<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 17, 1997
REGISTRATION NO. 333-39117
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
UNITED RENTALS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 7353 06-1493538
(STATE OR OTHER (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
JURISDICTION OF CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
INCORPORATION OR
ORGANIZATION)
FOUR GREENWICH OFFICE PARK
GREENWICH, CONNECTICUT 06830
(203) 622-3131
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
BRADLEY S. JACOBS
UNITED RENTALS, INC.
FOUR GREENWICH OFFICE PARK
GREENWICH, CONNECTICUT 06830
(203) 622-3131
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
----------------
Copies of all communications to:
JOSEPH EHRENREICH, ESQ. STEPHEN M. BESEN, ESQ. PHYLLIS G. KORFF, ESQ.
WEIL, GOTSHAL & MANGES LLP SKADDEN, ARPS, SLATE,
EHRENREICH EILENBERG 767 FIFTH AVENUE MEAGHER & FLOM LLP
KRAUSE & ZIVIAN LLP
NEW YORK, NEW YORK 10153 919 THIRD AVENUE
11 EAST 44TH STREET
(212) 310-8000 NEW YORK, NEW YORK 10022
NEW YORK, NEW YORK 10017 (212) 735-3000
(212) 986-9700
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, please check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
CALCULATION OF REGISTRATION FEE
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TITLE OF EACH CLASS OF PROPOSED MAXIMUM AMOUNT OF
SECURITIES TO BE REGISTERED AGGREGATE OFFERING PRICE(1) REGISTRATION FEE
- -------------------------------------------------------------------------
<S> <C> <C>
Common Stock, $0.01 par
value................. $112,700,000 $34,152(2)
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(1) Estimated solely for the purpose of calculating the amount of the
registration fee pursuant to Rule 457(o) promulgated under the Securities
Act of 1933.
(2) A portion of this fee ($24,243) was paid in connection with the original
filing of this Registration Statement.
----------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A)
OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION
8(A), MAY DETERMINE.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
EXPLANATORY NOTE
This Registration Statement contains two forms of prospectus: one to be used
in connection with an offering in the United States and Canada (the "U.S.
Prospectus") and one to be used in a concurrent offering outside the United
States and Canada (the "International Prospectus"). The two prospectuses are
identical except for the front and back cover pages, the inside front cover
page, and the section entitled "Underwriting." The form of the U.S. Prospectus
is included herein and is followed by the alternate pages to be used in the
International Prospectus. Each of the alternate pages for the International
Prospectus included herein is labeled "Alternate Page for International
Prospectus." Final forms of each Prospectus will be filed with the Securities
and Exchange Commission under Rule 424(b).
<PAGE>
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS, DATED , 1997
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
PROSPECTUS
7,000,000 SHARES
[LOGO]
UNITED RENTALS, INC.
COMMON STOCK
-----------
All of the shares of Common Stock, $.01 par value (the "Common Stock"),
offered hereby are being offered by United Rentals, Inc., a Delaware
corporation (the "Company").
Of the Common Stock offered hereby, 5,600,000 shares are being offered
initially in the United States and Canada by the U.S. Underwriters (the "U.S.
Offering"), and 1,400,000 shares are being offered initially in a concurrent
international offering outside the United States and Canada by the
International Managers (the "International Offering", and together with the
U.S. Offering, the "Offerings"). The initial public offering price and the
underwriting discount per share are identical for each of the Offerings. See
"Underwriting."
Prior to the Offerings, there has been no public market for the Common Stock.
It is currently estimated that the initial public offering price will be
between $12.00 and $14.00 per share. For information relating to factors to be
considered in determining the initial public offering price, see
"Underwriting." Shares of Common Stock are being offered for sale to certain
employees, directors and business associates of, and certain other persons
designated by, the Company at the initial public offering price. Such
employees, directors and other persons are expected to purchase, in the
aggregate, not more than 10% of the Common Stock offered in the Offerings.
Application will be made to list the Common Stock on the under the symbol
" ", subject to official notice of issuance.
SEE "RISK FACTORS" BEGINNING ON PAGE 7 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED
HEREBY.
-----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT(1) COMPANY(2)
- ----------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share...................................... $ $ $
- ----------------------------------------------------------------------------------
Total(3)....................................... $ $ $
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(1) The Company has agreed to indemnify the several Underwriters against
certain liabilities, including liabilities under the Securities Act of
1933, as amended (the "Securities Act"). See "Underwriting."
(2) Before deducting expenses of the Offerings payable by the Company estimated
at $1,500,000.
(3) The Company has granted the U.S. Underwriters and the International
Managers options to purchase up to an additional 840,000 shares and 210,000
shares of Common Stock, respectively, in each case exercisable within 30
days of the date hereof, solely to cover over-allotments, if any. If such
options are exercised in full, the total Price to Public, Underwriting
Discount and Proceeds to the Company will be $ , $ and $ ,
respectively. See "Underwriting."
-----------
The shares of Common Stock are being offered by the several Underwriters,
subject to prior sale, when, as and if issued to and accepted by them, subject
to the approval of certain legal matters by counsel for the Underwriters and to
certain other conditions. The Underwriters reserve the right to withdraw,
cancel or modify such offer and to reject orders in whole or in part. It is
expected that delivery of the shares of Common Stock will be made in New York,
New York, on or about , 1997.
-----------
MERRILL LYNCH & CO.
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
DEUTSCHE MORGAN GRENFELL
-----------
The date of this Prospectus is , 1997
<PAGE>
Certain persons participating in the Offerings may engage in transactions
that stabilize, maintain or otherwise affect the price of the Common Stock.
Such transactions may include stabilizing, the purchase of Common Stock to
cover syndicate short positions and the imposition of penalty bids. For a
description of these activities, see "Underwriting."
2
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety, and should be read in
conjunction with, the more detailed information and financial statements and
notes thereto appearing elsewhere in this Prospectus. Unless otherwise
indicated, the terms "United Rentals" and "the Company" refer collectively to
United Rentals, Inc. and its subsidiaries. The Company commenced rental
operations in October 1997 by acquiring six established equipment rental
companies (the "Initial Acquired Companies"). All financial and operating data
for the Company contained herein with respect to 1996 and the first nine months
of 1997 is on a pro forma basis giving effect to the acquisition of the Initial
Acquired Companies and the financing thereof as of the beginning of the
specified period. Unless otherwise indicated, the information contained in this
Prospectus assumes no exercise of the Underwriters' over-allotment option.
THE COMPANY
United Rentals was formed in September 1997 for the purpose of creating a
large geographically diversified equipment rental company and commenced rental
operations in October 1997 by acquiring six established equipment rental
companies. The Company rents a broad array of equipment to a diverse customer
base that includes construction industry participants, industrial companies,
homeowners and other individuals. The Company also engages in related
activities such as selling used rental equipment, acting as a distributor for
certain new equipment, and selling related merchandise and parts. The Company
had pro forma revenues of $51.9 million during 1996 and $42.1 million during
the first nine months of 1997.
United Rentals currently operates 12 rental locations in five states:
California (6), Colorado (1), North Carolina (3), Texas (1), and Utah (1). The
Company's locations are managed by experienced professionals who have been
involved in the equipment rental industry an average of 24 years and have
substantial knowledge of the local markets served. These managers are former
owners/employees of the businesses acquired by the Company. The types of rental
equipment offered by the Company include a broad range of light to heavy
construction and industrial equipment (such as pumps, generators, forklifts,
backhoes, cranes, bulldozers, aerial lifts and compressors), general tools and
equipment (such as hand tools and garden and landscaping equipment) and
party/special event equipment (such as tents, tables and chairs). The equipment
mix varies at each of the Company's locations, with some locations offering a
general mix and some specializing in specific equipment categories. As of
October 28, 1997, the Company's rental equipment included over 12,000 units
(not including party/special event equipment) and had an original purchase
price of approximately $62.5 million and a weighted average age (based on
original purchase price) of approximately four years.
The domestic equipment rental industry generates estimated annual revenues in
excess of $20 billion and has grown at an estimated compound annual rate in
excess of 20% since 1990. The Company believes that this growth reflects
increasing recognition by customers of the many advantages that equipment
rental may offer compared with ownership, including the ability to: (i) avoid
the large capital investment required for equipment purchases, (ii) reduce
storage and maintenance costs, (iii) supplement owned equipment, thereby
increasing the range and number of jobs that can be worked on, (iv) access a
broad selection of equipment and select the equipment best suited for each
particular job, (v) obtain equipment as needed and minimize the costs
associated with idle equipment, and (vi) access the latest technology without
investing in new equipment.
The equipment rental industry is highly fragmented and consists of a small
number of multi-location regional or national operators and a large number of
relatively small, independent businesses serving discrete local markets. The
fragmented nature of the industry is reflected in the following data: (i) there
are only five equipment rental companies that had 1996 equipment rental
revenues in excess of $100 million (with the largest company having 1996
equipment rental revenues of approximately $400 million), (ii) the largest 100
equipment rental companies combined have less than a 20% share of the market
based on 1996 equipment rental revenues
3
<PAGE>
(with the largest company having a market share of approximately 3%), and (iii)
there are approximately 100 equipment rental companies that had 1996 equipment
rental revenues between $5 million and $100 million. In addition, the Company
estimates that there are more than 20,000 companies with annual equipment
rental revenues of less than $5 million. The Company believes that the
fragmented nature of the industry presents substantial consolidation and growth
opportunities for companies with access to capital and the ability to implement
a disciplined acquisition program and effectively integrate and operate
acquired companies.
GROWTH STRATEGY
The Company's growth strategy is to expand through a disciplined acquisition
program, the opening of new rental locations and internal growth and to further
diversify its equipment categories and customer markets. The Company believes
that as it expands it should gain competitive advantages relative to smaller
operators, including greater purchasing power, a lower cost of capital, the
ability to provide customers with a broader range of equipment and services and
with newer and better maintained equipment, and greater flexibility to transfer
equipment among locations in response to customer demand.
The Company is seeking to acquire companies of varying size, including
relatively large companies to serve as platforms for regional development and
smaller companies to complement existing or anticipated locations. In
evaluating potential acquisition targets, the Company considers a number of
factors, including the quality of the target's rental equipment and management,
the opportunities to improve operating margins and increase internal growth at
the target, the economic prospects of the region in which the target is
located, the potential for additional acquisitions in the region, and the
competitive landscape in the target's markets. The Company will seek expansion
opportunities in the United States and Canada and will pursue acquisition
candidates with varying types of equipment and customer specializations. The
Company believes that geographic and customer diversification will allow the
Company to participate in the overall growth of the equipment rental industry
and reduce the Company's sensitivity to fluctuations in regional economic
conditions or changes that affect particular market segments.
The Company believes that there will be significant opportunities to improve
operating margins at acquired companies through the efficient integration of
new and existing operations, the elimination of duplicative costs, reduction in
overhead, the centralization of functions such as purchasing and information
technology, and the application of best practices. The Company also believes
that a lack of capital has constrained expansion and modernization at many
small and mid-sized equipment rental companies and that as a result there is
significant potential to increase internal growth at many acquired companies
through capital investment. The Company will seek to increase internal growth
by investing in additional and more modern equipment, using advanced
information technology systems to improve asset utilization and tracking,
increasing sales and marketing efforts, expanding the customer segments and
geographic areas served, and opening complementary locations.
BACKGROUND
The Company was founded by eight of the Company's officers, who contributed
an aggregate of $44.4 million in cash to the capital of the Company. Each of
the founders was formerly a senior executive of United Waste Systems, Inc.
("United Waste"), a solid waste management company that was sold in August
1997, or a senior member of United Waste's acquisition team. United Waste
executed a growth strategy that combined a disciplined acquisition program
(including over 200 acquisitions completed from January 1995 through August
1997), the integration and optimization of acquired facilities, and internal
growth. The Company believes that the extensive experience of its management
team in acquiring and effectively integrating and operating acquisition targets
should enable the Company to capitalize on consolidation opportunities in the
equipment rental industry.
United Rentals, Inc. was incorporated under the laws of the State of Delaware
in August 1997, initially capitalized in September 1997 and commenced rental
operations in October 1997 by acquiring the six Initial Acquired Companies. The
executive offices of the Company are located at Four Greenwich Office Park,
Greenwich, Connecticut 06830, and its telephone number is (203) 622-3131.
4
<PAGE>
THE OFFERINGS
<TABLE>
<C> <S>
Common Stock offered hereby ..... 7,000,000 shares(1)
Common Stock to be outstanding
after the Offerings ............ 23,366,156 shares(1)(2)
Use of Proceeds ................. The net proceeds from the Offerings will be
used (i) to repay approximately $35 million
of outstanding indebtedness under the
Company's $55 million revolving credit
facility (the "Credit Facility") and (ii)
for future acquisitions, capital
expenditures and general corporate
purposes. See "Use of Proceeds."
Proposed Symbol .................
</TABLE>
- --------
(1) Assumes no exercise of the over-allotment options granted by the Company to
the Underwriters.
(2)Does not include (i) 6,342,858 shares issuable upon the exercise of
outstanding warrants ("Warrants"), all of which are currently exercisable at an
exercise price of $10.00 per share, (ii) 762,500 shares issuable upon the
exercise of outstanding options granted pursuant to the Company's 1997 Stock
Option Plan, which provide for exercise prices ranging from $10.00 to $30.00
per share, the weighted average exercise price being $12.36 per share, (iii)
4,237,500 shares reserved for possible future grants of options under the
Company's 1997 Stock Option Plan, and (iv) shares issuable upon conversion of a
$300,000 convertible note which provides for a conversion price per share equal
to 120% of the initial public offering price per share in the Offerings. Also
does not reflect adjustments which may change the number of shares issued as
consideration for the acquisition of one of the Initial Acquired Companies. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Consideration Paid for Initial Acquired Companies," "Management--
Capital Contributions by Officers and Directors" and "Description of Capital
Stock--Warrants, Options and Convertible Notes."
RISK FACTORS
See "Risk Factors" beginning on page 7 for a discussion of certain risks that
should be considered in connection with an investment in the Common Stock
offered hereby.
5
<PAGE>
SUMMARY HISTORICAL AND PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
The Company was incorporated in August 1997, initially capitalized in
September 1997, and commenced rental operations in October 1997 by acquiring
the six Initial Acquired Companies. The following unaudited pro forma income
statement data with respect to each of the periods set forth below gives effect
to the acquisition of each of the Initial Acquired Companies, the financing of
each such acquisition and all issuances of Common Stock after the beginning of
the period, as if all such transactions had occurred at the beginning of the
period presented. The following unaudited pro forma balance sheet data as of
September 30, 1997 gives effect to the acquisition of each of the Initial
Acquired Companies, the financing of each such acquisition, and all issuances
of Common Stock after September 30, 1997, as if all such transactions had
occurred on such date. The following unaudited pro forma as adjusted balance
sheet data gives effect to the foregoing and to completion of the Offerings at
an assumed initial public offering price of $13.00 per share and the
application of a portion of the estimated net proceeds therefrom to repay
outstanding indebtedness under the Credit Facility. See "Use of Proceeds" and
"Capitalization."
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
------------------- ------------------------------------
PERIOD FROM
AUGUST 14, 1997 NINE MONTHS
(INCEPTION) THROUGH YEAR ENDED ENDED
SEPTEMBER 30, 1997 DECEMBER 31, 1996 SEPTEMBER 30, 1997
------------------- ----------------- ------------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
INCOME STATEMENT DATA:
Total revenues.......... $ -- $51,889 $ 42,095
Gross profit............ -- 19,445 15,210
Operating income
(loss)................. (348) 7,255 5,542
Interest expense ....... -- 1,644 1,234
Other (income) expense,
net.................... (75) (317) (482)
------- ------- --------
Income (loss) before in-
come taxes............. (273) 5,928 4,790
Income taxes............ -- 2,371 1,916
------- ------- --------
Net income (loss)....... $ (273) $ 3,557 $ 2,874
======= ======= ========
Earnings (loss) per com-
mon share.............. $ (0.02) $ 0.20 $ 0.16
======= ======= ========
<CAPTION>
AS OF SEPTEMBER 30, 1997
--------------------------------------------------------
PRO FORMA
HISTORICAL PRO FORMA AS ADJUSTED
------------------- ----------------- ------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equiva-
lents.................. $54,638 $ 50 $ 56,758
Rental equipment, net... -- 37,117 37,117
Total assets............ 54,851 93,107 149,815
Debt.................... -- 26,733 300
Stockholders' equity.... 54,699 60,469 143,609
</TABLE>
6
<PAGE>
RISK FACTORS
An investment in the shares of Common Stock offered hereby involves a high
degree of risk. In addition to the other information in this Prospectus, the
following Risk Factors should be considered carefully in evaluating an
investment in the Common Stock.
RECENTLY FORMED COMPANY; ABSENCE OF OPERATING HISTORY
The Company was incorporated in August 1997, initially capitalized in
September 1997, and commenced equipment rental and related operations in
October 1997 by acquiring the six Initial Acquired Companies. The Company's
historical financial statements included herein only cover the period from
inception through September 30, 1997, and principally reflect the initial
activities of the Company relating to the Company's organization, search for
acquisition candidates and development of the management team and
infrastructure required to support its growth strategy and manage the expanded
operations that the Company is seeking to build. Since the acquisitions of the
Initial Acquired Companies were closed subsequent to September 30, 1997 and
accounted for as purchases, the Company's historical financial statements do
not reflect the results of the acquired businesses even though such businesses
have been in existence an average of 25 years. Consequently, the Company has
no operating history relating to its business upon which an evaluation of the
Company and its prospects can be based.
INITIAL ACQUIRED COMPANIES NOT HISTORICALLY OPERATED AS A COMBINED BUSINESS
Although the Initial Acquired Companies have been in existence an average of
25 years, the businesses of these companies have not historically been
operated as a combined business. There can be no assurance that the Company
will be able to integrate successfully the businesses of the Initial Acquired
Companies (or the businesses of any companies acquired in the future), to
operate them profitably on a combined basis, or to effectively manage the
combined business. Failure by the Company to successfully integrate or
effectively manage the Initial Acquired Companies could have a material
adverse effect on the Company's results of operations and financial condition.
START-UP LOSSES
During the period from August 14, 1997 (inception) through September 30,
1997, the Company had a net loss of $273,000. This loss reflected the fact
that during this period (which preceded the commencement of the Company's
equipment rental operations) the Company had no revenues but incurred costs
relating to the Company's organization, search for acquisition candidates and
development of the management team and infrastructure required to support its
growth strategy and manage the expanded operations that the Company is seeking
to build. The Company may also report a net loss for the fourth quarter of
1997, reflecting the fact that (i) the Company in the fourth quarter continued
to incur substantial expenses for the foregoing purposes and (ii) the results
of the Initial Acquired Companies will only be included in the Company's
results for a portion of the quarter. The Pro Forma Consolidated Financial
Statements of the Company included elsewhere herein give pro forma effect to
the acquisitions of the Initial Acquired Companies and the financing thereof,
as more fully described in the Notes to such statements. On such a pro forma
basis, the Company had revenues of $51.9 million and $42.1 million during 1996
and the first nine months of 1997, respectively, and net income during such
periods of $3.6 million and $2.9 million, respectively. Such pro forma
results, however, are not necessarily indicative of the actual results of
operations that would have occurred had the acquisitions of the Initial
Acquired Companies occurred at the beginning of the respective periods
presented or of the results that may occur in the future. There can be no
assurance that the Company will achieve profitability in the near term, if at
all.
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
7
<PAGE>
that the Company will successfully implement its growth strategy or that, if
implemented, such strategy will result in profitability. The Company's growth
strategy involves a number of risks and uncertainties, including:
Availability of Acquisition Targets and Sites for Start-up Locations. The
Company may encounter substantial competition in its efforts to identify and
acquire appropriate acquisition candidates and sites for start-up locations,
which could have the effect of increasing prices for acquisitions or such
sites. There can be no assurance that the Company will succeed in identifying
appropriate acquisition candidates or sites for start-up locations or that the
Company will be able to acquire any acquisition candidate or site that it does
identify on terms that are acceptable to the Company.
Need to Integrate New Operations. As the Company grows, the Company intends
to focus substantial efforts on the efficient integration of new operations,
the elimination of duplicative costs and reduction in overhead. There can be
no assurance, however, that the Company will be successful in these efforts or
that these efforts may not in certain circumstances adversely affect existing
operations.
Need to Recruit Additional Personnel. The Company will require additional
personnel in order to implement its growth strategy and support expanded
operations. Accordingly, the Company is in the process of recruiting
additional operating, acquisition, finance and other personnel from the
equipment rental industry and from other industries. There can be no
assurance, however, that the Company will succeed in recruiting the requisite
qualified personnel as and when needed.
Certain Risks Related to Start-up Locations. The Company to date has not
established any start-up locations and there can be no assurance that the
Company will successfully establish any such locations in the near term or at
all. The Company expects that start-up locations may initially have a negative
impact on results of operations and margins due to several factors, including:
(i) the Company will incur significant start-up expenses in connection with
establishing each start-up location and (ii) it will generally take some time
following the commencement of operations at a start-up location before
profitability can be achieved. There can be no assurance that any start-up
location will become profitable within the first several years of operations,
if at all.
DEPENDENCE ON ADDITIONAL CAPITAL TO FINANCE GROWTH
The Company's growth strategy will require substantial capital investment.
Capital will be required by the Company for, among other purposes, completing
acquisitions, establishing new rental locations, integrating completed
acquisitions, acquiring rental equipment and maintaining the condition of its
rental equipment. The Company intends to pay for future acquisitions using
cash, capital stock, notes and/or assumption of indebtedness. To the extent
that cash generated internally and cash available under the Credit Facility is
not sufficient to provide the capital required for such purposes and future
operations, the Company will require additional debt and/or equity financing
in order to provide for such capital. There can be no assurance, however, that
such financing will be available or, if available, will be available on terms
satisfactory to the Company. Failure by the Company to obtain sufficient
additional capital in the future could limit the Company's ability to
implement its business strategy. Future debt financings, if available, may
result in increased interest and amortization expense, increased leverage,
decreased income available to fund further acquisitions and expansion, and may
limit the Company's ability to withstand competitive pressures and render the
Company more vulnerable to economic downturns. Future equity financings may
dilute the equity interest of existing stockholders.
POSSIBLE UNDISCOVERED LIABILITIES OF ACQUIRED COMPANIES
Although the Company performs a due diligence investigation of each business
that it acquires, there may nevertheless be liabilities of the Initial
Acquired Companies or future acquired companies that the Company fails or is
unable to discover during its due diligence investigation and for which the
Company, as a successor owner, may be responsible. The Company seeks to
minimize the impact of these liabilities by obtaining indemnities and
warranties from the seller which may be supported by deferring payment of a
portion of the purchase price. However, these indemnities and warranties, if
obtained, may not fully cover the liabilities due to their limited scope,
amount, or duration, the financial limitations of the indemnitor or warrantor,
or other reasons.
8
<PAGE>
DEPENDENCE ON MANAGEMENT
The Company is highly dependent upon its senior management team. The loss of
the services of any member of senior management may have a material adverse
effect on the Company. The Company's Credit Facility provides that the failure
of certain members of the Company's current senior management to continue to
hold executive positions with the Company for a period of 30 consecutive days
constitutes an event of default under the Credit Facility unless replacement
officers satisfactory to the lenders are appointed. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Liquidity and Capital Resources." The Company does not presently maintain "key
man" life insurance with respect to members of senior management.
The Company's rental locations are managed by regional and local managers
who have an average of 24 years of experience in the equipment rental industry
and substantial knowledge of the local markets served. These managers are
former owners/employees of the businesses acquired by the Company. The loss of
one or more of these managers may have a material adverse effect on the
Company in the event that the Company is unable to find a suitable replacement
in a timely manner.
The Company's present dependence on regional and local managers is
heightened by the fact that the Company's founding senior management team,
while having substantial acquisition and operating experience in other
industries (particularly the solid waste industry), does not have experience
in the equipment rental industry.
NEED FOR INTEGRATED INFORMATION TECHNOLOGY SYSTEMS
Due to the recent formation of the Company, the Company has not yet fully
implemented the type of integrated information technology systems that it will
require in order to effectively integrate, manage and optimize its operations.
Consequently, each acquired business is currently using the systems that it
had in place at the time it was acquired. The Company is currently in the
process of selecting and implementing the required information technology
systems. This process involves substantial time and costs. There can be no
assurance that the Company will not encounter unexpected delays and costs in
connection with implementing such systems or that such systems when installed
will initially function in accordance with the Company's expectations.
COMPETITION
The equipment rental industry is highly fragmented and competitive. The
Company's competitors include public companies or divisions of public
companies; regional competitors which operate in one or more states; small,
independent businesses with one or two rental locations; and equipment vendors
and dealers who both sell and rent equipment directly to customers. Certain of
the Company's competitors are larger and have greater financial resources than
the Company. There can be no assurance that the Company will not encounter
increased competition from existing competitors or new market entrants or that
equipment manufacturers will not commence, or increase their efforts, to rent
or sell equipment directly to the Company's customers. In addition, to the
extent that competitors seek to gain or retain market share by reducing
prices, the Company may be required to lower its prices, thereby affecting
operating results. See "Business--Competition."
SENSITIVITY TO GENERAL ECONOMIC AND WEATHER CONDITIONS
The Company believes that the equipment rental business is sensitive to
changes in economic conditions and that demand for rental equipment can be
reduced significantly by adverse weather conditions. There can be no assurance
that the Company's business and financial condition will not be adversely
affected by (i) changes in general economic conditions, including national,
regional and local changes in construction and industrial activity, (ii)
increases in interest rates that may result in a higher cost of capital to the
Company, or (iii) adverse weather conditions that may decrease construction
and industrial activity.
QUARTERLY FLUCTUATIONS OF OPERATING RESULTS
The Company expects that its revenues and operating results may fluctuate
from quarter to quarter due to a number of factors, including: seasonal rental
patterns of the Company's customers (with rental activity tending to be lower
in the winter); changes in general economic conditions in the Company's
markets; the timing of acquisitions and the opening of start-up locations
(which generally will require a period of time to become profitable) and
related costs; the effect of the integration of acquired businesses and start-
up locations; the timing
9
<PAGE>
of expenditures for new equipment and the disposition of used equipment; and
price changes in response to competitive factors. These factors, among others,
may result in the Company's results of operations in some future periods not
meeting expectations, which could have a material adverse impact on the market
price of the Common Stock.
LIABILITY AND INSURANCE
The Company is subject to various possible claims, including claims for
personal injury or death caused by equipment rented or sold by the Company or
motor vehicle accidents involving Company delivery and service personnel and
compensation and other employment related claims. Although each of the Initial
Acquired Companies maintains its own insurance, the Company is in the process
of acquiring insurance subject to deductibles on a company-wide basis.
However, 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 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 that the Company will have sufficient
capital available to pay any uninsured claims.
ENVIRONMENTAL REGULATION
The Company uses hazardous materials, such as solvents, to clean and
maintain its rental equipment and generates and disposes of wastes such as
used motor oil, radiator fluid, solvents and batteries. In addition, the
Company currently dispenses, or may in the future dispense, petroleum products
from underground and above-ground storage tanks located at certain rental
locations. These and other activities of the Company are subject to various
federal, state and local laws and regulations governing the generation,
handling, storage, transportation, treatment and disposal of hazardous
substances and wastes. Under such laws, an owner or lessee of real estate may
be liable for, among other things, (i) the costs of removal or remediation of
certain hazardous or toxic substances located on, in, or emanating from, such
property, as well as related costs of investigation and property damage and
substantial penalties for violations of such laws, and (ii) environmental
contamination at facilities where its waste is or has been disposed. Such laws
often impose such liability without regard to whether the owner or lessee knew
of, or was responsible for, the presence of such hazardous or toxic
substances. Although the Company investigates each business or property that
it acquires or leases and believes there are no existing material liabilities
relating to non-compliance with environmental laws and regulations, there can
be no assurance that there are no undiscovered potential liabilities relating
to non-compliance with environmental laws and regulations, that historic or
current operations have not resulted in undiscovered conditions that will
require investigation and/or remediation under environmental laws, or that
future uses or conditions will not result in the imposition of environmental
liability upon the Company or expose the Company to third-party actions such
as tort suits. Furthermore, there can be no assurance that changes in
environmental regulations in the future will not require the Company to make
significant capital expenditures to change methods of disposal of hazardous
materials or otherwise alter aspects of its operations. See "Business--
Environmental Regulation."
BROAD DISCRETION ON APPLICATION OF PROCEEDS
The Company's business plan is general in nature and subject to change based
upon changing conditions and opportunities. As a result, the Company will have
broad discretion in applying the portion of the net proceeds not allocated to
the repayment of outstanding indebtedness under the Credit Facility (as well
as the proceeds of any future borrowings under the Credit Facility). The
Company may use the net proceeds for future acquisitions. The Company at
present is not party to any definitive agreements relating to future
acquisitions.
CONCENTRATED CONTROL
Immediately following completion of the Offerings, the officers and
directors of the Company will own an aggregate of 12,905,714 shares of Common
Stock, representing approximately 55% of the Company's outstanding Common
Stock (including 10,000,000 shares, representing approximately 43% of the
Company's outstanding Common Stock, beneficially owned by Bradley S. Jacobs,
Chairman and Chief Executive Officer of the Company) and will therefore be
able to elect the entire Board of Directors of the Company and to control the
Company's management and affairs. See "Principal Stockholders."
10
<PAGE>
NO PRIOR PUBLIC MARKET; POSSIBLE VOLATILITY OF STOCK PRICE
Prior to the Offerings, there has been no public market for the Common Stock,
and there can be no assurance that an active trading market will develop after
the Offerings or, if a trading market does develop, that it will be sustained
or that the shares of Common Stock could be resold at or above the initial
public offering price. The initial public offering price of the Common Stock
offered hereby will be determined through negotiations between the Company and
the representatives of the Underwriters and may not be an indication of the
actual value of the stock or of the price at which the Common Stock will
actually trade after the Offerings. After completion of the Offerings, the
market price of the Common Stock could be subject to significant variation due
to fluctuations in the Company's operating results, changes in earnings
estimates by securities analysts, the degree of success the Company achieves in
implementing its business strategy, changes in business or regulatory
conditions affecting the Company, its customers or its competitors, and other
factors. In addition, the financial markets may experience volatility that
affects the market prices of companies in ways unrelated to the operating
performance of such companies, and such volatility may adversely affect the
market price of the Common Stock.
IMMEDIATE AND SUBSTANTIAL DILUTION
The purchasers of the Common Stock offered hereby will experience immediate
and substantial dilution of $8.60 per share (assuming an initial public
offering price of $13.00 per share, the midpoint of the estimated price range),
representing the amount by which the purchase price of the Common Stock offered
hereby will exceed the pro forma net tangible book value of the Common Stock as
of September 30, 1997. If the Company issues additional Common Stock in the
future, including shares that may be issued in connection with future
acquisitions, purchasers of Common Stock in the Offerings may experience
further dilution in net tangible book value per share of Common Stock. See
"Dilution."
ABSENCE OF DIVIDENDS
The Company has never paid any dividends on its Common Stock and has no plans
to pay dividends on its Common Stock in the foreseeable future. See "Dividend
Policy."
SHARES ELIGIBLE FOR FUTURE SALE
Sales of substantial amounts of Common Stock (including shares issued upon
exercise of warrants or options), or the perception that such sales could
occur, could adversely affect prevailing market prices for the Common Stock.
The number of outstanding shares of Common Stock available for sale in the
public market will be limited by (i) agreements with the Underwriters pursuant
to which the Company, each of its officers and directors, and the holders of
the 318,712 shares issued as consideration for acquisitions have agreed not to
sell or otherwise dispose of any shares of Common Stock (including shares that
may be acquired upon the exercise of currently exercisable warrants) for a
period of 180 days after the date of this Prospectus without the prior written
consent of Merrill Lynch & Co., on behalf of the Underwriters (except that the
Company may issue shares as consideration for acquisitions, provided that the
Company may not issue in excess of 500,000 shares for acquisitions unless the
recipients of any excess shares agree to be subject to the foregoing lock-up
agreement with respect to such excess shares); (ii) agreements with the Company
(the "Stockholder Lock-up Agreements") pursuant to which each other holder of
currently outstanding shares of Common Stock has agreed not to sell or
otherwise transfer such shares without the prior written consent of the Company
(such agreements to lapse with respect to one-third of such shares on the
first, second and third anniversaries of the closing of the Offerings,
respectively); and (iii) an agreement with the Underwriters pursuant to which
the Company has agreed not to waive any Stockholder Lock-up Agreement for a
period of 180 days after the date of this Prospectus without the prior written
consent of Merrill Lynch & Co., on behalf of the Underwriters. See
"Underwriting." Subject to the foregoing agreements, substantially all of the
Company's outstanding shares of Common Stock and all shares that may hereafter
be issued upon the exercise of outstanding warrants will be eligible for sale
pursuant to a shelf registration statement covering such shares that the
Company intends to file prior to completion of the Offerings. The Company
expects to have such shelf registration statement declared effective upon the
completion
11
<PAGE>
of the Offerings. This registration statement will (subject to the above-
mentioned agreements and restrictions) enable the holders of such shares to
publicly dispose of such shares from time to time.
ANTI-TAKEOVER PROVISIONS
Certain provisions of the Company's Certificate of Incorporation and By-
laws, as well as applicable Delaware law, may have the effect of discouraging
unsolicited acquisition proposals or making it more difficult for a third
party to gain control of the Company. These provisions provide, among other
things, that (i) the Board of Directors shall be divided into three classes,
with directors of each class serving for a staggered three-year period, (ii)
directors may be removed only for cause and only upon the affirmative vote of
at least 66 2/3% of the voting power of all the then outstanding shares of
stock entitled to vote, (iii) stockholders may not act by written consent,
(iv) stockholder nominations and proposals may only be made if specified
advance notice requirements are complied with, (v) stockholders are precluded
from calling a special meeting of stockholders, and (vi) the Board of
Directors has the authority to issue up to 5,000,000 shares of preferred stock
in one or more series and to fix the powers, preferences and rights of any
such series without stockholder approval. Moreover, under certain conditions,
Section 203 of the Delaware General Corporation Law may prevent the Company
from engaging in a "business combination" with an "interested stockholder."
See "Certain Charter and By-law Provisions."
USE OF PROCEEDS
The net proceeds to the Company from the Offerings are estimated to be $83.1
million ($95.8 million if the Underwriters' over-allotment option is exercised
in full), assuming an initial public offering price of $13.00 per share (the
midpoint of the estimated price range) and after deduction of the estimated
underwriting discount and offering expenses. The Company expects to use such
net proceeds (i) to repay approximately $35 million of outstanding
indebtedness under the Company's Credit Facility and (ii) for future
acquisitions, capital expenditures and general corporate purposes. Pending use
of the net proceeds for such purposes, the Company plans to invest the net
proceeds in short-term, investment-grade, interest-bearing securities.
Under the terms of the Credit Facility, the Company may borrow on a
revolving basis up to $55 million until October 8, 2000, at which time all
outstanding loans must be paid in full. Outstanding loans under the Credit
Facility bear interest at a rate per annum equal to the Eurodollar Rate
(Reserve Adjusted) (as defined in the loan agreement providing for the Credit
Facility) applicable to each interest period plus 1.5% to 2.5% per annum or
the Alternate Reference Rate (as defined in such loan agreement) from time to
time in effect plus 0% to .25% per annum. At October 30, 1997, the weighted
average interest rate on the outstanding indebtedness was 7.4%. The proceeds
from the outstanding indebtedness under the Credit Facility have been used by
the Company to fund acquisitions. The repayment of the outstanding
indebtedness under the Credit Facility from the proceeds of the Offerings will
give the Company additional flexibility to reborrow funds under the Credit
Facility for future acquisitions, capital expenditures and general corporate
purposes. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Liquidity and Capital Resources" for additional
information regarding the Credit Facility.
DIVIDEND POLICY
The Company intends to retain all earnings for the foreseeable future for
use in the operation and expansion of its business and, accordingly, the
Company currently has no plans to pay dividends on its Common Stock. The
payment of any future dividends will be determined by the Board of Directors
in light of conditions then existing, including the Company's earnings,
financial condition and capital requirements, restrictions in financing
agreements, business conditions and other factors. Under the terms of the
Credit Facility, the Company is prohibited from paying dividends on its Common
Stock. In addition, under Delaware law, the Company is prohibited from paying
any dividends unless it has capital surplus or net profits available for this
purpose. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Liquidity and Capital Resources."
12
<PAGE>
DILUTION
At September 30, 1997, the pro forma net tangible book value (tangible
assets less liabilities) of the Company was $19.6 million, or $1.20 per share
of Common Stock, after giving effect to the acquisition of the Initial
Acquired Companies, the financing of each such acquisition, and all issuances
of Common Stock after September 30, 1997. After giving effect to the foregoing
and also giving effect to the sale by the Company of 7,000,000 shares of
Common Stock in the Offerings (assuming an initial public offering price of
$13.00 per share, the midpoint of the estimated price range, and after
deduction of the estimated underwriting discount and estimated expenses in
connection with the Offerings), the pro forma net tangible book value at
September 30, 1997 would have been $102.7 million, or approximately $4.40 per
share of Common Stock. This represents an immediate increase in pro forma net
tangible book value of approximately $3.20 per share to existing stockholders
and an immediate dilution of pro forma net tangible book value of $8.60 per
share to new investors purchasing shares in the Offerings. Dilution is
determined by subtracting pro forma net tangible book value per share of
Common Stock after the Offerings from the initial public offering price. The
following table illustrates the per share dilution:
<TABLE>
<CAPTION>
PER SHARE
---------
<S> <C> <C>
Assumed initial public offering price...................... $13.00
Pro forma net tangible book value per share before the Of-
ferings................................................... $1.20
Increase in net tangible book value per share attributable
to purchase of shares by new investors.................... 3.20
-----
Pro forma net tangible book value after the Offerings...... 4.40
------
Dilution to purchasing stockholders........................ $ 8.60
======
</TABLE>
The following table summarizes, on a pro forma basis as of the date of this
Prospectus, the following information with respect to the existing
stockholders of the Company (excluding stockholders who acquired shares as
consideration for acquisitions) and the purchasers of the shares offered
hereby: (i) the number of shares of Common Stock purchased from the Company,
(ii) the total consideration paid for such shares (assuming an initial public
offering price of $13.00 per share, the midpoint of the estimated price
range), and (iii) the average price per share paid for such shares.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
------------------ -------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ------------ ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders(1)..... 16,047,444 69.6% $ 53,774,625 37.1% $ 3.35
Purchasing stockholders...... 7,000,000 30.4 91,000,000 62.9 13.00
---------- ----- ------------ ----- ------
Total...................... 23,047,444 100.0% $144,774,625 100.0% $ 6.28
========== ===== ============ ===== ======
</TABLE>
- --------
(1) Certain officers of the Company purchased 12,685,714 units consisting of
one share of Common Stock and one-half of a Warrant at a price of $3.50
per unit. The Company estimates that the amount attributable to the share
of Common Stock included in the unit was $3.25. See "Management--Capital
Contributions by Officers and Directors."
13
<PAGE>
CAPITALIZATION
The following table sets forth (i) the capitalization of the Company as of
September 30, 1997, on an historical basis, (ii) such capitalization on a pro
forma basis giving effect to the acquisition of each of the Initial Acquired
Companies, the financing of each such acquisition, and all issuances of Common
Stock after September 30, 1997, and (iii) such pro forma capitalization as
adjusted to give effect to the sale of the 7,000,000 shares offered hereby at
an assumed initial public offering price of $13.00 per share (the midpoint of
the estimated range) and the application of a portion of the net proceeds to
repay indebtedness as described under "Use of Proceeds." This table should be
read in conjunction with the Consolidated Financial Statements and related
Notes thereto and the Pro Forma Consolidated Financial Statements and related
Notes thereto of the Company included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1997
------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Debt:
Credit Facility............................... $ -- $26,433 $ --
Convertible debt.............................. -- 300 300
------- ------- --------
Total debt.................................. -- 26,733 300
Stockholders' equity:
Preferred Stock, $.01 par value, 5,000,000
shares authorized; no shares issued and out-
standing..................................... -- -- --
Common Stock, $.01 par value, 75,000,000
shares authorized; 15,714,587 shares issued
and outstanding, 16,366,156 shares issued and
outstanding pro forma, and 23,366,156 shares
issued and outstanding pro forma as adjust-
ed(1)........................................ 157 164 234
Additional paid-in capital...................... 54,815 60,578 143,648
Accumulated deficit............................. (273) (273) (273)
------- ------- --------
Total stockholders' equity.................. 54,699 60,469 143,609
------- ------- --------
Total capitalization............................ $54,699 $87,202 $143,909
======= ======= ========
</TABLE>
- --------
(1) Does not include (i) 6,342,858 shares issuable upon the exercise of
outstanding warrants, all of which are currently exercisable at an
exercise price of $10.00 per share, (ii) 762,500 shares issuable upon the
exercise of outstanding options which provide for exercise prices ranging
from $10.00 to $30.00 per share, the weighted average exercise price being
$12.36 per share, (iii) 4,237,500 shares reserved for possible future
grants of options under the Company's 1997 Stock Option Plan, and (iv)
shares issuable upon conversion of a $300,000 convertible note which
provides for a conversion price per share equal to 120% of the initial
public offering price per share in the Offerings. Also does not reflect
adjustments which may change the number of shares issued as consideration
for the acquisition of one of the Initial Acquired Companies. See
"Management's Discussion and Analysis of Financial Condition and Results
of Operations--Consideration Paid for Initial Acquired Companies,"
"Management--Capital Contributions by Officers and Directors" and
"Description of Capital Stock--Warrants, Options and Convertible Notes."
14
<PAGE>
SELECTED HISTORICAL AND PRO FORMA
CONSOLIDATED FINANCIAL INFORMATION
The following table presents selected historical and pro forma income
statement and balance sheet data for the Company. The historical income
statement and balance sheet data are derived from the audited Financial
Statements of the Company included elsewhere in this Prospectus. The data
presented below should be read in conjunction with the Financial Statements
and related Notes thereto and the Pro Forma Consolidated Financial Statements
and related Notes thereto of the Company included elsewhere in this
Prospectus.
The following unaudited pro forma income statement data with respect to each
of the periods set forth below gives effect to the acquisition of each of the
Initial Acquired Companies, the financing of each such acquisition and all
issuances of Common Stock after the beginning of the period, as if all such
transactions had occurred at the beginning of the period presented. The
following unaudited pro forma balance sheet data as of September 30, 1997
gives effect to the acquisition of each of the Initial Acquired Companies, the
financing of each such acquisition, and all issuances of Common Stock after
September 30, 1997, as if all such transactions had occurred on such date. The
unaudited pro forma income statement data is not necessarily indicative of the
actual results of operations that would have occurred had the foregoing
transactions occurred at the beginning of the respective periods presented or
of the results that may occur in the future. The following unaudited pro forma
as adjusted balance sheet data gives effect to the foregoing and to completion
of the Offerings at an assumed initial public offering price of $13.00 per
share (the midpoint of the estimated range) and the application of a portion
of the estimated net proceeds therefrom to repay outstanding indebtedness
under the Credit Facility. See "Use of Proceeds" and "Capitalization."
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
------------------- ------------------------------------
PERIOD FROM
AUGUST 14, 1997 NINE MONTHS
(INCEPTION) THROUGH YEAR ENDED ENDED
SEPTEMBER 30, 1997 DECEMBER 31, 1996 SEPTEMBER 30, 1997
------------------- ----------------- ------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
INCOME STATEMENT DATA:
Total revenues.......... $ -- $51,889 $ 42,095
Total cost of opera-
tions.................. -- 32,444 26,885
------- ------- --------
Gross profit............ -- 19,445 15,210
Selling, general and ad-
ministrative expense... 348 10,854 8,634
Non-rental depreciation
and amortization....... -- 1,336 1,034
------- ------- --------
Operating income
(loss)................. (348) 7,255 5,542
Interest expense........ -- 1,644 1,234
Other (income) expense.. (75) (317) (482)
------- ------- --------
Income (loss) before in-
come taxes............. (273) 5,928 4,790
Income taxes............ -- 2,371 1,916
------- ------- --------
Net income (loss)....... $ (273) $ 3,557 $ 2,874
======= ======= ========
Earnings (loss) per
share.................. $ (0.02) $ 0.20 $ 0.16
======= ======= ========
Cash dividends on Common
Stock.................. -- -- --
<CAPTION>
AS OF SEPTEMBER 30, 1997
--------------------------------------------------------
PRO FORMA
HISTORICAL PRO FORMA AS ADJUSTED
------------------- ----------------- ------------------
(IN THOUSANDS)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equiva-
lents.................. $54,638 $ 50 $ 56,758
Rental equipment, net... -- 37,117 37,117
Total assets............ 54,851 93,107 149,815
Debt.................... -- 26,733 300
Stockholders' equity.... 54,699 60,469 143,609
</TABLE>
15
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Financial
Statements and related Notes thereto, the unaudited Pro Forma Consolidated
Financial Statements and related Notes thereto and the "Selected Historical
and Pro Forma Consolidated Financial Information" of the Company included
elsewhere in this Prospectus.
INTRODUCTION
The Company was organized in August 1997, initially capitalized in September
1997, and commenced rental operations in October 1997 by acquiring the six
Initial Acquired Companies. These acquisitions were all accounted for as
purchases and, accordingly, the results of operations of the Initial Acquired
Companies will be included in the Company's financial statements from the
respective dates of acquisition.
The Company's historical financial statements included herein cover the
period from August 14, 1997 (inception) through September 30, 1997 and do not
reflect any rental operations (which commenced in October 1997). The Company
had a net loss during this period of $273,000 reflecting the fact that, while
the Company had no revenues during this period, the Company incurred expenses
in connection with the Company's organization, search for acquisition
candidates and development of the management team and infrastructure required
to support its growth strategy and manage the expanded operations that the
Company is seeking to build. Although the Company's results of operations for
the fourth quarter of 1997 will reflect the results of the Initial Acquired
Companies, the Company may also report a net loss for this quarter, reflecting
the fact that (i) the Company in the fourth quarter of 1997 continued to incur
substantial expenses for the foregoing purposes and (ii) the results of the
Initial Acquired Companies will only be included in the Company's results for
a portion of the fourth quarter since the acquisitions closed after the
beginning of the quarter.
GENERAL
The Initial Acquired Companies primarily derived revenues from the following
sources: (i) equipment rental (including additional fees that may be charged
for equipment delivery, fuel, repair of rental equipment, and damage waivers),
(ii) the sale of used rental equipment, (iii) the sale of new equipment, and
(iv) the sale of related merchandise and parts. Rental revenues accounted for
68.8% and 66.4% of the Company's pro forma revenues during 1996 and the first
nine months of 1997, respectively.
Cost of operations consist primarily of depreciation costs associated with
rental equipment, the cost of repairing and maintaining rental equipment, the
cost of used and new equipment sold, personnel costs, occupancy costs,
supplies, and expenses related to information systems. The Company records
rental equipment expenditures at cost and depreciates equipment using the
straight-line method over the estimated useful life (which ranges from 4 to 6
years), after giving effect to a 10% estimated salvage value.
Selling, general and administrative expense includes advertising and
marketing expenses, management salaries, and clerical and administrative
overhead.
Depreciation and amortization, excluding rental equipment, includes (i)
depreciation expense associated with equipment that is not offered for rent
(such as vehicles, computers and office equipment) and depreciation expense
associated with leasehold improvements and (ii) the amortization of intangible
assets. The Company's intangible assets include goodwill, which represents the
excess of the purchase price of acquired companies over the estimated fair
market value of the assets acquired.
CONSIDERATION PAID FOR INITIAL ACQUIRED COMPANIES
The aggregate consideration paid by the Company for the Initial Acquired
Companies consisted of approximately $56.6 million in cash, 318,712 shares of
Common Stock (the "Stock Consideration") and a
16
<PAGE>
$300,000 convertible note. In addition, the Company agreed to pay the former
owners of one of the Initial Acquired Companies a percentage of such company's
future revenues until an aggregate of $2.8 million has been paid. Following
completion of the Offerings, the Stock Consideration will be valued based upon
the average daily closing price of the Common Stock during the 60-day period
immediately following completion of the Offerings. If the Stock Consideration
as so valued is not equal to $3.25 million, the Stock Consideration will be
adjusted (by the Company issuing additional shares or by the holders returning
to the Company a portion of the Stock Consideration) as required to make the
Stock Consideration as so valued equal to $3.25 million. Additionally, the
Company repaid all of the outstanding indebtedness of the Initial Acquired
Companies in the aggregate amount of $33.9 million.
PRO FORMA RESULTS OF OPERATIONS
The Pro Forma Consolidated Financial Statements included herein with respect
to a specified period give effect to the acquisition of each of the Initial
Acquired Companies, the financing of each such acquisition, and all issuances
of Common Stock after the beginning of such period, as if all such
transactions had occurred at the beginning of the period (as more fully
described in Note 4 to the Pro Forma Consolidated Financial Statements). Such
pro forma financial statements, however, do not reflect (i) potential cost
savings, synergies and efficiencies that may be achieved through the
integration of the businesses and operations of the Initial Acquired
Companies, (ii) the expenses that the Company may incur as it seeks to
increase internal growth at the Initial Acquired Companies, including
expenditures required in order to expand and modernize rental equipment,
increase sales and marketing efforts, and expand and diversify the customer
segments served, and (iii) the compensation expense relating to the Company's
senior management which began accruing in September 1997. The results
reflected in such pro forma financial statements are not necessarily
indicative of the actual results of operations that would have occurred had
the acquisitions of the Initial Acquired Companies occurred at the beginning
of the respective periods presented or of future results.
Revenues. Total revenues were $51.9 million and $42.1 million for the year
ended December 31, 1996 and for the nine months ended September 30, 1997,
respectively. Equipment rental revenues were 68.8% and 66.4% of revenues for
the year ended December 31, 1996 and for the nine months ended September 30,
1997, respectively. The decrease in rental revenues as a percentage of total
revenues in 1997 compared with 1996 was primarily attributable to increased
sales of used rental equipment during 1997 at certain of the Initial Acquired
Companies.
Gross Profit. The gross profit margin from equipment rentals was 43.9% for
the year ended December 31, 1996 and 40.9% for the nine months ended September
30, 1997. The decrease in 1997 compared with 1996 primarily reflected the fact
that rental equipment utilization (measured by rental revenues as a percentage
of average original cost of rental equipment) was lower in 1997 than in 1996
(59.9% in 1997 compared with 63.7% in 1996). The gross profit margin from
sales of equipment and merchandise and other revenues was 23.3% in 1996 and
26.7% in 1997. This increase in 1997 compared with 1996 was primarily
attributable to a change in the mix of equipment and merchandise sold.
Selling, General and Administrative Expense. Selling, general and
administrative expense ("SG&A") was $10.9 million for the year ended December
31, 1996 and $8.6 million for the nine months ended September 30, 1997. SG&A
as a percentage of revenues was 20.9% for the year ended December 31, 1996 and
20.5% for the nine months ended September 30, 1997.
Non-rental Depreciation and Amortization. Non-rental depreciation and
amortization was $1.3 million and $1.0 million for the year ended December 31,
1996 and for the nine months ended September 30, 1997, respectively. Non-
rental depreciation and amortization as a percentage of revenues was 2.6% for
the year ended December 31, 1996 and was 2.5% for the nine months ended
September 30, 1997.
Interest Expense. Interest expense was $1.6 million and $1.2 million for the
year ended December 31, 1996 and for the nine months ended September 30, 1997,
respectively. Interest expense for both periods relates to borrowings made
under the Company's Credit Facility in order to fund a portion of the purchase
price of the Initial Acquired Companies.
17
<PAGE>
Income Taxes. Pro forma income taxes was computed for the year ended December
31, 1996 and for the nine months ended September 30, 1997 using an estimated
rate of 40%.
LIQUIDITY AND CAPITAL RESOURCES
The Company has funded its cash requirements to date from (i) the sale of
Common Stock and Warrants to the officers and directors of the Company for an
aggregate of $45.95 million, (ii) the sale of Common Stock in a private
placement in September 1997 for an aggregate of $10.6 million, and
(iii) borrowings under the Company's Credit Facility.
The Company's Credit Facility with a group of financial institutions, for
which Bank of America National Trust and Savings Association acts as agent,
enables the Company to borrow up to $55 million on a revolving basis. The
facility terminates on October 8, 2000, at which time all outstanding
indebtedness is due. Up to $10 million of the Credit Facility is available in
the form of letters of credit. Borrowings under the Credit Facility accrue
interest, at the Company's option, at either (a) the Floating Rate (which is
equal to the greater of (i) the Federal Funds Rate plus 0.5% and (ii) Bank of
America's reference rate, in each case, plus a margin ranging from 0% to 0.25%
per annum) or (b) the Eurodollar Rate (which is equal to Bank of America's
reserve adjusted eurodollar rate plus a margin ranging from 1.5% to 2.5% per
annum). As of October 28, 1997, there was $35 million of outstanding
indebtedness under the Credit Facility. The Company plans to repay such
indebtedness from the net proceeds of the Offerings. The Company will be able
to reborrow the amounts so repaid.
The Credit Facility contains certain covenants that require the Company to,
among other things, satisfy certain financial tests relating to: (a)
maintenance of minimum net worth, (b) the ratio of debt to net worth, (c)
interest coverage ratio, (d) the ratio of funded debt to cash flow, and (e) the
ratio of senior debt to tangible assets. The Credit Facility also contains
certain covenants that restrict the Company's ability to, among other things,
(i) incur additional indebtedness, (ii) permit liens to attach to its assets,
(iii) enter into operating leases requiring payments in excess of specified
amounts, (iv) declare or pay dividends or make other restricted payments with
respect to its equity securities (including the Common Stock) or subordinated
debt, (v) sell assets, (vi) make acquisitions unless certain financial
conditions are satisfied, and (vii) engage in any line of business other than
the equipment rental industry. The Credit Facility provides that the failure by
any two of Messrs. Jacobs, Milne, Nolan and Miner to continue to hold executive
positions with the Company for a period of 30 consecutive days constitutes an
event of default under the Credit Facility unless replacement officers
satisfactory to the lenders are appointed. The Credit Facility is also subject
to other customary events of default. The Credit Facility is secured by
substantially all of the assets of United Rentals, Inc. and by the stock and
assets of its subsidiaries.
The Company expects that following completion of the Offerings its principal
sources of cash will be borrowings under the Credit Facility, the portion of
the net proceeds of the Offerings (approximately $48.1 million) that will not
be used for repayment of outstanding indebtedness under the Credit Facility,
and cash generated from operations. The Company estimates that such sources
will be sufficient to fund the cash required for the Company's existing
operations (not including new acquisitions or start-up locations that are not
currently under development, which may require additional financing as
discussed below) for at least 12 months following completion of the Offerings.
The Company expects that following the Offerings its principal needs for cash
relating to its operations will be to fund (i) operating activities and working
capital, (ii) the purchase of equipment on an ongoing basis to maintain the
quality and competitiveness of its existing rental equipment, (iii) the
purchase of equipment required to expand and modernize the rental equipment at
certain locations, (iv) the purchase of equipment and other items required to
maintain sufficient inventory of the new equipment and related merchandise and
parts that the Company offers for sale, and (v) the installation of an
integrated information technology system.
18
<PAGE>
The Company estimates that equipment expenditures for its existing locations
will be in the range of $10 million to $15 million over the next 12 months. In
addition, the Company expects that it will be required to make equipment
expenditures in connection with new acquisitions. The Company cannot quantify
at this time the amount of such equipment expenditures.
Principal elements of the Company's strategy include expansion through a
disciplined acquisition program and the opening of new rental locations. The
Company expects to pay for future acquisitions using cash, capital stock,
notes and/or assumption of indebtedness. The Company expects that cash
required for future acquisitions and start-up locations will be provided by a
combination of borrowings under the Credit Facility, the unused net proceeds
of the Offerings, cash generated from operations, and future debt or equity
financings. There can be no assurance that any such future debt or equity
financings will be available or, if available, will be on terms satisfactory
to the Company.
The Company is in the process of developing two start-up locations. See
"Business--Start-up Locations." The Company estimates that the aggregate costs
associated with such start-up locations will be in the range of $2 million to
$4 million. The Company believes that its existing sources of cash and
borrowings under the Credit Facility will be sufficient to fund these costs
without additional debt or equity financings.
FLUCTUATIONS IN OPERATING RESULTS
The Company expects that its revenues and operating results may fluctuate
from quarter to quarter due to a number of factors, including: seasonal rental
patterns of the Company's customers (with rental activity tending to be lower
in the winter); changes in general economic conditions in the Company's
markets; the timing of acquisitions and the opening of start-up locations and
related costs; the effect of the integration of acquired businesses and start-
up locations; the timing of expenditures for new equipment and the disposition
of used equipment; and price changes in response to competitive factors.
The Company is continually involved in the investigation and evaluation of
potential acquisitions. In accordance with generally accepted accounting
principles, the Company capitalizes certain direct out-of-pocket expenditures
(such as legal and accounting fees) relating to potential or pending
acquisitions. Indirect acquisition costs, such as executive salaries, general
corporate overhead, public affairs and other corporate services, are expensed
as incurred. The Company's policy is to charge against earnings any
capitalized expenditures relating to any potential or pending acquisition that
the Company determines will not be consummated. There can be no assurance that
the Company in future periods will not be required to incur a charge against
earnings in accordance with such policy, which charge, depending upon the
magnitude thereof, could adversely affect the Company's results of operations.
The Company will be required to incur significant start-up expenses in
connection with establishing each start-up location. Such expenses may
include, among others, pre-opening expenses related to setting up the
facility, training employees, installing information systems and marketing.
The Company expects that in general start-up locations will initially operate
at a loss or at less than normalized profit levels. Consequently, the opening
of a start-up location may negatively impact the Company's margins until the
location achieves normalized profitability.
There may be a lag between the time that the Company purchases new equipment
and begins to incur the related depreciation and interest expenses and the
time that the equipment begins to generate revenues at normalized rates. As a
result, the purchase of new equipment, particularly equipment purchased in
connection with expanding and diversifying the Company's rental equipment, may
periodically reduce margins.
GENERAL ECONOMIC CONDITIONS AND INFLATION
The Company's operating results may be adversely affected by (i) changes in
general economic conditions, including national, regional and local changes in
construction and industrial activity, (ii) increases in interest rates that
may result in a higher cost of capital to the Company, or (iii) adverse
weather conditions that may decrease construction and other industrial
activity. Although the Company cannot accurately anticipate the effect of
inflation on its operations, the Company believes that inflation has not had,
and is not likely in the foreseeable future to have, a material impact on its
results of operations.
19
<PAGE>
BUSINESS
United Rentals was formed in September 1997 for the purpose of creating a
large geographically diversified equipment rental company and commenced rental
operations in October 1997 by acquiring six established equipment rental
companies. The Company rents a broad array of equipment to a diverse customer
base that includes construction industry participants, industrial companies,
homeowners and other individuals. The Company also engages in related
activities such as selling used rental equipment, acting as a distributor for
certain new equipment, and selling related merchandise and parts. The Company
had pro forma revenues of $51.9 million during 1996 and $42.1 million during
the first nine months of 1997. The Company's growth strategy is to expand
through a disciplined acquisition program, the opening of new rental locations
and internal growth and to further diversify its equipment categories and
customer markets. The Company believes that as it expands it should gain
competitive advantages relative to smaller operators, including greater
purchasing power, a lower cost of capital, the ability to provide customers
with a broader range of equipment and services and with newer and better
maintained equipment, and greater flexibility to transfer equipment among
locations in response to customer demand.
United Rentals currently operates 12 rental locations in five states:
California (6), Colorado (1), North Carolina (3), Texas (1), and Utah (1). The
Company's locations are managed by experienced professionals who have been
involved in the equipment rental industry an average of 24 years and have
substantial knowledge of the local markets served. These managers are former
owners/employees of the businesses acquired by the Company. The types of
rental equipment offered by the Company include a broad range of light to
heavy construction and industrial equipment (such as pumps, generators,
forklifts, backhoes, cranes, bulldozers, aerial lifts and compressors),
general tools and equipment (such as hand tools and garden and landscaping
equipment) and party/special event equipment (such as tents, tables and
chairs). The equipment mix varies at each of the Company's locations, with
some locations offering a general mix and some specializing in specific
equipment categories. As of October 28, 1997, the Company's rental equipment
included over 12,000 units (excluding party/special event equipment) and had
an original purchase price of approximately $62.5 million and a weighted
average age (based on original purchase price) of approximately four years.
INDUSTRY OVERVIEW
The domestic equipment rental industry generates estimated annual revenues
in excess of $20 billion and has grown at an estimated compound annual rate in
excess of 20% since 1990. The Company believes that this growth reflects the
following trends:
Recognition of Advantages of Renting. There is increasing recognition of the
many advantages that equipment rental may offer compared with ownership,
including the ability to: (i) avoid the large capital investment required for
equipment purchases, (ii) reduce storage and maintenance costs, (iii)
supplement owned equipment thereby increasing the range and number of jobs
that can be worked on, (iv) access a broad selection of equipment and select
the equipment best suited for each particular job, (v) obtain equipment as
needed and minimize the costs associated with idle equipment, and (vi) access
the latest technology without investing in new equipment.
Increase in Contractor Rentals. There has been a fundamental shift in the
way contractors meet their equipment needs. While contractors have
historically used rental equipment on a temporary basis--to provide for peak
period capacity, meet specific job requirements or replace broken equipment--
many contractors are now also using rental equipment on an ongoing basis to
meet their long-term equipment requirements. A survey of contractors conducted
in September 1996 found that on average the percentage of contractor fleets
that was rented increased from 7% in 1994 to 15% at the time of the survey.
Outsourcing Trend. The general trend toward the corporate outsourcing of
non-core competencies is leading large industrial companies increasingly to
rent, rather than purchase, equipment that they require for repairing,
maintaining and upgrading their facilities.
20
<PAGE>
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. The
fragmented nature of the industry is reflected in the following data: (i)
there are only five equipment rental companies that had 1996 equipment rental
revenues in excess of $100 million (with the largest company having 1996
equipment rental revenues of approximately $400 million), (ii) the largest 100
equipment rental companies combined have less than a 20% share of the market
based on 1996 equipment rental revenues (with the largest company having a
market share of approximately 3%), and (iii) there are approximately 100
equipment rental companies that had 1996 equipment rental revenues between $5
million and $100 million. In addition, the Company estimates that there are
more than 20,000 companies with annual equipment rental revenues of less than
$5 million. The Company believes that the fragmented nature of the industry
presents substantial consolidation and growth opportunities for companies with
access to capital and the ability to implement a disciplined acquisition
program. The Company also believes that the extensive experience of its
management team in acquiring and effectively integrating acquisition targets
should enable the Company to capitalize on these opportunities.
STRATEGY
The Company's objective is to expand its operations and build a large
geographically diversified equipment rental company in the United States and
Canada. The Company believes that as it expands it should gain competitive
advantages relative to smaller operators, including greater purchasing power,
a lower cost of capital, the ability to provide customers with a broader range
of equipment and services and with newer and better maintained equipment, and
greater flexibility to transfer equipment among locations in response to
customer demand. The Company's plan for achieving this objective includes the
following key elements:
Execute Disciplined Acquisition Program. The Company intends to expand
through a disciplined acquisition program. The Company will seek to acquire
companies of varying size, including relatively large companies to serve as
platforms for regional development and smaller companies to complement
existing or anticipated locations. In evaluating potential acquisition
targets, the Company considers a number of factors, including the quality of
the target's rental equipment and management, the opportunities to improve
operating margins and increase internal growth at the target, the economic
prospects of the region in which the target is located, the potential for
additional acquisitions in the region, and the competitive landscape in the
target's markets.
Improve Operating Margins. The Company plans to focus significant efforts on
improving operating margins at acquired companies through the efficient
integration of new and existing operations, the elimination of duplicative
costs, reduction in overhead, and centralization of functions such as
purchasing and information technology.
Increase Internal Growth. The Company believes that a lack of capital has
constrained expansion and modernization at many small and mid-sized equipment
rental companies and that as a result there is significant potential to
increase internal growth at many acquired companies through capital
investment. The Company will seek to increase internal growth by investing in
additional and more modern equipment, using advanced information technology
systems to improve asset utilization and tracking, increasing sales and
marketing efforts, expanding and diversifying the customer segments served,
expanding the geographic areas served, and opening complementary locations.
Open New Rental Locations. The Company also intends to grow by selectively
opening new rental locations in attractive markets where there are no suitable
acquisition targets available or where the cost of a start-up location would
be less than the cost of acquiring an existing business.
Diversify Locations, Equipment Categories and Customers. The Company plans
to diversify geographically and to focus on a broad range of equipment catego-
ries and customer markets within the equipment rental industry. The Company
believes that this will allow it to participate in the overall growth of the
equipment rental
21
<PAGE>
industry and reduce the Company's sensitivity to fluctuations in regional eco-
nomic conditions or changes that affect particular market segments. In order
to achieve this diversification, the Company will consider expansion opportu-
nities in the United States and Canada and will pursue acquisition candidates
with varying equipment mixes and customer specializations.
ACQUISITIONS
The Company believes that there will continue to be a large number of
attractive acquisition opportunities in the equipment rental industry due to
the highly fragmented nature of the industry, the inability of many small and
mid-sized equipment rental companies to expand and modernize due to capital
constraints, and the desire of many long-time owners for liquidity. The
Company has an experienced acquisition team, comprised of senior level
executives with extensive acquisition, operating and financial experience,
that is engaged in identifying and evaluating acquisition candidates and
executing the Company's acquisition program. The Company estimates that, since
the formation of the Company in September 1997, it has preliminarily reviewed
more than 50 potential acquisition candidates and has conducted preliminary
market studies or initiated due diligence on more than 20 of these candidates.
The table below provides certain information concerning the six acquisitions
completed by the Company to date:
<TABLE>
<CAPTION>
YEARS IN 1996
COMPANY RENTAL SITES BUSINESS REVENUES
- ------- ----------------------- -------- -------------
<S> <C> <C> <C>
Mercer Equipment Company Charlotte, NC (2 sites) 8 $14.5 million
Greensboro, NC
A&A Tool Rentals and Sales, Modesto, CA 34 $11.7 million
Inc. Stockton, CA
J&J Rental Services, Inc. Houston, TX 18 $ 9.0 million
Coran Enterprises, Inc. (dba A- Monterey, CA 32 $ 8.4 million
1 Rents) Salinas, CA
and Monterey Bay Equipment San Jose, CA (2 sites)
Rental, Inc.
Bronco Hi-Lift, Inc. Denver, CO 15 $ 5.5 million
Rent-It Center, Inc. Salt Lake City, UT 44 $ 2.8 million
</TABLE>
The aggregate consideration paid by the Company for the Initial Acquired
Companies consisted of approximately $56.6 million in cash, the Stock
Consideration (see "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Consideration Paid for Initial Acquired
Companies") and a $300,000 convertible note. In addition, the Company agreed
to pay the former owners of one of the Initial Acquired Companies a percentage
of such company's future revenues until an aggregate of $2.8 million has been
paid. The Company also repaid all of the outstanding indebtedness of the
Initial Acquired Companies in the aggregate amount of $33.9 million.
The Company is continually investigating and evaluating potential
acquisitions. However, the Company at present is not party to any definitive
agreements relating to future acquisitions.
START-UP LOCATIONS
The Company is in the process of developing two start-up locations (one in
Austin, Texas and one in Houston, Texas). These projects were commenced by one
of the Initial Acquired Companies prior to being
22
<PAGE>
acquired by the Company and are being continued by the Company. The location
in Austin, Texas is scheduled to open in the first quarter of 1998. The
Company is in the process of performing preliminary market studies relating to
the location in Houston, Texas.
OPERATIONS
The Company currently operates 12 rental locations in five states:
California (6), Colorado (1), North Carolina (3), Texas (1), and Utah (1). The
Company offers for rent a broad array of equipment including light to heavy
construction and industrial equipment, general tools and equipment, and
party/special event equipment. The Company also engages in related activities
such as selling used rental equipment, acting as a distributor for certain new
equipment, and selling related merchandise and parts. The Company's customer
base is diverse and includes construction industry participants, industrial
companies, and homeowners and other individuals.
EQUIPMENT RENTAL
The Company offers for rent a broad array of equipment on a daily, weekly,
monthly and multi-month basis. The following are examples of the types of
equipment that the Company rents:
Construction and Industrial: aerial lifts, air compressors, backhoes,
boom lifts, bulldozers, cranes, ditching equipment, forklifts,
generators, high reach equipment, pumps, scissor lifts, tractors.
General Tools and Equipment: garden and landscaping equipment, hand
tools, high-pressure washers, paint sprayers, power tools, roto
tillers.
Party/Special Event: barbecue grills, china and flatware, fountains,
lighting, staging and dance floors, tables and chairs, tents and
canopies.
As of October 29, 1997, the Company's rental equipment included over 12,000
units (excluding party/special event equipment) and had an original purchase
price of approximately $62.5 million and a weighted average age (based on
original purchase price) of approximately four years. The Company estimates
that (based on original purchase price) construction and industrial equipment
represents approximately 83% of the Company's rental equipment, general tools
and equipment represents approximately 16%, and party/special event equipment
represents approximately 1%. The Company also estimates that four categories
of construction and industrial equipment (aerial lifts, boom lifts, scissor
lifts and high reach equipment) represent approximately 19% of the Company's
rental 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. The Company expects that as it integrates the Initial Acquired
Companies it will further expand and modernize its rental equipment and expand
and diversify the customer markets served by certain locations.
RELATED OPERATIONS
In addition to renting equipment, the Company is engaged in a variety of
related or complementary activities.
Sales of Used Equipment. The Company routinely sells used rental equipment
to adjust the size, age and composition of its rental fleet. The Company sells
such equipment through a variety of means including sales to the Company's
existing rental customers and local customer base, sales to used equipment
dealers, and sales through public auctions. The Company also participates in
trade-in programs in connection with purchasing new equipment.
Sales of New Equipment. The Company, at several locations, is a distributor
for various tool and equipment manufacturers, including American Honda Motor
Co. Inc. (generators and pumps), Edco Manufacturing (surfacing equipment),
Genie Industries, Inc. (aerial lifts), Grove Worldwide (aerial platforms),
23
<PAGE>
Multiquip, Inc. (compaction equipment and compressors), Milwaukee Electric
Tool Corporation (power tools), Trak International (loaders and forklifts) and
Stihl, Inc. (surface preparation equipment).
Sales of Related Merchandise and Parts. The Company, at most locations,
sells a variety of merchandise that may be used in conjunction with rental
equipment (such as saw blades, fasteners, drill bits, hard hats, gloves and
other safety equipment) and also sells parts.
Other. The Company at certain locations offers equipment maintenance
services to customers for equipment that is owned by the customer. This
service is primarily provided with respect to equipment purchased from the
Company.
CUSTOMERS AND SALES AND MARKETING
The Company on a pro forma basis rented equipment to over 31,000 customers
in 1996 and over 29,000 customers in the first nine months of 1997. No single
customer accounted for more than 5% of the Company's revenues in 1996 or more
than 3% of its revenues in the first nine months of 1997, and the Company's
top 10 customers accounted for less than 19% of the Company's revenues in 1996
and less than 16% of its revenues in the first nine months of 1997.
The composition of the Company's customer base varies widely by location and
is determined by several factors, including the equipment mix and marketing
focus of the particular location and the business composition of the local
economy. The Company's customer base consists of the following general
categories: (i) construction industry participants (such as construction
companies, contractors and subcontractors), (ii) industrial companies (such as
manufacturers, chemical companies, paper mills and utilities), and (iii)
homeowners and other individuals. The Company estimates that (a) sales to
construction industry participants accounted for approximately 73% of the
Company's revenues in 1996 and the first nine months of 1997, (b) sales to
industrial companies accounted for approximately 22% of the Company's revenues
in 1996 and the first nine months of 1997, and (c) sales to homeowners and
others accounted for approximately 5% of the Company's revenues in 1996 and
the first nine months of 1997.
The Company markets its products and services through a sales force
consisting of approximately 30 store-based salespeople and 37 field-based
salespeople. The Company supplements the activities of its sales force through
participation in industry trade shows and conferences, direct mailings, and
advertising in local industry publications and the yellow pages in the markets
it serves.
PURCHASING
The Company is in the process of centralizing the purchase of certain
equipment items, particularly large items with a significant cost and items
that are purchased in volume. The Company believes that such centralization
will give it greater purchasing power with its suppliers and enable it to
obtain discounts.
INFORMATION TECHNOLOGY SYSTEMS
The Company will require integrated information technology systems in order
to effectively integrate, manage and optimize its operations as it continues
to execute its growth strategy. The Company is in the process of selecting and
implementing the required systems and plans to complete the process following
completion of the Offerings. The Company expects that these systems will be
used for a variety of purposes, including controlling inventory, monitoring
equipment utilization, tracking customer patterns and preferences, and
managing receivables. Until these new systems are operational, each acquired
business will continue using the systems that it had in place at the time it
was acquired.
24
<PAGE>
COMPETITION
The equipment rental industry is highly fragmented and competitive. The
Company's competitors include: public companies or divisions of public
companies (such as Hertz Equipment Rental Corporation, Prime Service, Inc.,
U.S. Rentals, Inc. and Rental Service Corporation); regional competitors which
operate in one or more states; small, independent businesses with one or two
rental locations; and equipment vendors and dealers who both sell and rent
equipment directly to customers. The Company believes that, in general, large
companies enjoy significant competitive advantages compared to smaller
operators, including greater purchasing power, a lower cost of capital, the
ability to provide customers with a broader range of equipment and services
and with newer and better maintained equipment, and greater flexibility to
transfer equipment among locations in response to customer demand. Certain of
the Company's competitors are larger and have greater financial resources than
the Company.
PROPERTIES
The Company currently operates 12 rental locations. These locations
generally include facilities for displaying equipment and, depending on the
location, may include separate equipment service areas and storage areas. The
Company leases the land and buildings comprising its rental locations under
leases that provide for initial terms expiring in 1999 through 2007 and for
renewal options of either five or ten years. These leases were entered into in
connection with the acquisitions of the Initial Acquired Companies and most of
the lessors are the former owners of these companies. The Company believes
that its leases reflect market terms.
The Company maintains a fleet of vehicles that is used for delivery,
maintenance and sales functions. A portion of this fleet is owned and a
portion leased and, as of October 28, 1997, this fleet included 167 vehicles.
The Company's corporate headquarters are located in Greenwich, Connecticut,
where it leases approximately 15,000 square feet under a lease that extends
until 2001 (subject to extension rights).
ENVIRONMENTAL REGULATION
The Company uses hazardous materials, such as solvents, to clean and
maintain its rental equipment and generates and disposes of wastes such as
used motor oil, radiator fluid, solvents and batteries. In addition, the
Company currently dispenses, or may in the future dispense, petroleum products
from underground and above-ground storage tanks located at certain rental
locations. These and other activities of the Company are subject to various
federal, state and local laws and regulations governing the generation,
handling, storage, transportation, treatment and disposal of hazardous
substances and wastes. Under such laws, an owner or lessee of real estate may
be liable for, among other things, (i) the costs of removal or remediation of
certain hazardous or toxic substances located on, in, or emanating from, such
property, as well as related costs of investigation and property damage and
substantial penalties for violations of such laws, and (ii) environmental
contamination at facilities where its waste is or has been disposed. Such laws
often impose such liability without regard to whether the owner or lessee knew
of, or was responsible for, the presence of such hazardous or toxic
substances. Although the Company investigates each business or property that
it acquires or leases and believes there are no existing material liabilities
relating to non-compliance with environmental laws and regulations, there can
be no assurance that there are no undiscovered potential liabilities relating
to non-compliance with environmental laws and regulations, that historic or
current operations have not resulted in undiscovered conditions that will
require investigation and/or remediation under environmental laws, or that
future uses or conditions will not result in the imposition of environmental
liability upon the Company or expose the Company to third-party actions such
as tort suits. Furthermore, there can be no assurance that changes in
environmental regulations in the future will not require the Company to make
significant capital expenditures to change methods of disposal of hazardous
materials or otherwise alter aspects of its operations.
EMPLOYEES
At October 27, 1997, the Company employed 402 persons, including 58
corporate and regional management employees, 277 operational employees and 67
sales people. Of these employees, 117 are salaried personnel and
25
<PAGE>
285 are hourly personnel. None of the Company's workforce is represented by a
union or a collective bargaining agreement. 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.
26
<PAGE>
MANAGEMENT
BACKGROUND
The Company was founded in September 1997 by the following officers of the
Company: Bradley Jacobs, John Milne, Michael Nolan, Robert Miner, Sandra
Welwood, Joseph Kondrup, Jr., Kai Nyby and Richard Volonino. Each of these
officers was formerly a senior executive of United Waste Systems, Inc.
("United Waste") or a senior member of United Waste's acquisition team. United
Waste, a solid waste management company, was formed in 1989 and sold in August
1997 to USA Waste Services, Inc. for stock consideration valued at over $2.2
billion. United Waste executed a growth strategy that combined a disciplined
acquisition program (including over 200 acquisitions completed from January
1995 through August 1997), the integration and optimization of acquired
facilities, and internal growth. At the time it was sold, United Waste was the
sixth largest provider of integrated, non-hazardous solid waste management
services in the United States, as measured by 1996 revenues.
OFFICERS, DIRECTORS AND KEY MANAGERS
The following table identifies, and provides certain information concerning,
the officers, directors and certain key managers of the Company:
<TABLE>
<CAPTION>
NAME AGE POSITIONS(1)(2)
---- --- ---------------
<S> <C> <C>
OFFICERS AND DIRECTORS
Bradley S. Jacobs....... 41 Chairman, Chief Executive Officer and Director
Wayland R. Hicks........ 54 President, Chief Operating Officer and Director(3)
John N. Milne........... 38 Vice Chairman, Chief Acquisition Officer, Secretary and Director
Michael J. Nolan........ 36 Chief Financial Officer
Robert P. Miner......... 48 Vice President, Finance
Sandra E. Welwood....... 42 Vice President, Corporate Controller
Kurtis T. Barker........ 37 Regional Vice President, Operations
Daniel E. Imig.......... 51 Regional Vice President, Operations
Joseph J. Kondrup, Jr... 39 Vice President, Acquisitions
Kai E. Nyby............. 44 Vice President, Acquisitions
Richard A. Volonino..... 54 Vice President, Acquisitions
Ronald M. DeFeo......... 44 Director
Richard J. Heckmann..... 53 Director
KEY MANAGERS
Joseph E. Bloodworth.... 45 Regional Manager
Joseph E. Doran......... 57 Regional Manager
William M. Rigsbee...... 41 Regional Manager
</TABLE>
- --------
(1) Each person named in the table has served in the position(s) indicated
since either September 1997 (in the case of the eight founders), October
1997 (in the case of Messrs. Barker, Imig, DeFeo and Heckmann) or November
1997 (in the case of Mr. Hicks). The Company's officers are elected by the
Board of Directors and, subject to the employment agreements described
below, serve at the discretion of the Board.
(2) For information concerning the term served by directors, see "--
Classification of Board of Directors."
(3) Mr. Hicks will become a director prior to completion of the Offerings.
Bradley S. Jacobs founded United Waste Systems, Inc. in 1989 and served as
its Chairman and Chief Executive Officer from inception until the sale of the
company in August 1997. From 1984 to July 1989, Mr. Jacobs was Chairman and
Chief Operating Officer of Hamilton Resources Ltd., an international trading
company, and from 1979 to 1983, he was Chief Executive Officer of Amerex Oil
Associates, Inc., an oil brokerage firm that he co-founded.
27
<PAGE>
Wayland R. Hicks served in various senior executive positions at Xerox
Corporation where he worked for 28 years (1966-1994). His positions at Xerox
Corporation included Executive Vice President, Corporate Operations (1993-
1994), Executive Vice President, Corporate Marketing and Customer Support
Operations (1989-1993) and Executive Vice President, Engineering and
Manufacturing--Xerox Business Products and Systems Group (1987-1989). Mr.
Hicks served as Vice Chairman and Chief Executive Officer of Nextel
Communications Corp. (1994-1995) and as Chief Executive Officer and President
of Indigo N.V. (1996-1997).
John N. Milne was Vice Chairman and Chief Acquisition Officer of United
Waste Systems, Inc. from 1993 until August 1997 and held other senior
executive positions at United Waste from 1990 until 1993. Mr. Milne had
primary responsibility for implementing United Waste's acquisition program.
From September 1987 to March 1990, Mr. Milne was employed in the Corporate
Finance Department of Drexel Burnham Lambert Incorporated.
Michael J. Nolan served as the Chief Financial Officer of United Waste
Systems, Inc. from February 1994 until August 1997. He served in other finance
positions at United Waste from November 1991 until February 1994, including
Vice President, Finance, from October 1992 to February 1994. From 1985 until
November 1991, Mr. Nolan held various positions at the accounting firm of
Ernst & Young, including senior audit manager, and is a Certified Public
Accountant.
Robert P. Miner was an executive officer of United Waste Systems, Inc. from
November 1994 until August 1997, serving first as Vice President, Finance and
then Vice President, Acquisitions. Prior to joining United Waste, he was a
research analyst with PaineWebber Incorporated (November 1988 to October 1994)
and Needham & Co. (January 1987 to October 1988) and held various managerial
positions at General Electric Environmental Services, Inc., Stauffer Chemical
Company, and OHM Corporation.
Sandra E. Welwood served as Vice President, Controller of United Waste
Systems, Inc. from March 1996 until August 1997. From October 1994 to February
1996, she was Assistant Controller of OSi Specialty, Inc., and from October
1993 to September 1994, was Director of Internal Audit of the Gartner Group,
Inc. Prior to this, Ms. Welwood was a senior audit manager at Ernst & Young
from September 1987 to September 1993, and held various positions (including
senior audit manager) at KPMG Peat Marwick from January 1980 to August 1987,
and is a Certified Public Accountant.
Kurtis T. Barker served as Vice President-Operations-Great Lakes Region of
United Waste Systems, Inc. from 1993 until August 1997. From 1991 to 1993, he
was a landfill operations manager at Chambers Development Company, Inc. From
1990 to 1991, Mr. Barker was a project engineer at South Dakota Disposal
Systems. From 1986 to 1990, he was a project engineer and then a general
manager at Silver King Mines, Inc.
Daniel E. Imig served as President-Mid-Central Region of Waste Management,
Inc. from 1996 to August 1997. From 1978 to 1996, Mr. Imig served in a number
of operating positions at Waste Management, Inc., including District Manager
and Division President.
Joseph J. Kondrup, Jr. was a senior member of United Waste's acquisition
team from March 1996 until August 1997, with responsibility for the company's
entry into and subsequent development of its Rocky Mountain Region. From July
1987 until March 1996, he was Division President of a subsidiary of Waste
Management, Inc.
Kai E. Nyby was a senior member of United Waste's acquisition team from 1995
until August 1997, with responsibility for acquisitions and business
development in the company's Midwest Region. From 1981 to 1995, Mr. Nyby was
the Regional Manager, Midwest Group for Waste Management, Inc. From 1973 to
1980, Mr. Nyby was General Manager, Operations for a subsidiary of Waste
Management, Inc.
Richard A. Volonino was a senior executive officer of United Waste from
November 1991 until August 1997, serving as Chief Operating Officer from 1991
to 1992 and thereafter as Executive Vice President--Acquisitions. From May
1988 to October 1991, Mr. Volonino held various positions, including Vice
President, Operations, with Chambers Development Company, Inc., and from 1986
to December 1987, was District Manager at Laidlaw, Inc.
28
<PAGE>
Ronald M. DeFeo is the Chief Executive Officer, President, Chief Operating
Officer and a director of Terex Corporation, a leading global provider of
equipment for the manufacturing, mining and construction industries. Mr. DeFeo
joined Terex in 1992 as President of the Terex heavy equipment group and was
appointed President and Chief Operating Officer in 1993 and Chief Executive
Officer in 1995. From 1984 to 1992, Mr. DeFeo held various management positions
at Tenneco, Inc., including Senior Vice President and Managing Director.
Richard J. Heckmann has served since 1990 as Chairman, President and Chief
Executive Officer of United States Filter Corporation, a leading global
provider of industrial and commercial water and wastewater treatment systems
and services. Mr. Heckmann is also a director of USA Waste Services, Inc. and
K2 Inc.
Joseph E. Bloodworth founded J&J Rental Services, Inc. (and its predecessors)
and served as Chief Executive Officer and President from 1975 until October
1997 when J&J Rental Services, Inc. was acquired by United Rentals.
Joseph E. Doran served as President of A&A Tool Rentals and Sales, Inc. from
1972 until the acquisition of the company by United Rentals in October 1997.
Mr. Doran served on the Board of Directors of the California Rental Association
for 12 years and was its President from 1985 to 1986.
William M. Rigsbee served as President of Mercer Equipment Company from 1990
until the acquisition of the company by United Rentals in October 1997. He has
been employed in the equipment rental industry since 1978. Mr. Rigsbee is a
former President of both the Carolina Rental Association and the North Carolina
Associated Equipment Distributors.
CAPITAL CONTRIBUTIONS BY OFFICERS AND DIRECTORS
The officers and directors of the Company listed below have made capital
contributions to the Company in the aggregate amount of $45.95 million. Such
capital contributions were made in connection with the sale to such officers
and directors of an aggregate of 12,905,714 shares of Common Stock and
6,342,858 warrants ("Warrants"). Each such Warrant entitles the holder to
purchase one share of Common Stock at an exercise price of $10.00 per share at
any time prior to September 12, 2007. Such shares and Warrants were sold at a
price of $3.50 per unit consisting of one share of Common Stock and one-half of
a Warrant (except that Mr. Barker 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 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
Sandra E. Welwood.................. 100,000 50,000 350,000
Kurtis T. Barker................... 100,000 -- 350,000
Joseph J. Kondrup, Jr. ............ 100,000 50,000 350,000
Kai E. Nyby........................ 100,000 50,000 350,000
Richard A. Volonino................ 100,000 50,000 350,000
Richard J. Heckmann................ 20,000 -- 200,000
</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 vacant) will expire at the annual meeting of
stockholders following the date of this Prospectus, the term of office of the
second class (currently comprised of Mr. Hicks, Mr. DeFeo and Mr. Heckmann)
will expire at the second annual meeting of stockholders following the date of
this Prospectus, and the term of office of the third class (currently
29
<PAGE>
comprised of Mr. Jacobs and Mr. Milne) will expire at the third annual meeting
of stockholders following the date of this Prospectus. At each annual meeting
of stockholders, successors to directors of the class whose term expires at
such meeting will be elected to serve for three-year terms and until their
successors are elected and qualified. See "Certain Charter and By-Law
Provisions--Classified Board of Directors."
COMMITTEES OF THE BOARD
The Board of Directors will establish an Audit Committee and a Compensation
Committee prior to the completion of the Offerings. A majority of the members
of each committee will be directors who are not officers of the Company. 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 responsibilities of the Compensation Committee
include considering the compensation to be paid to officers, directors and key
employees of the Company and administering the Company's Stock Option Plan.
COMPENSATION OF DIRECTORS
Directors do not currently receive any compensation for attendance at Board
of Directors' meetings. After completion of the Offerings, each director of
the Company will be paid up to $2,500 per day for each Board of Directors'
meeting such director attends, together with an expense reimbursement. Messrs.
Heckmann and DeFeo have each been granted options to purchase an aggregate of
20,000 shares of Common Stock at an exercise price of $15.00 per share.
COMPENSATION OF CERTAIN OFFICERS
The Company's executive officers are being compensated, and each has been
compensated since joining the Company, in accordance with the terms of the
Employment Agreements described below.
EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements with each of the
executive officers of the Company. Certain information with regard to these
agreements is set forth below.
The agreements provide for base salary to be paid at a rate per annum as
follows: Mr. Jacobs ($290,000), Mr. Hicks ($400,000), Mr. Milne ($190,000),
Mr. Nolan ($175,000), and Mr. Miner ($150,000). The base salary payable to Mr.
Hicks is payable 50% in cash and 50% in Common Stock (valued at the average
closing sales price of the Common Stock during all trading days in the
calendar quarter preceding the quarter in which the payment is made). Shares
of Common Stock issued to Mr. Hicks are subject to certain restrictions on
transfer as described under "Principal Stockholders--Certain Agreements
Relating to Securities Held by Officers." The base salary payable to Messrs.
Jacobs and Milne is subject to possible upward annual adjustments based upon
changes in a designated cost of living index. The agreements do not provide
for mandatory bonuses. However, the agreements provide that in addition to the
compensation specifically provided for, the Company may pay such salary
increases, bonuses or incentive compensation as may be authorized by the Board
of Directors. The agreements with Messrs. Jacobs and Milne provide for each
such executive to receive an automobile allowance of at least $700 per month.
The agreement with Mr. Hicks provides for the Company to reimburse him for
certain relocation expenses up to a maximum of $100,000.
The employment agreements with the following executives provide that the
term shall automatically renew so that at all times the balance of the terms
will not be less than the period hereinafter specified with respect to such
executive: Mr. Jacobs (five years), Mr. Milne (five years), Mr. Nolan (three
years) and Mr. Miner (three years). The employment agreement with Mr. Hicks
provides for a term extending until November 2000. Under each of the
agreements, the Company or the employee may at any time terminate the
agreement, with or without cause, provided that if the Company terminates the
agreement, the Company is required to make severance payments to the extent
described in the following paragraph.
The employment agreements with Messrs. Jacobs and Milne provide that the
executive is entitled to severance benefits in the event that (i) his
employment agreement is terminated by the Company without Cause (as defined in
the employment agreement), (ii) the executive terminates his employment
agreement for Good
30
<PAGE>
Reason (as defined in the employment agreement) or because of a breach by the
Company of its obligations thereunder, (iii) his employment is terminated as a
result of death or (iv) the Company or the executive terminates the employment
agreement due to the disability of the executive. The severance benefits
include (i) a lump sum payment equal to five times the sum of the executive's
annual base salary at the time of termination plus the highest annual bonus
paid to the executive in the preceding three years and (ii) the continuation
of the executive's benefits for such specified period. The employment
agreement with Mr. Hicks provides that the executive is entitled to a
severance payment in the amount of $1 million in the event that his employment
agreement is terminated by the Company without Cause (as defined in the
employment agreement) or he terminates his employment for Good Reason (as
defined in the employment agreement). The employment agreements with the other
officers provide that the executive is entitled to severance benefits of up to
three months' base salary in the event that the executive's employment
agreement is terminated without Cause (as defined in the employment
agreement). The employment agreements with Messrs. Jacobs and Milne provide
that if any portion of the required severance payment to the executive
constitutes an "excess parachute payment" (as defined in Section 280G of the
Internal Revenue Code of 1986, as amended (the "Code")), the executive is
entitled to receive a payment sufficient on an after-tax basis to offset any
excise tax payable by the executive pursuant to Section 4999 of the Code. Any
payment constituting an "excess parachute payment" would not be deductible by
the Company.
Each of the agreements provides that all options at any time to be granted
to the executive will automatically vest upon a change of control of the
Company (as defined in the agreement).
Pursuant to the employment agreement with Mr. Hicks, Mr. Hicks has been
granted options to purchase an aggregate of 450,000 shares of Common Stock
(350,000 at an exercise price of $10.00 per share, 50,000 at an exercise price
of $15.00 per share and 50,000 at an exercise price of $20.00 per share).
These options are not currently vested. The options in each tranche (i.e.,
providing for the same exercise price) will vest one-third in November 1998,
one-third in November 1999 and one-third in November 2000. These options were
granted pursuant to the Company's 1997 Stock Option Plan.
The agreement with Mr. Hicks provides that at each annual meeting of the
stockholders of the Company, which occurs during the term of the agreement and
at which Mr. Hicks' term as director would be scheduled to expire, the Company
will nominate Mr. Hicks for re-election as a director.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
At the time the employment agreements with Messrs. Jacobs and Milne were
approved by the Board of Directors, the sole members of the Board were Messrs.
Jacobs and Milne. No compensation committee interlocks with other companies
have existed.
STOCK OPTION PLAN
The Board of Directors has adopted the Company's 1997 Stock Option Plan (the
"Stock Option Plan") which provides for the granting of options to purchase
not more than an aggregate of 5,000,000 shares of Common Stock. Some or all of
such options may be "incentive stock options" within the meaning of the Code.
All officers, directors and employees of the Company and other persons who
perform services on behalf of the Company are eligible to participate in the
Stock Option Plan. Each option granted pursuant to the Stock Option Plan must
provide for an exercise price per share that is at least equal to the fair
market value per share of Common Stock on the date of grant. No options may be
granted under the Stock Option Plan after August 31, 2007. The Company has
heretofore granted under the Stock Option Plan options to purchase an
aggregate of 762,500 shares of Common Stock (including the options granted to
Mr. Hicks as described under "--Employment Agreements"). These options have a
weighted average exercise price of $12.36 per share.
The Stock Option Plan provides that it is to be administered by the Board of
Directors (or by a committee appointed by the Board). The Board of Directors
(or any such committee) has full power and authority to interpret the
provisions, and supervise the administration, of the Stock Option Plan. The
Board of Directors (or any such committee) determines, subject to the
provisions of the Stock Option Plan, to whom options shall be granted, the
number of shares of Common Stock subject to an option, whether an option shall
be incentive or non-qualified, the exercise price of each option (which may
not be less than the fair market value on the date of grant), the period
during which each option may be exercised and the other terms and conditions
of each option.
31
<PAGE>
PRINCIPAL STOCKHOLDERS
GENERAL
The table below and the notes thereto set forth as of the date of this
Prospectus certain information concerning the beneficial ownership (as defined
in Rule 13d-3 under the Securities Exchange Act of 1934) of the Company's
Common Stock by (i) each director and executive officer of the Company and
(ii) all executive officers and directors of the Company as a group. Except as
indicated in the table, no stockholder is the beneficial owner of more than 5%
of the outstanding Common Stock of the Company. For purposes of the table,
each executive officer is deemed to be the beneficial owner of all shares of
Common Stock that may be acquired upon the exercise of the Warrants held by
such officer. The Warrants are currently exercisable at an exercise price of
$10.00 per share (representing an aggregate exercise price of $61.4 million,
assuming exercise of all the Warrants held by executive officers).
<TABLE>
<CAPTION>
NUMBER OF SHARES OF
COMMON STOCK PERCENT OF COMMON STOCK OWNED(2)
BENEFICIALLY --------------------------------
NAME OWNED(1)(2) BEFORE OFFERINGS AFTER OFFERINGS
- ---- ------------------- ---------------- ---------------
<S> <C> <C> <C>
Bradley S. Jacobs....... 15,000,000(3)(4) 70.2% 52.9%
Wayland R. Hicks........ 100,000 * *
John N. Milne........... 2,142,857(5) 12.5% 8.9%
Michael J. Nolan........ 857,144(6) 5.1% 3.6%
Robert P. Miner......... 428,571(7) 2.6% 1.8%
Ronald M. DeFeo......... 20,000(8) * *
Richard J. Heckmann..... 40,000(9) * *
All executive officers
and directors as a
group (7 persons)...... 18,588,572(10) 82.4% 62.9%
</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 10,000,000 outstanding shares and 5,000,000 shares issuable
upon the exercise of currently exercisable Warrants.
(4) Mr. Jacobs has certain rights relating to the disposition of the shares
and Warrants owned by each of the other officers of the Company (as
described below under "--Certain Agreements Relating to Securities Held by
Officers"). By virtue of such rights, Mr. Jacobs is deemed to share
beneficial ownership (within the meaning of Rule 13d-3 under the
Securities Exchange Act of 1934) of the shares owned by the other officers
of the Company. The shares that the table indicates are owned by Mr.
Jacobs do not include the shares with respect to which Mr. Jacobs is
deemed to share beneficial ownership as aforesaid. Including such shares,
Mr. Jacobs is deemed the beneficial owner of an aggregate of 19,128,572
shares of Common Stock (comprised of 12,785,714 outstanding shares and
6,342,858 shares issuable upon the exercise of outstanding Warrants).
(5) Consists of 1,428,571 outstanding shares and 714,286 shares issuable upon
the exercise of currently exercisable Warrants.
(6) Consists of 571,429 outstanding shares and 285,715 shares issuable upon
the exercise of currently exercisable Warrants.
(7) Consists of 285,714 outstanding shares and 142,857 shares issuable upon
the exercise of currently exercisable Warrants.
32
<PAGE>
(8) Consists of shares issuable upon the exercise of currently exercisable
options.
(9) Consists of 20,000 outstanding shares and 20,000 shares issuable upon the
exercise of currently exercisable options.
(10) Consists of 12,305,714 outstanding shares, 6,142,858 shares issuable upon
the exercise of currently exercisable Warrants (which Warrants provide
for an exercise price of $10.00 per share, representing an aggregate
exercise price of $61.4 million assuming exercise of all the Warrants
held by executive officers), and 40,000 shares issuable upon the exercise
of currently exercisable options.
CERTAIN AGREEMENTS RELATING TO SECURITIES HELD BY OFFICERS
Each officer of the Company who purchased securities of the Company prior to
the date hereof (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 Common Stock or Warrants that he beneficially owns in a commercial,
non-charitable transaction, then Mr. Jacobs is required to use his best
efforts to sell (and has the right to sell subject to certain exceptions) on
behalf of such officer a pro rata portion of such officer's Common Stock or
Warrants 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 Common Stock
or Warrants currently owned by such officer (subject to certain exceptions for
charitable gifts). The foregoing provisions of the agreements terminate in
September or October 2002.
Each officer of the Company who purchased securities of the Company prior to
the date hereof (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 securities 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 securities without any cause (provided
that such repurchase right without cause will lapse with respect to one-third
of the securities on the first, second and third anniversaries of the date of
such agreements). The amount to be paid by the Company in the event of a
repurchase will be equal to the amount originally paid by such officer for
such securities plus an amount representing a 10% annual return on such
amount. See "Management--Capital Contributions by Officers and Directors" for
information concerning the amounts paid by such officers of the Company for
the securities of the Company currently owned by them.
Mr. Hicks has agreed that (i) he will not transfer any shares of Common
Stock heretofore purchased by him until November 1998 and (ii) he will not
transfer any shares of Common Stock that are hereafter issued to him as
compensation pursuant to his employment agreement for a one-year period
following the date of issuance. See "Management--Employment Agreements."
33
<PAGE>
DESCRIPTION OF CAPITAL STOCK
GENERAL
The authorized capital stock of the Company consists of 75,000,000 shares of
Common Stock, par value $0.01 per share, and 5,000,000 shares of Preferred
Stock, par value $0.01 per share (the "Preferred Stock"). As of the date of
this Prospectus, there are 16,366,156 shares of Common Stock outstanding.
After giving effect to the Offerings, there will be 23,366,156 shares of
Common Stock outstanding (24,416,156 if the Underwriters' over-allotment
option is exercised in full). As of the date of this Prospectus, there are no
shares of Preferred Stock outstanding or reserved for issuance.
The following description of the Company's capital stock is a summary of the
material terms of such stock. The following does not purport to be complete
and is subject in all respects to applicable Delaware law and to the
provisions of the Company's Certificate of Incorporation and By-laws.
COMMON STOCK
The holders of shares of Common Stock are entitled to one vote per share
held on all matters submitted to a vote at a meeting of stockholders. Each
stockholder may exercise such vote either in person or by proxy. Stockholders
are not entitled to cumulate their votes for the election of directors, which
means that, subject to such rights as may be granted to the holders of shares
of Preferred Stock, if any, the holders of more than 50% of the outstanding
shares of Common Stock are able to elect all of the directors to be elected by
holders of shares of Common Stock and the holders of the remaining shares of
Common Stock will not be able to elect any director. Subject to such
preferences to which holders of shares of Preferred Stock, if any, may be
entitled, the holders of outstanding shares of Common Stock are entitled to
receive ratably such dividends, if any, as may be declared from time to time
by the Board of Directors out of funds legally available therefor. In the
event of a liquidation, dissolution or winding up of the Company, the holders
of outstanding shares of Common Stock are entitled to share ratably in all
assets of the Company which are legally available for distribution to
stockholders, subject to the prior rights on liquidation of creditors and to
preferences, if any, to which holders of shares of Preferred Stock, if any,
may be entitled. The holders of outstanding shares of Common Stock do not have
any preemptive, subscription, redemption or sinking fund rights. The
outstanding shares of Common Stock are, and the shares issued in the Offerings
will upon issuance and sale as contemplated hereby be, duly authorized,
validly issued, fully paid and nonassessable.
PREFERRED STOCK
The Company is authorized by its Certificate of Incorporation to issue a
maximum of 5,000,000 shares of Preferred Stock, in one or more series and
containing such rights, privileges and limitations, including dividend rights,
voting rights, conversion privileges, redemption rights, liquidation rights
and/or sinking fund rights, as may from time to time be determined by the
Board of Directors of the Company. Preferred Stock may be issued in the future
in connection with acquisitions, financings or such other matters as the Board
of Directors deems to be appropriate. In the event that any such shares of
Preferred Stock shall be issued, a Certificate of Designation, setting forth
the series of such Preferred Stock and the relative rights, privileges and
limitations with respect thereto, is required to be filed with the Secretary
of State of the State of Delaware. The effect of having such Preferred Stock
authorized is that the Company's Board of Directors alone, within the bounds
and subject to the federal securities laws and the Delaware General
Corporation Law (the "Delaware law"), may be able to authorize the issuance of
Preferred Stock, which may adversely affect the voting and other rights of
holders of Common Stock. The issuance of Preferred Stock may also have the
effect of delaying or preventing a change in control of the Company.
WARRANTS, OPTIONS AND CONVERTIBLE NOTES
There are currently outstanding warrants to purchase an aggregate of
6,342,858 shares of Common Stock. Each such warrant provides for an exercise
price of $10.00 per share and may be exercised at any time until September 12,
2007.
34
<PAGE>
There are currently outstanding options to purchase an aggregate of 762,500
shares of Common Stock. These options provide for exercise prices ranging from
$10.00 to $30.00 per share, with the weighted average exercise price being
$12.36 per share. Of these options, options to purchase an aggregate of 40,000
shares of Common Stock are currently exercisable and options to purchase
722,500 shares of Common Stock will become exercisable in installments over
specified periods.
A portion of the consideration paid by the Company for one of the Initial
Acquired Companies consisted of a $300,000 convertible note, which note is
convertible into Common Stock following completion of the Offerings at a
conversion price per share equal to 120% of the initial offering price per
share in the Offerings.
LISTING
The Common Stock has been approved for listing on under the symbol
" ", subject to official notice of issuance.
TRANSFER AGENT AND REGISTRAR
American Stock Transfer & Trust Company will serve as transfer agent and
registrar for the Common Stock.
CERTAIN CHARTER AND BY-LAW PROVISIONS
The following brief description of certain provisions of the Company's
Certificate of Incorporation (the "Certificate") and By-laws does not purport
to be complete and is subject in all respects to the provisions of the
Certificate and By-laws, copies of which have been filed as exhibits to the
Registration Statement of which this Prospectus forms a part.
CLASSIFIED BOARD OF DIRECTORS
The Certificate provides that the Board shall be divided into three classes
and that the number of directors in each class shall be as nearly equal as is
possible based upon the number of directors constituting the entire Board. The
Certificate effectively provides that the term of office of the first class
will expire at the annual meeting of stockholders following the date of this
Prospectus, the term of office of the second class will expire at the second
annual meeting of stockholders following the date of this Prospectus, and the
term of office of the third class will expire at the third annual meeting of
stockholders following the date of this Prospectus. At each annual meeting of
stockholders, successors to directors of the class whose term expires at such
meeting will be elected to serve for three-year terms and until their
successors are elected and qualified.
The classification of directors has the effect of making it more difficult
for stockholders to change the composition of the Board. At least two annual
meetings of stockholders, instead of one, will generally be required to effect
a change in a majority of the Board. Such a delay may help ensure that the
Company's directors, if confronted by a third party attempting to force a
proxy contest, a tender or exchange offer or other extraordinary corporate
transaction, would have sufficient time to review the proposal as well as any
available alternatives to the proposal and to act in what they believe to be
the best interests of the stockholders. However, such classification
provisions could also have the effect of discouraging a third party from
initiating a proxy contest, making a tender offer or otherwise attempting to
obtain control of the Company, even though such an attempt might be beneficial
to the Company and its stockholders. The classification of the Board could
thus increase the likelihood that incumbent directors will retain their
positions.
NUMBER OF DIRECTORS; REMOVAL; FILLING VACANCIES
The Certificate provides that, subject to any rights of holders of Preferred
Stock to elect additional directors under specified circumstances, the number
of directors comprising the entire Board will be fixed from time to time by
action of not less than a majority of the directors then in office. If the
number of directors is at any time fixed at three or greater, then thereafter
in no event shall such number be less than three or more than nine,
35
<PAGE>
unless approved by action of not less than two-thirds of the directors then in
office. In addition, the Certificate provides that, subject to any rights of
holders of Preferred Stock, newly created directorships resulting from an
increase in the authorized number of directors or vacancies on the Board
resulting from death, resignation, retirement, disqualification or removal of
directors or any other cause may be filled only by the Board (and not by the
stockholders unless there are no directors in office), provided that a quorum
is then in office and present, or by a majority of the directors then in
office, if less than a quorum is then in office, or by the sole remaining
director. Accordingly, the Board could prevent any stockholder from enlarging
the Board and filling the new directorships with such stockholder's own
nominees.
Under the Delaware law, unless otherwise provided in the certificate of
incorporation, directors serving on a classified board may only be removed by
the stockholders for cause. The Certificate provides that following the
Offerings directors may be removed only for cause and only upon the
affirmative vote of holders of at least 66 2/3% of the voting power of all the
then outstanding shares of stock entitled to vote generally in the election of
directors ("Voting Stock"), voting together as a single class.
The provisions of the Certificate governing the number of directors, their
removal and the filling of vacancies may have the effect of discouraging a
third party from initiating a proxy contest, making a tender offer or
otherwise attempting to gain control of the Company, or of attempting to
change the composition or policies of the Board, even though such attempts
might be beneficial to the Company or its stockholders. These provisions of
the Certificate could thus increase the likelihood that incumbent directors
retain their positions.
LIMITATION ON SPECIAL MEETINGS; NO STOCKHOLDER ACTION BY WRITTEN CONSENT
The Certificate and the By-laws provide that (subject to the rights, if any,
of holders of any class or series of Preferred Stock then outstanding) (i)
only a majority of the Board of Directors or the chief executive officer will
be able to call a special meeting of stockholders; (ii) the business permitted
to be conducted at a special meeting of stockholders shall be limited to
matters properly brought before the meeting by or at the direction of the
Board of Directors; and (iii) following the Offerings, stockholder action may
be taken only at a duly called and convened annual or special meeting of
stockholders and may not be taken by written consent. These provisions, taken
together, prevent stockholders from forcing consideration by the stockholders
of stockholder proposals over the opposition of the Board, except at an annual
meeting.
ADVANCE NOTICE PROVISIONS FOR STOCKHOLDER NOMINATIONS AND STOCKHOLDER
PROPOSALS
The By-laws establish an advance notice procedure for stockholders to make
nominations of candidates for election as director, or to bring other business
before an annual meeting of stockholders of the Company (the "Stockholder
Notice Procedure").
The Stockholder Notice Procedure provides that, subject to the rights of any
holders of Preferred Stock, only persons who are nominated by or at the
direction of the Board, any committee appointed by the Board, or by a
stockholder who has given timely written notice to the Secretary of the
Company prior to the meeting at which directors are to be elected, will be
eligible for election as directors of the Company. The Stockholder Notice
Procedure provides that at an annual meeting only such business may be
conducted as has been brought before the meeting by, or at the direction of,
the Board, any committee appointed by the Board, or by a stockholder who has
given timely written notice to the Secretary of the Company of such
stockholder's intention to bring such business before such meeting. Under the
Stockholder Notice Procedure, to be timely, notice of stockholder nominations
or proposals to be made at an annual or special meeting must be received by
the Company not less than 60 days nor more than 90 days prior to the scheduled
date of the meeting (or, if less than 70 days' notice or prior public
disclosure of the date of the meeting is given, then the 15th day following
the earlier of (i) the day such notice was mailed or (ii) the day such public
disclosure was made).
Under the Stockholder Notice Procedure, a stockholder's notice to the
Company proposing to nominate a person for election as director must contain
certain information about the nominating stockholder and the
36
<PAGE>
proposed nominee. Under the Stockholder Notice Procedure, a stockholder's
notice relating to the conduct of business other than the nomination of
directors must contain certain information about such business and about
the proposing stockholder. If the Chairman or other officer presiding at a
meeting determines that a person was not nominated, or other business was not
brought before the meeting, in accordance with the Stockholder Notice
Procedure, such person will not be eligible for election as a director, or
such business will not be conducted at such meeting, as the case may be.
By requiring advance notice of nominations by stockholders, the Stockholder
Notice Procedure affords the Board an opportunity to consider the
qualifications of the proposed nominees and, to the extent deemed necessary or
desirable by the Board, to inform stockholders about such qualifications. By
requiring advance notice of other proposed business, the Stockholder Notice
Procedure also provides a more orderly procedure for conducting annual
meetings of stockholders and, to the extent deemed necessary or desirable by
the Board, provides the Board with an opportunity to inform stockholders,
prior to such meetings, of any business proposed to be conducted at such
meetings, together with any recommendations as to the Board's position
regarding action to be taken with respect to such business, so that
stockholders can better decide whether to attend such a meeting or to grant a
proxy regarding the disposition of any such business.
Although the By-laws do not give the Board any power to approve or
disapprove stockholder nominations for the election of directors or proposals
for action, the forgoing provisions may have the effect of precluding a
contest for the election of directors or the consideration of stockholder
proposals and of discouraging or deterring a third party from conducting a
solicitation of proxies to elect its own slate of directors or to approve its
own proposal, if the proper advance notice procedures are not followed,
without regard to whether consideration of such nominees or proposals might be
harmful or beneficial to the Company and its stockholders.
CERTAIN PROVISIONS RELATING TO POTENTIAL CHANGE OF CONTROL
The Certificate authorizes the Board and any committee of the Board to take
such action as it may determine to be reasonably necessary or desirable to
encourage any person or entity to enter into negotiations with the Board and
management regarding any transaction which may result in a change of control
of the Company, or to contest or oppose any such transaction which the Board
determines to be unfair, abusive or otherwise undesirable to the Company, its
business, assets, properties or stockholders. The Board or any such committee
is specifically authorized to adopt plans or to issue securities of the
Company including plans, rights, options, capital stock, notes, debentures or
other debt securities, which securities may be exchangeable or convertible
into cash or other securities on such terms and conditions as the Board or any
such committee determines. In addition, the Board or such committee of the
Board may provide that any holder or class of holders of such designated
securities will be treated differently than all other security holders in
respect of the terms, conditions, provisions and rights of such securities.
The existence of this authority or the actions which may be taken by the
Board pursuant thereto are intended to give the Board flexibility in order to
act in the best interests of stockholders in the event of a potential change
of control transaction. Such provisions may, however, deter potential
acquirors from proposing unsolicited transactions not approved by the Board
and might enable the Board to hinder or frustrate such a transaction if
proposed.
LIMITATION OF LIABILITY OF DIRECTORS
The Certificate provides that a director will not be personally liable to
the Company or its stockholders for monetary damages for any breach of
fiduciary duty as a director, except for liability (i) for any breach of the
director's duty of loyalty to the corporation or its stockholders, (ii) for
acts or omissions not in good faith or which involve intentional misconduct or
a knowing violation of law, (iii) under Section 174 of the Delaware law, which
concerns unlawful payments of dividends, stock purchases or redemptions or
(iv) for any transaction from which the director derived an improper personal
benefit. If the Delaware law is subsequently amended to permit further
limitation of the personal liability of directors, the liability of a director
of the Company will be eliminated or limited to the fullest extent permitted
by the Delaware law as so amended.
37
<PAGE>
AMENDMENT OF THE CERTIFICATE OF INCORPORATION AND BY-LAWS
The Certificate contains provisions requiring the affirmative vote of the
holders of at least 66 2/3% of the voting power of the Voting Stock to amend
certain provisions of the Certificate (including the provisions discussed
above relating to the size and classification of the Board, replacement and/or
removal of directors, action by written consent, special stockholder meetings,
the authorization for the Board to take steps to encourage or oppose, as the
case may be, transactions which may result in a change of control of the
Company, and limitation of the liability of directors) or to amend any
provision of the By-laws by action of stockholders following the Offerings.
These provisions make it more difficult for stockholders to make changes in
the Certificate and the By-laws, including changes designed to facilitate the
exercise of control over the Company.
SHARES ELIGIBLE FOR FUTURE SALE
No prediction can be made as to the effect, if any, that future sales of
Common Stock, or the availability of Common Stock for future sale, will have
on the market price of the Common Stock prevailing from time to time. Sales of
substantial amounts of Common Stock (including shares issued upon exercise of
warrants or options), or the perception that such sales could occur, may
adversely affect prevailing market prices for the Common Stock. The number of
outstanding shares of Common Stock available for sale in the public market
will be limited by (i) agreements with the Underwriters pursuant to which the
Company, each of its officers and directors and the holders of the 318,712
shares issued as consideration for acquisitions have agreed not to sell or
otherwise dispose of any shares of Common Stock (including shares that may be
acquired upon the exercise of currently exercisable warrants) for a period of
180 days after the date of this Prospectus without the prior written consent
of Merrill Lynch & Co., on behalf of the Underwriters (except that the Company
may issue shares as consideration for acquisitions, provided that the Company
may not issue in excess of 500,000 shares for acquisitions unless the
recipients of any excess shares agree to be subject to the foregoing lock-up
agreement with respect to such excess shares); (ii) agreements with the
Company (the "Stockholder Lock-up Agreements") pursuant to which each other
holder of currently outstanding shares of Common Stock has agreed not to sell
or otherwise transfer such shares without the prior written consent of the
Company (such agreements to lapse with respect to one-third of such shares on
the first, second and third anniversaries of the closing of the Offerings,
respectively); and (iii) an agreement with the Underwriters pursuant to which
the Company has agreed not to waive any Stockholder Lock-up Agreement for a
period of 180 days after the date of this Prospectus without the prior written
consent of Merrill Lynch & Co., on behalf of the Underwriters. See
"Underwriting." Subject to the foregoing agreements, substantially all of the
Company's outstanding shares of Common Stock and all shares that may hereafter
be issued upon the exercise of outstanding warrants will be eligible for sale
pursuant to a shelf registration statement covering such shares that the
Company intends to file prior to completion of the Offerings. The Company
expects to have such shelf registration statement declared effective upon the
completion of the Offerings. This registration statement will (subject to the
above-mentioned agreements and restrictions) enable the holders of such shares
to publicly dispose of such shares from time to time.
38
<PAGE>
CERTAIN UNITED STATES FEDERAL TAX CONSIDERATIONS
PERSONAL HOLDING COMPANY TAX
If both (i) more than 50% of the Company's stock is owned directly,
indirectly or by application of certain attribution rules, by five or fewer
individuals (including certain tax-exempt corporations, certain trusts, and
residents and citizens of the United States or another country) at any time
during the last half of the Company's taxable year (the "PHC Ownership Test"),
and (ii) at least 60% of the Company's adjusted ordinary gross income for the
taxable year is "personal holding company income" (the "PHC Income Test"),
then the Company will be subject to United States personal holding company
tax, in addition to its regular income tax, at a current rate of 39.6% on its
"undistributed personal holding company income" for the taxable year.
Personal holding company income of a corporation is the portion of the
corporation's adjusted ordinary gross income that consists of certain types of
passive income, including certain dividends, interest, annuities, rents and
royalties (in some circumstances, this is true even if the rents and royalties
are derived from the active conduct of a trade or business). The undistributed
personal holding company income of a corporation is based on its net taxable
income (which excludes, for example, income exempt from regular federal income
tax), adjusted to reflect (among other things) deductions for federal income
taxes and dividends to shareholders paid by the Company.
The Company expects to satisfy the PHC Ownership Test for the taxable year
ending December 31, 1997 and, even after giving effect to the Offerings, may
satisfy such test for taxable years ending thereafter. The Company does not,
however, believe that it will satisfy the PHC Income Test for the taxable year
ending December 31, 1997 and intends to manage its affairs so that it will not
satisfy the PHC Income Test for any taxable year ending thereafter.
CERTAIN CONSIDERATIONS RELATING TO NON-U.S. HOLDERS
The following is a general discussion of certain United States federal
income and estate tax considerations with respect to the ownership and
disposition of Common Stock applicable to Non-U.S. Holders who hold the Common
Stock as a capital asset within the meaning of Section 1221 of the Code. In
general, a "Non-U.S. Holder" is any holder other than (i) a citizen or
resident of the United States, (ii) a corporation created or organized in the
United States or under the laws of the United States or of any state, (iii) an
estate, the income of which is includable in gross income for United States
federal income tax purposes regardless of its source, or (iv) a trust if (a) a
court within the United States is able to exercise primary supervision over
the administration of the trust and (b) one or more United States persons have
the authority to control all substantial decisions of the trust. This
discussion is based on current law, which is subject to change (possibly with
retroactive effect), and is for general information only. This discussion does
not address aspects of United States federal taxation other than income and
estate taxation and does not address all aspects of income and estate taxation
or any aspects of state, local or non-United States taxes, nor does it
consider any specific facts or circumstances that may apply to a particular
Non-U.S. Holder. In addition, persons that hold the Common Stock through
"hybrid entities" may be subject to special rules and may not be entitled to
the benefits of a U.S. income tax treaty. ACCORDINGLY, PROSPECTIVE INVESTORS
ARE URGED TO CONSULT THEIR TAX ADVISORS REGARDING THE UNITED STATES FEDERAL,
STATE, LOCAL AND NON-UNITED STATES INCOME AND OTHER TAX CONSIDERATIONS OF
HOLDING AND DISPOSING OF SHARES OF COMMON STOCK.
For purposes of the discussion below, dividends and gain on the sale,
exchange or other disposition of Common Stock will be considered to be "U.S.
trade or business income" if such income or gain is (i) effectively connected
with the conduct of a U.S. trade or business or (ii) in the case of a treaty
country resident, attributable to a permanent establishment (or, in the case
of an individual, a fixed base) in the United States.
Dividends
In general, dividends paid to a Non-U.S. Holder will be subject to United
States withholding tax at a 30% rate of the gross amount (or a lower rate
prescribed by an applicable income tax treaty) unless the dividends are U.S.
trade or business income. Dividends that are U.S. trade or business income
generally will not be subject to
39
<PAGE>
United States withholding tax if the Non-U.S. Holder files certain forms,
including Internal Revenue Service Form 4224, with the payor of the dividend,
and generally will be subject to United States federal income tax on a net
income basis, in the same manner as if the Non-U.S. Holder were a resident of
the United States. A Non-U.S. Holder that is a corporation may be subject to
an additional branch profits tax at a rate of 30% (or such lower rate as may
be specified by an applicable income tax treaty). To determine the
applicability of a tax treaty providing for a lower rate of withholding under
the currently effective United States Treasury Department regulations (the
"Current Regulations"), dividends paid to an address in a foreign country are
presumed to be paid to a resident of that country absent knowledge to the
contrary.
Under United States Treasury Department regulations issued on October 6,
1997 (the "Final Regulations") generally effective for payments made after
December 31, 1998, a Non-U.S. Holder (including in certain cases of Non-U.S.
Holders that are fiscally transparent entities, the owner or owners of such
entity) will be required to provide to the payor certain documentation that
such Non-U.S. Holder (or the owner or owners of such fiscally transparent
entities) is a foreign person in order to claim a reduced rate of withholding
pursuant to an applicable income tax treaty. In addition, if the Common Stock
ceases to be actively traded, then a Non-U.S. Holder claiming the benefits of
a treaty may also be required to provide a U.S. taxpayer identification
number, a certificate of residence in the foreign country (or other acceptable
proof of such residence). Under the Final Regulations, persons claiming that
dividends are U.S. trade or business income will generally be required to
provide a Form W-8, including a taxpayer identification number, certifying
that the income is U.S. trade or business income.
Gain on Sale or Other Disposition of Common Stock
In general, a Non-U.S. Holder will not be subject to United States federal
income tax on any gain realized upon the sale or other disposition of such
holder's shares of Common Stock unless (i) the gain is U.S. trade or business
income, if; (ii) the Non-U.S. Holder is an individual who holds shares of
Common Stock as a capital asset and is present in the United States for 183
days or more in the taxable year of disposition, and certain other tests are
met; (iii) the Non-U.S. Holder is subject to tax pursuant to the provisions of
the U.S. tax law applicable to former citizens and residents of the United
States; or (iv) the Company is or has been a United States real property
holding corporation (a "USRPHC") for United States federal income tax purposes
(which the Company does not believe that it is or is likely to become) at any
time within the shorter of the five year period preceding such disposition or
such Non-U.S. Holder's holding period. If the Company were or were to become a
USRPHC at any time during this period, gains realized upon a disposition of
Common Stock by a Non-U.S. Holder which did not directly or indirectly own
more than 5% of the Common Stock during this period generally would not be
subject to United States federal income tax, provided that the Common Stock is
regularly traded on an established securities market.
Estate Tax
Common Stock owned or treated as owned by an individual who is not a citizen
or resident (as defined for United States federal estate tax purposes) of the
United States at the time of death will be includable in the individual's
gross estate for United States federal estate tax purposes unless an
applicable estate tax treaty provides otherwise, and therefore may be subject
to United States federal estate tax.
Backup Withholding, Information Reporting and Other Reporting Requirements
The Company must report annually to the Internal Revenue Service and to each
Non-U.S. Holder the amount of dividends paid to, and the tax withheld with
respect to, each Non-U.S. Holder. These reporting requirements apply
regardless of whether withholding was reduced or eliminated by an applicable
tax treaty. Copies of this information also may be made available under the
provisions of a specific treaty or agreement with the tax authorities in the
country in which the Non-U.S. Holder resides or is established.
Under the Current Regulations, United States backup withholding tax (which
generally is imposed at the rate of 31% on certain payments to persons that
fail to furnish the information required under the United States information
reporting requirements) and information reporting requirements (other than
those discussed above under "--Dividends") generally will not apply to
dividends paid on Common Stock to a Non-U.S. Holder at an
40
<PAGE>
address outside the United States. Backup withholding and information
reporting generally will apply, however, to dividends paid on shares of Common
Stock to a Non-U.S. Holder at an address in the United States, if such holder
fails to establish an exemption or to provide certain other information to the
payor.
Under the Current Regulations, the payment of proceeds from the disposition
of Common Stock to or through a United States office of a broker will be
subject to information reporting and backup withholding unless the beneficial
owner, under penalties of perjury, certifies, among other things, its status
as a Non-U.S. Holder or otherwise establishes an exemption. The payment of
proceeds from the disposition of Common Stock to or through a non-U.S. office
of a non-U.S. broker generally will not be subject to backup withholding and
information reporting except as noted below. In the case of proceeds from a
disposition of Common Stock paid to or through a non-U.S. office of a broker
that is (i) a United States person, (ii) a "controlled foreign corporation"
for United States federal income tax purposes, or (iii) a foreign person 50%
or more of whose gross income from certain periods is effectively connected
with a United States trade or business, information reporting (but not backup
withholding) will apply unless the broker has documentary evidence in its
files that the owner is a Non-U.S. Holder (and the broker has no actual
knowledge to the contrary).
Under the Final Regulations, the payment of dividends or the payment of
proceeds from the disposition of Common Stock to a Non-U.S. Holder may be
subject to information reporting and backup withholding unless such recipient
provides to the payor certain documentation as to its status as a Non-U.S.
Holder or otherwise establishes an exemption.
Backup withholding is not an additional tax. Any amounts withheld under the
backup withholding rules from a payment to a Non-U.S. Holder will be refunded
or credited against the Non-U.S. Holder's United States federal income tax
liability, if any, provided that the required information is furnished to the
Internal Revenue Service in a timely manner.
41
<PAGE>
UNDERWRITING
Subject to the terms and conditions set forth in a U.S. purchase agreement
(the "U.S. Purchase Agreement") among the Company and the underwriters named
below (the "U.S. Underwriters") for whom Merrill Lynch, Pierce, Fenner & Smith
Incorporated ("Merrill Lynch"), Donaldson, Lufkin & Jenrette Securities
Corporation and Deutsche Morgan Grenfell Inc. are acting as representatives
(the "U.S. Representatives") and concurrently with the sale of 1,400,000
shares of Common Stock to the International Managers (as defined below), the
Company has agreed to sell to the U.S. Underwriters, and each of the U.S.
Underwriters severally has agreed to purchase from the Company, the number of
shares of Common Stock set forth opposite its name below.
<TABLE>
<CAPTION>
U.S. UNDERWRITER NUMBER OF SHARES
---------------- ----------------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated...................................
Donaldson, Lufkin & Jenrette Securities Corporation.....
Deutsche Morgan Grenfell Inc. ..........................
---------
Total.............................................. 5,600,000
=========
</TABLE>
The Company has also entered into an international purchase agreement (the
"International Purchase Agreement") with certain underwriters outside the
United States and Canada (the "International Managers" and, together with the
U.S. Underwriters, the "Underwriters") for whom Merrill Lynch International,
Donaldson, Lufkin & Jenrette International and Deutsche Morgan Grenfell Inc.
are acting as lead managers (the "Lead Managers"). Subject to the terms and
conditions set forth in the International Purchase Agreement, and concurrently
with the sale of 5,600,000 shares of Common Stock to the U.S. Underwriters
pursuant to the U.S. Purchase Agreement, the Company has agreed to sell to the
International Managers, and the International Managers severally have agreed
to purchase from the Company, an aggregate of 1,400,000 shares of Common
Stock. The initial offering price per share and the total underwriting
discount per share of Common Stock are identical under the U.S. Purchase
Agreement and the International Purchase Agreement.
In the U.S. Purchase Agreement and the International Purchase Agreement, the
several U.S. Underwriters and the several International Managers,
respectively, have agreed, subject to the terms and conditions set forth
therein, to purchase all of the shares of Common Stock being sold pursuant to
each such agreement if any of the shares of Common Stock being sold pursuant
to such agreement are purchased. The closings with respect to the sale of
shares of Common Stock to be purchased by the U.S. Underwriters and the
International Managers are conditioned upon one another.
The U.S. Representatives have advised the Company that the U.S. Underwriters
propose initially to offer the shares of Common Stock to the public at the
initial public offering price set forth on the cover page of this Prospectus,
and to certain dealers at such price less a concession not in excess of $ per
share of Common Stock. The U.S. Underwriters may allow, and such dealers may
reallow, a discount not in excess of $ per share of Common Stock on sales to
certain other dealers. After the initial public offering, the public offering
price, concession and discount may be changed.
The Company has granted an option to the U.S. Underwriters exercisable for
30 days after the date of this Prospectus, to purchase up to an aggregate of
840,000 additional shares of Common Stock at the initial public offering price
set forth on the cover page of the Prospectus, less the underwriting discount.
The U.S. Underwriters may exercise this option only to cover over-allotments,
if any, made on the sale of the Common Stock offered hereby. To the extent
that the U.S. Underwriters exercise this option, each U.S. Underwriter will be
obligated, subject to certain conditions, to purchase a number of additional
shares of Common Stock
42
<PAGE>
proportionate to such U.S. Underwriter's initial amount reflected in the
foregoing table. The Company also has granted an option to the International
Managers, exercisable for 30 days after the date of this Prospectus to
purchase up to an aggregate of 210,000 additional shares of Common Stock to
cover over-allotments, if any, on terms similar to those granted to the U.S.
Underwriters.
The Company, all executive officers and directors of the Company and the
holders of the 318,712 shares of Common Stock issued as consideration for
acquisitions have agreed, subject to certain exceptions, not to directly or
indirectly (a) offer, pledge, sell, contract to sell, sell any option or
contract to purchase, purchase any option or contract to sell, grant any
option, right or warrant for the sale of or otherwise dispose of or transfer
any shares of Common Stock or securities convertible into or exchangeable or
exercisable for Common Stock, whether now owned or thereafter acquired by the
person executing the agreement or with respect to which the person executing
the agreement thereafter acquires the power of disposition, or file a
registration statement under the Securities Act with respect to the foregoing
or (b) enter into any swap or other agreement that transfers, in whole or in
part, the economic consequence of ownership of the Common Stock whether any
such swap or transaction is to be settled by delivery of Common Stock or other
securities, in cash or otherwise, without the prior written consent of Merrill
Lynch on behalf of the Underwriters for a period of 180 days after the date of
this Prospectus. The foregoing agreement will not limit a stockholder's
ability to transfer shares in a private placement or to pledge shares,
provided that the transferee or pledgee agrees to be bound by such agreement.
The foregoing agreement also will not limit the Company's ability to (i) grant
stock options under the 1997 Stock Option Plan, (ii) issue shares as
consideration for acquisitions (provided that the Company may not issue in
excess of 500,000 shares for acquisitions unless the recipients of such excess
shares agree to be subject to the foregoing lock-up with respect to such
excess shares), (iii) file a shelf registration statement with respect to the
possible resale of outstanding shares of Common Stock or shares of Common
Stock that may be acquired upon exercise of outstanding warrants (provided
that no sales may be made under such registration statement during the 180-day
lock-up period), (iv) file a registration statement with respect to Common
Stock or other securities to be issued as consideration for an acquisition or
with respect to the potential resale of shares issued as consideration for an
acquisition (provided that no sales may be made pursuant to such registration
statement except to the extent permitted by clause (ii) above) or (v) file a
registration statement registering the shares that may be issued pursuant to
options granted or to be granted under the 1997 Stock Option Plan.
The Company has also agreed not to waive any lock-up agreement that was
agreed to by certain stockholders of the Company in connection with the
issuance to them of 3,028,873 shares of Common Stock in a private placement in
September 1997, without the prior written consent of Merrill Lynch & Co. on
behalf of the Underwriters, for a period of 180 days after the date of this
Prospectus. This effectively prohibits such stockholders from selling or
otherwise disposing of any such shares for a period of 180 days after the date
of this Prospectus, without the prior written consent of Merrill Lynch & Co.,
on behalf of the Underwriters.
The U.S. Underwriters and the International Managers have entered into an
intersyndicate agreement (the "Intersyndicate Agreement") that provides for
the coordination of their activities. Pursuant to the Intersyndicate
Agreement, the U.S. Underwriters and the International Managers are permitted
to sell shares of Common Stock to each other for purposes of resale at the
initial public offering price, less an amount not greater than the selling
concession. Under the terms of the Intersyndicate Agreement, the U.S.
Underwriters and any dealer to whom they sell shares of Common Stock will not
offer to sell or sell shares of Common Stock to persons who are non-U.S. or
non-Canadian persons or to persons they believe intend to resell to persons
who are non-U.S. or non-Canadian persons, and the International Managers and
any dealer to whom they sell shares of Common Stock will not offer to sell or
sell shares of Common Stock to U.S. persons or to Canadian persons or to
persons they believe intend to resell to U.S. or Canadian persons, except in
the case of transactions pursuant to the Intersyndicate Agreement.
Prior to the Offerings, there has been no public market for the Common Stock
of the Company. The initial public offering price will be determined through
negotiations among the Company, the U.S. Representatives and the Lead
Managers. The factors to be considered in determining the initial public
offering price, in addition to prevailing market conditions, are the history
of and the prospects for the Company and the industry in which it competes, an
assessment of the Company's management, the past and present operations of the
Company and
43
<PAGE>
the Initial Acquired Companies and the trend of its pro forma revenues and
earnings, the prospects for future earnings of the Company, the prices of
similar securities of generally comparable companies and other relevant
factors. There can be no assurance that an active trading market will develop
for the Common Stock or that the Common Stock will trade in the public market
subsequent to the Offerings at or above the initial public offering price.
Application has been made to list the shares of Common Stock on the
under the symbol " ," subject to official notice of issuance. In order to meet
the requirements for listing of the Common Stock on that exchange, the U.S.
Underwriters and the International Managers have undertaken to sell lots of
or more shares to a minimum of beneficial owners.
The Underwriters have reserved for sale, at the initial public offering
price, up to 700,000 shares of Common Stock for certain employees, directors,
and business associates of, and certain other persons designated by, the
Company who have expressed an interest in purchasing such shares of Common
Stock. The number of shares available for sale to the general public in the
Offerings will be reduced to the extent such persons purchase such reserved
shares. Any reserved shares not so purchased will be offered to the general
public on the same basis as other shares offered hereby.
The Underwriters do not intend to confirm sales of the Common Stock offered
hereby to any accounts over which they exercise discretionary authority.
The Company has agreed to indemnify the U.S. Underwriters and the
International Managers against certain liabilities, including certain
liabilities under the Securities Act.
Until the distribution of the Common Stock is completed, rules of the
Commission may limit the ability of the Underwriters and certain selling group
members to bid for and purchase the Common Stock. As an exception to these
rules, the U.S. Representatives are permitted to engage in certain
transactions that stabilize the price of the Common Stock. Such transactions
consist of bids or purchases for the purposes of pegging, fixing or
maintaining the price of the Common Stock.
If the Underwriters create a short position in the Common Stock in
connection with the Offerings, i.e., if they sell more shares of Common Stock
than are set forth on the cover page of this Prospectus, the U.S.
Representatives may reduce that short position by purchasing Common Stock in
the open market. The U.S. Representatives may also elect to reduce any short
position by exercising all or part of the over-allotment option described
above.
The U.S. Representatives may also impose a penalty bid on certain
Underwriters and selling group members. This means that if the U.S.
Representatives purchase shares of Common Stock in the open market to reduce
the Underwriters' short position or to stabilize the price of the Common
Stock, they may reclaim the amount of the selling concession from the
Underwriters and selling group members who sold those shares as part of the
Offerings.
In general, purchases of a security for the purpose of stabilization or to
reduce a short position could cause the price of the security to be higher
than it might be in the absence of such purchases. The imposition of a penalty
bid might also have an effect on the price of a security to the extent that it
were to discourage resales of the security.
Neither the Company nor any of the Underwriters makes any representation or
prediction as to the direction or magnitude of any effect that the
transactions described above may have on the price of the Common Stock. In
addition, neither the Company nor any of the Underwriters makes any
representation that the U.S. Representatives will engage in such transactions
or that such transactions, once commenced, will not be discontinued without
notice.
44
<PAGE>
LEGAL MATTERS
Certain legal matters in connection with the Offerings will be passed upon
for the Company by Weil, Gotshal & Manges LLP, New York, New York, and
Ehrenreich Eilenberg Krause & Zivian LLP, New York, New York. Certain legal
matters in connection with the Offerings will be passed upon for the
Underwriters by Skadden, Arps, Slate, Meagher & Flom LLP, New York, New York.
EXPERTS
The financial statements of United Rentals, Inc. at September 30, 1997 and
for the period from August 14, 1997 (Inception) to September 30, 1997, and the
financial statements of J&J Rental Services, Inc. and Bronco Hi-Lift, Inc. at
December 31, 1995 and 1996 and for each of the three years in the period ended
December 31, 1996, appearing in this Prospectus and Registration Statement,
have been audited by Ernst & Young LLP, independent auditors, as set forth in
their reports thereon appearing elsewhere herein and in the Registration
Statement, and are included in reliance upon such reports given upon the
authority of such firm as experts in accounting and auditing.
The financial statements of A&A Tool Rentals & Sales, Inc. and subsidiary as
of October 31, 1996 and 1995, and for each of the years in the three-year
period ended October 31, 1996, have been included in this Prospectus and in
the Registration Statement of which this Prospectus is a part in reliance upon
the report of KPMG Peat Marwick LLP, independent certified public accountants,
appearing elsewhere herein, and upon the authority of said firm as experts in
accounting and auditing.
The financial statements of MERCER Equipment Company appearing in this
Prospectus have been audited by Webster Duke & Co., independent auditors, as
set forth in their reports thereon included elsewhere herein and in the
Registration Statement of which this Prospectus is a part, and are included in
reliance upon such reports given upon the authority of such firm as experts in
accounting and auditing.
The combined financial statements of Coran Enterprises, Inc. (dba A-1 Rents)
and Monterey Bay Equipment Rental, Inc., appearing in this Prospectus and
Registration Statement, have been audited by Grant Thornton LLP, independent
auditors, as set forth in their report thereon appearing elsewhere herein and
in the Registration Statement, and are included in reliance upon such report
given upon the authority of such firm as experts in accounting and auditing.
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") in Washington, D.C. a Registration Statement on Form S-1
(together with all amendments thereto, the "Registration Statement"), under
the Securities Act with respect to the shares of Common Stock offered hereby.
This Prospectus does not contain all the information set forth in the
Registration Statement and the exhibits and schedules filed therewith, certain
portions of which have been omitted as permitted by the rules and regulations
of the Commission. For further information with respect to the Company and the
Common Stock offered hereby, reference is hereby made to the Registration
Statement and to the exhibits and schedules filed therewith. Statements
contained in this Prospectus regarding the contents of any contract or other
document referred to are not necessarily complete and, in each instance,
reference is made to the copy of such contract or other document filed as an
exhibit to the Registration Statement, each such statement being deemed to be
qualified in its entirety by such reference. The Registration Statement,
including all exhibits and schedules thereto, may be inspected without charge
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.
45
<PAGE>
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.
Prior to filing the Registration Statement of which this Prospectus is a
part, the Company was not subject to the reporting requirements of Section 13
or 15(d) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"). Upon effectiveness of the Registration Statement, the Company will
become subject to the informational and periodic reporting requirements of the
Exchange Act, and in accordance therewith, will file periodic reports, proxy
statements, and other information with the Commission. Such periodic reports,
proxy statements, and other information will be available for inspection and
copying at the public reference facilities and other regional offices referred
to above. The Company intends to register the securities offered by the
Registration Statement under the Exchange Act simultaneously with the
effectiveness of the Registration Statement and to furnish its stockholders
with annual reports containing audited financial statements and such other
reports as may be required from time to time by law.
46
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
I. Pro Forma Consolidated Financial Statements of United Rentals, Inc.
Introduction........................................................
Pro Forma Consolidated Balance Sheets--September 30, 1997
(unaudited)........................................................
Pro Forma Consolidated Statements of Operations for the Nine Months
Ended September 30, 1997 (unaudited)...............................
Pro Forma Consolidated Statements of Operations for the Year Ended
December 31, 1996 (unaudited)......................................
Notes to Pro Forma Consolidated Financial Statements................
II. Financial Statements of United Rentals, Inc.
Report of Independent Auditors......................................
Balance Sheet--September 30, 1997...................................
Statement of Operations for the period from August 14, 1997
(Inception) to September 30, 1997..................................
Statement of Stockholders' Equity for the period from August 14,
1997 (Inception) to September 30, 1997.............................
Statement of Cash Flows for the period from August 14, 1997
(Inception) to September 30, 1997..................................
Notes to Financial Statements.......................................
III. Financial Statements of MERCER Equipment Company
Independent Auditor's Report........................................
Balance Sheets--December 31, 1994, 1995 and 1996 and September 30,
1997 (unaudited)...................................................
Statements of Income and Retained Earnings for the Years Ended
December 31, 1994, 1995 and 1996 and for the Nine Months Ended
September 30, 1996 and 1997 (unaudited)............................
Statements of Cash Flows for the Years Ended December 31, 1994, 1995
and 1996 and for the Nine Months Ended September 30, 1996 and 1997
(unaudited)........................................................
Notes to Financial Statements.......................................
IV. Consolidated Financial Statements of A&A Tool Rentals & Sales, Inc.
Independent Auditor's Report........................................
Consolidated Balance Sheets--October 31, 1995 and 1996 and July 31,
1997 (unaudited)...................................................
Consolidated Statements of Operations for the Years Ended October
31, 1994, 1995 and 1996 and for the Nine Months Ended July 31, 1996
and 1997 (unaudited)...............................................
Consolidated Statements of Stockholders' Equity for the Years Ended
October 31, 1994, 1995 and 1996 and for the Nine Months Ended July
31, 1997 (unaudited)...............................................
Consolidated Statements of Cash Flows for the Years Ended October
31, 1994, 1995, and 1996 and for the Nine Months Ended July 31,
1996 and 1997 (unaudited)..........................................
Notes to Consolidated Financial Statements..........................
V. Financial Statements of J&J Rental Services, Inc.
Report of Independent Auditors......................................
Balance Sheets--December 31, 1995 and 1996 and September 30, 1997
(unaudited) .......................................................
Statements of Income for the Years Ended December 31, 1994, 1995 and
1996, for the Six Months Ended June 30, 1996 and 1997 (unaudited)
and for the Three Months Ended September 30, 1997 (unaudited)......
Statements of Stockholders' Equity and Partners' Capital for the
Years Ended December 31, 1994, 1995 and 1996 and for the Nine
Months Ended September 30, 1997 (unaudited)........................
Statements of Cash Flows for the Years Ended December 31, 1994, 1995
and 1996, for the Six Months Ended June 30, 1996 and 1997
(unaudited) and for the Three Months Ended September 30, 1997
(unaudited)........................................................
Notes to Financial Statements.......................................
</TABLE>
F-1
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
VI. Combined Financial Statements of Coran Enterprises, Inc. dba A-1
Rents and Monterey Bay Equipment Rental, Inc.
Report of Independent Auditors.......................................
Combined Balance Sheets--December 31, 1995 and 1996 and September 30,
1997 (unaudited)....................................................
Combined Statements of Earnings for the Three Years Ended December
31, 1996 and for the Nine Months Ended September 30, 1996 and 1997
(unaudited) ........................................................
Combined Statements of Stockholders' Equity for the Three Years Ended
December 31, 1996 and for the Nine Months Ended September 30, 1997
(unaudited) ........................................................
Combined Statements of Cash Flows for the Three Years Ended December
31, 1996 and for the Nine Months Ended September 30, 1996 and 1997
(unaudited) ........................................................
Notes to Combined Financial Statements...............................
VII. Financial Statements of Bronco Hi-Lift, Inc.
Report of Independent Auditors.......................................
Balance Sheets--December 31, 1995 and 1996 and September 30, 1997
(unaudited) ........................................................
Statements of Income for the Three Years Ended December 31, 1996 and
for the Nine Months Ended September 30, 1996 and 1997 (unaudited)...
Statements of Stockholders' Equity for the Three Years Ended December
31, 1996 and for the Nine Months Ended September 30, 1997
(unaudited).........................................................
Statements of Cash Flows for the Three Years Ended December 31, 1996
and for the Nine Months Ended September 30, 1996 and 1997
(unaudited).........................................................
Notes to Financial Statements........................................
</TABLE>
F-2
<PAGE>
UNITED RENTALS, INC.
PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The accompanying unaudited pro forma consolidated balance sheet of the
Company as of September 30, 1997 gives effect to the acquisition of each of
the Initial Acquired Companies, the financing of each such acquisition, and
all issuances of Common Stock after September 30, 1997, as if all such
transactions had occurred on such date.
The accompanying unaudited pro forma consolidated statements of operations
of the Company for the nine months ended September 30, 1997 and for the year
ended December 31, 1996 gives effect to the acquisition of each of the Initial
Acquired Companies, the financing of each such acquisition, and all issuances
of Common Stock after the beginning of the period, as if all such transactions
had occurred at the beginning of the period.
The pro forma consolidated financial statements are based upon certain
assumptions and estimates which are subject to change. These statements are
not necessarily indicative of the actual results of operations that might have
occurred, nor are they necessarily indicative of expected results in the
future.
The pro forma consolidated financial statements should be read in
conjunction with the Company's historical Consolidated Financial Statements
and related Notes included elsewhere in this Prospectus.
F-3
<PAGE>
UNITED RENTALS, INC.
PRO FORMA CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
MERCER A&A TOOL J & J BRONCO
UNITED EQUIPMENT RENTALS AND RENTAL CORAN HI-LIFT, RENT-IT
RENTALS, INC. COMPANY SALES, INC. SERVICES, INC. ENTERPRISES, INC. INC. CENTER, INC.
------------- ----------- ----------- -------------- ----------------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Cash and cash
equivalents........ $54,637,568 $ 151,961 $ 187,082 $ 1,757,218 $ 933,705 $ 296,669 $1,246,620
Accounts receiv-
able, net.......... 2,253,040 1,324,684 1,975,944 1,012,615 1,225,550 434,687
Inventory.......... 2,430,233 906,969 271,903
Rental equipment,
net................ 11,304,919 3,133,863 10,504,415 2,948,586 2,321,275 925,290
Property and equip-
ment, net.......... 99,706 594,621 306,415 492,603 65,137 335,374 205,673
Intangible assets,
net................ 84,479
Prepaid expenses
and other assets... 114,200 152,845 468,615 1,375 10,942 27,015 227,310
----------- ----------- ---------- ----------- ---------- ---------- ----------
Total Assets.... $54,851,474 $16,887,619 $6,327,628 $14,816,034 $4,970,985 $4,477,786 $3,039,580
=========== =========== ========== =========== ========== ========== ==========
LIABILITIES AND
STOCKHOLDERS' EQ-
UITY
Accounts payable... $ 67,701 $ 3,218,334 $ 703,583 $ 588,548 $ 308,471 $ 323,489 $ 56,011
Debt............... 9,518,922 4,352,769 14,180,795 2,075,735 2,973,516
Accrued expenses
and other
liabilities........ 84,826 119,987 224,755 185,617 24,805
----------- ----------- ---------- ----------- ---------- ---------- ----------
Total liabili-
ties............ 152,527 12,857,243 5,281,107 14,954,960 2,384,206 3,297,005 80,816
----------- ----------- ---------- ----------- ---------- ---------- ----------
Stockholders' eq-
uity
Common stock...... 157,146 500,001 465,058 1,000 275,000 10,000 (30,713)
Additional paid-
in capital........ 54,815,258 37,920 298,000 42,000
Retained earnings
(deficit)......... (273,457) 3,530,375 581,463 (139,926) 2,273,859 872,781 2,947,477
----------- ----------- ---------- ----------- ---------- ---------- ----------
Total stockhold-
ers' equity..... 54,698,947 4,030,376 1,046,521 (138,926) 2,586,779 1,180,781 2,958,764
----------- ----------- ---------- ----------- ---------- ---------- ----------
Total
liabilities and
stock-holders'
equity.......... $54,851,474 $16,887,619 $6,327,628 $14,816,034 $4,970,985 $4,477,786 $3,039,580
=========== =========== ========== =========== ========== ========== ==========
<CAPTION>
PRO FORMA PRO FORMA
ADJUSTMENTS CONSOLIDATED
---------------- -------------
<S> <C> <C>
ASSETS
Cash and cash
equivalents........ $(61,105,823)(a) $ 50,000
1,945,000 (b)
Accounts receiv-
able, net.......... 8,226,520
Inventory.......... 371,717 (c) 3,980,822
Rental equipment,
net................ 5,979,135 (d) 37,117,483
Property and equip-
ment, net.......... (263,244)(d) 1,836,285
Intangible assets,
net................ 40,809,439 (e) 40,893,918
Prepaid expenses
and other assets... 1,002,302
---------------- -------------
Total Assets.... $(12,263,776) $93,107,330
================ =============
LIABILITIES AND
STOCKHOLDERS' EQ-
UITY
Accounts payable... $ 5,266,137
Debt............... $(33,101,737)(f) 26,732,707
26,732,707 (g)
Accrued expenses
and other
liabilities........ 639,990
---------------- -------------
Total liabili-
ties............ (6,369,030) 32,638,834
---------------- -------------
Stockholders' eq-
uity
Common stock...... (1,220,346)(h) 163,662
3,187 (i)
3,329 (b)
Additional paid-
in capital........ (377,920)(h) 60,578,291
3,821,362 (i)
1,941,671 (b)
Retained earnings
(deficit)......... (10,066,029)(h) (273,457)
---------------- -------------
Total stockhold-
ers' equity..... (5,894,746) 60,468,496
---------------- -------------
Total
liabilities and
stock-holders'
equity.......... $(12,263,776) $93,107,330
================ =============
</TABLE>
F-4
<PAGE>
UNITED RENTALS, INC.
PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
MERCER A&A TOOL
UNITED EQUIPMENT RENTALS AND J & J RENTAL CORAN BRONCO RENT-IT
RENTALS, INC. COMPANY SALES, INC. SERVICES, INC. ENTERPRISES, INC. HI-LIFT, INC. CENTER, INC.
------------- ----------- ----------- -------------- ----------------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues
Equipment rent-
als............... $ 6,141,024 $4,501,537 $5,998,073 $5,808,564 $3,774,997 $1,706,959
Sales of equip-
ment and merchan-
dise and other
revenue........... 7,423,559 4,101,586 636,398 899,829 984,496 117,838
----------- ---------- ---------- ---------- ---------- ----------
Total revenues.. 13,564,583 8,603,123 6,634,471 6,708,393 4,759,493 1,824,797
Cost of revenues
Cost of equipment
rentals,
excluding
depreciation...... 1,933,995 2,097,280 2,564,825 3,704,188 363,418 782,284
Rental equipment
depreciation...... 1,313,961 1,193,986 1,563,687 1,237,656 601,243 425,718
Cost of sales and
other operating
expenses.......... 5,857,100 3,346,797 378,545 224,762 634,240
----------- ---------- ---------- ---------- ---------- ----------
Total cost of
revenues........ 9,105,056 6,638,063 4,507,057 5,166,606 1,598,901 1,208,002
----------- ---------- ---------- ---------- ---------- ----------
Gross profit....... 4,459,527 1,965,060 2,127,414 1,541,787 3,160,592 616,795
Selling, general
and administrative
expenses........... $ 348,055 2,931,627 1,696,104 1,140,756 958,764 1,562,694 534,074
Non-rental depreci-
ation and
amortization....... 96,600 95,171 110,203 13,868 79,608 42,554
--------- ----------- ---------- ---------- ---------- ---------- ----------
Operating income... (348,055) 1,431,300 173,785 876,455 569,155 1,518,290 40,167
Interest expense... 677,364 410,345 422,178 139,970 210,025
Other (income) ex-
pense, net......... (74,598) (126,008) (140,367) (37,724) (67,555) (35,878)
--------- ----------- ---------- ---------- ---------- ---------- ----------
Income (loss)
before provision
for income taxes... (273,457) 879,944 (96,193) 492,001 429,185 1,375,820 76,045
Provision for in-
come taxes......... 6,000 98,000 5,583
--------- ----------- ---------- ---------- ---------- ---------- ----------
Net income (loss).. $(273,457) $ 879,944 $ (102,193) $ 394,001 $ 423,602 $1,375,820 $ 76,045
========= =========== ========== ========== ========== ========== ==========
Net loss per
share.............. $ (0.02)
=========
<CAPTION>
PRO FORMA PRO FORMA
ADJUSTMENTS CONSOLIDATED
--------------- -------------
<S> <C> <C>
Revenues
Equipment rent-
als............... $27,931,154
Sales of equip-
ment and merchan-
dise and other
revenue........... 14,163,706
-------------
Total revenues.. 42,094,860
Cost of revenues
Cost of equipment
rentals,
excluding
depreciation...... 11,445,990
Rental equipment
depreciation...... $(1,277,912)(a) 5,058,339
Cost of sales and
other operating
expenses.......... (61,372)(b) 10,380,072
--------------- -------------
Total cost of
revenues........ (1,339,284) 26,884,401
--------------- -------------
Gross profit....... 1,339,284 15,210,459
Selling, general
and administrative
expenses........... (816,000)(c) 8,634,186
278,112 (d)
Non-rental depreci-
ation and
amortization....... 596,644 (e) 1,034,648
--------------- -------------
Operating income... 1,280,528 5,541,625
Interest expense... (1,859,882)(f) 1,233,443
1,233,443 (g)
Other (income) ex-
pense, net......... (482,130)
--------------- -------------
Income (loss)
before provision
for income taxes... 1,906,967 4,790,312
Provision for in-
come taxes......... 1,806,541 (h) 1,916,124
--------------- -------------
Net income (loss).. $ 100,426 $ 2,874,188
=============== =============
Net loss per
share.............. $ 0.16
=============
</TABLE>
The accompanying notes are an integral part of these pro forma consolidated
financial statements
F-5
<PAGE>
UNITED RENTALS, INC.
PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
MERCER A&A TOOL J & J
UNITED EQUIPMENT RENTALS AND RENTAL CORAN BRONCO RENT-IT
RENTALS, INC. COMPANY SALES, INC. SERVICES, INC. ENTERPRISES, INC. HI-LIFT, INC. CENTER, INC.
------------- ----------- ----------- -------------- ----------------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues
Equipment
rentals.......... $ $ 7,380,137 $ 5,918,148 $7,769,716 $7,679,713 $4,313,855 $2,631,459
Sales of equipment
and mer-
chandise and
other revenue.... 7,073,763 5,787,986 1,243,297 738,330 1,216,459 136,395
----- ----------- ----------- ---------- ---------- ---------- ----------
Total revenues.. 14,453,900 11,706,134 9,013,013 8,418,043 5,530,314 2,767,854
Cost of revenues
Cost of equipment
rentals,
excluding
depreciation .... 2,097,805 2,464,200 3,544,040 4,254,243 699,455 1,046,785
Rental equipment
depreciation..... 1,492,131 1,382,048 2,389,929 1,304,847 736,525 746,859
Cost of sales and
other operating
expenses......... 5,820,926 4,943,150 452,522 373,258 893,222
----- ----------- ----------- ---------- ---------- ---------- ----------
Total cost of rev-
enues............ 9,410,862 8,789,398 6,386,491 5,932,348 2,329,202 1,793,644
----- ----------- ----------- ---------- ---------- ---------- ----------
Gross profit........ 5,043,038 2,916,736 2,626,522 2,485,695 3,201,112 974,210
Selling, general and
administrative
expenses........... 3,515,581 2,215,936 1,521,562 2,062,246 2,359,326 760,693
Non-rental
depreciation and
amortization....... 118,787 120,757 123,971 17,202 99,669 46,237
----- ----------- ----------- ---------- ---------- ---------- ----------
Operating income.... 1,408,670 580,043 980,989 406,247 742,117 167,280
Interest expense.... 813,339 401,204 478,341 96,464 334,035 0
Other (income)
expense, net....... (110,340) (76,078) (27,523) (46,175) (57,061)
----- ----------- ----------- ---------- ---------- ---------- ----------
Income before
provision for
income taxes....... 705,671 254,917 530,171 309,783 454,257 224,341
Provision for income
taxes.............. 0 7,619 49,685 8,221
----- ----------- ----------- ---------- ---------- ---------- ----------
Net income.......... $ -- $ 705,671 $ 247,298 $ 480,486 $ 301,562 $ 454,257 $ 224,341
===== =========== =========== ========== ========== ========== ==========
Earnings per share.. $ --
=====
<CAPTION>
PRO FORMA PRO FORMA
ADJUSTMENTS CONSOLIDATED
--------------- -------------
<S> <C> <C>
Revenues
Equipment
rentals.......... $35,693,028
Sales of equipment
and mer-
chandise and
other revenue.... 16,196,230
--------------- -------------
Total revenues.. 51,889,258
Cost of revenues
Cost of equipment
rentals,
excluding
depreciation .... 14,106,528
Rental equipment
depreciation..... $(2,140,161)(a) 5,912,178
Cost of sales and
other operating
expenses......... (57,068)(b) 12,426,010
--------------- -------------
Total cost of rev-
enues............ (2,197,229) 32,444,716
--------------- -------------
Gross profit........ 2,197,229 19,444,542
Selling, general and
administrative
expenses........... (2,006,912)(c) 10,853,610
425,178 (d)
Non-rental
depreciation and
amortization....... 809,179 (e) 1,335,802
--------------- -------------
Operating income.... 2,969,784 7,255,130
Interest expense.... (2,123,383)(f) 1,644,591
1,644,591 (g)
Other (income)
expense, net....... (317,177)
--------------- -------------
Income before
provision for
income taxes....... 3,448,576 5,927,716
Provision for income
taxes.............. 2,305,561 (h) 2,371,086
--------------- -------------
Net income.......... $ 1,143,015 $ 3,556,630
=============== =============
Earnings per share.. $ 0.20
=============
</TABLE>
The accompanying notes are an integral part of these pro forma consolidated
financial statements
F-6
<PAGE>
UNITED RENTALS, INC.
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
1. BACKGROUND
United Rentals, Inc. was incorporated in August 1997, was initially
capitalized in September 1997, and commenced rental operations in October 1997
by acquiring the six Initial Acquired Companies. The Company rents a broad
array of equipment to a diverse customer base that includes construction
industry participants, industrial companies, homeowners and other individuals.
The Company also engages in related activities such as selling used rental
equipment, acting as a distributor for certain new equipment, and selling
related merchandise and parts.
2. HISTORICAL FINANCIAL STATEMENTS
The historical financial data presented in these pro forma consolidated
financial statements represent the financial position and results of
operations of the Company and each of the Initial Acquired Companies as of
September 30, 1997 and for the nine and twelve months ended September 30, 1997
and December 31, 1996, respectively (except that the financial data for A&A
Tool Rental and Sales, Inc. is as of July 31, 1997 and for the nine and twelve
months ended July 31, 1997 and October 31, 1996, respectively). Such data is
derived from the respective financial statements of such companies. All such
financial statements are included elsewhere in this Prospectus (except for the
financial statements of Rent-It Centers, Inc.).
3. ACQUISITION OF THE INITIAL ACQUIRED COMPANIES
During October 1997, the Company completed the acquisition of each of the
Initial Acquired Companies. Each of these acquisitions was accounted for using
the purchase method of accounting. For purposes of these pro forma
consolidated financial statements, the consideration paid by the Company for
the acquired companies (the "Acquisition Consideration") is assumed to be an
aggregate of $57.6 million of cash plus the Stock Consideration (see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Consideration Paid for Initial Acquired Companies") and a
convertible note in the amount of $300,000, which represents the consideration
that would have been paid based upon the indebtedness and working capital of
the Initial Acquired Companies as of September 30, 1997. The actual
consideration paid was $1.0 million lower due to the change in the
indebtedness and working capital of the Initial Acquired Companies subsequent
to September 30, 1997. Additionally, the Company repaid all of the outstanding
indebtedness of the Initial Acquired Companies in the aggregate amount of
$33.9 million ($33.1 million as of September 30, 1997, which is the amount
assumed for purposes of these pro forma consolidated financial statements).
Based upon management's preliminary estimates, it is estimated that the
carrying value of the assets and liabilities of the Initial Acquired Companies
approximates fair value, with the exception of rental equipment and other
property and equipment and certain inventory. Of the total Acquisition
Consideration, approximately $20.8 million was allocated to the assets
acquired net of the liabilities assumed.
4. PRO FORMA ADJUSTMENTS
Balance sheet adjustments:
a. Records the portion of the Acquisition Consideration and debt repayment
paid from available cash on hand.
b. Records the sale of all Common Stock subsequent to September 30, 1997.
c. Adjusts the carrying value of inventory to fair market value.
d. Adjusts the carrying value of rental equipment and other property and
equipment to fair market value.
e. Records the excess of the Acquisition Consideration over the estimated
fair value of net assets acquired.
f. Records the repayment of all outstanding indebtedness of the Initial
Acquired Companies.
g. Records the portion of the Acquisition Consideration and debt repayment
funded by borrowing under the Company's Credit Facility and through the
issuance of a $300,000 convertible note.
h. Records the elimination of the stockholders' equity of the Initial
Acquired Companies.
i. Records the portion of the Acquisition Consideration paid in the form of
Common Stock.
F-7
<PAGE>
4. PRO FORMA ADJUSTMENTS--(CONTINUED)
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 10% salvage value with regards to rental equipment):
<TABLE>
<S> <C>
Rental equipment.............................................. 4-6 years
Other property and equipment.................................. 3-15 years
</TABLE>
b. Adjusts the method of accounting for inventory at one of the Initial
Acquired Companies from the LIFO method to the FIFO method.
c. Adjusts the compensation to former owners and executives of the Initial
Acquired Companies to current levels of compensation.
d. Adjusts the lease expense for real estate utilized by the Initial
Acquired Companies to current lease agreements.
e. Records the amortization of the excess of cost over net assets acquired
attributable to the acquisitions of the Initial Acquired Companies using
an estimated life of 40 years.
f. Eliminates interest expense related to outstanding indebtedness of the
Initial Acquired Companies which was repaid by the Company.
g. Records interest expense relating to the portion of the Acquisition
Consideration funded through borrowing under the Company's Credit
Facility using a rate per annum of 7.5%.
h. Records a provision for income taxes at an estimated rate of 40%.
5. EARNINGS PER SHARE
Earnings per share is calculated by dividing the net income by the weighted
average outstanding during the period. The weighted average outstanding shares
during the period is calculated as follows:
<TABLE>
<S> <C>
Shares outstanding at September 30, 1997...................... 15,714,587
Shares sold subsequent to September 30, 1997.................. 332,857
Shares issued for acquisitions................................ 318,712
Common stock equivalents (based on an assumed initial public
offering
price of $13.00 per share)................................... 1,463,736
----------
17,829,892
==========
</TABLE>
F-8
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors
United Rentals, Inc.
We have audited the accompanying balance sheet of United Rentals, Inc. as of
September 30, 1997 and the related statements of operations, stockholders'
equity and cash flows from August 14, 1997 (Inception) to September 30, 1997.
These financial statements are the responsibility of the management of United
Rentals, Inc. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of United Rentals, Inc. at
September 30, 1997, and the results of its operations and its cash flows from
August 14, 1997 (Inception) to September 30, 1997, in conformity with
generally accepted accounting principles.
/s/ Ernst & Young LLP
MetroPark, New Jersey
October 8, 1997, except for
Note 7, as to which the
date is October 28, 1997
F-9
<PAGE>
UNITED RENTALS, INC.
BALANCE SHEET
SEPTEMBER 30, 1997
<TABLE>
<S> <C>
ASSETS
Cash and cash equivalents......................................... $54,637,568
Prepaid expenses and other assets................................. 114,200
Property and equipment, net of accumulated depreciation of
$1,542........................................................... 99,706
-----------
$54,851,474
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable.................................................. $ 67,701
Accrued expenses and other liabilities............................ 84,826
-----------
Total liabilities............................................. 152,527
Commitments and contingencies
Stockholders' equity:
Preferred stock--$.01 par value, 5,000,000 shares authorized, no
shares issued and outstanding.................................. --
Common stock--$.01 par value, 75,000,000 shares authorized,
15,714,587 shares issued and outstanding....................... 157,146
Additional paid-in capital...................................... 54,815,258
Accumulated deficit............................................. (273,457)
-----------
Total stockholders' equity.................................... 54,698,947
-----------
$54,851,474
===========
</TABLE>
See accompanying notes.
F-10
<PAGE>
UNITED RENTALS, INC.
STATEMENT OF OPERATIONS
AUGUST 14, 1997 (INCEPTION) TO SEPTEMBER 30, 1997
<TABLE>
<S> <C>
General and administrative expenses................................. $ 348,055
---------
Loss from operations.............................................. (348,055)
Interest income..................................................... 74,598
---------
Loss before provision for income taxes............................ (273,457)
Provision for income taxes.......................................... --
---------
Net loss.......................................................... $(273,457)
=========
Net loss per share.................................................. $ (0.02)
=========
</TABLE>
See accompanying notes.
F-11
<PAGE>
UNITED RENTALS, INC.
STATEMENT OF STOCKHOLDERS' EQUITY
AUGUST 14, 1997 (INCEPTION) TO SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
COMMON STOCK
------------------- ADDITIONAL
NUMBER PAID-IN ACCUMULATED
OF SHARES AMOUNT CAPITAL DEFICIT
---------- -------- ----------- -----------
<S> <C> <C> <C> <C>
Balance, August 14, 1997 (Incep-
tion)............................. -- $ -- $ -- $ --
Issuance of common stock and war-
rants........................... 15,714,587 157,146 54,815,258
Net loss......................... (273,457)
---------- -------- ----------- ---------
Balance, September 30, 1997........ 15,714,587 $157,146 $54,815,258 $(273,457)
========== ======== =========== =========
</TABLE>
See accompanying notes.
F-12
<PAGE>
UNITED RENTALS, INC.
STATEMENT OF CASH FLOWS
AUGUST 14, 1997 (INCEPTION) TO SEPTEMBER 30, 1997
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss......................................................... $ (273,457)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation................................................... 1,542
Changes in operating assets and liabilities:
Prepaid expenses and other assets............................ (114,200)
Accounts payable and other liabilities....................... 152,527
-----------
Net cash used in operating activities...................... (233,588)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment.............................. (101,248)
-----------
Net cash used in investing activities...................... (101,248)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of common stock and warrants, net of
issuance costs.................................................. 54,972,404
-----------
Net cash provided by financing activities.................. 54,972,404
-----------
Net increase in cash and cash equivalents........................ 54,637,568
Cash and cash equivalents at beginning of period................. --
-----------
Cash and cash equivalents at end of period................. $54,637,568
===========
</TABLE>
See accompanying notes.
F-13
<PAGE>
UNITED RENTALS, INC.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
1. ORGANIZATION AND BASIS OF PRESENTATION
United Rentals, Inc. (the "Company"), a Delaware corporation, was
incorporated in August 1997. Upon the completion of the acquisitions discussed
further in Note 7, the Company primarily will operate as an equipment rental
company. The Company will also engage 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
will be 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.
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.
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 five to seven
years.
Income Taxes
The Company uses the liability method of accounting for income taxes. Under
this method, deferred tax assets and liabilities are determined based on the
differences between financial statement and tax bases of assets and
liabilities and are measured using the enacted tax rates and laws that are
expected to be in effect when the differences are expected to reverse.
Recognition of deferred tax assets is limited to amounts considered by
management to be more likely than not of realization in future periods.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Concentrations of Credit Risk
Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist principally of cash investments. The
Company maintains cash and cash equivalents with high quality financial
institutions.
F-14
<PAGE>
UNITED RENTALS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Impact of Recently Issued Accounting Standards
In February 1997, the Financial Accounting Standards Board issued Statement
128, Earnings Per Share ("SFAS 128"), which is required to be adopted on
December 31, 1997. At that time, the Company will be required to change the
method currently used to compute earnings per share and to restate all prior
periods. Under the new requirements for calculating earnings per share, basic
earnings per share will exclude the dilutive effect of the Company's stock
options and warrants. Implementation of SFAS 128 is expected to result in no
change to the Company's net loss per share included herein.
Stock-Based Compensation
The Company accounts for its stock based compensation arrangements under the
provisions of APB Opinion No. 25, "Accounting for Stock Issued to Employees."
Since stock options will be granted by the Company with exercise prices at or
greater than the fair value of the shares at the date of grant, no
compensation expense will be recognized.
Computation of Net Loss Per Share
Net loss per share is computed by dividing net loss by the weighted average
number of shares of common stock and common stock equivalents outstanding
during the period. Common Stock issued for consideration below $13.00 per
share (the "Assumed IPO price per share"), the mid-point of the range of the
estimated offering price per share, and stock options and warrants granted
with exercise prices below the Assumed IPO price per share during the twelve
months preceding the date of the initial filing of the registration statement
are included in the calculation of common equivalent shares at the Assumed IPO
price per share. The number of shares used in calculating net loss per share
was 17,178,323 for the period from August 14, 1997 to September 30, 1997.
3. PROPERTY AND EQUIPMENT
A summary of property and equipment is as follows:
<TABLE>
<S> <C>
Furniture, fixtures and office equipment........................... $101,248
Less accumulated depreciation...................................... 1,542
--------
Property and equipment, net........................................ $ 99,706
========
</TABLE>
4. INCOME TAXES
A reconciliation of the provision for income taxes and the amount computed
by applying the statutory federal income tax rate of 34% to loss before
provision for income taxes is as follows:
<TABLE>
<S> <C>
Computed tax benefit at statutory tax rate........................ $ 92,976
Increase in tax benefit:
Tax-exempt interest income...................................... 9,409
Change in valuation allowance................................... (102,385)
---------
$ --
=========
</TABLE>
F-15
<PAGE>
UNITED RENTALS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
The components of deferred income tax assets are as follows:
<TABLE>
<S> <C>
Net operating loss carryforward................................... $ 102,385
Valuation allowance............................................... (102,385)
---------
$ --
=========
</TABLE>
5. CAPITAL STOCK
During September, the Company issued an aggregate of 12,685,714 shares of
Common Stock and 6,342,858 warrants to certain officers of the Company for an
aggregate amount of $44.4 million. In addition, the Company, in a private
placement sold an aggregate of 3,028,873 shares of common stock for an
aggregate amount of $10.6 million.
At September 30, 1997 there are 6,342,858 shares of Common Stock reserved
for the exercise of warrants and 5,000,000 shares of Common Stock reserved for
the future issuance of options pursuant to the Company's 1997 Stock Option
Plan.
As of September 30, 1997 there are outstanding warrants to purchase an
aggregate of 6,342,858 shares of Common Stock. Each warrant provides for an
exercise price of $10.00 per share and may be exercised at any time until
September 12, 2007.
The Board of Directors has adopted the Company's 1997 Stock Option Plan (the
"Stock Option Plan") which provides for the granting of options to purchase
not more than an aggregate of 5,000,000 shares of Common Stock. All officers,
employees and others who render services to the Company are eligible to
participate in the Stock Option Plan. Each option granted pursuant to the
Stock Option Plan must provide for an exercise price per share that is at
least equal to the fair market value per share of Common Stock on the date of
grant. No options may be granted under the Stock Option Plan after August 21,
2007.
The exercise price of each option, the period during which each option may
be exercised and the other terms and conditions of each option are determined
by the Board of Directors (or by a committee appointed by the Board). No
options to purchase shares of the Company's Common Stock were granted during
the period from August 14, 1997 to September 30, 1997.
6. COMMITMENTS AND CONTINGENCIES
Operating Leases
The Company leases office space and certain office equipment under operating
leases. The office lease requires 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 September 30, 1997:
<TABLE>
<S> <C>
1997 (after September 30, 1997).................................. $ 100,032
1998............................................................. 400,128
1999............................................................. 400,128
2000............................................................. 400,128
2001............................................................. 329,634
----------
$1,630,050
==========
</TABLE>
F-16
<PAGE>
UNITED RENTALS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
7. SUBSEQUENT EVENTS
During October 1997, the Company entered into a credit agreement with Bank
of America ("Credit Facility"). The Credit Facility provides for a $55
million, three year collateralized revolving credit facility due October 2000.
Outstanding loans under the Credit Facility bear interest at a rate per annum
equal to the Eurodollar Rate (Reserve Adjusted) (as defined in the credit
agreement providing for the Credit Facility) applicable to each interest
period plus 1.5% to 2.5% per annum or the Alternate Reference Rate (as defined
in the credit agreement providing for the Credit Facility) from time to time
in effect plus 0% to .25% per annum. The Credit Facility also allows the
Company to obtain up to $10 million in letters of credit. The aggregate amount
the Company is permitted to borrow under the Credit Facility is reduced by the
aggregate face amount of all outstanding letters of credit issued thereunder.
On October 28, 1997, the outstanding balance was $35 million.
Subsequent to September 30, 1997, the Company completed the acquisition of
six equipment rental companies (the "Acquisitions") and the aggregate
consideration paid by the Company for the Acquisitions consisted of
approximately $56.6 million in cash, 318,712 shares of Common Stock (which
stock consideration is subject to an adjustment) and a $300,000 convertible
note. In addition, the Company agreed to pay the former owners of one of the
Initial Acquired Companies a percentage of such company's future revenues
until an aggregate of $2.8 million has been paid. These acquisitions were
accounted for as purchases.
F-17
<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 1995, and the related statements of income and
retained earnings and of cash flows for each of the three years in the period
ended December 31, 1996. 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 1995, and the results of its operations and its
cash flows for each of the three years in the period ended December 31, 1996
in conformity with generally accepted accounting principles.
/s/ Webster, Duke & Co. PA
Charlotte, North Carolina
January 31, 1997
F-18
<PAGE>
MERCER EQUIPMENT COMPANY
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
----------------------- -------------
1995 1996 1997
----------- ----------- -------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash................................... $ 454,697 $ 276,639 $ 151,961
Accounts receivable (less allowance for
doubtful accounts: 1995-$150,000,
1996-$182,425, 1997-$303,128)......... 1,420,681 1,819,581 2,253,040
Inventory (Notes 2, 5 and 8)........... 2,092,086 2,417,425 2,430,233
Miscellaneous receivables.............. 12,539 16,604 18,661
----------- ----------- -----------
Total current assets................. 3,980,003 4,530,249 4,853,895
----------- ----------- -----------
RENTAL EQUIPMENT (Notes 2, 5, 8, 9, 10
and 15):
Rental equipment....................... 10,480,865 14,030,584 15,617,619
Less accumulated depreciation.......... 2,642,313 3,717,218 4,312,700
----------- ----------- -----------
Rental equipment, net................ 7,838,552 10,313,366 11,304,919
----------- ----------- -----------
OTHER PROPERTY (Notes 2, 8 and 11):
Other property......................... 686,504 1,003,079 1,084,329
Less accumulated depreciation.......... 292,279 395,658 489,708
----------- ----------- -----------
Other property, net.................. 394,225 607,421 594,621
----------- ----------- -----------
OTHER ASSETS (Note 13):
Other assets........................... 47,800 68,639 66,089
Notes receivable-officers.............. 45,872 69,980 68,095
Due from stockholders.................. 247,729
----------- ----------- -----------
Total other assets................... 341,401 138,619 134,184
----------- ----------- -----------
TOTAL................................ $12,554,181 $15,589,655 $16,887,619
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Line of credit (Note 4)................ -- -- --
Note payable-Bank (Note 4)............. $ 465,200 $ 494,245 $ 454,245
Short-term equipment notes (Note 5).... 387,729 189,528 --
Notes payable-individuals (Notes 6 and
13)................................... 638,500 609,000 631,000
Current portion of long-term debt...... 1,541,716 2,253,562 2,903,457
Current portion of capital leases...... 153,189 167,445 82,081
Accounts payable....................... 1,602,437 2,161,340 3,218,334
Accrued expenses....................... 116,032 140,361 119,987
----------- ----------- -----------
Total current liabilities............ 4,904,803 6,015,481 7,409,104
----------- ----------- -----------
LONG-TERM DEBT (Non-current Portion):
Revolving credit note (Note 7)......... 1,000,000 2,430,000 2,328,000
Notes payable to bank (Note 8)......... 2,230,000 1,513,000 735,250
Notes payable on rental equipment (Note
9).................................... 1,503,672 2,195,238 2,078,374
Capital leases on rental equipment
(Note 10)............................. 283,718 119,183 194,857
Notes payable for fixed assets (Note
11)................................... 86,116 138,543 111,658
----------- ----------- -----------
Total long-term debt................. 5,103,506 6,395,964 5,448,139
----------- ----------- -----------
STOCKHOLDERS' EQUITY:
Common stock (Notes 2 and 12).......... 500,001 500,001 500,001
Retained earnings (Note 8)............. 2,045,871 2,678,209 3,530,375
----------- ----------- -----------
Total stockholders' equity........... 2,545,872 3,178,210 4,030,376
----------- ----------- -----------
TOTAL................................ $12,554,181 $15,589,655 $16,887,619
=========== =========== ===========
</TABLE>
See notes to financial statements.
F-19
<PAGE>
MERCER EQUIPMENT COMPANY
STATEMENTS OF INCOME AND RETAINED EARNINGS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
---------------------------------- ----------------------
1994 1995 1996 1996 1997
---------- ---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUE:
Sales of new
equipment............ $1,559,244 $2,479,358 $3,415,523 $2,488,974 $3,384,882
Sales of supplies and
parts................ 1,184,997 1,558,273 2,067,403 1,515,337 1,873,232
---------- ---------- ---------- ---------- ----------
Total goods sold.... 2,744,241 4,037,631 5,482,926 4,004,311 5,258,114
Sales of rental
equipment............ 662,029 872,621 1,102,621 853,921 1,718,513
Rental revenues....... 3,798,468 4,950,614 7,380,137 5,236,985 6,141,024
Service department
revenues............. 327,693 357,039 488,216 365,170 446,932
---------- ---------- ---------- ---------- ----------
Total revenues...... 7,532,431 10,217,905 14,453,900 10,460,387 13,564,583
---------- ---------- ---------- ---------- ----------
DIRECT COSTS OF REVENUE:
Cost of goods sold.... 2,290,853 3,171,168 4,469,790 3,261,212 4,227,967
Cost of rental
equipment sold, net.. 386,191 530,102 702,254 497,767 1,009,277
Rental department
expenses (including
depreciation of
$771,385; 1,035,352,
$1,492,131,
$1,129,746 and
$1,313,961).......... 1,591,109 2,226,420 3,589,936 2,610,640 3,247,956
Service department
expenses............. 417,370 460,382 648,882 453,499 619,856
---------- ---------- ---------- ---------- ----------
Total direct costs
of revenue......... 4,685,523 6,388,072 9,410,862 6,823,118 9,105,056
---------- ---------- ---------- ---------- ----------
GROSS MARGIN............ 2,846,908 3,829,833 5,043,038 3,637,269 4,459,527
---------- ---------- ---------- ---------- ----------
OPERATING EXPENSES:
Sales expenses........ 515,600 752,722 1,386,812 915,554 1,196,596
Administrative and
general expenses..... 1,284,011 1,930,124 2,247,556 1,541,180 1,831,631
---------- ---------- ---------- ---------- ----------
Total operating
expenses........... 1,799,611 2,682,846 3,634,368 2,456,734 3,028,227
---------- ---------- ---------- ---------- ----------
MARGIN FROM OPERATIONS.. 1,047,297 1,146,987 1,408,670 1,180,535 1,431,300
---------- ---------- ---------- ---------- ----------
OTHER INCOME (EXPENSE):
Miscellaneous income.. 66,707 78,258 110,340 82,256 126,008
Interest expense...... (261,659) (486,976) (813,339) (610,316) (677,364)
---------- ---------- ---------- ---------- ----------
Total other income
(expense).......... (194,952) (408,718) (702,999) (528,060) (551,356)
---------- ---------- ---------- ---------- ----------
NET INCOME.............. 852,345 738,269 705,671 652,475 879,944
BEGINNING RETAINED
EARNINGS............... 865,258 1,450,936 2,045,871 2,045,871 2,678,209
---------- ---------- ---------- ---------- ----------
Total............... 1,717,603 2,189,205 2,751,542 2,698,346 3,558,153
LESS DIVIDENDS PAID..... 266,667 143,334 73,333 73,333 27,778
---------- ---------- ---------- ---------- ----------
ENDING RETAINED
EARNINGS............... $1,450,936 $2,045,871 $2,678,209 $2,625,013 $3,530,375
========== ========== ========== ========== ==========
</TABLE>
See notes to financial statements.
F-20
<PAGE>
MERCER EQUIPMENT COMPANY
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------------- ----------------------
1994 1995 1996 1996 1997
----------- ----------- ----------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM
OPERATING ACTIVITIES:
Net income........... $ 852,345 $ 738,269 $ 705,671 $ 652,475 $ 879,944
Adjustments to
reconcile net income
to net cash provided
by operating
activities:
Depreciation and
amortization...... 845,938 1,117,783 1,610,918 1,207,471 1,410,561
Cost of rental
equipment sold,
net............... 386,191 530,102 702,254 497,767 1,009,277
Cost of other
property sold,
net............... 14,800
Changes in assets
and liabilities:
Accounts
receivable,
net............. (206,728) (418,132) (398,900) (788,482) (433,459)
Inventory........ (307,833) (900,532) (325,339) (353,624) (12,808)
Miscellaneous
receivables..... (1,563) (5,437) (4,065) 9,139 (2,057)
Other assets..... (16,000) (24,239) 8,000 --
Accounts
payable......... 511,659 651,668 558,903 191,904 1,056,994
Accrued
expenses........ 50,841 29,098 24,329 (30,996) (20,374)
----------- ----------- ----------- ---------- ----------
Net cash
provided by
operating
activities.... 2,130,850 1,726,819 2,864,332 1,393,654 3,888,078
----------- ----------- ----------- ---------- ----------
CASH FLOWS (TO)
INVESTING ACTIVITIES:
Purchase of rental
equipment........... (1,961,168) (2,466,039) (2,001,083) (1,319,580) (1,873,646)
Purchase of other
property............ (93,189) (131,695) (171,319) (128,347) (81,250)
Increase in other
asset............... (14,400) (1,650)
----------- ----------- ----------- ---------- ----------
Net cash (to)
investing
activities.... (2,068,757) (2,599,384) (2,172,402) (1,447,927) (1,954,896)
----------- ----------- ----------- ---------- ----------
CASH FLOWS FROM (TO)
FINANCING ACTIVITIES:
Repayments of notes
receivable--
officers............ 1,864 2,264 3,019 3,019 1,885
Repayments by
stockholders........ 220,602 187,881
Loans to
stockholders........ (247,729)
Repayments under line
of credit........... (115,867) (125,000) (40,000)
Borrowings under line
of credit........... 175,000 --
Repayments of short-
term equipment
notes............... (130,301) (618,854) (488,708) (189,528)
Repayments of notes
payable--
individuals......... (52,500) (31,500)
Repayments of long-
term debt........... (591,016) (1,051,070) (1,950,688) (971,523) (1,901,668)
Repayments of capital
leases.............. (22,009) (150,279) (45,595) (132,771)
Net borrowings under
note payable--bank.. 465,200 29,045 -- --
Borrowings under
revolving credit
note................ 1,000,000 1,700,000 1,200,000 210,000
Proceeds from bank
loans............... 800,000 1,120,588
Proceeds from notes
payable
individuals......... 53,000 305,000 23,000 22,000
Dividends paid....... (266,667) (143,334 ) (73,333) (73,333) (27,778)
----------- ----------- ----------- ---------- ----------
Net cash from
(to) financing
activities.... (118,686) 1,173,609 (869,988) (44,759) (2,057,860)
----------- ----------- ----------- ---------- ----------
NET INCREASE (DECREASE)
IN CASH............... (56,593) 301,044 (178,058) (99,032) (124,678)
BEGINNING CASH
BALANCE............... 210,246 153,653 454,697 454,697 276,639
----------- ----------- ----------- ---------- ----------
ENDING CASH BALANCE.... $ 153,653 $ 454,697 $ 276,639 $ 355,665 $ 151,961
=========== =========== =========== ========== ==========
</TABLE>
See notes to financial statements
F-21
<PAGE>
MERCER EQUIPMENT COMPANY
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1994, 1995 AND 1996 (THE INFORMATION AS OF SEPTEMBER 30, 1997 AND
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED)
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.
Interim Financial Statements--The accompanying balance sheet at September
30, 1997 and the statements of income and retained earnings and cash flows for
the nine-month periods ended September 30, 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 periods are not necessarily indicative
of results for the full year.
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, 1995, 1996 and September 30, 1997, the difference between
LIFO and first-in, first-out cost was $253,278, $310,346 and $371,717
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, 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-22
<PAGE>
MERCER EQUIPMENT COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
At December 31, 1995, 1996 and September 30, 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>
NINE MONTHS
YEAR ENDED DECEMBER 31 ENDED SEPTEMBER 30
1994 1995 1996 1996 1997
-------- ---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Interest paid............ $254,843 $ 464,090 $ 807,169 $ 610,316 $ 677,364
Debt incurred to
purchase:
Inventory.............. 357,306 88,509
Rental equipment....... 853,820 2,300,291 2,530,234 2,121,875 1,441,145
Fixed assets........... 142,174 163,756 110,468
</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 (see Note 9). There were no intangible assets purchased nor
are there any contingent payments or commitments.
4. NOTE PAYABLE--BANK
At December 31, 1995, MERCER had a note payable to a bank that was due May
31, 1996. The note provided for monthly payment of interest at the bank's
prime rate plus 1/2%. The original amount of the note was $500,000.
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.
At September 30, 1997, MERCER had a note payable to a bank that is due
October 15, 1997. The note provides for monthly payments of interest at the
bank's prime rate plus 1/2%. The original amount of the note was $500,000.
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. At September 30, 1997, rental
equipment with a cost of $47,873 is pledged as collateral.
F-23
<PAGE>
MERCER EQUIPMENT COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
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, 1995,
1996 and September 30, 1997, $181,500, $178,000 and $190,000, 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%. The annual amount of principal payment due are 1997--$315,000;
1998--$540,000; and 1999--$1,845,000. At December 31, 1995 and during 1996,
only interest payments were due on the note (see Note 9 for collateral).
8. NOTES PAYABLE TO BANK
MERCER's note payable to bank consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------- SEPTEMBER 30,
1995 1996 1997
---------- ---------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Bank note--8.25%, principal of $49,750
plus interest paid monthly thru November
1998; balance of $635,750 due December
1998.................................... $2,377,000 $1,780,000 $1,332,250
Bank note--interest at prime plus 1/2%,
principal of $10,000 plus interest paid
monthly thru August 1998; $250,000 due
September 30, 1998...................... 570,000 450,000 360,000
---------- ---------- ----------
Total.................................... 2,947,000 2,230,000 1,692,250
Less current portion..................... 717,000 717,000 957,000
---------- ---------- ----------
Noncurrent portion....................... $2,230,000 $1,513,000 $ 735,250
========== ========== ==========
</TABLE>
All accounts receivable and inventory and rental equipment, unless otherwise
encumbered, are given as security for the notes payable to bank. The annual
amounts of principal due as of December 31, 1996, for the next five years are
as follows: 1997--$717,000 and 1998--$1,513,000.
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.
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, 1996 and September 30, 1997, the weighted interest rates were 10.1%,
8.6% and 8.6%, respectively.
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. At
September 30, 1997 rental equipment of $5,629,278 was collateral for all of
the above notes.
F-24
<PAGE>
MERCER EQUIPMENT COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
The annual amounts of principal due as of December 31, 1996 for the next
five years are as follows: 1997--$1,188,144; 1998--$968,559; 1999--$621,294;
2000--$432,223; and 2001--$143,162.
10. CAPITAL LEASES
MERCER leases certain rental equipment and inventory under leases accounted
for as capital leases. The following is an analysis of the leased property:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------- SEPTEMBER 30,
1995 1996 1997
-------- -------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Inventory.................................... $221,783 -- $ 41,000
======== ======== ========
Rental equipment............................. $233,116 $408,081 $408,081
Less accumulated amortization................ 24,425 78,561 152,016
-------- -------- --------
Net........................................ $208,691 $329,520 $256,065
======== ======== ========
</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
December 31, 1996:
<TABLE>
<S> <C>
Year ended December 31, 1997....................................... $185,580
1998............................................................. 59,517
1999............................................................. 56,291
2000............................................................. 26,717
--------
Net minimum lease payments......................................... 328,105
Less amount representing interest.................................. 41,477
--------
Present value of net minimus lease payments........................ 286,628
Less current portion............................................... 167,445
--------
Long-term portion.................................................. $119,183
========
</TABLE>
11. NOTES PAYABLE ON FIXED ASSETS
The notes payable on fixed assets provide for monthly payment of principal
and interest at rates from 9.0% to 10.8%. At December 31, 1996 and September
30, 1997, related assets with a cost of $287,430 are collateral for the notes.
The annual amounts of principal due for the next five years is as follows:
1997--$78,418; 1998--$67,163; 1999--$45,715; 2000--$19,826 and 2001--$5,840.
12. COMMITMENTS AND CONTINGENCIES
As of December 31, 1996 and September 30, 1997, MERCER's cash balance had
$100,000 of FDIC insurance and is at one bank.
As of December 31, 1996, MERCER leased all of its facilities from a limited
liability company (LLC) whose members own 72% of MERCER's outstanding stock.
The leases provide 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). Minimum rentals due are as follows: 1997--$336,000;
1998--$336,000; 1999--$325,000; 2000--$204,000; and 2001-- $132,000. MERCER
has also guaranteed debt of $2,260,316 and $2,324,667 at December 31, 1996 and
September 30, 1997, respectively, that the LLC has borrowed against the
buildings.
F-25
<PAGE>
MERCER EQUIPMENT COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
MERCER has 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 and September 30, 1997, the minimum purchase price under this plan was
$1,121,950 and $1,450,935, respectively.
MERCER has 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 and September 30, 1997, the potential obligation under the
salary continuation plan was $672,672.
13. RELATED PARTIES
At December 31, 1995, 1996 and September 30, 1997, other assets includes
rental deposits of $16,000, $42,889 and $42,889, respectively, with the LLC
described in Note 12. For the years ended December 31, 1994, 1995 and 1996 and
for the nine months ended September 30, 1996 and 1997, MERCER paid building
rentals to the LLC of $96,000, $149,500, $278,000, $191,000 and $252,000,
respectively.
For the years ended December 31, 1994, 1995 and 1996 and for the nine months
ended September 30, 1996 and 1997, MERCER paid interest of $12,409, $17,808,
$15,672, $11,754 and $12,000, respectively to stockholders on the notes
payable--individuals.
At December 31, 1995, the due from stockholders represented amounts paid to
enable the stockholders to make estimated income tax payments. The amount in
excess of the actual tax liability was repaid to MERCER.
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. In 1994, 1995, and 1996, no profit-sharing contribution was
made. In 1994, 1995, and 1996, MERCER made matching payments of $17,558,
$21,969, and $14,777, respectively under Section 401(k) of the Internal
Revenue Code of 1986. There were no matching contributions made in either the
nine month period ended September 30, 1996 or 1997.
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.
F-26
<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 1995, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for each of the years in the three year period ended October 31, 1996.
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 1995, and the
results of their operations and their cash flows for each of the years in the
three year period ended October 31, 1996, in conformity with generally
accepted accounting principles.
/s/ KPMG Peat Marwick LLP
Sacramento, California
October 30, 1997
F-27
<PAGE>
A & A TOOL RENTALS & SALES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
OCTOBER 31,
--------------------- JULY 31,
1995 1996 1997
---------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Cash......................................... $ 336,304 $ 308,331 $ 187,082
Trade accounts receivable, less allowance for
doubtful accounts of $85,000 in 1995,
$80,000 in 1996, and $94,608 in 1997
(notes 2 and 3)............................. 1,360,476 1,416,142 1,324,684
Merchandise inventory........................ 750,556 847,035 906,969
Rental equipment, primarily machinery, at
cost, net of accumulated depreciation and
amortization of $5,388,046 in 1995,
$5,909,751 in 1996, and $6,727,264 in 1997
(notes 2 and 3)............................. 2,136,948 3,190,093 3,133,863
Operating property and equipment, net of
accumulated depreciation and amortization of
$967,822 in 1995, $912,230 in 1996, and
$975,498 in 1997 (notes 2 and 3)............ 356,336 384,759 306,415
Due from related party (note 5).............. 229,485 228,737 316,364
Prepaid expenses and other assets............ 183,681 234,976 152,251
---------- ---------- ----------
Total assets............................. $5,353,786 $6,610,073 $6,327,628
========== ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Short-term debt (note 2)..................... $1,679,244 $ 90,400 $ 484,700
Accounts payable............................. 705,460 766,465 703,583
Accrued liabilities.......................... 235,258 244,938 221,763
Income tax payable........................... -- 6,019 2,992
Long-term debt and capital lease obligations
(note 3).................................... 1,723,384 4,351,394 3,868,069
---------- ---------- ----------
Total liabilities........................ 4,343,346 5,459,216 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 in 1995,
1996 and 1997............................. 72,000 72,000 72,000
Common stock, Class B--nonvoting.
Authorized 5,000,000 shares; issued and
outstanding 335,586 shares in 1995,
277,172 shares in 1996, and 275,242 shares
in 1997................................... 457,813 395,201 393,058
Retained earnings............................ 480,627 683,656 581,463
---------- ---------- ----------
Total stockholders' equity............... 1,010,440 1,150,857 1,046,521
---------- ---------- ----------
Total liabilities and stockholders'
equity.................................. $5,353,786 $6,610,073 $6,327,628
========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-28
<PAGE>
A & A TOOL RENTALS & SALES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED OCTOBER 31, ENDED JULY 31,
---------------------------------- ----------------------
1994 1995 1996 1996 1997
---------- ---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Equipment rentals..... $4,029,388 $4,800,767 $5,918,148 $4,165,881 $4,501,537
New equipment sales... 3,694,880 4,283,294 4,463,117 3,310,409 3,228,472
Sales of parts,
supplies and
rental equipment..... 705,337 848,193 1,027,943 824,910 657,572
Other................. 207,769 237,205 296,926 198,144 215,542
---------- ---------- ---------- ---------- ----------
Total revenues.......... 8,637,374 10,169,459 11,706,134 8,499,344 8,603,123
---------- ---------- ---------- ---------- ----------
Costs of Revenues:
Cost of equipment
rentals, excluding
equipment rental
depreciation and
amortization......... 1,746,608 2,049,172 2,464,200 1,976,183 2,097,280
Depreciation and
amortization,
equipment rentals.... 677,482 1,040,233 1,382,048 902,347 1,193,986
Cost of new equipment
sales................ 3,400,474 4,054,467 4,325,802 3,234,457 3,016,957
Cost of sales of
parts, supplies, and
equipment............ 467,660 534,204 584,766 330,714 296,725
Other................. 32,474 38,358 32,582 24,337 33,115
---------- ---------- ---------- ---------- ----------
Total costs of
revenues............... 6,324,698 7,716,434 8,789,398 6,468,038 6,638,063
---------- ---------- ---------- ---------- ----------
Gross Profit............ 2,312,676 2,453,025 2,916,736 2,031,306 1,965,060
Selling, general and
administration....... 2,230,724 2,063,730 2,215,936 1,614,263 1,696,104
Non-rental
depreciation and
amortization......... 88,896 107,390 120,757 88,896 95,171
---------- ---------- ---------- ---------- ----------
Operating income
(loss)................. (6,944) 281,905 580,043 328,147 173,785
Other income
(expense)............ 223,210 (14,251) 21,085 61,119 93,814
---------- ---------- ---------- ---------- ----------
Income before interest
and taxes.............. 216,266 267,654 601,128 389,266 267,599
Interest income....... 41,822 56,053 54,993 51,898 46,553
Interest expense...... (164,829) (324,957) (401,204) (264,613) (410,345)
---------- ---------- ---------- ---------- ----------
Net interest
expense............ (123,007) (268,904) (346,211) (212,715) (363,792)
---------- ---------- ---------- ---------- ----------
Income (loss) before
income taxes........... 93,259 (1,250) 254,917 176,551 (96,193)
Income tax expense
(note 4)............. (200) (1,600) (7,619) (1,600) (6,000)
---------- ---------- ---------- ---------- ----------
Income (loss) from
continuing operations.. 93,059 (2,850) 247,298 174,951 (102,193)
Loss from operation of
discontinued
subsidiary........... (242,713) (55,929) -- -- --
Loss from disposal of
discontinued
subsidiary........... -- -- (44,269) (16,318) --
---------- ---------- ---------- ---------- ----------
Income (loss) before
cumulative effect of
accounting change...... (149,654) (58,779) 203,029 158,633 (102,193)
Cumulative effect of
accounting change
(note 4)............. 54,395 -- -- -- --
---------- ---------- ---------- ---------- ----------
Net income (loss)....... $ (95,259) $ (58,779) $ 203,029 $ 158,633 $ (102,193)
========== ========== ========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-29
<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,
1993................... 720,000 $72,000 368,635 $494,059 $634,665 $1,200,724
Purchase of Class B
common stock
from ESOP.............. -- -- (5,202) (6,450) -- (6,450)
Net loss................ -- -- -- -- (95,259) (95,259)
------- ------- ------- -------- -------- ----------
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
(unaudited)............ -- -- (1,930) (2,143) -- (2,143)
Net loss (unaudited).... -- -- -- -- (102,193) (102,193)
------- ------- ------- -------- -------- ----------
Balances at July 31,
1997 (Unaudited)....... 720,000 $72,000 275,242 $393,058 $581,463 $1,046,521
======= ======= ======= ======== ======== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-30
<PAGE>
A & A TOOL RENTALS & SALES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31, NINE MONTHS ENDED JULY 31,
------------------------------------- ----------------------------
1994 1995 1996 1996 1997
----------- ----------- ----------- ----------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM
OPERATING ACTIVITIES:
Net income (loss)...... $ (95,259) $ (58,779) $ 203,029 $ 158,633 $ (102,193)
Adjustments to
reconcile net income
(loss) to net cash
provided by operating
activities:
Depreciation and
amortization.......... 790,379 1,162,980 1,502,805 969,379 1,190,261
Provision for bad
debts................. 77,985 71,600 96,216 52,515 59,985
Provision for write-
down of inventory..... -- 31,709 -- -- 35,403
Gain on sale of
equipment............. (129,822) (213,049) (364,504) (196,325) (167,944)
Decrease in deferred
income taxes.......... (54,395) -- -- -- --
Changes in operating
assets:
(Increase) decrease
in trade accounts
receivable........... (147,724) (282,115) (151,882) (190,069) 31,473
(Increase) decrease
in related party
receivables.......... (39,520) (54,741) 748 (30,385) (87,627)
(Increase) decrease
in merchandise
inventory............ (199,166) 38,955 (96,479) (348,187) (95,337)
(Increase) decrease
in prepaid expenses
and other assets..... (7,689) (29,102) 10,934 (42,445) (50,309)
Increase (decrease)
in accounts payable,
trade................ (70,042) 18,196 61,005 114,982 (62,882)
Increase (decrease)
in accrued
liabilities.......... (40,034) 52,801 9,680 (39,228) (23,175)
Decrease in deferred
revenue.............. (45,460) (4,440) -- -- --
Increase (decrease)
in income tax
payable.............. -- -- 6,019 -- (3,027)
----------- ----------- ----------- ----------- ----------
Net cash provided by
operating
activities.......... 39,253 734,015 1,277,571 448,870 724,628
----------- ----------- ----------- ----------- ----------
CASH FLOWS FROM
INVESTING ACTIVITIES:
Proceeds from the sale
of rental equipment
and operating property
and equipment......... 199,817 277,390 469,489 245,232 213,013
Purchases of rental
equipment and
operating property
and equipment......... (1,652,800) (1,635,368) (2,689,358) (2,020,219) (1,100,756)
Proceeds from sale of
marketable
securities............ 4,955 4,954 2,514 2,514 --
----------- ----------- ----------- ----------- ----------
Net cash used in
investing
activities.......... (1,448,028) (1,353,024) (2,217,355) (1,772,473) (887,743)
----------- ----------- ----------- ----------- ----------
CASH FLOWS FROM
FINANCING ACTIVITIES:
Borrowings on long-term
debt.................. 944,440 788,967 3,062,482 3,224,342 1,716,314
Payments on long-term
debt.................. (415,114) (574,595) (1,121,435) (572,655) (2,199,639)
Net borrowings
(payments) on short-
term debt............. 849,953 513,771 (901,881) (1,553,999) 394,300
Premiums paid for
officers' life
insurance............. (63,026) (60,042) (64,743) (50,799) (66,966)
Drawings on cash
surrender value of
officers' life
insurance............. 140,000 -- -- -- 200,000
Purchase of Class B
common stock.......... (6,450) (29,796) (62,612) (59,590) (2,143)
----------- ----------- ----------- ----------- ----------
Net cash provided by
financing
activities.......... 1,449,803 638,305 911,811 987,299 41,866
----------- ----------- ----------- ----------- ----------
Net increase
(decrease) in cash.. 41,028 19,296 (27,973) (336,304) (121,249)
Cash at beginning of
period................. 275,980 317,008 336,304 336,304 308,331
----------- ----------- ----------- ----------- ----------
Cash at end of period... $ 317,008 $ 336,304 $ 308,331 $ -- $ 187,082
=========== =========== =========== =========== ==========
SUPPLEMENTAL SCHEDULE OF
CASH FLOW INFORMATION:
Cash paid during the
period for:
Interest............... $ 164,863 $ 324,957 $ 401,204 $ 264,613 $ 410,345
=========== =========== =========== =========== ==========
Income taxes........... $ 200 $ 1,600 $ 1,600 $ 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-31
<PAGE>
A & A TOOL RENTALS & SALES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 1995 AND 1996
(THE INFORMATION AS OF JULY 31, 1997 AND FOR THE NINE MONTHS ENDED JULY 31,
1997 AND 1996 IS UNAUDITED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Organization and Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
the Company and its wholly owned subsidiary Operations Management Systems,
Inc. (OMS). The Company rents and sells construction and industrial supplies
and power equipment in Northern California. OMS marketed and sold computer
hardware and software to construction related businesses. All significant
intercompany accounts and transactions were eliminated in consolidation. The
nature of the Company's business is such that short-term obligations are
typically met by cash flow generated from long-term assets. Consequently,
consistent with industry practice, the accompanying consolidated balance
sheets are presented on an unclassified basis.
As of October 31, 1995, the Company decided to discontinue the operations of
its subsidiary, OMS. Certain assets of OMS were sold as of October 31, 1995.
The Company disposed of the remaining assets and liabilities of OMS, which
included cash, accounts receivable, inventory, property and equipment,
accounts payable and accrued liabilities, during fiscal year 1996. The Company
recognized a loss on disposal of the remaining assets. The loss from the
disposal of OMS assets was $44,269 for the year ended October 31, 1996 and
$16,318 for the nine months ended July 31, 1996. The loss from the operations
of OMS was $242,713 and $55,929 for the years ending October 31, 1994 and
1995, respectively.
(b) Interim Financial Statements
The accompanying consolidated balance sheet at July 31, 1997 and the
consolidated statements of operations, shareholders' equity and cash flows for
the nine month periods ended July 31, 1996 and 1997 are unaudited and have
been prepared on the same basis as the audited consolidated financial
statements included herein. In the opinion of management, such unaudited
consolidated financial statements include all adjustments necessary to present
fairly the information set forth therein, which consist solely of normal
recurring adjustments. The results of operations for such interim periods are
not necessarily indicative of results for the full year.
(c) Merchandise Inventory
Merchandise inventory is stated at the lower of cost or market. Cost is
determined using the weighted-average method.
(d) Revenue Recognition
Revenue related to the sale of construction and industrial supplies and
power equipment is recognized at the point of sale. Revenue related to the
rental of construction and industrial power equipment is recognized at the
time of return for rentals of twenty-eight days or less, and ratably over the
contract term for rentals in excess of twenty-eight days.
(e) Property and Equipment
Property and equipment are stated at cost and consist of rental equipment
and operating property and equipment. Property and equipment under capital
leases are stated at the present value of minimum lease payments.
Depreciation on property and equipment is calculated using an accelerated
method.
F-32
<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. The
loans outstanding were $410,000 at October 31, 1995 and 1996, and $610,000 at
July 31, 1997. The Company is named beneficiary under the life insurance
policy.
(g) Income Taxes
The Company accounts for income taxes in accordance with the Financial
Accounting Standards Board Statement of Financial Accounting Standards (SFAS)
No. 109, Accounting for Income Taxes. 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 and operating loss and tax credit
carryforwards. 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. 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.
Effective November 1, 1993, the Company adopted SFAS No. 109 and has
reported the cumulative effect of that change in the method of accounting for
income taxes in the 1994 consolidated statement of operations.
(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.
F-33
<PAGE>
A & A TOOL RENTALS & SALES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(2) SHORT-TERM DEBT
As of October 31, 1995 and 1996, the Company had borrowed $255,525 and
$90,400, respectively, on a credit facility that allows the Company to borrow
up to $500,000 at the bank's prime rate (9.25% and 8.25% at October 31, 1995
and 1996, respectively) plus 2%. Borrowings under this facility are
collateralized by trade accounts receivable. As of October 31, 1995, the
Company had also borrowed $1,303,719 on three additional credit facilities
that allowed borrowing up to $1,800,000 bearing interest at the bank's prime
rate (9.25% at October 31, 1995) plus 2%. Borrowings under these facilities
were collateralized by equipment. In addition, as of October 31, 1995, the
Company had borrowed $120,000 on an additional credit facility that allowed
borrowings of up to $200,000 bearing interest at the bank's prime rate (9.25%
at October 31, 1995) plus 2%. Borrowings under this facility were unsecured.
As of July 31, 1997, the Company had borrowed $484,700 on a credit facility
that allows the Company to borrow up to $500,000 at the bank's prime rate
(8.5%) plus 2%.
(3) LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS
Long-term debt and capital lease obligations consist of the following:
<TABLE>
<CAPTION>
OCTOBER 31,
--------------------- JULY 31,
1995 1996 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.............................. $ 62,547 $1,382,482 $ 989,334
American Equipment Leasing--Various
leases with combined monthly payments of
$20,962 including interest ranging from
11.5% to 12%, due from 1997 through
1998. Collateralized by equipment....... 351,766 510,567 381,122
Atlas Copco, Inc.--Various notes with a
combined monthly payment of $17,619
including interest ranging from 8.5% to
8.75%, due from 1996 through 1998.
Collateralized by equipment............. 190,310 352,446 323,727
Clark Equipment Credit Co.--Various notes
with a combined monthly payment of
$10,577 including interest ranging from
8.7% to 12.39%, due from 1996 through
1999. Collateralized by equipment....... 236,363 105,889 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 61,832
Prospect Leasing--Two leases with a
combined monthly payment of $1,873
including interest at 10%, due in 1998.
Collateralized by equipment............. -- 36,364 24,106
Miller Electric Finance--One note with a
monthly payment of $2,425 including
interest at 10.25%, due in 1999.
Collateralized by equipment............. -- 72,746 101,704
The Associates--Various notes and leases
with a combined monthly payment of
$32,455 including interest ranging from
6% to 11.75%, due from 1996 through
2000. Collateralized by equipment....... 609,507 924,064 1,175,627
</TABLE>
F-34
<PAGE>
A & A TOOL RENTALS & SALES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
OCTOBER 31,
--------------------- JULY 31,
1995 1996 1997
---------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
CURRENT PAYOR AND TERMS--(CONTINUED)
JI Case Credit Corporation--Three notes
with combined monthly payments of
$14,428 including interest ranging from
6.9% to 7.9%, due from 1997 through
2000. Collateralized by equipment....... 268,365 515,184 346,540
Orix Credit--One note with a monthly
payment of $1,835 including interest at
9.5%, due in 1996. Collateralized by
equipment............................... 14,681 -- --
John Deere--One note with a monthly
payment of $885 including interest at
8.75%, due in 1998. Collateralized by
equipment............................... 24,779 14,159 6,195
Caterpillar Financial Services--Various
notes with a combined monthly payment of
$11,476 including interest ranging from
9% to 10.75%, due from 1998 through
2001. Collateralized by equipment....... 65,842 546,420 493,833
Colonial Pacific Leasing--One lease with
a monthly payment of $1,323 including
interest at 10%, due in 1997.
Collateralized by equipment............. 21,171 5,293 --
Newcourt Financial--Two notes with a
combined monthly payment of $4,207
including interest ranging from 9.5% to
11%, due in 1998 and 2001.
Collateralized by equipment............. 50,638 196,194 158,329
Other.................................... 30,730 80,773 105,030
---------- ---------- ----------
Total long-term debt..................... 1,926,699 4,833,702 4,212,812
Less amounts representing interest....... 203,315 482,308 344,743
---------- ---------- ----------
Long-term debt, net of interest.......... $1,723,384 $4,351,394 $3,868,069
========== ========== ==========
</TABLE>
The aggregate maturities of long-term debt and capital leases as of October
31, 1996 are as follows:
<TABLE>
<CAPTION>
YEAR ENDING OCTOBER 31,
-----------------------
<S> <C>
1997............................................................ $1,629,177
1998............................................................ 1,489,629
1999............................................................ 897,912
2000............................................................ 258,709
2001............................................................ 75,967
----------
$4,351,394
==========
</TABLE>
Subsequent to July 31, 1997, the Company has paid the amounts outstanding
under the long-term debt agreements.
F-35
<PAGE>
A & A TOOL RENTALS & SALES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(4) INCOME TAXES
As discussed in note 1, the Company adopted SFAS No. 109 as of November 1,
1993. The cumulative effect of this change in accounting for income taxes of
$54,395 was determined as of November 1, 1993 and is reported separately in
the consolidated statement of operations for the year ended October 31, 1994.
Income tax expense consists of the following:
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED OCTOBER 31, ENDED JULY 31,
---------------------- ---------------
1994 1995 1996 1996 1997
-------------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Current............................... $ 200 1,600 7,619 1,600 6,000
Deferred.............................. -- -- -- -- --
------ ------- ------- ------- -------
$ 200 1,600 7,619 1,600 6,000
====== ======= ======= ======= =======
</TABLE>
Deferred tax assets and deferred tax liabilities are comprised of the
following:
<TABLE>
<CAPTION>
OCTOBER 31,
------------------ JULY 31,
1995 1996 1997
-------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Current deferred tax assets:
Allowance for bad debts................... $ 36,800 34,600 41,000
Inventory reserve......................... 13,800 -- --
Noncurrent deferred tax assets:
Depreciation and amortization expense..... 12,700 12,000 11,300
Net operating loss........................ 285,400 188,300 198,800
Alternative minimum taxes................. 12,300 25,500 29,900
-------- -------- --------
Total deferred tax assets................. 361,000 260,400 281,000
Less: Valuation allowance................. (361,000) (260,400) (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,
------------ JULY 31,
1995 1996 1997
----- ----- -----------
(UNAUDITED)
<S> <C> <C> <C>
Expected U.S. Federal income tax................... (34%) 34% (34%)
State franchise tax, net........................... 128% 1% 2%
Net operating loss carryforward.................... -- (34%) --
Effect of valuation allowance...................... 34% -- 34%
Alternative minimum tax............................ -- 2% 4%
----- ----- ----
Total.......................................... 128% 3% 6%
===== ===== ====
</TABLE>
F-36
<PAGE>
A & A TOOL RENTALS & SALES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The net change in the total valuation allowance for the year ended October
31, 1994, 1995 and 1996 was an increase of $83,000, $8,000, and a decrease of
$100,600, 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. The monthly rent is $21,500. In addition, the Company as lessee
is to pay all taxes and insurance relating to the property. At October 31,
1996, the remaining commitment under this lease is $387,000 plus property
taxes and insurance.
Due From Related Party
Due from related party comprise the following:
<TABLE>
<CAPTION>
OCTOBER 31,
----------------- JULY 31,
DUE FROM 1995 1996 1997
-------- -------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C>
President and shareholder...................... $206,296 $228,737 $316,364
Vice president and shareholder................. 23,189 -- --
-------- -------- --------
$229,485 $228,737 $316,364
======== ======== ========
</TABLE>
The receivable from the president bears an interest rate of 10%.
(6) OPERATING LEASES
The Company leases vehicles from various unrelated companies through 1998.
The vehicle leases, as well as the lease for the Company's business premises,
are classified as operating leases. Future minimum lease payments under the
operating leases as of October 31, 1996 are:
<TABLE>
<CAPTION>
YEAR ENDING OCTOBER 31
----------------------
<S> <C>
1997.............................................................. $468,778
1998.............................................................. 256,037
1999.............................................................. 25,193
--------
$750,008
========
</TABLE>
Operating lease expense aggregated $369,857, $520,210 and $533,619 in 1994,
1995 and 1996, 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, 1994, 1995 and 1996, or
the nine months ended July 31, 1996 and 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, 1994, 1995 and 1996, or the nine months ended July
31, 1996 and 1997.
F-37
<PAGE>
A & A TOOL RENTALS & SALES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The ESOP held 335,586, 277,172 and 275,242 allocated shares at October 31,
1995 and 1996, and July 31, 1997, respectively. No committed-to-be released or
suspense shares were held by the ESOP at October 31, 1995 or 1996 or at July
31, 1997.
Following termination of employment, participants receive a distribution of
their vested ESOP account balance in the form of cash or Company shares in
accordance with the provisions of the ESOP. If shares are distributed to the
participant, the participant has the right to sell the shares back to the
Company, for a limited period of time, at the fair market value of the shares.
(8) PROFIT SHARING PLAN
In August 1995, the Company established a Profit Sharing/401(k) Savings Plan
(Plan) under Section 401 and 501 of the Internal Revenue Code. Substantially
all employees are eligible for the Plan. Yearly employer contributions to the
Plan are discretionary. Employees may also elect to contribute to the Plan.
For the years ended October 31, 1995 and 1996, and the nine months ended July
31, 1996 and 1997, the Company contributed $8,245, $27,422, $19,780 and
$19,779, respectively to the Plan.
(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-38
<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, 1995 and 1996 and the
related statements of income, stockholders' equity and partners' capital and
cash flows for each of the three years in the period ended December 31, 1996.
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, 1995 and 1996, and the results
of their operations and their cash flows for each of the three years in the
period ended December 31, 1996 in conformity with generally accepted
accounting principles.
/s/ Ernst & Young LLP
MetroPark, New Jersey
October 29, 1997
F-39
<PAGE>
J & J RENTAL SERVICES, INC.
BALANCE SHEETS
(NOTE 1)
<TABLE>
<CAPTION>
PREDECESSORS COMPANY
--------------------- -------------
DECEMBER 31,
--------------------- SEPTEMBER 30,
1995 1996 1997
---------- ---------- -------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Cash.................................. $ 561,443 $ 666,153 $ 1,757,218
Accounts receivable, net of allowance
for doubtful accounts of $433,444,
$428,270, and $69,573 for 1995, 1996
and 1997, respectively............... 1,486,515 1,502,119 1,975,944
Trade notes receivable, net of
allowance for doubtful accounts of
$145,844 and $93,337 for 1995 and
1996, respectively................... 24,493 37,081
Rental equipment, net................. 6,284,122 6,669,365 10,504,415
Property and equipment, net........... 463,603 467,460 492,603
Investments in marketable equity
securities........................... 52,750 81,175
Due from Predecessor Stockholder...... 120,000 120,000
Prepaid expenses and other assets..... 41,303 126,221 1,375
Organization costs, net............... 36,979
Covenant not to compete, net.......... 47,500
---------- ---------- -----------
Total assets.................... $9,034,229 $9,669,574 $14,816,034
========== ========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
AND PARTNERS' CAPITAL
Liabilities:
Accounts payable.................... $ 669,304 $ 628,252 $ 588,548
Accrued expenses.................... 334,965 336,884 185,617
Income tax payable.................. 7,613 24,814
Deferred tax liability.............. 418,000 430,000
Debt................................ 5,424,992 5,766,651 14,180,795
Due to Predecessor Stockholder...... 410,222 336,498
---------- ---------- -----------
Total liabilities............... 7,265,096 7,523,099 14,954,960
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 50,000
Unrealized gain on marketable
equity securities................ 2,750 1,165
Retained earnings................. 871,858 981,955
---------- ----------
924,608 1,033,120
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............... (139,926)
-----------
(138,926)
Partners' capital--Tri-Star Rentals,
Ltd................................ 844,525 1,113,355
---------- ----------
Total stockholders' equity and
partners' capital................ 1,769,133 2,146,475
---------- ---------- -----------
Total liabilities and
stockholders' equity and
partners' capital................ $9,034,229 $9,669,574 $14,816,034
========== ========== ===========
</TABLE>
See accompanying notes.
F-40
<PAGE>
J & J RENTAL SERVICES, INC.
STATEMENTS OF INCOME
(NOTE 1)
<TABLE>
<CAPTION>
PREDECESSORS COMPANY
---------------------------------------------------------- -------------
SIX MONTHS ENDED THREE MONTHS
YEAR ENDED DECEMBER 31, JUNE 30, ENDED
---------------------------------- ---------------------- SEPTEMBER 30,
1994 1995 1996 1996 1997 1997
---------- ---------- ---------- ---------- ---------- -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Equipment rentals................................... $6,419,892 $7,573,784 $7,769,716 $4,053,397 $3,823,790 $2,174,283
Sales of equipment and parts........................ 1,797,142 1,810,400 1,243,297 624,375 573,450 62,948
---------- ---------- ---------- ---------- ---------- ----------
Total revenues.................................... 8,217,034 9,384,184 9,013,013 4,677,772 4,397,240 2,237,231
Cost of revenues:
Cost of revenues, excluding equipment rental
depreciation....................................... 3,173,760 3,906,336 3,544,040 1,860,016 1,629,299 935,526
Depreciation, equipment rentals..................... 1,708,936 2,048,619 2,389,929 1,101,571 1,171,685 392,002
Cost of revenues of equipment and parts............. 835,327 898,190 452,522 307,328 326,847 51,698
---------- ---------- ---------- ---------- ---------- ----------
Total cost of revenues............................ 5,718,023 6,853,145 6,386,491 3,268,915 3,127,831 1,379,226
---------- ---------- ---------- ---------- ---------- ----------
Gross profit.......................................... 2,499,011 2,531,039 2,626,522 1,408,857 1,269,409 858,005
Selling, general and administrative expenses.......... 1,561,951 1,840,973 1,521,562 749,625 713,488 427,268
Non-rental depreciation............................... 101,606 125,004 123,971 83,848 78,643 31,560
---------- ---------- ---------- ---------- ---------- ----------
Operating income.................................. 835,454 565,062 980,989 575,384 477,278 399,177
Interest expense...................................... 262,253 411,731 478,341 251,708 180,769 241,409
Other (income), net................................... (3,375) (45,103) (27,523) (29,609) (11,418) (26,306)
---------- ---------- ---------- ---------- ---------- ----------
Income before provision for income taxes.......... 576,576 198,434 530,171 353,285 307,927 184,074
Provision for income taxes............................ 112,601 35,678 49,685 56,000 98,000 --
---------- ---------- ---------- ---------- ---------- ----------
Net income........................................ $ 463,975 $ 162,756 $ 480,486 $ 297,285 $ 209,927 $ 184,074
- --------------------------------------------------
========== ========== ========== ========== ========== ==========
</TABLE>
See accompanying notes.
F-41
<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,
1994................... 50,000 $50,000 $606,799 $827,938
Net income.............. 189,297 274,678
Distributions paid to
partners............... (175,344)
Unrealized loss on
marketable securities.. $(6,500)
------ ------- ------- ---------- ---------
Balance at December 31,
1994................... 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 (unaudited)... 311,262 (101,335)
Distributions paid to
partners (unaudited)... (50,500)
------ ------- ------- ---------- ---------
Balance at June 30, 1997
(unaudited)............ 50,000 $50,000 $ 1,165 $1,293,217 $ 961,520
====== ======= ======= ========== =========
Company:
Issuance of common stock
(unaudited)............ 77,500 $ 1,000
Net income from July 1,
1997 to September 30,
1997 (unaudited)....... $ 184,074
Basis adjustment
(unaudited)............ (324,000)
------ ------- ------- ---------- ---------
Balance at September 30,
1997 (unaudited)....... 77,500 $ 1,000 $ (139,926)
====== ======= ======= ========== =========
</TABLE>
See accompanying notes.
F-42
<PAGE>
J & J RENTAL SERVICES, INC.
STATEMENTS OF CASH FLOWS
(NOTE 1)
<TABLE>
<CAPTION>
PREDECESSORS COMPANY
------------------------------------------------------------- -------------
SIX MONTHS ENDED THREE MONTHS
YEAR ENDED DECEMBER 31, JUNE 30, ENDED
------------------------------------- ---------------------- SEPTEMBER 30,
1994 1995 1996 1996 1997 1997
----------- ----------- ----------- ---------- ---------- -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income................................... $ 463,975 $ 162,756 $ 480,486 $ 297,285 $ 209,927 $ 184,074
Adjustments to reconcile net income to net
cash provided by (used in) operating
activities:
Depreciation................................. 1,810,542 2,173,623 2,513,900 1,185,419 1,250,328 428,009
Bad debt expense (recovery).................. 121,196 128,092 (57,621) (8,793) 7,214 69,573
Gain on sale of rental equipment............. (574,043) (396,704) (369,379) (293,981) (210,390) (11,250)
Gain on sale of property and equipment....... (5,110) (2,809) (6,591) -- -- --
Deferred taxes............................... 109,703 23,000 12,000 -- -- --
Changes in assets and liabilities:
Increase in accounts receivable............. (529,657) (64,895) (10,430) (120,785) (512,942) (2,045,517)
(Increase) decrease in trade notes
receivable................................. 80,639 (170,337) 39,859 (194,354) 37,081 --
(Increase) decrease in prepaid expenses and
other assets............................... 23,694 (31,561) (84,918) 143,283 (26,028) (1,375)
Increase (decrease) in accounts payable..... 233,814 46,476 (41,052) (10,000) 372,230 588,548
Increase in accrued expenses................ 98,864 53,632 1,919 17,153 123,765 185,617
Increase in income tax payable.............. -- 7,613 17,201 48,387 73,186 --
Increase in other assets.................... -- -- -- -- -- (86,719)
----------- ----------- ----------- ---------- ---------- ------------
Cash provided by (used in) operating
activities................................ 1,833,617 1,928,886 2,495,374 1,063,614 1,324,371 (689,040)
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of property and equipment........ (174,473) (270,369) (195,823) (146,148) (614,414) (11,797,486)
Proceeds from sale of rental equipment....... 1,014,501 930,860 755,122 624,372 1,227,501 62,948
Proceeds from sale of property and
equipment................................... 39,119 24,634 74,585 -- -- --
Unrealized gain/(loss) on marketable
securities.................................. (6,500) 9,250 (1,585) -- -- --
Purchase of marketable securities............ (43,500) (9,250) (28,425) -- -- --
Payments on loans to Predecessor
Stockholder................................. (110,033) (21,573) (73,724) (94,857) (79,254) --
Proceeds received on Predecessor Stockholder
loans....................................... -- 94,857 -- 49,358 6,884 --
Loan to Predecessor Stockholder.............. -- (120,000) -- -- -- --
----------- ----------- ----------- ---------- ---------- ------------
Cash provided by (used in) investing
activities................................ 719,114 638,409 530,150 432,725 540,717 (11,734,538)
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowing under credit facilities............ 600,664 871,496 351,958 -- -- 14,511,343
Principal payments on debt................... (2,882,889) (3,117,926) (3,171,213) (1,451,558) (1,920,472) (330,547)
Distributions paid........................... (175,344) (169,741) (101,559) (48,559) (50,500) --
----------- ----------- ----------- ---------- ---------- ------------
Cash provided by (used in) financing
activities................................ (2,457,569) (2,416,171) (2,920,814) (1,500,117) (1,970,972) 14,180,796
----------- ----------- ----------- ---------- ---------- ------------
Increase (decrease) in cash .................. 95,162 151,124 104,710 (3,778) (105,884) 1,757,218
Cash at beginning of year..................... 315,157 410,319 561,443 561,443 666,153 --
----------- ----------- ----------- ---------- ---------- ------------
Cash at end of year........................ $ 410,319 $ 561,443 $ 666,153 $ 557,665 $ 560,269 $ 1,757,218
- --------------------------------------------------
=========== =========== =========== ========== ========== ============
</TABLE>
See accompanying notes.
F-43
<PAGE>
J & J RENTAL SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1994, 1995 AND 1996
(THE INFORMATION AS OF SEPTEMBER 30, 1997 AND FOR THE SIX MONTHS ENDED JUNE
30, 1996 AND 1997 AND FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1997 IS
UNAUDITED)
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, 1995 and 1996 and
for the years ended December 31, 1994, 1995 and 1996, and for the six month
periods ended June 30, 1996 and 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 September 30, 1997 and for the three month
period ended September 30, 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................................................. $10,700,000
Adjustment necessary to value Predecessor Stockholder's
continuing residual interest at Predecessor's basis........... 324,000
-----------
Adjusted purchase price........................................ $10,376,000
===========
Allocation of adjusted purchase price:
Net assets acquired, at fair values.......................... $10,326,000
Covenant not to compete...................................... 50,000
-----------
Total adjusted purchase price allocation................... $10,376,000
===========
</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 principal
market area is the
F-44
<PAGE>
J & J RENTAL SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
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.
Interim Financial Statements
The accompanying balance sheet at September 30, 1997 and the statements of
income, stockholders' equity and cash flows for the six-month periods ended
June 30, 1996 and 1997 and three-month period ended September 30, 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 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 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 $44,333, $40,095,
and $52,483 in the years ended December 31, 1994, 1995 and 1996, respectively,
$13,251 and $1,297 in the six months ended June 30, 1996 and 1997,
respectively, and $9,433 in the three months ended September 30, 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.
F-45
<PAGE>
J & J RENTAL SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
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.
Covenant Not to Compete
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 $2,500 for the three month period ended September 30,
1997.
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>
DECEMBER 31,
----------------------- SEPTEMBER 30,
1995 1996 1997
----------- ----------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Rental equipment....................... $12,003,618 $12,520,482 $10,896,417
Less accumulated depreciation.......... 5,719,496 5,851,117 392,002
----------- ----------- -----------
Rental equipment, net.................. $ 6,284,122 $ 6,669,365 $10,504,415
=========== =========== ===========
</TABLE>
4. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- SEPTEMBER 30,
1995 1996 1997
--------- --------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Transportation equipment............... $ 776,494 $ 763,402 $419,159
Furniture, fixtures and office equip-
ment.................................. 80,851 92,082 59,760
Shop equipment......................... 39,356 39,356
Leasehold improvements................. 38,386
Construction in progress............... 45,244
--------- --------- --------
896,701 933,226 524,163
Less accumulated depreciation.......... (433,098) (465,766) (31,560)
--------- --------- --------
Total.................................. $ 463,603 $ 467,460 $492,603
========= ========= ========
</TABLE>
F-46
<PAGE>
J & J RENTAL SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
5. DEBT
Debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31
---------------------- SEPTEMBER 30,
1995 1996 1997
---------- ----------- -------------
(UNAUDITED)
<S> <C> <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. .......... $1,694,640 $ 1,246,231 $648,955
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. ................................ 493,789 795,344
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. ........... 108,230 306,708
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. ........... 1,280,585 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. ............................ 33,130 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. ................................ 190,868 101,771
Citicorp--Note dated June 15, 1993, with
an annual interest rate of 5.9% due in
monthly payments of $921. .............. 15,831 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. ................................ 89,031 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. ................................ 221,132 152,293
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
</TABLE>
F-47
<PAGE>
J & J RENTAL SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31
--------------------- SEPTEMBER 30,
1995 1996 1997
---------- ---------- -------------
(UNAUDITED)
<S> <C> <C> <C>
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. ................................. 47,010 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................................... 64,270 171,518
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.............. 283,555 246,570
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................................... 50,417 316,003
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................................... 71,171 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................................... 349,554 261,043
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........... 50,909 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 May
8 and August 8, 1997, with annual
interest rates of 5.4% and 10.3%,
respectively, due in monthly installments
of $543 and $ 561, respectively.......... 48,005
</TABLE>
F-48
<PAGE>
J & J RENTAL SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31
--------------------- SEPTEMBER 30,
1995 1996 1997
---------- ---------- -------------
(UNAUDITED)
<S> <C> <C> <C>
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.......................... 294,444
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............ 7,689,391
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
Various notes fully repaid during 1996..... 380,870
---------- ---------- -----------
$5,424,992 $5,766,651 $14,180,795
========== ========== ===========
</TABLE>
Substantially all rental equipment collateralize the above notes.
The aggregate annual maturities of debt as of December 31, 1996 are as
follows:
<TABLE>
<S> <C>
1997.............................................................. $2,227,398
1998.............................................................. 1,904,226
1999.............................................................. 1,087,718
2000.............................................................. 531,780
2001.............................................................. 15,529
----------
$5,766,651
==========
</TABLE>
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>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
------------------------ ---------------
1994 1995 1996 1996 1997
-------- ------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Current:
Federal.............................. $ -- $ 7,216 $32,054 $49,500 $86,500
State................................ 2,898 5,462 5,631 6,500 11,500
-------- ------- ------- ------- -------
2,898 12,678 37,685 56,000 98,000
Deferred:
Federal.............................. 96,878 20,300 10,600 -- --
State................................ 12,825 2,700 1,400 -- --
-------- ------- ------- ------- -------
109,703 23,000 12,000 -- --
-------- ------- ------- ------- -------
Total.............................. $112,601 $35,678 $49,685 $56,000 $98,000
======== ======= ======= ======= =======
</TABLE>
F-49
<PAGE>
J & J RENTAL SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
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, 1995
and 1996 are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1995 1996
-------- --------
<S> <C> <C>
Difference in basis of accounting..................... $216,000 $221,000
Cumulative tax depreciation in excess of book......... 202,000 209,000
-------- --------
Deferred tax liability $418,000 $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 three months ended
September 30, 1997.
7. COMMITMENTS
The Company has an employment agreement with an officer for minimum annual
compensation of $60,000 for the six month period ended December 31, 1997, and
approximately $540,000 to be paid over the remaining term of the contract
which expires in June 2002.
8. SUPPLEMENTAL CASH FLOW INFORMATION
For the years ended December 31, 1994, 1995 and 1996; the six months ended
June 30, 1996 and 1997; and the three months ended September 30, 1997, total
interest paid was $277,811, $411,731 and $478,341; $251,708 and $180,769; and
$126,430, respectively.
For the years ended December 31, 1994, 1995 and 1996; the six months ended
June 30, 1996 and 1997; and the three months ended September 30, 1997, total
income taxes paid was $ --, $ -- and $ --; $11,233 and $24,814; and $ --,
respectively.
During the years ended December 31, 1994, 1995 and 1996, and the six months
ended June 30, 1996 and 1997, the Company purchased $3,659,811, $3,738,807,
and $3,160,914; and $1,311,652 and $1,172,917, respectively, of equipment
which was financed.
9. 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 and for the six month
periods ended June 30, 1996 and 1997, respectively.
10. 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, 1995
and 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, 1995 and 1996 was $94,857 and
$79,254, respectively.
F-50
<PAGE>
J & J RENTAL SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
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,
1995 and 1996 was $315,365 and $257,244, respectively.
The Company leases its operating facilities from the Predecessor
Stockholder, and pays monthly rent of $8,600. These leases are month-to-month
and can be canceled by either party.
11. 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-51
<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 balance sheets of Coran
Enterprises, Inc. dba A-1 Rents, and Monterey Bay Equipment Rental, Inc. as of
December 31, 1995 and 1996, and the related combined statements of earnings,
stockholders' equity, and cash flows for each of the three years in the period
ended December 31, 1996. 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 financial position of Coran
Enterprises, Inc. dba A-1 Rents, and Monterey Bay Equipment Rental, Inc. as of
December 31, 1995 and 1996, and the combined results of their operations and
their combined cash flows for each of the three years in the period ended
December 31, 1996, in conformity with generally accepted accounting
principles.
/s/ Grant Thornton LLP
San Jose, California
October 24, 1997
(except for Note F as to which the date is October 28, 1997)
F-52
<PAGE>
CORAN ENTERPRISE, INC.
DBA A-1 RENTS AND
MONTEREY BAY EQUIPMENT RENTAL, INC.
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------- SEPTEMBER 30,
1995 1996 1997
---------- ---------- -------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Assets
Cash..................................... $ 965,187 $ 140,146 $ 933,705
Accounts receivable, net of allowance for
doubtful accounts of $160,000 in 1995,
$135,000 in 1996 and $90,000 in 1997.... 1,147,524 1,087,278 1,012,615
Rental equipment, principally machinery
and equipment, at cost, net of
accumulated depreciation of $11,375,263
in 1995, $12,362,378 in 1996 and
$12,690,816 in 1997..................... 1,290,084 3,961,297 2,948,586
Operating property and equipment, at
cost, net of accumulated depreciation of
$232,919 in 1995, $250,122 in 1996 and
$263,990 in 1997........................ 51,963 34,760 65,137
Other assets............................. 74,402 77,510 10,942
---------- ---------- ----------
Total assets........................... $3,529,160 $5,300,991 $4,970,985
========== ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and accrued liabilities... $ 142,581 $ 174,936 $ 308,471
Equipment loans............................ 241,750 1,179,677 1,045,551
Notes payable--stockholders................ 158,960 1,408,947 1,030,184
---------- ---------- ----------
Total liabilities...................... 543,291 2,763,560 2,384,206
Stockholders' equity:
Common stock--authorized 100,000 shares
of no par value and 75,000 share of $1
par value; issued and outstanding,
10,000 shares of no par value and 75,000
shares of $1 par value.................. 275,000 275,000 275,000
Capital in excess of par value........... 37,920 37,920 37,920
Retained earnings........................ 2,672,949 2,224,511 2,273,859
---------- ---------- ----------
Total stockholders' equity............. 2,985,869 2,537,431 2,586,779
---------- ---------- ----------
Total liabilities and stockholders'
equity................................ $3,529,160 $5,300,991 $4,970,985
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
F-53
<PAGE>
CORAN ENTERPRISES, INC.
DBA A-1 RENTS AND
MONTEREY BAY EQUIPMENT RENTAL, INC.
COMBINED STATEMENTS OF EARNINGS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
-------------------------------- -----------------------
1994 1995 1996 1996 1997
---------- ---------- ---------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Equipment rentals..... $6,068,553 $6,962,130 $7,679,713 $5,435,958 $5,808,564
Sales of parts, sup-
plies and rental
equipment............ 663,293 565,586 738,330 593,383 899,829
---------- ---------- ---------- ---------- ----------
Total revenues...... 6,731,846 7,527,716 8,418,043 6,029,341 6,708,393
Costs
Cost of equipment
rentals.............. 3,861,538 3,835,982 4,254,243 3,520,941 3,704,188
Rental equipment de-
preciation........... 531,320 611,577 1,304,847 897,776 1,237,656
Cost of sales of sup-
plies................ 199,684 200,746 257,500 204,319 186,327
Other................. 45,325 49,523 115,758 61,482 38,435
---------- ---------- ---------- ---------- ----------
Total costs......... 4,637,867 4,697,828 5,932,348 4,684,518 5,166,606
---------- ---------- ---------- ---------- ----------
Gross margin........ 2,093,979 2,829,888 2,485,695 1,344,823 1,541,787
Selling, general and ad-
ministrative........... 1,997,056 1,786,650 2,062,246 752,484 958,764
Non-rental deprecia-
tion................... 22,682 28,435 17,202 12,944 13,868
---------- ---------- ---------- ---------- ----------
Operating Income.... 74,241 1,014,803 406,247 579,395 569,155
Interest expense........ 13,408 21,120 96,464 50,137 139,970
---------- ---------- ---------- ---------- ----------
Earnings before in-
come taxes......... 60,833 993,683 309,783 529,258 429,185
Provision for income
taxes.................. 4,015 12,275 8,221 -- 5,583
---------- ---------- ---------- ---------- ----------
Net earnings.......... $ 56,818 $ 981,408 $ 301,562 $ 529,258 $ 423,602
========== ========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
F-54
<PAGE>
CORAN ENTERPRISES, INC.
DBA A-1 RENTS AND
MONTEREY BAY EQUIPMENT RENTAL, INC.
COMBINED STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
SHARES ISSUED ADDITIONAL
------------- COMMON PAID-IN RETAINED
CEI MBERI STOCK CAPITAL EARNINGS TOTAL
------ ------ -------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1,
1994................... 75,000 10,000 $275,000 $37,920 $1,634,723 $1,947,643
Net earnings.......... -- -- -- -- 56,818 56,818
------ ------ -------- ------- ---------- ----------
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 (unau-
dited)............... -- -- -- -- 423,602 423,602
Dividends paid to
stockholders (unau-
dited)............... -- -- -- -- (374,254) (374,254)
------ ------ -------- ------- ---------- ----------
Balance at September 30,
1997 (unaudited)....... 75,000 10,000 $275,000 $37,920 $2,273,859 $2,586,779
====== ====== ======== ======= ========== ==========
</TABLE>
The accompanying notes are an integral part of this statement.
F-55
<PAGE>
CORAN ENTERPRISES, INC.
DBA A-1 RENTS AND MONTEREY BAY EQUIPMENT RENTAL, INC.
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
--------------------------------- ------------------------
1994 1995 1996 1996 1997
--------- --------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operat-
ing activities:
Net earnings........... $ 56,818 $ 981,408 $ 301,562 $ 529,258 $ 423,602
Adjustments to recon-
cile net earnings to
net cash provided by
operating activities:
Depreciation and amor-
tization.............. 554,002 640,012 1,322,049 910,720 1,251,524
Gain on sale of equip-
ment.................. (215,699) (85,747) (163,753) (152,324) (443,124)
Change in assets and
liabilities:
Accounts receivable... 154 (210,091) 60,246 (42,349) 74,663
Other assets.......... 5,630 5,220 (3,108) (18,817) 66,568
Accounts payable and
accrued liabili-
ties................. (20,567) 36,638 32,355 219,519 133,535
--------- --------- ----------- ----------- ----------
Net cash provided by
operating activi-
ties................ 380,338 1,367,440 1,549,351 1,446,007 1,506,768
Cash flows from invest-
ing activities:
Purchases of rental
equipment............. (896,851) (633,519) (4,017,946) (2,609,849) (271,098)
Purchases of operating
equipment............. (75,630) -- -- -- (44,246)
Proceeds from sale of
equipment............. 258,025 110,273 205,639 -- 489,278
--------- --------- ----------- ----------- ----------
Net cash provided by
(used in) investing
activities.......... (714,456) (523,246) (3,812,307) (2,609,849) 173,934
Cash flows from financ-
ing activities:
Change in bank over-
draft................. 15,760 (15,760) -- -- --
Borrowings on equipment
loans................. 65,309 244,235 1,096,820 892,710 99,352
Payments on equipment
loans................. (20,943) (46,853) (158,893) -- (233,478)
Payment on dividends... -- -- (750,000) (750,000) (374,254)
Borrowings on notes
payable--stockhold-
ers................... 300,000 -- 1,249,988 259,999 --
Payments on notes pay-
able--stockholders.... (95,151) (95,888) -- -- (378,763)
--------- --------- ----------- ----------- ----------
Net cash provided by
(used in) financing
activities.......... 264,975 85, 734 1,437,915 402,709 (887,143)
--------- --------- ----------- ----------- ----------
NET (DECREASE)
INCREASE IN CASH AND
CASH EQUIVALENTS.... (69,143) 929,928 (825,041) (761,133) 793,559
Cash and cash equiva-
lents--beginning of pe-
riod................... 104,402 35,259 965,187 965,187 140,146
--------- --------- ----------- ----------- ----------
Cash and cash equiva-
lents--end of period... $ 35,259 $ 965,187 $ 140,146 $ 204,054 $ 933,705
========= ========= =========== =========== ==========
Supplementary disclo-
sures of cash flow in-
formation:
Cash paid during the
period for:
Interest............... $ 13,408 $ 21,120 $ 95,958 $ 50,137 $ 140,496
========= ========= =========== =========== ==========
Income taxes........... $ 4,815 $ 1,600 $ 23,047 $ 10,627 $ 5,583
========= ========= =========== =========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
F-56
<PAGE>
CORAN ENTERPRISES, INC.
DBA A-1 RENTS ANDMONTEREY BAY EQUIPMENT RENTAL, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1996
(THE INFORMATION AS OF SEPTEMBER 30, 1997 AND FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED)
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. 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.
2. Interim Financial Statements
The accompanying combined balance sheet at September 30, 1997 and the
combined statements of earnings, stockholders' equity and cash flows for the
nine month periods ended September 30, 1996 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, which consist solely of normal
recurring adjustments, necessary to present fairly the information set forth
therein. The results of operations for such interim period are not necessarily
indicative of results for the full year.
3. 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.
4. 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.
5. 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--COMMITMENTS
CEI leases facilities from its stockholders on a month-to-month basis. Total
rent expense on the facilities was $663,067, $662,880 and $667,638 for the
years ended December 31, 1994, 1995 and 1996, respectively. Total rent expense
for the nine months ended September 30, 1996 and 1997 was $463,500 for each
period.
F-57
<PAGE>
CORAN ENTERPRISES, INC.
DBA A-1 RENTS AND
MONTEREY BAY EQUIPMENT RENTAL, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995 AND 1996
(THE INFORMATION AS OF SEPTEMBER 30, 1997 AND FOR THE NINE
MONTHS ENDED SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED)
NOTE C--INCOME TAXES
The stockholders of Coran Enterprises, Inc. and Monterey Bay Equipment
Rental, Inc, 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 return. 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.
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%.
Maturities of equipment loans as of December 31, 1996 are as follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
------------------------
<S> <C>
1997............................................................ $ 276,911
1998............................................................ 276,605
1999............................................................ 279,527
2000............................................................ 240,309
2001............................................................ 106,325
----------
$1,179,677
==========
</TABLE>
NOTE E--NOTES PAYABLE--STOCKHOLDERS
Notes payable to stockholders are uncollateralized and bear interest at
rates from 8% to 9%. These notes are due in 1997. Interest expense on the
notes was $11,254, $17,755 and $44,064 for the years ended December 31, 1994,
1995, and 1996, respectively. Interest expense on the notes was $33,048 and
$60,098 for the nine months ended September 30, 1996 and 1997, respectively.
NOTE F--SUBSEQUENT EVENT
Effective October 28, 1997, the stockholders of CEI and MBERI sold 100% of
the outstanding shares of each company to United Rentals, Inc.
F-58
<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, 1995 and 1996 and the related statements of income, stockholders' equity
and cash flows for each of the three years in the period ended December 31,
1996. 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, 1995 and 1996, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1996 in
conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
MetroPark, New Jersey
October 21, 1997, except for
Note 10, as to which the
date is October 24, 1997
F-59
<PAGE>
BRONCO HI-LIFT, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31
---------------------- SEPTEMBER 30,
1995 1996 1997
---------- ---------- -------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Cash..................................... $ 228,772 $ 305,506 $ 296,669
Accounts receivable, net................. 591,194 826,849 1,087,790
Unbilled receivables..................... 68,354 40,722 137,760
Inventory................................ 157,470 67,825 271,903
Rental equipment, net.................... 1,782,926 1,972,910 2,321,275
Property and equipment, net.............. 244,817 234,914 335,374
Due from related party................... 412,113 -- --
Prepaid expenses and other assets........ 33,701 13,530 27,015
---------- ---------- ----------
Total assets......................... $3,519,347 $3,462,256 $4,477,786
========== ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIT)
Liabilities:
Accounts payable, accrued expenses and
other liabilities..................... $ 104,961 $ 90,584 $ 323,489
Debt................................... 3,748,682 3,051,711 2,973,516
---------- ---------- ----------
Total liabilities.................... 3,853,643 3,142,295 3,297,005
Commitments and contingencies
Stockholders' equity (deficit):
Common stock, $.01 par value and $1.00
stated value, 100,000 shares
authorized, 10,000 issued and
outstanding at December 31, 1995 and
1996, and September 30, 1997.......... 10,000 10,000 10,000
Additional paid-in capital............. 598,000 598,000 598,000
Notes receivable from stockholders..... (500,000) (300,000) (300,000)
Retained earnings (deficit)............ (442,296) 11,961 872,781
---------- ---------- ----------
Total stockholders' equity
(deficit)........................... (334,296) 319,961 1,180,781
---------- ---------- ----------
Total liabilities and stockholders'
equity (deficit).................... $3,519,347 $3,462,256 $4,477,786
========== ========== ==========
</TABLE>
See accompanying notes.
F-60
<PAGE>
BRONCO HI-LIFT, INC.
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31 SEPTEMBER 30
---------------------------------- ----------------------
1994 1995 1996 1996 1997
---------- ---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Equipment rentals..... $3,199,643 $3,427,596 $4,313,855 $2,923,030 $3,774,997
New equipment sales... 499,392 266,308 611,033 317,956 526,570
Sales of parts,
supplies and rental
equipment............ 659,628 155,331 410,957 367,560 311,556
Other................. 193,321 147,214 194,469 136,761 146,370
---------- ---------- ---------- ---------- ----------
Total revenues...... 4,551,984 3,996,449 5,530,314 3,745,307 4,759,493
Cost of revenues:
Cost of equipment
rentals, excluding
equipment rental
depreciation......... 363,876 335,028 699,455 558,088 363,418
Depreciation,
equipment rentals.... 656,848 637,766 736,525 483,369 601,243
Cost of new equipment
sales................ 415,168 206,268 479,920 236,297 407,988
Cost of sales of
parts, supplies and
equipment............ 376,667 107,989 293,987 176,803 132,474
Other................. 82,295 32,418 119,315 83,411 93,778
---------- ---------- ---------- ---------- ----------
Total cost of
revenues........... 1,894,854 1,319,469 2,329,202 1,537,968 1,598,901
---------- ---------- ---------- ---------- ----------
Gross profit............ 2,657,130 2,676,980 3,201,112 2,207,339 3,160,592
Selling, general and
administrative
expenses............... 1,674,216 2,540,699 2,359,326 1,334,593 1,562,694
Non-rental
depreciation........... 61,897 84,463 99,669 72,928 79,608
---------- ---------- ---------- ---------- ----------
Operating income.... 921,017 51,818 742,117 799,818 1,518,290
Interest expense........ 143,471 171,305 334,035 261,106 210,025
Other (income), net..... (32,641) (26,575) (46,175) (22,024) (67,555)
---------- ---------- ---------- ---------- ----------
Net income (loss)... $ 810,187 $ (92,912) $ 454,257 $ 560,736 $1,375,820
========== ========== ========== ========== ==========
</TABLE>
See accompanying notes.
F-61
<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,
1994................... 20,000 $ 20,000 $ 345,020 $ -- $ 638,409
Net income............ 810,187
Dividends paid........ (755,000)
------- -------- --------- --------- -----------
Balance at December 31,
1994................... 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
Net income
(unaudited).......... 1,375,820
Dividends paid
(unaudited).......... (515,000)
------- -------- --------- --------- -----------
Balance at September 30,
1997 (unaudited)....... 10,000 $ 10,000 $ 598,000 $(300,000) $ 872,781
======= ======== ========= ========= ===========
</TABLE>
See accompanying notes.
F-62
<PAGE>
BRONCO HI-LIFT, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31 SEPTEMBER 30
----------------------------------- ------------------------
1994 1995 1996 1996 1997
----------- --------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM
OPERATING ACTIVITIES
Net income (loss)...... $ 810,187 $ (92,912) $ 454,257 $ 560,736 $ 1,375,820
Adjustments to
reconcile net income
to net cash provided
by operating
activities:
Depreciation........... 718,745 722,229 836,194 556,297 680,851
Gain on equipment
sales................. (379,644) (317,871) (302,777) (276,330) (559,384)
Interest expense not
requiring cash........ 17,500
Changes in assets and
liabilities:
Decrease (increase)
in accounts
receivable........... 57,832 (132,976) (235,655) (150,715) (260,941)
(Decrease) increase
in unbilled
receivables.......... 46,303 5,646 27,632 (97,038)
(Increase) decrease
in inventory......... (8,878) (102,542) 89,645 76,465 (204,078)
(Decrease) increase
in prepaid expenses
and other assets..... (32,965) 30,774 20,171 16,676 (13,485)
(Decrease) increase
in accounts payable,
accrued expenses and
other liabilities.... (367,989) (60,113) (14,377) 129,262 232,905
----------- --------- ----------- ----------- -----------
Total adjustments.... 33,404 145,147 438,333 351,655 (221,170)
----------- --------- ----------- ----------- -----------
Cash provided by
operating
activities.......... 843,591 52,235 892,590 912,391 1,154,650
CASH FLOWS FROM
INVESTING ACTIVITIES
Purchase of rental
equipment............. (200,201) (92,727) (1,368,253) (1,113,613) (1,522,041)
Proceeds from sale of
rental equipment...... 825,203 350,739 745,687 528,176 1,131,142
Purchases of property
and equipment, net.... (43,865) (101,985) (90,932) (83,965) (209,392)
----------- --------- ----------- ----------- -----------
Cash provided by
(used in) investing
activities.......... 581,137 156,027 (713,498) (669,402) (600,291)
CASH FLOWS FROM
FINANCING ACTIVITIES
Cash dividends paid.... (755,000) (485,000)
Issuance of stock...... 100,000
Re-payments on notes
due from
stockholders.......... 200,000
Principal payments on
debt.................. (645,935) (742,891) (802,358) (796,351) (278,196)
Principal payments on
capital lease
obligations........... (9,008) (32,711)
Advances to related
party................. (412,113)
Borrowings under credit
facility.............. 900,000 500,000 500,000 200,000
----------- --------- ----------- ----------- -----------
Cash used in
financing
activities.......... (1,409,943) (187,715) (102,358) (296,351) (563,196)
----------- --------- ----------- ----------- -----------
Increase (decrease) in
cash.................. 14,785 20,547 76,734 (53,362) (8,837)
Cash balance at
beginning of year... 193,440 208,225 228,772 228,772 305,506
----------- --------- ----------- ----------- -----------
Cash balance at end
of year............. $ 208,225 $ 228,772 $ 305,506 $ 175,410 $ 296,669
=========== ========= =========== =========== ===========
</TABLE>
See accompanying notes.
F-63
<PAGE>
BRONCO HI-LIFT, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1994, 1995 AND 1996
(THE INFORMATION AS OF SEPTEMBER 30, 1997 AND FOR THE NINE
MONTHS ENDED SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED)
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.
Interim Financial Statements
The accompanying balance sheet at September 30, 1997 and the statements of
income, stockholders' equity and cash flows for the nine-month periods ended
September 30, 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
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 $51,500, $74,400
F-64
<PAGE>
BRONCO HI-LIFT, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
and $43,000 in the years ended December 31, 1994, 1995 and 1996, respectively,
and $30,435 and $43,237 in the nine months ended September 30, 1996 and 1997,
respectively.
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.
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>
DECEMBER 31
--------------------- SEPTEMBER 30,
1995 1996 1997
---------- ---------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Rental equipment......................... $4,614,801 $5,176,658 $5,564,163
Less accumulated depreciation............ 2,831,875 3,203,748 3,242,888
---------- ---------- ----------
Rental equipment, net.................... $1,782,926 $1,972,910 $2,321,275
========== ========== ==========
</TABLE>
F-65
<PAGE>
BRONCO HI-LIFT, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
4. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31
----------------- SEPTEMBER 30,
1995 1996 1997
-------- -------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Furniture and fixtures....................... $ 59,078 $ 59,572 $163,562
Transportation equipment..................... 463,640 520,356 579,456
Shop equipment............................... 34,855 37,591 37,591
-------- -------- --------
557,573 617,519 780,609
Less accumulated depreciation................ 312,756 382,605 445,235
-------- -------- --------
Total...................................... $244,817 $234,914 $335,374
======== ======== ========
</TABLE>
5. DEBT
Debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31
--------------------- SEPTEMBER 30,
1995 1996 1997
---------- ---------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Citicorp Dealer Finance Agreement...... $2,250,299 $1,585,000 $1,635,000
GMAC note dated October 27, 1994 with
an annual interest rate of 11.52% due
in monthly payments of $588 through
November 1999......................... 22,396 17,564
Kenworth/Trial-EZE dated July 11, 1994
with annual interest of 10.6% due in
monthly payments of $2,788 through
July 1998............................. 75,987 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 $1,400,000 $1,338,516
---------- ---------- ----------
$3,748,682 $3,051,711 $2,973,516
========== ========== ==========
</TABLE>
The Citicorp Dealer Finance Agreement (the "Agreement") was entered into on
February 5, 1990. Under the terms of the original Agreement the Company would
be allowed to borrow funds to purchase equipment based on certain financial
formulas. Each draw down under the Agreement would be specifically
collateralized by the equipment purchased. On January 24, 1996, the Agreement
was amended to provide the Company with available financing of up to
$3,500,000 for the purchase of equipment. During 1997, the available financing
increased to $3,900,000. Under the amended Agreement the Company's borrowings
and repayments of debt are
F-66
<PAGE>
BRONCO HI-LIFT, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
determined by a formula based upon eligible accounts receivable and eligible
rental equipment value. The Agreement was again amended December 27, 1996
principally to extend the renewal date to January 1, 1998. The related note
has an adjustable interest rate of 1.75% per annum above the base rate as
determined and publicly announced by Citibank, N.A. (8.00% and 8.25% at
December 31, 1996 and September 30, 1997, respectively). Interest is payable
monthly. Under the original and amended agreement, collateral consists of all
new and used (rental equipment) inventory now owned or hereafter acquired by
the Company including industrial lift trucks, industrial tractors, loaders,
aerial lifts, boom lifts and commercial or industrial equipment and other
goods or products, all chattel paper, leases, contract rights, accounts and
general intangibles and all cash and insurance proceeds. All stockholders have
guaranteed the balance due under this agreement.
The aggregate annual maturities of debt as of December 31, 1996 are as
follows:
<TABLE>
<S> <C>
1997......................................................... $ 950,000
1998......................................................... 1,761,314
1999......................................................... 104,595
2000......................................................... 107,699
2001......................................................... 128,103
Thereafter................................................... --
----------
$3,051,711
==========
</TABLE>
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 $37,232, $52,000 and $78,000 for the
years ended December 31, 1994, 1995 and 1996 and $58,500 and $58,500 for the
nine months ended September 30, 1996 and 1997, respectively. 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, 1997 to December 31, 2009 and $26,000 for January 1, 2010 to
April 30, 2010, provided there is no increase in fair market rent for the
premises.
7. COMMITMENTS
The Company has employment agreements, which expire in 1998, with three
officers which grant certain severance pay rights to these officers provided
that certain conditions of employment are met. Under terms of the employment
agreements, the officers received approximately $253,000, $703,000, $527,000
and $486,000 for the years ended December 31, 1995 and 1996 and for the nine
months ended September 30, 1996 and 1997, respectively. Additional
compensation to be paid to the officers, until the agreements expire, amounts
to approximately $135,000 for the three 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).
F-67
<PAGE>
BRONCO HI-LIFT, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
8. SUPPLEMENTAL CASH FLOW INFORMATION
For the years ended December 31, 1994, 1995 and 1996 and the nine months
ended September 30, 1996 and 1997, total interest paid was $150,077, $171,305
and $335,686 and $262,774 and $224,016, respectively.
During 1994 and 1995, the Company purchased $609,780 and $726,355,
respectively, of equipment which was financed. There were no purchases in
1996.
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 $540,600 at
September 30, 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-68
<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 OFFERINGS COVERED BY THIS PROSPECTUS. IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AU-
THORIZED BY THE COMPANY OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTI-
TUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, THE COMMON STOCK
IN ANY JURISDICTION WHERE, OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE
SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY
SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION
THAT THERE HAS NOT BEEN ANY CHANGE IN THE FACTS SET FORTH IN THIS PROSPECTUS
IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.
---------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary....................................................... 3
Summary Historical and Pro Forma Consolidated Financial Information...... 6
Risk Factors............................................................. 7
Use of Proceeds.......................................................... 12
Dividend Policy.......................................................... 12
Dilution................................................................. 13
Capitalization........................................................... 14
Selected Historical and Pro Forma Consolidated Financial Information..... 15
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 16
Business................................................................. 20
Management............................................................... 27
Principal Stockholders................................................... 32
Description of Capital Stock............................................. 34
Certain Charter and By-Law Provisions.................................... 35
Shares Eligible for Future Sale.......................................... 38
Certain United States Federal Tax Considerations......................... 39
Underwriting............................................................. 42
Legal Matters............................................................ 45
Experts.................................................................. 45
Available Information.................................................... 45
</TABLE>
---------------
UNTIL , 1998 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO
DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR
UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
7,000,000 SHARES
[LOGO]
UNITED RENTALS, INC.
COMMON STOCK
---------------
PROSPECTUS
---------------
MERRILL LYNCH & CO.
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
DEUTSCHE MORGAN GRENFELL
, 1997
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS, DATED , 1997
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
PROSPECTUS
7,000,000 SHARES
[LOGO]
UNITED RENTALS, INC.
COMMON STOCK
----------
All of the shares of Common Stock, $.01 par value (the "Common Stock"),
offered hereby are being offered by United Rentals, Inc., a Delaware
corporation (the "Company").
Of the Common Stock offered hereby, 1,400,000 shares are being offered
initially outside the United States and Canada by the International Managers
(the "International Offering"), and 5,600,000 shares are being offered
initially in a concurrent offering in the United States and Canada by the U.S.
Underwriters (the "U.S. Offering", and together with the International
Offering, the "Offerings"). The initial public offering price and the
underwriting discount per share are identical for each of the Offerings. See
"Underwriting."
Prior to the Offerings, there has been no public market for the Common Stock.
It is currently estimated that the initial public offering price will be
between $12.00 and $14.00 per share. For information relating to factors to be
considered in determining the initial public offering price, see
"Underwriting." Shares of Common Stock are being offered for sale to certain
employees, directors and business associates, of, and certain other persons
designated by, the Company at the initial public offering price. Such
employees, directors and other persons are expected to purchase, in the
aggregate, not more than 10% of the Common Stock offered in the Offerings.
Application will be made to list the Common Stock on the stock exchange
under the symbol " ", subject to official notice of issuance.
SEE "RISK FACTORS" BEGINNING ON PAGE 7 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED
HEREBY.
----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT(1) COMPANY(2)
- ----------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share...................................... $ $ $
- ----------------------------------------------------------------------------------
Total(3)....................................... $ $ $
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(1) The Company has agreed to indemnify the several Underwriters against
certain liabilities, including liabilities under the Securities Act of
1933, as amended (the "Securities Act"). See "Underwriting."
(2) Before deducting expenses of the Offerings payable by the Company estimated
at $ .
(3) The Company has granted the International Managers and the U.S.
Underwriters options to purchase up to an additional 210,000 shares and
840,000 shares of Common Stock, respectively, in each case exercisable
within 30 days of the date hereof, solely to cover over-allotments, if any.
If such options are exercised in full, the total Price to Public,
Underwriting Discount and Proceeds to the Company will be $ , $ and
$ , respectively. See "Underwriting."
----------
The shares of Common Stock are being offered by the several Underwriters,
subject to prior sale, when, as and if issued to and accepted by them, subject
to the approval of certain legal matters by counsel for the Underwriters and to
certain other conditions. The Underwriters reserve the right to withdraw,
cancel or modify such offer and to reject orders in whole or in part. It is
expected that delivery of the shares of Common Stock will be made in New York,
New York, on or about , 1997.
----------
MERRILL LYNCH INTERNATIONAL
DONALDSON, LUFKIN & JENRETTE INTERNATIONAL
DEUTSCHE MORGAN GRENFELL
----------
The date of this Prospectus is , 1997
<PAGE>
ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS
UNDERWRITING
Subject to the terms and conditions set forth in an international purchase
agreement (the "International Purchase Agreement") among the Company and the
International Managers named below (the "International Managers") for whom
Merrill Lynch International, Donaldson, Lufkin & Jenrette International and
Deutsche Morgan Grenfell Inc. are acting as representatives (the "Lead
Managers") and concurrently with the sale of 5,600,000 shares of Common Stock
to the U.S. Underwriters (as defined below), the Company has agreed to sell to
the International Managers, and each of the International Managers severally
has agreed to purchase from the Company, the number of shares of Common Stock
set forth opposite its name below.
<TABLE>
<CAPTION>
INTERNATIONAL MANAGER NUMBER OF SHARES
--------------------- ----------------
<S> <C>
Merrill Lynch International.............................
Donaldson, Lufkin & Jenrette International..............
Deutsche Morgan Grenfell Inc. ..........................
---------
Total................................................. 1,400,000
=========
</TABLE>
The Company has also entered into a U.S. purchase agreement (the "U.S.
Purchase Agreement") with certain underwriters in the United States and Canada
(the "U.S. Underwriters" and, together with the International Managers, the
"Underwriters") for whom Merrill Lynch, Pierce, Fenner & Smith ("Merrill
Lynch"), Donaldson, Lufkin & Jenrette Securities Corporation and Deutsche
Morgan Grenfell Inc. are acting as representatives (the "U.S.
Representatives"). Subject to the terms and conditions set forth in the U.S.
Purchase Agreement, and concurrently with the sale of 1,400,000 shares of
Common Stock to the International Managers pursuant to the International
Purchase Agreement, the Company has agreed to sell to the U.S. Underwriters,
and the U.S. Underwriters severally have agreed to purchase from the Company,
an aggregate of 5,600,000 shares of Common Stock. The initial offering price
per share and the total underwriting discount per share of Common Stock are
identical under the U.S. Purchase Agreement and the International Purchase
Agreement.
In the U.S. Purchase Agreement and the International Purchase Agreement, the
several U.S. Underwriters and the several International Managers,
respectively, have agreed, subject to the terms and conditions set forth
therein, to purchase all of the shares of Common Stock being sold pursuant to
each such agreement if any of the shares of Common Stock being sold pursuant
to such agreement are purchased. The closings with respect to the sale of
shares of Common Stock to be purchased by the U.S. Underwriters and the
International Managers are conditioned upon one another.
The Lead Managers have advised the Company that the International Managers
propose initially to offer the shares of Common Stock to the public at the
initial public offering price set forth on the cover page of this Prospectus,
and to certain dealers at such price less a concession not in excess of $ per
share of Common Stock. The International Managers may allow, and such dealers
may reallow, a discount not in excess of $ per share of Common Stock on sales
to certain other dealers. After the initial public offering, the public
offering price, concession and discount may be changed.
The Company has granted an option to the International Managers exercisable
for 30 days after the date of this Prospectus, to purchase up to an aggregate
of 210,000 additional shares of Common Stock at the initial public offering
price set forth on the cover page of the Prospectus, less the underwriting
discount. The International Managers may exercise this option only to cover
over-allotments, if any, made on the sale of the Common Stock offered hereby.
To the extent that the International Managers exercise this option, each
International Manager will be obligated, subject to certain conditions, to
purchase a number of additional shares of Common Stock proportionate to such
International Manager's initial amount reflected in the foregoing table.
41
<PAGE>
ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS
The Company also has granted an option to the U.S. Underwriters, exercisable
for 30 days after the date of this Prospectus to purchase up to an aggregate
of 840,000 additional shares of Common Stock to cover over-allotments, if any,
on terms similar to those granted to the International Manager.
The Company, all executive officers and directors of the Company and the
holders of the 318,712 shares of Common Stock issued as consideration for
acquisitions have agreed, subject to certain exceptions, not to directly or
indirectly (a) offer, pledge, sell, contract to sell, sell any option or
contract to purchase, purchase any option or contract to sell, grant any
option, right or warrant for the sale of or otherwise dispose of or transfer
any shares of Common Stock or securities convertible into or exchangeable or
exercisable for Common Stock, whether now owned or thereafter acquired by the
person executing the agreement or with respect to which the person executing
the agreement thereafter acquires the power of disposition, or file a
registration statement under the Securities Act with respect to the foregoing
or (b) enter into any swap or other agreement that transfers, in whole or in
part, the economic consequence of ownership of the Common Stock whether any
such swap or transaction is to be settled by delivery of Common Stock or other
securities, in cash or otherwise, without the prior written consent of Merrill
Lynch on behalf of the Underwriters for a period of 180 days after the date of
this Prospectus. The foregoing agreement will not limit a stockholder's
ability to transfer shares in a private placement or to pledge shares,
provided that the transferee or pledgee agrees to be bound by such agreement.
The foregoing agreement also will not limit the Company's ability to (i) grant
stock options under the 1997 Stock Option Plan, (ii) issue shares as
consideration for acquisitions (provided that the Company may not issue in
excess of 500,000 shares for acquisitions unless the recipients of such excess
shares agree to be subject to the foregoing lock-up with respect to such
excess shares), (iii) file a shelf registration statement with respect to the
possible resale of outstanding shares of Common Stock or shares of Common
Stock that may be acquired upon exercise of outstanding warrants (provided
that no sales may be made under such registration statement during the 180-day
lockup period), (iv) file a registration statement with respect to Common
Stock or other securities to be issued as consideration for an acquisition or
with respect to the potential resale of shares issued as consideration for an
acquisition (provided that no sales may be made pursuant to such registration
statement except to the extent permitted by clause (ii) above) or (v) file a
registration statement registering the shares that may be issued pursuant to
options granted or to be granted under the 1997 Stock Option Plan.
The Company has also agreed not to waive any lock-up agreement that was
agreed to by certain stockholders of the Company in connection with the
issuance to them of 3,028,873 shares of Common Stock in a private placement in
October 1997, without the prior written consent of Merrill Lynch & Co. on
behalf of the Underwriters, for a period of 180 days after the date of this
Prospectus. This effectively prohibits such stockholders from selling or
otherwise disposing of any such shares for a period of 180 days after the date
of this Prospectus, without the prior written consent of Merrill Lynch & Co.,
on behalf of the Underwriters.
The U.S. Underwriters and the International Managers have entered into an
intersyndicate agreement (the "Intersyndicate Agreement") that provides for
the coordination of their activities. Pursuant to the Intersyndicate
Agreement, the U.S. Underwriters and the International Managers are permitted
to sell shares of Common Stock to each other for purposes of resale at the
initial public offering price, less an amount not greater than the selling
concession. Under the terms of the Intersyndicate Agreement, the U.S.
Underwriters and any dealer to whom they sell shares of Common Stock will not
offer to sell or sell shares of Common Stock to persons who are non-U.S. or
non-Canadian persons or to persons they believe intend to resell to persons
who are non-U.S. or non-Canadian persons, and the International Managers and
any dealer to whom they sell shares of Common Stock will not offer to sell or
sell shares of Common Stock to U.S. persons or to Canadian persons or to
persons they believe intend to resell to U.S. or Canadian persons, except in
the case of transactions pursuant to the Intersyndicate Agreement.
Prior to the Offerings, there has been no public market for the Common Stock
of the Company. The initial public offering price will be determined through
negotiations among the Company, the U.S. Representatives and the Lead
Managers. The factors to be considered in determining the initial public
offering price, in addition to prevailing market conditions, are the history
of and the prospects for the Company and the industry in which it
42
<PAGE>
ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS
competes, an assessment of the Company's management, the past and present
operations of the Company and the Initial Acquired Companies and the trend of
its pro forma revenues and earnings, the prospects for future earnings of the
Company, the prices of similar securities of generally comparable companies
and other relevant factors. There can be no assurance that an active trading
market will develop for the Common Stock or that the Common Stock will trade
in the public market subsequent to the Offerings at or above the initial
public offering price.
Application has been made to list the shares of Common Stock on the
under the symbol " ," subject to official notice of issuance. In order to meet
the requirements for listing of the Common Stock on that exchange, the U.S.
Underwriters and the International Managers have undertaken to sell lots of
or more shares to a minimum of beneficial owners.
The Underwriters have reserved for sale, at the initial public offering
price, up to 700,000 shares of Common Stock for certain employees, directors,
and business associates of, and certain other persons designated by, the
Company who have expressed an interest in purchasing such shares of Common
Stock. The number of shares available for sale to the general public in the
Offerings will be reduced to the extent such persons purchase such reserved
shares. Any reserved shares not so purchased will be offered to the general
public on the same basis as other shares offered hereby.
The Underwriters do not intend to confirm sales of the Common Stock offered
hereby to any accounts over which they exercise discretionary authority.
The Company has agreed to indemnify the U.S. Underwriters and the
International Managers against certain liabilities, including certain
liabilities under the Securities Act.
Until the distribution of the Common Stock is completed, rules of the
Commission may limit the ability of the Underwriters and certain selling group
members to bid for and purchase the Common Stock. As an exception to these
rules, the U.S. Representatives are permitted to engage in certain
transactions that stabilize the price of the Common Stock. Such transactions
consist of bids or purchases for the purposes of pegging, fixing or
maintaining the price of the Common Stock.
If the Underwriters create a short position in the Common Stock in
connection with the Offerings, i.e., if they sell more shares of Common Stock
than are set forth on the cover page of this Prospectus, the U.S.
Representatives may reduce that short position by purchasing Common Stock in
the open market. The U.S. Representatives may also elect to reduce any short
position by exercising all or part of the over-allotment option described
above.
The U.S. Representatives may also impose a penalty bid on certain
Underwriters and selling group members. This means that if the U.S.
Representatives purchase shares of Common Stock in the open market to reduce
the Underwriters' short position or to stabilize the price of the Common
Stock, they may reclaim the amount of the selling concession from the
Underwriters and selling group members who sold those shares as part of the
Offerings.
In general, purchases of a security for the purpose of stabilization or to
reduce a short position could cause the price of the security to be higher
than it might be in the absence of such purchases. The imposition of a penalty
bid might also have an effect on the price of a security to the extent that it
were to discourage resales of the security.
Neither the Company nor any of the Underwriters makes any representation or
prediction as to the direction or magnitude of any effect that the
transactions described above may have on the price of the Common Stock. In
addition, neither the Company nor any of the Underwriters makes any
representation that the U.S. Representatives will engage in such transactions
or that such transactions, once commenced, will not be discontinued without
notice.
Each International Manager has agreed that (i) it has not offered or sold
and, prior to the expiration of the period of six months from the Closing
Date, will not offer or sell any shares of Common Stock to persons in the
United Kingdom, except to persons whose ordinary activities involve them in
acquiring, holding, managing or
43
<PAGE>
ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS
disposing of investments (as principal or agent) for the purposes of their
businesses or otherwise in circumstances which do not constitute an offer to
the public in the United Kingdom within the meaning of the Public Offers of
Securities Regulations 1995; (ii) it has complied and will comply with all
applicable provisions of the Financial Services Act 1986 with respect to
anything done by it in relation to the Common Stock in, from or otherwise
involving the United Kingdom; and it has only issued or passed on and will
only issue or pass on in the United Kingdom any document received by it in
connection with the issuance of Common Stock to a person who is of a kind
described in Article 11(3) of the Financial Services Act 1986 (Investment
Advertisements) (Exemptions) Order 1996 or is a person to whom such document
may otherwise lawfully be issued or passed on.
No action has been or will be taken in any jurisdiction (except in the
United States) that would permit a public offering of the shares of Common
Stock, or the possession, circulation or distribution of this Prospectus or
any other material relating to the Company or shares of Common Stock in any
jurisdiction where acting for that purpose is required. Accordingly, the
shares of Common Stock may not be offered or sold, directly or indirectly, and
neither this Prospectus nor any other offering material or advertisements in
connection with the shares of Common Stock may be distributed or published, in
or from any country or jurisdiction except in compliance with any applicable
rules and regulations of any such country or jurisdiction.
Purchasers of the shares offered hereby may be required to pay stamp taxes
and other charges in accordance with the laws and practices of the country of
purchase in addition to the offering price set forth on the cover page hereof.
44
<PAGE>
ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY IN-
FORMATION OR MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN CON-
NECTION WITH THE OFFERINGS COVERED BY THIS PROSPECTUS. IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHO-
RIZED BY THE COMPANY OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE
AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, THE COMMON STOCK IN ANY
JURISDICTION WHERE, OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER
OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS
NOT BEEN ANY CHANGE IN THE FACTS SET FORTH IN THIS PROSPECTUS IN THE AFFAIRS OF
THE COMPANY SINCE THE DATE HEREOF.
IN THE PROSPECTUS, REFERENCES TO "DOLLARS" AND "$" ARE TO UNITED STATES
DOLLARS.
---------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary....................................................... 3
Summary Historical and Pro Forma Consolidated Financial Information...... 6
Risk Factors............................................................. 7
Use of Proceeds.......................................................... 12
Dividend Policy.......................................................... 12
Dilution................................................................. 13
Capitalization........................................................... 14
Selected Historical and Pro Forma Consolidated Financial Information..... 15
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 16
Business................................................................. 20
Management............................................................... 27
Principal Stockholders................................................... 32
Description of Capital Stock............................................. 34
Certain Charter and By-Law Provisions.................................... 35
Shares Eligible for Future Sale.......................................... 38
Certain United States Federal Tax Considerations......................... 39
Underwriting............................................................. 42
</TABLE>
---------------
UNTIL , 1998 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO
DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR
UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
7,000,000 SHARES
[LOGO]
UNITED RENTALS, INC.
COMMON STOCK
---------------
PROSPECTUS
---------------
MERRILL LYNCH INTERNATIONAL
DONALDSON, LUFKIN & JENRETTE
INTERNATIONAL
DEUTSCHE MORGAN GRENFELL
, 1997
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
<TABLE>
<S> <C>
SEC Registration Fee.......................................... $ 34,152
Listing Fee*.................................................. $ 172,000
NASD Filing Fee............................................... $ 11,770
Accounting Fees and Expenses*................................. $ 400,000
Printing and Engraving Expenses*.............................. $ 200,000
Legal Fees and Expenses (other than blue sky)*................ $ 400,000
Blue Sky Fees and Expenses*................................... $ 5,000
Transfer Agent and Registrar Fees*............................ $ 5,000
Miscellaneous Expenses*....................................... $ 262,000
----------
Total*........................................................ $1,489,922
==========
</TABLE>
- --------
* Estimated.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Certificate of Incorporation (the "Certificate") of the Company provides
that a director will not be personally liable to the Company or its
stockholders for monetary damages for breach of fiduciary duty as a director,
except for liability (i) for any breach of the director's duty of loyalty to
the corporation or its stockholders, (ii) for acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law,
(iii) under Section 174 of the Delaware General Corporation Law (the "Delaware
Law"), which concerns unlawful payments of dividends, stock purchases or
redemptions, or (iv) for any transaction from which the director derived an
improper personal benefit. If the Delaware Law is subsequently amended to
permit further limitation of the personal liability of directors, the
liability of a director of the Company will be eliminated or limited to the
fullest extent permitted by the Delaware Law as amended.
The Registrant, as a Delaware corporation, is empowered by Section 145 of
the Delaware Law, subject to the procedures and limitation stated therein, to
indemnify any person against expenses (including attorneys' fees), judgments,
fines and amounts paid in settlement actually and reasonably incurred by him
in connection with any threatened, pending or completed action, suit or
proceeding in which such person is made a party by reason of his being or
having been a director, officer, employee or agent of the Registrant. The
statute provides that indemnification pursuant to its provisions is not
exclusive of other rights of indemnification to which a person may be entitled
under any by-law, agreement, vote of stockholders or disinterested directors,
or otherwise. The Company has entered into indemnification agreements with
each of its directors and officers. In general, these agreements require the
Company to indemnify each of such persons against expenses, judgments, fines,
settlements and other liabilities incurred in connection with any proceeding
(including a derivative action) to which such person may be made a party by
reason of the fact that such person is or was a director, officer or employee
of the Company or guaranteed any obligations of the Company, provided that the
right of an indemnitee to receive indemnification is subject to the following
limitations: (i) an indemnitee is not entitled to indemnification unless he
acted in good faith and in a manner that he reasonably believed to be in or
not opposed to the best interests of the Company, and, with respect to any
criminal action or proceeding, had no reasonable cause to believe such conduct
was unlawful and (ii) in the case of a derivative action, an indemnitee is not
entitled to indemnification in the event that he is judged in a final non-
appealable decision of a court of competent jurisdiction to be liable to the
Company due to willful misconduct in the performance of his duties to the
Company (unless and only to the extent that the court determines that the
indemnitee is fairly and reasonably entitled to indemnification).
Pursuant to Section 145 of the Delaware Law, the Registrant has purchased
insurance on behalf of its present and former directors and officers against
any liability asserted against or incurred by them in such capacity or arising
out of their status as such.
II-1
<PAGE>
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
Set forth below is a listing of all sales by the Company of unregistered
securities since the Company was incorporated on August 14, 1997. All such
sales were exempt from registration under the Securities Act of 1933, as
amended (the "Act"), pursuant to Section 4(2) of the Act (and, in the case of
the private placement described in paragraph 3 below, Regulation D
thereunder), as they were transactions not involving a public offering. The
Company believes that each of the issuances made pursuant to Section 4(2) was
made to a sophisticated investor, who had the financial resources to bear the
risk of the investment and who had the means and opportunity to obtain
information concerning the Company. The consideration paid to the Company in
respect of each issuance was cash, unless otherwise indicated. All sales
described below were made by the Company without the assistance of any
underwriters.
1. In September, October and November 1997, the Company issued an
aggregate of 12,905,714 shares of Common Stock and 6,342,858 warrants to
certain officers of the Company (including, in certain cases, one or more
entities controlled by the officer) for an aggregate amount of $46.95
million as described under "Management--Capital Contributions by Officers
and Directors" in the prospectus which is a part of this Registration
Statement.
2. In October 1997, the Company sold an aggregate of 112,857 shares of
Common Stock to four employees of the company and one consultant at a price
of $3.50 per share.
3. In September 1997, the Company in a private placement sold an
aggregate of 3,028,873 shares of Common Stock, at a price of $3.50 per
share, to 51 accredited investors. Such sale was made in accordance with
Regulation D promulgated under the Act.
4. In October 1997, the Company issued 318,712 shares of Common Stock as
part of the consideration for the acquisition by the Company of one of the
Initial Acquired Companies. The number of such shares is subject to
adjustment as described under "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Consideration for Initial
Acquired Companies."
5. In October 1997, the Company issued a convertible note in the
principal amount of $300,000 as part of the consideration for the
acquisition of one of the Initial Acquired Companies.
6. In October and November 1997, options with respect to 762,500 shares
of Common Stock were granted to employees of the Company. Such options have
exercise prices ranging from $10.00 per share to $30.00 per share and a
weighted average exercise price of $12.36 per share.
ITEM 16. EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
-------- -----------------------
<C> <S>
1(a)* Form of United States Purchase Agreement
1(b)* Form of International Purchase Agreement
3(a)** Amended and Restated Certificate of Incorporation of the Company, in
effect as of the date hereof
3(b)** By-laws of the Company, in effect as of the date hereof
4* Form of Common Stock Certificate
5* Opinion of Ehrenreich & Krause
10(a)** $55 Million Revolving Credit Facility, dated as of October 8, 1997,
between the Company, various financial institutions, and Bank of
America National Trust and Savings Association, as agent, together
with the First Amendment thereto dated October 17, 1997 and the
Second Amendment thereto dated October 24, 1997
10(b)** 1997 Stock Option Plan
10(c)** Form of Warrant Agreement(1)
10(d)** Form of Private Placement Purchase Agreement entered into by certain
officers of the Company in connection with purchasing shares and
warrants from the Company(2)
10(e)** Form of Subscription Agreement for September 1997 Private
Placement(3)
10(f)** Form of Indemnification Agreement for Officers and Directors of the
Company
10(g)*** Employment Agreement between the Company and Bradley S. Jacobs, dated
as of September 19, 1997
10(h)*** Employment Agreement between the Company and John N. Milne, dated as
of September 19, 1997
10(i)** Employment Agreement between the Company and Michael J. Nolan, dated
as of October 14, 1997
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
-------- -----------------------
<C> <S>
10(j)** Employment Agreement between the Company and Robert P. Miner, dated
as of October 10, 1997
10(k)** Stock Purchase Agreement, dated as of October 24, 1997, among the
Company and the shareholders of Mercer Equipment Company+
10(l)** Stock Purchase Agreement, dated as of October 24, 1997, among the
Company and the shareholders of Bronco Hi-Lift Inc.+
10(m)** Stock Purchase Agreement, dated as of October 24, 1997, among the
Company and Coran Enterprises, Inc., Monterey Bay Equipment Rentals,
Inc., James M. Shade, Carol A. Shade, James M. Shade and Carol Anne
Shade, Trustees under the James M. Shade and Carol A. Shade Trust
Agreement dated September 14, 1982, Randall Shade and Corey Shade.+
10(n)** Stock Purchase Agreement, dated as of October 24, 1997, among the
Company and the shareholders of Rent-It Center, Inc.+
10(o)** Stock Purchase Agreement, dated as of October 20, 1997, among the
Company and A&A Tool Rentals & Sales, Inc., Joseph E. Doran, Patrick
J. Doran, and A&A Tool Rentals & Sales, Inc. Employee Stock Ownership
Plan.+
10(p)** Agreement and Plan of Merger, dated as of October 23, 1997, among the
Company, UR Acquisition Subsidiary, Inc. and J&J Rental Services,
Inc.
10(q)*** Convertible Note dated October 24, 1997
10(r)*** Subscription Agreement dated November 14, 1997, between Wayland R.
Hicks and the Company
10(s)*** Agreement dated November 14, 1997, between the Company and Wayland R.
Hicks
11*** Statement re: Computation of per share earnings
21** Subsidiaries of the Registrant
23(a)* Consent of Ehrenreich & Krause (included in opinion filed as Exhibit
5)
23(b)* Consent of Weil, Gotshal & Manges LLP
23(c)*** Consent of Ernst & Young LLP
23(d)*** Consent of Ernst & Young LLP
23(e)*** Consent of Ernst & Young LLP
23(f)** Consent of KPMG Peat Marwick
23(g)** Consent of Webster Duke & Co. PA
23(h)** Consent of Grant Thornton LLP
24 Power of Attorney (included in Part II of the original Registration
Statement under the caption "Signatures")
27 Financial Data Schedule
</TABLE>
- --------
* To be filed by amendment.
** Previously filed.
*** Filed herewith.
+ Filed without exhibits and schedules (to be provided supplementally upon
request of the Commission).
(1) The Company issued a warrant in this form to the following officers of the
Company (or in certain cases to an entity controlled by such officer) for
the number of shares indicated: Bradley S. Jacobs (5,000,000); John N.
Milne (714,286); Michael J. Nolan (285,715); Robert P. Miner (142,857);
Sandra E. Welwood (50,000); Joseph J. Kondrup, Jr. (50,000); Kai E. Nyby
(50,000); and Richard A. Volonino (50,000).
(2) Each officer of the Company who purchased securities prior to the date
hereof, other than Messrs. Jacobs and Hicks, entered into a Private
Placement Purchase Agreement in this form (modified, in the case of Kurtis
T. Barker, to reflect the fact that Mr. Barker did not purchase Warrants)
with respect to the shares of Common Stock and Warrants purchased by such
officer from the Company as described under "Management--Capital
Contributions by Officers and Directors."
(3) Each purchaser of shares in the Company's September 1997 private placement
of 3,028,873 shares of Common Stock entered into a Subscription Agreement
in this form with respect to the shares purchased.
II-3
<PAGE>
ITEM 17. UNDERTAKINGS.
The undersigned Registrant undertakes to provide to the Underwriter at the
closing specified in the underwriting agreement certificates in such
denominations and registered in such names as required by the underwriter to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the
Registrant in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with
the securities being registered, the Registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Act and will be governed by
the final adjudication of such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of
a registration statement in reliance upon Rule 430A and contained in the
form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act of 1933 shall be deemed to be part
of this registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-4
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS AMENDMENT NO. 1 TO REGISTRATION STATEMENT TO BE SIGNED ON
ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF NEW
YORK, STATE OF NEW YORK, ON NOVEMBER 17, 1997.
United Rentals, Inc.
/s/ Michael J. Nolan
By: __________________________________
MICHAEL J. NOLANCHIEF FINANCIAL
OFFICER
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS REGISTRATION
STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THEIR RESPECTIVE
CAPACITIES AND ON THE RESPECTIVE DATES SET FORTH OPPOSITE THEIR NAMES.
SIGNATURE TITLE DATE
/s/ Chairman, Chief
* Executive Officer November 17,
- ------------------------------------ and Director 1997
BRADLEY S. JACOBS (Principal
Executive Officer)
/s/ Director
* November 17,
- ------------------------------------ 1997
JOHN N. MILNE
Director
November ,
- ------------------------------------ 1997
RONALD M. DEFEO
/s/ Director
* November 17,
- ------------------------------------ 1997
RICHARD J. HECKMANN
/s/ Michael J. Nolan Chief Financial
- ------------------------------------ Officer (Principal November 17,
MICHAEL J. NOLAN Financial Officer) 1997
/s/ Sandra E. Welwood Vice President,
____________________________________ Corporate November 17,
SANDRA E. WELWOOD Controller 1997
(Principal
Accounting
Officer)
Michael J. Nolan
*By: __________________________
MICHAEL J. NOLAN ATTORNEY-IN-FACT
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT PAGE
NUMBER DESCRIPTION OF EXHIBITS NUMBER
-------- ----------------------- ------
<C> <S> <C>
1(a)* Form of U.S. Purchase Agreement
1(b)* Form of International Purchase Agreement
3(a)** Amended and Restated Certificate of Incorporation of the
Company, in effect as of the date hereof
3(b)** By-laws of the Company, in effect as of the date hereof
4* Form of Common Stock Certificate
5* Opinion of Ehrenreich & Krause
10(a)** $55 Million Revolving Credit Facility, dated as of October
8, 1997, between the Company, various financial
institutions, and Bank of America National Trust and Savings
Association, as agent, together with the First Amendment
thereto dated October 17, 1997 and the Second Amendment
thereto dated October 24, 1997
10(b)** 1997 Stock Option Plan
10(c)** Form of Warrant Agreement(1)
10(d)** Form of Private Placement Purchase Agreement entered into by
certain officers of the Company in connection with
purchasing shares and warrants from the Company(2)
10(e)** Form of Subscription Agreement for September 1997 Private
Placement(3)
10(f)** Form of Indemnification Agreement for Officers and Directors
of the Company
10(g)*** Employment Agreement between the Company and Bradley S.
Jacobs, dated as of September 14, 1997
10(h)*** Employment Agreement between the Company and John N. Milne,
dated as of September 14, 1997
10(i)** Employment Agreement between the Company and Michael J.
Nolan, dated as of October 14, 1997
10(j)** Employment Agreement between the Company and Robert P.
Miner, dated as of October 10, 1997
10(k)** Stock Purchase Agreement, dated as of October 24, 1997,
among the Company and the shareholders of Mercer Equipment
Company+
10(l)** Stock Purchase Agreement, dated as of October 24, 1997,
among the Company and the shareholders of Bronco Hi-Lift
Inc.+
10(m)** Stock Purchase Agreement, dated as of October 24, 1997,
among the Company and Coran Enterprises, Inc., Monterey Bay
Equipment Rentals, Inc., James M. Shade, Carol A. Shade,
James M. Shade and Carol Anne Shade, Trustees under the
James M. Shade and Carol A. Shade Trust Agreement dated
September 14, 1982, Randall Shade and Corey Shade.+
10(n)** Stock Purchase Agreement, dated as of October 24, 1997,
among the Company and the shareholders of Rent-It Center,
Inc.+
10(o)** Stock Purchase Agreement, dated as of October 20, 1997,
among the Company and A&A Tool Rentals & Sales, Inc., Joseph
E. Doran, Patrick J. Doran, and A&A Tool Rentals & Sales,
Inc. Employee Stock Ownership Plan.+
10(p)** Agreement and Plan of Merger, dated as of October 23, 1997,
among the Company, UR Acquisition Subsidiary, Inc. and J&J
Rental Services, Inc.+
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT PAGE
NUMBER DESCRIPTION OF EXHIBITS NUMBER
-------- ----------------------- ------
<C> <S> <C>
10(q)*** Convertible Note dated October 24, 1997
10(r)*** Subscription Agreement dated November 14, 1997, between
Wayland R. Hicks and the Company
10(s)*** Agreement dated November 14, 1997, between the Company and
Wayland R. HIcks
11*** Statement re: Computation of per share earnings
21** Subsidiaries of the Company
23(a)* Consent of Ehrenreich & Krause (included in opinion filed as
Exhibit 5
23(b)* Consent of Weil, Gotshal & Manges LLP
23(c)*** Consent of Ernst & Young LLP
23(d)*** Consent of Ernst & Young LLP
23(e)*** Consent of Ernst & Young LLP
23(f)** Consent of KPMG Peat Marwick
23(g)** Consent of Webster Duke & Co. PA
23(h)** Consent of Grant Thornton LLP
24 Power of Attorney (included in Part II of the original
Registration Statement under the caption "Signatures")
27 Financial Data Schedule
</TABLE>
- --------
* To be filed by amendment.
** Previously filed
*** Filed herewith
+ Filed without exhibits and schedules (to be provided supplementally upon
request of the Commission).
(1) The Company issued a warrant in this form to the following officers of the
Company (or in certain cases to an entity controlled by such officer) for
the number of shares indicated: Bradley S. Jacobs (5,000,000); John N.
Milne (714,286); Michael J. Nolan (285,715); Robert P. Miner (142,857);
Sandra E. Welwood (50,000); Joseph J. Kondrup, Jr. (50,000); Kai E. Nyby
(50,000); and Richard A. Volonino (50,000).
(2) Each officer of the Company who purchased securities prior to the date
hereof, other than Messrs. Jacobs and Hicks, entered into a Private
Placement Purchase Agreement in this form (modified, in the case of Kurtis
T. Barker, to reflect the fact that Mr. Barker did not purchase Warrants)
with respect to the shares of Common Stock and Warrants purchased by such
officer from the Company as described under "Management--Capital
Contributions by Officers and Directors."
(3) Each purchaser of shares in the Company's September 1997 private placement
of 3,028,873 shares of Common Stock entered into a Subscription Agreement
in this form with respect to the shares purchased.
<PAGE>
EXHIBIT 10(g)
EMPLOYMENT AGREEMENT dated as of September 19, 1997, between UNITED
RENTALS, INC., a Delaware corporation (the "Company"), and BRADLEY S. JACOBS
("Executive").
PREAMBLE
--------
The parties hereto desire to enter into this Agreement in order to set
forth the terms pursuant to which the Company will employ Executive and
Executive will serve as an employee of the Company. Accordingly, in
consideration of the mutual agreements set forth herein and other good and
valuable consideration, the receipt and sufficiency of which is mutually
acknowledged, the parties hereto agree as follows:
1. Employment and Duties.
----------------------
During the Term (as hereinafter defined), the Company shall employ
Executive as Chairman and Chief Executive Officer of the Company on the terms
and conditions herein set forth. Executive shall have such reasonable executive
duties compatible with his position as is set forth in the Company's by-laws.
2. Compensation and Other Benefits. For all services rendered by
-------------------------------
Executive to or on behalf of the Company or its affiliates during the term
hereof, the Company shall compensate Executive as follows:
(a) Effective as of the date hereof, the base salary payable to Executive
shall be $290,000 per annum (the "Initial Base Salary"), payable bi-weekly in
arrears in accordance with the Company's normal payroll policies. At the end of
each calendar year during the Term, the base salary payable to Executive shall
be increased, if applicable, by adding to the then current base salary the sum,
if any, determined by multiplying the then current base salary by the percentage
that the Consumer Price Index, as prepared by the Bureau of Labor Statistics of
the Department of Labor of the United States for the city in which the Company's
principal place of business is located, or at Executive's option, where
Executive's principal residence is located, entitled "Urban Wage Earners &
Clerical Workers" for the calendar year then ended, has increased over the index
from the previous calendar year (the Initial Base Salary and any increases
thereto shall be referred to herein as the "Base Salary"). In addition, the
Base Salary may be increased from time to time and in such amounts as the
Compensation Committee of the Company may, in its sole discretion, approve. The
official action of the Board of Directors increasing the Base Salary, if any,
shall be deemed to amend the amount of the Base Salary stated in this paragraph
2(a). In addition to the Base Salary, the Company may, in the sole discretion
of its Board of Directors, pay Executive additional bonus or other incentive
compensation.
(b) Executive shall be entitled to three (3) weeks of paid vacation during
each twelve-month period of his employment hereunder to be scheduled for times
mutually acceptable to
1
<PAGE>
Executive and the Company and otherwise in accordance with vacation policies
established by the Company. If Executive does not use all of such paid vacation
during such twelve-month period, Executive shall be entitled to elect to (i)
take such unused portion of vacation during the next succeeding twelve-month
period (in addition to the three (3) weeks of vacation that Executive is
entitled to during such period), or (ii) receive payment at such time for any
unused vacation days for such period. The Company shall pay Executive at the
rate of his then current Base Salary for any unused vacation at the termination
of this Agreement.
(c) Executive shall be entitled to receive additional benefits and
compensation from the Company in such form and only to the extent explicitly set
forth below:
(i) During the Term, Executive shall be entitled to participate in the
Company's pension, group life, medical and other insurance, thrift, savings,
deferred compensation, automobile allowance (in no event less than $700 per
month) and all other Company employee benefit plans, fringe benefits and
allowances, as may from time to time be made available to the Company's Chief
Executive Officer, Chief Acquisition Officer, Chief Operating Officer or Chief
Financial Officer by the Board of Directors.
(ii) Executive may incur reasonable business expenses while on Company
business, including expenses for hotels, meals, air travel, telephone,
automobile, gasoline and similar items. Executive may also incur reasonable
moving expenses and living and traveling expenses in the event that the Company
requires Executive to maintain his office outside of Greenwich, Connecticut,
for expenses, brokerage commissions, relocation expenses and other expenses
incurred by Executive and/or members of his family at any time during the Term
(A) in obtaining and maintaining temporary housing or other living
accommodations in the location in which Executive is required by the Company to
maintain his office, which temporary housing or other living accommodations are
satisfactory to Executive and consistent with Executive's current standard of
living, or (B) in traveling between Executive's then-existing home and such
location. The Company shall either pay such reasonable out-of-pocket expenses
directly or promptly reimburse Executive for such reasonable out-of-pocket
expenses incurred by Executive upon presentation of receipts and an itemized
accounting of the expenses for which reimbursement is sought and any other
documentation necessary to comply with applicable Internal Revenue Service rules
and regulations.
(d) All unvested Options shall automatically vest on a Change of Control.
For purposes of this paragraph, the following terms have the following meanings:
"Options" means any and all options to purchase shares of common stock
which are at any time hereafter granted by the Company to Executive, whether
under the Company's 1997 Stock Option Plan or otherwise.
"Affiliate" with respect to any person means a person that controls, is
controlled by, or is under common control with such person.
2
<PAGE>
"Change of Control" shall be deemed to have occurred if:
(i) any "person" is or becomes a "beneficial owner" (as defined in Rule
13d-3 under the Securities Exchange Act of 1934 (the "Act")) directly
or indirectly, of securities of United Rentals, Inc. representing 50%
or more of the total voting power represented by then outstanding
voting securities of United Rentals, Inc., or has the power (whether
as a result of stock ownership, revocable or irrevocable proxies,
contract or otherwise) or ability to elect or cause the election of
directors consisting at the time of such election of a majority of
the Board. The term "persons" is defined in Sections 13(d) and 14(d)
of the Act, except that the term "person" shall not include:
(1) any person or an Affiliate of such person who as of the
date of this Agreement owns 10% or more of the total voting
power represented by the outstanding voting securities of
the Company; and
(2) a trustee or other fiduciary holding securities under any
employee benefit plan of the Company or a corporation which
is owned directly or indirectly by the stockholders of the
Company in substantially the same percentage as their
ownership in the Company; or
(ii) the stockholders of United Rentals, Inc. approve a merger of United
Rentals, Inc., or a plan of complete liquidation of United Rentals,
Inc., or an agreement for the sale or disposition by United Rentals,
Inc. of all or substantially all of its assets, or any other
business combination of United Rentals, Inc. with any other
corporation, other than any such merger or business combination
which would result in the voting securities of United Rentals, Inc.
outstanding immediately prior thereto continuing to represent
(either by remaining outstanding or by being converted into voting
securities of the surviving entity) at least 50% of the total voting
power represented by the voting securities of United Rentals, Inc.
or such surviving entity outstanding immediately after such merger
or business combination.
3. Non-Competition and Confidentiality Agreement.
---------------------------------------------
(a) Subject to the following sentence, Executive will not, during the Term,
and for a period of twelve (12) months immediately following the termination of
this Agreement, directly or indirectly, for himself or on behalf of or in
conjunction with any other person, persons, company, partnership, corporation or
business of whatever nature: establish, enter into, be employed by or for,
advise, consult with or become a part of, any company, partnership, corporation
or other business entity or venture, or in any way engage in business for
himself or for others, in competition with the Company within a 200-mile radius
of any equipment rental location owned by the Company during the Term. If this
Agreement is terminated by reason of the provisions of paragraph 6(a)(iii)
(excluding termination by Executive for Disability pursuant to clause (C) of
3
<PAGE>
such paragraph), Executive shall not be subject to any non-competition or
similar restrictions whatsoever following termination of this Agreement.
During and after the Term, Executive shall not knowingly, without the prior
written consent of the Company which consent shall not be unreasonably withheld,
use for his own benefit or disclose to any person, company, partnership,
corporation or business for any reason or purpose whatsoever, any confidential
information of the Company. For the purposes hereof, confidential information
will not include any information which is in the public domain or known to other
unrelated parties in the Company's industry other than as a result of
Executive's breach of this provision.
(b) Because of the difficulty of measuring economic losses to the Company
as a result of breach by Executive of the foregoing covenants, and because of
the immediate and irreparable damage that might be caused to the Company for
which it would have no other adequate remedy, Executive agrees that, without
limiting the remedies available to the Company, the foregoing covenants may be
enforced by the Company by injunctions and restraining orders.
(c) The parties agree that the covenants in this paragraph 3 impose a
reasonable restraint on Executive in light of the activities and business of the
Company on the date of his Agreement, and the Company and Executive intend that
such covenants shall subsequently be construed and enforced in light of the
activities and business of the Company on the date of the termination of the
employment of Executive.
(d) The covenants in this paragraph 3 are intended to be severable and
separate, and the unenforceability of any specific covenant shall not affect the
enforceability of any other covenant.
4. Company Property. Executive recognizes and acknowledges that he will
----------------
have access to various confidential or proprietary information concerning the
Company and its affiliates which is of a special and unique value to the Company
and that all such information is and shall remain the property of the Company.
Notwithstanding the foregoing, Executive shall have the right to retain such
records, notes and other information pertaining to the Company's business which
do not contain confidential information.
5. Intellectual Property. Executive shall disclose promptly to the
---------------------
Company any and all conceptions and ideas for inventions, improvements and
valuable discoveries, whether patentable or not, which are conceived or made by
Executive solely of jointly with another during the Term, and which are related
to the business or activities of the Company or which Executive conceives as a
result of his employment by the Company, and Executive hereby assigns and agrees
to assign all his interests therein to the Company or its nominee. Whenever
requested to do so by the Company, Executive shall execute any and all
applications, assignments or other instruments that the Company shall deem
necessary to evidence such assignment to the Company or to apply for and obtain
Letters Patent of the United States or any foreign country or to otherwise
protect the Company's interest in such intellectual property. The obligations
set forth in this paragraph 5
4
<PAGE>
shall continue beyond the termination of this Agreement with respect to
inventions, improvements, and valuable discoveries, whether patentable or not,
conceived or made by Executive during the Term and shall be binding upon
Executive and his assigns, executors, administrators and other legal
representatives.
6. Term; Termination; Rights of Termination.
----------------------------------------
(a) Subject to the provisions for termination otherwise included in this
Agreement, the term of Executive's employment hereunder shall be for a period of
five (5) years and thirty (30) days commencing as of the date hereof (the
"Term"). The Term shall automatically be renewed on the same terms and
conditions contained herein at the end of each thirty-day period such that at no
time will the balance of the Term be less than a period of five (5) years. This
Agreement may terminate in any one of the following ways:
(i) A notice of resignation by Executive presented to the Company other
than as contemplated in paragraph 6(a)(iii);
(ii) A notice by the Company to Executive of termination for cause
("Cause"), which means: (A) Executive's willful and continued failure to
perform substantially his duties with the Company or any affiliate (other than
any such failure resulting from Executive's Disability (as hereinafter defined)
or any such failure resulting from Executive's termination for Good Reason (as
defined below)), after a written demand for substantial performance is delivered
to Executive by the Board of Directors of the Company which specifically
identifies the manner in which the Board of Directors believes that Executive
has not performed his duties and the failure of Executive to reasonably comply
with such demand within thirty (30) days of notice to Executive, or (B)
Executive's willful engagement in gross conduct materially and demonstrably
injurious to the Company or any affiliate which is not cured by Executive within
thirty (30) days of notice to Executive. For purposes of this subsection, no
act or failure to act on Executive's part shall be considered "willful" unless
done, or omitted to be done, by Executive not in good faith and without belief
that his action or omission was in the best interest of the Company or any
affiliate. Executive shall not be deemed to have been terminated for Cause
unless and until there shall have been delivered to Executive a copy of a
resolution duly adopted by the affirmative vote or not less than two-thirds of
the entire membership of the Board of Directors of the Company finding that in
the good faith opinion of the Board of Directors Executive was guilty of conduct
set forth in clauses (A) or (B) of this subparagraph (ii) and specifying the
particulars thereof in detail;
(iii) (A) a notice by the Company to Executive of termination without
cause, (B) termination as a result of Executive's death, (C) a notice of
termination due to Disability given by the Company to Executive or by Executive
to the Company or (D) a notice by the Executive of termination (I) for Good
Reason, or (II) due to the Company's material breach of this Agreement that
continues during the thirty (30) days after Executive gives written notice to
the Company of such breach, which notice specifically identifies the manner in
which Executive believes that the Company breached this Agreement. If this
Agreement is terminated pursuant to this paragraph 6(a)(iii), the Company shall
be obligated to pay to Executive a severance payment equal to five
5
<PAGE>
times the sum of (x) the Executive's annual Base Salary in effect at the time of
termination plus (y) the highest annual cash bonus (if any) paid by the Company
to Executive during the three-year period preceding the date of termination.
Such severance payment shall be payable in a lump sum payment within fifteen
(15) days of the termination of Executive's employment. In addition, for the
five-year period following Executive's termination, the Company shall be
obligated to continue to provide Executive with life, health, disability and
accident insurance benefits and all other executive benefits (including, without
limitation, retirement benefits and automobile and expense allowances)
comparable to those provided to Executive prior to his termination. To the
extent Executive is no longer lawfully eligible for any aforementioned benefit
because he is no longer employed by the Company, the Company shall pay to
Executive a lump sum cash payment equal to the present value of the benefits
that would have been provided to Executive had his employment continued for such
five-year period. For purposes of this Agreement, the term "Disability" shall
mean Executive's inability to perform his material duties under this Agreement
because of any illness or physical or mental disability or other incapacity as
evidenced by a written statement of a physician licensed to practice medicine in
any state in the United States mutually agreed upon by the Company and Executive
which disability or other incapacity continues for a period in excess of six (6)
consecutive months in any consecutive twelve-month period.
(b) Upon termination of this Agreement for any reason whatsoever, in
addition to any other rights which Executive may have hereunder, Executive shall
be entitled to receive all of his Base Salary and a pro-rated portion of his
minimum annual bonus under this Agreement to the date of termination and any
unused paid vacation earned as determined pursuant to paragraph 2(b).
(c) In the event of termination of this Agreement for any reason
whatsoever, all rights and obligations of the Company and Executive under this
Agreement shall cease immediately, except for those which by their terms
specifically apply to periods following the termination of this Agreement as
arise by reason of such termination, and thereafter Executive shall have no
right to receive any compensation hereunder except, under appropriate
circumstances, as set forth in paragraphs 6(a)(iii) and 6(b) hereof.
(d) For the purpose of this paragraph 6, "Good Reason" means any of the
following events unless it occurs with Executive's express prior written
consent: (i) the assignment to Executive of any duties inconsistent with, or a
diminution of, Executive's position, duties, titles, offices, responsibilities
and status with the Company, or any removal of Executive or any failure to
reelect Executive to any of such positions, including as Chief Executive Officer
and Chairman of the Board of Directors; (ii) a reduction in Executive's Base
Salary as in effect, from time to time, or a failure to increase Executive's
Base Salary as provided in this Agreement; (iii) except with respect to changes
required to maintain its tax-qualified status or changes generally applicable to
all employees of the Company, any failure by the Company to continue in effect
or make any provision for any benefit, stock option, annual bonus or contingent
loans arrangements, or other incentive plan or arrangement of any type in which
Executive is participating from time to time, the taking of which action would
adversely affect Executive's participation in or materially reduce Executive's
benefits under any such benefit plan or arrangement or deprive
6
<PAGE>
Executive of any material fringe benefit enjoyed by Executive from time to time,
or the failure to provide Executive with the number of paid vacation days to
which he is entitled; (iv) a substantial increase in Executive's business travel
obligations over such obligations as they exist during the first three months of
the Term; (v) a relocation of the Company's principal executive offices or
Executive's relocation to any place other than the location at which Executive
performed his duties as of the date hereof; or (vi) any failure by the Company
to obtain the assumption of this Agreement by any successor to or assignee of
the Company.
7. Taxes.
-----
(a) The payment of the Base Salary and any bonus or other incentive
compensation to Executive hereunder shall be subject to all federal, state and
local withholding taxes, social security deductions and any other required
payroll deductions.
(b) If all or any portion of the payments and benefits which Executive is
entitled to receive pursuant to the terms of this Agreement or any other plan,
arrangement or agreement in respect of the Company or its affiliates (the
"Payments") constitutes "excess parachute payments" within the meaning of
Section 280G of the Internal Revenue Code of 1986, as amended (the "Code"), that
are subject to the excise tax (the "Excise Tax") imposed by Section 4999 of the
Code (or similar tax and/or assessment), the Company (or its successors or
assigns) shall pay to Executive an additional amount ("Gross-Up Payment") such
that the net amount retained by Executive, after deduction of (i) any Excise
Tax on Payments, (ii) any federal, state and local income tax and Excise Tax
upon the payment provided for by this paragraph 7(b), and (iii) any interest and
penalties imposed in respect of the Excise Tax shall be equal to the full amount
of the Payments. For purposes of determining the amount of the Gross-Up
Payment, Executive shall be deemed to pay federal income taxes at the highest
marginal rate of federal income taxation in the calendar year in which the
Gross-Up Payment is to be made, and state and local income taxes at the highest
marginal rates of taxation in the state and locality of Executive's residence on
the date the Gross-Up Payment is to be made, net of the maximum reduction in
federal income taxes which could be obtained from deduction of such state and
local taxes.
(c) The Gross-Up Payment for any Payment made shall be paid to Executive
within ten (10) days after the Imposition of Excise Tax, unless the Company
undertakes to indemnify him as provided in paragraph 7(d). The "Imposition of
Excise Tax" shall mean the earliest of: (i) the issuance by the Internal
Revenue Service of a notice stating in effect that an Excise Tax is due with
respect to the Payment; (ii) Executive's delivery to the Company of an opinion
of tax counsel selected by Executive that all or a portion of the Payment is
subject to the Excise Tax and the amount of the Excise Tax on the Payment; or
(iii) the Company's delivery to Executive of an opinion of tax counsel selected
by the Company and acceptable to Executive that all or a portion of the Payment
is subject to the Excise Tax and the amount of the Excise Tax on the Payment.
(d) In lieu of paying the Gross-Up Payment for any Payment, the Company may
elect to undertake, at its sole expense, the defense and settlement of any
assessment by the Internal Revenue Service of the Excise Tax on any Payment. If
the Company so elects, the Company shall
7
<PAGE>
protect, defend, indemnify and hold Executive forever harmless from and against
the Excise Tax on such Payment and payments pursuant to this paragraph 7(d) and
any federal, state or local income tax (determined pursuant to the last sentence
of paragraph 7(b)) upon payments pursuant to this paragraph 7(d) and any and all
liabilities, demands, claims, actions, causes of action, assessments, losses,
costs, damages or expenses, including attorneys' and accountants' fees in
connection with any thereof, and any interest and penalties sustained by
Executive as a result of or arising out of or by virtue of the Company's
undertaking.
(e) If the Excise Tax is determined to be less than the amount taken into
account in determining the Gross-Up Payment paid pursuant to paragraph 7(c),
Executive shall repay to the Company, within ten (10) days after the time that
the amount of such reduction in Excise Tax is determined, the portion of the
Gross-Up Payment attributable to such reduction plus interest on the amount of
such repayment at the rate provided in section 1274(b)(2)(B) of the Code for
debt instruments with a maturity after issuance equal to the period beginning on
the date the Gross-Up Payment was made and ending on the date of repayment
required by this sentence. If the Excise Tax is determined to exceed the amount
taken into account in determining the Gross-Up Payment paid pursuant to
paragraph 7(c), the Company within ten (10) days after the time that the amount
of such excess Excise Tax is determined shall make an additional payment to
Executive of an amount equal to such excess plus an amount equal to any interest
and penalties payable to the Internal Revenue Service with respect to such
excess and any Excise Tax on payment pursuant to this sentence and any federal,
state and local income tax (determined pursuant to the last sentence of Section
7(b)) upon payments made pursuant to this sentence.
8. Company's Right To Amend. Executive acknowledges and agrees that the
------------------------
Company shall have the right to unilaterally amend any term and condition of
this Agreement to the extent such term and condition adversely affects the
ability of the Company to utilize the pooling of interest method of accounting
(the "Pooling Method") in any possible future transaction by the Company. The
Company agrees that it will amend such terms and conditions only to the extent
necessary to comply with the requirements for the use of the Pooling Method.
The right of the Company to unilaterally amend terms and conditions of this
Agreement pursuant to this Section 8 shall terminate in the event that at any
time Executive ceases for any reason to serve as the Chief Executive Officer of
the Company.
9. Complete Agreement. There are no oral representations, understandings
------------------
or agreements with the Company or any of its officers, directors or
representatives covering the same subject matter as this Agreement. This
written Agreement is the final, complete and exclusive statement and expression
of the agreement between the Company and Executive and of all the terms of this
Agreement, and it cannot be varied, contradicted or supplemented by evidence of
any prior or contemporaneous oral or written agreements. Except as otherwise
expressly provided herein, this written Agreement may not later be modified
except by a further writing signed by the Company and Executive, and no terms of
this Agreement may be waived except by a writing signed by the party waiving the
benefit of such term.
10. No Waiver. No waiver by the parties hereto of any default or breach
---------
of any
8
<PAGE>
term, condition or covenant of this Agreement shall be deemed to be a waiver of
any other term, condition or covenant contained herein or on any subsequent
default or breach of the same term, condition or covenant.
11. Binding Effect. This Agreement shall be binding upon and inure to
--------------
the benefit of the parties thereto and their respective heirs, executors,
administrators, representatives, successors and assigns.
12. Notice. Whenever any notice is required hereunder, it shall be
------
given in writing addressed as follows:
To the Company: United Rentals, Inc.
Four Greenwich Office Park
Greenwich, Connecticut 06830
Facsimile: (203) 622-6080
Attention: Human Resources
To the Executive: Bradley S. Jacobs
350 Round Hill Road
Greenwich, Connecticut 06830
with a copy to: Oscar D. Folger.
521 Fifth Avenue, 24th floor
New York, New York 10175
Facsimile: 212-697-7833
Notice shall be deemed given and effective (a) three (3) business days after the
deposit in the U.S. mail of a writing addressed as above and sent first class
mail, certified, return receipt requested, (b) when received by the addressee,
if sent by a nationally recognized air courier for next day delivery service
(receipt requested), or (c) upon personal delivery (with written confirmation of
receipt). Either party may change the address for notice by notifying the other
party of such change in accordance with this paragraph 12.
13. Severability; Headings. If any portion of this Agreement is held
----------------------
invalid or inoperative, the other portions of this Agreement shall be deemed
valid and operative, and so far as it is reasonable and possible, effect shall
be given to the intent manifested by the portion held invalid or inoperative.
The paragraph headings herein are for reference purposes only and are not
intended in any way to describe, interpret, define or limit the extent or intent
of this Agreement or any part hereof.
14. Governing Law; Forum Selection. This Agreement shall be construed in
------------------------------
all respects in accordance with the laws of the State of Connecticut, without
giving effect to its conflicts of laws principles. Any litigation instituted by
any party to this Agreement pertaining to
9
<PAGE>
this Agreement must be filed before a court of competent jurisdiction in
Connecticut or Delaware and both parties hereby consent irrevocably to the
jurisdiction of such courts over them.
15. Legal Fees and Expenses. The Company shall pay the reasonable legal
-----------------------
fees, costs and expenses incurred by Executive in connection with any action
arising under this Agreement, provided that any dispute or controversy between
the parties regarding this Agreement is resolved in any manner in favor of
Executive. Upon any initial determination in favor of Executive, the Company
shall advance to Executive an amount equal to Executive's previously incurred
legal fees and a reasonable estimate of any legal fees, costs and expenses which
may be incurred by Executive in connection with the final resolution of such
matter. This paragraph 15 shall not affect Executive's common-law or statutory
indemnification rights, or any agreements or other arrangements between the
parties relating to indemnification.
IN WITNESS WHEREOF, the undersigned have executed this Agreement on the
date first above written.
UNITED RENTALS, INC.
By:
-----------------------------------------
Michael J. Nolan, Chief Financial Officer
-----------------------------------------
Bradley S. Jacobs
10
<PAGE>
EXHIBIT 10(h)
EMPLOYMENT AGREEMENT dated as of September 19, 1997, between UNITED
RENTALS, INC., a Delaware corporation (the "Company"), and JOHN N. MILNE
("Executive").
PREAMBLE
--------
The parties hereto desire to enter into this Agreement in order to set
forth the terms pursuant to which the Company will employ Executive and
Executive will serve as an employee of the Company. Accordingly, in
consideration of the mutual agreements set forth herein and other good and
valuable consideration, the receipt and sufficiency of which is mutually
acknowledged, the parties hereto agree as follows:
1. Employment and Duties.
----------------------
During the Term (as hereinafter defined), the Company shall employ
Executive as Vice Chairman, Chief Acquisition Officer and Secretary of the
Company, or any one or more of such positions, or any other positions, as
determined from time to time by the Company's Board of Directors. Executive
shall have such duties and authorities as is provided for in the Company's by-
laws.
2. Compensation and Other Benefits. For all services rendered by
-------------------------------
Executive to or on behalf of the Company or its affiliates during the term
hereof, the Company shall compensate Executive as follows:
(a) Effective as of the date hereof, the base salary payable to Executive
shall be $190,000 per annum (the "Initial Base Salary"), payable bi-weekly in
arrears in accordance with the Company's normal payroll policies. At the end of
each calendar year during the Term, the base salary payable to Executive shall
be increased, if applicable, by adding to the then current base salary the sum,
if any, determined by multiplying the then current base salary by the percentage
that the Consumer Price Index, as prepared by the Bureau of Labor Statistics of
the Department of Labor of the United States for the city in which the Company's
principal place of business is located, or at Executive's option, where
Executive's principal residence is located, entitled "Urban Wage Earners &
Clerical Workers" for the calendar year then ended, has increased over the index
from the previous calendar year (the Initial Base Salary and any increases
thereto shall be referred to herein as the "Base Salary"). In addition, the
Base Salary may be increased from time to time and in such amounts as the
Compensation Committee of the Company may, in its sole discretion, approve. The
official action of the Board of Directors increasing the Base Salary, if any,
shall be deemed to amend the amount of the Base Salary stated in this paragraph
2(a). In addition to the Base Salary, the Company may, in the sole discretion
of its Board of Directors, pay Executive additional bonus or other incentive
compensation.
(b) Executive shall be entitled to three (3) weeks of paid vacation during
each twelve-month period of his employment hereunder to be scheduled for times
mutually acceptable to
1
<PAGE>
Executive and the Company and otherwise in accordance with vacation policies
established by the Company. If Executive does not use all of such paid vacation
during such twelve-month period, Executive shall be entitled to elect to (i)
take such unused portion of vacation during the next succeeding twelve-month
period (in addition to the three (3) weeks of vacation that Executive is
entitled to during such period), or (ii) receive payment at such time for any
unused vacation days for such period. The Company shall pay Executive at the
rate of his then current Base Salary for any unused vacation at the termination
of this Agreement.
(c) Executive shall be entitled to receive additional benefits and
compensation from the Company in such form and only to the extent explicitly set
forth below:
(i) During the Term, Executive shall be entitled to participate in
the Company's pension, group life, medical and other insurance, thrift, savings,
deferred compensation, automobile allowance (in no event less than $700 per
month) and all other Company employee benefit plans, fringe benefits and
allowances, as may from time to time be made available to the Company's Chief
Acquisition Officer, Chief Executive Officer, Chief Operating Officer or Chief
Financial Officer by the Board of Directors.
(ii) Executive may incur reasonable business expenses while on Company
business, including expenses for hotels, meals, air travel, telephone,
automobile, gasoline and similar items. Executive may also incur reasonable
moving expenses and living and traveling expenses in the event that the Company
requires Executive to maintain his office outside of Greenwich, Connecticut,
for expenses, brokerage commissions, relocation expenses and other expenses
incurred by Executive and/or members of his family at any time during the Term
(A) in obtaining and maintaining temporary housing or other living
accommodations in the location in which Executive is required by the Company to
maintain his office, which temporary housing or other living accommodations are
satisfactory to Executive and consistent with Executive's current standard of
living, or (B) in traveling between Executive's then-existing home and such
location. The Company shall either pay such reasonable out-of-pocket expenses
directly or promptly reimburse Executive for such reasonable out-of-pocket
expenses incurred by Executive upon presentation of receipts and an itemized
accounting of the expenses for which reimbursement is sought and any other
documentation necessary to comply with applicable Internal Revenue Service rules
and regulations.
(d) All unvested Options shall automatically vest on a Change of Control.
For purposes of this paragraph, the following terms have the following meanings:
"Options" means any and all options to purchase shares of common stock
which are at any time hereafter granted by the Company to Executive, whether
under the Company's 1997 Stock Option Plan or otherwise.
"Affiliate" with respect to any person means a person that controls, is
controlled by, or is under common control with such person.
2
<PAGE>
"Change of Control" shall be deemed to have occurred if:
(i) any "person" is or becomes a "beneficial owner" (as defined in Rule
13d-3 under the Securities Exchange Act of 1934 (the "Act")) directly
or indirectly, of securities of United Rentals, Inc. representing 50%
or more of the total voting power represented by then outstanding
voting securities of United Rentals, Inc., or has the power (whether
as a result of stock ownership, revocable or irrevocable proxies,
contract or otherwise) or ability to elect or cause the election of
directors consisting at the time of such election of a majority of
the Board. The term "persons" is defined in Sections 13(d) and 14(d)
of the Act, except that the term "person" shall not include:
(1) any person or an Affiliate of such person who as of the date
of this Agreement owns 10% or more of the total voting power
represented by the outstanding voting securities of the
Company; and
(2) a trustee or other fiduciary holding securities under any
employee benefit plan of the Company or a corporation which
is owned directly or indirectly by the stockholders of the
Company in substantially the same percentage as their
ownership in the Company; or
(ii) the stockholders of United Rentals, Inc. approve a merger of United
Rentals, Inc., or a plan of complete liquidation of United Rentals,
Inc., or an agreement for the sale or disposition by United Rentals,
Inc. of all or substantially all of its assets, or any other
business combination of United Rentals, Inc. with any other
corporation, other than any such merger or business combination
which would result in the voting securities of United Rentals, Inc.
outstanding immediately prior thereto continuing to represent
(either by remaining outstanding or by being converted into voting
securities of the surviving entity) at least 50% of the total voting
power represented by the voting securities of United Rentals, Inc.
or such surviving entity outstanding immediately after such merger
or business combination.
3. Non-Competition and Confidentiality Agreement.
---------------------------------------------
(a) Subject to the following sentence, Executive will not, during the Term,
and for a period of twelve (12) months immediately following the termination of
this Agreement, directly or indirectly, for himself or on behalf of or in
conjunction with any other person, persons, company, partnership, corporation or
business of whatever nature: establish, enter into, be employed by or for,
advise, consult with or become a part of, any company, partnership, corporation
or other business entity or venture, or in any way engage in business for
himself or for others, in competition with the Company within a 200-mile radius
of any equipment rental location owned by the Company during the Term. If this
Agreement is terminated by reason of the provisions of paragraph 6(a)(iii)
(excluding termination by Executive for Disability pursuant to clause (C) of
3
<PAGE>
such paragraph), Executive shall not be subject to any non-competition or
similar restrictions whatsoever following termination of this Agreement.
During and after the Term, Executive shall not knowingly, without the prior
written consent of the Company which consent shall not be unreasonably withheld,
use for his own benefit or disclose to any person, company, partnership,
corporation or business for any reason or purpose whatsoever, any confidential
information of the Company. For the purposes hereof, confidential information
will not include any information which is in the public domain or known to other
unrelated parties in the Company's industry other than as a result of
Executive's breach of this provision.
(b) Because of the difficulty of measuring economic losses to the Company
as a result of breach by Executive of the foregoing covenants, and because of
the immediate and irreparable damage that might be caused to the Company for
which it would have no other adequate remedy, Executive agrees that, without
limiting the remedies available to the Company, the foregoing covenants may be
enforced by the Company by injunctions and restraining orders.
(c) The parties agree that the covenants in this paragraph 3 impose a
reasonable restraint on Executive in light of the activities and business of the
Company on the date of his Agreement, and the Company and Executive intend that
such covenants shall subsequently be construed and enforced in light of the
activities and business of the Company on the date of the termination of the
employment of Executive.
(d) The covenants in this paragraph 3 are intended to be severable and
separate, and the unenforceability of any specific covenant shall not affect the
enforceability of any other covenant.
4. Company Property. Executive recognizes and acknowledges that he will
----------------
have access to various confidential or proprietary information concerning the
Company and its affiliates which is of a special and unique value to the Company
and that all such information is and shall remain the property of the Company.
Notwithstanding the foregoing, Executive shall have the right to retain such
records, notes and other information pertaining to the Company's business which
do not contain confidential information.
5. Intellectual Property. Executive shall disclose promptly to the
---------------------
Company any and all conceptions and ideas for inventions, improvements and
valuable discoveries, whether patentable or not, which are conceived or made by
Executive solely of jointly with another during the Term, and which are related
to the business or activities of the Company or which Executive conceives as a
result of his employment by the Company, and Executive hereby assigns and agrees
to assign all his interests therein to the Company or its nominee. Whenever
requested to do so by the Company, Executive shall execute any and all
applications, assignments or other instruments that the Company shall deem
necessary to evidence such assignment to the Company or to apply for and obtain
Letters Patent of the United States or any foreign country or to otherwise
protect the Company's interest in such intellectual property. The obligations
set forth in this paragraph 5
4
<PAGE>
shall continue beyond the termination of this Agreement with respect to
inventions, improvements, and valuable discoveries, whether patentable or not,
conceived or made by Executive during the Term and shall be binding upon
Executive and his assigns, executors, administrators and other legal
representatives.
6. Term; Termination; Rights of Termination.
----------------------------------------
(a) Subject to the provisions for termination otherwise included in this
Agreement, the term of Executive's employment hereunder shall be for a period of
five (5) years and thirty (30) days commencing as of the date hereof (the
"Term"). The Term shall automatically be renewed on the same terms and
conditions contained herein at the end of each thirty-day period such that at no
time will the balance of the Term be less than a period of five (5) years. This
Agreement may terminate in any one of the following ways:
(i) A notice of resignation by Executive presented to the Company other
than as contemplated in paragraph 6(a)(iii);
(ii) A notice by the Company to Executive of termination for cause
("Cause"), which means: (A) Executive's willful and continued failure to
perform substantially his duties with the Company or any affiliate (other than
any such failure resulting from Executive's Disability (as hereinafter defined)
or any such failure resulting from Executive's termination for Good Reason (as
defined below)), after a written demand for substantial performance is delivered
to Executive by the Board of Directors of the Company which specifically
identifies the manner in which the Board of Directors believes that Executive
has not performed his duties and the failure of Executive to reasonably comply
with such demand within thirty (30) days of notice to Executive, or (B)
Executive's willful engagement in gross conduct materially and demonstrably
injurious to the Company or any affiliate which is not cured by Executive within
thirty (30) days of notice to Executive. For purposes of this subsection, no
act or failure to act on Executive's part shall be considered "willful" unless
done, or omitted to be done, by Executive not in good faith and without belief
that his action or omission was in the best interest of the Company or any
affiliate. Executive shall not be deemed to have been terminated for Cause
unless and until there shall have been delivered to Executive a copy of a
resolution duly adopted by the affirmative vote or not less than two-thirds of
the entire membership of the Board of Directors of the Company finding that in
the good faith opinion of the Board of Directors Executive was guilty of conduct
set forth in clauses (A) or (B) of this subparagraph (ii) and specifying the
particulars thereof in detail;
(iii) (A) a notice by the Company to Executive of termination without
cause, (B) termination as a result of Executive's death, (C) a notice of
termination due to Disability given by the Company to Executive or by Executive
to the Company or (D) a notice by the Executive of termination (I) for Good
Reason, or (II) due to the Company's material breach of this Agreement that
continues during the thirty (30) days after Executive gives written notice to
the Company of such breach, which notice specifically identifies the manner in
which Executive believes that the Company breached this Agreement. If this
Agreement is terminated pursuant to this paragraph 6(a)(iii), the Company shall
be obligated to pay to Executive a severance payment equal to five
5
<PAGE>
times the sum of (x) the Executive's annual Base Salary in effect at the time of
termination plus (y) the highest annual cash bonus (if any) paid by the Company
to Executive during the three-year period preceding the date of termination.
Such severance payment shall be payable in a lump sum payment within fifteen
(15) days of the termination of Executive's employment. In addition, for the
five-year period following Executive's termination, the Company shall be
obligated to continue to provide Executive with life, health, disability and
accident insurance benefits and all other executive benefits (including, without
limitation, retirement benefits and automobile and expense allowances)
comparable to those provided to Executive prior to his termination. To the
extent Executive is no longer lawfully eligible for any aforementioned benefit
because he is no longer employed by the Company, the Company shall pay to
Executive a lump sum cash payment equal to the present value of the benefits
that would have been provided to Executive had his employment continued for such
five-year period. For purposes of this Agreement, the term "Disability" shall
mean Executive's inability to perform his material duties under this Agreement
because of any illness or physical or mental disability or other incapacity as
evidenced by a written statement of a physician licensed to practice medicine in
any state in the United States mutually agreed upon by the Company and Executive
which disability or other incapacity continues for a period in excess of six (6)
consecutive months in any consecutive twelve-month period.
(b) Upon termination of this Agreement for any reason whatsoever, in
addition to any other rights which Executive may have hereunder, Executive shall
be entitled to receive all of his Base Salary and a pro-rated portion of his
minimum annual bonus under this Agreement to the date of termination and any
unused paid vacation earned as determined pursuant to paragraph 2(b).
(c) In the event of termination of this Agreement for any reason
whatsoever, all rights and obligations of the Company and Executive under this
Agreement shall cease immediately, except for those which by their terms
specifically apply to periods following the termination of this Agreement as
arise by reason of such termination, and thereafter Executive shall have no
right to receive any compensation hereunder except, under appropriate
circumstances, as set forth in paragraphs 6(a)(iii) and 6(b) hereof.
(d) For the purpose of this paragraph 6, "Good Reason" means any of the
following events unless it occurs with Executive's express prior written
consent: (i) the assignment to Executive of any duties inconsistent with, or a
diminution of, Executive's position, duties, titles, offices, responsibilities
and status with the Company, or any removal of Executive or any failure to
reelect Executive to any of such positions, including as Chief Acquisition
Officer and Vice Chairman of the Board of Directors; (ii) a reduction in
Executive's Base Salary as in effect, from time to time, or a failure to
increase Executive's Base Salary as provided in this Agreement; (iii) except
with respect to changes required to maintain its tax-qualified status or changes
generally applicable to all employees of the Company, any failure by the Company
to continue in effect or make any provision for any benefit, stock option,
annual bonus or contingent loans arrangements, or other incentive plan or
arrangement of any type in which Executive is participating from time to time,
the taking of which action would adversely affect Executive's participation in
or materially reduce Executive's benefits under any such benefit plan or
arrangement or deprive
6
<PAGE>
Executive of any material fringe benefit enjoyed by Executive from time to time,
or the failure to provide Executive with the number of paid vacation days to
which he is entitled; (iv) a substantial increase in Executive's business travel
obligations over such obligations as they exist during the first three months of
the Term; (v) a relocation of the Company's principal executive offices or
Executive's relocation to any place other than the location at which Executive
performed his duties as of the date hereof; or (vi) any failure by the Company
to obtain the assumption of this Agreement by any successor to or assignee of
the Company.
7. Taxes.
-----
(a) The payment of the Base Salary and any bonus or other incentive
compensation to Executive hereunder shall be subject to all federal, state and
local withholding taxes, social security deductions and any other required
payroll deductions.
(b) If all or any portion of the payments and benefits which Executive is
entitled to receive pursuant to the terms of this Agreement or any other plan,
arrangement or agreement in respect of the Company or its affiliates (the
"Payments") constitutes "excess parachute payments" within the meaning of
Section 280G of the Internal Revenue Code of 1986, as amended (the "Code"), that
are subject to the excise tax (the "Excise Tax") imposed by Section 4999 of the
Code (or similar tax and/or assessment), the Company (or its successors or
assigns) shall pay to Executive an additional amount ("Gross-Up Payment") such
that the net amount retained by Executive, after deduction of (i) any Excise
Tax on Payments, (ii) any federal, state and local income tax and Excise Tax
upon the payment provided for by this paragraph 7(b), and (iii) any interest and
penalties imposed in respect of the Excise Tax shall be equal to the full amount
of the Payments. For purposes of determining the amount of the Gross-Up
Payment, Executive shall be deemed to pay federal income taxes at the highest
marginal rate of federal income taxation in the calendar year in which the
Gross-Up Payment is to be made, and state and local income taxes at the highest
marginal rates of taxation in the state and locality of Executive's residence on
the date the Gross-Up Payment is to be made, net of the maximum reduction in
federal income taxes which could be obtained from deduction of such state and
local taxes.
(c) The Gross-Up Payment for any Payment made shall be paid to Executive
within ten (10) days after the Imposition of Excise Tax, unless the Company
undertakes to indemnify him as provided in paragraph 7(d). The "Imposition of
Excise Tax" shall mean the earliest of: (i) the issuance by the Internal
Revenue Service of a notice stating in effect that an Excise Tax is due with
respect to the Payment; (ii) Executive's delivery to the Company of an opinion
of tax counsel selected by Executive that all or a portion of the Payment is
subject to the Excise Tax and the amount of the Excise Tax on the Payment; or
(iii) the Company's delivery to Executive of an opinion of tax counsel selected
by the Company and acceptable to Executive that all or a portion of the Payment
is subject to the Excise Tax and the amount of the Excise Tax on the Payment.
(d) In lieu of paying the Gross-Up Payment for any Payment, the Company may
elect to undertake, at its sole expense, the defense and settlement of any
assessment by the Internal Revenue Service of the Excise Tax on any Payment. If
the Company so elects, the Company shall
7
<PAGE>
protect, defend, indemnify and hold Executive forever harmless from and against
the Excise Tax on such Payment and payments pursuant to this paragraph 7(d) and
any federal, state or local income tax (determined pursuant to the last sentence
of paragraph 7(b)) upon payments pursuant to this paragraph 7(d) and any and all
liabilities, demands, claims, actions, causes of action, assessments, losses,
costs, damages or expenses, including attorneys' and accountants' fees in
connection with any thereof, and any interest and penalties sustained by
Executive as a result of or arising out of or by virtue of the Company's
undertaking.
(e) If the Excise Tax is determined to be less than the amount taken into
account in determining the Gross-Up Payment paid pursuant to paragraph 7(c),
Executive shall repay to the Company, within ten (10) days after the time that
the amount of such reduction in Excise Tax is determined, the portion of the
Gross-Up Payment attributable to such reduction plus interest on the amount of
such repayment at the rate provided in section 1274(b)(2)(B) of the Code for
debt instruments with a maturity after issuance equal to the period beginning on
the date the Gross-Up Payment was made and ending on the date of repayment
required by this sentence. If the Excise Tax is determined to exceed the amount
taken into account in determining the Gross-Up Payment paid pursuant to
paragraph 7(c), the Company within ten (10) days after the time that the amount
of such excess Excise Tax is determined shall make an additional payment to
Executive of an amount equal to such excess plus an amount equal to any interest
and penalties payable to the Internal Revenue Service with respect to such
excess and any Excise Tax on payment pursuant to this sentence and any federal,
state and local income tax (determined pursuant to the last sentence of Section
7(b)) upon payments made pursuant to this sentence.
8. Company's Right To Amend. Executive acknowledges and agrees that the
------------------------
Company shall have the right to unilaterally amend any term and condition of
this Agreement to the extent such term and condition adversely affects the
ability of the Company to utilize the pooling of interest method of accounting
(the "Pooling Method") in any possible future transaction by the Company. The
Company agrees that it will amend such terms and conditions only to the extent
necessary to comply with the requirements for the use of the Pooling Method.
9. Complete Agreement. There are no oral representations, understandings
------------------
or agreements with the Company or any of its officers, directors or
representatives covering the same subject matter as this Agreement. This
written Agreement is the final, complete and exclusive statement and expression
of the agreement between the Company and Executive and of all the terms of this
Agreement, and it cannot be varied, contradicted or supplemented by evidence of
any prior or contemporaneous oral or written agreements. Except as otherwise
expressly provided herein, this written Agreement may not later be modified
except by a further writing signed by the Company and Executive, and no terms of
this Agreement may be waived except by a writing signed by the party waiving the
benefit of such term.
10. No Waiver. No waiver by the parties hereto of any default or breach
---------
of any term, condition or covenant of this Agreement shall be deemed to be a
waiver of any other term, condition or covenant contained herein or on any
subsequent default or breach of the same term, condition or covenant.
8
<PAGE>
11. Binding Effect. This Agreement shall be binding upon and inure to
--------------
the benefit of the parties thereto and their respective heirs, executors,
administrators, representatives, successors and assigns.
12. Notice. Whenever any notice is required hereunder, it shall be
------
given in writing addressed as follows:
To the Company: United Rentals, Inc.
Four Greenwich Office Park
Greenwich, Connecticut 06830
Facsimile: (203) 622-6080
Attention: Human Resources
To the Executive: John N. Milne
87 South Maple Avenue
Westport, Connecticut 06880
with a copy to: Oscar D. Folger.
521 Fifth Avenue, 24th floor
New York, New York 10175
Facsimile: 212-697-7833
Notice shall be deemed given and effective (a) three (3) business days after the
deposit in the U.S. mail of a writing addressed as above and sent first class
mail, certified, return receipt requested, (b) when received by the addressee,
if sent by a nationally recognized air courier for next day delivery service
(receipt requested), or (c) upon personal delivery (with written confirmation of
receipt). Either party may change the address for notice by notifying the other
party of such change in accordance with this paragraph 12.
13. Severability; Headings. If any portion of this Agreement is held
----------------------
invalid or inoperative, the other portions of this Agreement shall be deemed
valid and operative, and so far as it is reasonable and possible, effect shall
be given to the intent manifested by the portion held invalid or inoperative.
The paragraph headings herein are for reference purposes only and are not
intended in any way to describe, interpret, define or limit the extent or intent
of this Agreement or any part hereof.
14. Governing Law; Forum Selection. This Agreement shall be construed in
------------------------------
all respects in accordance with the laws of the State of Connecticut, without
giving effect to its conflicts of laws principles. Any litigation instituted by
any party to this Agreement pertaining to this Agreement must be filed before a
court of competent jurisdiction in Connecticut or Delaware and both parties
hereby consent irrevocably to the jurisdiction of such courts over them.
9
<PAGE>
15. Legal Fees and Expenses. The Company shall pay the reasonable legal
-----------------------
fees, costs and expenses incurred by Executive in connection with any action
arising under this Agreement, provided that any dispute or controversy between
the parties regarding this Agreement is resolved in any manner in favor of
Executive. Upon any initial determination in favor of Executive, the Company
shall advance to Executive an amount equal to Executive's previously incurred
legal fees and a reasonable estimate of any legal fees, costs and expenses which
may be incurred by Executive in connection with the final resolution of such
matter. This paragraph 15 shall not affect Executive's common-law or statutory
indemnification rights, or any agreements or other arrangements between the
parties relating to indemnification.
IN WITNESS WHEREOF, the undersigned have executed this Agreement on the
date first above written.
UNITED RENTALS, INC.
By:
-------------------------------------------
Bradley S. Jacobs, Chief Executive Officer
-------------------------------------------
John N. Milne
10
<PAGE>
Exhibit 10(q)
THIS NOTE, AND ANY COMMON STOCK THAT MAY BE ISSUED UPON ITS CONVERSION, HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR
APPLICABLE STATE SECURITIES LAWS AND MAY NOT BE TRANSFERRED OR OTHERWISE
DISPOSED OF UNLESS IT HAS BEEN REGISTERED UNDER THE ACT AND SUCH LAWS OR AN
EXEMPTION UNDER THE ACT AND SUCH LAWS IS AVAILABLE FOR ITS TRANSFER OR OTHER
DISPOSITION.
UNITED RENTALS, INC.
CONVERTIBLE NOTE
$300,000 October 24, 1997
UNITED RENTALS, INC., a Delaware corporation (the "Company"), for value
received, hereby promises to pay to Forrest Burnett, Trustee or permitted
assigns, the principal amount of $300,000 and to pay interest (computed on the
basis of a 360 day year consisting of twelve 30 day months) on the principal
amount from time to time remaining unpaid hereon, at a rate per annum equal to
7% from the date hereof and on any interest payment that is not made when due.
This note shall be payable in 20 equal quarterly payments of principal and
interest beginning January 23, 1998 and ending October 23, 2002, in the amount
of $17,907.37 each. This note may not be prepaid except with the written
consent of the holder. Both the principal hereof and interest hereon are
payable in immediately available funds in coin or currency of the United States
of America which at the time of payment shall be legal tender for the payment of
public and private debts at such place as the holder hereof may from time to
time designate in writing delivered to the Company; provided, however, that such
-------- -------
payment may be made by a Company check deposited in the United States mail on
the due date set forth above for such payment, postage prepaid, registered or
certified mail and addressed to the holder hereof as set forth in the Company's
records.
This Note is one of the Convertible Notes (collectively, the "Notes") of
the Company in the aggregate principal amount of up to $300,000 issued or to be
issued by the Company and dated as of the date hereof.
The holder of this Note shall be entitled to receive payment in full of all
interest accruing hereon subsequent to the filing of a petition or the taking of
any other action commencing a bankruptcy, reorganization, arrangement or other
similar proceeding or which would accrue but for such proceeding or action.
The Company further covenants and agrees as follows:
1. Certain Definitions. For the purposes of this Note:
-------------------
"Common Stock" means the common stock, par value $.01 per share, of the
Company.
"Event of Default" has the meaning set forth in Section 4 of this Note.
"GAAP" means generally accepted accounting principles.
"Officer's Certificate" means a certificate signed by the Company's
President or its Chief Financial Officer on behalf of the Company, stating that
the Company has made or has caused to be made such investigations as are
necessary in order to permit such officer on behalf of the Company to verify the
accuracy of the information set forth in such certificate. Each such officer
signing such a certificate shall include in such certificate a statement that,
to the best of such officer's knowledge, such certificate does not misstate any
material fact and does not omit to state any fact necessary to make the
certificate not misleading.
"Person" means any individual, firm, corporation, partnership or other
entity, and shall include any successor (by merger or otherwise) of such entity.
"Subsidiary" means any corporation or other entity of which securities
having a majority of the ordinary voting power in electing the board of
directors or other managers of such corporation or other entity are, at the time
as of which any determination is being made, owned or the management of which is
otherwise controlled by the Company, either directly or through one or more
intermediaries.
<PAGE>
2. Informational Requirements. The Company shall deliver to the holder
--------------------------
of this Note (so long as any portion of this Note remains outstanding):
(a) within 120 days after the end of each fiscal year, or later if such
financial statements may not be released under applicable Securities and
Exchange Commission regulations, consolidated statements of earnings,
shareholders' equity and cash flows of the Company and each Subsidiary for such
fiscal year, and consolidated balance sheets of the Company and each Subsidiary
as of the end of such fiscal year, setting forth in each case comparisons to the
preceding fiscal year, all prepared in accordance with GAAP consistently
applied, and accompanied by an opinion, containing no exceptions or
qualifications, of an independent certified accounting firm of recognized
national standing. If the Company becomes a subsidiary of another company whose
securities are listed with the Securities and Exchange Commission, the
obligation to provide financial statements described herein may be fulfilled by
providing such financial statements of the Company's parent.
(b) within 20 business days after the occurrence of any default under this
Note, an Officer's Certificate specifying the default and what actions the
Company and its Subsidiaries have taken or propose to take with respect thereto.
3. Affirmative Covenants. So long as any portion of this Note remains
---------------------
outstanding, unless the holders of a majority of the outstanding principal
amount of the Notes then outstanding deliver their prior written consent waiving
any of the following covenants, the Company shall, and shall cause each
Subsidiary to:
(a) at all times cause to be done all things necessary to maintain,
preserve and renew its corporate existence and all material qualifications,
licenses, authorizations and permits necessary to the conduct of its respective
business;
(b) pay and discharge when payable all taxes, assessments and governmental
charges imposed upon it or its business or properties or upon the income or
profits therefrom (in each case before the same become delinquent and before
penalties accrue thereon) and all claims for labor, materials or supplies which
if unpaid would by law become a lien upon any of its respective properties,
unless and to the extent that the same are being contested in good faith and by
appropriate proceedings and adequate reserves (as determined in accordance with
GAAP, consistently applied) have been established on its books with respect
thereto;
(c) comply in all material respects with all applicable laws, rules and
regulations of all governmental authorities whether now in effect or hereafter
enacted or promulgated, unless and to the extent that the same are being
contested in good faith and by appropriate proceedings and adequate reserves (as
determined in accordance with GAAP, consistently applied) have been established
on its books with respect thereto;
(d) maintain proper books of record and account which fairly present its
financial condition and results of its operations and properly reflect all
transactions to which the Company or any Subsidiary is or has been a party.
4. Events of Default - Effect.
--------------------------
(a) For purposes of this Note, an Event of Default shall be deemed to
have occurred if:
(i) the Company fails to pay when due any principal payment on
this Note;
(ii) the Company fails to pay when due any interest payment on this
Note or any other Note and such failure continues unremedied for a period
of ten days after notice to the Company that such payment is due;
(iii) unless waived by the holders of a majority of the outstanding
principal amount of the Notes then outstanding, the Company fails to
perform or observe any other material covenant or other material provision
contained in this Note and, if such failure is capable of being cured,
such failure shall continue for a period of thirty days after notice of
such failure to the Company; or
(iv) the Company or any Subsidiary makes an assignment for the
benefit of creditors;
<PAGE>
or the Company or any Subsidiary shall generally not, or shall be unable
to, or shall admit in writing its inability to, pay its debts generally as
they become due; or an order, judgment or decree is entered adjudicating
the Company or any Subsidiary bankrupt or insolvent; or any order for
relief with respect to the Company or any Subsidiary is entered under the
Federal Bankruptcy Code; or the Company or any Subsidiary petitions or
applies to any tribunal for the appointment of a custodian, trustee,
receiver or liquidator of the Company or of any Subsidiary, or of any
substantial part of the assets of the Company or of any Subsidiary, or
commences any proceeding with respect to the Company or any Subsidiary
(other than a proceeding for the voluntary liquidation and dissolution of
any Subsidiary) under any bankruptcy, reorganization, arrangement,
insolvency, readjustment of debt, dissolution or liquidation law of any
jurisdiction; or any such petition or application is filed, or any such
proceeding is commenced, against the Company or any Subsidiary and either
(A) the Company or any such Subsidiary by any act indicates its approval
thereof, consent thereto or acquiescence therein or (B) such petition,
application or proceeding is not dismissed within 60 days.
(b) If an Event of Default of the type described in Section 4(a)(iv)
above has occurred, the entire outstanding principal amount of this Note shall
be immediately due and payable without notice, demand or presentment, and if any
other Event of Default (other than an Event of Default of the type described in
Section 4(a)(iv) above) has occurred, the holder of this Note, as its sole
remedy, may declare all or any portion of the outstanding principal amount of
this Note due and payable, whereupon the same shall be immediately due and
payable.
5. Conversion. The holder of this Note shall have the following
----------
conversion rights:
(a) Subject to the terms and conditions of this Section 5, the holder
of this Note shall have the right, at such holder's option, to convert the
outstanding principal amount of this Note or any portion thereof which is
$50,000 or more into shares of Common Stock, at a price per share equal to 120%
of the initial public offering price of the Common Stock in a firm underwriting
of such stock, or in case an adjustment in such price has taken place pursuant
to the provisions of this Section 5, then at the price as last adjusted (such
price or adjusted price being referred to herein as the "Conversion Price").
Such rights of conversion shall be exercised by the holder hereof by giving
written notice that such holder elects to convert the stated portion of the
principal amount of this Note into Common Stock and by surrender of this Note
accompanied by a written instrument(s) of transfer duly executed by the holder
hereof to the Company, at the Company's principal office (or such other office
or agency of the Company as the Company may designate by notice in writing to
the holder of this Note) at any time during its usual business hours. For
convenience, the conversion of any portion of the principal of this Note into
Common Stock is hereinafter sometimes referred to as the "conversion" of this
Note. The holder of this Note may exercise this conversion right no earlier
than the later of (a) 30 days after completion of the Company's initial public
offering of Common Stock or (b) the date fixed by the managing underwriter of
such offering as of the date when such conversion may occur, which may not be
later than 180 days after completion of the offering.
(b) Promptly after the receipt of the written notice referred to in
Section 5(a) and surrender of this Note for conversion, the Company shall issue
and deliver, or cause to be issued and delivered, a certificate or certificates
for the number of whole shares of Common Stock issuable upon the conversion.
Such conversion shall be deemed to have been effected and the Conversion Price
shall be determined as of the close of business on the date on which such
written notice shall have been received by the Company and the Note shall have
been surrendered for conversion as aforesaid, and at such time the person or
persons in whose name or names any certificate or certificates for shares of
Common Stock shall be issuable upon such conversion shall be deemed to have
become at such time the holder or holders of record of the shares represented
thereby. In the event that only a portion of this Note is converted, the
Company shall execute and deliver to the holder of this Note, at the expense of
the Company, a new Note, in the same form as this Note, in principal amount
equal to the unconverted portion of this Note.
(c) No fractional shares shall be issued upon conversion into Common
Stock and no payment or adjustment shall be made upon any conversion on account
of any cash dividends (having a record date prior to the effective date of
conversion) on the Common Stock issued upon such conversion. At the time of
each conversion, the Company shall pay in cash an amount equal to all interest
which is accrued and unpaid on the portion of this Note surrendered for
conversion, such interest to be paid through the date upon which such conversion
is deemed to take place as provided in Section 5(b) above. If any fractional
share of Common Stock would, except for the provisions of the first sentence of
this Section 5(c), be delivered upon such conversion, the Company, in lieu of
delivering such fractional share, shall pay to the holder an amount in cash
equal to the fraction represented by such share multiplied by
<PAGE>
the initial public offering price of the Common Stock.
(d) Whenever the Company shall (i) declare or pay a dividend or make a
distribution on shares of Common Stock in shares of Common Stock or in any other
shares of capital stock of the Company or in other securities of the Company,
(ii) subdivide, split or reclassify the outstanding shares of Common Stock into
a greater number of shares of Common Stock or (iii) combine or reclassify the
outstanding shares of Common Stock into a smaller number of shares of Common
Stock, the Conversion Price in effect at the time of the record date for such
dividend or distribution or on the effective date of such subdivision, split,
combination or reclassification, shall be proportionately adjusted so that the
holder of this Note shall upon conversion into shares of Common Stock after such
time, be entitled to receive the number of shares of Common Stock or other
securities of the Company which such holder would have been entitled to receive
immediately after such time, had this Note been converted into shares of Common
Stock immediately prior to such time. Such adjustment shall be made
successively each time any event described in this Section 5 shall occur.
(e) In case of any reclassification, capital reorganization or change
by the Company of the outstanding shares of Common Stock (other than a change in
par value, or from par value to no par value, or from no par value to par value,
or as a result of a subdivision, combination or reclassification of the
outstanding shares of Common Stock into a greater or lesser number of shares of
Common Stock (which is treated in paragraph (d) above), but including any change
of such shares into one or more other classes or series of shares of capital
stock), or in case of any consolidation of the Company with, or merger of the
Company with or into, another Person (other than a consolidation or merger in
which the Company is the continuing entity and which does not result in any
reclassification or change of the Company's outstanding shares), or in case of
any sale or other conveyance to another Person of the property of the Company as
an entirety or substantially as an entirety, the Company or such successor or
purchasing Person shall provide, as a condition to such transaction, that the
holder of this Note shall acquire, upon conversion of, or in exchange for, this
Note the kind and amount of shares and other securities and property (including
cash and evidences of indebtedness) which would have been received by such
holder upon such reclassification, reorganization, change, consolidation,
merger, or sale or conveyance of assets if such holder had converted this Note
into shares of Common Stock immediately prior thereto. Such other Person, which
shall thereafter be deemed to be the Company for purposes of this Section 5(e),
shall provide for similar future adjustments as nearly equivalent as may be
practicable to the adjustments provided herein. Such adjustment shall be made
successively each time any event described above in this Section 5(e) shall
occur.
(f) In the event the Company at any time after the date of the origin
al issuance of this Note shall distribute shares of stock or other securities of
other Persons, evidences of indebtedness issued by the Company or other property
(other than cash), to the holders of its Common Stock by way of dividend or
otherwise, in either case other than in connection with a capital
reorganization, consolidation, merger or sale or other conveyance of all or
substantially all of the Company's assets (each of which transactions is
provided for by the foregoing Section 5(e)), then, in each such case, the holder
of this Note, upon conversion of this Note into shares of Common Stock as
provided hereby, shall be entitled to receive, and the Company shall reserve for
issuance to such holder upon such conversion, the amount in cash or the shares
of stock or other securities, evidences of indebtedness, or other property which
it would have been entitled to receive if it had so converted and become the
holder of record of the shares of Common Stock issued upon such conversion
immediately prior to the record date fixed for the determination of the
stockholders entitled to receive such dividend or distribution. The foregoing
adjustments shall be made successively whenever any event listed above in this
Section 5(f) shall occur.
(g) Upon the occurrence of any event requiring an adjustment of the
Conversion Price, then and in each such case the Company shall give prompt
written notice thereof to the holder of this Note, which notice shall state the
Conversion Price resulting from such adjustment, setting forth in reasonable
detail the method upon which such calculation is based and stating that such
adjustment calculation has been reviewed and approved by the Company's
independent certified public accountants.
(h) In case at any time:
(i) the Company shall declare any dividend upon its Common Stock
payable in cash, stock, property or any security (whether of the Company or
otherwise) or make any other distribution to the holders of its Common
Stock;
<PAGE>
(ii) the Company shall offer for subscription pro rata to the
--- ----
holders of its Common Stock any additional shares of stock of any class or
other rights;
(iii) there shall be any capital reorganization or reclassification of
the capital stock of the Company, or a consolidation or merger of the
Company with or into, or a sale of all or substantially all its assets to,
another entity or entities; or
(iv) there shall be a voluntary or involuntary dissolution, liquidation
or winding up of the Company;
then, in any one or more of said cases, the Company shall give (A) at least 45
days prior written notice of the date on which the books of the Company shall
close or a record shall be taken for such dividend, distribution or subscription
rights or for determining rights to vote in respect of any such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding up and (B) in the case of any such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation or winding up or
underwritten public offering, at least 45 days prior written notice of the date
when the same shall take place. Such notice in accordance with the foregoing
clause (A) shall also specify, in the case of any such dividend, distribution or
subscription rights, the date on which the holders of Common Stock shall be
entitled thereto and such notice in accordance with the foregoing clause (B)
shall also specify the date on which the holders of Common Stock shall be
entitled to exchange their Common Stock for securities or other property
deliverable upon such reorganization, reclassification, consolidation, merger,
sale, dissolution, liquidation or winding up or the precise details of such
underwritten public offering, as the case may be.
(i) The Company shall at all times reserve and keep available out of
its authorized and unissued Common Stock solely for the purpose of issuance upon
the conversion of the Notes, as provided in the Notes, free from any pre-emptive
rights (if any), such number of shares of Common Stock as shall then be issuable
upon the conversion of all outstanding Notes. The Company covenants that all
shares of Common Stock which shall be so issued shall be duly and validly issued
and fully paid and nonassessable and free from all taxes, liens and charges with
respect to the issue thereof, and, without limiting the generality of the
foregoing, the Company covenants that it shall from time to time take all such
action as may be requisite to assure that the par value per share of the Common
Stock is at all times equal to or less than the Conversion Price in effect at
the time. The Company shall take all such action as may be necessary to assure
that all such shares of Common Stock may be so issued without violation of any
applicable law or regulation, or of any requirement of any national securities
exchange upon which the Common Stock (or any series thereof) or any other class
of stock or series thereof of the Company may be listed. Without limiting the
generality of the foregoing, the Company shall obtain and keep in force such
permits or other authorizations as may be required by law, and shall comply with
all requirements as to registration or qualification in order to enable the
Company lawfully to issue and deliver to the holders of the Notes such number of
shares of its Common Stock as shall from time to time be sufficient to effect
the conversion of all Notes then outstanding. Notwithstanding the preceding
sentence, however, the Company shall be under no obligation to register the
issuance of Common Stock upon conversion of any Note under the Securities Act of
1933, and shall be entitled to place a restrictive legend on any certificate
representing shares of Common Stock so issued noting restrictions imposed on any
transfer of such Common Stock both under the securities laws and under the
Company's Certificate of Incorporation. The Company may require, as a condition
to the issuance of any Common Stock upon conversion of a Note, that the holder
of the Note deliver a subscription agreement to the Company acknowledging the
effect of such restrictions on the holder's right to transfer the Common Stock.
The Company shall not take any action which results in any adjustment of the
Conversion Price if the total number of shares of Common Stock which have been
issued at or prior to the time such action was taken and those which are
issuable after such action upon conversion of the Notes and exercise of all
options and conversion of all convertible securities of the Company would exceed
the total number of shares of Common Stock authorized by the Company's
Certificate of Incorporation.
(j) The issuance of certificates for shares of Common Stock upon
conversion of this Note shall be made without charge to the holder for any
issuance, stock transfer or documentary stamp tax in respect thereof.
(k) No adjustment in the Conversion Price shall be required unless
such adjustment would require an increase or decrease of at least one percent in
such price; provided, however, that any such adjustment which is not required to
be made shall be carried forward and taken into account in any subsequent
adjustment.
6. Notices. All notices required or permitted to be given hereunder
-------
shall be in writing and may be delivered by hand, by facsimile, by nationally
recognized private courier, or by United States mail. Notices delivered by
<PAGE>
mail shall be deemed given, served and received three days after being deposited
in the United States mail, postage prepaid, registered or certified mail.
Notices delivered by hand by facsimile, or by nationally recognized private
carrier, shall be deemed given, served and received on the day of receipt. All
notices shall be addressed as follows:
If to the Company:
Addressed to: United Rentals, Inc.
Four Greenwich Office Park
Greenwich, CT 06830
Attention: John N. Milne
(203)622-6080
Telecopier: (203)622-6080
with a copy to:
Oscar Folger, Esq.
521 Fifth Avenue, Suite 2400
New York, NY 10175
212-697-6464
Telecopier: 212-697-7833
and a copy to:
Holme Roberts & Owen LLP
1700 Lincoln, Suite 4100
Denver, Colorado 80203
Attention: Thomas A. Richardson
Telecopier: (303)866-0200
If to the Note Holders:
Addressed to
the addresses shown on the Company's books.
and/or to such other addresses as may be designated by notice given in
accordance with the provisions of this Section 6.
7. Assignment. This Note, and any Common Stock which may be issued upon
----------
conversion of this Note, may not be sold, assigned or otherwise transferred by
the holder or any subsequent holder except in compliance with the Act and any
applicable state securities laws. Neither this transaction, nor any other
transaction involving this Note or the Company shall occur if the effect would
be to prevent the Company or any other entity from performing its obligations
under this Note or would materially affect the value of the Notes unless the
surviving or acquiring entity agrees to perform the obligations of the Company
under this Note in a manner that is the economic equivalent to the performance
of the Company required hereunder.
8. Other Matters.
-------------
No delay or omission on the part of the holder hereof in the exercise of
any right or remedy hereunder shall operate as a waiver thereof, nor shall any
single or partial exercise of any right or remedy preclude any other or further
exercise thereof or the exercise of any other right or remedy.
The Company agrees to pay on demand all costs and expenses, including,
without limitation, reasonable attorney's fees and expert witness fees, incurred
by the holder hereof in endeavoring to enforce the rights of such
holder hereunder; provided, however, that the Company shall not be obligated to
-------- -------
pay such costs and expenses incurred by the holder hereof in wrongfully
accelerating payment or otherwise wrongfully seeking to enforce its rights
hereunder.
Except as expressly provided in Section 4(b), the Company hereby waives
demand, presentment and protest and notices thereof as well as notice of non-
payment.
In the event any payment by or on behalf of the Company to the holder is
held to constitute a preference under the bankruptcy laws now or hereafter
constituted, or any other applicable federal or state bankruptcy, insolvency or
other
<PAGE>
similar law, and by reason thereof the holder is required to refund such
payment or pay the amount thereof to any party, such payment by or on behalf of
the Company to the holder shall not constitute a release of the Company from any
liability hereunder to the extent of such payment, but the Company agrees to pay
the amount of such payment, together with interest thereon, to the holder upon
demand.
9. Subordination.
-------------
(a) The indebtedness evidenced by this Note shall at all times be
wholly subordinate and junior in right of payment to any and all Superior
Indebtedness (as defined below) in the manner and with the force and effect
hereafter set forth:
(i) In the event of any liquidation, dissolution or winding up of
the Company, or of any execution sale, receivership, insolvency,
bankruptcy, reorganization or other similar proceeding relative to the
Company or its property, all principal and interest owing on all
Superior Indebtedness shall first be paid in full before any payment
is made upon the indebtedness evidenced by this Note; and in any such
event any payment or distribution of any kind or character, whether in
cash, property or securities (other than in securities or other
evidences of indebtedness, the payment of which is subordinated to the
payment of all Superior Indebtedness which may at the time be
outstanding) which shall be made upon or in respect of this Note shall
be paid over to the holders of such Superior Indebtedness, pro rata,
for application in payment thereof until such Superior Indebtedness
shall have been paid or satisfied in full.
(ii) (A) During the continuance of any default in any agreement
pursuant to which any Superior Indebtedness is issued which arises
from the failure to pay when due (whether by acceleration or
otherwise) any principal of, premium, if any, interest on, fees or
other amounts in respect of such Superior Indebtedness (a "Superior
Payment Default"), no payment of principal, premium or interest shall
be made on this Note if either (I) notice in writing of such default
has been given to the Company by any holder or holders of any Superior
Indebtedness or (II) judicial proceedings shall be pending in respect
of such default.
(B) During the continuance of any event of default or
unmatured event of default in any agreement pursuant to which any
Superior Indebtedness is issued other than a Superior Payment Default
(a "Superior Non-Payment Default") as to which the Company has
received notice in writing from any holder or holders of Superior
Indebtedness, no payment of principal, premium or interest shall be
made on this Note for a period (each, a "Payment Blockage Period")
commencing on the date of receipt by the Company of such notice and
terminating on the earliest to occur of the following dates: (V) the
date of acceleration of the Superior Indebtedness, (W) 180 days after
the Company's receipt of such written notice, (X) the date such
Superior Non-Payment Default shall have been cured or waived, or shall
have ceased to exist, (Y) the date the Superior Indebtedness shall
have been discharged or paid in full in cash, or (Z) the date such
Payment Blockage Period shall have been terminated by written notice
to the Company form the holder or holders of Superior Indebtedness
initiating such Payment Blockage Period; after which, in the case of
clauses (W), (X), (Y) and (Z), the Company shall resume making
payments in respect of the subordinated notes, unless clause (ii)(A)
above is then applicable.
<PAGE>
(iii) If this Note is declared or becomes due and payable because
of the occurrence of any default thereunder or under the agreement or
instrument under which it is issued or otherwise than at the option of
the Company, under circumstances when clause (i) shall not be
applicable, the holder of this Note shall not be entitled to payments
until one hundred twenty (120) days after such event and then only if
such payment is permitted under clauses (i) and (ii).
(b) The holder of this Note undertakes and agrees for the benefit of
each holder of Superior Indebtedness to execute, verify, deliver and file any
proof of claim, consent, assignment or other instrument which any holder of
Superior Indebtedness any at any time require in order to prove and realize upon
any right or claim pertaining to this Note and to effectuate the full benefit of
the subordination contained herein; and upon failure of the holder of this Note
so to do any such holder of Superior Indebtedness shall be deemed to be
irrevocably appointed the agent and attorney-in-fact of the holder of such note
to execute, verify, deliver and file any such proof of claim, consent,
assignment or other instrument.
(c) No right of any holder of any Superior Indebtedness to enforce
subordination as herein provided shall at any time or in any way be affected or
impaired by any failure to act on the part of the Company or any holder of
Superior Indebtedness, or by any non-compliance by the Company with any term,
provision or covenant of this Note or the agreement under which it is issued,
regardless of any knowledge thereof that any such holder of Superior
Indebtedness may have or be otherwise charged with.
(d) "Superior Indebtedness" means (I) all obligations of the Company
under or in connection with the Credit Agreement, dated as of October 8, 1997
among the Company, various financial institutions and Bank of America National
Trust and Savings Association, as Agent (as amended, restated, amended and
restated, otherwise modified or refinanced from time to time, the "Credit
Agreement"), whether for principal, interest (including any interest that would
accrue but for the filing of a petition initiating any bankruptcy, insolvency or
like proceeding, whether or not such interest is an allowed claim enforceable
against the debtor), fees, expenses or otherwise and (II) all obligations of the
Company under or in connection with any interest rate swap agreement or similar
hedging arrangement (as amended or otherwise modified from time to time) with
any financial institution which is a party to the Credit Agreement.
<PAGE>
This Note shall be governed by and construed in accordance with the laws of
the State of Utah.
UNITED RENTALS, INC.
By_____________________________________
Name: John N. Milne
Title: Vice Chairman
<PAGE>
Exhibit 10(r)
UNITED RENTALS, INC.
SUBSCRIPTION AGREEMENT
United Rentals, Inc.
Four Greenwich Office Park
Greenwich, Connecticut 06830
Gentlemen:
1. SUBSCRIPTION. The undersigned hereby subscribes for and agrees to purchase
100,000 shares of Common Stock, par value $0.01 per share (the "Shares"), of
United Rentals, Inc. (the "Company"), a Delaware corporation, for a purchase
price of $10.00 per Share, on the terms and conditions described herein. The
undersigned tenders herewith a $1,000,000 check payable to the order of United
Rentals, Inc.
2. RESTRICTIONS ON TRANSFER AND RESALE
(a) The undersigned agrees that until the first anniversary of the date
on which the Shares are originally issued to the undersigned pursuant
to this Agreement, the undersigned shall not, directly or indirectly,
sell, offer to sell, contract to sell, grant any option to purchase,
or otherwise transfer or dispose of (collectively, "Transfer") any
Shares purchased pursuant to this Agreement without the prior written
consent of the Company (which may be withheld at its discretion and
may be offered to some stockholders and not to others). For purposes
of this Agreement, a Transfer of Shares will be deemed to include any
transaction involving the sale or purchase of common stock of the
Company or contracts relating to the purchase or sale thereof (such as
"shorting against the box" or hedging or using derivative instruments)
that is intended to eliminate or reduce the market risk of owning the
Shares purchased by the undersigned pursuant to this Agreement.
(b) The undersigned understands that the Shares have not been registered
under the Securities Act of 1933, as amended (the "Act") or any state
or foreign securities laws. Within 13 months following the closing of
an initial public offering, the Company will file a registration
statement, in accordance with the Act, registering the resale of the
Shares and will use its best efforts to cause such registration
statement to become effective, and the Shares to be qualified under
the laws of such States as the undersigned requests, as soon as
practicable thereafter. The Company shall take all actions necessary
to keep such registration and qualification effective until the
undersigned has sold all of the Shares or until such registration and
qualification shall no longer be necessary for the public sale of the
Shares in a single transaction. All registration expenses incurred in
connection with the registration of Shares pursuant to this Agreement
shall be borne by the Company. The transfer restrictions described
above will continue in effect until the first anniversary referenced
above notwithstanding any such registration. The Company has no other
obligation to register the Shares, or to assist in complying with any
exemption from registration. Without limiting the restrictions
provided for in Section 2(a) hereof, the undersigned agrees not to
Transfer any Shares in the absence of an effective registration
statement under the Act or an opinion of counsel satisfactory to the
Company that such Transfer does not require such registration under
the Act and will not be in violation of applicable state securities
laws.
(c) The restrictions on Transfer and the registration rights with respect
to the Shares provided for in this Section 2 shall apply to any
securities issued in respect of the Shares (by way of stock split,
dividend or otherwise).
3. GENERAL REPRESENTATIONS AND WARRANTIES AND COVENANTS
The undersigned hereby acknowledges, represents and warrants to, and agrees
with, the Company as follows:
(a) The undersigned is acquiring the Shares for the undersigned's own
account, for investment purposes only, and not with a view to or for
or in connection with the resale, public distribution or
fractionalization thereof, in whole or in part.
1
<PAGE>
(b) The undersigned meets the standards of an "Accredited Investor" set
forth under Rule 501(a) of Regulation D under the Act and has such
knowledge and experience in financial and business matters that the
undersigned with the assistance of the undersigned's representatives
and/or advisors, is capable of evaluating the merits and risks of an
investment in the Shares. The undersigned will promptly notify the
Company in the event that prior to the issuance of the Shares to the
undersigned the foregoing representation ceases to be accurate.
(c) The undersigned:
(i) has received and carefully read the Company's registration
statement on Form S-1 (the "Registration Statement"), has been
advised that the Registration Statement has not been declared
effective, understands and has evaluated the risks of a purchase
of the Shares, including the risks set forth in the Registration
Statement, and has relied solely (except as indicated in
subparagraphs (ii) and (iii) below) on the information contained
in the Registration Statement;
(ii) has been given the opportunity to ask questions of, and receive
answers from, the Company concerning the Company and the Offering
and other matters pertaining to this investment, and to obtain
any additional information necessary to verify the accuracy of
the information contained in the Registration Statement or
otherwise provided, and has not been furnished any other offering
literature or prospectus except as mentioned herein or in the
Registration Statement;
(iii) has been furnished with all additional documents and
information requested by the undersigned; and
(iv) has determined that the Shares are a suitable investment and that
at this time the undersigned could bear a complete loss of the
investment.
(d) The certificates representing the Shares will bear a legend in
substantially the following form:
"The shares represented by this certificate have not been
registered under the Securities Act of 1933. The shares may not
be offered, sold, transferred, or otherwise disposed of except
pursuant to an effective registration statement under that Act
and under any applicable state securities laws unless prior to
such disposition the issuer is furnished with an opinion of
counsel, in form and substance satisfactory to the issuer, that
the proposed transaction will be exempt from such registration.
The shares are subject to additional restrictions on transfer
contained in a Subscription Agreement dated November 14, 1997,
between the issuer and the holder."
(e) If the undersigned is a corporation, partnership, trust or other
entity, it (i) is authorized and qualified to become a shareholder in,
and authorized to make its investment in, the Company, and the person
signing this Agreement on behalf of such entity has been duly
authorized to do so, and (ii) was not formed for the specific purpose
of investing in the Company nor did or will the shareholders, partners
or grantors, as the case may be, of the undersigned entity contribute
additional capital for the specific purpose of purchasing the Shares.
(f) No representations not contained in the Registration Statement or this
Agreement have been made to the undersigned by the Company or any
officer, employee, agent or affiliate thereof.
4. MISCELLANEOUS
(a) Neither this Agreement nor any provisions hereof shall be modified,
discharged or terminated except by an instrument in writing signed by
the party against whom any waiver, change, discharge or
2
<PAGE>
termination is sought.
(b) Any notice, demand or other communication which any party hereto may
be required, or may elect, to give to anyone interested hereunder
shall be sufficiently given if (i) deposited, postage prepaid, in the
United States mail, registered or certified mail, return receipt
requested, addressed to such address as may be given herein, or (ii)
delivered personally at such address (against receipt).
(c) Except as otherwise provided herein, this Agreement shall bind and
benefit the parties hereto and their heirs, executors, administrators,
successors, legal representatives and permitted assigns. If the
undersigned is more than one person, the obligations of the
undersigned shall be joint and several and the agreements,
representations, warranties and acknowledgments herein contained shall
be deemed to be made by and be binding upon each such person and his
heirs, executors, administrators and successors.
(d) This instrument contains the entire agreement of the parties, and
there are no representations, covenants or other agreements except as
stated or referred to herein.
(e) This Agreement is not transferable or assignable by the undersigned;
provided, however, that the undersigned may transfer or assign its
registration rights under this Agreement by will or laws of intestate
succession to any person or entity who acquires Shares as a result of
a transfer otherwise permitted under this Agreement.
(f) This Agreement shall be governed by and construed in accordance with
the laws of the State of Delaware applicable to contracts made and to
be performed entirely within such state. The federal and state courts
sitting in Delaware shall have exclusive jurisdiction over all matters
relating to this Agreement. Trial by jury is expressly waived.
(g) All pronouns herein and any variations thereof shall be deemed to
refer to the masculine, feminine or neuter, singular or plural, as the
identity of the parties hereto may require.
(h) This Agreement may be executed through the use of separate signature
pages or in any number of counterparts, and each of such counterparts
shall, for all purposes, constitute one agreement binding on all the
parties, notwithstanding that all parties are not signatories to the
same counterpart.
5. OTHER.
(a) The Company represents and warrants that (i) it is duly organized and
in good standing, (ii) it has taken all corporate action necessary for
the authorization, execution, delivery and performance of this
Agreement, and (iii) upon payment of the purchase price for the
Shares, the Shares will be duly and validly issued, fully paid and
nonassessable.
(b) In the event of the registration of the Shares under the Act pursuant
to this Agreement, the Company will, and it hereby does, indemnify and
hold harmless, to the extent permitted by law, the undersigned,
against any and all losses, claims, damages or liabilities, joint or
several, and expenses to which the undersigned may become subject
under the Act, common law or otherwise, insofar as such losses,
claims, damages or liabilities (or actions or proceedings, whether
commenced or threatened, in respect thereof) arise out of or are based
upon (i) any untrue statement or alleged untrue statement of any
material fact contained in any registration statement under which such
Shares were registered under the Act, any preliminary, final or
summary prospectus contained therein, or any amendment or supplement
thereto, or (ii) any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the
statements therein not misleading, and the Company will reimburse the
undersigned for any legal or any other expenses reasonably incurred by
him in connection with investigating or defending any such loss,
claim, liability, action or proceeding; provided that the Company
shall not be liable in any such case to the extent that any such loss,
claim, damage, liability (or action or proceeding in respect thereof)
or expenses arise out of or are based upon any untrue statement or
alleged untrue statement or omission or alleged omission made in such
3
<PAGE>
registration statement or amendment or supplement thereto or in any
such preliminary, final or summary prospectus in reliance upon and in
conformity with written information furnished to the Company by the
undersigned expressly for use in the preparation thereof. Such
indemnity shall remain in full force and effect regardless of any
investigation made by or on behalf of the undersigned.
(c) In the event of the registration of the Shares under the Act pursuant
to this Agreement, the undersigned will, and he hereby does, indemnify
and hold harmless, to the extent permitted by law, the Company, its
directors and officers and each other person, if any, who controls the
Company within the meaning of the Act, against any and all losses,
claims, damages or liabilities, joint or several, and expenses to
which the Company, any such director or officer or any such
controlling person may become subject under the Act, common law or
otherwise, insofar as such losses, claims, damages or liabilities (or
actions or proceedings, whether commenced or threatened, in respect
thereof) arise out of or are based upon (i) any untrue statement or
alleged untrue statement of any material fact contained in any
registration statement under which such securities were registered
under the Act, any preliminary, final or summary prospectus contained
therein, or any amendment or supplement thereto, or (ii) any omission
or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not
misleading, in each case to the extent, but only to the extent, that
such loss, claim, damage, liability (or action or proceeding in
respect thereof) or expenses arise out of or are based upon any untrue
statement or alleged untrue statement or omission or alleged omission
made in such registration statement or amendment or supplement thereto
or in any such preliminary, final or summary prospectus in reliance
upon and in conformity with written information furnished to the
Company by the undersigned expressly for use in the preparation
thereof; and the undersigned will reimburse the Company and each such
director, officer and controlling person for any legal or any other
expenses reasonably incurred by them in connection with investigating
or defending any such loss, claim, liability, action or proceeding.
Such indemnity shall remain in full force and effect regardless of any
investigation made by or on behalf of the Company or any such
director, officer or controlling person and shall survive the transfer
of such securities by the undersigned. In no event shall the
liability of the undersigned hereunder exceed the proceeds of sale
received by the undersigned in respect of securities sold by the
undersigned pursuant to such registration statement.
(d) Promptly after receipt by an indemnified party hereunder of written
notice of the commencement of any action or proceeding involving a
claim referred to in the preceding subsections of this Section 5, such
indemnified party will, if a claim in respect thereof is to be made
against an indemnifying party, give written notice to the latter of
the commencement of such action; provided that the failure of any
indemnified party to give notice as provided herein shall not relieve
the indemnifying party of its obligations under the preceding
subsections of this Section 5, except to the extent that the
indemnifying party is actually prejudiced by such failure to give
notice. In case any such action is brought against an indemnified
party, unless in such indemnified party's reasonable judgment a
conflict of interest between such indemnified and indemnifying parties
may exist in respect of such claim, the indemnifying party will be
entitled to participate in the defense thereof, jointly with any other
indemnifying party similarly notified to the extent that it may wish,
with counsel reasonably satisfactory to such indemnified party. No
indemnifying party will consent to entry of any judgment or enter into
any settlement which does not include as an unconditional term thereof
the giving by the claimant or plaintiff to such indemnified party of a
release from all liability in respect to such claim or litigation.
4
<PAGE>
SIGNATURE PAGE
--------------
The undersigned has read and executed this Agreement on the 14th day of
November, 1997.
X________________________________
Wayland R. Hicks
Telephone Number: 617-437-6779
Social Security/Tax ID Number(s): ###-##-####
Address:
Wayland R. Hicks
163 Marlboro Street, #2
Boston, MA 02116
Approved and Agreed:
UNITED RENTALS, INC.
BY ______________________________
5
<PAGE>
AGREEMENT
This Agreement between UNITED RENTALS, INC., a Delaware corporation ("UR"), and
WAYLAND R. HICKS ("Employee") is hereby entered into on November 14, 1997.
Recitals:
--------
UR and its affiliates (collectively, the "Company") propose to engage in the
business of acquiring, operating and financing companies which rent, operate,
finance, maintain or otherwise deal in or with equipment or similar assets, and
may in the future engage in other businesses which the Company deems to be
related to the foregoing. All such businesses are collectively referred to
herein as the "Business."
Employee is or will be employed by the Company in a confidential relationship
wherein Employee, in the course of his employment with the Company, will become
familiar with and aware of information as to the specific manner of doing
business and the potential acquisition candidates and customers of the Company
and its affiliates and future plans with respect thereto, all of which will be
established and maintained at great expense to the Company; this information is
a trade secret and constitutes the valuable goodwill of the Company.
Employee recognizes that the Company's business is dependent upon a number of
trade secrets, including the identity of customers and potential acquisition
candidates, the analysis of such candidates and financial data of the Company.
The protection of these trade secrets is of critical importance to the Company.
The Company will sustain great loss and damage if during the periods hereinafter
set forth after the termination of Employee's employment, for whatever reason,
Employee should violate the provisions of this Agreement. Further, monetary
damages for such losses would be extremely difficult to measure.
NOW, THEREFORE, in consideration of the mutual promises, terms, covenants and
conditions set forth herein and the performance of each, it is hereby agreed as
follows:
1. Employment and Duties.
---------------------
(a) Upon commencement of and throughout the term of this Agreement, the
Company shall employ Employee on the terms and conditions herein set
forth. Employee's title shall be President and Chief Operating
Officer. Employee shall report to the Chairman and Chief Executive
Officer of the Company. Employee shall perform such duties as are
commensurate with such offices, and shall have such other authority as
shall from time to time be designated by the Board of Directors of the
Company. Employee shall accept this employment upon the terms and
conditions herein contained and agrees to devote his full time,
attention and efforts to promote and further the business and services
of the Company. Employee shall faithfully adhere to, execute and
fulfill all policies established by the Company.
(b) Employee shall not, during the term of his employment hereunder, be
engaged in any other business activity pursued for gain, profit or
other pecuniary advantage without the prior written consent of the
Company; provided, however, that Employee's service as a member of the
board of directors of not more than two public companies and one
private company, as he may determine but as shall be reasonably
satisfactory to the Company, shall be permitted subject to the
restrictions set forth in Section 5. However, the foregoing
limitations shall not be construed as prohibiting Employee from making
personal investments in such form or manner as will neither require
his services in the operation or affairs of the companies or
enterprises in which such investments are made nor violate the terms
of Section 5; provided that this Section shall not be violated by an
investment representing not more than 1% of the issued and outstanding
equity capital of any publicly traded company which is not in the
equipment rental business and in respect of which Employee does not
render any services.
1
<PAGE>
(c) The Company will use its best efforts to cause Employee to be elected
to the Company's Board of Directors prior to consummation of its
initial public offering, or at such earlier time as there are
sufficient outside directors on the Board so that the election of
Employee would not violate the rules of the New York Stock Exchange or
the NASDAQ National Market System were the Company's shares of stock
then listed thereon. The Company will thereafter at each annual
meeting during the term of Employee's employment nominate Employee for
election by the shareholders as a director of the Company. Employee
agrees to serve a as a director of the Company as aforesaid.
2. Compensation and Other Benefits. For all services rendered by Employee to
-------------------------------
the Company, the Company shall compensate the Employee as follows:
(a) Base Salary and Bonus. The base salary payable to Employee shall be
$400,000 per year, payable in four quarterly installments in cash on
the 10th day of each calendar quarter commencing April 1998; a pro
rata installment for the period from November 14, 1997 through
December 31, 1997 shall be paid on January 10, 1998. After the Company
shall have completed a public offering as a result of which there
shall have been at least 20 trading days during a calendar quarter,
each installment shall be paid 50% in cash and 50% in shares of the
Company's common stock (the "Shares"). For the purpose of each
installment, the Shares shall be valued at the average closing sales
price of the common stock during all trading days in the calendar
quarter immediately preceding the date of such installment. The Board
of Directors may from time to time award bonuses to Employee based on
such criteria as the Board shall establish in its discretion. The
payment of base salary and bonuses shall be subject to all applicable
federal, state and local withholding taxes, social security deductions
and other general obligations.
(b) Special Provisions Relating to the Shares.
(i) Until the first anniversary of the date on which any Shares are
issued hereunder, Employee shall not, directly or indirectly,
sell, offer to sell, contract to sell, grant any option to
purchase, or otherwise transfer or dispose of (collectively,
"Transfer") such Shares without the prior written consent of the
Company. For purposes of this Agreement, a Transfer of Shares
will be deemed to include any transaction involving the sale or
purchase of common stock of the Company or contracts relating to
the purchase or sale thereof (such as "shorting against the box"
or hedging or using derivative instruments) that is intended to
eliminate or reduce the market risk of owning such Shares.
(ii) Employee understands that the Shares have not been registered
under the Securities Act of 1933, as amended ("the "Act"), or any
state or foreign securities laws. Within 13 months following the
closing of an initial public offering, the Company will file a
registration statement, in accordance with the Securities Act,
registering the resale of the Shares and will use its best
efforts to cause such registration statement to become effective
and the Shares to be qualified under the laws of such States as
Employee requests as soon as practicable thereafter. The Company
will also amend such registration statement or file such
supplemental or additional registration statements as in the
opinion of Company's counsel shall be required to permit the
public sale of Shares issued hereunder in a single transaction
once the restrictions under Section (i) on Transfer of such
Shares have lapsed, and shall use its best efforts to cause such
amendments or additional registration statements to become
effective upon lapse of such restrictions.
(iii) The Company shall take all actions necessary to keep such
registration and qualification effective and the Shares to be
qualified under the laws of such States as the Employee requests
until the undersigned has sold all of the Shares or until such
registration and qualification shall no longer necessary for the
public sale of the Shares in a single transaction. All
registration expenses incurred in connection with the
registration of Shares pursuant to this Agreement shall be borne
by the Company.
(iv) The transfer restrictions until the first anniversary of the date
of issuance described above will continue in effect
notwithstanding any such registration. Without limiting the
restrictions provided for in this Section, Employee agrees not to
Transfer any Shares in the absence of an effective
2
<PAGE>
registration statement under the Act or an opinion of counsel
satisfactory to the Company that such Transfer does not require
such registration under the Act and will not be in violation of
applicable state securities laws.
(v) The restrictions on Transfer and the registration rights with
respect to the Shares provided for in this Agreement shall apply
to any securities issued in respect of the Shares (by way of
stock split, dividend or otherwise).
(vi) Employee hereby acknowledges, represents and warrants to, and
agrees with, the Company as follows:
(A) Employee is acquiring the Shares for Employee's own account,
for investment purposes only, and not with a view to or for
or in connection with the resale, public distribution or
fractionalization thereof, in whole or in part.
(B) Employee meets the standards of an "Accredited Investor" set
forth under Rule 501(a) of Regulation D under the Act and
has such knowledge and experience in financial and business
matters that Employee with the assistance of Employee's
representatives and/or advisors, is capable of evaluating
the merits and risks of an investment in the Shares.
Employee will promptly notify the Company in the event that
prior to the issuance of the Shares to Employee the
foregoing representation ceases to be accurate.
(vii) Employee:
(A) has received and carefully read the Company's registration
statement on Form S-1 (the "Registration Statement"), has
been advised that the Registration Statement has not been
declared effective, understands and has evaluated the risks
of a purchase of the Shares, including the risks set forth
in the Registration Statement, and has relied solely (except
as indicated in subparagraphs (ii) and (iii) below) on the
information contained in the Registration Statement;
(B) has been given the opportunity to ask questions of, and
receive answers from, the Company concerning the Company and
other matters pertaining to his acquisition of the Shares,
and to obtain any additional information necessary to verify
the accuracy of the information contained in the
Registration Statement or otherwise provided, and has not
been furnished any other offering literature or prospectus
except as mentioned herein or in the Registration Statement;
(C) has been furnished with all additional documents and
information requested by Employee; and
(D) has determined that the Shares are a suitable investment and
that at this time Employee could bear a complete loss of the
investment.
(viii) The certificates representing the Shares will bear a legend in
substantially the following form:
"The shares represented by this certificate have not been
registered under the Securities Act of 1933. The shares may
not be offered, sold, transferred, or otherwise disposed of
except pursuant to an effective registration statement under
that Act and under any applicable state securities laws
unless prior to such disposition the issuer is furnished
with an opinion of counsel, in form and substance
satisfactory to the issuer, that the proposed transaction
will be exempt from such registration. The shares are
subject to additional restrictions on transfer contained in
an Employment Agreement dated November 14, 1997, between the
issuer and the holder."
3
<PAGE>
(ix) The Company represents and warrants that (i) it is duly organized
and in good standing, (ii) it has taken all corporate action
necessary for the authorization, execution, delivery and
performance of this Agreement, and (iii) upon issuance, the
Shares will be duly and validly issued, fully paid and
nonassessable.
(x) No representations not contained herein or in the Registration
Statement have been made to Employee by the Company or any
officer, employee, agent or affiliate thereof.
(xi) Indemnification.
(A) In the event of the registration of Shares under the Act
pursuant to this Agreement, the Company will, and it hereby
does, indemnify and hold harmless, to the extent permitted
by law, Employee, against any and all losses, claims,
damages or liabilities, joint or several, and expenses to
which Employee may become subject under the Act, common law
or otherwise, insofar as such losses, claims, damages or
liabilities (or actions or proceedings, whether commenced or
threatened, in respect thereof) arise out of or are based
upon (i) any untrue statement or alleged untrue statement of
any material fact contained in any registration statement
under which such Shares were registered under the Act, any
preliminary, final or summary prospectus contained therein,
or any amendment or supplement thereto, or (ii) any omission
or alleged omission to state therein a material fact
required to be stated therein or necessary to make the
statements therein not misleading, and the Company will
reimburse Employee for any legal or any other expenses
reasonably incurred by him in connection with investigating
or defending any such loss, claim, liability, action or
proceeding; provided that the Company shall not be liable in
any such case to the extent that any such loss, claim,
damage, liability (or action or proceeding in respect
thereof) or expenses arise out of or are based upon any
untrue statement or alleged untrue statement or omission or
alleged omission made in such registration statement or
amendment or supplement thereto or in any such preliminary,
final or summary prospectus in reliance upon and in
conformity with written information furnished to the Company
by Employee expressly for use in the preparation thereof.
Such indemnity shall remain in full force and effect
regardless of any investigation made by or on behalf of
Employee.
(B) In the event of the registration of the Shares under the Act
pursuant to this Agreement, Employee will, and he hereby
does, indemnify and hold harmless, to the extent permitted
by law, the Company, its directors and officers and each
other person, if any, who controls the Company within the
meaning of the Act, against any and all losses, claims,
damages or liabilities, joint or several, and expenses to
which the Company, any such director or officer or any such
controlling person may become subject under the Act, common
law or otherwise, insofar as such losses, claims, damages or
liabilities (or actions or proceedings, whether commenced or
threatened, in respect thereof) arise out of or are based
upon (i) any untrue statement or alleged untrue statement of
any material fact contained in any registration statement
under which such securities were registered under the Act,
any preliminary, final or summary prospectus contained
therein, or any amendment or supplement thereto, or (ii) any
omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the
statements therein not misleading, in each case to the
extent, but only to the extent, that such loss, claim,
damage, liability (or action or proceeding in respect
thereof) or expenses arise out of or are based upon any
untrue statement or alleged untrue statement or omission or
alleged omission made in such registration statement or
amendment or supplement thereto or in any such preliminary,
final or summary prospectus in reliance upon and in
conformity with written information furnished to the Company
by Employee expressly for use in the preparation thereof;
and Employee will reimburse the Company and each such
director, officer and
4
<PAGE>
controlling person for any legal or any other expenses
reasonably incurred by them in connection with investigating
or defending any such loss, claim, liability, action or
proceeding. Such indemnity shall remain in full force and
effect regardless of any investigation made by or on behalf
of the Company or any such director, officer or controlling
person and shall survive the transfer of such securities by
Employee. In no event shall the liability of Employee
hereunder exceed the proceeds of sale received by Employee
in respect of securities sold by Employee pursuant to such
registration statement.
(C) Promptly after receipt by an indemnified party hereunder of
written notice of the commencement of any action or
proceeding involving a claim referred to in the preceding
subsections of this Section, such indemnified party will, if
a claim in respect thereof is to be made against an
indemnifying party, give written notice to the latter of the
commencement of such action; provided that the failure of
any indemnified party to give notice as provided herein
shall not relieve the indemnifying party of its obligations
under the preceding subsections of this Section, except to
the extent that the indemnifying party is actually
prejudiced by such failure to give notice. In case any such
action is brought against an indemnified party, unless in
such indemnified party's reasonable judgment a conflict of
interest between such indemnified and indemnifying parties
may exist in respect of such claim, the indemnifying party
will be entitled to participate in the defense thereof,
jointly with any other indemnifying party similarly notified
to the extent that it may wish, with counsel reasonably
satisfactory to such indemnified party. No indemnifying
party will consent to entry of any judgment or enter into
any settlement which does not include as an unconditional
term thereof the giving by the claimant or plaintiff to such
indemnified party of a release from all liability in respect
to such claim or litigation.
(c) Vacation. Employee shall be entitled to three (3) weeks of paid
vacation during each 12-month period of his employment hereunder at
times mutually acceptable to Employee and the Company. Unused
vacations can be carried forward for 12 months, and shall thereupon
lapse.
(d) Other Compensation and Benefits. Employee may be entitled to receive
additional compensation from the Company in such form and only to the
extent explicitly set forth below. Employee shall be entitled to
participate upon commencement of the term of this Agreement in the
Company group health insurance plan, group life, group long-term
disability, and any 401(k) plan which is made available, from time to
time, to other senior executives of the Company.
(e) Reimbursement. The Company shall reimburse Employee for properly
documented expenses which are incurred by Employee on behalf of the
Company in accordance with Company policies in effect from time to
time.
(f) Grant and Vesting of Options.
(i) Employee shall receive the option grant set forth in an option
grant letter dated of even date herewith (the "Option Grant
Letter").
(ii) The term "Options" as used herein means the options granted under
the Option Grant Letter and any and all other options to purchase
shares of common stock which are at any time hereafter granted by
the Company to Employee, whether under the Company's 1997 Stock
Option Plan or otherwise. Notwithstanding any other provision to
contrary set forth in the Option Grant Letter or the United
Rentals, Inc. 1997 Stock Option Plan, all unvested Options shall
automatically vest on a Change of Control which occurs while
Employee is employed by the Company.
(iii) A "Change of Control" shall be deemed to have occurred if:
5
<PAGE>
(A) any "person" is or becomes a "beneficial owner" (as defined
in Rule 13d-3 under the Securities Exchange Act of 1934 (the
"Act") directly or indirectly, of securities of United
Rentals, Inc. representing 50% or more of the total voting
power represented by then outstanding voting securities of
United Rentals, Inc., or has the power (whether as a result
of stock ownership, revocable or irrevocable proxies,
contract or otherwise) or ability to elect or cause the
election of directors consisting at the time of such
election of a majority of the Board. The term "persons" is
defined in Section 13(d) of the Act, except that the term
"person" shall not include:
(1) any person or an Affiliate of such person who as of the
date of this Agreement owns 10% or more of the total
voting power represented by the outstanding voting
securities of the Company; and
(2) a trustee or other fiduciary holding securities under
any employee benefit plan of the Company or a
corporation which is owned directly or indirectly by
the stockholders of the Company in substantially the
same percentage as their ownership in the Company; or
(B) the stockholders of United Rentals, Inc. approve a merger of
United Rentals, Inc., or a plan of complete liquidation of
United Rentals, Inc., or an agreement for the sale or
disposition by United Rentals, Inc. of all or substantially
all of its assets, or any other business combination of
United Rentals, Inc. with any other corporation, other than
any such merger or business combination which would result
in the voting securities of United Rentals, Inc. outstanding
immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting
securities of the surviving entity) at least 50% of the
total voting power represented by the voting securities of
United Rentals, Inc. or such surviving entity outstanding
immediately after such merger or business combination.
(iv) An "Affiliate" of a person is a person that controls, is
controlled by, or is under common control with such person.
(g) The Company will directly pay or, upon presentation of appropriate
vouchers or other expense statements, reimburse Employee for the
ordinary and necessary moving, house search, travel, lodging and
similar expenses incurred by him and his family in relocation Employee
and his wife and household effects from his current principal
residence in Boston, Massachusetts to the Greenwich, Connecticut area,
including the cost of temporary housing reasonably necessary to permit
Employee to obtain a suitable permanent residence, all in accordance
with the policy set forth in Exhibit B. The Company's maximum
aggregate liability under this Section (g) and under Exhibit B is
$100,000.
3. Term; Termination; Rights of Termination.
(a) The term of this Agreement shall begin on the date hereof, and shall
continue until the third anniversary of the commencement date. This
Agreement and Employee's employment may terminate in any one of the
following ways:
(i) The death of Employee shall terminate the Agreement;
(ii) A notice of resignation by the Employee presented to the Company
shall terminate the Agreement;
(iii) The Board of Directors of the Company may terminate this
Agreement after ten (10) days' written notice to Employee for
Cause, which shall be defined to mean:
(A) The failure by Employee to substantially perform his duties
hereunder, other than (except as set forth in Section (B))
any such failure resulting from Employee's incapacity due to
physical or mental illness, after being notified in writing
by the
6
<PAGE>
Company that he has failed to perform his duties
hereunder and has been given 30 days to cure any such
failure;
(B) If, because of illness or physical or mental disability or
other incapacity which continues for a period in excess of
four months in any consecutive 16-month period, Employee is
unable to perform his duties under this Agreement;
(C) Engaging by Employee in willful misconduct that is
demonstrably and materially injurious to the Company;
(D) The deliberate and intentional violation by Employee of the
provisions of Sections 4 or 5 of this Agreement;
(E) The conviction of Employee for any felony from which all
appeals have been exhausted;
(F) The conviction of Employee for any misdemeanor (other than a
traffic offense) from which all appeals have been exhausted
and which negatively and materially affects the Company's
business or reputation; or
(G) Alcohol or drug abuse by Employee which negatively affects
the Company, or any use of illegal drugs.
It is understood, however, that no failure to achieve financial
or other business results shall be a basis for termination of
Employee for Cause.
(iv) The Company may terminate this Agreement without Cause at any
time or Employee may terminate this Agreement for Good Reason (as
hereinafter defined) at any time, provided that in the event of a
termination of this Agreement by the Company without Cause, or
termination by Employee for Good Reason, Employee shall be
entitled to receive in a lump sum an amount equal to $1,000,000
subject to withholding and social security taxes.
(v) For purposes of this Agreement, Good Reason shall mean:
(A) The assignment to Employee of any duties materially
inconsistent with Employee's positions, duties, authority,
responsibilities or reporting requirements as set forth in
Section 1(a); or
(B) At any time during the term of this Agreement, a reduction or
material delay in payment of Employee's total cash, and (to
the extent in the Company's control) equity-based
compensation and benefits from those required to be provided
in accordance with the provisions of this Agreement, or the
breach of any other material provision of this Agreement;
provided, however, that for purposes of this subparagraph (iv),
Good Reason shall not include any acts which are cured by the
Company in all material respects not later than 30 days from the
date of receipt by the Company of a written notice from Employee
identifying in reasonable detail the act or acts constituting
"Good Reason."
(b) Upon termination of this Agreement or Employee's employment for any
reason whatsoever, Employee shall be entitled to receive all salary
earned under this Agreement to the date of termination. However,
termination of this Agreement shall not accelerate the payment date of
any monies accrued or accruing to the account of Employee as a result
of any bonuses or other compensation, nor shall termination vest in
Employee any right in connection therewith other than as expressly set
forth in the Agreements (as hereinafter defined).
7
<PAGE>
(c) Effective upon the termination of this Agreement or Employee's
employment for any reason whatsoever, Employee hereby resigns as a
director of the Company.
(d) In the event of termination of this Agreement for any reason provided
in this paragraph or if Employee resigns prior to the expiration of
the term of this Agreement, all rights and obligations of the Company
and Employee under this Agreement, other than those set forth in
Section 11, shall cease immediately, except for those in favor of the
Company which by their terms specifically apply to periods following
the termination of this Agreement, and (if and only if Employee has
not breached any material provision of this Agreement) those in favor
of Employee which by their terms specifically apply to periods
following the termination of this Agreement, including without
limitation the registration rights and the indemnification rights
granted hereunder and all rights provided under the Agreements, and
thereafter Employee shall have no right to receive any compensation
hereunder except as otherwise expressly set forth in the Agreements.
(e) Any termination notice by the Company or Employee shall be
communicated by written "Notice of Termination" to the other party,
and shall include the specific termination provision in this Agreement
that is relied upon and shall set forth in reasonable detail the facts
and circumstances claimed to provide the basis for termination of
Employee's employment under the provision so indicated.
(f) No termination of Employee's employment shall be treated as for Cause
unless and until there shall have been delivered to Employee a
certified copy of a resolution duly adopted by the affirmative vote of
the Board of Directors of the Company, at a meeting of the Board
called and held for the purpose, finding that in the good-faith
opinion of the Board, conduct of the Employee met the definition of
Cause, and specifying the particulars thereof.
4. Confidentiality
(a) During and at all times after Employee's employment:
(i) Employee will not, except in furtherance of the business of the
Company, disclose to any person or entity, without the Company's
prior consent, any confidential or secret information, whether
prepared by him or others.
(ii) Employee will not, except in furtherance of the business of the
Company, directly or indirectly use any such information other
than as directed by the Company in writing.
(iii) Employee will not, except in the furtherance of the business of
the Company, remove confidential or secret information from the
premises of the Company without the prior written consent of the
Company.
(iv) Upon termination of his employment for whatever reason, with or
without cause, Employee will promptly deliver to the Company all
originals and copies (whether in note, memo or other document
form or on video, audio or computer tapes or discs or otherwise)
of confidential or secret information that is in his possession,
custody or control, whether prepared by him or others.
(b) Confidential information includes, but is not limited to:
(i) the name of any company or business all or any substantial part
of which is or at any time was a candidate for potential
acquisition by the Company, together with all analyses and other
information which the Company has generated, compiled or
otherwise obtained with respect to such candidate, business or
potential acquisition, or with respect to the potential effect of
such acquisition on the Company's business, assets, financial
results or prospects;
(ii) business, pricing and management methods;
(iii) finances, strategies, systems, research, surveys, plans, reports,
recommendations and conclusions;
8
<PAGE>
(iv) names, arrangements with, or other information relating to, the
Company's customers, suppliers, equipment manufacturers,
financiers, owners or operators, representatives and other
persons who have business relationships with the Company or who
are prospects for business relationships with the Company;
(v) technical information, work products and know-how; and
(vi) cost, operating, and other management information systems, and
other software and programming.
(c) Notwithstanding any other provision of this Agreement, (i)
Confidential information shall not include information that has been
previously disclosed to the public by the Company or that is in the
public domain, other than by reason of Employee's breach of this
Section 4, and (ii) disclosure by Employee of Confidential information
which is required in connection with any judicial or administrative
proceeding or inquiry shall not be treated as a breach of this Section
4, provided Employee has to the extent practicable given the Company
at least 10 days' notice of request therefor (unless otherwise
precluded by law) and has cooperated with the Company in its attempts
to obtain confidential treatment of any request for Confidential
information.
5. Non-Compete Provisions. The following covenants are made by Employee in
partial consideration for the substantial economic investment made by the
Company in the hiring, education and training of Employee and the compensation
and other benefits afforded by the Company to the Employee. Such covenants were
material inducements to the Company in hiring Employee.
(a) During his employment by the Company and for a period of 36 months
immediately following the termination of his employment for any reason
whatsoever, whether or not for cause:
(i) Employee will not in any Restricted Area (as hereinafter defined)
directly or indirectly be employed or retained by any Competitive
Entity, nor will Employee directly or indirectly own any interest
in any Competitive Entity or render to it any consulting,
brokerage, contracting, financial or other services or serve as a
director thereof. Employee shall be deemed to be employed or
retained in the Restricted Area if he has an office in the
Restricted Area or if he performs any duties or renders any
advice with respect to any facility or business activities in the
Restricted Area. The term "Competitive Entity" means a person or
entity who or which competes with the Company to any extent,
except for any such person or entity which competes only with a
discrete business of the Company:
(A) whose aggregate annual revenues are then less than the
lesser of $1,000,000 or 1% of the Company's annual aggregate
revenues; and
(B) which discrete business is engaged in by the Company
exclusively by reason of the acquisition thereof incidental
to the acquisition of another business; and
(C) as to the conduct of which discrete business Employee has
had no material role.
(ii) A "Restricted Area" means each of:
(A) any state in the United States and any province in Canada in
which the Company conducts any equipment rental or other
equipment-related activity, it being agreed that each state
and province is one unitary market for purposes of the
Company's business;
(B) regardless of state, the area within a 200-mile radius of
any office or facility of the Company in which or in
relation to which Employee shall have performed any duties
for the Company during the one year period preceding the
termination of his employment.
(iii) Employee will not anywhere in the United States or Canada
directly or indirectly be employed or retained by a Similar
Entity (as hereinafter defined) nor will Employee directly or
indirectly own
9
<PAGE>
any interest in any Similar Entity or render to it any
consulting, brokerage, financing, contracting, or other services.
A "Similar Entity" means each of:
(A) the entities listed in Exhibit A to this Agreement; and
(B) any Competitive Entity; and
(C) any entity which, to Employee's knowledge, at any time during
the term of Employee's employment was a candidate for
acquisition by or merger with the Company; and
(D) any entity which, to Employee's knowledge, was a candidate
for acquisition by the Company at any time during the term of
Employee's employment.
(b) During his employment by the Company and for a period of 36 months
immediately following the termination of his employment for any reason
whatsoever, whether or not for cause, Employee will not anywhere
directly or indirectly (whether as an owner, partner, employee,
consultant, broker, contractor or otherwise, and whether personally or
through other persons):
(i) solicit or accept the business of, or call upon, any person or
entity who or which is or was (i) a customer, supplier,
manufacturer, finder, broker, or other person who had a material
business relationship with the Company, or who was a prospect for
a material business relationship with the Company related to a
material business of the Company, at any time during the period
the period of his employment, or (ii) an affiliate of any such
person;
(ii) approve, solicit or retain, or discuss the employment or
retention (whether as an employee, consultant or otherwise) of
any person who was an employee of the Company at any time during
the one-year period preceding the termination of his employment;
(iii) solicit or encourage any person to leave the employ of the
Company;
(iv) call upon or assist in the acquisition of any company which was,
to Employee's knowledge, during the term of Employee's employment
either called upon by an employee of the Company or by a broker
or other third party, for possible acquisition by the Company or
for which an employee of the Company or other person made an
acquisition analysis for the Company; or
(v) own any interest in or be employed by or provide any services to
any person or entity which engages in any conduct which is
prohibited to Employee under this Section.
(c) All time periods in this Agreement shall be computed by excluding from
such computation any time during which Employee is in violation of any
provision of this Agreement and any time during which there is pending
in any court of competent jurisdiction any action (including any
appeal from any final judgment) brought by any person, whether or not
a party to this Agreement, in which action the Company seeks to
enforce the agreements and covenants in this Agreement or in which any
person contests the validity of such agreements and covenants or their
enforceability or seeks to avoid their performance or enforcement.
(d) Employee understands that the provisions of this Agreement have been
carefully designed to restrict his activities to the minimum extent
which is consistent with law and the Company's requirements. Employee
has carefully considered these restrictions, and Employee confirms
that they will not unduly restrict Employee's ability to obtain a
livelihood. Employee has heretofore engaged in businesses other than
the Business. Before signing this Agreement, Employee has had the
opportunity to discuss this Agreement and all of its terms with his
attorney.
(e) Since monetary damages will be inadequate and the Company will be
irreparably damaged if the provisions of this Agreement are not
specifically enforced, the Company shall be entitled, among other
remedies (i) to an injunction restraining any violation of this
Agreement (without any bond or
10
<PAGE>
other security being required) by Employee and by any person or entity
to whom Employee provides or proposes to provide any services in
violation of this Agreement, (ii) to require Employee to hold in a
constructive trust, account for and pay over to the Company all
compensation and other benefits which Employee shall derive as a
result of any action or omission which is a violation of any provision
of this Agreement and (iii) to require Employee to account for and pay
over to the Company:
(i) any net profit earned by the Employee from the exercise, during
the 24-month period prior to the termination of his employment,
of any stock options issued to him by the Company; and
(ii) any bonus received by Employee during the 12-month period
immediately preceding termination of his employment.
(f) If any provision contained in this Agreement is determined to be void,
illegal or unenforceable, in whole or in part, then the other
provisions contained herein shall remain in full force and effect as
if the provision which was determined to be void, illegal, or
unenforceable had not been contained herein.
(g) The courts enforcing this Agreement shall be entitled to modify the
duration and scope of any restriction contained herein to the extent
such restriction would otherwise be unenforceable, and such
restriction as modified shall be enforced.
6. Return of Company Property. All products, records, designs, patents, plans,
--------------------------
manuals, "field guides," memoranda, lists and other property delivered to
Employee by or on behalf of the Company or by its customers (including, but not
limited to, customers obtained for the Company by Employee), and all records
compiled by the Employee which pertain to the business of the Company (whether
or not confidential) shall be and remain the property of the Company and be
subject at all times to its discretion and control. Likewise, all
correspondence with customers or representatives, reports, records, charts,
advertising materials, and any data collected by Employee, or by or on behalf of
the Company or its representatives (whether or not confidential) shall be
delivered promptly to the Company without request by it upon termination of
Employee's employment.
7. Inventions. Employee shall disclose promptly to the Company any and all
----------
conceptions and ideas for inventions, improvements and valuable discoveries,
whether patentable or not, which are conceived or made by Employee solely or
jointly with another during the period of employment or within one (1) year
thereafter and which are related to the business or activities of the Company or
which Employee conceives as a result of his employment by the Company, and
Employee hereby assigns and agrees to assign all his interests therein to the
Company or its nominee. Whenever requested to do so by the Company, Employee
shall execute any and all applications, assignments or other instruments that
the Company shall deem necessary to apply for and obtain Letters Patent of the
United States or any foreign country or to otherwise protect the Company's
interest therein. These obligations shall continue beyond the termination of
employment with respect to inventions, improvements and valuable discoveries,
whether patentable or not, conceived, made or acquired by Employee during the
period of employment or within one (1) year thereafter, and shall be binding
upon Employee's assigns, executors, administrators and other legal
representatives.
8. Suits Against Company.
----------------------
(a) Both during and after the term of employment hereunder, Employee
covenants that Employee will not bring suit or file counterclaims
against the Company for corporate misconduct (which for this purpose
shall not include any action brought by Employee to enforce his rights
under this Agreement, or under the United Rentals, Inc. Subscription
Agreement dated of even date, the United Rentals, Inc. 1997 Stock
Option Plan, or the Option Grant Letter (collectively referred to as
the "Agreements"), or under any Company compensation or benefit plan),
unless both of (i) and (ii) shall have occurred, namely:
(i) Employee shall have first made written demand to the Company's
Board of Directors to investigate and deal with such misconduct,
and
(ii) The Board of Directors shall have failed within 45 days after the
date of receipt of such demand to establish a Special Litigation
Committee, consisting exclusively of outside
11
<PAGE>
directors, to investigate and deal with such misconduct.
(b) Without limiting the generality and to further implement the
foregoing, Employee irrevocably and unconditionally consents at the
option of the Company to the entry of temporary restraining orders and
temporary and permanent injunctions (without posting bond or other
security) against the filing of any action or counterclaim which is
prohibited hereunder.
(c) The opinion of the Board of Directors shall be binding and conclusive
on the determination of which directors constitute "outside
directors," and the determination of the Special Litigation Committee
shall be binding and conclusive on all matters relating to the actual
or alleged misconduct which is referred to it as aforesaid.
9. Cooperation in Proceedings. During and after the termination of Employee's
--------------------------
employment, Employee will for reasonable compensation consistent with his
compensation from the Company reasonably cooperate and at reasonable times with
the Company and its subsidiaries in all litigations and regulatory proceedings
on which the Company or any subsidiary seeks Employee's assistance and as to
which Employee has any knowledge or involvement, other than any action or
proceeding brought to enforce the provisions of the Agreements. Without limiting
the generality of the foregoing and except in connection with any action or
proceeding brought to enforce the provisions of the Agreements, subject to his
commitments to other employers Employee will be available to testify at such
litigations and other proceedings, and will cooperate with counsel to the
Company in preparing materials and offering advice in such litigations and other
proceedings. Except as required by law and then only upon reasonable prior
written notice to the Company and except in connection with any action or
proceeding brought to enforce the provisions of the Agreements, Employee will
not in any way cooperate or assist any person or entity in any matter which is
adverse to the Company or to any person who was at any time an officer or
director of the Company.
10. No Derogation. Except as otherwise required by law (and then only upon 10
-------------
days' prior written notice to the other party), neither the Company nor Employee
will from and after the date hereof, whether during Employee's employment or at
any time thereafter, in any way or to any person, denigrate or derogate the
Company or any of its subsidiaries, or any person who was at any time an officer
or director of the Company, or any products, services or procedures, or the
Employee, whether or not such denigrating or derogatory statements shall be true
and are based on acts or omissions which were learned or are learned by the
Company or Employee heretofore or from and after the date hereof or on acts or
omissions which occurred at any time heretofore or which occur at any time from
and after the date hereof, or otherwise.
11. Miscellaneous.
--------------
(a) Complete Agreement. There are no representations, understandings or
-------------------
agreements with the Company or any of its officers, directors or
representatives covering the same subject matter as this Agreement
other than the Agreements. The Agreements are the final, complete and
exclusive statement and expression of the agreement between the
Company and Employee. The Agreements cancel and supersede all prior
agreements with respect to the subject matter hereof, and cannot be
varied, contradicted or supplemented by evidence of any prior or
contemporaneous oral or written agreements. The Agreements may not be
later modified except by a further writing signed by the Company and
Employee, and no term of the Agreements may be waived except by
writing signed by the party waiving the benefit of such terms.
(b) No Waiver. No waiver by the parties hereto of any default or breach of
---------
any term, condition or covenant of this Agreement shall be deemed to
be a waiver of any subsequent default or breach of the same or any
other term, condition or covenant contained herein.
(c) Costs. In the event that the Employee shall prevail in any legal
------
proceedings between the Company and the Employee as to the
interpretation of this Agreement, including any legal proceedings
instituted by Employee to enforce the terms of this Agreement or to
enforce any rights with respect to the Shares or the Options, and also
including the defense by Employee against legal proceedings
instituted by the Company, the Company shall reimburse Employee for
his out of pocket costs and expenses with respect thereto, including
reasonable attorney's fees and expenses. Employee shall be deemed to
have prevailed only to the extent that a final judgment of a court is
rendered in his favor
12
<PAGE>
and such judgment has been affirmed by final appeal or the time for
appeal or further appeal has lapsed.
(d) Notice. Whenever any notice is required hereunder, it shall be given in
------
writing addressed as follows:
To the Company:
Attn: CEO
United Rentals, Inc.
Third Floor
Four Greenwich Office Park
Greenwich, Connecticut 06830
with a copy to:
Oscar D. Folger, Esq.
24th floor
521 Fifth Avenue
New York, New York 10175
To Employee
Wayland R. Hicks
Marlboro Street, #2
Boston, MA 02116
with a copy to:
Willkie Farr & Gallagher
One Citicorp Center
East 53rd Street
New York, NY 10022-4677
Attn: Stephen T. Lindo, Esq.
Notice shall be deemed given and effective (a) five business days
after the deposit in the U.S. mail of a writing addressed as
above and sent first class mail, certified, return receipt
requested, (b) one (1) business day after delivered to a
nationally recognized air courier for next day delivery service,
or (c) upon personal delivery. Either party may change the
address for notice by notifying the other party of such change in
accordance with this paragraph.
(e) Severability; Headings. If any portion of this agreement is held
----------------------
invalid or inoperative, the other portions of this agreement shall be
deemed valid and operative, and so far as it is reasonable and
possible, effect shall be given to the intent manifested by the
portion held invalid or inoperative. The paragraph headings herein are
for reference purposes only and are not intended in any way to
describe, interpret, define or limit the extent or intent of this
Agreement or any part hereof.
(f) Governing Law; Resolution of Disputes; Service of Process. This
---------------------------------------------------------
Agreement shall in all respects be construed according to the laws of
the State of Delaware. All disputes relating to the interpretation and
enforcement of the provisions of this Agreement shall be resolved and
determined exclusively by the state or federal courts sitting in
Delaware, and such courts are hereby granted exclusive jurisdiction
for such purpose. Employee waives trial by jury. Service of process
shall be effective when given in the manner provided for notices
hereunder.
(g) Mitigation. Employee shall not be obligated to seek other employment
----------
in mitigation of the amounts payable under any provision of this
Agreement. The obtaining of any such other employment shall in no
event effect any reduction of the Company's obligations to make the
payments and arrangements required to be made under this Agreement.
(h) Indemnification.
---------------
(i) The Company shall indemnify Employee to the fullest extent
permitted by Delaware law in
13
<PAGE>
effect as of the date hereof against all costs, expenses,
liabilities and losses (including, without limitation, attorneys'
fees, judgments, fines, penalties, ERISA excise taxes, penalties
and amounts paid in settlement) reasonably incurred by Employee
in connection with a Proceeding. For the purposes of this Section
11, a "Proceeding" shall mean any action, suit or proceeding,
whether civil, criminal, administrative or investigative, in
which Employee is made, or is threatened to be made, a party to,
or a witness in, such action, suit or proceeding by reason of the
fact that he is or was an officer, director or employee of the
Company or is or was serving as an officer, director, member,
employee, trustee or agent of any other entity at the request of
the Company.
(ii) The Company shall advance to Employee all reasonable costs and
expenses incurred by him in connection with a Proceeding within
20 days after receipt by the Company of a written request for
such advance. Such request shall include an itemized list of the
costs and expenses and an undertaking by Employee to repay the
amount of such advance if it shall ultimately be determined that
he is not entitled to be indemnified against such costs and
expenses.
(iii) Employee shall not be entitled to indemnification under this
Section 11 unless he meets the standard of conduct specified in
the Delaware General Corporation Law. Notwithstanding the
foregoing, to the extent permitted by law, neither Section 145(d)
of the Delaware General Corporation Law nor any similar provision
shall apply to indemnification under this Section 11, so that if
Employee in fact meets the applicable standard of conduct, he
shall be entitled to such indemnification whether or not the
Company (whether by the board of directors, the shareholders,
independent legal counsel or other party) determines that
indemnification is proper because he has met such applicable
standard of conduct. Neither the failure of the Company to have
made such a determination prior to the commencement by Employee
of any suit or arbitration proceeding seeking indemnification,
nor a determination by the Company that he has not met such
applicable standard of conduct, shall create a presumption that
he has not met the applicable standard of conduct.
(iv) The rights to indemnification conferred under this Agreement
shall not be exclusive of any other rights to indemnification
which Employee may have by law or pursuant to the terms of any
other agreement.
(v) To the extent the Company from time to time provides such
coverage for its other executive officers, the Company agrees to
continue and maintain a directors and officers liability
insurance policy covering Employee both during his employment and
after Employee's termination of his employment with respect to
acts or omissions that occurred prior to his termination of
employment.
(i) Successors; Binding Agreement; Assignment.
-----------------------------------------
(i) The Company may assign this Agreement only to a person or entity
who or which directly or indirectly succeeds to all or any
substantial part of the Company's assets or business.
(ii) The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all
or substantially all of the business and/or assets of the
Company, to expressly assume and agree to perform this Agreement
in the same manner and to the same extent that the Company would
be required to perform it if no such succession had taken place.
Failure of the Company to obtain such agreement prior to the
effectiveness of any such succession shall be a breach of this
Agreement. As used in this Agreement, "Company" shall mean the
Company as hereinbefore defined and any successor to its business
and/or assets as aforesaid which executes and delivers the
agreement provided for in this Section 11 or which otherwise
becomes bound by all the terms and provisions of this Agreement
by operation of law.
14
<PAGE>
(iii) This Agreement and all rights of Employee hereunder shall inure
to the benefit of and be enforceable by Employee's personal or
legal representatives, executors, administrators, successors,
heirs, distributee, devisees and legatees. Employee may not
assign his rights or obligations hereunder.
(j) Counterparts. This Agreement may be executed in several counterparts,
------------
each of which shall be deemed an original, but all of which constitute
one and the same instrument. This Agreement may be delivered by
telecopy of signed documents, and the parties may rely upon such
telecopy counterparts of this Agreement as though they were original.
Without altering the validity of the foregoing, the parties will
exchange executed original counterparts of the Agreement by overnight
courier or as soon thereafter as otherwise practicable.
UNITED RENTALS, INC.
BY:________________________________________
Bradley Jacobs, its Chief Executive Officer
EMPLOYEE:
______________________________________
Wayland R. Hicks
15
<PAGE>
EXHIBIT A
- ----------
American Equipment
Brambles
Brentwood Associates
Caterpillar
Deere
Falconite
GE Capital
Golder Thoma
Hertz Equipment Rental Corporation
National Equipment Services
Nations Rent
Neff
Prime Services
Rental Service Corp.
RentX
US Rentals
any company on the "RER 100" list
Any affiliate of any of the foregoing.
16
<PAGE>
EXHIBIT B
---------
Sale of Old Residence.
- ---------------------
Reimbursement of reasonable expenses connected with the sale of Boston,
Massachusetts home, including, among other things, broker's fee, real estate
transfer taxes and stamps, recording fees, and legal expenses.
Reimbursement of duplicate home ownership expenses in respect of the Boston,
Massachusetts home if unable to sell the old residence after acquiring new
residence for a period of not more than six months from the commencement of the
term of employment. This would include condominium maintenance fees, real
estate taxes, insurance and utility expenses, etc., on the Boston, Massachusetts
property.
Finding a New Residence.
- -----------------------
Reimbursement of reasonable travel, meals, lodging, and related expenses
incurred by the Employee and his wife in connection with looking for housing in
Connecticut.
Reimbursement of interest costs of bridge loan incurred to purchase new
residence if old residence has not been sold before new one is purchased for a
period of up to six months.
Reimbursement for reasonable closing costs, including, among other things, title
insurance, legal fees, survey, inspections, service charges, mortgage points,
recording fees, transfer taxes and stamps.
Reimbursement of reasonable temporary living expenses, for a period of up to
three months from the commencement of the term of employment.
The Physical Move.
- -----------------
Payment of reasonable cost of moving household effects from Boston,
Massachusetts home, including, among other things, packing, unpacking,
transportation, appliance disconnect and re-connect.
Reimbursement of reasonable transportation, meals, etc. for move of Employee and
wife to new residence.
18
<PAGE>
Exhibit 11
Statement of Calculation of Per Share Earnings
Weighted average shares outstanding 5,409,183
Incremental shares pursuant to Securities
and Exchange Commission Staff Accounting
Bulletin No. 83(1) 10,305,404
Dilution of common stock warrants (1) 1,463,736
----------
17,178,323
==========
(1) Based upon the assumed IPO price per share of $13.00
<PAGE>
EXHIBIT 23(c)
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated October 8, 1997, except for Note 7 as to which the
date is October 28, 1997, with respect to the financial statements of United
Rentals, Inc. in Amendment No. 1 to the Registration Statement (Form S-1 No.
333-39117) and the related Prospectus of United Rentals, Inc. for the
registration of 7,000,000 shares of its common stock filed with the Securities
and Exchange Commission on November 17, 1997.
/s/ Ernst & Young LLP
MetroPark, New Jersey
November 14, 1997
<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 October 29, 1997, with respect to the financial
statements of J&J Rental Services, Inc. in Amendment No. 1 to the Registration
Statement (Form S-1 No. 333-39117) and the related Prospectus of United
Rentals, Inc. for the registration of 7,000,000 shares of its common stock
filed with the Securities and Exchange Commission on November 17, 1997.
/s/ Ernst & Young LLP
MetroPark, New Jersey
November 14, 1997
<PAGE>
EXHIBIT 23(e)
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated October 21, 1997, except for Note 10 as to which
the date is October 24, 1997, with respect to the financial statements of
Bronco Hi-Lift, Inc., in Amendment No. 1 to the Registration Statement (Form S-
1 No. 333-39117) and the related Prospectus of United Rentals, Inc. for the
registration of 7,000,000 shares of its common stock filed with the Securities
and Exchange Commission on November 17, 1997.
/s/ Ernst & Young LLP
MetroPark, New Jersey
November 14, 1997