section
2(e) hereof (whether or not any other Registration Default has occurred), and in
all such events, the Company will be required to pay additional interest as
provided in Section 2(e) hereof.
(e) Accrual and Payment of Additional Interest. For purposes of this
------------------------------------------
Section 2(e), the "Specified Notes" means the Notes (not including the Exchange
Notes); provided, however, that the Specified Notes mean the Exchange Notes with
-------- -------
respect to (a) any Registration Default that arises pursuant to clause (i) or
(ii) of the definition of such term and relates solely to the Broker Shelf
Registration Statement and (b) any Registration Default that arises solely
pursuant to clauses (v) or (vi) of the definition of such term. In the event
that a Registration Default exists, then the Company shall pay additional
interest on the Specified Notes (in addition to the interest otherwise due on
the Notes) in cash on each Interest Payment Date (as defined in the Indenture)
in an amount equal to one-quarter of one percent (0.25%) per annum of the
principal amount of the Specified Notes, with respect to the first 90-day period
(or portion thereof) following such Registration Default. The amount of such
additional interest will increase by an additional one-quarter of one percent
(0.25%) to a maximum of one percent (1.0%) per annum for each subsequent 90-day
period (or portion thereof) until each such Registration Default has been cured.
A "Registration Default" will exist (subject to the following
10
<PAGE>
sentence) if (i) the Company fails to file any of the registration statements
required by this Agreement on or prior to the date specified for such filing,
(ii) any of such registration statements is not declared effective by the SEC on
or prior to the date specified for such effectiveness, (iii) the Exchange Offer
is required to be consummated under this Agreement and is not consummated within
180 days after the Original Issue Date, (iv) the Shelf Registration Statement is
declared effective but thereafter, during the period for which the Company is
required to maintain the effectiveness of such registration statement, it ceases
to be effective or usable in connection with the resale of the Notes covered by
such registration statement for a period of 60 days, whether or not consecutive,
(v) the Exchange Offer Registration Statement is declared effective but
thereafter, during the Broker Prospectus Period, it ceases to be effective (or
the Company restricts the use of the prospectus included therein) for a period
of 60 days, whether or not consecutive, or (vi) the Broker Shelf Registration
Statement is declared effective but thereafter, during the period for which the
Company is required to maintain the effectiveness of such registration
statement, it ceases to be effective or usable in connection with the resale of
the Exchange Notes covered by such registration statement for a period of 60
days, whether or not consecutive. Notwithstanding the foregoing, (a) any
Registration Default specified in clause (i), (ii) or (iii) of the preceding
sentence that relates to the Exchange Offer Registration Statement or the
Exchange Offer shall be deemed cured at such time as the Shelf Registration
Statement is declared effective by the SEC and (b) any Registration Default
specified in clause (v) of the preceding sentence shall be deemed cured at such
time as the Broker Shelf Registration Statement is declared effective by the
SEC. Following the cure of all Registration Defaults the accrual of additional
interest on the Specified Notes will cease and the interest rate will revert to
the original rate; provided, however, that if, after any such additional
interest ceases to accrue, a different event specified in clause (i), (ii),
(iii), (iv), (v) or (vi) of the definition of Registration Default above occurs,
such additional interest shall begin to accrue again pursuant to the foregoing
provisions.
The Company shall notify the Trustee within five business days after
the occurrence of each event specified in clause (i), (ii), (iii), (iv), (v) or
(vi) of the definition of Registration Default above. The Company shall pay the
additional interest due on the Specified Notes by depositing with the Trustee,
in trust, for the benefit of the Holders thereof, by 12:00 noon, New York City
time, on or before the applicable semi-annual Interest Payment Date for the
Specified Notes, immediately available funds in sums sufficient to pay the
additional interest then due. The additional interest amount due shall be
payable on each Interest Payment Date to the record Holder of Specified Notes
entitled to receive the interest payment to be made on such date as set forth in
the Indenture. Additional interest pursuant to this Section 2(e) constitutes
liquidated damages with respect to Registration Defaults and shall be the
exclusive monetary remedy available to the Holders and/or the Initial Purchaser
with respect to any Registration Default.
(f) Specific Enforcement. Without limiting the remedies available to
--------------------
the Initial Purchaser and the Holders, the Company acknowledges that any failure
by it to comply with its obligations under Sections 2(a), 2(b) or 3(f) hereof
may result in material irreparable injury to the Initial Purchaser or the
Holders for which there is no adequate remedy at law, that it
11
<PAGE>
will not be possible to measure damages for such injuries precisely and that, in
the event of any such failure, the Initial Purchaser or any Holder may obtain
such relief as may be required to specifically enforce the Company's obligations
under Sections 2(a), 2(b) or 3(f).
3. Registration Procedures. In connection with the obligations of
-----------------------
the Company with respect to the Registration Statements pursuant to Sections
2(a) and 2(b) hereof, the Company shall:
(a) prepare and file with the SEC a Registration Statement, within the
time period specified in Section 2, on the appropriate form under the 1933
Act, which form (i) shall be selected by the Company, (ii) shall, in the
case of a Shelf Registration, be available for the sale of the Transfer
Restricted Notes by the selling Holders thereof and (iii) shall comply as
to form in all material respects with the requirements of the applicable
form and include or incorporate by reference all financial statements
required by the SEC to be filed therewith and use its best efforts to cause
such Registration Statement to become effective and remain effective in
accordance with Section 2 hereof;
(b) prepare and file with the SEC such amendments and post-effective
amendments to each Registration Statement as may be necessary under
applicable law to keep such Registration Statement effective for the
applicable period; cause each Prospectus to be supplemented by any required
prospectus supplement, and as so supplemented to be filed pursuant to Rule
424 under the 1933 Act; and in the case of a Shelf Registration Statement
or Broker Shelf Registration Statement comply with the provisions of the
1933 Act with respect to the disposition of all securities covered by each
Registration Statement during the applicable period in accordance with the
intended method or methods of distribution by the selling Holders thereof;
(c) in the case of a Shelf Registration, (i) notify each Holder of
Transfer Restricted Notes, at least five business days prior to filing,
that a Shelf Registration Statement with respect to the Transfer Restricted
Notes is being filed and advising such Holders that the distribution of
Transfer Restricted Notes will be made in accordance with the method
elected by the Majority Holders; provided that this clause (i) shall not
apply with respect to regular filings of any document or report under the
Exchange Act, at any time following the effectiveness of the applicable
Registration Statement hereunder, where such filing is made as part of the
Company's periodic disclosure obligations under Sections 13 and 15 of the
Exchange Act; and (ii) furnish to each Holder of Transfer Restricted Notes,
to counsel for the Initial Purchaser, to counsel for the Holders and to
each underwriter of an underwritten offering of Transfer Restricted Notes,
if any, without charge, as many copies of each Prospectus, including each
preliminary Prospectus, and any amendment or supplement thereto and such
other documents as such Holder or underwriter may reasonably request,
including financial statements and schedules and, if the Holder so
requests, all exhibits (including those incorporated by reference) in order
to facilitate the public sale or other disposition of the Transfer
Restricted Notes; and (iii) subject to the penultimate paragraph of this
Section 3, hereby consent to the use of
12
<PAGE>
the Prospectus, including each preliminary Prospectus, or any amendment or
supplement thereto by each of the selling Holders of Transfer Restricted
Notes in connection with the offering and sale of the Transfer Restricted
Notes covered by the Prospectus or any amendment or supplement thereto;
(d) use its reasonable best efforts to register or qualify the
Transfer Restricted Notes under all applicable state securities or "blue
sky" laws of such jurisdictions as any Holder of Transfer Restricted Notes
covered by a Registration Statement and each underwriter of an underwritten
offering of Transfer Restricted Notes shall reasonably request by the time
the Registration Statement is declared effective by the SEC, to cooperate
with the Holders in connection with any filings required to be made with
the NASD and do any and all other acts and things which may be reasonably
necessary or advisable to enable such Holder to consummate the disposition
in each such jurisdiction of such Transfer Restricted Notes owned by such
Holder; provided, however, that the Company shall not be required to (i)
qualify as a foreign corporation or as a dealer in securities in any
jurisdiction where it would not otherwise be required to qualify but for
this Section 3(d) or (ii) take any action which would subject it to general
service of process or taxation in any such jurisdiction if it is not then
so subject;
(e) in the case of a Shelf Registration, notify each Holder of
Transfer Restricted Notes and counsel for such Holders promptly and, if
requested by such Holder or counsel, confirm such advice in writing
promptly (i) when a Registration Statement has become effective and when
any post-effective amendments and supplements thereto become effective,
provided that this clause (i) shall not apply with respect to regular
filings of any document or report under the Exchange Act, at any time
following the effectiveness of the applicable Registration Statement
hereunder, where such filing is made as part of the Company's periodic
disclosure obligations under Sections 13 and 15 of the Exchange Act; (ii)
of any request by the SEC or any state securities authority for post-
effective amendments and supplements to a Registration Statement and
Prospectus or for additional information after the Registration Statement
has become effective, (iii) of the issuance by the SEC or any state
securities authority of any stop order suspending the effectiveness of a
Registration Statement or the initiation of any proceedings for that
purpose, (iv) of the receipt by the Company of any notification with
respect to the suspension of the qualification of the Transfer Restricted
Notes for sale in any jurisdiction or the initiation or threatening of any
proceeding for such purpose, (v) of the happening of any event or the
discovery of any facts during the period a Shelf Registration Statement is
effective (including as contemplated in Section 2(d)(iii) hereof) which
makes any statement made in such Registration Statement or the related
Prospectus untrue in any material respect or which requires the making of
any changes in such Registration Statement or Prospectus in order to make
the statements therein not misleading and (vi) of any determination by the
Company that a post-effective amendment to a Registration Statement would
be appropriate;
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<PAGE>
(f) (A) in the case of the Exchange Offer, (i) include in the
Exchange Offer Registration Statement a "Plan of Distribution" section
covering the use of the Prospectus included in the Exchange Offer
Registration Statement by broker-dealers who have exchanged their Transfer
Restricted Notes for Exchange Notes for the resale of such Exchange Notes,
(ii) furnish to each broker-dealer who desires to participate in the
Exchange Offer, without charge, as many copies of each Prospectus included
in the Exchange Offer Registration Statement, including any preliminary
Prospectus, and any amendment or supplement thereto, as such broker-dealer
may reasonably request, (iii) include in the Exchange Offer Registration
Statement a statement that any broker-dealer who holds Transfer Restricted
Notes acquired for its own account as a result of market-making activities
or other trading activities (a "Participating Broker-Dealer"), and who
---------------------------
receives Exchange Notes for Transfer Restricted Notes pursuant to the
Exchange Offer, may be a statutory underwriter and must deliver a
prospectus meeting the requirements of the 1933 Act in connection with any
resale of such Exchange Notes, (iv) subject to Section 2(d)(iii) and the
penultimate paragraph of Section 3, hereby consent to the use of the
Prospectus forming part of the Exchange Offer Registration Statement or any
amendment or supplement thereto, by any broker-dealer in connection with
the sale or transfer of the Exchange Notes covered by the Prospectus or any
amendment or supplement thereto, and (v) include in the transmittal letter
or similar documentation to be executed by an exchange offeree in order to
participate in the Exchange Offer the following provision:
"If the undersigned is not a broker-dealer, the undersigned represents
that it is not engaged in, and does not intend to engage in, a
distribution of Exchange Notes. If the undersigned is a broker-dealer
that will receive Exchange Notes for its own account in exchange for
Transfer Restricted Notes, it represents that the Transfer Restricted
Notes to be exchanged for Exchange Notes were acquired by it as a
result of market-making activities or other trading activities and
acknowledges that it will deliver a prospectus meeting the
requirements of the 1933 Act in connection with any resale of such
Exchange Notes pursuant to the Exchange Offer; however, by so
acknowledging and by delivering a prospectus, the undersigned will not
be deemed to admit that it is an "underwriter" within the meaning of
the 1933 Act;"
(B) to the extent any Participating Broker-Dealer participates in the
Exchange Offer, the Company shall use its best efforts to cause to be
delivered at the request of an entity representing the Participating
Broker-Dealers (which entity shall be the Initial Purchaser, unless it
elects not to act as such representative) a "cold comfort" letter with
respect to the Prospectus in the form existing on the last date for which
exchanges are accepted pursuant to the Exchange Offer and with respect to
each subsequent amendment or supplement, if any, effected during the period
specified in clause (C) below; and
(C) to the extent any Participating Broker-Dealer participates in the
Exchange Offer, the Company shall use its best efforts to maintain the
effectiveness of the
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<PAGE>
Exchange Offer Registration Statement and to make available a prospectus
meeting the requirements of the 1933 Act to any Participating Broker-Dealer
for use in connection with any resale of any Exchange Notes acquired in the
Exchange Offer (subject to the penultimate paragraph of Section 3). The
obligation of the Company to maintain the effectiveness of the Exchange
Offer Registration Statement and make such prospectus available will
commence on the day that the Exchange Offer is consummated and continue in
effect for a 30-day period (the "Broker Prospectus Period"); provided,
however, that, if for any day during such period the Company restricts the
use of such Exchange Offer Registration Statement or prospectus, the Broker
Prospectus Period shall be extended on a day-for-day basis;
(D) the Company shall not be required to amend or supplement the
Prospectus contained in the Exchange Offer Registration Statement as would
otherwise be contemplated by Section 3(b) hereof, or take any other action
as a result of this Section 3(f), for any period following expiration of
the Broker Prospectus Period (as such period may be extended hereunder) and
Participating Broker-Dealers shall not be authorized by the Company to, and
shall not, deliver such Prospectus after such period in connection with
resales contemplated by this Section 3; and
(E) If at the end of the Broker Prospectus Period any Participating
Broker-Dealer that received Exchange Notes pursuant to the Exchange Offer
continues to hold any such Exchange Notes, the Company will, if any such
Participating Broker-Dealer so requests within 60 days after the end of the
Broker Prospectus Period, file with the SEC a shelf registration statement
(a "Broker Shelf Registration Statement") to cover the resale of such
Exchange Notes by Participating Broker-Dealers; provided, however, that (i)
the Company may in lieu of filing such registration statement extend the
Broker Prospectus Period by 60 days and (ii) the Company will not be
required to file such registration statement until such time as the Company
becomes eligible to use a Form S-3 for such registration statement. The
Company will use its best efforts to satisfy the eligibility requirements
for the use of Form S-3 for a registration statement under the 1933 Act as
soon as reasonably practicable. If the Company is obligated to file a
Broker Shelf Registration Statement, the Company will (i) file the Broker
Shelf Registration Statement within 30 days following the date on which the
Company first becomes eligible to use a Form S-3 for such registration
statement (or, if later, within 30 days of the date the request for such
registration statement is first made in accordance with this clause (E))
and (ii) use its best efforts to have the Broker Shelf Registration
Statement declared effective by the SEC on or prior to the 90th day
following the date on which the Company first becomes eligible to use a
Form S-3 for such registration statement (or, if later, the 90th day
following the date the request for such registration statement is first
made in accordance with this clause (E)). The Company will be required to
use its best efforts to keep the Broker Shelf Registration Statement
continuously effective, supplemented and amended for a 60-day period;
provided, however, that, if on any day during such period such registration
statement is not usable in connection with the resale of the Exchange Notes
covered thereby, such period shall be extended on a day-for-day basis. In
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<PAGE>
connection with the Broker Shelf Registration Statement, the Company shall,
in addition to its other obligations hereunder, comply with the obligations
contained in Section 2(b)(C), the ultimate paragraph of Section 2(b),
Sections 2(c) and (d) and Sections 3, 4 and 5 hereof with respect to the
Broker Shelf Registration Statement as if references to Shelf Registration,
Shelf Registration Statement and Holders (or Majority Holders) therein were
also a reference to the Broker Shelf Registration Statement, the
registration pursuant to this clause (E) and the Participating Broker-
Dealers (or a majority thereof), respectively.
(g) (A) in the case of an Exchange Offer, furnish counsel for the
Initial Purchaser and (B) in the case of a Shelf Registration, furnish
Holders' Counsel with copies of any request by the SEC or any state
securities authority for amendments or supplements to a Registration
Statement and Prospectus or for additional information;
(h) make every reasonable effort to obtain the withdrawal of any order
suspending the effectiveness of a Registration Statement at the earliest
possible moment and provide immediate notice to each Holder of the
withdrawal of any such order;
(i) in the case of a Shelf Registration, furnish to each Holder of
Transfer Restricted Notes, without charge, at least one conformed copy of
each Registration Statement and any post-effective amendment thereto
(without documents incorporated therein by reference or exhibits thereto,
unless requested);
(j) in the case of a Shelf Registration, cooperate with the selling
Holders of Transfer Restricted Notes to facilitate the timely preparation
and delivery of certificates representing Transfer Restricted Notes to be
sold and not bearing any restrictive legends; and cause such Transfer
Restricted Notes to be in such denominations (consistent with the
provisions of the Indenture) in a form eligible for deposit with the
Depositary and registered in such names as the selling Holders or the
underwriters, if any, may reasonably request in writing at least one
business day prior to the closing of any sale of Transfer Restricted Notes;
(k) in the case of a Shelf Registration, upon the occurrence of any
event or the discovery of any facts, each as contemplated by Section
3(e)(v) hereof, use their best efforts to prepare a supplement or post-
effective amendment to a Registration Statement or the related Prospectus
or any document incorporated therein by reference or file any other
required document so that, as thereafter delivered to the purchasers of the
Transfer Restricted Notes, such Prospectus will not contain at the time of
such delivery any untrue statement of a material fact or omit to state a
material fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. The Company
agrees to notify each Holder to suspend use of the Prospectus as promptly
as practicable after the occurrence of such an event, and each Holder
hereby agrees to suspend use of the Prospectus until the Company has
amended or supplemented the Prospectus to correct such misstatement or
omission. At such time as such public
16
<PAGE>
disclosure is otherwise made or the Company determines that such disclosure
is not necessary, in each case to correct any misstatement of a material
fact or to include any omitted material fact, the Company agrees promptly
to notify each Holder of such determination and to furnish each Holder such
numbers of copies of the Prospectus, as amended or supplemented, as such
Holder may reasonably request;
(l) obtain CUSIP numbers for all Exchange Notes, or Transfer
Restricted Notes, as the case may be, not later than the effective date of
a Registration Statement, and provide the Trustee with printed certificates
for the Exchange Notes in a form eligible for deposit with the Depositary;
(m) (i) cause the Indenture to be qualified under the Trust Indenture
Act of 1939, as amended (the "TIA"), in connection with the registration of
---
the Exchange Notes, or Transfer Restricted Notes, as the case may be, (ii)
cooperate with the Trustee and the Holders to effect such changes to the
Indenture as may be required for the Indenture to be so qualified in
accordance with the terms of the TIA and (iii) execute, and use its best
efforts to cause the Trustee to execute, all documents as may be required
to effect such changes, and all other forms and documents required to be
filed with the SEC to enable the Indenture to be so qualified in a timely
manner;
(n) subject to Section 4(c), in the case of a Shelf Registration, take
the following actions and take all other customary and appropriate actions
(including those reasonably requested by the holders of a majority in
principal amount of the Transfer Restricted Notes being sold) in order to
expedite or facilitate the disposition of such Transfer Restricted Notes
and in such connection:
(i) If requested by Holders' Counsel, make such representations
and warranties to the Holders of such Transfer Restricted Notes in
form, substance and scope as are customarily made in connection with
shelf registrations of the type contemplated by this Agreement (such
representations and warranties to be agreed upon by the Holders'
Counsel and the Company, such agreement not to be unreasonably
withheld); provided, however, that in the case of an underwritten
offering the Company shall make such representations and warranties to
the Holders of such Transfer Restricted Notes and the underwriters in
form, substance and scope as are customarily made by issuers in
connection with primary underwritten offerings of debt securities
comparable to the Notes (such representations and warranties to be
agreed upon by the Holders' Counsel, the underwriters and the Company,
such agreement not to be unreasonably withheld);
(ii) If requested by Holders' Counsel, obtain (at all times such
opinions are customarily obtained) opinions of counsel to the Company
and updates thereof addressed to each selling Holder covering the
matters in form, substance and scope customarily covered in opinions
delivered in connection with shelf registrations of the type
contemplated by this Agreement (such opinions to be
17
<PAGE>
agreed upon by Holders' Counsel and the Company, such agreement not to
be unreasonably withheld); provided, however, that in the case of an
underwritten offering such opinions shall also be addressed to the
underwriters and also cover the matters customarily covered in
opinions delivered by issuers in connection with primary underwritten
offerings of debt securities comparable to the Notes (such additional
opinions to be agreed upon by the underwriters and the Company, such
agreement not to be unreasonably withheld);
(iii) If requested by Holders' Counsel, obtain (at all times
such letters are customarily obtained) "cold comfort" letters and
updates thereof from the independent certified public accountants to
the Company and to any other entity for which financial statements or
other financial information or schedules are included in the
Registration Statement, each addressed to the selling Holders of
Transfer Restricted Notes, such letters to be in customary form and
covering matters of the type customarily covered in "cold comfort"
letters delivered to selling security holders in connection with shelf
registrations of the type contemplated by this Agreement (such letters
to be agreed upon by Holders' Counsel and such accountants, such
agreement not to be unreasonably withheld); provided, however, that in
the case of an underwritten offering such letters shall also be
addressed to the underwriters and cover the matters customarily
covered in "comfort letters" delivered by issuers in connection with
primary underwritten offerings of debt securities comparable to the
Notes (such letters to be agreed upon by the underwriters and such
accountants, such agreement not to be unreasonably withheld);
(iv) if requested by the Majority Holders, enter into a
securities sales agreement with the Holders and an agent of the
Holders providing for, among other things, the appointment of such
agent for the selling Holders for the purpose of soliciting purchases
of Transfer Restricted Notes, which agreement shall be in form,
substance and scope customary for similar offerings;
(v) if an underwriting agreement is entered into in the case of
an underwritten offering, cause the same to set forth indemnification
provisions and procedures substantially equivalent to the
indemnification provisions and procedures set forth in Section 5
hereof with respect to the underwriters and all other parties to be
indemnified pursuant to Section 5 hereof;
(vi) deliver such documents and certificates as may be reasonably
requested and as are customarily delivered in similar offerings; and
(vii) in the case of an underwritten offering, enter into
customary agreements required in connection therewith (including a
customary underwriting agreement).
18
<PAGE>
The above shall be done at (i) the effectiveness of such Registration
Statement (and, if appropriate, each post-effective amendment thereto) and
(ii) each closing under any underwriting or similar agreement as and to the
extent required thereunder. In the case of any underwritten offering, the
Company shall provide written notice to the Holders of all Transfer
Restricted Notes of such underwritten offering at least 30 days prior to
the filing of a prospectus supplement for such underwritten offering. Such
notice shall (x) offer each such Holder the right to participate in such
underwritten offering, (y) specify a date, which shall be no earlier than
10 days following the date of such notice, by which such Holder must inform
the Company of its intent to participate in such underwritten offering and
(z) include the instructions such Holder must follow in order to
participate in such underwritten offering;
(o) For a reasonable period prior to the filing of a Shelf
Registration Statement and prior to the execution of any underwriting or
similar agreement make available for inspection by Holders' Counsel and any
underwriters participating in an underwritten offering pursuant to a Shelf
Registration Statement and not more than one accounting firm retained by
the Majority Holders or underwriters, all financial and other records,
pertinent corporate documents and properties of the Company reasonably
requested by any such Persons, and cause the respective officers,
directors, employees, and any other agents of the Company to supply all
information reasonably requested by any such Persons, in connection with a
Registration Statement; provided that any such records, documents,
properties and such information that is designated in writing by the
Company, in good faith, as confidential at the time of delivery of such
records, documents, properties or information shall be kept confidential by
any such Persons and shall be used only in connection with such
Registration Statement, unless disclosure thereof is made in connection
with a court proceeding or required by law, or such information has become
available (not in violation of this agreement) to the public generally or
through a third party without an accompanying obligation of
confidentiality, and the Company shall be entitled to request that such
Persons sign a confidentiality agreement to the foregoing effect;
(p) (i) in the case of an Exchange Offer, a reasonable time prior to
the filing of any Exchange Offer Registration Statement, any Prospectus
forming a part thereof, any amendment to an Exchange Offer Registration
Statement or amendment or supplement to a Prospectus, provide copies of
such document to the Initial Purchaser, and make such changes in any such
document prior to the filing thereof as the Initial Purchaser or their
counsel may reasonably request and is agreed to by the Company (such
agreement not to be unreasonably withheld); (ii) in the case of a Shelf
Registration, a reasonable time prior to filing any Shelf Registration
Statement, any Prospectus forming a part thereof, any amendment to such
Shelf Registration Statement or amendment or supplement to such Prospectus,
other than amendments comprising regular filings of any document or report
under the Exchange Act, at any time following the effectiveness of the
applicable Registration Statement hereunder, where such filing is made as
part of the Company's periodic disclosure obligations under Sections 13 and
15 of the Exchange Act, provide
19
<PAGE>
copies of such document to Holders' Counsel, to the Initial Purchaser, and
to the underwriter or underwriters of an underwritten offering of Transfer
Restricted Notes, if any, and make such changes in any such document prior
to the filing thereof as counsel to the Initial Purchaser, Holders' Counsel
or any underwriter may request and is agreed to by the Company (such
agreement not to be unreasonably withheld); and (iii) cause the
representatives of the Company to be available for discussion of such
document as shall be reasonably requested by Holders' Counsel, the Initial
Purchaser on behalf of such Holders or any underwriter, and shall not at
any time make any filing of any such document of which Holders' Counsel,
the Initial Purchaser or any underwriter shall not have previously been
advised and furnished a copy or to which such Holders, the Initial
Purchaser on behalf of such Holders, their counsel or any underwriter shall
reasonably object within a reasonable time period;
(q) in the case of a Shelf Registration, use its best efforts to cause
all Transfer Restricted Notes to be listed on any securities exchange on
which similar debt securities issued by the Company are then listed if
requested by the Majority Holders or by the underwriter or underwriters of
an underwritten offering of Transfer Restricted Notes, if any;
(r) otherwise use its best efforts to comply with all applicable rules
and regulations of the SEC and make available to its security holders, as
soon as reasonably practicable (but not until the end of the first full
fiscal quarter following effectiveness), an earnings statement covering at
least 12 months which shall satisfy the provisions of Section 11(a) of the
1933 Act and Rule 158 thereunder; and
(s) cooperate and assist in any filings required to be made with the
NASD and in the performance of any due diligence investigation by any
underwriter and its counsel.
In the case of a Shelf Registration Statement, the Company may (as a
condition to such Holder's participation in the Shelf Registration) require each
Holder of Transfer Restricted Notes to furnish to the Company such information
regarding such Holder (and if such Holder is not the beneficial owner, the
beneficial owner) and the proposed distribution by such Holder (and if such
Holder is not the beneficial owner, the beneficial owner) of such Transfer
Restricted Notes as the Company may from time to time reasonably request in
writing.
In the case of a Shelf Registration Statement or the filing of a
Broker Shelf Registration Statement or, during the Broker Prospectus Period
only, in the case of an Exchange Offer Registration Statement, each Holder
agrees that, upon receipt of any notice from the Company of the happening of any
event or the discovery of any facts, each of the kind described in Section
3(e)(ii)-(vii) hereof, such Holder will forthwith discontinue disposition of
Transfer Restricted Notes pursuant to such Registration Statement until such
Holder's receipt of the copies of the supplemented or amended Prospectus
contemplated by Section 3(k) hereof, and, if so directed by the Company, such
Holder will deliver to the Company (at the Company's expense) all copies in its
possession, other than permanent file copies then in such Holder's possession,
of
20
<PAGE>
the Prospectus covering such Transfer Restricted Notes current at the time of
receipt of such notice. Each Holder agrees to keep confidential the cause of any
such notice of suspension or other information provided to them by the Company
with respect thereto or any other event which would materially adversely affect
the Company.
If any such Registration Statement refers to any Holder by name or
otherwise as the holder of any securities of the Company, then such Holder shall
have the right to require (i) the insertion therein of language, in form and
-
substance satisfactory to such Holder, to the effect that the holding by such
Holder of such securities is not to be construed as a recommendation by such
Holder of the investment quality of the Company's securities covered thereby and
that such holding does not imply that such Holder will assist in meeting any
future financial requirements of the Company, or (ii) in the event that such
--
reference to such Holder by name or otherwise is not required by the Securities
Act or any similar federal statute then in force, the deletion of the reference
to such Holder.
4. Underwritten Registrations. (a) If any of the Transfer
--------------------------
Restricted Notes covered by any Shelf Registration are to be sold in an
underwritten offering, the investment banker or investment bankers and manager
or managers that will manage the offering will be selected by the Majority
Holders of such Transfer Restricted Notes included in such offering, provided
such banker or manager is acceptable to the Company, acting reasonably.
(b) No Holder of Transfer Restricted Notes may participate in any
underwritten registration hereunder unless such Holder (a) agrees to sell such
Holder's Transfer Restricted Notes on the basis provided in any underwriting
arrangements approved by the Persons entitled hereunder to approve such
arrangements and (b) completes and executes all questionnaires, powers of
attorney, indemnities, underwriting agreements and other documents required
under the terms of such underwriting arrangements.
(c) Notwithstanding anything to the contrary contained herein, (i)
the Company shall not be required to cooperate with an underwritten offering
unless a request for an underwritten offering is made by holders of 33-1/3% of
Transfer Restricted Notes outstanding, (ii) the Company shall not be obligated
to cooperate with more than one underwritten offering pursuant to this
Agreement, (iii) upon receipt of a request to prepare and file an amendment or
supplement to a Registration Statement and Prospectus in connection with an
underwritten offering, the Company may delay the filing of any such amendment or
supplement for up to 120 days if the Company in good faith has a valid business
reason for such delay provided that nothing in this clause (iii) limits the
Company's obligations under Section 2(d)(iii), and (iv) the Company shall not be
required to pay more than an aggregate of $200,000 of Registration Expenses, in
addition to internal expenses of the Company (including, without limitation,
salaries of officers and employees performing legal and accounting duties) in
connection with any such underwritten offering.
5. Indemnification and Contribution. (a) Each of the Company and
--------------------------------
the Guarantors, jointly and severally, agrees to indemnify and hold harmless the
Initial Purchaser,
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<PAGE>
each Holder, including Participating Broker-Dealers, each underwriter who
participates in an offering of Transfer Restricted Notes, their respective
affiliates, and their respective directors, officers, employees, agents and each
Person, if any, who controls any of such parties within the meaning of Section
15 of the 1933 Act or Section 20 of the 1934 Act as follows:
(i) against any and all loss, liability, claim, damage and expense
whatsoever, as incurred, arising out of any untrue statement or alleged
untrue statement of a material fact contained in any Registration Statement
(or any amendment thereto) pursuant to which Exchange Notes or Transfer
Restricted Notes were registered under the 1933 Act, including all
documents incorporated therein by reference, or the omission or alleged
omission therefrom of a material fact required to be stated therein or
necessary to make the statements therein not misleading or arising out of
any untrue statement or alleged untrue statement of a material fact
contained in any Prospectus (or any amendment or supplement thereto) or the
omission or alleged omission therefrom of a material fact necessary in
order to make the statements therein, in the light of the circumstances
under which they were made, not misleading;
(ii) against any and all loss, liability, claim, damage and expense
whatsoever, as incurred, to the extent of the aggregate amount paid in
settlement of any litigation, or any investigation or proceeding by any
governmental agency or body, commenced or threatened, or of any claim
whatsoever, in each case, based upon any such untrue statement or omission,
or any such alleged untrue statement or omission; provided that (subject to
Section 5(d) below) any such settlement is effected with the written
consent of the Company; and
(iii) against any and all expenses whatsoever, as incurred (including
the reasonable fees and disbursements of one counsel chosen by any
indemnified party), reasonably incurred in investigating, preparing or
defending against any litigation, or any investigation or proceeding by any
court or governmental agency or body, commenced or threatened, or any claim
whatsoever based upon any such untrue statement or omission, or any such
alleged untrue statement or omission, to the extent that any such expense
is not paid under subparagraph (i) or (ii) of this Section 5(a);
provided, however, that this indemnity agreement does not apply to any loss,
liability, claim, damage or expense to the extent (i) arising out of an untrue
statement or omission or alleged untrue statement or omission made in reliance
upon and in conformity with written information furnished to the Company by the
Initial Purchaser, any Holder, including Participating Broker-Dealers, or any
underwriter expressly for use in the Registration Statement (or any amendment
thereto) or the Prospectus (or any amendment or supplement thereto) or (B)
resulting from the use of the Prospectus during a period when the use of the
Prospectus has been suspended in accordance with Section 2(d)(iii), Section
3(e)(v) and the penultimate paragraph of Section 3 hereof, provided, in each
case, that Holders received prior notice of such suspension.
22
<PAGE>
(b) In the case of a Shelf Registration or Broker Shelf Registration
Statement, each Holder agrees, severally and not jointly, to indemnify and hold
harmless the Company, the Initial Purchaser, each underwriter who participates
in an offering of Transfer Restricted Notes and the other selling Holders and
each of their respective directors and officers (including each officer of the
Company who signed the Registration Statement) and each Person, if any, who
controls the Company, the Initial Purchaser, any underwriter or any other
selling Holder within the meaning of Section 15 of the 1933 Act or Section 20 of
the 1934 Act, against any and all loss, liability, claim, damage and expense
described in the indemnity contained in Section 5(a) hereof, as incurred, but
only with respect to untrue statements or omissions, or alleged untrue
statements or omissions, made in the Registration Statement (or any amendment
thereto) or the Prospectus (or any amendment or supplement thereto) in reliance
upon and in conformity with written information furnished to the Company by such
Holder expressly for use in the Registration Statement (or any amendment
thereto), or the Prospectus (or any amendment or supplement thereto); provided,
however, that no such Holder shall be liable for any claims hereunder in excess
of the amount of net proceeds received by such Holder from the sale of Transfer
Restricted Notes pursuant to such Shelf Registration Statement.
(c) In case any action shall be commenced involving any Person in
respect of which indemnity may be sought pursuant to either paragraph (a) or (b)
above, such Person (the "indemnified party") shall give notice as promptly as
-----------------
reasonably practicable to each Person against whom such indemnity may be sought
(the "indemnifying party"), but failure to so notify an indemnifying party shall
------------------
not relieve such indemnifying party from any liability hereunder to the extent
it is not materially prejudiced as a result thereof and in any event shall not
relieve it from any liability which it may have otherwise than on account of
this indemnity agreement. In the case of parties indemnified pursuant to
Section 5(a) above, counsel to the indemnified parties shall (subject to the
following sentence) be selected by Goldman, Sachs & Co., and, in the case of
parties indemnified pursuant to Section 5(b) above, counsel to the indemnified
parties shall be selected by the Company. In case any such action is brought
against any indemnified party, and it notifies the indemnifying party of the
commencement thereof, the indemnifying party will be entitled to participate
therein and, to the extent that it may wish, jointly with any other indemnifying
party similarly notified, to assume the defense thereof with counsel
satisfactory to such indemnified party; provided, that if the defendants in any
such action include both the indemnified party and the indemnifying party and
the indemnified party shall have reasonably concluded that there may be one or
more legal defenses available to it and/or other indemnified parties which are
different from or additional to those available to the indemnifying party, the
indemnifying party shall not have the right to direct the defense of such action
on behalf of such indemnified party or parties and such indemnified party or
parties shall have the right to select separate counsel to defend such action on
behalf of such indemnified party or parties. In no event shall the indemnifying
parties be liable for fees and expenses of more than one counsel (in addition to
any local counsel) separate from their own counsel for all indemnified parties
in connection with any one action or separate but similar or related actions in
the same jurisdiction arising out of the same general allegations or
circumstances; after notice from the indemnifying party to such indemnified
party of its election so to assume the defense thereof and approval by such
indemnified party of counsel appointed to defend such action, the indemnifying
party will
23
<PAGE>
not be liable to such indemnified party under this Section 5 for any legal or
other expenses, other than reasonable costs of investigation, subsequently
incurred by such indemnified party in connection with the defense thereof,
unless (i) the indemnified party shall have employed separate counsel in
accordance with the provisos to the preceding sentence (it being understood,
however, that in connection with such action the indemnifying party shall not be
liable for the expenses of more than one separate counsel (in addition to local
counsel) in any one action or separate but substantially similar actions in the
same jurisdiction arising out of the same general allegations or circumstances,
designated by Goldman, Sachs & Co. in the case of paragraph (a) of this Section
5, representing the indemnified parties under such paragraph (a) who are parties
to such action or actions) or (ii) the indemnifying party does not promptly
retain counsel satisfactory to the indemnified party or (iii) the indemnifying
party has authorized the employment of counsel for the indemnified party at the
expense of the indemnifying party. The indemnifying party will not be liable for
the costs and expenses of any settlement of such action effected by such
indemnified party without the consent of the indemnifying party.
No indemnifying party shall, without the prior written consent of the
indemnified parties, settle or compromise or consent to the entry of any
judgment with respect to any litigation, or any investigation or proceeding, by
any governmental agency or body, commenced or threatened, or any claim
whatsoever in respect of which indemnification or contribution could be sought
under this Section 5 (whether or not the indemnified parties are actual or
potential parties thereto), unless such settlement, compromise or consent (i)
includes an unconditional release of each indemnified party from all liability
arising out of such litigation, investigation, proceeding or claim and (ii) does
not include a statement as to or an admission of fault, culpability or a failure
to act by or on behalf of any indemnified party.
(d) If at any time an indemnified party shall have requested an
indemnifying party to reimburse the indemnified party for fees and expenses of
counsel, such indemnifying party agrees that it shall be liable for any
settlement of the nature contemplated by Section 5(a)(ii) hereof effected
without its written consent if (i) such settlement is entered into more than 45
days after receipt by such indemnifying party of the aforesaid request, (ii)
such indemnifying party shall have received notice of the terms of such
settlement at least 30 days prior to such settlement being entered into and
(iii) such indemnifying party shall not have reimbursed such indemnified party
in accordance with such request prior to the date of such settlement.
(e) If the indemnification provided for in any of the indemnity
provisions set forth in this Section 5 is for any reason unavailable to or
insufficient to hold harmless an indemnified party in respect of any losses,
liabilities, claims, damages or expenses referred to therein, then each
indemnifying party shall contribute to the aggregate amount of such losses,
liabilities, claims, damages and expenses incurred by such indemnified party, as
incurred, in such proportion as is appropriate to reflect the relative fault of
such indemnifying party or parties on the one hand, and such indemnified party
or parties on the other hand, in connection with the statements or omissions
which resulted in such losses, liabilities, claims, damages or expenses, as well
as any other relevant equitable considerations. The relative fault of such
indemnifying party or parties on the one hand, and such indemnified party or
parties on the other hand shall be
24
<PAGE>
determined by reference to, among other things, whether any such untrue or
alleged untrue statement of a material fact or omission or alleged omission to
state a material fact relates to information supplied by such indemnifying party
or parties or such indemnified party or parties and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission. The Company, the Guarantors, the Initial Purchaser
and the Holders of the Transfer Restricted Notes agree that it would not be just
and equitable if contribution pursuant to this Section 5 were determined by pro
rata allocation (even if the Holders were treated as one entity, for such
purpose) or by another method of allocation which does not take account of the
equitable considerations referred to above in Section 5. The aggregate amount of
losses, liabilities, claims, damages and expenses incurred by an indemnified
party and referred to above in this Section 5 shall be deemed to include any
legal or other expenses reasonably incurred by such indemnified party in
investigating, preparing or defending against any litigation, or any
investigation or proceeding by any governmental agency or body, commenced or
threatened, or any claim whatsoever based upon any such untrue or alleged untrue
statement or omission or alleged omission. No Person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the 1933 Act) shall be
entitled to contribution from any Person who was not guilty of such fraudulent
misrepresentation. For purposes of this Section 5, each Person, if any, who
controls the Initial Purchaser or Holder within the meaning of Section 15 of the
1933 Act or Section 20 of the 1934 Act shall have the same rights to
contribution as such Initial Purchaser or Holder, and each director of the
Company, each officer of the Company who signed the Registration Statement, and
each Person, if any, who controls the Company within the meaning of Section 15
of the 1933 Act or Section 20 of the 1934 Act shall have the same rights to
contribution as the Company. Notwithstanding the provisions of this Section
5(e), no Holder shall be required to contribute any amount in excess of the
amount by which the net proceeds received by such Holder from the sale of
Transfer Restricted Notes exceeds the amount of any damages that such Holder has
otherwise been required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission.
6. Miscellaneous. (a) Rule 144 and Rule 144A. For so long as the
------------- ----------------------
Company is subject to the reporting requirements of Section 13 or 15(d) of the
1934 Act, the Company covenants that it will file the reports required to be
filed by it under Section 13(a) or 15(d) of the 1934 Act and the rules and
regulations adopted by the SEC thereunder, and that if it ceases to be so
required to file such reports, it will upon the request of any Holder of
Transfer Restricted Notes (i) make publicly available such information as is
necessary to permit sales pursuant to Rule 144 under the 1933 Act, (ii) deliver
such information to a prospective purchaser as is necessary to permit sales
pursuant to Rule 144A under the 1933 Act and take such further action as any
Holder of Transfer Restricted Notes may reasonably request, and (iii) take such
further action that is reasonable in the circumstances, in each case, to the
extent required from time to time to enable such Holder to sell its Transfer
Restricted Notes without registration under the 1933 Act within the limitation
of the exemptions provided by (x) Rule 144 under the 1933 Act, as such Rule may
be amended from time to time, (y) Rule 144A under the 1933 Act, as such Rule may
be amended from time to time, or (z) any similar rules or regulations hereafter
adopted by the SEC. Upon the written request of any Holder of Transfer
Restricted Notes, the Company
25
<PAGE>
will deliver to such Holder a written statement as to whether it has complied
with such requirements.
(b) No Inconsistent Agreements. The Company has not entered into nor
--------------------------
will it on or after the date of this Agreement enter into any agreement which is
inconsistent with the rights granted to the Holders of Transfer Restricted Notes
in this Agreement or otherwise conflicts with the provisions hereof. The rights
granted to the Holders hereunder do not in any way conflict with and are not
inconsistent with the rights granted to the holders of the Company's other
issued and outstanding securities under any such agreements.
(c) Amendments and Waivers. The provisions of this Agreement,
----------------------
including the provisions of this sentence, may not be amended, modified or
supplemented, and waivers or consents to departures from the provisions hereof
may not be given unless the Company has obtained the written consent of Holders
of at least a majority in aggregate principal amount of the outstanding Transfer
Restricted Notes affected by such amendment, modification, supplement, waiver or
departure; provided, however, that no amendment, modification, supplement or
waiver or consent to any departure from the provisions of Section 5 hereof shall
be effective as against any Holder of Transfer Restricted Notes unless consented
to in writing by such Holder.
(d) Notices. All notices and other communications provided for or
-------
permitted hereunder shall be made in writing by hand-delivery, registered first-
class mail, telecopier, or any courier guaranteeing overnight delivery (i) if to
a Holder (other than an Initial Purchaser), at the most current address set
forth on the records of the Registrar under the Indenture, (ii) if to an Initial
Purchaser, at the most current address given by such Initial Purchaser to the
Company by means of a notice given in accordance with the provisions of this
Section 6(d), which address initially is the address set forth in the Purchase
Agreement; and (iii) if to the Company, initially at the address set forth in
the Purchase Agreement and thereafter at such other address, notice of which is
given in accordance with the provisions of this Section 6(d).
All such notices and communications shall be deemed to have been duly
given: at the time delivered by hand, if personally delivered; five business
days after being deposited in the mail, postage prepaid, if mailed; when receipt
is acknowledged, if telecopied; and on the next business day if timely delivered
to an air courier guaranteeing overnight delivery.
(e) Successors and Assigns. This Agreement shall inure to the benefit
----------------------
of and be binding upon the successors, assigns and transferees of each of the
parties, including, without limitation and without the need for an express
assignment, subsequent Holders; provided that nothing herein shall be deemed to
permit any assignment, transfer or other disposition of Transfer Restricted
Notes in violation of the terms hereof or of the Purchase Agreement or the
Indenture. If any transferee of any Holder shall acquire Transfer Restricted
Notes, in any manner, whether by operation of law or otherwise, such Transfer
Restricted Notes shall be held subject to all of the terms of this Agreement,
and by taking and holding such Transfer Restricted Notes, such Person shall be
conclusively deemed to have agreed to be bound by and to perform
26
<PAGE>
all of the terms and provisions of this Agreement, including the restrictions on
resale set forth in this Agreement and, if applicable, the Purchase Agreement,
and such Person shall be entitled to receive the benefits hereof.
(f) Third Party Beneficiary. The Holders shall be third party
-----------------------
beneficiaries to the agreements made hereunder between the Company on the one
hand, and the Initial Purchaser, on the other hand, and shall have the right to
enforce such agreements directly to the extent it deems such enforcement
necessary or advisable to protect its rights or the rights of Holders hereunder.
(g) Counterparts. This Agreement may be executed in any number of
------------
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
(h) Headings. The headings in this Agreement are for convenience of
--------
reference only and shall not limit or otherwise affect the meaning hereof.
(i) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
-------------
IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
(j) Entire Agreement. This Agreement embodies the entire agreement
----------------
and understanding between the Company and each other party hereto relating to
the subject matter hereof and supersedes all prior agreements and understandings
relating to such subject matter.
(k) Severability. In the event that any one or more of the provisions
------------
contained herein, or the application thereof in any circumstance, is held
invalid, illegal or unenforceable, the validity, legality and enforceability of
any such provision in every other respect and of the remaining provisions
contained herein shall not be affected or impaired thereby.
[signature page follows]
27
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
UNITED RENTALS (NORTH AMERICA), INC.
By ________________________________
Name: Michael J. Nolan
Title: Chief Financial Officer
GUARANTORS:
A&A TOOL RENTALS & SALES, INC.
ACG, INC.
ADCO EQUIPMENT, INC.
ARROW EQUIPMENT COMPANY
AUSTINO'S LIFTRUCKS, INC.
BNR EQUIPMENT, INC.
CORAN ENTERPRISES, INCORPORATED
DEALERS SERVICE COMPANY
GRAND VALLEY EQUIPMENT CO.
HIGH REACH CO., INC.
INDEPENDENT SCISSOR LIFTS, INC.
JBK, INC.
KUBOTA OF GRAND RAPIDS, INC.
LIFT, INC.
MADISON EQUIPMENT SALES AND RENTAL, INC.
MARK EQUIPMENT, INC.
MERCER EQUIPMENT COMPANY
MISCO RENTS, INC.
MISSION VALLEY RENTALS, INC.
PALMER EQUIPMENT COMPANY, INC.
PAUL E. CARLSON, INC.
POWERS RENTALS & SALES, INC.
RENTALS TOOLS & EQUIPMENT CO. INTERNATIONAL, INC.
RENTALS UNLIMITED, INCORPORATED
ROSEDALE EQUIPMENT RENTAL, INC.
SPACE MAKER SYSTEMS OF VA., INC.
UNITED EQUIPMENT RENTAL OF HOUSTON, INC.
UNITED RENTALS, INC.
UNITED RENTALS AERIAL EQUIPMENT, INC.
UNITED RENTALS OF COLORADO, INC.
UNITED RENTALS OF KENTUCKY, INC.
28
<PAGE>
UNITED RENTALS OF NEVADA, INC.
UNITED RENTALS OF NEW YORK, INC.
UNITED RENTALS OF SOUTHERN CALIFORNIA, INC.
UNITED RENTALS OF UTAH, INC.
UNITED RENTALS NORTHWEST, INC.
U.S. RENTALS, INC.
WYNNE SYSTEMS, INC.
By: _____________________________________
Name: Michael J. Nolan
Title: Vice President and Secretary
29
<PAGE>
Confirmed and accepted as of
the date first above written:
GOLDMAN, SACHS & CO.
By: _______________________________
Authorized Signatory
30
<PAGE>
Schedule C
----------
UNITED RENTALS (NORTH AMERICA), INC.
Except as otherwise indicated, 100% of the voting stock of each of the
Subsidiaries listed below is owned by its parent.
- -------------------------------------------------------------------
STATE OF
NAME OF SUBSIDIARY INCORPORATION
- -------------------------------------------------------------------
A&A Tool Rentals & Sales, Inc. California
- -------------------------------------------------------------------
ACG, Inc. Indiana
- -------------------------------------------------------------------
Adco Equipment, Inc. California
- -------------------------------------------------------------------
Arrow Equipment Corporation Illinois
- -------------------------------------------------------------------
Austino's Liftrucks, Inc. New Jersey
- -------------------------------------------------------------------
BNR Equipment, Inc. New York
- -------------------------------------------------------------------
Coran Enterprises, Incorporated (d/b/a A-1Rents) California
- -------------------------------------------------------------------
Dealers Service Company New Jersey
- -------------------------------------------------------------------
Grand Valley Equipment Co. Michigan
- -------------------------------------------------------------------
High Reach Co., Inc. Pennsylvania
- -------------------------------------------------------------------
Independent Scissor Lifts, Inc. California
- -------------------------------------------------------------------
JBK, Inc. Ohio
- -------------------------------------------------------------------
Kubota of Grand Rapids, Inc. Michigan
- -------------------------------------------------------------------
Lift, Inc. Maryland
- -------------------------------------------------------------------
Madison Equipment Sales and Rental, Inc. Alabama
- -------------------------------------------------------------------
Mark Equipment, Inc. Alabama
- -------------------------------------------------------------------
Mercer Equipment Company North Carolina
- -------------------------------------------------------------------
Misco Rents, Inc. Indiana
- -------------------------------------------------------------------
Mission Valley Rentals, Inc. California
- -------------------------------------------------------------------
Palmer Equipment Company, Inc. Michigan
- -------------------------------------------------------------------
Paul E. Carlson, Inc. Minnesota
- -------------------------------------------------------------------
Powers Rentals & Sales, Inc. California
- -------------------------------------------------------------------
Rentals Tools & Equipment Co. International, Inc. Maryland
- -------------------------------------------------------------------
Rentals Unlimited, Incorporated Rhode Island
- -------------------------------------------------------------------
Rosedale Equipment Rental, Inc. California
- -------------------------------------------------------------------
Space Maker Systems of Va., Inc. Virginia
- -------------------------------------------------------------------
United Equipment Rental of Houston, Inc. Texas
(formerly J&J Rentals Services Inc.)
- -------------------------------------------------------------------
United Rentals, Inc. Washington
- -------------------------------------------------------------------
United Rentals Aerial Equipment, Inc. (formerly Delaware
United Rentals of New Jersey, Inc.)
- -------------------------------------------------------------------
United Rentals of Colorado, Inc.
- -------------------------------------------------------------------
31
<PAGE>
- -------------------------------------------------------------------
STATE OF
NAME OF SUBSIDIARY INCORPORATION
- -------------------------------------------------------------------
(formerly Santa Fe Supply & Rental, Inc.) Colorado
- -------------------------------------------------------------------
United Rentals of Kentucky, Inc. Kentucky
- -------------------------------------------------------------------
United Rentals of Nevada, Inc. (formerly Nevada Nevada
High Reach, Inc.)
- -------------------------------------------------------------------
United Rentals of New York, Inc. New York
- -------------------------------------------------------------------
United Rentals of Southern California, Inc. California
(d/b/a Able Equipment) (formerly Rental
Equipment, Inc.)
- -------------------------------------------------------------------
United Rentals of Utah, Inc. Utah
- -------------------------------------------------------------------
United Rentals Northwest, Inc. (formerly High Oregon
Reach, Inc.)
- -------------------------------------------------------------------
U.S. Rentals, Inc. Delaware
- -------------------------------------------------------------------
Wynne Systems, Inc. California
- -------------------------------------------------------------------
- -------------------------------------------------------------------
- -------------------------------------------------------------------
32
<PAGE>
NOTES REGISTRATION RIGHTS AGREEMENT
Dated as of December 15, 1998
among
United Rentals (North America), Inc.
Company
and
The Subsidiaries Named in the Schedule hereto
Guarantors
and
Goldman, Sachs & Co.,
Initial Purchaser
33
<PAGE>
Table of Contents
-----------------
Page
----
1. Definitions
1933 Act................................................... 1
1934 Act................................................... 1
Broker Prospectus Period................................... 1
Broker Shelf Registration Statement........................ 1
Depositary................................................. 1
Exchange Notes............................................. 1
Exchange Offer............................................. 2
Exchange Offer Registration................................ 2
Exchange Offer Registration Statement...................... 2
Exchange Period............................................ 2
Holders.................................................... 2
Holders' Counsel........................................... 2
Indenture.................................................. 2
Initial Purchaser.......................................... 2
Majority Holders........................................... 2
Original Issue Date........................................ 3
Participating Broker-Dealer................................ 3
Person..................................................... 3
Prospectus................................................. 3
Purchase Agreement......................................... 3
Registration Default....................................... 3
Registration Expenses...................................... 3
Registration Statement..................................... 4
SEC........................................................ 4
Shelf Registration......................................... 4
Shelf Registration Statement............................... 4
Transfer Restricted Notes.................................. 5
Trustee.................................................... 5
2. Registration Under the 1933 Act.................................. 5
(a) Exchange Offer Registration......................... 5
(b) Shelf Registration.................................. 7
(c) Expenses............................................ 9
(d) Effective Registration Statement.................... 9
(e) Accrual and Payment of Additional Interest.......... 11
(f) Specific Enforcement................................ 12
3. Registration Procedures.......................................... 12
4. Underwritten Registrations....................................... 21
34
<PAGE>
5. Indemnification and Contribution................................. 22
6. Miscellaneous.................................................... 26
(a) Rule 144 and Rule 144A.............................. 26
(b) No Inconsistent Agreements.......................... 26
(c) Amendments and Waivers.............................. 26
(d) Notices............................................. 27
(e) Successors and Assigns.............................. 27
(f) Third Party Beneficiary............................. 27
(g) Counterparts........................................ 27
(h) Headings............................................ 28
(i) GOVERNING LAW....................................... 28
(j) Entire Agreement.................................... 28
(k) Severability........................................ 28
35
<PAGE>
EXHIBIT 12
UNITED RENTAL (NORTH AMERICA), INC.
STATEMENT OF COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
Historical Pro Forma
-------------------------------------------------------------------- ---------------------------------
Year Nine Months
Nine Months Ended Ended Ended
Year Ended December 31, September 30, December 31, September 30,
------------------------------------------------- ------------------ --------------------------------
1993 1994 1995 1996 1997 1997 1998 1997 1998
---- ---- ---- ---- ---- ---- ---- ---- ----
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Earnings:
Income before
provision for income
taxes and extraordinary
items................ $15,190 $26,025 $33,781 $38,146 $34,917 $17,225 $44,732 $34,917 $44,732
Interest expense...... 3,906 6,245 7,490 11,278 11,847 6,316 39,170 18,597 44,233
Amortization of debt
issuance cost........ 27 78 124 67 684 124 684
Interest portion of
rent expense(1)...... 1,164 1,239 1,358 1,514 2,305 1,480 6,540 2,305 6,540
------- ------ ------ ------ ------ ------- ------- ------- -------
Earnings as
adjusted........... $20,260 $33,509 $42,656 $51,016 $49,193 $25,088 $91,126 $55,943 $96,189
======= ======= ======= ======= ======= ======= ======= ======= =======
Fixed charges:
Interest expense...... $ 3,906 $ 6,245 $ 7,490 $11,278 $11,847 $ 6,316 $39,170 $18,597 $44,233
Amortization of debt
issuance cost........ 27 78 124 67 684 124 684
Interest portion of
rent expense(1)...... 1,164 1,239 1,358 1,514 2,305 1,480 6,540 2,305 6,540
------- ------ ------ ------ ------ ------- ------- ------- -------
Fixed charges....... $ 5,070 $ 7,484 $ 8,875 $12,870 $14,276 $ 7,863 $46,394 $21,026 $51,457
======= ======= ======= ======= ======= ======= ======= ======= =======
Ratio of earnings to
fixed charges.......... 4.0x 4.5x 4.8x 4.0x 3.4x 3.2x 2.0x 2.7x 1.9x
</TABLE>
- --------
(1) The interest portion of rent expense is estimated to be one-third of rent
expense.
<PAGE>
EXHIBIT 12(a)
UNITED RENTALS (NORTH AMERICA), INC.
STATEMENT OF COMPUTATION OF SUPPLEMENTAL PRO FORMA RATIO
OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
Supplemental Pro Forma
---------------------------------
Year Nine Months
Ended Ended
December 31, September 30,
------------ -------------
1997 1998
---- ----
(dollars in thousands)
<S> <C> <C>
Earnings:
Income before
provision for income
taxes and extraordinary
items................ $ 89,234 $ 63,216
Interest expense...... 80,021 60,344
Amortization of debt
issuance cost........ 124 684
Interest portion of
rent expense(2)...... 12,078 13,784
-------- --------
Earnings as
adjusted........... $181,457 $138,028
======== ========
Fixed charges:
Interest expense...... $ 80,021 $ 60,344
Amortization of debt
issuance cost........ 124 684
Interest portion of
rent expense(2)...... 12,078 13,784
-------- --------
Fixed charges....... $ 92,223 $ 74,812
======== ========
Ratio of earnings to
fixed charges.......... 2.0x 1.8x
</TABLE>
- --------
(1) The supplemental pro forma ratio of earnings to fixed charges gives effect
to each acquisition completed by the Company after the beginning of the
period and the financing thereof as if all such transactions had occurred
at the beginning of the period.
(2) The interest portion of rent expense is estimated to be one-third of rent
expense.
<PAGE>
EXHIBIT 21
<TABLE>
<CAPTION>
STATE OF
--------
NAME OF SUBSIDIARY INCORPORATION
------------------ -------------
- -----------------------------------------------------------------------------------------------------------------
<S> <C>
1297334 Ontario Inc. Ontario
- -----------------------------------------------------------------------------------------------------------------
A&A Tool Rentals & Sales, Inc. California
- -----------------------------------------------------------------------------------------------------------------
ACG, Inc. Indiana
- -----------------------------------------------------------------------------------------------------------------
Adco Equipment, Inc. California
- -----------------------------------------------------------------------------------------------------------------
Arrow Equipment Company Illinois
- -----------------------------------------------------------------------------------------------------------------
Austino's Liftrucks, Inc. New Jersey
- -----------------------------------------------------------------------------------------------------------------
BNR Equipment, Inc. New York
- -----------------------------------------------------------------------------------------------------------------
Coran Enterprises, Incorporated (d/b/a A-1Rents) California
- -----------------------------------------------------------------------------------------------------------------
Dealers Service Company New Jersey
- -----------------------------------------------------------------------------------------------------------------
Grand Valley Equipment Co. Michigan
- -----------------------------------------------------------------------------------------------------------------
High Reach Co., Inc. Pennsylvania
- -----------------------------------------------------------------------------------------------------------------
Independent Scissor Lifts, Inc. California
- -----------------------------------------------------------------------------------------------------------------
JBK, Inc. Ohio
- -----------------------------------------------------------------------------------------------------------------
Kubota of Grand Rapids, Inc. Michigan
- -----------------------------------------------------------------------------------------------------------------
Lift, Inc. Maryland
- -----------------------------------------------------------------------------------------------------------------
Madison Equipment Sales and Rental, Inc. Alabama
- -----------------------------------------------------------------------------------------------------------------
Mark Equipment, Inc. Alabama
- -----------------------------------------------------------------------------------------------------------------
Mercer Equipment Company North Carolina
- -----------------------------------------------------------------------------------------------------------------
Misco Rents, Inc. Indiana
- -----------------------------------------------------------------------------------------------------------------
Mission Valley Rentals, Inc. California
- -----------------------------------------------------------------------------------------------------------------
Palmer Equipment Company, Inc. Michigan
- -----------------------------------------------------------------------------------------------------------------
Paul E. Carlson, Inc. Minnesota
- -----------------------------------------------------------------------------------------------------------------
Powers Rentals & Sales, Inc. California
- -----------------------------------------------------------------------------------------------------------------
Rental Tools & Equipment Co. International, Inc. Maryland
- -----------------------------------------------------------------------------------------------------------------
Rentals Unlimited, Incorporated Rhode Island
- -----------------------------------------------------------------------------------------------------------------
Rosedale Equipment Rental, Inc. California
- -----------------------------------------------------------------------------------------------------------------
Space Maker Systems of Va., Inc. Virginia
- -----------------------------------------------------------------------------------------------------------------
United Equipment Rental of Houston, Inc. (formerly J&J Rentals Services, Inc.) Texas
- -----------------------------------------------------------------------------------------------------------------
United Rentals, Inc. (WA) Washington
- -----------------------------------------------------------------------------------------------------------------
United Rentals Aerial Equipment, Inc. (formerly United Rentals of New Jersey, Inc). Delaware
- -----------------------------------------------------------------------------------------------------------------
United Rentals of Canada, Inc. Ontario
- -----------------------------------------------------------------------------------------------------------------
Access Lift Equipment, Inc. Canada
- -----------------------------------------------------------------------------------------------------------------
1292655 Ontario, Inc. Ontario
- -----------------------------------------------------------------------------------------------------------------
Ray-Gordon Equipment Limited Ontario
- -----------------------------------------------------------------------------------------------------------------
Reitzel Rentals Ltd. Ontario
- -----------------------------------------------------------------------------------------------------------------
Select Equipment Ltd. Ontario
- -----------------------------------------------------------------------------------------------------------------
United Rentals of Canada (Quebec), Inc. Quebec
- -----------------------------------------------------------------------------------------------------------------
United Rentals of Colorado, Inc. (formerly Santa Fe Supply & Rental, Inc.) Colorado
- -----------------------------------------------------------------------------------------------------------------
United Rentals of Kentucky, Inc. Kentucky
- -----------------------------------------------------------------------------------------------------------------
United Rentals of Nevada, Inc. (formerly Nevada High Reach, Inc.) Nevada
- -----------------------------------------------------------------------------------------------------------------
United Rentals of New York, Inc. New York
- -----------------------------------------------------------------------------------------------------------------
United Rentals of Southern California, Inc. (d/b/a Able Equipment) (formerly Rental California
Equipment, Inc.)
- -----------------------------------------------------------------------------------------------------------------
United Rentals of Utah, Inc. Utah
- -----------------------------------------------------------------------------------------------------------------
United Rentals Northwest, Inc. (formerly High Reach, Inc.) Oregon
- -----------------------------------------------------------------------------------------------------------------
U.S. Rentals, Inc. Delaware
- -----------------------------------------------------------------------------------------------------------------
Provisto, S. de R.L. de C.V. Mexico
- -----------------------------------------------------------------------------------------------------------------
U.S. Rentals, S. de R.L. de C.V. Mexico
- -----------------------------------------------------------------------------------------------------------------
Wynne Systems, Inc. California
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
EXHIBIT 23(B)
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
the use of (i) our report dated November 17, 1998 with respect to the
consolidated financial statements of United Rentals (North America), Inc.,
(ii) our report dated January 23, 1998, with respect to the financial
statements of J&J Rental Services, Inc., (iii) our report dated January 19,
1998, with respect to the financial statements of Bronco Hi-Lift, Inc., (iv)
our report dated January 23, 1998, with respect to the financial statements of
Mission Valley Rentals, Inc., (v) our report dated June 24, 1998, with respect
to the financial statements of Power Rental Co., Inc., (vi) our report dated
April 20, 1998, except for Note 10, as to which the date is April 22, 1998,
with respect to the combined financial statements of Valley Rentals, Inc.,
(vii) our report dated April 22, 1998, with respect to the financial
statements of Pro Rentals, Inc., (viii) our report dated April 15, 1998, with
respect to the combined financial statements of Able Equipment Rental, Inc.,
(ix) our report dated April 21, 1998, with respect to the combined financial
statements of Channel Equipment Holding, Inc., (x) our report dated April 22,
1998, with respect to the financial statements of ASC Equipment Company, Inc.
and (xi) our report dated July 17, 1998, with respect to the combined
financial statements of Adco Equipment, Inc., in Amendment No. 1 to the
Registration Statement (Form S-4 No. 333-64227) and the related Prospectus of
United Rentals (North America), Inc. for the registration of $205,000,000
aggregate principal value of its 8.80% Senior Subordinated Notes.
/s/ Ernst & Young LLP
MetroPark, New Jersey
December 11, 1998
<PAGE>
EXHIBIT 23(C)
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
A & A Tool Rentals & Sales, Inc.:
We consent to the use of our report dated November 20, 1997, with respect to
the financial statements of A & A Tool Rentals & Sales, Inc. included herein
and to the reference to our firm under the heading "Experts" in the
prospectus.
/s/ KPMG Peat Marwick LLP
Sacramento, California
December 17, 1998
<PAGE>
EXHIBIT 23(D)
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated January 21, 1998, with respect to the financial
statements of MERCER Equipment Company in the Registration Statement (Form S-4
No. 333-64227) and the related Prospectus of United Rentals (North America),
Inc. for the registration of $205,000,000 aggregate principal value of its
8.80% Senior Subordinated Notes due 2008.
/s/ Webster, Duke & Co. PA
Charlotte, North Carolina
December 16, 1998
<PAGE>
EXHIBIT 23(E)
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have issued our report dated January 21, 1998, accompanying the combined
financial statements of Coran Enterprises, Inc. dba A-1 Rents, and Monterey
Bay Equipment Rental, Inc. contained in the Registration Statement
(Registration No. 333-64227) and Prospectus. We consent to the use of the
aforementioned report in the Registration Statement and Prospectus, and to the
use of our name as it appears under the caption "Experts."
/s/ Grant Thornton LLP
San Jose, California
December 16, 1998
<PAGE>
EXHIBIT 23(F)
AUDITOR'S CONSENT
The Board of Directors
The BNR Group of Companies:
We consent to the use of our report dated February 3, 1998, with respect to
the combined financial statements of the BNR Group of Companies included
herein and to the reference to our firm under the heading "Experts" in the
Prospectus.
KPMG LLP
Waterloo, Canada
December 16, 1998
<PAGE>
EXHIBIT 23(G)
AUDITOR'S CONSENT
The Board of Directors
Perco Group Ltd.
We consent to the use of our report dated February 2, 1998, except as to
note 14 which is as of May 22, 1998, on the consolidated financial statements
of Perco Group Ltd., as at December 31, 1997 included herein and to the
reference to our firm under the heading "Experts" in the Prospectus.
KPMG LLP
Montreal, Canada
December 16, 1998
<PAGE>
EXHIBIT 23(H)
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS' CONSENT
We hereby consent to the use in the Registration Statement on Form S-4 of
our report dated January 22, 1998 relating to the financial statements of
Access Rentals, Inc., and Subsidiary and Affiliate. We also consent to the
reference to us under the heading "Experts" in such Registration Statement.
/s/ Battaglia, Andrews & Moag, P.C.
Batavia, New York
December 16, 1998
<PAGE>
EXHIBIT 23(I)
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of
Amendment No. 1 (Registration No. 333-64227) of this Registration Statement of
United Rentals, Inc., on Form S-4, of our report dated April 22, 1998,
relating to the financial statements of West Main Rentals and Sales,
Incorporated, which appear in such Prospectus. We also consent to the
reference to our Firm under the heading "Experts" in the Prospectus.
Moss Adams LLP
Eugene, Oregon
December 16, 1998
<PAGE>
EXHIBIT 23(J)
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-4 of United Rentals (North America), Inc. of
our report dated November 17, 1998 relating to the financial statements of
United Rentals (North America), Inc., which appears in such Prospectus. We
also consent to the reference to us under the heading "Experts" in such
Prospectus.
PRICEWATERHOUSECOOPERS LLP
Sacramento, California
December 16, 1998
<PAGE>
EXHIBIT 23(K)
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the inclusion in the Prospectus constituting part of
this Registration Statement on Form S-4 (No. 333-64227) of United Rentals
(North America), Inc. of our reports dated March 6, 1998 and October 28, 1998,
on our audits of the financial statements of McClinch Equipment Services, Inc.
as of December 31, 1997 and August 31, 1998 and for the year ended December
31, 1997 and of our reports dated March 25, 1998 and October 28, 1998 on our
audits of the consolidated financial statements of McClinch Inc. and
Subsidiaries as of January 31, 1998 and August 31, 1998 and for the year ended
January 31, 1998. We also consent to the reference to our firm under the
caption "Experts".
PricewaterhouseCoopers LLP
Stamford, Connecticut
December 16, 1998
<PAGE>
EXHIBIT 23(L)
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Equipment Supply Co., Inc. and Affiliates
Burlington, New Jersey
We hereby consent to the use in the Prospectus constituting a part of this
Registration Statement of our report dated June 19, 1998, except for Notes 9
and 15 which are as of July 10, 1998, relating to the combined financial
statements of Equipment Supply Co., Inc. and Affiliates which is contained in
that Prospectus.
We also consent to the reference to us under the caption "Experts" in the
Prospectus.
BDO Seidman, LLP
Philadelphia, Pennsylvania
December 16, 1998
<PAGE>
EXHIBIT 23(M)
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-4 of United Rentals (North America), Inc. of
our report dated July 27, 1998 relating to the financial statements of Reitzel
Rentals Ltd. which appears in such Prospectus. We also consent to the
reference to us under the heading "Experts" in such Prospectus.
PricewaterhouseCoopers LLP
Kitchener, Ontario
December 16, 1998
<PAGE>
EXHIBIT 23(N)
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated March 12, 1998, with respect to the financial
statements of Lift Systems, Inc. in Amendment No. 1 to the Registration
Statement Form S-4 relating to $205,000,000 8.80% Senior Subordinated Notes
due 2008 previously sold by United Rentals (North America), Inc. under Rule
144A in August 1998.
/s/ Altschuler, Melvoin and Glasser LLP
Chicago, Illinois
December 17, 1998
<PAGE>
EXHIBIT 23(O)
AUDITORS' CONSENT
We have issued our report dated July 23, 1998, accompanying the combined
financial statements of Grand Valley Equipment, Inc. and Kubota of Grand
Rapids, Inc. contained in the Registration Statement and Prospectus of United
Rentals (North America), Inc. We consent to the use of the aforementioned
reports in the Registration Statement and Prospectus, and to the use of our
name as it appears under the caption "Experts."
/s/ Beene Garter LLP
December 16, 1998
Grand Rapids, Michigan
<PAGE>
EXHIBIT 23(P)
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form S-4
Amendment No. 1 of our report dated April 21, 1998, related to the financial
statements of Paul E. Carlson, Inc. (d/b/a Carlson Equipment Company). We also
consent to the reference to our Firm under the caption "Experts" in the
Prospectus.
McGLADREY & PULLEN, LLP
St. Paul, Minnesota
December 16, 1998
<PAGE>
EXHIBIT 23(Q)
INDEPENDENT AUDITOR'S CONSENT
We consent to the use in this Amendment No. 1 to the Registration Statement
of United Rentals (North America), Inc. on Form S-4 of our report dated
February 26, 1998, on our audit of the Financial Statements of Industrial
Lift, Inc., as of December 31, 1997 and for the year then ended, appearing in
the Prospectus, which is part of this Registration Statement.
We also consent to the reference to us under the heading "Experts" in such
Registration Statement.
/s/ Schalleur & Surgent, LLC
December 16, 1998
<PAGE>
EXHIBIT 25(a)
WASHINGTON, D.C. 20549
FORM T-1
_________
STATEMENT OF ELIGIBILITY UNDER THE
TRUST INDENTURE ACT OF 1939 OF A
CORPORATION DESIGNATED TO ACT AS TRUSTEE
Check if an Application to Determine Eligibility
of a Trustee Pursuant to Section 305(b)(2)
STATE STREET BANK AND TRUST COMPANY
(Exact name of trustee as specified in its charter)
Massachusetts 04-1867445
(Jurisdiction of incorporation or (I.R.S. Employer
organization if not a U.S. national bank) Identification No.)
225 Franklin Street, Boston, Massachusetts 02110
(Address of principal executive offices) (Zip Code)
Maureen Scannell Bateman, Esq. Executive Vice President and General Counsel
225 Franklin Street, Boston, Massachusetts 02110
(617) 654-3253
(Name, address and telephone number of agent for service)
UNITED RENTALS (NORTH AMERICA), INC.
(Exact name of obligor as specified in its charter)
DELAWARE 06-1493538
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
FOUR GREENWICH OFFICE PARK, 3RD FLOOR
GREENWICH, CONNECTICUT 06830
(Address of principal executive offices) (Zip Code)
8.80% SENIOR SUBORDINATED NOTES DUE 2008
(Title of indenture securities)
<PAGE>
GENERAL
ITEM 1. GENERAL INFORMATION.
FURNISH THE FOLLOWING INFORMATION AS TO THE TRUSTEE:
(A) NAME AND ADDRESS OF EACH EXAMINING OR SUPERVISORY AUTHORITY TO WHICH
IT IS SUBJECT.
Department of Banking and Insurance of The Commonwealth of
Massachusetts, 100 Cambridge Street, Boston, Massachusetts.
Board of Governors of the Federal Reserve System, Washington, D.C., Federal
Deposit Insurance Corporation, Washington, D.C.
(B) WHETHER IT IS AUTHORIZED TO EXERCISE CORPORATE TRUST POWERS.
Trustee is authorized to exercise corporate trust powers.
ITEM 2. AFFILIATIONS WITH OBLIGOR.
IF THE OBLIGOR IS AN AFFILIATE OF THE TRUSTEE, DESCRIBE EACH SUCH
AFFILIATION.
The obligor is not an affiliate of the trustee or of its parent, State
Street Corporation.
(See note on page 2.)
ITEM 3. THROUGH ITEM 15. NOT APPLICABLE.
ITEM 16. LIST OF EXHIBITS.
LIST BELOW ALL EXHIBITS FILED AS PART OF THIS STATEMENT OF ELIGIBILITY.
1. A COPY OF THE ARTICLES OF ASSOCIATION OF THE TRUSTEE AS NOW IN EFFECT.
A copy of the Articles of Association of the trustee, as now in effect, is
on file with the Securities and Exchange Commission as Exhibit 1 to Amendment
No. 1 to the Statement of Eligibility and Qualification of Trustee (Form T-1)
filed with the Registration Statement of Morse Shoe, Inc. (File No. 22-17940)
and is incorporated herein by reference thereto.
2. A COPY OF THE CERTIFICATE OF AUTHORITY OF THE TRUSTEE TO COMMENCE
BUSINESS, IF NOT CONTAINED IN THE ARTICLES OF ASSOCIATION.
A copy of a Statement from the Commissioner of Banks of Massachusetts that
no certificate of authority for the trustee to commence business was necessary
or issued is on file with the Securities and Exchange Commission as Exhibit 2 to
Amendment No. 1 to the Statement of Eligibility and Qualification of Trustee
(Form T-1) filed with the Registration Statement of Morse Shoe, Inc. (File No.
22-17940) and is incorporated herein by reference thereto.
3. A copy of the authorization of the trustee to exercise corporate trust
powers, if such authorization is not contained in the documents specified
in paragraph (1) or (2), above.
A copy of the authorization of the trustee to exercise corporate trust
powers is on file with the Securities and Exchange Commission as Exhibit 3 to
Amendment No. 1 to the Statement of Eligibility and Qualification of Trustee
(Form T-1) filed with the Registration Statement of Morse Shoe, Inc. (File No.
22-17940) and is incorporated herein by reference thereto.
4. A COPY OF THE EXISTING BY-LAWS OF THE TRUSTEE, OR INSTRUMENTS
CORRESPONDING THERETO.
A copy of the by-laws of the trustee, as now in effect, is on file with the
Securities and Exchange Commission as Exhibit 4 to the Statement of Eligibility
and Qualification of Trustee (Form T-1) filed with the Registration Statement of
Eastern Edison Company (File No. 33-37823) and is incorporated herein by
reference thereto.
1
<PAGE>
5. A COPY OF EACH INDENTURE REFERRED TO IN ITEM 4. IF THE OBLIGOR IS IN
DEFAULT.
Not applicable.
6. THE CONSENTS OF UNITED STATES INSTITUTIONAL TRUSTEES REQUIRED BY
SECTION 321(B) OF THE ACT.
The consent of the trustee required by Section 321(b) of the Act is annexed
hereto as Exhibit 6 and made a part hereof.
7. A COPY OF THE LATEST REPORT OF CONDITION OF THE TRUSTEE PUBLISHED
PURSUANT TO LAW OR THE REQUIREMENTS OF ITS SUPERVISING OR EXAMINING AUTHORITY.
A copy of the latest report of condition of the trustee published pursuant
to law or the requirements of its supervising or examining authority is annexed
hereto as Exhibit 7 and made a part hereof.
NOTES
In answering any item of this Statement of Eligibility which relates to
matters peculiarly within the knowledge of the obligor or any underwriter for
the obligor, the trustee has relied upon information furnished to it by the
obligor and the underwriters, and the trustee disclaims responsibility for the
accuracy or completeness of such information.
The answer furnished to Item 2. of this statement will be amended, if
necessary, to reflect any facts which differ from those stated and which would
have been required to be stated if known at the date hereof.
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, as
amended, the trustee, State Street Bank and Trust Company, a corporation
organized and existing under the laws of The Commonwealth of Massachusetts, has
duly caused this statement of eligibility to be signed on its behalf by the
undersigned, thereunto duly authorized, all in the City of Boston and The
Commonwealth of Massachusetts, on the 3rd of December, 1998.
STATE STREET BANK AND TRUST COMPANY
By: /s/ Laurel Melody-Casasanta
------------------------------------
NAME LAUREL MELODY-CASASANTA
TITLE ASSISTANT VICE PRESIDENT
2
<PAGE>
EXHIBIT 6
CONSENT OF THE TRUSTEE
Pursuant to the requirements of Section 321(b) of the Trust Indenture Act
of 1939, as amended, in connection with the proposed issuance by UNITED RENTALS
(NORTH AMERICA), INC. of its 8.80% SENIOR SUBORDINATED NOTES DUE 2008, we
hereby consent that reports of examination by Federal, State, Territorial or
District authorities may be furnished by such authorities to the Securities and
Exchange Commission upon request therefor.
STATE STREET BANK AND TRUST COMPANY
By: /s/ Laurel Melody-Casasanta
-----------------------------------
NAME LAUREL MELODY-CASASANTA
TITLE ASSISTANT VICE PRESIDENT
DATED: DECEMBER 3, 1998
3
<PAGE>
EXHIBIT 7
Consolidated Report of Condition of State Street Bank and Trust Company,
Massachusetts and foreign and domestic subsidiaries, a state banking institution
organized and operating under the banking laws of this commonwealth and a member
of the Federal Reserve System, at the close of business September 30, 1998,
------------------
published in accordance with a call made by the Federal Reserve Bank of this
District pursuant to the provisions of the Federal Reserve Act and in accordance
with a call made by the Commissioner of Banks under General Laws, Chapter 172,
Section 22(a).
<TABLE>
<CAPTION>
Thousands of
Dollars
<S> <C>
ASSETS
Cash and balances due from depository institutions:
Noninterest-bearing balances and currency and coin...................................................... 2,008,956
Interest-bearing balances............................................................................... 12,286,877
Securities................................................................................................... 9,654,241
Federal funds sold and securities purchased
under agreements to resell in domestic offices
of the bank and its Edge subsidiary..................................................................... 10,922,779
Loans and lease financing receivables:
Loans and leases, net of unearned income ............................................................... 7,457,235
Allowance for loan and lease losses..................................................................... 82,851
Allocated transfer risk reserve......................................................................... 0
Loans and leases, net of unearned income and allowances................................................. 7,374,384
Assets held in trading accounts.............................................................................. 1,898,804
Premises and fixed assets.................................................................................... 513,372
Other real estate owned...................................................................................... 100
Investments in unconsolidated subsidiaries................................................................... 484
Customers' liability to this bank on acceptances outstanding................................................. 48,563
Intangible assets............................................................................................ 220,613
Other assets................................................................................................. 1,333,210
----------
Total assets................................................................................................. 46,262,383
==========
LIABILITIES
Deposits:
In domestic offices..................................................................................... 9,557,938
Noninterest-bearing..................................................................................... 7,158,356
Interest-bearing........................................................................................ 2,399,582
In foreign offices and Edge subsidiary.................................................................. 18,451,054
Noninterest-bearing..................................................................................... 429,797
Interest-bearing........................................................................................ 18,021,257
Federal funds purchased and securities sold under
agreements to repurchase in domestic offices of
the bank and of its Edge subsidiary..................................................................... 12,023,438
Demand notes issued to the U.S. Treasury..................................................................... 451,424
Trading liabilities.......................................................................................... 1,582,933
Other borrowed money......................................................................................... 323,782
Subordinated notes and debentures............................................................................ 0
Bank's liability on acceptances executed and outstanding..................................................... 48,563
Other liabilities............................................................................................ 1,226,129
Total liabilities............................................................................................ 46,665,261
----------
EQUITY CAPITAL
Perpetual preferred stock and related surplus................................................................ 0
Common stock................................................................................................. 29,931
Surplus...................................................................................................... 462,782
Undivided profits and capital reserves/Net unrealized holding gains (losses)................................. 2,080,148
Net unrealized holding gains (losses) on available-for-sale securities.................................. 27,376
Cumulative foreign currency translation adjustments.......................................................... (3,115)
Total equity capital......................................................................................... 2,597,122
----------
Total liabilities and equity capital......................................................................... 46,262,383
----------
</TABLE>
4
<PAGE>
I, Rex S. Schuette, Senior Vice President and Comptroller of the above named
bank do hereby declare that this Report of Condition has been prepared in
conformance with the instructions issued by the Board of Governors of the
Federal Reserve System and is true to the best of my knowledge and belief.
Rex S. Schuette
We, the undersigned directors, attest to the correctness of this Report of
Condition and declare that it has been examined by us and to the best of our
knowledge and belief has been prepared in conformance with the instructions
issued by the Board of Governors of the Federal Reserve System and is true and
correct.
David A. Spina
Marshall N. Carter
Truman S. Casner
<PAGE>
EXHIBIT 99(a)
LETTER OF TRANSMITTAL
OFFER TO EXCHANGE
8.80% SENIOR SUBORDINATED NOTES DUE 2008, SERIES B
FOR ANY AND ALL OUTSTANDING
8.80% SENIOR SUBORDINATED NOTES DUE 2008, SERIES A
OF
UNITED RENTALS, INC.
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON [ ],
1999, UNLESS EXTENDED (THE "EXPIRATION DATE").
To: State Street Bank and Trust Company (the "Exchange Agent")
<TABLE>
<CAPTION>
By Mail: By Facsimile Transmission: By Overnight or Hand Delivery:
<S> <C> <C>
(registered or certified recommended) (617) 664-5232 State Street Bank and Trust Company
State Street Bank and Attention: Kellie Mullen Corporate Trust Department
Trust Company Corporate Confirm by Telephone: Two International Place
Trust Department (617) 664-5587 Boston, MA 02110-0078
P.O. Box 778 Fourth Floor
Boston, MA 02102-0078 Attention: Kellie Mullen
Attention: Kellie Mullen
</TABLE>
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR
TRANSMISSION OF THIS INSTRUMENT VIA A FACSIMILE NUMBER OTHER THAN THE
FACSIMILE NUMBER LISTED ABOVE WILL NOT CONSTITUTE A VALID DELIVERY.
THE INSTRUCTIONS CONTAINED HEREIN SHOULD BE READ CAREFULLY BEFORE THIS
LETTER OF TRANSMITTAL IS COMPLETED. Capitalized terms used but not defined
herein shall have the same meaning given them in the Prospectus (as defined
below).
The undersigned has provided the information below in order to indicate the
Original Notes, if any, that the undersigned wishes to tender pursuant to the
Exchange Offer (as defined below).
______________________________________
______________________________________
______________________________________
NAME AND ADDRESS OF BOOK-ENTRY HOLDER
______________________________________
DTC ACCOUNT NUMBER OF BOOK ENTRY
HOLDER
______________________________________
TRANSACTION CODE NUMBER
______________________________________
AGGREGATE PRINCIPAL AMOUNT OF
ORIGINAL NOTES TENDERED
<PAGE>
Ladies and Gentlemen:
The undersigned acknowledges receipt of the Prospectus dated [ ], 1999
(the "Prospectus") of United Rentals, Inc., a Delaware corporation
(the "Company"), and this Letter of Transmittal (the "Letter of
Transmittal"), which together constitute the Company's offer (the
"Exchange Offer") to exchange its 8.80% Senior Subordinated Notes Due
2008, Series B (the "Exchange Notes"), the issuance of which has been
registered under the Securities Act of 1933, as amended (the "Securities
Act"), pursuant to a Registration Statement of which the Prospectus is a
part, for a like principal amount of its outstanding 8.80% Senior Subordinated
Notes Due 2008, Series A (the "Original Notes"), upon the terms and
subject to the conditions set forth in the Prospectus. Capitalized terms used
but not defined herein have the respective meanings given to them in the
Prospectus.
Subject to the terms and conditions of the Exchange Offer, the undersigned
hereby tenders to the Company the principal amount of Original Notes indicated
above. Subject to, and effective upon, the acceptance for exchange of the
principal amount of Original Notes tendered in accordance with this Letter of
Transmittal, the undersigned sells, assigns and transfers to, or upon the
order of, the Company all right, title and interest in and to the Original
Notes tendered hereby. The undersigned hereby irrevocably constitutes and
appoints the Exchange Agent its agent and attorney-in-fact (with full
knowledge that the Exchange Agent also acts as the agent of the Company) with
respect to the tendered Original Notes, with full power of substitution, to:
(i) deliver Original Notes and all accompanying evidence of transfer and
authenticity to or upon the order of the Company upon receipt by the Exchange
Agent, as the undersigned's agent, of the Exchange Notes to which the
undersigned is entitled upon the acceptance by the Company of the Original
Notes tendered under the Exchange Offer; and (ii) receive all benefits and
otherwise exercise all rights of beneficial ownership of such Original Notes,
all in accordance with the terms of the Exchange Offer. The power of attorney
granted in this paragraph shall be deemed to be irrevocable and coupled with
an interest.
The undersigned hereby represents and warrants that it has full power and
authority to tender, exchange, assign and transfer the Original Notes tendered
hereby and that the Company will acquire good and unencumbered title thereto,
free and clear of all liens, restrictions, charges and encumbrances and not
subject to any adverse claim, when the same are acquired by the Company. The
undersigned will, upon request, execute and deliver any additional documents
deemed by the Company to be necessary or desirable to complete the exchange,
assignment and transfer of the Original Notes tendered.
The undersigned hereby represents and warrants that (i) it is not an
affiliate of the Company, (ii) if the undersigned is a broker-dealer, none of
the Original Notes being tendered hereby were purchased by it directly from
the Company, (iii) any Exchange Notes that it acquires in the Exchange Offer
will be acquired by it in the ordinary course of its business and (iv) it has
no arrangement with any person to participate in the distribution of the
Exchange Notes; provided, however, that if the undersigned is a broker-dealer
and is tendering hereby Original Notes that were acquired by it for its own
account as a result of market-making activities or other trading activities,
the undersigned represents and warrants, in lieu of the representation set
forth in clause (iv) immediately above, that it has no arrangement or
understanding with the Company, or any affiliate of the Company, to
participate in the distribution of the Exchange Notes. In addition, if the
undersigned is not the beneficial owner of any of the Original Notes being
tendered hereby, the undersigned confirms that the beneficial owner of such
Original Notes has made the representations and warranties provided for in the
preceding sentence.
The undersigned understands that any broker-dealer (a "Participating
Broker-Dealer") that, pursuant to the Exchange Offer, receives Exchange
Notes in exchange for Original Notes that were acquired by it for its own
account as a result of market-making activities or other trading activities,
will be required to deliver a prospectus meeting the requirements of the
Securities Act in connection with any resales by it of any such Exchange Notes.
If the undersigned is a Participating Broker-Dealer, the undersigned
acknowledges that it will comply with such prospectus delivery requirement in
connection with any resale of Exchange Notes. In addition, if the undersigned is
not the beneficial owner of any of the Original Notes being tendered hereby, the
undersigned confirms that the beneficial owner of such Original Notes has made
the acknowledgment provided for in the preceding sentence.
2
<PAGE>
By making the acknowledgment provided for in this paragraph, a Participating
Broker-Dealer will not be deemed to admit that it is an "underwriter"
within the meaning of the Securities Act.
The undersigned understands that tenders of Original Notes pursuant to the
procedures described under "The Exchange Offer--Procedures for
Tendering" in the Prospectus and in the instruction attached hereto will,
upon the Company's acceptance for exchange of such tendered Original Notes,
constitute a binding agreement between the undersigned and the Company upon the
terms and subject to the conditions of the Exchange Offer. The undersigned
recognizes that, under certain circumstances set forth in the Prospectus, the
Company may not be required to accept for exchange any of the Original Notes
tendered hereby.
All authority conferred or agreed to be conferred by this Letter of
Transmittal shall survive the death, incapacity or dissolution of the
undersigned, and every obligation of the undersigned under this Letter of
Transmittal shall be binding upon the undersigned's heirs, legal
representatives, successors, assigns, executors and administrators.
Please sign below
X ________________________________________________________ Date: ____________
(SIGNATURE(S) OF BOOK ENTRY HOLDER OF ORIGINAL NOTES)
Area Code and Telephone Number: _______________________________________________
Taxpayer Identification or Social Security Number: ____________________________
(The above lines must be signed by the Book-Entry Holder of Original Notes
exactly as the name of such Book-Entry Holder appears on the records of DTC)
If signature is by a trustee, executor, administrator, guardian, attorney-
in-fact, officer of a corporation or other person acting in a fiduciary or
representative capacity, then such person must (i) set forth his or her full
name and title below, and (ii) unless waived by the Company, submit evidence
satisfactory to the Company of such person's authority so to act.
Name(s): ______________________________________________________________________
(PLEASE TYPE OR PRINT)
Capacity (Full Title): ________________________________________________________
Address: ______________________________________________________________________
________________________________________________________________________
(INCLUDE ZIP CODE)
3
<PAGE>
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE EXCHANGE OFFER
1. DELIVERY OF THIS LETTER OF TRANSMITTAL AND ORIGINAL NOTES. The term
"Book Entry Holder" with respect to any Original Notes means the
participant in the DTC system that is listed as the holder of such notes in the
records maintained by DTC. Only a Book-Entry Holder of Original Notes may tender
such Original Notes pursuant to the Exchange Offer. Tenders of Original Notes
will be accepted only in integral multiples of $1,000. To tender any Original
Notes pursuant to the Exchange Offer, the Book-Entry Holder of such Original
Notes must make book-entry delivery of such Original Notes by causing DTC to
transfer such Original Notes to the account of the Exchange Agent at DTC in
accordance with DTC's Automated Tender Offer Program ("ATOP") prior to
5:00 p.m., New York City time, on the Expiration Date. In addition, either (i)
DTC must deliver an Agent's Message (as defined below) prior to 5:00 p.m., New
York City time, on the Expiration Date, indicating that DTC has received from
such Book-Entry Holder an express acknowledgment that such Book-Entry Holder has
received and agrees to be bound by the terms of the Letter of Transmittal or
(ii) such Book-Entry Holder must complete, sign and date the Letter of
Transmittal or a facsimile thereof, in accordance with the instructions
contained herein and deliver such Letter of Transmittal, or such facsimile, to
the Exchange Agent at the address set forth above prior to 5:00 p.m., New York
City time, on the Expiration Date. DELIVERY OF DOCUMENTS TO DTC DOES NOT
CONSTITUTE DELIVERY TO THE EXCHANGE AGENT.
The term "Agent's Message" means a message transmitted by DTC to, and
received by, the Exchange Agent and forming part of the book-entry confirmation
relating to a book-entry transfer of Original Notes through ATOP, which states
that DTC has received an express acknowledgment from the DTC Participant that is
tendering the Original Notes which are the subject of such book entry
confirmation, that such DTC Participant has received and agrees to be bound by
the terms of the Letter of Transmittal.
THE METHOD OF DELIVERY OF THE LETTER OF TRANSMITTAL TO THE EXCHANGE AGENT IS AT
THE ELECTION AND RISK OF THE HOLDER. INSTEAD OF DELIVERY BY MAIL, IT IS
RECOMMENDED THAT HOLDERS USE AN OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL
CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE TIMELY DELIVERY TO THE
EXCHANGE AGENT BEFORE THE EXPIRATION DATE. NO LETTER OF TRANSMITTAL SHOULD BE
SENT TO THE COMPANY.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance of tendered Original Notes and withdrawal of tendered
Original Notes will be determined by the Company in its sole discretion, which
determination will be final and binding. The Company reserves the absolute right
to reject any and all Original Notes not properly tendered or any Original Notes
the Company's acceptance of which would, in the opinion of counsel for the
Company, be unlawful. The Company also reserves the right to waive any
irregularities or conditions of tender as to particular Original Notes. The
Company's interpretation of the terms and conditions of the Exchange Offer
(including the instructions in the Letter of Transmittal) will be final and
binding on all parties. Unless waived, any defects or irregularities in
connection with tenders of Original Notes must be cured within such time as the
Company shall determine. Neither the Company, the Exchange Agent nor any other
person shall be under any duty to give notification of defects or irregularities
with respect to tenders of Original Notes, nor shall any of them incur any
liability for failure to give such notification. Tenders of Original Notes will
not be deemed to have been made until such irregularities have been cured or
waived. Any Original Notes received by the Exchange Agent that are not properly
tendered or the tender of which is otherwise rejected by the Company and as to
which the defects or irregularities have not been cured or waived will be
returned by the Exchange Agent to the Book-Entry Holder that tendered such
Original Notes (by crediting an account maintained at DTC designated by such
Book-Entry Holder) as soon as practicable following the Expiration Date.
2. WITHDRAWALS. Tenders of Original Notes may be withdrawn at any time prior to
5:00 p.m., New York City time, on the Expiration Date. To withdraw a tender of
Original Notes pursuant to the Exchange Offer, the Book-Entry Holder that
tendered such Original Notes must, prior to 5:00 p.m., New York City time, on
the
4
<PAGE>
Expiration Date, either (i) withdraw such tender in accordance with the
appropriate procedures of the ATOP system or (ii) deliver to the Exchange Agent
a written or facsimile transmission notice of withdrawal at the address set
forth herein. Any such notice of withdrawal must contain the name and number of
the Book-Entry Holder, the amount of Original Notes to which such withdrawal
relates, the account at DTC to be credited with the withdrawn Original Notes and
the signature of the Book-Entry Holder. All questions as to the validity, form
and eligibility (including time of receipt) of such withdrawal notices will be
determined by the Company, whose determination will be final and binding on all
parties. Any Original Notes so withdrawn will be deemed not to have been validly
tendered for purposes of the Exchange Offer, and no Exchange Notes will be
issued with respect thereto unless the Original Notes so withdrawn are validly
retendered. Any Original Notes which have been tendered but which are withdrawn
will be returned by the Exchange Agent to the Book-Entry Holder that tendered
such Original Notes (by crediting an account maintained at DTC designated by
such Book-Entry Holder) as soon as practicable after withdrawal. Properly
withdrawn Original Notes may be retendered at any time prior to the Expiration
Date by following the procedures described in paragraph 1 above.
3. TRANSFER TAXES. The Company will pay all transfer taxes, if any, applicable
to the exchange of Original Notes pursuant to the Exchange Offer. If, however,
Exchange Notes or Original Notes for principal amounts not tendered or accepted
for exchange are to be delivered to, or are to be registered or issued in the
name of, any person other than the Book-Entry Holder of the Original Notes
tendered, or if a transfer tax is imposed for any reason other than the exchange
of Original Notes pursuant to the Exchange Offer, then the amount of any such
transfer taxes (whether imposed on the Book-Entry Holder or any other persons)
will be payable by the tendering Holder. If satisfactory evidence of payment of
such taxes or exemption therefrom is not submitted with the Letter of
Transmittal, the amount of such transfer taxes will be billed directly to such
tendering Holder.
4. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Questions and requests for
assistance and requests for additional copies of the Prospectus or this Letter
of Transmittal may be directed to the Exchange Agent at the address specified in
the Prospectus.
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