<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 4, 1998
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
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.
EHRENREICH EILENBERG WEIL, GOTSHAL & MANGES LLP SKADDEN, ARPS, SLATE,
KRAUSE & ZIVIAN LLP 767 FIFTH AVENUE MEAGHER & FLOM LLP
11 EAST 44TH STREET NEW YORK, NEW YORK 10153 919 THIRD AVENUE
NEW YORK, NEW YORK 10017 (212) 310-8000 NEW YORK, NEW YORK 10022
(212) 986-9700 (212) 735-3000
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
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<TABLE>
<CAPTION>
PROPOSED PROPOSED
TITLE OF EACH CLASS OF AMOUNT MAXIMUM MAXIMUM AMOUNT OF
SECURITIES TO BE TO BE OFFERING AGGREGATE REGISTRATION
REGISTERED REGISTERED(1) PRICE PER SHARE(2) OFFERING PRICE(2) FEE
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<S> <C> <C> <C> <C>
Common Stock, par value
$0.01 per share....... 6,325,000 Shares $23.88 $151,041,000 $41,537
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</TABLE>
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(1) Includes 825,000 shares that the Underwriters have the option to purchase
to cover over-allotments, if any.
(2) Estimated solely for the purposes of calculating the registration fee
pursuant to Rule 457 of the Securities Act of 1933, as amended, based on
the average of the high and low sales prices of the Common Stock on the
New York Stock Exchange on January 30, 1998.
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.
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<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."
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS, DATED FEBRUARY 4, 1998
PROSPECTUS
5,500,000 SHARES
[LOGO] UNITED
RENTALS
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, 4,400,000 shares are being offered
initially in the United States and Canada by the U.S. Underwriters (the "U.S.
Offering"), and 1,100,000 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 public offering price and the underwriting
discount per share are identical for each of the Offerings. See "Underwriting."
The Common Stock is traded on the New York Stock Exchange under the symbol
"URI". On February 3, 1998, the last sale price of the Common Stock as reported
on the New York Stock Exchange was $24 5/16 per share. See "Price Range of
Common Stock."
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.
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<TABLE>
<CAPTION>
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT(1) COMPANY(2)
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<S> <C> <C> <C>
Per Share...................................... $ $ $
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Total(3)....................................... $ $ $
</TABLE>
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(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 $1,000,000.
(3) The Company has granted the U.S. Underwriters and the International
Managers options to purchase up to an additional 660,000 shares and 165,000
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 , 1998.
-----------
MERRILL LYNCH & CO.
DEUTSCHE MORGAN GRENFELL
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
SALOMON SMITH BARNEY
-----------
The date of this Prospectus is , 1998.
<PAGE>
[Map Showing Rental Locations]
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."
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read in
conjunction with, the more detailed information and financial statements and
notes thereto appearing elsewhere in this Prospectus. Unless otherwise
indicated, (i) the terms "United Rentals" and "the Company" refer collectively
to United Rentals, Inc. and its subsidiaries and (ii) the term the "Acquired
Companies" refers collectively to the 20 companies acquired by the Company
since its formation in September 1997. All financial and operating data for the
Company contained herein with respect to the year ended December 31, 1997 is on
a pro forma basis giving effect to the acquisition of the Acquired Companies
and the financing thereof as of January 1, 1997. Unless otherwise indicated,
the information contained in this Prospectus assumes no exercise of the
Underwriters' over-allotment options.
THE COMPANY
United Rentals was formed in September 1997 for the purpose of creating a
large, geographically diversified equipment rental company in the United States
and Canada. The Company commenced equipment rental operations in October 1997
by acquiring six established companies and acquired 14 additional companies in
the first two months of 1998. The Company rents a broad array of equipment to a
diverse customer base that includes construction industry participants,
industrial companies, homeowners and other individuals. The Company also
engages in related activities such as selling used rental equipment, acting as
a distributor for certain new equipment, and selling related merchandise and
parts. The Company had pro forma revenues of $186.8 million during the year
ended December 31, 1997.
United Rentals currently operates 67 rental locations in 16 states and
Canada. The Company's locations are managed by experienced professionals who
have extensive industry experience and substantial knowledge of the local
markets served. These managers generally are former owners or 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 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 February 3, 1998, the Company's rental
equipment included approximately 34,000 units (not including special event
equipment), had an original purchase price of approximately $222 million and
had a weighted average age (based on original purchase price) of approximately
3.6 years.
THE INDUSTRY
The Company estimates that the U.S. equipment rental industry (including used
and new equipment sales by rental companies) generates annual revenues in
excess of $20 billion. The combined equipment rental revenues of the 100
largest equipment rental companies have increased at an estimated compound
annual rate of approximately 21% from 1992 through 1996 (based upon revenues
reported for such period, the latest period for which data is available, by the
Rental Equipment Register, an industry trade publication). The Company believes
that this growth primarily reflects increasing recognition by customers of the
many advantages that equipment rental may offer compared with ownership,
including the ability to: (i) avoid the large capital investment required for
equipment purchases, (ii) reduce storage and maintenance costs, (iii)
supplement owned equipment, thereby increasing the range and number of jobs
that can be worked on, (iv) access a broad selection of equipment and select
the equipment best suited for each particular job, (v) obtain equipment as
needed and minimize the costs associated with idle equipment, and (vi) access
the latest technology without investing in new equipment.
The equipment rental industry is highly fragmented and consists of a small
number of multi-location regional or national operators and a large number of
relatively small, independent businesses serving discrete local markets. Based
upon rental revenues reported by the Rental Equipment Register for 1996 (the
latest year for which such revenues have been reported): (i) there were only
five equipment rental companies that had 1996 equipment rental revenues in
excess of $100 million (with the largest company having had 1996 equipment
rental revenues of approximately $400 million), (ii) the largest 100 equipment
rental companies combined had less than
3
<PAGE>
a 20% share of the market based on 1996 equipment rental revenues and the
Company's estimate of the size of the market (with the largest company having
had a market share of less than 3%), and (iii) there were approximately 100
equipment rental companies that had 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 six established equipment rental
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 ..... 5,500,000 shares(1)
Common Stock to be outstanding
after the Offerings ............ 30,218,808 shares(1)(2)
Use of Proceeds ................. The net proceeds from the Offerings will be
used (i) to repay approximately $120
million of outstanding indebtedness under
the Company's $155 million revolving credit
facility (the "Credit Facility") and (ii)
for future acquisitions, capital
expenditures and general corporate
purposes. See "Use of Proceeds."
New York Stock Exchange Symbol .. URI
</TABLE>
- --------
(1) Assumes no exercise of the over-allotment options granted by the Company to
the Underwriters.
(2)Does not include (i) 6,519,058 shares issuable upon the exercise of
outstanding warrants, which provide for a weighted average exercise price of
$10.12 per share, (ii) 931,333 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 $13.06 per share, (iii) 4,068,667 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 of $16.20 per share. Also does not
reflect adjustments which may change the number of shares issued as
consideration for the acquisition of one of the Acquired Companies. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Consideration Paid for 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 and commenced equipment rental
operations in October 1997 by acquiring six established rental companies. The
Company acquired 14 additional companies in the first two months of 1998. The
following unaudited pro forma income statement data for the year ended December
31, 1997 gives effect to the acquisition of each of the 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 such period. The following unaudited pro forma balance sheet data
as of December 31, 1997 gives effect to the 14 acquisitions completed by the
Company subsequent to such date and the financing of each such acquisition, as
if all such transactions had occurred on such date. The following unaudited pro
forma as adjusted balance sheet data gives effect to the foregoing and to
completion of the Offerings at an assumed public offering price of $24.3125 per
share (the last reported sale price of the Common Stock on February 3, 1998)
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
(INCEPTION) THROUGH YEAR ENDED
DECEMBER 31, 1997 DECEMBER 31, 1997
----------------------- ----------------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C>
INCOME STATEMENT DATA:
Total revenues.......... $10,633 $186,760
Gross profit............ 3,811 69,276
Operating income........ 238 25,973
Interest expense ....... 454 8,889
Other (income) expense,
net.................... (270) (1,699)
------- --------
Income before income
taxes.................. 54 18,783
Income taxes............ 20 7,488
------- --------
Net income.............. $ 34 $ 11,295
======= ========
Basic earnings per
share.................. $ 0.00 $ 0.46
======= ========
Diluted earnings per
share.................. $ 0.00 $ 0.43
======= ========
Depreciation and
amortization........... $ 1,301 $ 26,357
EBITDA(1)............... $ 1,539 $ 52,330
<CAPTION>
AS OF DECEMBER 31, 1997
------------------------------------------------------
PRO FORMA
HISTORICAL PRO FORMA AS ADJUSTED
---------- --------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash
equivalents............ $ 68,608 $ 50 $18,334
Rental equipment, net... 33,408 138,890 138,890
Total assets............ 169,110 327,277 345,561
Debt.................... 1,074 117,246 9,831
Stockholders' equity.... 157,730 173,182 298,881
</TABLE>
(1) As used herein, "EBITDA" means net income plus interest, non-operating
income and expenses, income taxes, depreciation, amortization and other
non-cash items. Management believes that EBITDA, as presented, represents a
useful measure of assessing the performance of the Company's ongoing
operating activities as it reflects the earnings trends of the Company
without the impact of certain non-cash charges. EBITDA is not intended as
an alternative to cash flow from operating activities as a measure of
liquidity or as an alternative to net income as an indicator of the
Company's operating performance.
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; LIMITED OPERATING HISTORY
The Company was incorporated in August 1997 and commenced equipment rental
and related operations in October 1997 by acquiring six established rental
companies. The Company acquired 14 additional companies in the first two
months of 1998. Due to the recent commencement of the Company's operations,
the Company has a limited operating history upon which an evaluation of the
Company and its prospects can be based. Furthermore, the Company's historical
financial statements included herein, which cover the period from inception
through December 31, 1997, do not fully reflect the Company's current
operations in view of the fact that (i) the results of the six companies
acquired in October 1997 are reflected in such financial statements for only a
portion of the period covered thereby and (ii) the results of the 14 companies
acquired in the first two months of 1998 are not reflected in such financial
statements.
ACQUIRED COMPANIES NOT HISTORICALLY OPERATED AS A COMBINED BUSINESS
Although the Acquired Companies have been in existence an average of 22
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 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 integrate successfully or manage
effectively the Acquired Companies could have a material adverse effect on the
Company's results of operations and financial condition.
RISKS RELATING TO GROWTH STRATEGY
Principal components of the Company's growth strategy include continued
expansion through an ongoing acquisition program, the opening of start-up
locations, and internal growth. However, there can be no assurance that the
Company will successfully implement its growth strategy or that, if
implemented, such strategy will result in continued profitability. In
addition, under the terms of the Company's Credit Facility, the Company may
not make acquisitions unless certain financial conditions are satisfied or the
consent of the lenders is obtained. Furthermore, there can be no assurance
that the Company's growth rate will be comparable to the past or future growth
rate of the overall equipment rental industry or any segment thereof. The
Company's growth strategy involves a number of risks and uncertainties,
including:
Availability of Acquisition Targets and Sites for Start-up Locations. The
Company may encounter substantial competition in its efforts to identify and
acquire appropriate acquisition candidates and sites for start-up locations,
which could have the effect of increasing prices for acquisitions or such
sites. There can be no assurance that the Company will succeed in identifying
appropriate acquisition candidates or sites for start-up locations or that the
Company will be able to acquire any acquisition candidate or site that it does
identify on terms that are acceptable to the Company.
Need to Integrate New Operations. As the Company grows, the Company intends
to focus substantial efforts on the efficient integration of new operations,
the elimination of duplicative costs and the reduction of overhead. There can
be no assurance, however, that the Company will be successful in these efforts
or that these efforts may not in certain circumstances adversely affect
existing operations.
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.
7
<PAGE>
Certain Risks Related to Start-up Locations. The Company expects that start-
up locations may initially have a negative impact on results of operations and
margins due to several factors, including: (i) the Company will incur
significant start-up expenses in connection with establishing each start-up
location and (ii) it will generally take some time following the commencement
of operations 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 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.
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 local managers who have
extensive experience in the equipment rental industry and substantial
knowledge of the local markets served. These managers are generally former
owners or employees of the businesses acquired by the Company. The loss of one
or more of these managers may have a material adverse effect on the Company in
the event that the Company is unable to find a suitable replacement in a
timely manner.
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), did not have experience in
the equipment rental industry prior to founding the Company.
8
<PAGE>
NEED FOR INTEGRATED INFORMATION TECHNOLOGY SYSTEMS
The Company is in the process of installing an integrated information
technology system that will link all locations, integrate operating and
financial data on a Company-wide basis, and enable the real-time tracking of
rental transactions, equipment availability, inventory and other data. The
Company expects that this system will become operational at substantially all
the Company's existing locations in March 1998. The Company thereafter will be
required to expand the system on an ongoing basis as it adds locations.
Although the Company expects the system to become operational in March 1998,
there can be no assurance that the Company will not encounter unexpected
delays or that such system when operational will function in accordance with
the Company's expectations. Failure of the system to become operational or to
function as expected could negatively impact the Company's ability to
implement its growth strategy. Until the new system is operational, each
acquired business will continue to use the systems that it had in place at the
time it was acquired. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources" and
"Business--Information Technology System."
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 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. The Company carries a broad
range of insurance for the protection of its assets and operations. However,
such coverage is subject to a deductible of $250,000 and limited to a maximum
of $25 million per occurrence. In addition, the Company does not maintain
insurance coverage for environmental liability, since the Company believes
that the cost for such coverage is high relative to the benefit that it
provides. Furthermore, certain types of claims, such as claims for punitive
damages or for damages arising from intentional misconduct, which are often
alleged in third party lawsuits, might not be covered by the Company's
insurance. There can be no assurance that insurance will continue to be
9
<PAGE>
available to the Company on economically reasonable terms, if at all, that
existing or future claims will not exceed the level of the Company's insurance
or relate to matters not covered by the Company's insurance (such as
environmental liability), or that the Company will have sufficient capital
available to pay any uninsured claims.
ENVIRONMENTAL REGULATION
The Company uses hazardous materials, such as solvents, to clean and
maintain its rental equipment and generates and disposes of wastes such as
used motor oil, radiator fluid, solvents and batteries. In addition, the
Company currently dispenses, or may in the future dispense, petroleum products
from underground and above-ground storage tanks located at certain rental
locations. These and other activities of the Company are subject to various
federal, state and local laws and regulations governing the generation,
handling, storage, transportation, treatment and disposal of hazardous
substances and wastes. Under such laws, an owner or lessee of real estate may
be liable for, among other things, (i) the costs of removal or remediation of
certain hazardous or toxic substances located on, in, or emanating from, such
property, as well as related costs of investigation and property 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 13,262,414 shares of Common
Stock, representing approximately 44% of the Company's outstanding Common
Stock (including 10,000,100 shares, representing approximately 33% of the
Company's outstanding Common Stock, beneficially owned by Bradley S. Jacobs,
Chairman and Chief Executive Officer of the Company). Such share ownership may
effectively give such persons the ability to elect the entire Board of
Directors of the Company and to control the Company's management and affairs.
VOLATILITY OF STOCK PRICE
The market price of the Common Stock may experience significant volatility.
The market price of the Common Stock could be subject to significant variation
due to fluctuations in the Company's operating results, 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 securities in ways
unrelated to the operating performance of the issuers of such securities, and
such volatility may adversely affect the market price of the Common Stock.
There can be no assurance that the market price of the Common Stock will not
decline below the price at which the Common Stock is being offered hereby.
10
<PAGE>
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. Under
the terms of the Credit Facility, the Company is prohibited from paying
dividends on the Common Stock. 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 the lock-up agreements described below.
Subject to such agreements, upon completion of the Offerings, 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 either
be freely tradeable without restriction under the Securities Act or eligible
for sale pursuant to a shelf registration statement previously filed by the
Company.
The Company and all of its officers and directors (who hold an aggregate of
13,262,414 shares of Common Stock) 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 750,000 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). In addition, the holder of 318,712 shares of
Common Stock has agreed not to sell or otherwise dispose of such shares until
June 1998 without the prior written consent of Merrill Lynch & Co.
Furthermore, the Company has agreed not to waive any existing lock-up
agreements between the Company and its stockholders 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. Such existing lock-up agreements
prohibit the sale or transfer of an aggregate of 2,901,705 shares, without the
prior written consent of the Company. Such existing lock-up agreements lapse
in December 1998 (with respect to 733,670 shares), January 1999 (with respect
to 400,584 shares), December 1999 (with respect to 728,671 shares) and
December 2000 (with respect to 1,038,780 shares). In addition, an aggregate of
404,291 shares of Common Stock not subject to lock-up agreements and not
covered by the Company's shelf registration statement are "restricted
securities" under Rule 144 under the Securities Act and may not be sold except
if registered pursuant to the Securities Act or if an exemption from
registration is available. See "Shares Eligible For Future Sale" and
"Underwriting."
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
$125.7 million ($144.7 million if the Underwriters' over-allotment options are
exercised in full), based upon an assumed public offering price of
11
<PAGE>
$24.3125 per share (the last reported sale price of the Common Stock on
February 3, 1998) and after deduction of the estimated underwriting discount
and offering expenses. The Company expects to use such net proceeds (i) to
repay approximately $120 million of outstanding indebtedness under the
Company's Credit Facility and (ii) for future acquisitions, capital
expenditures and general corporate purposes.
Under the terms of the Credit Facility, the Company may borrow on a
revolving basis up to $155 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, at the Company's option,
either 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 February 3, 1998, 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 a portion 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."
PRICE RANGE OF COMMON STOCK
The Company's Common Stock commenced trading on the New York Stock Exchange
on December 18, 1997 under the symbol "URI." The following table sets forth,
for the period indicated, the high and low sales prices for the Common Stock,
as reported by the New York Stock Exchange.
<TABLE>
<CAPTION>
PRICE RANGE
---------------
1997 HIGH LOW
- ---- ------ -----
<S> <C> <C>
Fourth Quarter (from December 18, 1997)..................... $19 5/16 $14 3/8
<CAPTION>
1998
- ----
<S> <C> <C>
First Quarter (through February 3, 1998).................... 25 17 1/4
</TABLE>
On February 3, 1998, the last sale price of the Common Stock as reported on
the New York Stock Exchange was $24.3125 per share. As of February 3, 1998,
there were approximately 126 holders of record of the Common Stock. The
Company believes that the number of beneficial owners is substantially greater
than the number of record holders, because a large portion of the Common Stock
is held of record in broker "street names."
12
<PAGE>
CAPITALIZATION
The following table sets forth (i) the capitalization of the Company as of
December 31, 1997, on an historical basis, (ii) such capitalization on a pro
forma basis giving effect to the 14 acquisitions completed by the Company
subsequent to such date and the financing of each such acquisition, and (iii)
such pro forma capitalization as adjusted to give effect to the sale of the
5,500,000 shares offered hereby at an assumed public offering price of
$24.3125 per share (the last reported sale price of the Common Stock on
February 3, 1998) and the application of a portion of the net proceeds
therefrom 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 DECEMBER 31, 1997
------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
-------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Debt:
Credit facility............................... $ -- $107,415 $ --
Equipment notes............................... 574 9,331 9,331
Convertible debt.............................. 500 500 500
-------- -------- --------
Total debt.................................. 1,074 117,246 9,831
Stockholders' equity:
Preferred Stock, $.01 par value, 5,000,000
shares authorized; no shares issued and
outstanding.................................. -- -- --
Common Stock, $.01 par value, 75,000,000
shares authorized; 23,899,119 shares issued
and outstanding, 24,703,994 shares issued and
outstanding pro forma, and 30,203,994 shares
issued and outstanding pro forma as
adjusted(1).................................. 239 247 302
Additional paid-in capital.................... 157,457 172,901 298,545
Retained earnings............................. 34 34 34
-------- -------- --------
Total stockholders' equity.................. 157,730 173,182 298,881
-------- -------- --------
Total capitalization............................ $158,804 $290,428 $308,712
======== ======== ========
</TABLE>
- --------
(1) Does not include (i) 6,519,058 shares issuable upon the exercise of
outstanding warrants, which provide for a weighted average exercise price
of $10.12 per share, (ii) 931,333 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 $13.06 per
share, (iii) 4,068,667 shares reserved for possible future grants of
options under the Company's 1997 Stock Option Plan, (iv) shares issuable
upon conversion of a $300,000 convertible note which provides for a
conversion price of $16.20 per share and (v) 14,814 shares issued
subsequent to December 31, 1997, upon conversion of a $200,000 convertible
note. Also does not reflect adjustments which may change the number of
shares issued as consideration for the acquisition of one of the Acquired
Companies. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Consideration Paid for Acquired
Companies," "Management--Capital Contributions by Officers and Directors"
and "Description of Capital Stock--Warrants, Options and Convertible
Notes."
13
<PAGE>
SELECTED HISTORICAL AND PRO FORMA
CONSOLIDATED FINANCIAL INFORMATION
The Company commenced rental operations in October 1997 by acquiring six
established rental companies (the "Initial Acquired Companies") and acquired
14 additional companies in the first two months of 1998. The following table
presents (i) selected unaudited historical income statement and balance sheet
data for the Initial Acquired Companies on a combined basis and (ii) selected
historical and pro forma income statement and balance sheet data for the
Company. The historical income statement and balance sheet data for the
Company are derived from the audited Financial Statements of the Company
included elsewhere in this Prospectus. The data presented below with respect
to the Company 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 for the year ended
December 31, 1997 gives effect to the acquisition of each of the 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 such period. The following unaudited pro forma
balance sheet data as of December 31, 1997 gives effect to the 14 acquisitions
completed by the Company subsequent to such date and the financing of each
such acquisition, as if all such transactions had occurred on such date. The
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 period 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 public offering price of $24.3125 per share (the
last reported sale price of the Common Stock on February 3, 1998) 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
--------------------------------------------------------------------------- ----------
COMBINED INITIAL ACQUIRED COMPANIES COMPANY COMPANY
------------------------------------------------------- ------------------- ----------
PERIOD FROM PERIOD FROM
YEAR ENDED DECEMBER 31, JANUARY 1, AUGUST 14, 1997 YEAR ENDED
---------------------------------- 1997 THROUGH (INCEPTION) THROUGH DECEMBER
1993 1994 1995 1996 ACQUISITION DATE(1) DECEMBER 31, 1997 31, 1997
------- ------- ------- ------- ------------------- ------------------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Total revenues.......... $32,549 $38,179 $44,159 $51,889 $49,200 $10,633 $186,760
Total cost of
operations............. 22,961 24,829 28,563 34,737 32,677 6,822 117,484
------- ------- ------- ------- ------- ------- --------
Gross profit............ 9,588 13,350 15,596 17,152 16,523 3,811 69,276
Selling, general and
administrative
expense................ 7,772 9,898 11,537 12,435 12,021 3,311 38,213
Non-rental depreciation
and amortization....... 300 427 502 527 472 262 5,090
------- ------- ------- ------- ------- ------- --------
Operating income........ 1,516 3,025 3,557 4,190 4,030 238 25,973
Interest expense........ 770 846 1,416 2,123 2,288 454 8,889
Other (income) expense.. (336) (412) (306) (412) (382) (270) (1,699)
------- ------- ------- ------- ------- ------- --------
Income before taxes..... 1,082 2,591 2,447 2,479 2,124 54 18,783
Pro forma income
taxes(2)............... 433 1,036 979 992 850 20 7,488
------- ------- ------- ------- ------- ------- --------
Pro forma net
income(2).............. $ 649 $ 1,555 $ 1,468 $ 1,487 $ 1,274 $ 34 $ 11,295
======= ======= ======= ======= ======= ======= ========
Basic earnings per
share.................. $ 0.00 $ 0.46
======= ========
Diluted earnings per $ 0.00 $ 0.43
share.................. ======= ========
Depreciation and
amortization........... $ 4,207 $ 5,340 $ 6,630 $ 8,579 $ 7,344 $ 1,301 $ 26,357
EBITDA(3)............... $ 5,723 $ 8,365 $10,187 $12,769 $11,374 $ 1,539 $ 52,330
Dividends on Common
Stock.................. -- --
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL PRO FORMA AS ADJUSTED
---------------------------------------- --------- -----------
COMBINED INITIAL ACQUIRED
COMPANIES COMPANY COMPANY
------------------------------- -------- ---------------------
AS OF DECEMBER 31,
---------------------------------------- AS OF DECEMBER 31,
1993 1994 1995 1996 1997 1997
------- ------- ------- ------- -------- ---------------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash
equivalents............ $ 2,374 $ 2,349 $ 4,193 $ 3,227 $ 68,608 $ 50 $ 18,334
Rental equipment, net... 10,730 14,270 20,244 27,145 33,408 138,890 138,890
Total assets............ 20,380 25,254 37,022 43,681 169,110 327,277 345,561
Debt.................... 10,104 12,608 21,267 25,959 1,074 117,246 9,831
Stockholders' equity.... 9,003 9,638 10,941 12,308 157,730 173,182 298,881
</TABLE>
14
<PAGE>
- --------
(1) Represents with respect to each Initial Acquired Company the date in
October 1997 on which such Initial Acquired Company was acquired by the
Company.
(2) Certain of the Acquired Companies had elected to be treated as Subchapter
S Corporations prior to being acquired by the Company. In general, the
income or loss of a Subchapter S Corporation is passed through to its
owners rather than being subjected to taxes at the entity level. Pro forma
net income or loss for the Initial Acquired Companies reflects a provision
for income taxes as if all such companies were liable for federal and
state income taxes as taxable corporate entities for all periods
presented.
(3) As used herein, "EBITDA" means net income plus interest, non-operating
income and expenses, income taxes, depreciation, amortization and other
non-cash items. Management believes that EBITDA, as presented, represents
a useful measure of assessing the performance of the Company's ongoing
operating activities as it reflects the earnings trends of the Company
without the impact of certain non-cash charges. EBITDA is not intended as
an alternative to cash flow from operating activities as a measure of
liquidity or as an alternative to net income as an indicator of the
Company's operating performance.
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.
GENERAL
The Company was organized in August 1997 and commenced equipment rental
operations in October 1997 by acquiring six established rental companies. The
Company acquired 14 additional companies in the first two months of 1998. Each
of the acquisitions completed by the Company to date has been accounted for as
a purchase.
The 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
66.9% of the Company's pro forma revenues during 1997.
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 2 to 10
years), after giving effect to an estimated salvage value of 0% to 10% of
cost.
Selling, general and administrative expense includes advertising and
marketing expenses, management salaries, and clerical and administrative
overhead.
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.
The Company's acquisition of the Acquired Companies changed the cost
structures of these companies due to changes relating to depreciation and
amortization, interest expense, compensation to former owners and lease
expense for real estate. In view of these changes, the Company believes that
the pre-acquisition historical results of the Acquired Companies are not
indicative of future results. Therefore, the discussion below focuses on the
historical and pro forma results of the Company rather than on pre-acquisition
historical results of the Acquired Companies.
CONSIDERATION PAID FOR THE ACQUIRED COMPANIES
The aggregate consideration paid by the Company for the Acquired Companies
was $174.1 million and consisted of approximately $154.5 million in cash,
1,123,587 shares of Common Stock, a convertible note in the principal amount
of $300,000, and warrants to purchase an aggregate of 30,000 shares of Common
Stock. In addition, the Company repaid or assumed outstanding indebtedness of
the Acquired Companies in the aggregate amount of $120.2 million. The Company
also agreed to pay the former owners of one of the Acquired Companies a
percentage of such company's future revenues until an aggregate of $2.8
million has been paid.
The purchase agreement relating to the acquisition of one of the Acquired
Companies provides that the 318,712 shares of Common Stock that the Company
issued in connection therewith (the "Stock Consideration") will be valued
based upon the average daily closing price of the Common Stock during the 60-
day period commencing on December 18, 1997. If the Stock Consideration as so
valued is not equal to $3.8 million, the
16
<PAGE>
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 $3.8 million.
HISTORICAL RESULTS OF OPERATIONS
The Company's historical financial statements included herein cover the
period from August 14, 1997 (inception) through December 31, 1997. The Company
believes that its historical results for such period do not fully reflect its
current operations in view of the fact that (i) the results of the six
companies acquired in October 1997 are reflected in such financial statements
for only a portion of the period covered thereby and (ii) the results of the
14 companies acquired in the first two months of 1998 are not reflected in
such financial statements.
Revenues. Total revenues were $10.6 million for the period from August 14,
1997 through December 31, 1997. Equipment rental revenues accounted for 66.0%
of such revenues.
Gross Profit. For the period from August 14, 1997 through December 31, 1997,
the gross profit margin was (i) 39.6% from equipment rentals, (ii) 47.8% from
sales of rental equipment and (iii) 21.2% from sales of new equipment,
merchandise and other revenues.
Selling, General and Administrative Expense. For the period from August 14,
1997 through December 31, 1997, selling, general and administrative expense
("SG&A") was $3.3 million or 31.1% of total revenues.
Non-rental Depreciation and Amortization. For the period from August 14,
1997 through December 31, 1997, non-rental depreciation and amortization was
$262,000 or 2.5% of total revenues.
Interest Expense. For the period from August 14, 1997 through December 31,
1997, interest expense was $454,000. Interest expense principally related to
borrowings made under the Company's Credit Facility in order to fund a portion
of the purchase price of the six acquisitions completed in 1997.
Income Taxes. The Company's effective income tax rate for the period from
August 14, 1997 through December 31, 1997 was 37.9%.
PRO FORMA RESULTS OF OPERATIONS
The Pro Forma Consolidated Financial Statements included herein with respect
to 1997 give effect to the acquisition of each of the 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 3 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 Acquired Companies, (ii) the expenses that the Company may incur as it
seeks to increase internal growth at the Acquired Companies, including
expenditures required in order to expand and modernize rental equipment,
increase sales and marketing efforts, and expand and diversify the customer
segments served, and (iii) the additional compensation expense relating to the
Company's senior management which would have been incurred had such
compensation accrued commencing at the beginning of the year (rather than in
September 1997). The 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 Acquired Companies occurred at the
beginning of period presented or of future results.
Revenues. Total revenues were $186.8 million for the year ended December 31,
1997. Equipment rental revenues accounted for 66.9% of such revenues.
Gross Profit. For the year ended December 31, 1997, the gross profit margin
from equipment rentals was 43.4% and the gross profit margin from sales of
equipment and merchandise and other revenues was 24.3%.
17
<PAGE>
Selling, General and Administrative Expense. For the year ended December 31,
1997, SG&A was $38.2 million or 20.5% of total revenues.
Non-rental Depreciation and Amortization. For the year ended December 31,
1997, non-rental depreciation and amortization was $5.1 million or 2.7% of
total revenues.
Interest Expense. Interest expense was $8.9 million for the year ended
December 31, 1997. Interest expense principally related to borrowings made
under the Company's Credit Facility in order to fund a portion of the purchase
price of the Acquired Companies.
Income Taxes. Pro forma income taxes was computed for the year ended
December 31, 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 in private placements to the officers and directors
of the Company for aggregate consideration of $46.8 million, (ii) other sales
of Common Stock in private placements for aggregate consideration of $7.9
million, (iii) the sale of shares of Common Stock in the Company's initial
public offering in December 1997 for aggregate consideration of $101.1 million
(after deducting the underwriting discount) and (iv) 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 $155 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 February 3, 1998, there was approximately $120 million of
outstanding indebtedness under the Credit Facility. The Company plans to use
the net proceeds of the Offerings to repay a portion of such indebtedness as
described under "Use of Proceeds." 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 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.
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<PAGE>
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.
The Company estimates that equipment expenditures for its existing locations
will be in the range of $25 million to $30 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, 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 three 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 $2.5 million
to $3.5 million (including expenditures of approximately $346,000 incurred to
date). The Company believes that cash generated from operations and borrowings
under the Credit Facility will be sufficient to fund these costs without
additional debt or equity financings.
The Company is in the process of installing an integrated information
technology system and expects that this system will become operational in
March 1998 at substantially all the Company's existing locations. The Company
estimates that the cost of installing such system at the Company's existing 67
locations and up to 23 additional locations will be approximately $6.5 million
(including approximately $800,000 expended to date). The Company will be
required to expand this system on an ongoing basis as it adds locations. The
Company believes that the system will be year 2000 compliant.
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
19
<PAGE>
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.
RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board issued SFAS No. 130,
"Reporting Comprehensive Income," and SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information." The Company is required to
adopt the provisions of these Statements in fiscal year 1998. SFAS No. 130
establishes standards for reporting and display of comprehensive income and
its components in a primary financial statement. The Company is currently
evaluating the reporting formats recommended under this Statement. SFAS No.
131 establishes a new method by which companies will report operating segment
information. This method is based on the manner in which management organizes
the segments within a company for making operating decisions and assessing
performance. The Company continues to evaluate the provisions of SFAS No. 131
and, upon adoption, the Company may report operating segments.
20
<PAGE>
BUSINESS
United Rentals was formed in September 1997 for the purpose of creating a
large, geographically diversified equipment rental company in the United
States and Canada. The Company commenced equipment rental operations in
October 1997 by acquiring six established companies and acquired 14 additional
companies in the first two months of 1998. The Company rents a broad array of
equipment to a diverse customer base that includes construction industry
participants, industrial companies, homeowners and other individuals. The
Company also engages in related activities such as selling used rental
equipment, acting as a distributor for certain new equipment, and selling
related merchandise and parts. The Company had pro forma revenues of $186.8
million during the year ended December 31, 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 67 rental locations in 16 states and
Canada. The Company's locations are managed by experienced professionals who
have extensive industry experience and substantial knowledge of the local
markets served. These managers are generally former owners or 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 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 February 3, 1998,
the Company's rental equipment included approximately 34,000 units (excluding
special event equipment), had an original purchase price of approximately $222
million and had a weighted average age (based on original purchase price) of
approximately 3.6 years.
INDUSTRY OVERVIEW
The Company estimates that the U.S. equipment rental industry (including
used and new equipment sales by rental companies) generates annual revenues in
excess of $20 billion. The combined equipment rental revenues of the 100
largest equipment rental companies have increased at an estimated compound
annual rate of approximately 21% from 1992 through 1996 (based upon revenues
reported for such period, the latest period for which data is available, by
the Rental Equipment Register, an industry trade publication). The Company
believes that this growth primarily reflects the following trends:
Recognition of Advantages of Renting. There is increasing recognition of the
many advantages that equipment rental may offer compared with ownership,
including the ability to: (i) avoid the large capital investment required for
equipment purchases, (ii) reduce storage and maintenance costs, (iii)
supplement owned equipment thereby increasing the range and number of jobs
that can be worked on, (iv) access a broad selection of equipment and select
the equipment best suited for each particular job, (v) obtain equipment as
needed and minimize the costs associated with idle equipment, and (vi) access
the latest technology without investing in new equipment.
Increase in Contractor Rentals. There has been a fundamental shift in the
way contractors meet their equipment needs. While contractors have
historically used rental equipment on a temporary basis--to provide for peak
period capacity, meet specific job requirements or replace broken equipment--
many contractors are now also using rental equipment on an ongoing basis to
meet their long-term equipment requirements. A survey of contractors conducted
in September 1996 by Merrill Lynch & Co. 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.
21
<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. Based
upon rental revenues reported by the Rental Equipment Register for 1996 (the
latest year for which such revenues have been reported): (i) there were only
five equipment rental companies that had 1996 equipment rental revenues in
excess of $100 million (with the largest company having had 1996 equipment
rental revenues of approximately $400 million), (ii) the largest 100 equipment
rental companies combined had less than a 20% share of the market based on
1996 equipment rental revenues and the Company's estimate of the size of the
market (with the largest company having had a market share of less than 3%),
and (iii) there were approximately 100 equipment rental companies that had
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
22
<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 150 potential acquisition candidates and has conducted preliminary
market studies or initiated due diligence on more than 50 of these candidates.
The table below provides certain information concerning the 20 acquisitions
completed by the Company to date:
<TABLE>
<CAPTION>
NUMBER OF YEARS IN 1997
COMPANY LOCATIONS RENTAL SITES BUSINESS REVENUES
- ------- ------------------------- ------------ -------- -------------
(IN MILLIONS)
<S> <C> <C> <C> <C>
1997 ACQUISITIONS:
Mercer Equipment Company North Carolina 3 9 $18.5
A&A Tool Rentals and
Sales, Inc. California 2 35 13.8
Coran Enterprises, Inc. California 4 33 9.5
(dba A-1 Rents) and
affiliate
J&J Rental Services Texas 1 19 8.7
Bronco Hi-Lift, Inc. Colorado 1 16 6.5
Rent-It Center, Inc. Utah 1 45 2.9
<CAPTION>
1998 ACQUISITIONS:
<S> <C> <C> <C> <C>
Access Rentals, Inc. and
affiliates Connecticut; Florida; 19 23 52.3
Indiana; Minnesota;
New Jersey; New
York; Pennsylvania;
South Carolina;
Tennessee; Washington;
Ontario, Canada
BNR Equipment Limited
and affiliates New York; Ontario, Canada 8 23 24.0
Channel Equipment
Holdings, Inc. and
affiliates Texas 4 20 11.5
Mission Valley Rentals,
Inc. California 4 22 8.6
Pro-Rentals, Inc. Washington 6 12 5.9
ASC Equipment Co., Inc. North Carolina 3 21 5.4
Nevada High Reach
Equipment, Inc. and
affiliate Nevada 3 13 4.5
Gene's Village Rental &
Sales, Inc. South Carolina 2 24 3.6
Manchester Equipment
Rental & Sales, Inc. Connecticut 1 11 3.3
San Leandro Equipment
Rentals Service, Inc. California 1 36 3.2
Darien Rental Services,
Inc. Connecticut 1 31 1.7
Salisbury Rental Center,
Inc. North Carolina 1 10 1.3
Anchor Rental, Inc. Connecticut 1 15 1.0
A-1 Rents of Galveston,
Inc. Texas 1 16 0.6
</TABLE>
23
<PAGE>
The aggregate consideration paid by the Company for the Acquired Companies
was $174.1 million and consisted of approximately $154.5 million in cash,
1,123,587 shares of Common Stock (subject to possible adjustment with respect
to 318,712 of such shares as described under "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Consideration Paid
for Acquired Companies"), a convertible note in the principal amount of
$300,000, and warrants to purchase an aggregate of 30,000 shares of Common
Stock. In addition, the Company repaid or assumed outstanding indebtedness of
the Acquired Companies in the aggregate amount of approximately $120.2
million. The Company also agreed to pay the former owners of one of the
Acquired Companies a percentage of such company's future revenues until an
aggregate of $2.8 million has been paid.
The Company at present is not party to any definitive agreements relating to
future acquisitions. However, the Company is continually investigating and
evaluating potential acquisition candidates and is currently a party to nine
non-binding letters of intent relating to the possible acquisition by the
Company of nine additional companies having an aggregate of 24 rental
locations. Based upon information provided to the Company in connection with
its preliminary investigation of these businesses, the Company estimates that
the aggregate annualized revenues of these companies is approximately $50
million. However, in view of the preliminary nature of this estimate, there
can be no assurance that actual revenues will not differ. Furthermore, in view
of the fact that these letters of intent are non-binding and that the Company
has not completed its due diligence investigations with respect thereto, the
Company cannot predict whether these letters of intent will lead to definitive
agreements, whether the terms of any such definitive agreements will be the
same as the terms contemplated by the letters of intent or whether any
transaction contemplated by such letters of intent will be consummated.
START-UP LOCATIONS
The Company is in the process of developing three start-up locations (one in
Florida and two in Texas). These projects were commenced by certain of the
Acquired Companies, prior to their having been acquired by the Company, and
are being continued by the Company. The Company expects that the Florida
location will open in the first quarter of 1998 and that the two Texas
locations will open in the second quarter of 1998.
OPERATIONS
The Company currently operates 67 rental locations in 16 states and Canada.
The Company offers for rent a broad array of equipment including light to
heavy construction and industrial equipment, general tools and equipment, and
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 offers for rent:
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.
Special Event: barbecue grills, china and flatware, fountains,
lighting, staging and dance floors, tables and chairs, tents and
canopies.
24
<PAGE>
As of February 3, 1998, the Company's rental equipment included
approximately 34,000 units (excluding special event equipment) and had an
original purchase price of approximately $222 million and a weighted average
age (based on original purchase price) of approximately 3.6 years. The Company
estimates that (based on original purchase price) construction and industrial
equipment represents approximately 94% of the Company's rental equipment,
general tools and equipment represents approximately 5%, and 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 47% of the
Company's rental equipment and accounted for approximately 34% of the
Company's pro forma revenues in 1997.
The equipment mix varies at each of the Company's locations, with some
locations offering a general mix and some specializing in specific equipment
categories. The Company expects that as it integrates the Acquired Companies
it will further expand and modernize its rental equipment and expand and
diversify the customer markets served by certain locations.
RELATED OPERATIONS
In addition to renting equipment, the Company is engaged in a variety of
related or complementary activities.
Sales of Used Equipment. The Company routinely sells used rental equipment
to adjust the age and composition of its rental fleet. The Company sells such
equipment through a variety of means including sales to the Company's existing
rental customers and local customer base, sales to used equipment dealers, and
sales through public auctions. The Company also participates in trade-in
programs in connection with purchasing new equipment.
Sales of New Equipment. The Company, at 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),
Kubota (earthmoving equipment), Multiquip, Inc. (compaction equipment and
compressors), Milwaukee Electric Tool Corporation (power tools), Trak
International (loaders and forklifts), Stihl, Inc. (surface preparation
equipment) and Wacker (compaction equipment). In general, such manufacturers
may terminate the Company's distribution rights at any time.
Sales of Related Merchandise and Parts. The Company, at most locations,
sells a variety of merchandise that may be used in conjunction with rental
equipment (such as saw blades, fasteners, drill bits, hard hats, gloves and
other safety equipment) and also sells parts.
Other. The Company at certain locations offers equipment maintenance
services to customers for equipment that is owned by the customer. This
service is primarily provided with respect to equipment purchased from the
Company.
CUSTOMERS AND SALES AND MARKETING
The Company on a pro forma basis rented equipment to over 154,000 customers
in 1997. No single customer accounted for more than 1% of the Company's pro
forma revenues in 1997, and the Company's top 10 customers accounted for less
than 2.5% of the Company's pro forma revenues in 1997.
The composition of the Company's customer base varies widely by location and
is determined by several factors, including the equipment mix and marketing
focus of the particular location and the business composition of the local
economy. The Company's customer base consists of the following general
categories: (i) construction industry participants (such as construction
companies, contractors and subcontractors), (ii) industrial companies (such as
manufacturers, chemical companies, paper mills and utilities), and (iii)
homeowners and other individuals. The Company estimates that in 1997 (a) sales
to construction industry participants accounted for
25
<PAGE>
approximately 75% of the Company's pro forma revenues, (b) sales to industrial
companies accounted for approximately 17% of the Company's pro forma revenues,
and (c) sales to homeowners and others accounted for approximately 8% of the
Company's pro forma revenues.
The Company markets its products and services through a sales force
consisting of approximately 137 store-based salespeople and 113 field-based
salespeople. The Company supplements the activities of its sales force through
participation in industry trade shows and conferences, direct mailings, and
advertising in local industry publications and the yellow pages in the markets
it serves.
PURCHASING
The Company is in the process of centralizing the purchasing of certain
equipment items, particularly large items with a significant cost and items
that are purchased in volume. The Company believes that such centralization
will give it greater purchasing power with its suppliers and enable it to
obtain discounts.
INFORMATION TECHNOLOGY SYSTEMS
The Company is in the process of installing an integrated information
technology system and expects that this system will become operational at
substantially all the Company's existing locations in March 1998. This system
will link all the Company's locations, integrate operating and financial data
on a Company-wide basis, and enable the real-time tracking of rental
transactions, equipment availability, inventory and other data. The Company
expects that this system will enable management to monitor and analyze a wide
range of operating and financial data, including (i) price and sales trends by
store, region, salesperson, equipment category, or customer, (ii) fleet
utilization by individual asset or asset class and (iii) financial results by
store or region. Until the new system is operational, each acquired business
will continue using the systems that it had in place at the time it was
acquired. The Company will be required to expand this system on an ongoing
basis as it adds locations.
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 67 rental locations (59 in the United States
and 8 in Canada). The rental locations in the United States are in the
following 16 states: California (11), Colorado (1), Connecticut (4), Florida
(2), Indiana (1), Minnesota (2), New York (7), New Jersey (1), Nevada (3),
North Carolina (7), Pennsylvania (1), South Carolina (3), Tennessee (2), Texas
(6), Utah (1), and Washington (7). The rental locations in Canada are all in
Ontario. The Company's rental locations generally include facilities for
displaying equipment and, depending on the location, may include separate
equipment service areas and storage areas.
The Company leases each of its rental locations under leases providing for
various terms, including (i) 32 leases that provide for a remaining term of
more than five years (of which 25 provide for a renewal option), (ii) 23
leases that provide for a remaining term of between one and five years (of
which 13 provide for a renewal option), (iii) four leases that provide for a
remaining term of less than one year (of which two provide for a renewal
option) and (iv) eight leases that are on a month-to-month basis. Many of
these leases were entered into in connection with the acquisitions of the
Acquired Companies and most of the lessors are the former owners of these
companies. The Company believes that its leases generally reflect market
terms.
26
<PAGE>
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 February 3, 1998, this fleet included 572 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 February 3, 1998, the Company employed 1,187 persons, including 31
corporate and regional management employees, 906 operational employees and 250
sales people. Of these employees, 344 are salaried personnel and 843 are
hourly personnel. Collective bargaining agreements relating to nine separate
locations cover approximately 83 of the Company's employees. The Company
considers its labor relations to be good.
LEGAL PROCEEDINGS
The Company and its subsidiaries are parties to various litigation matters,
in most cases involving ordinary and routine claims incidental to the business
of the Company. The ultimate legal and financial liability of the Company with
respect to such pending litigation cannot be estimated with certainty but the
Company believes, based on its examination of such matters, that such ultimate
liability will not have a material adverse effect on the business or financial
condition of the Company.
27
<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 table below identifies, and provides certain information concerning, the
officers, directors and certain key managers of the Company. The Company
expects that an additional independent director will be appointed prior to May
1998. The Company also expects that Mr. Hicks, the Company's President and
Chief Operating Officer, will be appointed a director concurrently with the
appointment of such additional independent director.
<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........ 55 President and Chief Operating Officer
John N. Milne........... 38 Vice Chairman, Chief Acquisition Officer, Secretary and Director
Michael J. Nolan........ 37 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..... 55 Vice President, Acquisitions
Ronald M. DeFeo......... 45 Director
Richard J. Heckmann..... 54 Director
Gerald Tsai, Jr. ....... 68 Director
KEY MANAGERS
Joseph E. Bloodworth.... 46 Manager, District Operations
Joseph A. DiFrancesco... 38 Manager, District Operations
Joseph E. Doran......... 57 Manager, District Operations
William M. Rigsbee...... 41 Manager, District Operations
</TABLE>
- --------
(1) Each officer and director 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),
November 1997 (in the case of Mr. Hicks) or December 1997 (in the case of
Mr. Tsai). 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."
28
<PAGE>
Bradley S. Jacobs founded United Waste Systems, Inc. in 1989 and served as
its Chairman and Chief Executive Officer from inception until the sale of the
company in August 1997. From 1984 to July 1989, Mr. Jacobs was Chairman and
Chief Operating Officer of Hamilton Resources Ltd., an international trading
company, and from 1979 to 1983, he was Chief Executive Officer of Amerex Oil
Associates, Inc., an oil brokerage firm that he co-founded.
Wayland R. Hicks served in various senior executive positions at Xerox
Corporation where he worked for 28 years (1966-1994). His positions at Xerox
Corporation included Executive Vice President, Corporate Operations (1993-
1994), Executive Vice President, Corporate Marketing and Customer Support
Operations (1989-1993) and Executive Vice President, Engineering and
Manufacturing--Xerox Business Products and Systems Group (1987-1989). Mr.
Hicks served as Vice Chairman and Chief Executive Officer of Nextel
Communications Corp. (1994-1995) and as Chief Executive Officer and President
of Indigo N.V. (1996-1997). He is also a director of Maytag Corporation.
John N. Milne was Vice Chairman and Chief Acquisition Officer of United
Waste Systems, Inc. from 1993 until August 1997 and held other senior
executive positions at United Waste from 1990 until 1993. Mr. Milne had
primary responsibility for implementing United Waste's acquisition program.
From September 1987 to March 1990, Mr. Milne was employed in the Corporate
Finance Department of Drexel Burnham Lambert Incorporated.
Michael J. Nolan served as the Chief Financial Officer of United Waste
Systems, Inc. from February 1994 until August 1997. He served in other finance
positions at United Waste from November 1991 until February 1994, including
Vice President, Finance, from October 1992 to February 1994. From 1985 until
November 1991, Mr. Nolan held various positions at the accounting firm of
Ernst & Young, including senior audit manager, and is a Certified Public
Accountant.
Robert P. Miner was an executive officer of United Waste Systems, Inc. from
November 1994 until August 1997, serving first as Vice President, Finance and
then Vice President, Acquisitions. Prior to joining United Waste, he was a
research analyst with PaineWebber Incorporated (November 1988 to October 1994)
and Needham & Co. (January 1987 to October 1988) and held various executive
positions at General Electric Environmental Services, Inc., Stauffer Chemical
Company, and OHM Corporation.
Sandra E. Welwood served as Vice President, Controller of United Waste
Systems, Inc. from March 1996 until August 1997. From October 1994 to February
1996, she was Assistant Controller of OSi Specialty, Inc., and from October
1993 to September 1994, was Director of Internal Audit of the Gartner Group,
Inc. Prior to this, Ms. Welwood was a senior audit manager at Ernst & Young
from September 1987 to September 1993, and held various positions (including
senior audit manager) at KPMG Peat Marwick from January 1980 to August 1987,
and is a Certified Public Accountant.
Kurtis T. Barker served as Vice President-Operations-Great Lakes Region of
United Waste Systems, Inc. from 1993 until August 1997. From 1991 to 1993, he
was an operations manager at Chambers Development Company, Inc. From 1990 to
1991, Mr. Barker was a project engineer at South Dakota Disposal Systems. From
1986 to 1990, he was a project engineer and then a general manager at Silver
King Mines, Inc.
Daniel E. Imig served as President-Mid-Central Region of Waste Management,
Inc. from 1996 to August 1997. From 1978 to 1996, Mr. Imig served in a number
of operating positions at Waste Management, Inc., including District Manager
and Division President.
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.
29
<PAGE>
Richard A. Volonino was a senior executive officer of United Waste from
November 1991 until August 1997, serving as Chief Operating Officer from 1991
to 1992 and thereafter as Executive Vice President--Acquisitions. From May
1988 to October 1991, Mr. Volonino held various positions, including Vice
President, Operations, with Chambers Development Company, Inc., and from 1986
to December 1987, was District Manager at Laidlaw, Inc.
Ronald M. DeFeo is the Chief Executive Officer, President, Chief Operating
Officer and a director of Terex Corporation, a leading global provider of
equipment for the manufacturing, mining and construction industries. Mr. DeFeo
joined Terex in 1992 as President of the Terex heavy equipment group and was
appointed President and Chief Operating Officer in 1993 and Chief Executive
Officer in 1995. From 1984 to 1992, Mr. DeFeo held various management
positions at Tenneco, Inc., including Senior Vice President and Managing
Director.
Richard J. Heckmann has served since 1990 as Chairman, President and Chief
Executive Officer of United States Filter Corporation, a leading global
provider of industrial and commercial water and wastewater treatment systems
and services. Mr. Heckmann is also a director of USA Waste Services, Inc. and
K2 Inc.
Gerald Tsai, Jr. served as Chairman, Chief Executive Officer and President
of Delta Life Corporation, an insurance company, from 1993 until the sale of
the company in October 1997. Mr. Tsai was Chairman of the Executive Committee
of the Board of Directors of Primerica Corporation, a diversified financial
services company, from December 1988 until April 1991, and served as Chief
Executive Officer of Primerica Corporation from April 1986 until December
1988. Mr. Tsai is currently a private investor and serves as a director of
Meditrust Corporation, Proffitt's, Inc., Rite Aid Corporation, Sequa
Corporation, Triarc Companies, Inc. and Zenith National Insurance Corp. He
also serves as a trustee of Boston University and New York University Medical
Center.
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 A. DiFrancesco served as General Manager of Access Rentals, Inc. from
1989 until the acquisition of the company by United Rentals in January 1998
and as Controller of Access Rentals from 1985 until 1989. Mr. DiFrancesco is a
Certified Public Accountant.
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 $46.8 million
(excluding amounts paid by certain officers and directors in respect of shares
of Common Stock purchased by them in the Company's initial public offering in
December 1997). Such capital contributions were made in connection with the
sale to such officers and directors in private placements of an aggregate of
13,150,714 shares of Common Stock and 6,342,858 warrants ("Warrants"). Each
such Warrant entitles the holder to purchase one share of Common Stock at an
exercise price of $10.00 per share at any time prior to September 12, 2007.
Such shares and Warrants were sold at a price of $3.50 per unit consisting of
one share of Common Stock and one-half of a Warrant (except that Messrs.
Barker and Tsai purchased only Common Stock at a price of $3.50 per share and
Messrs. Hicks, Imig and Heckmann purchased only Common
30
<PAGE>
Stock at a price of $10.00 per share). The table below indicates (i) the
number of shares of Common Stock and the number of Warrants purchased by such
officers and directors (excluding shares purchased in the Company's initial
public offering) and (ii) the aggregate amount paid by such officers and
directors for such securities:
<TABLE>
<CAPTION>
SECURITIES PURCHASED(1)
-------------------------
COMMON
NAME STOCK WARRANTS PURCHASE PRICE
---- ------------ --------------------------
<S> <C> <C> <C>
Bradley S. Jacobs.................. 10,000,000 5,000,000 $35,000,000
Wayland R. Hicks................... 100,000 -- 1,000,000
John N. Milne...................... 1,428,571 714,286 5,000,000
Michael J. Nolan................... 571,429 285,715 2,000,000
Robert P. Miner.................... 285,714 142,857 1,000,000
Sandra E. Welwood.................. 100,000 50,000 350,000
Kurtis T. Barker................... 100,000 -- 350,000
Daniel E. Imig..................... 5,000 -- 50,000
Joseph J. Kondrup, Jr. ............ 100,000 50,000 350,000
Kai E. Nyby........................ 100,000 50,000 350,000
Richard A. Volonino................ 100,000 50,000 350,000
Richard J. Heckmann................ 20,000 -- 200,000
Gerald Tsai, Jr. .................. 240,000 -- 840,000
</TABLE>
- --------
(1) In certain cases includes securities owned by one or more entities
controlled by the named holder.
CLASSIFICATION OF BOARD OF DIRECTORS
The Board of Directors is divided into three classes. The term of office of
the first class (currently comprised of Mr. Tsai) 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. 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
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 has three standing committees: the Audit Committee,
the Compensation/Stock Option Committee, and the Special Stock Option
Committee.
The responsibilities of the Audit Committee include selecting the firm of
independent accountants to be appointed to audit the Company's financial
statements and reviewing the scope and results of the audit with the
independent accountants. The members of this committee are Messrs. DeFeo,
Heckmann and Tsai.
The responsibilities of the Compensation/Stock Option Committee include
making recommendations with respect to the compensation to be paid to officers
and directors, administering the Company's Stock Option Plan, and approving
the grant of options. The members of this committee are Messrs. DeFeo,
Heckmann and Tsai.
The responsibilities of the Special Stock Option Committee include approving
the grant of options to persons other than officers and directors of the
Company. The authority of this committee to approve the grant of options to
such persons is concurrent with the authority of the Compensation/Stock Option
Committee to approve such grants. The members of this committee are Messrs.
Jacobs and Milne.
COMPENSATION OF DIRECTORS
Each director of the Company is paid up to $2,500 per day for each Board of
Directors' meeting such director attends, together with an expense
reimbursement. Messrs. DeFeo, Heckmann and Tsai have each been granted options
to purchase an aggregate of 20,000 shares of Common Stock at an exercise price
of $15.00 per share.
31
<PAGE>
COMPENSATION OF CERTAIN OFFICERS
The Company's executive officers are being compensated, and each has been
compensated since joining the Company, in accordance with the terms of the
Employment Agreements described below.
The following table sets forth information concerning the compensation of
the Chief Executive Officer of the Company and each of the other executive
officers of the Company during the period August 14, 1997 (inception) through
December 31, 1997.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
AWARDS
------------
SECURITIES
UNDERLYING
NAME AND PRINCIPAL POSITION SALARY($) OPTIONS(#)
- --------------------------- --------- ------------
<S> <C> <C>
Bradley S. Jacobs...................................... $97,039 --
Chief Executive Officer
Wayland R. Hicks....................................... 47,692(1) 450,000
President and Chief Operating Officer
John N. Milne.......................................... 63,577 --
Chief Acquisition Officer
Michael J. Nolan....................................... 58,558 --
Chief Financial Officer
Robert P. Miner........................................ 50,192 --
Vice President, Finance
</TABLE>
- --------
(1)Mr. Hicks' employment with the Company commenced on November 14, 1997.
The following tables summarize the options granted in 1997 to Mr. Hicks, the
potential value of these options at the end of the option term (assuming
certain levels of appreciation of the Company's Common Stock), and the total
number of options held by such executive officer as of December 31, 1997. None
of the other executive officers of the Company named in the Summary
Compensation Table above has been granted options.
OPTION GRANTS IN 1997
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
--------------------------------------------------------
POTENTIAL REALIZABLE VALUE
NUMBER OF % OF TOTAL AT ASSUMED RATE OF STOCK
SECURITIES OPTIONS EXERCISE APPRECIATION FOR OPTION
UNDERLYING GRANTED TO PRICE TERM(1)
OPTIONS EMPLOYEES PER EXPIRATION ---------------------------
NAME GRANTED IN 1997 SHARE DATE 5% 10%
- ---- ---------- ---------- -------- ---------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Wayland R. Hicks........ 350,000(2) 38.7% $10.00 11/13/07 $ 2,201,131 $ 5,578,099
50,000(2) 5.5% $15.00 11/13/07 64,447 546,871
50,000(2) 5.5% $20.00 11/13/07 -- 296,871
</TABLE>
- --------
(1) These amounts are based on calculations at hypothetical 5% and 10%
compounded annual appreciation rates prescribed by the Securities and
Exchange Commission and, therefore, are not intended to forecast possible
future appreciation, if any, of the Company's Common Stock price.
(2) These options are not currently vested. These options will vest one-third
in November 1998, one-third in November 1999 and one-third in November
2000. These options were granted pursuant to the Company's 1997 Stock
Option Plan.
32
<PAGE>
VALUE OF OPTIONS AT DECEMBER 31, 1997
<TABLE>
<CAPTION>
NUMBER OF SECURITIES UNDERLYING VALUE OF UNEXERCISED IN-THE-
UNEXERCISED OPTIONS AT MONEY OPTIONS AT
NAME DECEMBER 31, 1997 DECEMBER 31, 1997
- ---- ------------------------------- --------------------------------
EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
-------------- ----------------- ------------- -----------------
<S> <C> <C> <C> <C>
Wayland R. Hicks........ -- 450,000 -- $ 3,475,000
</TABLE>
EMPLOYMENT AGREEMENTS
The Company 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 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
33
<PAGE>
required severance payment to the executive constitutes an "excess parachute
payment" (as defined in Section 280G of the Internal Revenue Code of 1986, as
amended (the "Code")), the executive is entitled to receive a payment
sufficient on an after-tax basis to offset any excise tax payable by the
executive pursuant to Section 4999 of the Code. Any payment constituting an
"excess parachute payment" would not be deductible by the Company.
Each of the agreements provides that all options at any time to be granted
to the executive will automatically vest upon a change of control of the
Company (as defined in the agreement).
Pursuant to the employment agreement with Mr. Hicks, Mr. Hicks has been
granted options to purchase an aggregate of 450,000 shares of Common Stock.
For information concerning these options, see "--Compensation of Certain
Officers."
The agreement with Mr. Hicks provides that 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 931,333 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 $13.06 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.
34
<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, the Company does not know of any stockholder that is
the beneficial owner of more than 5% of the outstanding Common Stock of the
Company. For purposes of the table, each executive officer is deemed to be the
beneficial owner of all shares of Common Stock that may be acquired upon the
exercise of the Warrants held by such officer. The Warrants are currently
exercisable at an exercise price of $10.00 per share (representing an
aggregate exercise price of $61.4 million, assuming the exercise of all
Warrants held by executive officers).
<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........ 15,000,100(3)(4) 50.5% 42.6%
Wayland R. Hicks......... 100,000(5) * *
John N. Milne............ 2,142,857(6) 8.4% 6.9%
Michael J. Nolan......... 857,244(7) 3.4% 2.8%
Robert P. Miner.......... 428,571(8) 1.7% 1.4%
Ronald M. DeFeo.......... 22,000(9) * *
Richard J. Heckmann...... 40,000(10) * *
Gerald Tsai, Jr.......... 310,000(11) 1.3% 1.0%
All executive officers
and directors as a group
(8 persons)............. 18,900,772(12) 61.1% 51.9%
</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 10,000,100 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 19,128,672
shares of Common Stock (comprised of 12,785,814 outstanding shares and
6,342,858 shares issuable upon the exercise of outstanding Warrants).
(5) Does not include 450,000 shares issuable upon the exercise of options
(which are not currently exercisable) granted to Mr. Hicks. See
"Management--Compensation of Certain Officers." Also does not include any
shares that the Company is required to pay Mr. Hicks as part of his base
salary as described under "Management--Employment Agreements."
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(6) Consists of 1,428,571 outstanding shares and 714,286 shares issuable upon
the exercise of currently exercisable Warrants.
(7) Consists of 571,529 outstanding shares and 285,715 shares issuable upon
the exercise of currently exercisable Warrants.
(8) Consists of 285,714 outstanding shares and 142,857 shares issuable upon
the exercise of currently exercisable Warrants.
(9) Consists of 2,000 outstanding shares and 20,000 shares issuable upon the
exercise of currently exercisable options.
(10) Consists of 20,000 outstanding shares and 20,000 shares issuable upon the
exercise of currently exercisable options.
(11) Consists of 290,000 outstanding shares and 20,000 shares issuable upon
exercise of outstanding options.
(12) Consists of 12,697,914 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 60,000 shares issuable upon the exercise
of currently exercisable options.
CERTAIN AGREEMENTS RELATING TO SECURITIES HELD BY OFFICERS
Prior to the Company's initial public offering, the officers of the Company
purchased Common Stock (and in certain cases Warrants) from the Company in
private placements, as described under "Management--Capital Contributions by
Officers of Directors." All shares of Common Stock and Warrants purchased by
the officers of the Company prior to the Company's initial public offering
(and any shares of Common Stock acquired upon exercise of such Warrants) are
referred to as the "Private Placement Securities."
Each officer of the Company (other than Mr. Jacobs and Mr. Hicks) has
entered into an agreement with the Company and Mr. Jacobs that provides that
(i) if Mr. Jacobs sells any Private Placement Securities that he beneficially
owns in a commercial, non-charitable transaction, then Mr. Jacobs is required
to use his best efforts to sell (and has the right to sell subject to certain
exceptions) on behalf of such officer a pro rata portion of such officer's
Private Placement Securities at then prevailing prices, and (ii) except for
sales that may be required to be made as aforesaid, the officer shall not
(without the prior written consent of the Company) sell or otherwise dispose
of the Private Placement Securities owned by such officer (subject to certain
exceptions for charitable gifts). The foregoing provisions of the agreements
terminate in September or October 2002.
Each officer of the Company (other than Mr. Jacobs and Mr. Hicks) has also
agreed pursuant to such agreements that the Company, in its sole discretion,
may (i) prior to September 1, 2005, repurchase the Private Placement
Securities owned by such officer in the event that such officer breaches any
agreement with the Company or acts adversely to the interest of the Company
and (ii) repurchase such Private Placement Securities without any cause
(provided that such repurchase right without cause will lapse with respect to
one-third of the securities on the first, second and third anniversaries of
the date of such agreements). The amount to be paid by the Company in the
event of a repurchase will be equal to 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 Private Placement Securities owned by them.
Mr. Hicks has agreed that (i) he will not transfer any Private Placement
Securities purchased by him until November 1998 and (ii) he will not transfer
any shares of Common Stock that are hereafter issued to him as compensation
pursuant to his employment agreement for a one-year period following the date
of issuance. See "Management--Employment Agreements."
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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 24,718,808 shares of Common Stock outstanding.
After giving effect to the Offerings, there will be 30,218,808 shares of
Common Stock outstanding (31,043,808 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 up to
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 NOTE
There are currently outstanding warrants to purchase an aggregate of
6,519,058 shares of Common Stock. Such warrants provide for a weighted average
exercise price of $10.12 per share.
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There are currently outstanding options to purchase an aggregate of 931,333
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
$13.06 per share. Of these options, options to purchase an aggregate of 60,000
shares of Common Stock are currently exercisable and options to purchase
871,333 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 Acquired
Companies consisted of a $300,000 convertible note, which note is convertible
into Common Stock at a conversion price equal to $16.20 per share.
TRANSFER AGENT AND REGISTRAR
American Stock Transfer & Trust Company serves 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, 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
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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 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) 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 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
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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 foregoing 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.
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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 the lock-up agreements described below. Subject to such
agreements, upon completion of the Offerings, 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 either be
freely tradeable without restriction under the Securities Act or pursuant to a
shelf registration statement previously filed by the Company.
The Company and all of its officers and directors (who hold an aggregate of
13,262,414 shares of Common Stock) 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 750,000 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). In addition, the holder of 318,712 shares of
Common Stock has agreed not to sell or otherwise dispose of such shares until
June 1998 without the prior written consent of Merrill Lynch & Co.
Furthermore, the Company has agreed not to waive any existing lock-up
agreements between the Company and its stockholders, 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. Such existing lock-up agreements
prohibit the sale or transfer of an aggregate of 2,901,705 shares, without the
prior written consent of the Company. Such existing lock-up agreements lapse
in December 1998 (with respect to 733,670 shares), January 1999 (with respect
to 400,584 shares), December 1999 (with respect to 728,671 shares), and
December 2000 (with respect to 1,038,780 shares). In addition, an aggregate of
404,291 shares of Common Stock not subject to lock-up agreements and not
covered by the Company's shelf registration statement are "restricted
securities" under Rule 144 under the Securities Act and may not be sold except
if registered pursuant to the Securities Act or if an exemption from
registration is available. See "Underwriting."
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CERTAIN UNITED STATES FEDERAL TAX CONSIDERATIONS
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 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.
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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 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
43
<PAGE>
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.
44
<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 Merrill Lynch, Pierce,
Fenner & Smith Incorporated ("Merrill Lynch"), Deutsche Morgan Grenfell Inc.,
Donaldson, Lufkin & Jenrette Securities Corporation and Smith Barney Inc.
(together, the "U.S. Underwriters") and concurrently with the sale of
1,100,000 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 at the
public offering price less the underwriting discount set forth on the cover
page of this Prospectus.
<TABLE>
<CAPTION>
U.S. UNDERWRITER NUMBER OF SHARES
---------------- ----------------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated...................................
Deutsche Morgan Grenfell Inc. ..........................
Donaldson, Lufkin & Jenrette Securities Corporation.....
Smith Barney Inc. ......................................
---------
Total.............................................. 4,400,000
=========
</TABLE>
The Company has also entered into an international purchase agreement (the
"International Purchase Agreement") with Merrill Lynch International,
Donaldson, Lufkin & Jenrette International, Morgan Grenfell & Co. Limited and
Smith Barney Inc. (the "International Managers" and, together with the U.S.
Underwriters, the "Underwriters"). Subject to the terms and conditions set
forth in the International Purchase Agreement, and concurrently with the sale
of 4,400,000 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 1,100,000 shares of Common Stock. The
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. Underwriters have advised the Company that they propose initially
to offer the shares of Common Stock to the public at the 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 shares of Common Stock are released for sale to the public, 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
660,000 additional shares of Common Stock at the 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 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 165,000 additional shares of
Common Stock to cover over-allotments, if any, on terms similar to those
granted to the U.S. Underwriters.
45
<PAGE>
The Company and all its executive officers and directors (who hold an
aggregate of 13,262,414 shares of Common Stock) 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 & Co. 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 750,000 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 existing lock-up agreements
between the Company and its stockholders, 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 the holders of
an aggregate of 2,901,705 shares of Common Stock 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. See "Shares Eligible For Future Sale."
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
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.
The Company has agreed to indemnify the U.S. Underwriters and the
International Managers against certain liabilities, including certain
liabilities under the Securities Act.
Certain of the Underwriters have from time to time provided, and may in the
future provide, certain investment banking and advisory services to the
Company for which services such Underwriters received customary compensation.
The Underwriters may in the future provide additional investment banking and
advisory services to the Company.
46
<PAGE>
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. Underwriters 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. Underwriters
may reduce that short position by purchasing Common Stock in the open market.
The U.S. Underwriters may also elect to reduce any short position by
exercising all or part of the over-allotment option described above.
The U.S. Underwriters may also impose a penalty bid on certain Underwriters
and selling group members. This means that if the U.S. Underwriters 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. Underwriters will engage in such transactions or
that such transactions, once commenced, will not be discontinued without
notice.
47
<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 December 31, 1997 and
for the period from August 14, 1997 (Inception) to December 31, 1997, the
financial statements of J&J Rental Services, Inc. at December 31, 1996 and
October 22, 1997 and for each of the two years in the period ended December
31, 1996, the six months ended June 30, 1997 and for the period from July 1,
1997 to October 22, 1997, the financial statements of Bronco Hi-Lift, Inc. at
December 31, 1996 and October 24, 1997 and for each of the two years in the
period ended December 31, 1996 and for the period from January 1, 1997 to
October 24, 1997, and the financial statements of Mission Valley Rentals, Inc.
at June 30, 1996 and 1997 and for the years then ended, 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 consolidated financial statements of A&A Tool Rentals & Sales, Inc. and
subsidiary as of October 19, 1997, October 31, 1996, and 1995, and for the
period from November 1, 1996 to October 19, 1997 and for the years ended
October 31, 1996 and 1995, have been included herein and in the Registration
Statement in reliance upon the report of KPMG Peat Marwick LLP, independent
certified public accountants, appearing elsewhere herein, and upon the
authority of said firm as experts in accounting and auditing.
The financial statements of MERCER Equipment Company appearing in this
Prospectus have been audited by Webster Duke & Co., independent auditors, as
set forth in their reports thereon included elsewhere herein and in the
Registration Statement of which this Prospectus is a part, and are included in
reliance upon such reports given upon the authority of such firm as experts in
accounting and auditing.
The combined financial statements of Coran Enterprises, Inc. (dba A-1 Rents)
and Monterey Bay Equipment Rental, Inc., appearing in this Prospectus and
Registration Statement, have been audited by Grant Thornton LLP, independent
auditors, as set forth in their report thereon appearing elsewhere herein and
in the Registration Statement, and are included in reliance upon such report
given upon the authority of such firm as experts in accounting and auditing.
The combined financial statements of BNR Group of Companies as of March 31,
1996 and 1997 and for the years ended March 31, 1996 and 1997, have been
included herein and in the Registration Statement in reliance upon the report
of KPMG, independent chartered accountants, appearing elsewhere herein, and
upon the authority of said firm as experts in accounting and auditing.
The audited financial statements of Access Rentals, Inc., and Subsidiary and
Affiliate included in this Registration Statement have been included herein in
reliance on the report of Battaglia, Andrews & Moag, P.C., independent
certified public accountants, 210 East Main Street, Batavia, New York 14020,
for the periods indicated, given on the authority of that firm as experts in
auditing and accounting.
48
<PAGE>
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 and copied at
the public reference facilities maintained by the Commission at the principal
office of the Commission located at 450 Fifth Street, N.W., Washington, D.C.
20549, and at the Midwest Regional Office of the Commission located at
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-
2511 and at the Northeast Regional office of the Commission located at Seven
World Trade Center, Suite 1300, New York, New York 10048. Copies of such
material may be obtained from the Public Reference Section of the Commission
at 450 Fifth Street, N.W., Room 1204, Washington, D.C. 20549, at prescribed
rates.
The Company is subject to the informational and periodic reporting
requirements of the Securities Exchange Act of 1934, as amended, and in
accordance therewith, files periodic reports, proxy statements, and other
information with the Commission. Such periodic reports, proxy statements, and
other information may be inspected and copied at the public reference
facilities maintained by the Commission at the principal office of the
Commission in Washington, D.C., and at the Commission's regional offices at
the addresses stated above. Copies of such material may be obtained at
prescribed rates from the Public Reference Section of the Commission at the
address stated above. The Common Stock is listed on the New York Stock
Exchange (the "NYSE"), and the Registration Statement and such reports, proxy
statements and other information can also be inspected at the offices of the
NYSE, 20 Broad Street, New York, New York 10005.
The Commission maintains an Internet web site that contains reports, proxy
and information statements and other information regarding issuers that file
electronically with the Commission. The address of that site is
http://www.sec.gov.
49
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
I. Pro Forma Consolidated Financial Statements of United Rentals, Inc.
Introduction......................................................................... F-4
Pro Forma Consolidated Balance Sheets--December 31, 1997 (unaudited)................. F-5
Pro Forma Consolidated Statements of Operations for the Year Ended December 31, 1997
(unaudited)....................................................................... F-6
Notes to Pro Forma Consolidated Financial Statements................................. F-7
II. Consolidated Financial Statements of United Rentals, Inc.
Report of Independent Auditors....................................................... F-9
Consolidated Balance Sheet--December 31, 1997........................................ F-10
Consolidated Statement of Operations for the period from August 14, 1997
(Inception) to December 31, 1997.................................................... F-11
Consolidated Statement of Stockholders' Equity for the period from August 14, 1997
(Inception) to December 31, 1997.................................................... F-12
Consolidated Statement of Cash Flows for the period from August 14, 1997
(Inception) to December 31, 1997.................................................... F-13
Notes to Consolidated Financial Statements........................................... F-14
III. Consolidated and Combined Financial Statements of Access Rentals, Inc. and subsidiary
and affiliate
Report of Independent Accountants.................................................... F-21
Consolidated and Combined Balance Sheets--March 31, 1996 and 1997 and December 31,
1997 (unaudited).................................................................... F-22
Consolidated and Combined Statements of Income for the Years Ended September 30, 1994
and 1995, for the Six Months Ended March 31, 1996, for the Year Ended March 31, 1997
and for the Nine Months Ended December 31, 1996 and 1997 (unaudited)................ F-23
Consolidated and Combined Statement of Stockholders' Equity for the Years Ended
September 30, 1994 and 1995, for the Six Months Ended March 31, 1996, for the Year
Ended March 31, 1997 and for the Nine Months Ended December 31, 1997 (unaudited).... F-24
Consolidated and Combined Statements of Cash Flows for the Years Ended September 30,
1994 and 1995, for the Six Months Ended March 31, 1996, for the Year Ended March 31,
1997 and for the Nine Months Ended December 31, 1996 and 1997 (unaudited)........... F-25
Notes to Financial Statements........................................................ F-26
IV. Combined Financial Statements of BNR Group of Companies
Report of Independent Auditors....................................................... F-35
Combined Balance Sheets--March 31, 1996 and 1997 and December 31, 1997 (unaudited)... F-36
Combined Statements of Earnings for the Years Ended March 31, 1996 and 1997 and for
the Nine Months Ended December 31, 1996 and 1997 (unaudited)........................ F-37
Combined Statements of Stockholders' Equity for the Years Ended March 31, 1996 and
1997 and for the Nine Months Ended December 31, 1997 (unaudited).................... F-38
Combined Statements of Cash Flows for the Years Ended March 31, 1996 and 1997 and for
the Nine Months Ended December 31, 1996 and 1997 (unaudited)........................ F-39
Notes to Combined Financial Statements............................................... F-40
</TABLE>
F-1
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
V. Financial Statements of Mission Valley Rentals, Inc.
Report of Independent Auditors...................................... F-49
Balance Sheets--June 30, 1996 and 1997 and December 31, 1997
(unaudited)........................................................ F-50
Statements of Operations for the Years Ended June 30, 1996 and 1997
and for the Six Months Ended December 31, 1996 and 1997
(unaudited)........................................................ F-51
Statements of Stockholders' Equity for the Years Ended June 30, 1996
and 1997 and for the Six Months Ended December 31, 1997
(unaudited)........................................................ F-52
Statements of Cash Flows for the Years Ended June 30, 1996 and 1997
and the Six Months Ended December 31, 1996 and 1997 (unaudited).... F-53
Notes to Financial Statements....................................... F-54
VI. Financial Statements of MERCER Equipment Company
Independent Auditor's Report........................................ F-60
Balance Sheets--December 31, 1996 and October 24, 1997.............. F-61
Statements of Income and Retained Earnings for the Years Ended
December 31, 1995 and 1996 and for the period from January 1, 1997
to October 24, 1997................................................ F-62
Statements of Cash Flows for the Years Ended December 31, 1995 and
1996 and for the period from January 1, 1997 to October 24, 1997... F-63
Notes to Financial Statements....................................... F-64
VII. Consolidated Financial Statements of A&A Tool Rentals & Sales,
Inc. and subsidiary
Report of Independent Auditors...................................... F-69
Consolidated Balance Sheets--October 31, 1995 and 1996 and October
19, 1997 and July 31, 1997 (unaudited)............................. F-70
Consolidated Statements of Operations for the Years Ended October
31, 1995 and 1996 and for the period from November 1, 1996 to
October 19, 1997 and for the Nine Months Ended July 31, 1996 and
1997 (unaudited)................................................... F-71
Consolidated Statements of Stockholders' Equity for the Years Ended
October 31, 1995 and 1996 and for the period from November 1, 1996
to October 19, 1997 ............................................... F-72
Consolidated Statements of Cash Flows for the Years Ended October
31, 1995 and 1996 and for the period from November 1, 1996 to
October 19, 1997 and for the Nine Months Ended July 31, 1996 and
1997 (unaudited)................................................... F-73
Notes to Consolidated Financial Statements.......................... F-74
VIII. Financial Statements of J&J Rental Services, Inc.
Report of Independent Auditors...................................... F-81
Balance Sheets--December 31, 1996 and October 22, 1997 ............. F-82
Statements of Income for the Years Ended December 31, 1995 and 1996,
for the Six Months Ended June 30, 1997 and for the period from July
1, 1997 to October 22, 1997........................................ F-83
Statements of Stockholders' Equity and Partners' Capital for the
Years Ended December 31, 1995 and 1996 and for the Six Months Ended
June 30, 1997 and for the period from July 1, 1997 to October 22,
1997............................................................... F-84
Statements of Cash Flows for the Years Ended December 31, 1995 and
1996, for the Six Months Ended June 30, 1997 and for the period
from July 1, 1997 to October 22, 1997.............................. F-85
Notes to Financial Statements....................................... F-86
</TABLE>
F-2
<PAGE>
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
IX. Combined Financial Statements of Coran Enterprises, Inc. dba A-1
Rents and Monterey Bay Equipment Rental, Inc.
Report of Independent Certified Public Accountants.................. F-93
Combined Statements of Earnings for the Years Ended December 31,
1995 and 1996 and for the period from January 1, 1997 to October
24, 1997 .......................................................... F-94
Combined Statements of Stockholders' Equity for the Years Ended De-
cember 31, 1995 and 1996 and for the period from January 1, 1997 to
October 24, 1997 .................................................. F-95
Combined Statements of Cash Flows for the Years Ended December 31,
1995 and 1996 and for the period from January 1, 1997 to October
24, 1997 .......................................................... F-96
Notes to Combined Financial Statements.............................. F-97
X. Financial Statements of Bronco Hi-Lift, Inc.
Report of Independent Auditors...................................... F-99
Balance Sheets--December 31, 1996 and October 24, 1997 ............. F-100
Statements of Income for the Years Ended December 31, 1995 and 1996
and for the period from January 1, 1997 to October 24, 1997........ F-101
Statements of Stockholders' Equity for the Years Ended December 31,
1995 and 1996 and for the period from January 1, 1997 to October
24, 1997........................................................... F-102
Statements of Cash Flows for the Years Ended December 31, 1995 and
1996 and for the period from January 1, 1997 to October 24, 1997... F-103
Notes to Financial Statements....................................... F-104
</TABLE>
F-3
<PAGE>
UNITED RENTALS, INC.
PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The accompanying unaudited pro forma consolidated balance sheets of the
Company as of December 31, 1997 give effect to the 14 acquisitions completed
by the Company subsequent to such date and the financing of each such
acquisition, as if all such transactions had occurred on December 31, 1997.
The accompanying unaudited pro forma consolidated statements of operations
of the Company for the year ended December 31, 1997 give effect to the
acquisition of each of the 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.
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-4
<PAGE>
UNITED RENTALS, INC.
PRO FORMA CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
UNITED ACCESS BNR GROUP MISSION VALLEY OTHER PRO FORMA PRO FORMA
RENTALS, INC. RENTALS, INC. OF COMPANIES RENTALS, INC. ACQUISITIONS ADJUSTMENTS CONSOLIDATED
------------- ------------- ------------ -------------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Cash and cash equiva-
lents................. $ 68,607,528 $ 362,817 $ 25,306 $ 505,541 $ 790,724 $(70,241,916)(a) $ 50,000
Accounts receivable,
net................... 7,494,636 10,557,474 5,096,644 721,252 4,845,519 28,715,525
Inventory............. 3,827,446 2,511,326 1,593,190 88,965 3,195,914 11,216,841
Rental equipment,
net................... 33,407,561 63,636,491 9,246,449 5,667,659 23,446,880 3,484,574 (b) 138,889,614
Property and
equipment, net........ 2,272,683 5,386,167 738,032 138,343 2,173,323 (1,458,522)(c) 9,250,026
Intangible assets,
net................... 50,533,736 2,212,368 765,841 2,537 78,113,841 (d) 131,628,323
Prepaid expenses and
other assets.......... 2,966,822 3,934,801 60,147 165,599 399,387 7,526,756
------------ ----------- ----------- ---------- ----------- ------------ ------------
Total Assets....... $169,110,412 $88,601,444 $16,759,768 $8,053,200 $34,854,284 $ 9,897,977 $327,277,085
============ =========== =========== ========== =========== ============ ============
LIABILITIES AND STOCK-
HOLDERS' EQUITY
Liabilities
Accounts payable..... $ 5,697,830 $ 7,160,756 $ 1,456,996 $ 805,462 $ 2,307,716 $ 17,428,760
Debt................. 1,074,474 51,505,595 7,575,767 5,536,280 20,884,135 $(77,318,869)(e) 117,245,829
107,988,447 (f)
Accrued expenses and
other
liabilities.......... 4,608,077 7,821,732 5,016,579 181,461 1,792,387 19,420,236
------------ ----------- ----------- ---------- ----------- ------------ ------------
Total liabilities.. 11,380,381 66,488,083 14,049,342 6,523,203 24,984,238 30,669,578 154,094,825
------------ ----------- ----------- ---------- ----------- ------------ ------------
Stockholders' equity
Common stock......... 238,991 10,000 58,315 1,000 40,837 (110,152)(g) 247,039
8,048 (h)
Additional paid-in
capital.............. 157,457,418 (1,101,494) 223,824 877,670 (g) 172,901,599
15,444,181 (h)
Retained earnings
(deficit)............ 33,622 23,204,855 2,652,111 1,528,997 9,605,385 (36,991,348)(g) 33,622
------------ ----------- ----------- ---------- ----------- ------------ ------------
Total stockholders'
equity............. 157,730,031 22,113,361 2,710,426 1,529,997 9,870,046 (20,771,601) 173,182,260
------------ ----------- ----------- ---------- ----------- ------------ ------------
Total liabilities
and stockholders'
equity............. $169,110,412 $88,601,444 $16,759,768 $8,053,200 $34,854,284 $ 9,897,977 $327,277,085
============ =========== =========== ========== =========== ============ ============
</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, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
UNITED MERCER A&A TOOL CORAN
RENTALS, EQUIPMENT RENTALS AND J & J RENTAL ENTERPRISES, BRONCO ACCESS BNR GROUP
INC. COMPANY SALES, INC. SERVICES, INC. INC. HI-LIFT, INC. RENTALS, INC. OF COMPANIES
----------- ----------- ----------- -------------- ------------ ------------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues
Equipment
rentals........... $ 7,018,564 $ 6,891,972 $ 6,022,196 $6,368,023 $6,743,497 $4,330,000 $42,316,423 $ 9,402,842
Sales of
equipment and
merchandise and
other revenue..... 3,614,834 8,181,440 5,424,246 703,413 974,713 1,091,176 9,942,738 14,612,355
----------- ----------- ----------- ---------- ---------- ---------- ----------- -----------
Total revenues.. 10,633,398 15,073,412 11,446,442 7,071,436 7,718,210 5,421,176 52,259,161 24,015,197
Cost of revenues
Cost of equipment
rentals,
excluding
depreciation...... 3,203,009 2,300,062 2,583,884 2,992,384 3,764,346 374,845 12,415,655 4,662,325
Rental equipment
depreciation...... 1,038,947 1,428,312 1,465,586 1,531,357 1,328,193 660,598 8,480,016 1,588,710
Cost of sales and
other operating
expenses.......... 2,580,162 6,602,793 4,775,637 373,500 257,838 673,163 8,861,832 10,360,520
----------- ----------- ----------- ---------- ---------- ---------- ----------- -----------
Total cost of
revenues........ 6,822,118 10,331,167 8,825,107 4,897,241 5,350,377 1,708,606 29,757,503 16,611,555
----------- ----------- ----------- ---------- ---------- ---------- ----------- -----------
Gross profit....... 3,811,280 4,742,245 2,621,335 2,174,195 2,367,833 3,712,570 22,501,658 7,403,642
Selling, general
and administrative
expenses........... 3,311,669 3,245,256 2,178,383 1,500,395 1,768,439 2,353,924 10,439,727 5,402,206
Non-rental
depreciation and
amortization....... 262,102 114,654 124,648 86,272 15,370 85,707 1,354,639 104,486
----------- ----------- ----------- ---------- ---------- ---------- ----------- -----------
Operating income... 237,509 1,382,335 318,304 587,528 584,024 1,272,939 10,707,292 1,896,950
Interest expense... 454,072 686,512 642,478 559,000 170,183 229,154 3,700,559 501,428
Other (income)
expense, net....... (270,701) (147,362) (120,047) (37,724) 0 (29,938) (809,146) 0
----------- ----------- ----------- ---------- ---------- ---------- ----------- -----------
Income before
provision for
income taxes....... 54,138 843,185 (204,127) 66,252 413,841 1,073,723 7,815,879 1,395,522
Provision for
income taxes....... 20,516 15,270 98,000 276,383 2,744,691 458,302
----------- ----------- ----------- ---------- ---------- ---------- ----------- -----------
Net income......... $ 33,622 $ 843,185 $ (219,397) $ (31,748) $ 137,458 $1,073,723 $ 5,071,188 $ 937,220
=========== =========== =========== ========== ========== ========== =========== ===========
Basic Earnings per
share.............. $ 0.00
===========
Diluted Earnings
per share.......... $ 0.00
===========
<CAPTION>
MISSION VALLEY OTHER PRO FORMA PRO FORMA
RENTALS, INC. ACQUISITIONS ADJUSTMENTS CONSOLIDATED
-------------- ------------- --------------- ------------
<S> <C> <C> <C> <C>
Revenues
Equipment
rentals........... $7,852,751 $27,969,883 $124,916,151
Sales of
equipment and
merchandise and
other revenue..... 764,920 16,534,376 61,844,211
-------------- ------------- ------------
Total revenues.. 8,617,671 44,504,259 186,760,362
Cost of revenues
Cost of equipment
rentals,
excluding
depreciation...... 3,436,601 13,661,213 49,394,324
Rental equipment
depreciation...... 1,746,340 6,095,559 $(4,096,853)(a) 21,266,765
Cost of sales and
other operating
expenses.......... 517,661 11,877,557 (57,068)(b) 46,823,595
-------------- ------------- --------------- ------------
Total cost of
revenues........ 5,700,602 31,634,329 (4,153,921) 117,484,684
-------------- ------------- --------------- ------------
Gross profit....... 2,917,069 12,869,930 4,153,921 69,275,678
Selling, general
and administrative
expenses........... 3,062,607 9,067,353 (4,840,243)(c) 38,212,809
723,093 (d)
Non-rental
depreciation and
amortization....... 31,695 420,339 2,490,386 (e) 5,090,298
-------------- ------------- --------------- ------------
Operating income... (177,233) 3,382,238 5,780,685 25,972,571
Interest expense... 433,972 1,839,226 (8,210,984)(f) 8,888,757
7,883,157 (g)
Other (income)
expense, net....... (61,269) (222,768) 0 (1,698,955)
-------------- ------------- --------------- ------------
Income before
provision for
income taxes....... (549,936) 1,765,780 6,108,512 18,782,769
Provision for
income taxes....... (72,801) 645,613 3,301,860 (h) 7,487,834
-------------- ------------- --------------- ------------
Net income......... $ (477,135) $ 1,120,167 $ 2,806,652 $ 11,294,935
============== ============= =============== ============
Basic Earnings per
share.............. $ 0.46
============
Diluted Earnings
per share.......... $ 0.43
============
</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 formed in September 1997 for the purpose of
creating a large geographically diversified equipment rental company in the
United States and Canada. The Company commenced equipment rental operations in
October 1997 by acquiring six established companies and acquired 14 additional
companies in the first two months of 1998. The Company rents a broad array of
equipment to a diverse customer base that includes construction industry
participants, industrial companies, homeowners and other individuals. The
Company also engages in related activities such as selling used rental
equipment, acting as a distributor for certain new equipment, and selling
related merchandise and parts.
2. HISTORICAL FINANCIAL STATEMENTS
The historical financial data presented in these pro forma consolidated
financial statements represent the financial position and results of
operations of (i) the Company as of December 31, 1997 and for the period from
inception to December 31, 1997 and (ii) the 14 acquisitions completed by the
Company subsequent to December 31, 1997, as of and for the year ended December
31, 1997. The results of operations for the year ended December 31, 1997 also
includes the results of operations of each Initial Acquired Company for the
period from January 1, 1997 through the date in October 1997 on which such
Initial Acquired Company was acquired by the Company. Such data is derived
from the respective financial statements of such companies.
The historical financial statements of the BNR Group of Companies are stated
in Canadian dollars and prepared in accordance with Canadian generally
accepted accounting principles. The historical financial data for the BNR
Group of Companies presented in these pro forma consolidated financial
statements reflect the translation of these statements into US dollars and
have been adjusted to conform to US generally accepted accounting principles.
3. ACQUISITIONS
Since its formation, the Company has completed a total of 20 acquisitions.
These include the acquisition of the six Initial Acquired Companies in October
1997 and the acquisition of 14 additional companies (the "1998 Acquired
Companies") in the first two months of 1998.
The aggregate consideration paid by the Company for the Initial Acquired
Companies (the "1997 Acquisition Consideration") was $57.7 million and
consisted of approximately $53.6 million in cash, 318,712 shares of Common
Stock (subject to possible adjustment as described under "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Consideration Paid for Acquired Companies") and a $300,000 convertible note.
The aggregate consideration paid by the Company for the 1998 Acquired
Companies (the "1998 Acquisition Consideration") was $116.4 million and
consisted of approximately $100.9 million in cash, 804,875 shares of Common
Stock, and warrants to purchase an aggregate of 30,000 shares of Common Stock.
Based upon management's preliminary estimates, it is estimated that the
carrying value of the assets and liabilities of the 1998 Acquired Companies
approximates fair value, with the exception of rental equipment and other
property and equipment, which required adjustments to reflect fair market
value. The following table presents the allocation of purchase prices of each
of the 1998 Acquired Companies:
<TABLE>
<CAPTION>
ACCESS BNR GROUP
RENTALS, OF MISSION VALLEY OTHER COMBINED
INC. COMPANIES RENTALS, INC. ACQUISITIONS TOTAL
----------- ----------- -------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Purchase price.......... $46,488,114 $15,490,704 $16,695,545 $37,689,360 $116,363,723
Net assets acquired..... 22,113,361 2,710,426 1,529,997 9,870,046 36,223,830
Fair value adjustments:
Rental equipment...... (909,859) 1,061,690 (299,048) 3,631,791 3,484,574
Property and
equipment............ (1,136,167) (38,032) 11,657 (295,980) (1,458,522)
----------- ----------- ----------- ----------- ------------
Intangibles recognized.. $26,420,779 $11,756,620 $15,452,939 $24,483,503 $78,113,841
=========== =========== =========== =========== ============
</TABLE>
F-7
<PAGE>
4. PRO FORMA ADJUSTMENTS
Balance sheet adjustments:
a. Records the portion of the 1998 Acquisition Consideration and debt
repayment paid from available cash on hand.
b. Adjusts the carrying value of rental equipment to fair market value.
c. Adjusts the carrying value of property and equipment to fair market
value.
d. Records the excess of the 1998 Acquisition Consideration over the
estimated fair value of net assets acquired.
e. Records the repayment of certain indebtedness of the 1998 Acquired
Companies.
f. Records the portion of the 1998 Acquisition Consideration and debt
repayment funded by borrowing under the Company's Credit Facility.
g. Records the elimination of the stockholders' equity of the 1998 Acquired
Companies.
h. Records the portion of the 1998 Acquisition Consideration paid in the
form of Common Stock and warrants.
Statement of operations adjustments:
a. Adjusts the depreciation of rental equipment and other property and
equipment based upon adjusted carrying values utilizing the following
lives (subject to a salvage value ranging from 0 to 10%):
<TABLE>
<S> <C>
Rental equipment.............................................. 2-9 years
Other property and equipment.................................. 2-15 years
</TABLE>
b. Adjusts the method of accounting for inventory at one of the Acquired
Companies from the LIFO method to the FIFO method.
c. Adjusts the compensation to former owners and executives of the Acquired
Companies to current levels of compensation.
d. Adjusts the lease expense for real estate utilized by the Acquired
Companies to current lease agreements.
e. Records the amortization of the excess of cost over net assets acquired
attributable to the acquisitions of the Acquired Companies using an
estimated life of 40 years.
f. Eliminates interest expense related to the outstanding indebtedness of
the Acquired Companies which was repaid by the Company.
g. Records interest expense relating to the portion of the 1997 Acquisition
Consideration and 1998 Acquisition Consideration funded through borrowing
under the Company's Credit Facility using a rate per annum of 7.3%.
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 shares outstanding during the period. The weighted average outstanding
shares during the period is calculated as follows:
<TABLE>
<S> <C>
Basic:
Shares outstanding at December 31, 1997....................... 23,899,119
Shares issued for acquisitions................................ 804,875
----------
24,703,994
==========
Dilutive:
Shares outstanding at December 31, 1997....................... 23,899,119
Shares issued for acquisitions................................ 804,875
Common stock equivalents (based on the initial public offering
price of $13.50 per share)................................... 1,792,942
----------
26,496,936
==========
</TABLE>
F-8
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors
United Rentals, Inc.
We have audited the accompanying consolidated balance sheet of United
Rentals, Inc. as of December 31, 1997 and the related consolidated statements
of operations, stockholders' equity and cash flows from August 14, 1997
(Inception) to December 31, 1997. These financial statements are the
responsibility of the management of United Rentals, Inc. Our responsibility is
to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of United Rentals, Inc. at December 31, 1997, and the results of its
operations and its cash flows from August 14, 1997 (Inception) to December 31,
1997, in conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
MetroPark, New Jersey
January 30, 1998
F-9
<PAGE>
UNITED RENTALS, INC.
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1997
<TABLE>
<S> <C>
ASSETS
Cash and cash equivalents......................................... $ 68,607,528
Accounts receivable, net of allowance for doubtful accounts of
$1,161,000....................................................... 7,494,636
Inventory......................................................... 3,827,446
Prepaid expenses and other assets................................. 2,966,822
Rental equipment, net............................................. 33,407,561
Property and equipment, net....................................... 2,272,683
Intangible assets, net of accumulated amortization of $241,000.... 50,533,736
------------
$169,110,412
============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Accounts payable................................................ $ 5,697,830
Debt............................................................ 1,074,474
Deferred taxes.................................................. 198,249
Accrued expenses and other liabilities.......................... 4,409,828
------------
Total liabilities............................................. 11,380,381
Commitments and contingencies
Stockholders' equity:
Preferred stock--$.01 par value, 5,000,000 shares authorized, no
shares issued and outstanding.................................. --
Common stock--$.01 par value, 75,000,000 shares authorized,
23,899,119 shares issued and outstanding....................... 238,991
Additional paid-in capital...................................... 157,457,418
Retained earnings............................................... 33,622
------------
Total stockholders' equity.................................... 157,730,031
------------
$169,110,412
============
</TABLE>
See accompanying notes.
F-10
<PAGE>
UNITED RENTALS, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
AUGUST 14, 1997 (INCEPTION) TO DECEMBER 31, 1997
<TABLE>
<S> <C>
Revenues:
Equipment rentals............................................... $ 7,018,564
Sales of rental equipment....................................... 1,011,071
Sales of new equipment, merchandise and other revenues.......... 2,603,763
-----------
Total revenues.................................................... 10,633,398
Cost of revenues:
Cost of equipment rentals, excluding depreciation............... 3,203,209
Depreciation of rental equipment................................ 1,038,747
Cost of rental equipment sales.................................. 527,523
Cost of new equipment and merchandise sales and other operating
costs.......................................................... 2,052,639
-----------
Total cost of revenues............................................ 6,822,118
-----------
Gross profit...................................................... 3,811,280
Selling, general and administrative expenses...................... 3,311,669
Non-rental depreciation and amortization.......................... 262,102
-----------
Operating income.................................................. 237,509
Interest expense.................................................. 454,072
Other (income) expense............................................ (270,701)
-----------
Income before provision for income taxes.......................... 54,138
Provision for income taxes........................................ 20,516
-----------
Net income........................................................ $ 33,622
===========
Basic earnings per share.......................................... $ 0.00
===========
Diluted earnings per share........................................ $ 0.00
===========
</TABLE>
See accompanying notes.
F-11
<PAGE>
UNITED RENTALS, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
AUGUST 14, 1997 (INCEPTION) TO DECEMBER 31 , 1997
<TABLE>
<CAPTION>
COMMON STOCK
------------------- ADDITIONAL
NUMBER PAID-IN RETAINED
OF SHARES AMOUNT CAPITAL EARNINGS
---------- -------- ------------ --------
<S> <C> <C> <C> <C>
Balance, August 14, 1997 (Incep-
tion)............................... -- $ -- $ -- $ --
Issuance of common stock and war-
rants............................. 23,899,119 238,991 157,457,418
Net income......................... 33,622
---------- -------- ------------ -------
Balance, December 31, 1997........... 23,899,119 $238,991 $157,457,418 $33,622
========== ======== ============ =======
</TABLE>
See accompanying notes.
F-12
<PAGE>
UNITED RENTALS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
AUGUST 14, 1997 (INCEPTION) TO DECEMBER 31, 1997
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income....................................................... $ 33,622
Adjustments to reconcile net income to net cash provided by oper-
ating activities:
Depreciation and amortization.................................. 1,300,849
Gain on sale of rental equipment............................... (483,548)
Deferred taxes................................................. (2,204)
Changes in operating assets and liabilities:
Accounts receivable.......................................... 609,529
Inventory.................................................... 631,484
Prepaid expenses and other assets............................ (755,545)
Accounts payable............................................. 281,056
Accrued expenses and other liabilities....................... (512,507)
------------
Net cash provided by operating activities.................. 1,102,736
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of rental equipment.................................... (1,886,533)
Purchases of property and equipment.............................. (819,557)
Proceeds from sales of rental equipment.......................... 1,011,071
In-process acquisition costs..................................... (128,523)
Purchase of other companies...................................... (51,451,634)
------------
Net cash used in investing activities...................... (53,275,176)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of common stock and warrants, net of
issuance costs.................................................. 154,788,110
Proceeds from debt............................................... 35,000,000
Repayment of debt................................................ (68,222,252)
Payment of debt financing costs.................................. (785,890)
------------
Net cash provided by financing activities.................. 120,779,968
------------
Net increase in cash and cash equivalents........................ 68,607,528
Cash and cash equivalents at beginning of period................. --
------------
Cash and cash equivalents at end of period................. $ 68,607,528
============
Supplemental disclosure of cash flow information:
Cash paid for interest......................................... $ 446,559
============
Supplemental schedule of non cash investing and financing
activities:
The Company acquired the net assets and assumed certain
liabilities of other companies as follows:
Assets, net of cash acquired................................. $ 98,876,932
Liabilities assumed.......................................... (43,300,749)
Less:
Amounts paid in common stock............................... (3,824,549)
Amount paid through issuance of convertible note........... (300,000)
------------
Net cash paid.................................................. $ 51,451,634
============
</TABLE>
See accompanying notes.
F-13
<PAGE>
UNITED RENTALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
1. ORGANIZATION AND BASIS OF PRESENTATION
United Rentals, Inc. (together with its subsidiaries the "Company") was
incorporated in August 1997 for the purpose of creating a large,
geographically diversified equipment rental company in the United States and
Canada. The Company rents a broad array of equipment to a diverse customer
base that includes construction industry participants, industrial companies,
homeowners and others. The Company also engages in related activities such as
selling used rental equipment, acting as a distributor for certain new
equipment and selling related merchandise and parts. The nature of the
Company's business is such that short-term obligations are typically met by
cash flow generated from long-term assets. Consequently, consistent with
industry practice, the accompanying balance sheet is presented on an
unclassified basis.
The accompanying consolidated financial statements include the accounts of
the Company and its wholly-owned subsidiaries. All significant intercompany
accounts and transactions have been eliminated.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash Equivalents
The Company considers all highly liquid instruments with a maturity of three
months or less when purchased to be cash equivalents.
Inventory
Inventory consists of equipment, tools, parts, fuel and related supply
items. Inventory is stated at the lower of average weighted cost or market.
Rental Equipment
Rental equipment is recorded at cost and depreciated over the estimated
useful lives of the equipment using the straight-line method. The range of
useful lives estimated by management for rental equipment is two to ten years.
Rental equipment is depreciated to a salvage value of zero to ten percent of
cost. Rental equipment having a cost of $500 or less is expensed at the time
of purchase. Ordinary maintenance and repair costs are charged to operations
as incurred.
Revenue Recognition
Revenue related to the sale of equipment is recognized at the point of sale.
Revenue related to rental equipment is recognized over the contract term.
Property and Equipment
Property and equipment are recorded at cost and depreciated over their
estimated useful lives using the straight-line method. The range of useful
lives estimated by management for property and equipment is two to ten years.
Ordinary maintenance and repair costs are charged to operations as incurred.
Intangible Assets
Intangible assets consist of the excess of cost over the value of
identifiable net assets of businesses acquired and are being amortized on a
straight line basis over their estimated useful lives of forty years.
Fair Value of Financial Instruments
The carrying amounts reported in the balance sheet for accounts receivable,
accounts payable, accrued expenses and other liabilities approximate fair
value due to the immediate to short-term maturity of these financial
instruments. The fair value of notes payable is determined using current
interest rates for similar instruments as of December 31, 1997 and
approximates the carrying value of these notes due to the fact that the
underlying instruments include provisions to adjust note balances and interest
rates to approximate fair market value.
Advertising Expense
The Company expenses the cost of advertising as incurred. The Company
incurred $146,000 in advertising costs for the period August 14, 1997
(Inception) to December 31, 1997.
F-14
<PAGE>
UNITED RENTALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Income Taxes
The Company uses the liability method of accounting for income taxes. Under
this method, deferred tax assets and liabilities are determined based on the
differences between financial statement and tax bases of assets and
liabilities and are measured using the enacted tax rates and laws that are
expected to be in effect when the differences are expected to reverse.
Recognition of deferred tax assets is limited to amounts considered by
management to be more likely than not of realization in future periods.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Concentrations of Credit Risk
Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist principally of cash investments and
accounts receivable. The Company maintains cash and cash equivalents with high
quality financial institutions. Concentrations of credit risk with respect to
accounts receivable are limited because a large number of geographically
diverse customers make up the Company's customer base. No single customer
represents greater than 10% of total accounts receivable. The Company controls
credit risk through credit approvals, credit limits, and monitoring
procedures.
Stock-Based Compensation
The Company accounts for its stock based compensation arrangements under the
provisions of APB Opinion No. 25, "Accounting for Stock Issued to Employees."
Since stock options will be granted by the Company with exercise prices at or
greater than the fair value of the shares at the date of grant, no
compensation expense will be recognized.
Computation of Earnings Per Share
Earnings per share is calculated under the provisions of recently issued
Statement 128, Earnings Per Share. Common Stock issued for consideration below
the initial public offering price ("IPO price") of $13.50 per share at which
shares were sold in the Company's initial public offering (the "IPO"), and
stock options and warrants granted with exercise prices below the IPO price
per share during the twelve months preceding the date of the initial filing of
the registration statement for the IPO are included in the calculation of
common equivalent shares at the IPO price per share.
Impact of Recently Issued Accounting Standards
In June 1997, the Financial Accounting Standards Board issued SFAS No. 130,
"Reporting Comprehensive Income," and SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information." The Company is required to
adopt the provisions of these Statements in fiscal year 1998. SFAS No. 130
establishes standards for reporting and display of comprehensive income and
its components in a primary financial statement. The Company is currently
evaluating the reporting formats recommended under this Statement. SFAS No.
131 establishes a new method by which companies will report operating segment
information. This method is based on the manner in which management organizes
the segments within a company for making operating decisions and assessing
performance. The Company continues to evaluate the provisions of SFAS No. 131
and, upon adoption, the Company may report operating segments.
F-15
<PAGE>
UNITED RENTALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
3. ACQUISITIONS
During October 1997, the Company purchased all of the outstanding stock of
the following six equipment rental companies for the indicated consideration:
<TABLE>
<CAPTION>
COMPANY CONSIDERATION
------- -------------
<S> <C>
A & A Tool Rentals and Sales, Inc........................... $ 8,593,520
Bronco High-Lift, Inc....................................... 7,949,568
Coran Enterprises, Inc...................................... 15,264,337
J & J Rental Services, Inc.................................. 3,824,549
Mercer Equipment Company.................................... 14,933,242
Rent-It Center, Inc......................................... 6,400,000
</TABLE>
All of the consideration paid for the acquisitions was in cash, with the
exception of Rent-It Center, Inc. which included a $300,000 convertible note
and J & J Rental Services, Inc. where all of the consideration was paid
through the issuance of 318,712 shares of the Company's Common Stock. These
shares are subject to adjustment so that their value will equal $3.8 million
based upon the average daily closing price of the Company's Common Stock
during the 60 day period beginning December 18, 1997. Contingent consideration
is due on the J & J Rental Services, Inc. acquisition based upon a percentage
of revenues up to a maximum of $2.8 million.
These acquisitions have been accounted for as purchases and, accordingly,
the results of their operations have been included in the Company's results of
operations from their respective acquisition dates. The purchase prices have
been allocated to the assets acquired and liabilities assumed based on their
respective fair values at their respective acquisition dates. Contingent
purchase price is capitalized when earned and amortized over the remaining
life of the related asset.
The Company has not completed its valuation of the 1997 purchases and the
purchase price allocations are subject to change when additional information
concerning asset and liability valuations are completed.
The following table summarizes, on an unaudited pro forma basis, the
combined results of operations of the Company for the years ended December 31,
1997 and 1996 as though each acquisition described above was made on January
1, for each of the periods.
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Revenues............................................ $59,832,952 $51,889,258
Net income.......................................... 2,607,127 3,462,371
Basic earnings per share............................ $ 0.16 $ 0.22
Diluted earnings per share.......................... $ 0.14 $ 0.20
</TABLE>
The unaudited pro forma results are based upon certain assumptions and
estimates which are subject to change. These results are not necessarily
indicative of the actual results of operations that might have occurred, nor
are they necessarily indicative of expected results in the future.
4. RENTAL EQUIPMENT
Rental equipment and related accumulated depreciation consists of the
following:
<TABLE>
<S> <C>
Rental equipment................................................ $34,444,129
Less accumulated depreciation................................... (1,036,568)
-----------
Rental equipment, net........................................... $33,407,561
===========
</TABLE>
F-16
<PAGE>
UNITED RENTALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
5. PROPERTY AND EQUIPMENT
A summary of property and equipment is as follows:
<TABLE>
<S> <C>
Furniture, fixtures and office equipment........................ $2,294,277
Less accumulated depreciation................................... (21,594)
----------
Property and equipment, net..................................... $2,272,683
==========
6. DEBT
Debt consists of the following:
Subordinated convertible notes.................................. $ 500,000
Equipment notes, interest at 7.0% to 10.6%, payable in various
monthly installments through 2001, secured by equipment........ 574,474
----------
Total debt...................................................... $1,074,474
==========
</TABLE>
The Company's credit facility with a group of financial institutions, for
which Bank of America National Trust and Savings Association acts as agent,
enables the Company to borrow up to $155 million on a revolving basis (the
"Credit Facility"). The facility terminates on October 8, 2000, at which time
all outstanding indebtedness is due. Up to $10 million of the Credit Facility
is available in the form of letters of credit. Borrowings under the Credit
Facility accrue interest, at the Company's option, at either (a) the Floating
Rate (which is equal to the greater of (i) the Federal Funds Rate plus 0.5%
and (ii) Bank of America's reference rate, in each case, plus a margin ranging
from 0% to 0.25% per annum) or (b) the Eurodollar Rate (which is equal to Bank
of America's reserve adjusted eurodollar rate plus a margin ranging from 1.5%
to 2.5% per annum). As of December 31, 1997, there was no outstanding
indebtedness under the Credit Facility. The Credit Facility contains certain
covenants that require the Company to, among other things, satisfy certain
financial tests relating to: (a) maintenance of minimum net worth, (b) the
ratio of debt to net worth, (c) interest coverage ratio, (d) the ratio of
funded debt to cash flow, and (e) the ratio of senior debt to tangible assets.
The Credit Facility also contains certain covenants that restrict the
Company's ability to, among other things, (i) incur additional indebtedness,
(ii) permit liens to attach to its assets, (iii) enter into operating leases
requiring payments in excess of specified amounts, (iv) declare or pay
dividends or make other restricted payments with respect to its equity
securities (including the Common Stock) or subordinated debt, (v) sell assets,
(vi) make acquisitions unless certain financial conditions are satisfied, and
(vii) engage in any line of business other than the equipment rental industry.
The Credit Facility provides that the failure by any two of certain of its
executive officers to continue to hold executive positions with the Company
for a period of 30 consecutive days constitutes an event of default under the
Credit Facility unless replacement officers satisfactory to the lenders are
appointed. The Credit Facility is also subject to other customary events of
default. The Credit Facility is secured by substantially all of the assets of
United Rentals, Inc. and by the stock and assets of its subsidiaries.
The subordinated convertible notes consists of two notes; $300,000 in
principal bearing interest at 7% per annum and $200,000 in principal bearing
interest at 7 1/2% per annum. The $200,000 note was converted into 14,814
shares of Common Stock during January 1998. The $300,000 note is repayable in
equal quarterly installments of principal and interest through October, 2002,
is convertible into the Company's Common Stock at a conversion rate of $16.20
per share and is subordinated to the Company's Credit Facility.
F-17
<PAGE>
UNITED RENTALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Maturities of the Company's debt for each of the next five years at December
31, 1997 are as follows:
<TABLE>
<S> <C>
1998.............................................................. $ 244,260
1999.............................................................. 340,916
2000.............................................................. 239,020
2001.............................................................. 181,676
2002.............................................................. 68,602
----------
$1,074,474
==========
</TABLE>
7. INCOME TAXES
The provision for federal and state income taxes is as follows:
<TABLE>
<S> <C>
Current State....................................................... $22,720
Deferred State...................................................... 3,041
Deferred Federal.................................................... (5,245)
-------
$20,516
=======
</TABLE>
A reconciliation of the provision for income taxes and the amount computed
by applying the statutory federal income tax rate of 34% to income before
provision for income taxes is as follows:
<TABLE>
<S> <C>
Computed tax benefit at statutory tax rate.......................... $18,407
Increase in tax benefit:
Tax-exempt interest income........................................ (91,971)
Non-deductible expense............................................ 77,078
State income taxes, net of Federal benefit........................ 17,002
-------
$20,516
=======
</TABLE>
The components of deferred income tax assets are as follows:
<TABLE>
<S> <C>
Accrual liabilities.............................................. $ 957,619
Net operating loss carryforward.................................. 313,719
Property & equipment............................................. 43,908
----------
$1,315,246
==========
</TABLE>
The components of deferred income tax liabilities are as follows:
<TABLE>
<S> <C>
Intangibles and other............................................... $633,132
========
</TABLE>
The Company has net short-term deferred tax assets in the amount of
$880,363, which are reported in the balance sheet in prepaid expenses and
other assets.
The Company has net operating loss carryforwards ("NOLs") of $845,681 for
income tax purposes that expire in 2012.
F-18
<PAGE>
UNITED RENTALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
8. CAPITAL STOCK
Preferred Stock: The Company's board of directors has the authority to
designate 5,000,000 shares of $.01 par value preferred stock in series, to
establish as to each series the designation and number of shares to be issued
and the rights, preferences, privileges and restrictions of the shares of each
series, and to determine the voting powers, if any, of such shares. At
December 31, 1997, the Company's Board of Directors had not designated any
shares.
As of December 31, 1997 there are outstanding warrants to purchase an
aggregate of 6,344,058 shares of Common Stock. Each warrant provides for an
exercise price of $10.00 per share and may be exercised at any time until
September 12, 2007.
The Board of Directors has adopted the Company's 1997 Stock Option Plan (the
"Stock Option Plan") which provides for the granting of options to purchase
not more than an aggregate of 5,000,000 shares of Common Stock. All officers,
employees and others who render services to the Company are eligible to
participate in the Stock Option Plan. Each option granted pursuant to the
Stock Option Plan must provide for an exercise price per share that is at
least equal to the fair market value per share of Common Stock on the date of
grant. No options may be granted under the Stock Option Plan after August 21,
2007. The exercise price of each option, the period during which each option
may be exercised and the other terms and conditions of each option are
determined by the Board of Directors (or by a committee appointed by the
Board).
During 1997, 904,583 options to purchase shares of the Company's Common
Stock were granted and remain outstanding at December 31, 1997. The weighted
average exercise price per share of such options was $12.76. Such options had
exercise prices ranging from $10 to $30 per share. Of such options, 818,583
provided for an exercise price per share in the range of $10.00 to $19.99 (the
weighted average exercise price and weighted average remaining life of the
options in this range being $11.84 and 9.9 years, respectively) and 86,000
provided for an exercise price per share in the range of $20.01 to $30.00 (the
weighted average exercise price and weighted average remaining life of the
options in this range being $21.51 and 9.9 years, respectively).
The Company applies Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees" in accounting for stock-based employee
compensation arrangements whereby no compensation cost related to stock
options is deducted in determining net income. Had compensation cost for the
Company's stock option plans been determined pursuant to Financial Accounting
Standards Board Statement No. 123 ("SFAS No. 123"), "Accounting for Stock-
Based Compensation," the Company's net income and earnings per share would
have differed. The Black-Scholes option pricing model estimates fair value of
options using subjective assumptions which can materially affect fair value
estimates and, therefore, do not necessarily provide a single measure of fair
value of options. Using the Black-Scholes option pricing model and a risk-free
interest rate of 5.8%, a volatility factor for the market price of the
Company's Common Stock of .315 and a weighted-average expected life of options
of approximately three years, the Company's net loss, basic earnings per share
and diluted earnings per share would have been $(43,731), $0.00 and $0.00,
respectively. For purposes of these pro forma disclosures, the estimated fair
value of options is amortized over the options' vesting period. Since the
number of options granted and their fair value may vary significantly from
year to year, the pro forma compensation expense in future years may be
materially different.
At December 31, 1997 there are 6,344,058 shares of Common Stock reserved for
the exercise of warrants, 5,000,000 shares of Common Stock reserved for
issuance pursuant to options granted, and that may be granted in the future,
under the Company's 1997 Stock Option Plan and 33,332 shares of Common Stock
reserved for the future conversion of convertible debt.
F-19
<PAGE>
UNITED RENTALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
9. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings
per share:
<TABLE>
<S> <C>
Numerator:
Net income....................................................... $ 33,622
===========
Denominator:
Denominator for basic earnings per share--weighted-average
shares.......................................................... 16,319,193
Effect of dilutive securities:
Employee stock options.......................................... 116,061
Warrants........................................................ 1,736,899
-----------
Dilutive potential common shares
Denominator for diluted earnings per share--adjusted weighted-
average shares................................................. 18,172,173
===========
Basic earnings per share........................................... $ 0.00
===========
Diluted earnings per share......................................... $ 0.00
===========
</TABLE>
10. COMMITMENTS AND CONTINGENCIES
Operating Leases
The Company leases rental equipment, real estate and certain office
equipment under operating leases. Certain real estate leases require the
Company to pay maintenance, insurance, taxes and certain other expenses in
addition to the stated rentals. Future minimum lease payments, by year and in
the aggregate, for noncancellable operating leases with initial or remaining
terms of one year or more are as follows at December 31, 1997:
<TABLE>
<S> <C>
1998.............................................................. $2,676,494
1999.............................................................. 1,860,615
2000.............................................................. 1,213,003
2001.............................................................. 1,155,995
2002.............................................................. 816,400
Thereafter........................................................ 1,929,430
----------
$9,651,937
==========
</TABLE>
Rent expense under non-cancellable operating leases for the period August
14, 1997 (Inception) to December 31, 1997 was $524,752.
11. SUBSEQUENT EVENTS
Subsequent to December 31, 1997, the Company completed the acquisition of 14
equipment rental companies (the "Acquisitions") and the aggregate
consideration paid by the Company for the Acquisitions was $116.4 million and
consisted of approximately $100.9 million in cash, 804,875 shares of Common
Stock and warrants to purchase 30,000 shares of Common Stock. The Company
funded a portion of the cash consideration for these acquisitions with cash on
hand and the balance with borrowings under the Credit Facility.
F-20
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Stockholder of Access Rentals, Inc.
We have audited the accompanying consolidated balance sheet of Access
Rentals, Inc., and subsidiary as of March 31, 1996, and the related
consolidated statements of income, stockholders' equity and cash flows for the
years ended September 30, 1994 and 1995, and the six months ended March 31,
1996. We have also audited the combined balance sheet of Access Rentals, Inc.,
and subsidiary and affiliate as of March 31, 1997, and the related combined
statements of income, stockholders' equity and cash flows for the year then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated and combined financial statements referred
to above present fairly, in all material respects, the financial position of
Access Rentals, Inc., and subsidiary and affiliate as of March 31, 1996 and
1997, and results of their operations and cash flows for the years ended
September 30, 1994 and 1995, the six months ended March 31, 1996 and the year
ended March 31, 1997 in conformity with generally accepted accounting
principles.
/s/ Battaglia, Andrews & Moag, P.C.
Batavia, New York
January 22, 1998
F-21
<PAGE>
ACCESS RENTALS, INC. AND SUBSIDIARY AND AFFILIATE
CONSOLIDATED AND COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, MARCH 31, DECEMBER
1996 1997 31, 1997
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
------
Cash.................................... $ 284,228 $ 399,196 $ 362,817
Accounts receivable, net................ 3,319,859 5,173,046 9,482,265
Unbilled receivables.................... -- -- 1,075,209
Inventory............................... 2,013,125 1,835,687 2,511,326
Rental equipment, net................... 30,865,058 49,551,170 63,636,491
Property and equipment, net............. 2,625,564 4,599,576 5,386,167
Due from related party.................. 1,121,814 1,860,102 2,071,971
Prepaid expenses and other assets....... 1,221,482 1,896,518 1,286,100
Deferred tax asset...................... 458,908 937,585 576,730
Intangibles............................. -- 1,375,005 2,212,368
----------- ----------- -----------
Total assets........................ $41,910,038 $67,627,885 $88,601,444
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Liabilities:
Accounts payable, accrued expenses and
other liabilities.................... $ 3,128,407 $ 3,601,707 $ 7,160,756
Deferred tax liability................ 4,675,199 6,350,541 7,821,732
Debt.................................. 19,109,094 39,782,237 51,505,595
----------- ----------- -----------
Total liabilities................... 26,912,700 49,734,485 66,488,083
Commitments and contingencies
Stockholders' equity:
Common stock, $1 par value; 10,000
shares authorized, 300, 300 and
10,000 shares issued and outstanding
for each respective year............. 300 300 10,000
Additional paid-in capital............ 4,500 4,500 4,500
Note receivable from stockholder...... (420,040) (515,606) (1,105,994)
Retained earnings..................... 15,426,922 18,411,049 23,278,389
Equity adjustment for foreign currency
translation.......................... (14,344) (6,843) (73,534)
----------- ----------- -----------
Total stockholders' equity.......... 14,997,338 17,893,400 22,113,361
----------- ----------- -----------
Total liabilities and stockholders'
equity............................. $41,910,038 $67,627,885 $88,601,444
=========== =========== ===========
</TABLE>
See accompanying notes.
F-22
<PAGE>
ACCESS RENTALS, INC. AND SUBSIDIARY AND AFFILIATE
CONSOLIDATED AND COMBINED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS NINE MONTHS ENDED
SEPTEMBER 30, ENDED YEAR ENDED DECEMBER 31,
------------------------ MARCH 31, MARCH 31, ------------------------
1994 1995 1996 1997 1996 1997
----------- ----------- ----------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Equipment rentals...... $15,804,754 $18,382,243 $10,405,814 $30,615,602 $21,391,478 $33,092,299
Sales of equipment and
parts................. 4,731,889 9,426,936 3,629,373 8,963,128 9,279,272 10,258,882
----------- ----------- ----------- ----------- ----------- -----------
Total revenues......... 20,536,643 27,809,179 14,035,187 39,578,730 30,670,750 43,351,181
Cost of revenues:
Cost of rentals
excluding
depreciation.......... 4,867,059 6,129,103 3,870,961 9,937,663 7,341,151 9,819,143
Depreciation, equipment
rentals............... 2,825,381 3,405,797 2,139,726 6,509,012 4,701,737 6,672,741
Cost of equipment and
parts................. 3,468,073 7,115,826 2,703,494 6,494,156 5,200,774 7,568,450
----------- ----------- ----------- ----------- ----------- -----------
Total cost of revenues. 11,160,513 16,650,726 8,714,181 22,940,831 17,243,662 24,060,334
----------- ----------- ----------- ----------- ----------- -----------
Gross profit............ 9,376,130 11,158,453 5,321,006 16,637,899 13,427,088 19,290,847
Selling, general and
administrative
expenses............... 4,414,362 5,394,286 2,329,997 8,747,215 6,261,115 7,953,627
Non-rental depreciation. 489,084 532,659 283,206 946,382 658,899 1,067,156
----------- ----------- ----------- ----------- ----------- -----------
Operating income....... 4,472,684 5,231,508 2,707,803 6,944,302 6,507,074 10,270,064
Interest expense........ 673,532 1,147,616 682,394 2,604,066 1,821,607 2,918,100
Other (income), net..... (220,289) (250,421) (295,443) (605,215) (363,828) (567,759)
----------- ----------- ----------- ----------- ----------- -----------
Income before provision
for income taxes and
cumulative effect of
change in accounting
principle............. 4,019,441 4,334,313 2,320,852 4,945,451 5,049,295 7,919,723
Provision for income
taxes.................. 1,661,994 1,819,455 1,122,851 1,786,724 2,016,066 2,974,033
----------- ----------- ----------- ----------- ----------- -----------
Income before
cumulative effect of
change in accounting
principle............. 2,357,447 2,514,858 1,198,001 3,158,727 3,033,229 4,945,690
Cumulative effect of
change in method of
accounting for taxes... 46,325 -- -- -- -- --
----------- ----------- ----------- ----------- ----------- -----------
Net income............. $ 2,403,772 $ 2,514,858 $ 1,198,001 $ 3,158,727 $ 3,033,229 $ 4,945,690
=========== =========== =========== =========== =========== ===========
</TABLE>
See accompanying notes.
F-23
<PAGE>
ACCESS RENTALS, INC. AND SUBSIDIARY AND AFFILIATE
CONSOLIDATED AND COMBINED STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
NOTE
COMMON STOCK ADDITIONAL RECEIVABLE FOREIGN
-------------- PAID-IN FROM TREASURY RETAINED CURRENCY
SHARES AMOUNT CAPITAL STOCKHOLDER STOCK EARNINGS TRANSLATION
------ ------- ---------- ----------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at October 1,
1993................... 6 $ 4,800 $ -- $ (128,069) $(200,000) $ 9,775,310 $ --
Prior period
adjustment............ (265,019)
------ ------- ------ ----------- --------- ----------- --------
Balance, October 1, as
restated............... 6 4,800 -- (128,069) (200,000) 9,510,291 --
Retroactive retirement
of treasury stock..... 200,000 (200,000)
Retroactive effect of
stock split........... 294 (4,500) 4,500
Advances on note
receivable from
stockholder, net...... (199,179)
Net income............. 2,403,772
------ ------- ------ ----------- --------- ----------- --------
Balance at September 30,
1994................... 300 300 4,500 (327,248) -- 11,714,063 --
Advances on note
receivable from
stockholder, net...... (44,180)
Net income............. 2,514,858 (5,557)
------ ------- ------ ----------- --------- ----------- --------
Balance at September 30,
1995................... 300 300 4,500 (371,428) -- 14,228,921 (5,557)
Advances on note
receivable from
stockholder, net...... (48,612)
Net income............. 1,198,001 (8,787)
------ ------- ------ ----------- --------- ----------- --------
Balance at March 31,
1996................... 300 300 4,500 (420,040) -- 15,426,922 (14,344)
Advances on note
receivable from
stockholder, net...... (105,566)
Affiliate owner
contributions......... 10,000
Affiliate owner
distributions......... (174,600)
Net income............. 3,158,727 7,501
------ ------- ------ ----------- --------- ----------- --------
Balance at March 31,
1997................... 300 300 4,500 (515,606) -- 18,411,049 (6,843)
Issuance of common
stock (unaudited)..... 9,700 9,700 (9,700)
Advances on note
receivable from
stockholder, net
(unaudited)........... (590,388)
Affiliate owner
distributions
(unaudited)........... (68,650)
Net income (unaudited). 4,945,690 (66,691)
------ ------- ------ ----------- --------- ----------- --------
Balance at December 31,
1997 (unaudited)....... 10,000 $10,000 $4,500 $(1,105,994) $ -- $23,278,389 $(73,534)
====== ======= ====== =========== ========= =========== ========
</TABLE>
See accompanying notes.
F-24
<PAGE>
ACCESS RENTALS, INC. AND SUBSIDIARY AND AFFILIATE
CONSOLIDATED AND COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
SEPTEMBER 30, SIX MONTHS YEAR ENDED DECEMBER 31,
------------------------ ENDED MARCH MARCH 31, --------------------------
1994 1995 31, 1996 1997 1996 1997
----------- ----------- ----------- ------------ ------------ ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
CASH FLOWS FROM
OPERATING ACTIVITIES:
Net income............. $ 2,403,772 $ 2,514,858 $ 1,198,001 $ 3,158,727 $ 3,033,229 $ 4,945,690
Adjustments to
reconcile net income
to net cash provided
by operating
activities:
Depreciation and
amortization.......... 3,314,465 3,938,456 2,422,932 7,583,689 5,446,164 7,898,802
Deferred income taxes.. 672,080 676,782 667,412 1,151,456 1,048,873 1,835,040
Gain on sales of
equipment............. (778,327) (1,274,170) (533,974) (1,543,192) (1,064,927) (1,767,358)
Cumulative effect of
change in method of
accounting for income
taxes................. (46,325) -- -- -- -- --
Change in assets and
liabilities:
Increase (decrease)
in:
Accounts receivable,
net................. (1,163,341) (43,024) 670,789 (1,853,187) (3,004,185) (4,309,219)
Unbilled receivables. -- -- -- -- -- (1,075,209)
Inventory............ (91,367) (357,333) (741,329) 177,438 (393,457) (675,639)
Prepaid expenses and
other assets........ (740,966) (92,290) 179,547 (584,753) 111,402 560,606
Increase (decrease)
in:
Accounts payable,
accrued expenses and
other liabilities... 213,105 949,842 402,186 473,300 129,992 3,559,049
----------- ----------- ----------- ------------ ------------ ------------
Total adjustments... 1,379,324 3,798,263 3,067,563 5,404,751 2,273,862 6,026,072
Net cash provided by
operating
activities......... 3,783,096 6,313,121 4,265,564 8,563,478 5,307,091 10,971,762
CASH FLOWS FROM
INVESTING ACTIVITIES:
Proceeds from the sale
of property and
equipment............. 2,715,240 4,498,860 3,511,441 5,223,214 3,662,918 6,076,640
Purchase of property
and equipment......... (2,497,803) (4,978,090) (3,789,714) (3,146,679) (333,516) (5,572,825)
Advances on loan
receivable--
stockholder........... (304,436) (248,462) (99,555) (389,594) (293,310) (697,153)
Repayments on loan
receivable--
stockholder........... 105,257 204,282 50,943 284,028 158,829 106,765
Advances on loan
receivable--related
party................. (13,000) -- (531,466) (759,690) (358,798) (246,543)
Repayments on loan
receivable--related
party................. 10,174 7,128 3,673 21,402 15,401 34,674
Advances on note
receivable............ -- (48,322) -- (77,851) -- --
Repayments on note
receivable............ (126,668) 3,283 2,554 6,255 4,632 31,128
Acquisition of
subsidiary............ -- (866,700) -- -- -- --
Payments for
intangibles........... -- -- -- (1,521,984) (1,521,984) (977,583)
----------- ----------- ----------- ------------ ------------ ------------
Net cash provided by
(used by) investing
activities.......... (111,236) (1,428,021) (852,124) (360,899) 1,334,172 (1,244,897)
CASH FLOWS FROM
FINANCING ACTIVITIES:
Affiliate owner
distributions......... -- -- -- (174,600) -- (68,650)
Affiliate owner
contributions......... -- -- -- 10,000 10,000 --
Borrowings on debt
obligations........... 161,297 736,330 2,083,097 23,048,203 16,018,625 22,959,059
Principal payments on
debt obligations...... (3,932,202) (5,601,158) (5,234,451) (30,978,715) (22,599,866) (32,586,962)
----------- ----------- ----------- ------------ ------------ ------------
Net cash used by
financing
activities.......... (3,770,905) (4,864,828) (3,151,354) (8,095,112) (6,571,241) (9,696,553)
Equity translation...... -- (5,557) (8,787) 7,501 7,569 (66,691)
----------- ----------- ----------- ------------ ------------ ------------
Net increase (decrease)
in cash................ (99,045) 14,715 253,299 114,968 77,591 (36,379)
CASH--BEGINNING OF
PERIOD................. 115,259 16,214 30,929 284,228 284,228 399,196
----------- ----------- ----------- ------------ ------------ ------------
CASH--END OF PERIOD..... $ 16,214 $ 30,929 $ 284,228 $ 399,196 $ 361,819 $ 362,817
=========== =========== =========== ============ ============ ============
</TABLE>
See accompanying notes.
F-25
<PAGE>
ACCESS RENTALS, INC. AND SUBSIDIARY AND AFFILIATE
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED SEPTEMBER 30, 1994 AND 1995, AND AS OF AND FOR THE SIX
MONTHS ENDED
MARCH 31, 1996 AND AS OF AND FOR THE YEAR ENDED MARCH 31, 1997
(THE INFORMATION AS OF DECEMBER 31, 1997 AND FOR THE NINE MONTHS ENDED
DECEMBER 31, 1996 AND 1997 IS UNAUDITED)
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION AND COMBINATION
The accompanying financial statements include the financial statements of
Access Rentals, Inc. (the "Parent"), Access Lift Equipment, Inc. (the
"Subsidiary") which was acquired in February 1995 and Reinhart Leasing LLC
(the "Affiliate"). The Affiliate, which has common ownership to the Parent,
was formed on June 26, 1996.
The accompanying financial statements include the financial statements of
the Parent for the years ended September 30, 1994 and 1995, as of and for the
six months ended March 31, 1996, as of and for the year ended March 31, 1997
and as of December 31, 1997 and for the nine months ended December 31, 1996
and 1997 and the financial statements of the Subsidiary for the seven months
ended September 30, 1995, as of and for the three months ended December 31,
1995 (included in the financial statements for the six months ended March 31,
1996), as of and for the year ended December 31, 1996 (included in the
financial statements for the year ended March 31, 1997) and the nine months
ended December 31, 1996 and 1997. The consolidated financial statements have
been combined with the financial statements of the Affiliate for the six
months ended December 31, 1996 (included in the financial statements for the
nine months ended December 31, 1996) as of and for the nine months ended March
31, 1997 and as of and for the nine months ended December 31, 1997. All
material intercompany transactions and balances have been eliminated in
consolidation and combination.
BUSINESS
Access Rentals, Inc. and Subsidiary (the Company) rents, sells and repairs
aerial personnel lift equipment primarily to companies in the manufacturing
and construction industries. Sales and rentals primarily occur in areas where
the Company maintains offices, such as the states of New York, Minnesota,
Tennessee, Indiana, New Jersey, Pennsylvania, Connecticut, South Carolina,
Florida, Washington and in and around Toronto, Canada. The nature of the
Company's business is such that short-term obligations are typically met by
cash flow generated from long-term assets. Consequently, consistent with
industry practice, the balance sheet is presented on an unclassified basis.
Reinhart Leasing, LLC rents and sells aerial personnel lift equipment solely
to Access Rentals, Inc.
INTERIM FINANCIAL STATEMENTS
The accompanying balance sheet at December 31, 1997, and the statements of
income, stockholders' equity and cash flows for the nine month periods ended
December 31, 1996 and 1997 are unaudited and have been prepared on the same
basis as the audited financial statements included herein. In the opinion of
management, such unaudited financial statements include all adjustments
necessary to present fairly the information set forth therein, which consists
solely of normal recurring adjustments. The results of operations for such
interim periods are not necessarily indicative of results for the full year.
ACCOUNTS RECEIVABLE
It is the Company's policy to present accounts receivable net of an
allowance for uncollectible accounts. At March 31, 1996 and 1997 and December
31, 1997, the balance of the allowance for uncollectible accounts amounted to
$103,028, $228,885 and $380,000, respectively.
INVENTORY
Inventory consists of equipment and vehicles purchased for resale and
equipment parts purchased for repairs and resale. Equipment is valued at the
lower of cost or market, based on specific identification, and parts are
valued using the average cost method.
F-26
<PAGE>
ACCESS RENTALS, INC. AND SUBSIDIARY AND AFFILIATE
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Inventory amounted to:
<TABLE>
<CAPTION>
MARCH 31,
----------------------- DECEMBER
1996 1997 31, 1997
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Equipment for resale.................. $ 1,371,741 $ 368,723 $ 842,295
Parts................................. 641,384 1,466,964 1,669,031
----------- ----------- -----------
Total............................... $ 2,013,125 $ 1,835,687 $ 2,511,326
=========== =========== ===========
</TABLE>
RENTAL EQUIPMENT
Rental equipment is recorded at cost. Depreciation for rental equipment is
computed using the straight-line method over an estimated six-year useful life
with a 10% salvage value.
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost and is being depreciated using the
straight-line and declining balance methods over the estimated useful lives of
the respective assets.
The cost of normal maintenance and repairs is charged to expense as
incurred, whereas expenditures which materially extend property lives are
capitalized. When depreciable property is retired or otherwise disposed of,
the related cost and accumulated depreciation are removed from the accounts
and any gain or loss is reflected in income.
RENTAL REVENUE
Rental revenue is recorded as earned under the operating method.
ADVERTISING COSTS
The Company advertises primarily through trade journals, trade associations
and phone directories. All advertising costs are expensed as incurred.
Advertising expenses amounted to approximately $7,706, $11,349, $6,717,
$10,395, $6,454 and $26,982, for the years ended September 30, 1994 and 1995,
six months ended March 31, 1996, year ended March 31, 1997, and nine months
ended December 31, 1996 and 1997, respectively.
OTHER ASSETS/AMORTIZATION
During the year ended March 31, 1997 and the nine months ended December 31,
1997, the Company acquired assets of two companies. The acquisitions resulted
in goodwill and covenants not-to-compete amounting to approximately $1,777,500
and $700,000, respectively, which are being amortized using the straight-line
method over 15 years and 5 years, respectively. Total amortization expense
amounted to $128,295, $85,528 and $158,905 for the year ended March 31, 1997
and the nine months ended December 31, 1996 and 1997, respectively.
INCOME TAXES
The provision for income tax is based on earnings reported for financial
statement purposes, adjusted for transactions that do not enter into the
computation of income taxes payable. The Parent, Subsidiary and Affiliate file
separate tax returns. The Parent files tax returns in the United States and
the Subsidiary files tax returns in Canada. The Affiliate is a limited
liability company taxed as a partnership; therefore the members are taxed
individually on the income of the Affiliate and a provision for taxes has not
been made in the financial statements.
F-27
<PAGE>
ACCESS RENTALS, INC. AND SUBSIDIARY AND AFFILIATE
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
CONCENTRATION OF CREDIT RISK
Credit is granted to substantially all of the Parent's customers throughout
the United States and the Subsidiary's customers throughout Canada. Management
feels that adequate reserves for potential credit losses are maintained.
FOREIGN CURRENCY TRANSLATION
The Company conducts business through a subsidiary located in Canada. The
Company regards the local currency of the subsidiary to be its functional
currency; consequently, translation gains and losses of the foreign subsidiary
are accumulated and reported as a separate component of stockholders' equity.
Transaction gains and losses that arise from exchange rate fluctuations on the
transactions denominated in a currency other than the local functional
currency are included in the results of operations.
USE OF ESTIMATES IN PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions. This affects the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements, as well as the reported amounts of revenues and expenses during
the reporting periods. Actual results could differ from those estimates.
NOTE 2--RENTAL EQUIPMENT
RENTAL EQUIPMENT
Rental equipment and related accumulated depreciation consisted of the
following:
<TABLE>
<CAPTION>
MARCH 31,
----------------------- DECEMBER
1996 1997 31, 1997
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Rental equipment........................... $43,896,291 $66,007,890 $84,098,558
Less accumulated depreciation.............. 13,031,233 16,456,720 20,462,067
----------- ----------- -----------
Rental equipment, net...................... $30,865,058 $49,551,170 $63,636,491
=========== =========== ===========
</TABLE>
PROPERTY AND EQUIPMENT
Property and equipment and related accumulated depreciation consisted of the
following:
<TABLE>
<CAPTION>
MARCH 31,
--------------------- DECEMBER 31,
1996 1997 1997
---------- ---------- ------------
(UNAUDITED)
<S> <C> <C> <C>
Land......................................... $ 182,969 $ 182,969 $ 182,969
Buildings and improvements................... 949,741 1,346,619 1,779,975
Office and shop equipment.................... 833,209 1,341,605 1,387,020
Transportation equipment..................... 2,573,492 4,425,156 5,393,695
Less accumulated depreciation................ 1,913,847 2,696,773 3,357,492
---------- ---------- ----------
Property and equipment, net.................. $2,625,564 $4,599,576 $5,386,167
========== ========== ==========
</TABLE>
F-28
<PAGE>
ACCESS RENTALS, INC. AND SUBSIDIARY AND AFFILIATE
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE 3--NET INVESTMENT IN SALES-TYPE LEASES
The Company leases some of its rental equipment to customers under sales-
type leases. The following summarizes the net investment in sales-type leases
which are included in prepaid and other assets on the balance sheet:
<TABLE>
<CAPTION>
MARCH 31,
------------------- DECEMBER 31,
1996 1997 1997
--------- --------- ------------
(UNAUDITED)
<S> <C> <C> <C>
Total minimum lease payments to be received.... $ 418,679 $ 573,127 $ 716,961
Less unearned interest income.................. 26,950 38,773 39,627
--------- --------- ---------
Net investment in sales-type leases............ $ 391,729 $ 534,354 $ 677,334
========= ========= =========
</TABLE>
NOTE 4--DEBT
Debt consists of the following:
<TABLE>
<CAPTION>
MARCH 31,
----------------------- DECEMBER 31,
1996 1997 1997
----------- ----------- ------------
(UNAUDITED)
<S> <C> <C> <C>
Lines-of-credit.......................... $ 2,130,195 $ 3,788,341 $ 3,828,370
Present value of capital lease
obligations............................. 3,436,191 8,465,249 16,104,886
Various installment obligations
collateralized by rental and
transportation equipment. These notes
bear interest ranging from 6%-9.8%, with
repayment periods ranging from two to
five years.............................. 12,030,127 18,913,002 23,965,117
Term loan payable to a bank, monthly
payments of $50,500 including interest
at 7.84%, maturing July, 2006.
Collateralized by rental equipment...... 270,413 2,217,572 1,887,211
Term loan payable to a bank, requiring
monthly principle payments of $79,511,
plus interest at the prime rate plus
1.75%, or the sum of the LIBOR on the
request day plus 1.75% (7.3125% at
March 31, 1997), maturing July 2002. The
loan is collateralized by rental
equipment of the Affiliate.............. -- 5,088,735 4,325,469
Term loan payable to a bank, quarterly
principal payments of $46,021, plus
interest at 6%, maturing July 1999.
Collateralized by rental equipment of
the Parent.............................. 598,268 414,186 276,124
Subsidiary revolving term loan payable to
a bank, monthly principal payments
totaling Canadian $39,455, plus interest
at Canadian prime rate plus 0.5%, (5.25%
at March 31, 1997), maturing June 2000.
Collateralized by equipment of
Subsidiary and guaranteed by the
Parent.................................. 608,502 878,339 1,116,680
Mortgage payable to third-party lender,
monthly payments of $1,750 including
interest at 9%, maturing January 1998.
Collateralized by real property at 45
Center Street, Batavia, New York........ 35,398 16,813 1,738
----------- ----------- -----------
Total debt........................... $19,109,094 $39,782,237 $51,505,595
=========== =========== ===========
</TABLE>
F-29
<PAGE>
ACCESS RENTALS, INC. AND SUBSIDIARY AND AFFILIATE
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
BANK LINES-OF-CREDIT
The Parent has revolving bank lines-of-credit amounting to $5,000,000
(increased to $6,000,000 on September 1, 1997), which are payable on demand,
with interest due monthly at rates varying from 7.50% to 8.00% as of March 31,
1997. The agreements are collateralized by equipment and receivables of the
Parent. The outstanding balance on these lines-of-credit agreements amounted
to $3,788,341 at March 31, 1997.
The Parent also has revolving term lines-of-credit available from various
lending institutions which aggregate $63,700,000 as of March 31, 1997. The
Company pays interest on the outstanding balances of these agreements at rates
which ranged from 6.65% to 9.8% at March 31, 1997.
The Subsidiary has a $500,000 (Canadian denomination) revolving line-of-
credit available for operating cash requirements and a $2,400,000 (Canadian
denomination) term line-of-credit available to finance up to 75% of the cost
of equipment acquisitions. The operating line-of-credit is payable on demand,
with interest due monthly at the Canadian prime rate of interest plus 0.25%,
(5.00% at March 31, 1997). There was not an outstanding balance on the
operating line-of-credit agreement as of March 31, 1997. Advances on the
equipment line-of-credit are payable over 36 or 48 months, with interest due
monthly at Canadian prime plus 0.50%, (5.25% at March 31, 1997). The
outstanding balance on the equipment line-of-credit agreement was $878,339
(United States denomination) as of March 31, 1997. The line-of-credit
agreements are collateralized by accounts receivable and personal property of
the Subsidiary and are guaranteed by the Parent.
Current maturities of long-term debt for each of the five years subsequent
to March 31, 1997 are as follows:
<TABLE>
<CAPTION>
CAPITAL
DEBT LEASE
OBLIGATIONS OBLIGATIONS TOTAL DEBT
----------- ----------- -----------
<S> <C> <C> <C>
1998.................................. $12,274,967 $2,283,984 $14,558,951
1999.................................. 7,097,078 2,168,855 9,265,933
2000.................................. 5,099,954 1,869,131 6,969,085
2001.................................. 3,002,236 1,379,399 4,381,635
2002.................................. 1,811,547 896,077 2,707,624
Thereafter............................ 2,031,206 1,492,772 3,523,978
----------- ---------- -----------
Total payments........................ 31,316,988 10,090,218 41,407,206
Less interest amount.................. -- 1,624,969 1,624,969
----------- ---------- -----------
Total debt.......................... $31,316,988 $8,465,249 $39,782,237
=========== ========== ===========
</TABLE>
CAPITAL LEASE OBLIGATIONS
The Company and Affiliate lease rental equipment under various agreements
classified as capital leases based on the provisions of Statement of Financial
Accounting Standards No. 13. The economic substance of the leases is that the
Company is financing the acquisition of the equipment through the leases and,
accordingly, they are recorded in the Company's assets and liabilities. These
assets are stated on the balance sheet at their capitalized cost, less
accumulated depreciation, of $4,115,887, $9,091,782 and $16,275,311 as of
March 31, 1996 and 1997 and December 31, 1997, respectively.
F-30
<PAGE>
ACCESS RENTALS, INC. AND SUBSIDIARY AND AFFILIATE
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE 5--OPERATING LEASES
The Company leases building, shop and office space, and rental equipment
under various long-term and short-term operating lease agreements. Rent
expense under the agreements for the years ended September 30, 1994 and 1995,
six months ended March 31, 1996, year ended March 31, 1997, and nine months
ended December 31, 1996 and 1997 amounted to $328,892, $334,504, $174,189,
$825,229, $758,883 and $1,086,219, respectively.
The total future minimum rental payments required for noncancellable
operating leases as of March 31, 1997 are as follows:
<TABLE>
<S> <C>
1998........................................................... $ 513,782
1999........................................................... 342,859
2000........................................................... 363,925
2001........................................................... 267,697
2002........................................................... 410,846
Thereafter..................................................... 80,785
----------
Total...................................................... $1,979,894
==========
</TABLE>
NOTE 6--PROVISIONS FOR INCOME TAXES
The Company has provided for income tax based on consolidated net income.
Income tax expense is allocated to the Parent and Subsidiary based on the tax
liability and expense relating to the respective taxing authorities.
The provision for income taxes, calculated according to SFAS No. 109,
"Accounting for Income Taxes", amounted to:
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS NINE MONTHS ENDED
SEPTEMBER 30, ENDED YEAR ENDED DECEMBER 31,
--------------------- MARCH 31, MARCH 31, -----------------------
1994 1995 1996 1997 1996 1997
---------- ---------- ----------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Current:
Federal income tax.... $ 651,914 $ 844,075 $ 336,022 $ 495,887 $ 699,193 $ 835,885
State income tax...... 338,000 296,054 114,774 93,415 268,000 301,000
Canadian business tax... -- 2,544 4,643 45,966 -- 2,108
---------- ---------- ----------- ----------- ---------- -----------
Total current....... 989,914 1,142,673 455,439 635,268 967,193 1,138,993
Deferred:
Federal income tax.... 577,859 455,576 336,121 866,666 849,733 1,320,725
State income tax...... 94,221 89,206 268,291 194,174 64,000 378,575
Canadian business tax... -- 132,000 63,000 90,616 135,140 135,740
---------- ---------- ----------- ----------- ---------- -----------
Total deferred...... 672,080 676,782 667,412 1,151,456 1,048,873 1,835,040
---------- ---------- ----------- ----------- ---------- -----------
Total provision for
income taxes....... $1,661,994 $1,819,455 $ 1,122,851 $ 1,786,724 $2,016,066 $ 2,974,033
========== ========== =========== =========== ========== ===========
</TABLE>
Deferred taxes are recorded based on differences between the financial
statement and tax basis of assets and liabilities. Temporary differences which
give rise to a significant portion of deferred tax assets and liabilities
F-31
<PAGE>
ACCESS RENTALS, INC. AND SUBSIDIARY AND AFFILIATE
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
were the result of book and tax depreciation and revenue recognition timing
differences, allowance for uncollectible accounts, net operating loss
carryforwards of the Subsidiary and certain tax credits.
The Subsidiary has remaining Canadian net operating loss (NOL) carryforwards
of approximately $415,000 as of March 31, 1997 and December 31, 1997. The NOL
carryforwards begin to expire in 1998 and will be completely expired in 2001.
Application of statutory tax rates to combined pretax income will not be
representative of the provision for income taxes. As previously disclosed, the
income of the Affiliate is taxed individually at the member level.
NOTE 7--RELATED PARTY TRANSACTIONS
Officer Loan--The chief executive officer and a stockholder maintains a
floating loan with the Company. This loan is charged when personal
expenditures are paid by the Company on behalf of the officer. A loan
agreement exists between the parties, in which the Company charges interest of
8.5% on the average outstanding balance. The terms provide for the officer to
make regular, periodic payments to reduce the outstanding balance. The balance
outstanding at March 31, 1996 and 1997 and December 31, 1997 amounted to
$420,040, $515,606 and $1,105,994, respectively. The amounts at March 31, 1997
and December 31, 1997 have been reduced in combination by the Affiliate's
capital account.
Loan Receivable--The Company has a loan receivable which represents cash
advances made to companies owned by an employee and the stockholders. The
Company charges interest on these loans at an annual rate of 8%. The balance
outstanding at March 31, 1996 and 1997 and December 31, 1997 amounted to
$1,121,814, $1,860,102 and $2,071,971, respectively.
Operating Lease Agreement--The Company leases shop, warehouse space and
aircraft from companies owned by an employee and the stockholders. The Company
also leases rental equipment from the Affiliate, the effect of which has been
eliminated in the combination of the financial statements. The leases are on a
month to month basis and require monthly payments of $41,000 for the shop and
warehouse space and $250,000 ($325,000 as of September 1, 1997) for rental
equipment. The terms of the equipment lease with the Affiliate were modified
during the nine months ended December 1997.
Sale/Leaseback of Property--On March 31, 1996, the Company sold four
buildings to a company owned by the stockholders for $1,725,000. Management
estimated that the market value of the property approximated the net book
value. The property is provided for in the operating lease, as disclosed
above.
NOTE 8--CASH FLOW DISCLOSURE INFORMATION
For the years ended September 30, 1994 and 1995, six months ended March 31,
1996, year ended March 31, 1997, and nine months ended December 31, 1996 and
1997, total interest paid amounted to $660,902, $1,132,222, $676,546,
$2,005,464, $1,447,752 and $2,120,907, respectively.
For the years ended September 30, 1994 and 1995, six months ended March 31,
1996, year ended March 31, 1997, and nine months ended December 31, 1996 and
1997, total taxes paid amounted to $887,760, $1,516,861, $584,371, $1,045,652,
$791,179 and $298,321, respectively.
During the years ended September 30, 1994 and 1995, six months ended March
31, 1996, year ended March 31, 1997, and nine months ended December 31, 1996
and 1997, the Company and Affiliate purchased
F-32
<PAGE>
ACCESS RENTALS, INC. AND SUBSIDIARY AND AFFILIATE
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
$7,368,661, $7,127,810, $7,968,504, $28,603,655, $27,336,255 and $21,237,266,
respectively, of equipment which was financed.
NOTE 9--RETIREMENT PLANS
The Parent maintains a defined contribution retirement plan for non-union
employees. The plan qualifies as a deferred compensation plan under Section
401(k) of the Internal Revenue Code. Company contributions are based on a 100%
match of the employees' elective deferral up to 4%.
The Parent also contributes to defined benefit pension plans for employees
covered under six union contracts, Locals #15C, #103, #138, #542C, #825 and
#832 of the International Union of Operating Engineers. A full description of
the membership, benefits and employer and employee obligations to contribute
to these plans are described in the Summary Plan Description and Annual
Reports of the plans.
The actuarial information needed to determine the liabilities and provide
the current disclosure information necessary under FASB No. 87 was
unavailable. Consequently, the financial statements for the years ended
September 30, 1994 and 1995, six months ended March 31, 1996, year ended March
31, 1997 and nine months ended December 1996 and 1997, do not reflect the
financial position, results of operations and expanded disclosures in
accordance with FASB No. 87.
The Subsidiary maintains a non-contributory pension plan, whereby the
Subsidiary contributes 4% of employee compensation to the plan. In addition,
the Subsidiary will contribute a 100% match of the employees' elective
deferral up to a maximum of 2%.
The cost of the plans for the years ended September 30, 1994 and 1995, six
months ended March 31, 1996, the year ended March 31, 1997, and the nine
months ended December 31, 1996 and 1997, amounted to approximately $151,669,
$192,541, $110,857, $329,712, $149,568 and $162,150, respectively.
NOTE 10--COMMITMENTS AND CONTINGENCIES
Access Rentals, Inc. (Parent) guarantees debt obligations of the Subsidiary,
Access Lift Equipment, Inc., the Affiliate, Reinhart Leasing, LLC, and another
related company owned by the stockholders.
At December 31, 1997, the Company had outstanding purchase orders for
equipment in the amount of $4,240,564.
NOTE 11--CHANGE IN METHOD OF ACCOUNTING AND PRIOR YEAR ADJUSTMENT
The accompanying consolidated financial statements for the fiscal year ended
September 30, 1994 have been retroactively restated as a result of
management's change in method of accounting for rental income. In years prior
to the change, the Company recorded revenue for the entire rental period of a
contract upon billing. The change in accounting policy removes the portion of
rental billings pertaining to periods subsequent to the reporting period. The
effect of the restatement resulted in a $265,019 decrease to retained earnings
at September 30, 1993.
F-33
<PAGE>
ACCESS RENTALS, INC. AND SUBSIDIARY AND AFFILIATE
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
A restatement of the September 30, 1994 consolidated statement of income is
summarized as follows:
<TABLE>
<CAPTION>
AS
PREVIOUSLY
REPORTED AS RESTATED
----------- -----------
<S> <C> <C>
Rental income.......................................... $14,730,347 $15,804,754
Income before taxes and cumulative effect of change in
accounting principle.................................. 4,127,869 4,019,441
Provision for income taxes............................. 1,715,048 1,661,994
Income before cumulative effect of change in accounting
principle............................................. 2,412,821 2,357,447
Cumulative effect of change in method of accounting for
income taxes.......................................... 46,325 46,325
Net income............................................. $ 2,459,146 $ 2,403,772
</TABLE>
NOTE 12--ACQUISITION OF SUBSIDIARY
Effective February 26, 1995, the Company acquired 100% of the outstanding
common stock of Access Lift Equipment, Inc., formerly Upright of Canada, Inc.,
for approximately $920,000.
The acquisition, accounted for in accordance with Accounting Principles
Board (APB) Opinion No. 16--Business Combinations, using the purchase method
of accounting, has resulted in the inclusion of the operating results of the
Subsidiary, from the date of acquisition, in the financial statements of the
Company.
NOTE 13--STOCKHOLDERS' EQUITY
On December 30, 1997, Access Rentals, Inc. (Parent) retired 6 shares of
treasury stock then issued its remaining 194 common shares with no par value.
Also, on December 30, 1997, Access Rentals, Inc. (Parent) amended its
certificate of incorporation to increase the number of authorized shares from
200 common with no par value to 100 Class A Voting common shares with a par
value of $1 and 9,900 Class B Non-voting common shares with a par value of $1,
effecting a stock split of 50 shares of new stock for each share of stock.
The retirement of treasury stock and the stock split were given retroactive
effect in the accompanying financial statements.
At December 31, 1997 the following common stock shares were authorized,
issued and outstanding:
<TABLE>
<S> <C>
Class A Voting, $1 par value....................................... 100
Class B Non-voting, $1 par value................................... 9,900
------
Total shares................................................... 10,000
======
</TABLE>
NOTE 14--SUBSEQUENT EVENTS
On September 1, 1997, the Company and Affiliate acquired certain assets of a
company engaged in primarily the same business as Access Rentals, Inc., with
operations in Florida. The purchase price, including the covenant not-to-
compete, amounted to approximately $4,988,850, for which the same amount of
debt was incurred.
During January 1998, the Company sold all real estate owned by the Company
to a related party company. The sales price was determined based upon
appraisals and approximated $605,000.
On January 21, 1998, the Company, Affiliate and stockholders entered into a
stock purchase agreement with United Rentals, Inc. (URI). Under the terms of
the stock purchase agreement, URI purchased all of the issued and outstanding
capital stock of the Company and substantially all of the assets of the
Affiliate. Also, as part of the transaction all of the stock of Access Lift
Equipment, Inc. (Subsidiary) was sold by Access Rentals, Inc., to United
Rentals of Canada, Inc., a wholly-owned subsidiary of URI.
NOTE 15--RECLASSIFICATIONS
Certain reclassifications have been made to previously issued financial
statements in order to conform them to current classifications.
F-34
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors BNR Group of Companies
We have audited the combined balance sheets of BNR Group of Companies as at
March 31, 1996 and 1997 and the combined statements of earnings, stockholders'
equity and cash flows for the years then ended. These combined financial
statements are the responsibility of the companies' management. Our
responsibility is to express an opinion on these combined financial statements
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation.
In our opinion, these combined financial statements present fairly, in all
material respects, the combined financial position of BNR Group of Companies
as at March 31, 1996 and 1997 and the results of their operations and their
cash flows for the years then ended in accordance with generally accepted
accounting principles in Canada.
Generally accepted accounting principles in Canada vary in certain
significant respects from generally accepted accounting principles in the
United States. Application of generally accepted accounting principles in the
United States would have affected results of operations for the years ended
March 31, 1996 and 1997 and stockholders' equity as at March 31, 1996 and
March 31, 1997 to the extent summarized in note 14 to the combined financial
statements.
/s/ KPMG
Chartered Accountants
Waterloo, Canada
February 3, 1998
F-35
<PAGE>
BNR GROUP OF COMPANIES
COMBINED BALANCE SHEETS
(AMOUNTS EXPRESSED IN CANADIAN DOLLARS)
<TABLE>
<CAPTION>
MARCH 31, MARCH 31, DECEMBER 31,
1996 1997 1997
--------- ----------- ------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash.................................... $ 45,817 $ 62,471 $ 36,157
Trade accounts receivable (note 2)...... 3,807,908 4,692,084 7,281,959
Inventories............................. 1,744,367 1,897,021 2,276,311
Income taxes recoverable................ -- 81,808 --
Prepaid expenses........................ 116,844 128,343 85,937
----------- ----------- -----------
5,714,936 6,861,727 9,680,364
Rental equipment (note 3)................. 8,668,609 10,593,547 13,211,100
Fixed assets (note 4)..................... 731,864 716,381 1,054,482
----------- ----------- -----------
$15,115,409 $18,171,655 $23,945,946
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Bank indebtedness (note 5).............. $ 120,373 $ 469,860 $ 1,469,042
Short-term borrowings (note 5).......... 1,428,176 1,407,830 1,752,252
Accounts payable........................ 1,950,163 1,957,643 2,081,720
Accrued liabilities..................... 946,688 686,351 433,945
Income taxes payable.................... 67,618 -- 475,417
Current portion of long-term debt (note
6)..................................... 1,618,749 2,390,758 3,233,715
----------- ----------- -----------
6,131,767 6,912,442 9,446,091
Long-term debt (note 6)................... 2,250,744 3,467,720 4,369,061
Redeemable shares (note 7)................ 4,534,975 4,424,975 4,424,975
Deferred income taxes..................... 681,518 975,570 1,385,392
Stockholders' equity:
Share capital (note 8).................. 83,319 83,319 83,319
Retained earnings....................... 1,433,086 2,307,629 4,237,108
----------- ----------- -----------
1,516,405 2,390,948 4,320,427
----------- ----------- -----------
$15,115,409 $18,171,655 $23,945,946
=========== =========== ===========
</TABLE>
See accompanying notes to combined financial statements.
F-36
<PAGE>
BNR GROUP OF COMPANIES
COMBINED STATEMENTS OF EARNINGS
(AMOUNTS EXPRESSED IN CANADIAN DOLLARS)
<TABLE>
<CAPTION>
NINE MONTHS NINE MONTHS
YEAR ENDED YEAR ENDED ENDED ENDED
MARCH 31, MARCH 31, DECEMBER 31, DECEMBER 31,
1996 1997 1996 1997
---------- ---------- ------------ ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Revenues:
Rental revenue............. $ 9,286,562 $10,873,631 $ 9,333,864 $11,481,757
Sales of equipment, parts
and supplies.............. 12,276,498 15,829,146 12,292,494 15,836,495
Other...................... 847,000 788,306 682,980 757,443
----------- ----------- ----------- -----------
22,410,060 27,491,083 22,309,338 28,075,695
Cost of revenues:
Cost of equipment rentals,
excluding equipment rental
depreciation.............. 4,352,621 5,277,966 4,103,508 5,282,162
Depreciation on rental
equipment................. 1,609,690 1,936,254 1,451,671 1,715,542
Cost of sales, equipment,
parts and supplies........ 8,883,214 11,818,715 9,303,777 11,832,825
----------- ----------- ----------- -----------
14,845,525 19,032,935 14,858,956 18,830,529
----------- ----------- ----------- -----------
Gross profit................. 7,564,535 8,458,148 7,450,382 9,245,166
Selling, general and adminis-
tration..................... 5,728,380 6,386,710 4,528,911 5,623,444
Non-rental depreciation...... 71,748 78,354 56,903 123,246
----------- ----------- ----------- -----------
Operating earnings........... 1,764,407 1,993,084 2,864,568 3,498,476
Interest expense............. 565,106 691,559 514,503 517,347
----------- ----------- ----------- -----------
Earnings before income taxes. 1,199,301 1,301,525 2,350,065 2,981,129
Income taxes (note 9):
Current.................... 245,436 132,930 480,220 637,328
Deferred................... 118,677 294,052 288,251 409,822
----------- ----------- ----------- -----------
364,113 426,982 768,471 1,047,150
----------- ----------- ----------- -----------
Net earnings................. $ 835,188 $ 874,543 $ 1,581,594 $ 1,933,979
=========== =========== =========== ===========
</TABLE>
See accompanying notes to combined financial statements.
F-37
<PAGE>
BNR GROUP OF COMPANIES
COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY
(AMOUNTS EXPRESSED IN CANADIAN DOLLARS)
<TABLE>
<CAPTION>
SHARE RETAINED
CAPITAL EARNINGS TOTAL
------- ---------- ----------
<S> <C> <C> <C>
Balances, at March 31, 1995..................... $83,319 $ 597,898 $ 681,217
Net earnings.................................... -- 835,188 835,188
------- ---------- ----------
Balances, at March 31, 1996..................... 83,319 1,433,086 1,516,405
Net earnings.................................... -- 874,543 874,543
------- ---------- ----------
Balances, at March 31, 1997..................... 83,319 2,307,629 2,390,948
Net earnings (unaudited)........................ -- 1,933,979 1,933,979
Dividends (unaudited)........................... -- (4,500) (4,500)
------- ---------- ----------
Balances, at December 31, 1997 (unaudited)...... $83,319 $4,237,108 $4,320,427
======= ========== ==========
</TABLE>
See accompanying notes to combined financial statements.
F-38
<PAGE>
BNR GROUP OF COMPANIES
COMBINED STATEMENTS OF CASH FLOWS
(AMOUNTS EXPRESSED IN CANADIAN DOLLARS)
<TABLE>
<CAPTION>
NINE MONTHS NINE MONTHS
YEAR ENDED YEAR ENDED ENDED ENDED
MARCH 31, MARCH 31, DECEMBER 31, DECEMBER 31,
1996 1997 1996 1997
---------- ---------- ------------ ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Cash flows from operating
activities:
Net earnings............... $ 835,188 $ 874,543 $ 1,581,594 $ 1,933,979
Items not involving cash:
Depreciation and amorti-
zation.................. 1,681,438 2,014,608 1,508,574 1,838,788
Gain on disposal of
rental equipment........ (639,271) (839,394) (725,213) (764,999)
Gain on disposal of fixed
assets.................. (44,016) -- -- --
Deferred income taxes.... 118,677 294,052 288,251 409,822
Change in operating assets:
Accounts receivable...... (894,464) (884,176) (2,814,394) (2,589,875)
Inventories.............. (613,126) (152,654) (186,602) (379,290)
Prepaid expenses......... (63,687) (11,499) 3,516 42,406
Accounts payable......... 408,768 7,480 (209,735) 124,077
Accrued liabilities...... 387,747 (260,337) (600,645) (252,406)
Income taxes............. 9,712 (149,426) 338,842 557,225
----------- ----------- ----------- -----------
1,186,966 893,197 (815,812) 919,727
Cash flows from investing
activities:
Purchase of rental equip-
ment.................... (5,523,247) (7,355,356) (6,419,981) (7,976,473)
Proceeds on disposal of
rental equipment........ 2,900,664 4,333,558 3,489,908 4,408,377
Purchase of fixed assets. (91,794) (62,871) (50,489) (461,347)
Proceeds on disposal of
fixed assets............ 52,648 -- -- --
----------- ----------- ----------- -----------
(2,661,729) (3,084,669) (2,980,562) (4,029,443)
Cash flows from financing
activities:
Net advance (repayment)
of bank indebtedness.... 23,618 349,487 1,256,010 344,422
Net borrowings
(repayment) on short-
term borrowings......... 188,093 (20,346) 338,414 999,182
Borrowings on long-term
debt.................... 2,172,871 2,894,173 3,066,515 2,998,826
Payments on long-term
debt.................... (673,795) (905,188) (783,925) (1,254,528)
Repayment of shareholder
loans................... (41,180) -- -- --
Issuance of share capi-
tal..................... 69,520 -- -- --
Dividends................ -- -- -- (4,500)
Redemption of Class B
special shares.......... (229,725) (110,000) (110,000) --
----------- ----------- ----------- -----------
1,509,402 2,208,126 3,767,014 3,083,402
----------- ----------- ----------- -----------
Increase (decrease) in
cash...................... 34,639 16,654 (29,360) (26,314)
Cash, beginning of period.. 11,178 45,817 45,817 62,471
----------- ----------- ----------- -----------
Cash, end of period........ $ 45,817 $ 62,471 $ 16,457 $ 36,157
=========== =========== =========== ===========
Supplemental Schedule of
Cash Flow Information:
Cash paid during the pe-
riod for interest....... $ 565,106 $ 691,559 $ 514,503 $ 517,347
Cash paid during the pe-
riod for income taxes... 231,521 332,816 183,030 143,383
=========== =========== =========== ===========
</TABLE>
See accompanying notes to combined financial statements.
F-39
<PAGE>
BNR GROUP OF COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS
(AMOUNTS EXPRESSED IN CANADIAN DOLLARS)
MARCH 31, 1996 AND 1997
(The information as at December 31, 1997 and for the nine months ended
December 31, 1996 and 1997 is unaudited)
1. SIGNIFICANT ACCOUNTING POLICIES:
(a) Basis of presentation:
The accompanying combined financial statements are presented in accordance
with accounting principles generally accepted in Canada (Canadian GAAP).
The combined financial statements include the accounts of BNR Equipment
Limited (BNR Kitchener), 754643 Ontario Limited (BNR Ottawa), 650310 Ontario
Limited (BNR Barrie), 766903 Ontario Inc. (BNR Owen Sound) and BNR Equipment,
Inc. (BNR Amherst).
As more fully described in note 15, on January 22, 1998, all of the
aforementioned companies were acquired by United Rentals, Inc. in a single
common transaction and, accordingly, these financial statements have been
prepared on a combined basis.
Each of the companies rents and sells industrial supplies and power
equipment. All significant intercompany accounts and transactions have been
eliminated on combination.
These financial statements are prepared on the basis of their predecessor
historical costs and do not include any adjustments that may result on the
acquisition of the BNR Group of Companies by United Rentals, Inc. as more
fully described in note 15.
(b) Interim financial statements:
The accompanying combined balance sheets and statements of stockholders'
equity at December 31, 1997 and the combined statements of earnings,
stockholders' equity and cash flows for the nine month periods ended December
31, 1996 and 1997 are unaudited and have been prepared on a basis that is
consistent with the audited combined financial statements included herein. In
the opinion of management, such unaudited combined financial statements
include all adjustments necessary to present fairly the information set forth
therein, which consist solely of normal recurring adjustments. The results of
operations for such interim periods are not necessarily indicative of results
for the full year.
(c) Revenue recognition:
Revenue related to the sale of industrial supplies and power equipment is
recognized at the point of sale. Revenue related to the rental of industrial
power equipment is recognized ratably over the contract term. The companies
generally rent equipment under short-term agreements of one month or less.
(d) Inventories:
Inventories consisting primarily of power tools, industrial supplies and
power equipment are valued at the lower of cost (first-in, first-out basis)
and net realizable value.
(e) Foreign currency translation:
Monetary assets and liabilities of the companies, which are denominated in
foreign currencies, are translated into Canadian dollars at exchange rates
prevailing at the balance sheet date. Exchange gains and losses resulting from
the translation of these amounts are reflected in the combined statement of
earnings in the period in which they occur.
F-40
<PAGE>
BNR GROUP OF COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(AMOUNTS EXPRESSED IN CANADIAN DOLLARS)
(f) Rental equipment, fixed assets and depreciation:
Rental equipment and fixed assets are stated at acquisition cost.
Depreciation is provided using the following methods and annual rates:
<TABLE>
<CAPTION>
ASSET BASIS RATE
----- ----- ----
<S> <C> <C>
Rental equipment...................................... Declining balance 15%
Buildings............................................. Declining balance 5%
Office and shop equipment............................. Declining balance 20%
Signs................................................. Declining balance 20%
Vehicles.............................................. Declining balance 20%
Parking lot........................................... Declining balance 8%
Leasehold improvements................................ Straight-line 20%
</TABLE>
(g) Deferred income taxes:
The companies account for income taxes on the deferred tax allocation
method. Under this method, timing differences between reported and taxable
income result in provisions for taxes not currently payable. Such timing
differences arise principally as a result of claiming depreciation and other
amounts for tax purposes at amounts differing from those charged to income.
(h) Use of estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
2. TRADE ACCOUNTS RECEIVABLE:
Trade accounts receivable are net of allowances for doubtful accounts of
$nil at March 31, 1996, $68,966 at March 31, 1997 and $215,591 at December 31,
1997.
3. RENTAL EQUIPMENT:
<TABLE>
<CAPTION>
MARCH 31, MARCH 31, DECEMBER 31,
1996 1997 1997
----------- ----------- ------------
(UNAUDITED)
<S> <C> <C> <C>
Rental equipment........................ $18,335,170 $22,133,208 $26,466,262
Less accumulated depreciation........... 9,666,561 11,539,661 13,255,162
----------- ----------- -----------
$ 8,668,609 $10,593,547 $13,211,100
=========== =========== ===========
</TABLE>
F-41
<PAGE>
BNR GROUP OF COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(AMOUNTS EXPRESSED IN CANADIAN DOLLARS)
4. FIXED ASSETS:
<TABLE>
<CAPTION>
MARCH 31, MARCH 31, DECEMBER 31,
1996 1997 1997
---------- ---------- ------------
(UNAUDITED)
<S> <C> <C> <C>
Land..................................... $ 201,600 $ 201,600 $ 201,600
Buildings................................ 617,977 617,977 623,066
Office and shop equipment................ 319,208 337,252 363,774
Signs.................................... 17,426 19,163 23,884
Vehicles................................. 53,020 53,020 388,361
Parking lot.............................. -- 7,560 26,448
Leasehold improvements................... 145,646 181,176 251,962
---------- ---------- ----------
1,354,877 1,417,748 1,879,095
Less accumulated depreciation and amorti-
zation.................................. 623,013 701,367 824,613
---------- ---------- ----------
$ 731,864 $ 716,381 $1,054,482
========== ========== ==========
</TABLE>
5. BANK INDEBTEDNESS AND SHORT-TERM BORROWINGS:
Bank indebtedness and short-term borrowings bear interest rates between
prime plus .50% to prime plus .75% and are secured by a general assignment of
book debts, security agreement over all inventories, first collateral
mortgages and demand debenture over land and buildings, a fixed charge and a
chattel mortgage over certain equipment and an assignment of fire insurance
over buildings and equipment.
6. LONG-TERM DEBT:
<TABLE>
<CAPTION>
MARCH 31, MARCH 31, DECEMBER 31,
1996 1997 1997
---------- ---------- ------------
(UNAUDITED)
<S> <C> <C> <C>
Bank loans, various term loans with
combined monthly payments of $123,078
(as at December 31, 1997) including
interest ranging from prime plus 1% to
prime plus 1.75% due from 1998 through
2001. Collateralized by certain
equipment and fixed assets............ $1,662,704 $2,406,572 $2,021,641
Lien notes, various notes with combined
monthly payments of $300,956 (as at
December 31, 1997) including interest
ranging from prime plus 1.25% to prime
plus 2%, due from 1998 through 2001.
Collateralized by specific equipment . 2,136,540 3,288,692 5,062,094
Other notes, various notes with
combined monthly payments of $26,106
(as at December 31, 1997) including
interest ranging from 2.9% to 10%, due
from 1998 through 2000. Collateralized
by specific equipment and vehicles.... 70,249 163,214 519,041
---------- ---------- ----------
3,869,493 5,858,478 7,602,776
Current portion of long-term debt...... 1,618,749 2,390,758 3,233,715
---------- ---------- ----------
$2,250,744 $3,467,720 $4,369,061
========== ========== ==========
</TABLE>
F-42
<PAGE>
BNR GROUP OF COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(AMOUNTS EXPRESSED IN CANADIAN DOLLARS)
6. LONG-TERM DEBT (CONTINUED):
Annual principal payments over each of the next four years are as follows:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1997 1997
----------- ------------
(UNAUDITED)
<S> <C> <C>
1998............ $ 2,390,758 $ 3,233,715
1999............ 1,878,097 2,696,223
2000............ 1,280,955 1,448,045
2001............ 308,668 224,793
----------- -----------
$ 5,858,478 $ 7,602,776
=========== ===========
</TABLE>
7. REDEEMABLE SHARES:
<TABLE>
<CAPTION>
MARCH 31, MARCH 31, DECEMBER 31,
1996 1997 1997
----------------- ----------------- -----------------
(UNAUDITED)
# $ # $ # $
------- --------- ------- --------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
BNR EQUIPMENT LIMITED (BNR
KITCHENER)
Authorized:
Unlimited number of
Class A special
shares, non-voting,
redeemable
Unlimited number of
Class B special
shares, non-voting,
redeemable
Issued:
Class B special
shares.............. 875,975 875,975 765,975 765,975 765,975 765,975
754643 ONTARIO LIMITED (BNR
OTTAWA)
Authorized:
Unlimited number of
special shares, non-
voting, redeemable
Issued:
Special shares....... 159,000 159,000 159,000 159,000 159,000 159,000
650310 ONTARIO LIMITED (BNR
BARRIE)
Authorized:
Unlimited number of
Class C special
shares, non-voting,
redeemable
Unlimited number of
Class D special
shares, non-voting,
redeemable
Issued:
Class C special
shares.............. 1,000 2,315,000 1,000 2,315,000 1,000 2,315,000
Class D special
shares.............. 185,000 185,000 185,000 185,000 185,000 185,000
766903 ONTARIO INC. (BNR OWEN
SOUND)
Authorized:
Unlimited number of
Class C special
shares, non-voting,
redeemable
Issued:
Class C special
shares.............. 1,000 1,000,000 1,000 1,000,000 1,000 1,000,000
--------- --------- ---------
4,534,975 4,424,975 4,424,975
========= ========= =========
</TABLE>
F-43
<PAGE>
BNR GROUP OF COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(AMOUNTS EXPRESSED IN CANADIAN DOLLARS)
7. REDEEMABLE SHARES (CONTINUED)
(a) Certain of the BNR Group of Companies have issued special shares, Class
B special shares and Class D special shares which are redeemable at the
holders option at $1 per share. Under Canadian generally accepted accounting
principles, these shares are presented as liabilities in the combined
financial statements at their redemption amounts.
(b) Certain of the BNR Group of Companies have issued Class C special shares
which are redeemable at the holders option at a fixed amount which is in
excess of their stated capital amounts. Under Canadian generally accepted
accounting principles, these Class C special shares are presented as
liabilities in the combined financial statements at their redemption amounts.
The excess of their redemption amounts over their paid-up capital amounts of
$3,314,990 has been charged to retained earnings.
(c) The special shares, Class B special shares, Class C special shares and
Class D special shares have no fixed redemption date and are redeemable at the
option of the holder. Dividends on these shares are discretionary. In the
event of liquidation, dissolution, or wind up of the companies, holders of
these shares are entitled to receive, in priority to all other classes, an
amount equal to the redemption amount plus any declared and unpaid dividends.
(d) Between May 8, 1995 and January 18, 1996, BNR Equipment Limited (BNR
Kitchener) redeemed 229,725 Class B special shares for $229,725.
Between April 18, 1996 and July 15, 1996, BNR Equipment Limited (BNR
Kitchener) redeemed 110,000 Class B special shares for $110,000.
F-44
<PAGE>
BNR GROUP OF COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(AMOUNTS EXPRESSED IN CANADIAN DOLLARS)
8. SHARE CAPITAL:
<TABLE>
<CAPTION>
MARCH 31, MARCH 31, DECEMBER 31,
1996 1997 1997
------------ ------------ ------------
(UNAUDITED)
# $ # $ # $
----- ------ ----- ------ ----- ------
<S> <C> <C> <C> <C> <C> <C>
BNR EQUIPMENT LIMITED (BNR
KITCHENER)
Authorized:
Unlimited number of common
shares
Issued:
Common shares................. 6,000 13,693 6,000 13,693 6,000 13,693
754643 ONTARIO LIMITED (BNR OT-
TAWA)
Authorized:
Unlimited number of common
shares
Issued:
Common shares................. 100 100 100 100 100 100
650310 ONTARIO LIMITED (BNR
BARRIE)
Authorized:
Unlimited number of Class A
common shares................
Unlimited number of Class B
convertible common shares
Issued:
Class B convertible common
shares....................... 600 1 600 1 600 1
766903 ONTARIO INC. (BNR OWEN
SOUND)
Authorized:
Unlimited number of Class A
common shares................
Unlimited number of Class B
convertible common shares
Issued:
Class B convertible common
shares....................... 1,000 5 1,000 5 1,000 5
BNR EQUIPMENT INC. (BNR AMHERST)
Authorized:
Unlimited number of common
shares
Issued:
Common shares................. 100 69,520 100 69,520 100 69,520
------ ------ ------
83,319 83,319 83,319
====== ====== ======
</TABLE>
The Class B convertible common shares are convertible into an equivalent
number of Class A common shares for no additional consideration.
F-45
<PAGE>
BNR GROUP OF COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(AMOUNTS EXPRESSED IN CANADIAN DOLLARS)
9. INCOME TAXES:
The effective income tax rate differs from the statutory rate that would be
obtained by applying the combined basic federal, state and provincial tax rate
to earnings before income taxes. These differences result from the following
items:
<TABLE>
<CAPTION>
MARCH 31, MARCH 31, DECEMBER 31, DECEMBER 31,
1996 1997 1996 1997
--------- --------- ------------ ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Combined basic federal, state
and provincial tax rate..... 44.6% 44.6% 44.6% 44.6%
Increase (decrease) in income
tax rate resulting from:
Tax reductions to certain
private companies........... (12.0) (9.9) (11.3) (10.0)
Other permanent differences.. (2.2) (1.9) (.6) .5
----- ---- ----- -----
Effective income tax rate.... 30.4% 32.8% 32.7% 35.1%
===== ==== ===== =====
</TABLE>
10. COMMITMENTS:
The companies are committed to payments under operating leases for
equipment, vehicles and buildings. Annual payments over each of the next five
years are as follows:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1997 1997
---------- ------------
(UNAUDITED)
<S> <C> <C>
1998............ $ 789,000 $ 620,000
1999............ 446,000 522,000
2000............ 275,000 361,000
2001............ 122,000 238,000
2002............ 54,000 148,000
---------- ----------
$1,686,000 $1,889,000
========== ==========
</TABLE>
11. FINANCIAL INSTRUMENTS:
The carrying value of the companies' trade accounts receivable, bank
indebtedness, accounts payable, accrued liabilities, short-term borrowings and
redeemable shares approximate their fair values due to their demand nature or
relatively short periods to maturity.
The fair value of the companies' long-term debt have been determined to be
equal to their carrying values, as the current financing arrangements
represent the borrowing rate presently available to the companies for loans
with similar terms and maturities.
12. RELATED PARTY TRANSACTIONS:
(a) The companies rent certain premises from officers and stockholders of
the companies.
The following are the amounts that have been expensed in each of the
periods:
<TABLE>
<S> <C>
March 31, 1997.................. $202,081
December 31, 1997 (unaudited)... 164,498
</TABLE>
(b) Included in note 10 are operating lease commitments with a company
controlled by certain stockholders:
The following are the amounts that have been expensed in each of the
periods:
<TABLE>
<S> <C>
March 31, 1997................... $57,523
December 31, 1997 (unaudited).... 57,391
</TABLE>
F-46
<PAGE>
BNR GROUP OF COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(AMOUNTS EXPRESSED IN CANADIAN DOLLARS)
13. NATURE OF OPERATIONS AND SEGMENT INFORMATION:
The companies only significant activity is the rental and sale of industrial
supplies and power equipment. Geographically segmented information is as
follows:
<TABLE>
<CAPTION>
CANADA UNITED STATES TOTAL
MARCH 31, MARCH 31, MARCH 31,
----------------------- --------------------- -----------------------
YEAR ENDED 1996 1997 1996 1997 1996 1997
------------------------ ----------- ----------- --------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Revenues................ $21,812,899 $24,746,282 $ 597,161 $2,744,801 $22,410,060 $27,491,083
Operating earnings
(loss)................. 1,922,641 1,996,754 (158,234) (3,670) 1,764,407 1,993,084
Identifiable net assets. 1,307,530 1,821,554 208,875 569,394 1,516,405 2,390,948
</TABLE>
<TABLE>
<CAPTION>
CANADA UNITED STATES TOTAL
DECEMBER 31, DECEMBER 31, DECEMBER 31,
------------ ------------- ------------
NINE MONTHS ENDED 1997 1997 1997
------------------------------------- ------------ ------------- ------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
Revenues............................. $24,447,526 $3,628,169 $28,075,695
Operating earnings................... 3,137,274 361,202 3,498,476
Identifiable net assets.............. 3,251,422 1,069,005 4,320,427
</TABLE>
14. UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES:
The companies follow Canadian generally accepted accounting principles which
are different in some respects from those applicable in the United States.
(a) Since redemption of the shares described in note 7 is outside the
control of the companies, the shares are classified as liabilities under
Canadian GAAP. For U.S. GAAP purposes, such redeemable shares can be
classified outside stockholders' equity and below liabilities. This
classification difference has no impact on net income or stockholders' equity
for U.S. GAAP purposes.
(b) The income tax provision is based on the deferral method and adjustments
are generally not made for changes in income tax rates. Under U.S. GAAP,
deferred tax liabilities are measured using the enacted tax rate expected to
apply to taxable income in the periods in which the deferred tax liability is
expected to be settled.
The deferred income tax liability under U.S. GAAP as compared to Canadian
GAAP consists of the following temporary differences:
<TABLE>
<CAPTION>
YEAR YEAR NINE MONTHS
ENDED ENDED ENDED
MARCH 31, MARCH 31, DECEMBER 31,
1996 1997 1997
---------- ---------- ------------
(UNAUDITED)
<S> <C> <C> <C>
Rental Equipment and Fixed Assets--
Tax depreciation in excess of book
depreciation--
For U.S. GAAP........................... $1,257,257 $1,518,790 $1,833,228
For Canadian GAAP....................... 681,518 975,570 1,385,392
</TABLE>
(c) The following table presents a reconciliation of net earnings from
Canadian GAAP to U.S. GAAP:
<TABLE>
<CAPTION>
YEAR YEAR NINE MONTHS NINE MONTHS
ENDED ENDED ENDED ENDED
MARCH 31, MARCH 31, DECEMBER 31, DECEMBER 31,
1996 1997 1996 1997
--------- --------- ------------ ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Net earnings under Canadian
GAAP......................... $835,188 $874,543 $1,581,594 $1,933,979
Income tax adjustment under
the asset and liability
method....................... (66,853) 32,519 56,922 95,384
-------- -------- ---------- ----------
Net earnings under U.S. GAAP.. $768,335 $907,062 $1,638,516 $2,029,363
======== ======== ========== ==========
</TABLE>
F-47
<PAGE>
BNR GROUP OF COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(AMOUNTS EXPRESSED IN CANADIAN DOLLARS)
14. UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (CONTINUED):
(d) The following table presents stockholders' equity under U.S. GAAP:
<TABLE>
<CAPTION>
YEAR YEAR NINE MONTHS
ENDED ENDED ENDED
MARCH 31, MARCH 31, DECEMBER 31,
1996 1997 1997
---------- ---------- ------------
(UNAUDITED)
<S> <C> <C> <C>
Stockholders' equity under Canadian
GAAP.................................. $1,516,405 $2,390,948 $4,320,427
Income tax adjustment under the asset
and liability method.................. (575,739) (543,220) (447,836)
Stockholders' equity under U.S. GAAP... 940,666 1,847,728 3,872,591
</TABLE>
15. SUBSEQUENT EVENT:
On January 22, 1998, all of the outstanding capital stock was acquired by
United Rentals, Inc. All of the shares described in note 7 and all of the
shares described in note 8, except for the shares of the U.S. company BNR
Equipment, Inc. (BNR Amherst) were cancelled and these Canadian companies of
the BNR Group of Companies amalgamated with United Rentals of Canada, Inc. on
January 30, 1998. Subsequent to December 31, 1997 and prior to the acquisition
by United Rentals, Inc., land and buildings with a carrying value of
approximately $500,000 were acquired by certain of the BNR Group of Companies'
stockholders for cash of $665,000 which was used by the companies to repay the
companies' debt. At the same time, the companies entered into operating lease
agreements with the stockholders with respect to these land and buildings.
F-48
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Stockholders
Mission Valley Rentals, Inc.
We have audited the balance sheets of Mission Valley Rentals, Inc. as of
June 30, 1996 and 1997 and the related statements of operations, stockholders'
equity and cash flows for the years then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Mission Valley Rentals,
Inc. at June 30, 1996 and 1997, and the results of its operations and its cash
flows for the years then ended in conformity with generally accepted
accounting principles.
/s/ Ernst & Young LLP
MetroPark, New Jersey
January 23, 1998
F-49
<PAGE>
MISSION VALLEY RENTALS, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30
--------------------- DECEMBER 31,
1996 1997 1997
---------- ---------- ------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
------
Cash........................................ $ 144,491 $ 527,922 $ 505,541
Accounts receivable, net.................... 470,736 662,006 721,252
Inventory................................... 37,539 58,949 88,965
Rental equipment, net....................... 3,004,111 5,158,789 5,667,659
Property and equipment, net................. 124,597 155,001 138,343
Prepaid expenses and other assets........... 34,850 180,875 165,599
Intangible assets, net...................... 776,003 765,841
---------- ---------- ----------
Total assets............................ $3,816,324 $7,519,545 $8,053,200
========== ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Liabilities:
Accounts payable, accrued expenses and
other liabilities........................ $ 246,536 $ 404,689 $ 805,462
Income taxes payable...................... 53,303 (54,283)
Debt...................................... 1,512,074 5,102,143 5,536,280
Deferred income taxes..................... 188,774 319,869 235,744
---------- ---------- ----------
Total liabilities....................... 2,000,687 5,826,701 6,523,203
Commitments and contingencies
Stockholders' equity:
Common stock, no par value and $1.00
stated value, 10,000 shares authorized,
1,000 issued and outstanding at June 30,
1996 and 1997, and December 31, 1997..... 1,000 1,000 1,000
Retained earnings......................... 1,814,637 1,691,844 1,528,997
---------- ---------- ----------
Total stockholders' equity.............. 1,815,637 1,692,844 1,529,997
---------- ---------- ----------
Total liabilities and stockholders'
equity................................. $3,816,324 $7,519,545 $8,053,200
========== ========== ==========
</TABLE>
See accompanying notes.
F-50
<PAGE>
MISSION VALLEY RENTALS, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED JUNE 30 DECEMBER 31
---------------------- ----------------------
1996 1997 1996 1997
---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Revenues:
Equipment rentals........... $4,851,942 $6,798,752 $3,365,276 $4,419,275
Sales of rental equipment... 96,987 413,481 346,540 74,642
Sales of parts and supplies. 399,156 558,034 264,193 329,496
---------- ---------- ---------- ----------
Total revenues............ 5,348,085 7,770,267 3,976,009 4,823,413
Cost of revenues:
Cost of equipment rentals,
excluding depreciation..... 1,893,655 2,876,589 1,392,173 1,952,185
Depreciation of rental
equipment.................. 738,229 1,599,457 586,675 733,558
Cost of rental equipment
sales...................... 61,810 413,481 346,540 55,168
Cost of sales of parts and
supplies................... 214,802 377,047 153,444 171,949
---------- ---------- ---------- ----------
Total cost of revenues.... 2,908,496 5,266,574 2,478,832 2,912,860
---------- ---------- ---------- ----------
Gross profit.................. 2,439,589 2,503,693 1,497,177 1,910,553
Selling, general and
administrative expenses...... 1,640,442 2,222,524 1,086,303 1,926,386
Non-rental depreciation....... 25,355 30,154 15,117 16,658
---------- ---------- ---------- ----------
Operating income (loss)....... 773,792 251,015 395,757 (32,491)
Interest expense.............. 139,925 390,047 171,923 215,848
Other (income), net........... (58,767) (62,016) (31,956) (31,209)
---------- ---------- ---------- ----------
Income (loss) before provision
(benefit) for income taxes 692,634 (77,016) 255,790 (217,130)
Provision (benefit) for income
taxes........................ 299,259 45,777 64,295 (54,283)
---------- ---------- ---------- ----------
Net income (loss)............. $ 393,375 $ (122,793) $ 191,495 $ (162,847)
========== ========== ========== ==========
</TABLE>
See accompanying notes.
F-51
<PAGE>
MISSION VALLEY RENTALS, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK
-------------- RETAINED
SHARES AMOUNTS EARNINGS
------ ------- ----------
<S> <C> <C> <C>
Balance at July 1, 1995.............................. 1,000 $1,000 $1,421,262
Net income......................................... 393,375
----- ------ ----------
Balance at June 30, 1996............................. 1,000 1,000 1,814,637
Net loss........................................... (122,793)
----- ------ ----------
Balance at June 30, 1997............................. 1,000 1,000 1,691,844
Net loss (unaudited)............................... (162,847)
----- ------ ----------
Balance at December 31, 1997 (unaudited)............. 1,000 $1,000 $1,528,997
===== ====== ==========
</TABLE>
See accompanying notes.
F-52
<PAGE>
MISSION VALLEY RENTALS, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED JUNE 30 DECEMBER 31
--------------------- -------------------
1996 1997 1996 1997
--------- ---------- -------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES
Net income (loss)................. $ 393,375 $ (122,793) $191,495 $(162,847)
Adjustments to reconcile net
income (loss) to net cash
provided by operating activities:
Depreciation and amortization... 763,584 1,646,105 611,009 760,378
Gain on equipment sales......... (35,177) (19,474)
Deferred taxes.................. 81,859 131,318 87,014 (84,125)
Changes in assets and
liabilities:
Increase in accounts receivable. (81,581) (191,270) (206,289) (59,246)
Increase in inventory........... (10,437) (21,410) (48,417) (30,016)
(Decrease) increase in prepaid
expenses and other assets...... 50,884 (146,248) (104,458) 15,276
Increase in accounts payable,
accrued expenses and other
liabilities.................... 119,054 158,153 65,881 400,773
(Decrease) increase in income
taxes payable.................. 53,303 (53,303) 10,992 (54,283)
--------- ---------- -------- ---------
Total adjustments................. 941,489 1,523,345 415,732 929,283
--------- ---------- -------- ---------
Cash provided by operating
activities..................... 1,334,864 1,400,552 607,227 766,436
CASH FLOWS FROM INVESTING
ACTIVITIES
Purchase of rental equipment...... (388,116)
Proceeds from sale of rental
equipment........................ 96,987 413,481 346,540 74,642
--------- ---------- -------- ---------
Cash provided by (used in)
investing activities........... (291,129) 413,481 346,540 74,642
CASH FLOWS FROM FINANCING
ACTIVITIES
Principal payments on debt........ (957,424) (4,567,552) (741,982) (863,459)
Principal payments on capital
lease obligations................ (32,258)
Borrowings under credit facility.. 3,169,208
--------- ---------- -------- ---------
Cash used in financing
activities..................... (957,424) (1,430,602) (741,982) (863,459)
--------- ---------- -------- ---------
Increase (decrease) in cash....... 86,311 383,431 211,785 (22,381)
Cash balance at beginning of
year........................... 58,180 144,491 144,491 527,922
--------- ---------- -------- ---------
Cash balance at end of year..... $ 144,491 $ 527,922 $356,276 $ 505,541
========= ========== ======== =========
</TABLE>
See accompanying notes.
F-53
<PAGE>
MISSION VALLEY RENTALS, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1996 AND 1997
(THE INFORMATION AS OF DECEMBER 31, 1997 AND FOR THE SIX
MONTHS ENDED DECEMBER 31, 1996 AND 1997 IS UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business Activity
Mission Valley Rentals, Inc. (the "Company") rents, sells and repairs
construction equipment for use by contractor, industrial and homeowner
markets. The rentals are on a daily, weekly or monthly basis. The Company has
four locations in Northern California and its principal market area is the
entire Bay Area and the San Joaquin Valley. The nature of the Company's
business is such that short-term obligations are typically met by cash flow
generated from long-term assets. Consequently, consistent with industry
practice, the balance sheets are presented on an unclassified basis.
On September 1, 1996, the Company acquired for $2,320,000 a substantial
amount of rental equipment and fixed assets from Rental World, Inc. and
assumed all operations. The Company utilized the funds available under its
line of credit to finance the purchase. The acquisition has been accounted for
as a purchase and, accordingly, at such date the Company recorded the assets
acquired at their estimated fair values.
The acquired assets have been recorded at their estimated fair value at the
date of the acquisition of $1,527,503 with the excess purchase price of
$792,497 being recorded as goodwill.
Interim Financial Statements
The accompanying balance sheet at December 31, 1997 and the statements of
income, stockholders' equity and cash flows for the six-month periods ended
December 31, 1996 and 1997 are unaudited and have been prepared on the same
basis as the audited financial statements included herein. In the opinion of
management, such unaudited financial statements include all adjustments
necessary to present fairly the information set forth therein, which consist
solely of normal recurring adjustments. The results of operations for such
interim period are not necessarily indicative of results for the full year.
Inventory
Inventory consists primarily of general replacement parts and fuel for the
equipment and are stated at the lower of cost, determined under the first-in,
first-out method, or market.
Rental Equipment
Rental equipment is recorded at cost. Depreciation for rental equipment is
computed using the straight-line method over an estimated five-year useful
life with a 10% salvage value.
Ordinary maintenance and repair costs are charged to operations as incurred.
Proceeds from the disposal and the related net book value of the equipment are
recognized in the period of disposal and reported as revenue from sales of
equipment and cost of sales of equipment, respectively, in the statements of
operations.
Property and Equipment
Property and equipment is stated at cost. Depreciation of property and
equipment is computed on the straight-line method over estimated useful lives
of 5 to 10 years.
F-54
<PAGE>
MISSION VALLEY RENTALS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Ordinary maintenance and repair costs are charged to operations as incurred.
The cost of assets sold, retired, or otherwise disposed of, and the related
accumulated depreciation is eliminated from the accounts and any resulting
gain or loss is included in operations.
Intangible assets
Intangible assets are recorded at cost and consist of goodwill, which is
being amortized by the straight line method over its estimated useful life of
forty years. Accumulated amortization at June 30, 1997 and December 31, 1997
is $16,494 and $26,656, respectively.
Rental Revenue
Rental revenue is recorded as earned under the operating method.
Advertising Costs
The Company advertises primarily through phone directories and the
distribution of promotional items. All advertising costs are expensed as
incurred. Advertising expenses amounted to approximately $63,800 and $104,500
in the years ended June 30, 1996 and 1997, respectively, and $52,000 and
$42,000 for the six months ended December 31, 1996 and 1997, respectively.
Income Taxes
The Company uses the "liability method" of accounting for income taxes.
Accordingly, deferred tax liabilities and assets are determined based on the
difference between the financial statement and tax bases of assets and
liabilities, using enacted tax rates in effect for the year in which the
differences are expected to reverse.
Accounting Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
2. CONCENTRATIONS OF CREDIT RISK
The Company maintains cash balances with a quality financial institution
and, consequently, management believes funds maintained there are secure.
Concentrations of credit risk with respect to customer receivables are limited
due to the large number of customers comprising the Company's customer base
and its credit policy.
3. RENTAL EQUIPMENT
Rental equipment and related accumulated depreciation consisted of the
following:
<TABLE>
<CAPTION>
JUNE 30
--------------------- DECEMBER 31,
1996 1997 1997
---------- ---------- ------------
(UNAUDITED)
<S> <C> <C> <C>
Rental equipment....................... $6,384,287 $9,793,816 $10,454,616
Less accumulated depreciation.......... 3,380,176 4,635,027 4,786,957
---------- ---------- -----------
Rental equipment, net.................. $3,004,111 $5,158,789 $ 5,667,659
========== ========== ===========
</TABLE>
F-55
<PAGE>
MISSION VALLEY RENTALS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
4. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
JUNE 30
----------------- DECEMBER 31,
1996 1997 1997
-------- -------- ------------
(UNAUDITED)
<S> <C> <C> <C>
Furniture and fixtures..................... $237,744 $273,686 $273,686
Leasehold improvements..................... 268,939 293,557 293,557
-------- -------- --------
506,683 567,243 567,243
Less accumulated depreciation.............. 382,086 412,242 428,900
-------- -------- --------
Total.................................... $124,597 $155,001 $138,343
======== ======== ========
</TABLE>
5. DEBT AND CAPITAL LEASE OBLIGATIONS
Debt and capital lease obligations consist of the following:
<TABLE>
<CAPTION>
JUNE 30
--------------------- DECEMBER 31,
1996 1997 1997
---------- ---------- ------------
(UNAUDITED)
<S> <C> <C> <C>
Ingersoll-Rand--Various notes with combined
monthly payments of $3,514 including
interest from 7.9% to 10%................. $ 53,296 $ 100,980 $ 167,744
Clark Equipment Credit Co.--Various notes
with combined monthly payments of $5,217
including interest from 7.9% to 9.9%...... 35,443 194,304 156,550
Fremont Bank--Various notes with combined
monthly payments of $52,073 including
interest from 8.75% to 9.35%.............. 784,633 2,874,127 3,017,141
Ford Motor Credit--Various notes with
combined monthly payments of $1,908
including interest from 8.75% to 9.25%.... 64,948 333,237 374,384
Ford New Holland--Various notes with
combined monthly payments of $3,849
including interest 10.5%.................. 123,539 79,366 55,493
Orix Credit--Various notes with combined
monthly payments of $3,864 including
interest from 6.3% to 9.3%................ 10,264 71,764 51,293
Case Credit--Various notes with combined
monthly payments of $20,216 including
interest from 7.7% to 7.9%................ 209,397 567,827 486,188
Caterpillar Financial Services--Various
notes with combined monthly payments of
$3,615 including interest of 6.6%......... -- 150,936 133,994
Country Ford--Various leases with combined
monthly payments of $6,685 including
interest of 8.0%.......................... -- 351,683 325,197
John Deere--Three notes with combined
monthly payments of $3,038 including
interest of 4.9%.......................... 14,073 53,471 45,788
Associates--Various notes with combined
monthly payments of $5,314 including
interest from 7.5% to 8.98%............... 147,925 182,165 366,594
GMAC--One note with a monthly payment of
$886 including interest of 9.99%.......... -- 20,627 16,254
AEL Lease--Two notes with a combined
monthly payment of $2,736 including
interest of 8.25%......................... 3,244 40,705 82,129
M.E.L. Enterprises--One note with a monthly
payment of $2,595 including interest of
9.0%...................................... 65,312 38,984 24,909
AT&T Finance Corp.--Three notes with a
combined monthly payment of $4,028
including interest of 7.35%............... -- -- 194,253
Other...................................... -- 41,967 38,369
---------- ---------- ----------
$1,512,074 $5,102,143 $5,536,280
========== ========== ==========
</TABLE>
F-56
<PAGE>
MISSION VALLEY RENTALS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Substantially all rental equipment collateralize the above notes.
Subsequent to June 30, 1997, the Company paid $2,766,372 on certain amounts
outstanding under the debt and capital lease agreements. The remaining balance
of $2,335,771 is scheduled for payment in fiscal year 1998.
6. CAPITAL LEASES
The Company leases certain rental equipment under leases accounted for as
capital leases. The following is an analysis of the leased property.
<TABLE>
<CAPTION>
JUNE 30 DECEMBER 31,
1997 1997
-------- ------------
(UNAUDITED)
<S> <C> <C>
Rental equipment.................................... $383,874 $383,874
Less accumulated amortization....................... 39,688 59,688
-------- --------
Net............................................... $344,186 $324,186
======== ========
</TABLE>
Total depreciation expense on assets under capital leases was $39,688 and
$20,000 in the year ended June 30, 1997 and for the six months ended December
31, 1997, respectively.
The following is a schedule by years of future lease payments under capital
leases together with the present value of the net minimum lease payments as of
June 30, 1997:
<TABLE>
<S> <C>
Year ended June 30, 1998........................................ $ 80,223
1999.......................................................... 80,233
2000.......................................................... 80,223
2001.......................................................... 80,223
2002.......................................................... 80,223
Thereafter.................................................... 33,426
--------
Net minimum lease payment....................................... 434,541
Less amount representing interest............................... 82,858
--------
Present value of net minimum lease payments..................... $351,683
========
</TABLE>
7. OPERATING LEASES
The Company leases four store locations on long term leases. The Company is
responsible for all operating expenses of the facilities including property
taxes, assessments, insurance, repairs and maintenance.
Rent expense under these leases totaled $216,725 and $334,725 for the years
ended June 30, 1996 and 1997 and $166,363 and $169,963 for the six months
ended December 31, 1996 and 1997, respectively. Under the lease agreements,
aggregate rent is payable in monthly installments of approximately $28,560.
Under certain lease agreements, the rent shall be increased annually to
reflect the then current fair market rent for the premises, provided that each
annual increase shall not exceed a specific percentage, as defined in the
agreements, of the previous year's rental rate. Future minimum rent
commitments are $342,725 each for years ended June 30, 1998 to June 30, 2004
and $217,563 and $21,000 for fiscal 2005 and 2006 respectively, provided there
is no increase in fair market rent for the premises.
F-57
<PAGE>
MISSION VALLEY RENTALS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
8. INCOME TAXES
The provision (benefit) for income taxes consists of the following:
<TABLE>
<CAPTION>
JUNE 30 DECEMBER 31
----------------- ------------------
1996 1997 1996 1997
-------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C>
Current:.
Federal................................ $184,790 $(85,541) $(22,719) $ 29,842
State.................................. 32,610 -- --
-------- -------- -------- --------
217,400 (85,541) (22,719) 29,842
Deferred:.
Federal................................ 69,580 111,620 74,407 (71,507)
State.................................. 12,279 19,698 12,607 (12,618)
-------- -------- -------- --------
81,859 131,318 87,014 (84,125)
-------- -------- -------- --------
Total.................................. $299,259 $ 45,777 $ 64,295 $(54,283)
======== ======== ======== ========
</TABLE>
Significant components of the Company's deferred tax liability at June 30,
1996 and 1997 and December 31, 1997 (unaudited) are as follows:
<TABLE>
<CAPTION>
JUNE 30
------------------ DECEMBER 31,
1996 1997 1997
-------- -------- ------------
(UNAUDITED)
<S> <C> <C> <C>
Difference in basis of
accounting............. $(33,025) $(41,185) $ --
Cumulative tax
depreciation in excess
of book................ 188,774 319,869 235,744
-------- -------- --------
Deferred tax liability,
net.................... $155,749 $278,684 $235,744
======== ======== ========
</TABLE>
Deferred tax assets at June 30, 1996 and 1997, are included in prepaid
expenses and other assets on the accompanying balance sheet.
9. SUPPLEMENTAL CASH FLOW INFORMATION
For the years ended June 30, 1996 and 1997 and the six months ended December
31, 1996 and 1997, total interest paid was $139,925 and $367,561 and $171,923
and $238,334, respectively.
For the years ended June 30, 1996 and 1997 and the six months ended December
31, 1996 and 1997, total taxes paid were $120,000 and $127,611 and $84,358 and
$ -- , respectively.
For the years ended June 30, 1996 and 1997 and for the six months ended
December 31, 1996 and 1997, the Company purchased $857,779, $3,844,300,
$3,156,404 and $1,297,596, respectively, of equipment which was financed.
For the year ended June 30, 1997 and the six months ended December 31, 1996,
the Company entered into capital lease agreements for rental equipment
totaling $383,874.
10. EMPLOYEE BENEFIT PLAN
On January 1, 1996, the Company established a defined contribution 401(k)
retirement plan which covers substantially all full time employees. The
employees may contribute up to 15% of their weekly gross pay. The Company
matches 20% of the employees contribution. Effective September 1997, the
Company's match
F-58
<PAGE>
MISSION VALLEY RENTALS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
increased to 70%. Company contributions to the plan were $7,674, $15,211,
$7,807 and $33,159 for the years ended June 30, 1996 and 1997 and for the six
month periods ended December 31, 1996 and 1997, respectively.
11. SUBSEQUENT EVENT
On January 13, 1998, the Company entered into a stock purchase agreement
with United Rentals, Inc. ("United"). Under the terms of the stock purchase
agreement, United purchased all of the issued and outstanding capital stock of
the Company.
F-59
<PAGE>
INDEPENDENT AUDITOR'S REPORT
MERCER Equipment Company:
We have audited the accompanying balance sheets of MERCER Equipment Company
as of December 31, 1996 and October 24, 1997 and the related statements of
income and retained earnings and of cash flows for each of the two years in
the period ended December 31, 1996, and for the period from January 1, 1997 to
October 24, 1997. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of MERCER Equipment Company
as of December 31, 1996, and October 24, 1997 and the results of its
operations and its cash flows for each of the two years in the period ended
December 31, 1996 and for the period from January 1, 1997 to October 24, 1997
in conformity with generally accepted accounting principles.
/s/ Webster, Duke & Co. PA
Charlotte, North Carolina
January 21, 1998
F-60
<PAGE>
MERCER EQUIPMENT COMPANY
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, OCTOBER 24,
------------ -----------
1996 1997
------------ -----------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash................................................ $ 276,639 $ 85,384
Accounts receivable (less allowance for doubtful
accounts: 1996-$182,425, 1997-$254,073)............ 1,819,581 2,398,926
Inventory (Notes 2, 5 and 8)........................ 2,417,425 2,299,512
Miscellaneous receivables........................... 16,604 29,508
Prepaid expenses.................................... - 17,965
----------- -----------
Total current assets.............................. 4,530,249 4,831,295
----------- -----------
RENTAL EQUIPMENT (Notes 2, 5, 8, 9, 10 and 15):
Rental equipment.................................... 14,030,584 15,392,093
Less accumulated depreciation....................... 3,717,218 4,322,744
----------- -----------
Rental equipment, net............................. 10,313,366 11,069,349
----------- -----------
OTHER PROPERTY (Notes 2, 8 and 11):
Other property...................................... 1,003,079 1,091,365
Less accumulated depreciation....................... 395,658 498,962
----------- -----------
Other property, net............................... 607,421 592,403
----------- -----------
OTHER ASSETS (Note 13):
Deposits and other assets........................... 68,639 42,889
Notes receivable-officers........................... 69,980 67,453
----------- -----------
Total other assets................................ 138,619 110,342
----------- -----------
TOTAL............................................. $15,589,655 $16,603,389
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Line of credit (Note 4)............................. -- --
Note payable-Bank (Note 4).......................... $ 494,245 $ 5,017,953
Short-term equipment notes (Note 5)................. 189,528 3,619,830
Notes payable-individuals (Notes 6 and 13).......... 609,000 142,000
Current portion of long-term debt................... 2,253,562 56,411
Current portion of capital leases................... 167,445 86,597
Accounts payable.................................... 2,161,340 3,174,282
Accrued expenses.................................... 140,361 254,444
----------- -----------
Total current liabilities......................... 6,015,481 12,351,517
----------- -----------
LONG-TERM DEBT (Non-current Portion):
Revolving credit note (Note 7)...................... 2,430,000 --
Notes payable to bank (Note 8)...................... 1,513,000 --
Notes payable on rental equipment (Note 9).......... 2,195,238 --
Capital leases on rental equipment (Note 10)........ 119,183 176,047
Notes payable on other property..................... 138,543 82,208
----------- -----------
Total long-term debt.............................. 6,395,964 258,255
----------- -----------
STOCKHOLDERS' EQUITY:
Common stock (Notes 2 and 12)....................... 500,001 500,001
Retained earnings (Note 8).......................... 2,678,209 3,493,616
----------- -----------
Total stockholders' equity........................ 3,178,210 3,993,617
----------- -----------
TOTAL............................................. $15,589,655 $16,603,389
=========== ===========
</TABLE>
See notes to financial statements.
F-61
<PAGE>
MERCER EQUIPMENT COMPANY
STATEMENTS OF INCOME AND RETAINED EARNINGS
<TABLE>
<CAPTION>
PERIOD FROM JANUARY 1, 1997
YEAR ENDED DECEMBER 31, TO OCTOBER 24, 1997
------------------------ ---------------------------
1995 1996 1997
----------- ----------- ---------------------------
<S> <C> <C> <C>
REVENUE:
Sales of new
equipment............. $ 2,479,358 $ 3,415,523 $3,709,356
Sales of supplies and
parts................. 1,558,273 2,067,403 1,831,345
----------- ----------- ----------
Total goods sold..... 4,037,631 5,482,926 5,540,701
Sales of rental
equipment............. 872,621 1,102,621 1,876,001
Rental revenues........ 4,950,614 7,380,137 6,891,972
Service department
revenues.............. 357,039 488,216 764,738
----------- ----------- ----------
Total revenues....... 10,217,905 14,453,900 15,073,412
----------- ----------- ----------
DIRECT COSTS OF REVENUE:
Cost of goods sold..... 3,171,168 4,469,790 4,677,328
Cost of rental
equipment sold, net... 530,102 702,254 1,218,507
Rental department
expenses (including
depreciation of
$1,035,352, $1,492,131
and $1,428,312)....... 2,226,420 3,589,936 3,728,374
Service department
expenses.............. 460,382 648,882 706,958
----------- ----------- ----------
Total direct costs of
revenue............. 6,388,072 9,410,862 10,331,167
----------- ----------- ----------
GROSS MARGIN............. 3,829,833 5,043,038 4,742,245
----------- ----------- ----------
OPERATING EXPENSES:
Sales expenses......... 752,722 1,386,812 1,345,705
Administrative and
general expenses...... 1,930,124 2,247,556 2,014,205
----------- ----------- ----------
Total operating
expenses............ 2,682,846 3,634,368 3,359,910
----------- ----------- ----------
MARGIN FROM OPERATIONS... 1,146,987 1,408,670 1,382,335
----------- ----------- ----------
OTHER INCOME (EXPENSE):
Miscellaneous income... 78,258 110,340 147,362
Interest expense....... (486,976) (813,339) (686,512)
----------- ----------- ----------
Total other income
(expense)........... (408,718) (702,999) (539,150)
----------- ----------- ----------
NET INCOME............... 738,269 705,671 843,185
BEGINNING RETAINED
EARNINGS................ 1,450,936 2,045,871 2,678,209
----------- ----------- ----------
Total................ 2,189,205 2,751,542 3,521,394
LESS DIVIDENDS PAID...... 143,334 73,333 27,778
----------- ----------- ----------
ENDING RETAINED
EARNINGS................ $ 2,045,871 $ 2,678,209 $3,493,616
=========== =========== ==========
</TABLE>
See notes to financial statements.
F-62
<PAGE>
MERCER EQUIPMENT COMPANY
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM
JANUARY 1,
YEAR ENDED DECEMBER 31, 1997 TO
------------------------ OCTOBER 24,
1995 1996 1997
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income............................. $ 738,269 $ 705,671 $ 843,185
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation and amortization........ 1,117,783 1,610,918 1,542,966
Cost of rental equipment sold, net... 530,102 702,254 1,218,507
Cost of other property sold, net..... 14,800
Changes in assets and liabilities:
Accounts receivable, net........... (418,132) (398,900) (579,345)
Inventory.......................... (900,532) (325,339) 117,913
Miscellaneous receivables.......... (5,437) (4,065) (12,904)
Prepaid expenses................... (17,965)
Other assets....................... (16,000) (24,239) 14,400
Accounts payable................... 651,668 558,903 944,210
Accrued expenses................... 29,098 24,329 114,083
----------- ----------- ----------
Net cash provided by operating
activities...................... 1,726,819 2,864,332 4,185,050
----------- ----------- ----------
CASH FLOWS (TO) INVESTING ACTIVITIES:
Purchase of rental equipment........... (2,466,039) (2,001,083) (1,601,703)
Purchase of other property............. (131,695) (171,319) (81,117)
Increase in other asset................ (1,650)
----------- ----------- ----------
Net cash (to) investing
activities...................... (2,599,384) (2,172,402) (1,682,820)
----------- ----------- ----------
CASH FLOWS FROM (TO) FINANCING
ACTIVITIES:
Repayments of notes receivable--
officers.............................. 2,264 3,019 2,527
Repayments by stockholders............. 220,602
Loans to stockholders.................. (247,729)
Repayments under line of credit........ (125,000) (8,792)
Borrowings under line of credit........ --
Repayments of short-term equipment
notes................................. (130,301) (618,854) (597,500)
Repayments of notes payable--
individuals........................... (52,500) (491,000)
Repayments of long term debt........... (1,051,070) (1,950,688) (1,794,942)
Repayments of capital leases........... (22,009) (150,279)
Net borrowings under note payable--
bank.................................. 465,200 29,045 --
Borrowings under revolving credit
note.................................. 1,000,000 1,700,000 200,000
Proceeds from bank loans............... 1,120,588
Proceeds from notes payable
individuals........................... 305,000 23,000 24,000
Dividends paid......................... (143,334 ) (73,333) (27,778)
----------- ----------- ----------
Net cash from (to) financing
activities...................... 1,173,609 (869,988) (2,693,485)
----------- ----------- ----------
NET INCREASE (DECREASE) IN CASH.......... 301,044 (178,058) (191,255)
BEGINNING CASH BALANCE................... 153,653 454,697 276,639
----------- ----------- ----------
ENDING CASH BALANCE...................... $ 454,697 $ 276,639 $ 85,384
=========== =========== ==========
</TABLE>
See notes to financial statements
F-63
<PAGE>
MERCER EQUIPMENT COMPANY
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1996 AND OCTOBER 24, 1997
1. ORGANIZATION AND BUSINESS
Organization--MERCER Equipment Company (MERCER) is a North Carolina
corporation. For income tax purposes, it has elected treatment under
Subchapter S of the Internal Revenue Code of 1986.
Business--MERCER sells, rents, and repairs construction equipment, primarily
to contractors, industry, utilities, and municipalities. MERCER operates two
branches in the Charlotte, North Carolina area and one branch in Greensboro,
North Carolina.
2. ACCOUNTING PRINCIPLES
Basis of Accounting--MERCER prepares its financial statements on the accrual
basis of accounting.
Use of Estimates--The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reported period. Actual results could differ from those estimates.
Inventory--Inventory consists of new equipment and merchandise for resale
and of parts for resale or repair of equipment.
MERCER records inventory using the last-in, first-out (LIFO) cost
assumptions. MERCER maintains separate LIFO pools for new equipment,
merchandise, and parts; and uses government indices to determine the cost of
LIFO layers.
At December 31, 1996 and October 24, 1997, the difference between LIFO and
first-in, first-out cost was $310,346 and $347,936 respectively.
Rental Equipment--MERCER records rental equipment at cost and depreciates
that cost using the straight-line method over 60 months (50 months for rental
equipment purchased after December 31, 1995). MERCER estimates the salvage
value on rental equipment to be 28% (50% for rental equipment purchased after
December 31, 1995). (See Note 15).
Other Property--MERCER records other property at cost and depreciates that
cost using the straight-line method over lives of 5 or 7 years.
Notes Receivable--Officers--At December 31, 1996, and October 24, 1997 the
notes receivable from officers are due in monthly payments of $600, including
principal and interest, for 15 years. At December 31, 1995, the notes
receivable from officers were due in quarterly installments of $1,264,
including principal and interest, for 14 years.
Common Stock--MERCER has two classes of common stock: Class A common stock
which has voting rights and Class B common stock which has no voting rights.
The preferences, limitations, and relative rights of classes are the same
except the nonvoting stock has no voting rights other than in those cases in
which nonvoting stock is expressly granted voting rights under North Carolina
law.
F-64
<PAGE>
MERCER EQUIPMENT COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
At December 31, 1996 and October 24, 1997, the number of shares authorized
and outstanding of each class of stock was as follows:
<TABLE>
<CAPTION>
AUTHORIZED OUTSTANDING
---------- -----------
<S> <C> <C>
Class A, voting....................................... 25,000 16,667
Class B, nonvoting.................................... 175,000 150,000
</TABLE>
Rental Revenue--MERCER generally rents equipment under short-term agreements
of one month or less and accounts for these agreements as operating leases.
Lease Expense--MERCER leases its facilities and certain delivery vehicles
under leases classified as operating leases. MERCER leases certain rental
equipment and new equipment inventory under leases classified as capital
leases.
Income Taxes--MERCER has elected taxation under Subchapter S of the Internal
Revenue Code of 1986 and its stockholders report the taxable income or loss of
the company on their individual income tax returns. For income tax purposes,
MERCER generally uses accelerated depreciation methods (without salvage value)
and deducts bad debts as they are written off.
Statement of Cash Flows--MERCER considers all instruments with a maturity of
three months or less to be cash equivalents. MERCER paid interest expense and
purchase various assets through incurrence of notes payable as follows:
<TABLE>
<CAPTION>
PERIOD FROM
JANUARY 1,
YEAR ENDED DECEMBER 1997 TO
31 OCTOBER 24,
1995 1996 1997
---------- ---------- -----------
<S> <C> <C> <C>
Interest paid................................ $ 464,090 $ 807,169 $ 683,596
Debt incurred to purchase:
Inventory.................................. 357,306 88,509
Rental equipment........................... 2,300,291 2,530,234 1,801,029
Fixed assets............................... 142,174 163,756 7,169
</TABLE>
3. PURCHASE OF BUSINESS
On September 29, 1995, MERCER acquired the branch retail operations of
Builders Equipment & Tool Co., Inc. (BETCO) in a transaction accounted for as
a purchase. The accompanying financial statements include the results of the
Greensboro operation from that date. MERCER purchased substantially all of the
resale and rental inventory and the fixed assets at the branch. The purchase
price was $600,000. There were no intangible assets purchased nor are there
any contingent payments or commitments.
4. NOTE PAYABLE--BANK
At December 31, 1996, MERCER had a note payable to a bank that is due May
31, 1997. The note provides for monthly payment of interest at the bank's
prime rate plus 1/2%. The original amount of the note was $500,000.
In connection with the purchase of MERCER's common stock (see Note 16),
substantially all of the outstanding debt at October 24, 1997 was paid off.
5. SHORT-TERM EQUIPMENT NOTES
MERCER has purchased rental equipment and inventory with short-term (less
than 12 months) notes payable with a nominal interest charge. At December 31,
1996, rental equipment and inventory with a cost of $434,972 and $135,522,
respectively, is pledged as collateral.
F-65
<PAGE>
MERCER EQUIPMENT COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
In connection with the purchase of MERCERs common stock (see Note 16),
substantially all of the outstanding debt at October 24, 1997 was paid off.
6. NOTES PAYABLE--INDIVIDUALS
Notes payable--individuals provide for quarterly interest payments at the
Wall Street prime rate plus one percent and allows MERCER to delay payment of
principal for up to one year and a day after request. At December 31, 1996 and
October 24, 1997, $178,000 and $ -- , respectively, of this amount was due
stockholders.
7. REVOLVING CREDIT NOTES
MERCER has a $3,000,000 revolving credit note with a bank. At December 31,
1996 MERCER had termed the revolver's outstanding balance and will repay the
principal over 36 months beginning in June 1997. The repayment provides for
monthly payment of $45,000 principal plus interest at the bank's prime rate
plus 1/4%. At December 31, 1995 and during 1996, only interest payments were
due on the note (see Note 9 for collateral).
In connection with the purchase of MERCERs common stock (see Note 16),
substantially all of the outstanding debt at October 24, 1997 was paid off.
8. NOTES PAYABLE TO BANK
MERCER's note payable to bank consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
1996
------------
<S> <C>
Bank note--8.25%, principal of $49,750 plus interest paid
monthly thru November 1998; balance of $635,750 due December
1998........................................................... $1,780,000
Bank note--interest at prime plus 1/2%, principal of $10,000
plus interest paid monthly thru August 1998; $250,000 due
September 30, 1998............................................. 450,000
----------
Total........................................................... 2,230,000
Less current portion............................................ 717,000
----------
Noncurrent portion.............................................. $1,513,000
==========
</TABLE>
All accounts receivable and inventory and rental equipment, unless otherwise
encumbered, are given as security for the notes payable to bank.
The loan agreement with the bank provides for maintenance of certain
absolute and ratio amounts relating to working capital, net worth, cash flow
coverage, and debt/equity and limits amounts that can be paid in dividends. At
December 31, 1996, MERCER had obtained a waiver on the cash flow coverage
ratio.
In connection with the purchase of MERCERs common stock (see Note 16),
substantially all of the outstanding debt at October 24, 1997 was paid off.
9. NOTES PAYABLE ON RENTAL EQUIPMENT
MERCER finances purchases of rental equipment and inventory through various
arrangements with vendors, their related finance entities, and other lenders.
These notes provide for monthly payments of either a fixed principal plus
interest or a level payment of principal and interest.
These note have terms of 36 to 60 months and generally provide for
accelerated repayment if the underlying equipment is sold. At December 31,
1995 and 1996, the weighted interest rates were 10.1%, and 8.6%, respectively.
F-66
<PAGE>
MERCER EQUIPMENT COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
At December 31, 1996, $480,801 of floor plan notes, which have not yet begun
to require payments of principal or interest, are included in notes payable on
rental equipment. The financial statements assume their conversion upon
expiration of the floor plan period.
At December 31, 1996, rental equipment and inventory of $4,637,033 and
$88,509, respectively, were collateral for all of the above notes.
In connection with the purchase of MERCER's common stock (see Note 16),
substantially all of the outstanding debt at October 24, 1997 was paid off.
10. CAPITAL LEASES
MERCER leases certain rental equipment under leases accounted for as capital
leases. The following is an analysis of the leased property:
<TABLE>
<CAPTION>
DECEMBER 31, OCTOBER 24,
------------ -----------
1996 1997
------------ -----------
<S> <C> <C>
Rental equipment.................................... $408,081 $386,153
Less accumulated amortization....................... 78,561 138,706
-------- --------
Net............................................... $329,520 $247,447
======== ========
</TABLE>
The following is a schedule by years of future lease payments under capital
leases together with the present value of the net minimum lease payments as of
October 24, 1997:
<TABLE>
<S> <C>
Year ended December 31, 1997....................................... $106,795
1998............................................................. 98,730
1999............................................................. 74,158
2000............................................................. 23,177
--------
Net minimum lease payments......................................... 302,860
Less amount representing interest.................................. 40,216
--------
Present value of net minimum lease payments........................ 262,644
Less current portion............................................... 86,597
--------
Long-term portion.................................................. $176,047
========
</TABLE>
11. NOTES PAYABLE ON OTHER PROPERTY
The notes payable on other property provide for monthly payment of principal
and interest at rates from 9.0% to 10.8%. At December 31, 1996 and October 24,
1997, related assets with a cost of $287,430 and $232,599 are collateral for
the notes.
The annual amounts of principal due for the next five years is as follows:
1997--$56,411; 1998--$50,318; 1999--$25,082; and 2000--$6,808.
12. COMMITMENTS AND CONTINGENCIES
As of December 31, 1996 and October 24, 1997, MERCER's cash balance had
$100,000 of FDIC insurance and is at one bank.
F-67
<PAGE>
MERCER EQUIPMENT COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
As of October 24, 1997, MERCER leased all of its facilities from a limited
liability company (LLC) whose members own 72% of MERCER's outstanding stock.
The leases provided for initial terms of five to seven years; two of the
leases provide for annual cost of living increases and have renewal options of
five years. MERCER is also responsible for the property taxes, insurance, and
repairs (see Note 13). In connection with the sale of MERCER's common stock
(see Note 16), the leases were rewritten to provide for an initial term of ten
years with two five-year options. The leases provide for minimum rentals of
$28,000 per month, after five years, minimum rents will be adjusted for
changes in the Consumer Price Index. MERCER has also guaranteed debt of
approximately $2,000,000 that the LLC has borrowed against the buildings.
MERCER had a stock repurchase agreement with two stockholders, each owning
30,000 shares of the outstanding Class B common stock. Among other provisions,
the stock repurchase agreement allows MERCER first refusal on a sale of such
shares at no less than the book value per share of the stock. At December 31,
1996 the minimum purchase price under this plan was $1,121,950. MERCER had a
salary continuation agreement with the same two stockholders. MERCER has
agreed to pay these stockholders' beneficiaries an amount equal to twice the
prior year's wages. This amount is payable over 24 months, and at December 31,
1996, the potential obligation under the salary continuation plan was
$672,672. In connection with the Purchase of MERCER's common stock both of
these agreements were canceled. (See Note 16)
13. RELATED PARTIES
At December 31, 1996 and October 24, 1997, other assets includes rental
deposits of $42,889 and $42,889, respectively, with the LLC described in Note
12. For the years ended December 31, 1995 and 1996 and for the period from
January 1, 1997 to October 24, 1997, MERCER paid building rentals to the LLC
of $149,500, $278,000 and $273,000, respectively.
For the years ended December 31, 1995 and 1996 and for period from January
1, 1997 to October 24, 1997, MERCER paid interest of $17,808, $15,672 and
$14,576, respectively to stockholders on the notes payable--individuals.
14. PROFIT-SHARING PLAN
MERCER has adopted a profit-sharing plan that covers substantially all
employees and provides for discretionary employer and voluntary employee
contributions. For the years ended December 31, 1995, and 1996, and for the
period from January 1, 1997 to October 24, 1997, no profit-sharing
contribution was made. For the years ended December 31, 1995, and 1996, and
for the period from January 1, 1997 to October 24, 1997, MERCER made matching
payments of $21,969, $14,777, and $24,287, respectively under Section 401(k)
of the Internal Revenue Code of 1986.
15. CHANGE IN ACCOUNTING ESTIMATE
In 1996 MERCER changed the depreciable life and estimated salvage value of
its rental equipment purchased after December 31, 1995 from 60 months to 50
months and from 28% to 50%. The effect of these changes in estimated life and
salvage value was to decrease depreciation on rental equipment by $58,859.
16. SUBSEQUENT EVENT
On October 24, 1997, United Rentals, Inc. purchased all of MERCER's issued
and outstanding common stock.
F-68
<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, 1995 and 1996 and
October 19, 1997 and the related consolidated statements of operations,
stockholders' equity, and cash flows for the years ended October 31, 1995 and
1996, and the period from November 1, 1996 to October 19, 1997. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of A&A Tool
Rentals & Sales, Inc. and subsidiary as of October 31, 1995 and 1996 and
October 19, 1997 and the results of their operations and their cash flows for
the years ended October 31, 1995 and 1996, and the period from November 1,
1996 to October 19, 1997, in conformity with generally accepted accounting
principles.
/s/ KPMG Peat Marwick LLP
Sacramento, California
November 20, 1997
F-69
<PAGE>
A & A TOOL RENTALS & SALES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
OCTOBER 31,
--------------------- OCTOBER 19, JULY 31,
1995 1996 1997 1997
---------- ---------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Cash............................ $ 336,304 $ 308,331 $ 108,327 $ 187,082
Trade accounts receivable, less
allowance for doubtful accounts
of $85,000 at October 31, 1995,
$80,000 at October 31, 1996 and
at October 19, 1997, and
$94,608 at July 31, 1997
(notes 2 and 3)................ 1,360,476 1,416,142 1,415,775 1,324,684
Merchandise inventory........... 750,556 847,035 862,200 906,969
Rental equipment, primarily ma-
chinery, at cost, net of accu-
mulated depreciation and amor-
tization of $5,388,046 at Octo-
ber 31, 1995, $5,909,751 at Oc-
tober 31, 1996, $6,822,441 at
October 19, 1997, and
$6,727,264 at July 31, 1997
(notes 2 and 3)................ 2,136,948 3,190,093 2,780,854 3,133,863
Operating property and equip-
ment, net of accumulated depre-
ciation and amortization of
$967,822 at October 31, 1995,
$912,230 at October 31, 1996,
$955,007 at October 19, 1997,
and $975,498 at July 31, 1997
(notes 2 and 3)................ 356,336 384,759 281,593 306,415
Due from related party (note
5)............................. 229,485 228,737 332,613 316,364
Prepaid expenses and other as-
sets........................... 183,681 234,976 303,553 152,251
---------- ---------- ---------- ----------
Total assets................ $5,353,786 $6,610,073 $6,084,915 $6,327,628
========== ========== ========== ==========
LIABILITIES AND STOCKHOLDERS'
EQUITY
Short-term debt (note 2)........ $1,679,244 $ 90,400 $ 449,670 $ 484,700
Accounts payable................ 705,460 766,465 1,040,494 703,583
Accrued liabilities............. 235,258 244,938 203,709 221,763
Income tax payable.............. -- 6,019 12,262 2,992
Long-term debt and capital lease
obligations (note 3)........... 1,723,384 4,351,394 3,463,807 3,868,069
---------- ---------- ---------- ----------
Total liabilities........... 4,343,346 5,459,216 5,169,942 5,281,107
---------- ---------- ---------- ----------
Commitments (notes 6 and 9).....
Stockholders' equity:
Common stock, Class A--voting
par value $.10. Authorized
2,000,000 shares; issued and
outstanding 720,000 shares... 72,000 72,000 72,000 72,000
Common stock, Class B--nonvot-
ing. Authorized 5,000,000
shares; issued and outstand-
ing 335,586 shares at October
31, 1995, 277,172 shares at
October 31, 1996, 272,491
shares at October 19, 1997,
and 275,242 shares at July
31, 1997..................... 457,813 395,201 378,714 393,058
Retained earnings............. 480,627 683,656 464,259 581,463
---------- ---------- ---------- ----------
Total stockholders' equity.. 1,010,440 1,150,857 914,973 1,046,521
---------- ---------- ---------- ----------
Total liabilities and
stockholders' equity....... $5,353,786 $6,610,073 $6,084,915 $6,327,628
========== ========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-70
<PAGE>
A & A TOOL RENTALS & SALES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD FROM
NOVEMBER 1, NINE MONTHS
YEAR ENDED OCTOBER 31, 1996 TO ENDED JULY 31,
------------------------ OCTOBER 19, ----------------------
1995 1996 1997 1996 1997
----------- ----------- ----------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Equipment rentals..... $ 4,800,767 $ 5,918,148 $6,022,196 $4,165,881 $4,501,537
New equipment sales... 4,283,294 4,463,117 4,355,965 3,310,409 3,228,472
Sales of parts, sup-
plies and rent-
al equipment......... 848,193 1,027,943 778,141 824,910 657,572
Other................. 237,205 296,926 290,140 198,144 215,542
----------- ----------- ---------- ---------- ----------
Total revenues.......... 10,169,459 11,706,134 11,446,442 8,499,344 8,603,123
----------- ----------- ---------- ---------- ----------
Costs of Revenues:
Cost of equipment
rentals, excluding
equipment rental de-
preciation and
amortization......... 2,049,172 2,542,965 2,583,884 1,976,183 2,097,280
Depreciation and amor-
tization, equipment
rentals.............. 1,040,233 1,382,048 1,465,586 902,347 1,193,986
Cost of new equipment
sales................ 4,054,467 4,304,301 4,148,874 3,234,457 3,016,957
Cost of sales of
parts, supplies, and
equipment............ 598,545 622,956 595,424 330,714 296,725
Other................. 38,358 32,582 31,339 24,337 33,115
----------- ----------- ---------- ---------- ----------
Total costs of
revenues............... 7,780,775 8,884,852 8,825,107 6,468,038 6,638,063
----------- ----------- ---------- ---------- ----------
Gross Profit............ 2,388,684 2,821,282 2,621,335 2,031,306 1,965,060
Selling, general and
administration....... 2,063,730 2,215,936 2,178,383 1,614,263 1,696,104
Non-rental
depreciation and
amortization......... 107,390 120,757 124,648 88,896 95,171
----------- ----------- ---------- ---------- ----------
Operating income
(loss)................. 217,564 484,589 318,304 328,147 173,785
Other income
(expense)............ 50,090 116,539 80,080 61,119 105,777
----------- ----------- ---------- ---------- ----------
Income before interest
and taxes.............. 267,654 601,128 398,384 389,266 279,562
----------- ----------- ---------- ---------- ----------
Interest income....... 56,053 54,993 39,967 51,898 34,590
Interest expense...... (324,957) (401,204) (642,478) (264,613) (410,345)
----------- ----------- ---------- ---------- ----------
Net interest
expense............ (268,904) (346,211) (602,511) (212,715) (375,755)
----------- ----------- ---------- ---------- ----------
Income (loss) before
income taxes........... (1,250) 254,917 (204,127) 176,551 (96,193)
Income tax expense
(note 4)............. (1,600) (7,619) (15,270) (1,600) (6,000)
----------- ----------- ---------- ---------- ----------
Income (loss) from
continuing operations.. (2,850) 247,298 (219,397) 174,951 (102,193)
Loss from operation of
discontinued
subsidiary (note 1).. (55,929) -- -- -- --
Loss from disposal of
discontinued
subsidiary (note 1).. -- (44,269) -- (16,318) --
----------- ----------- ---------- ---------- ----------
Net income (loss)....... $ (58,779) $ 203,029 $ (219,397) $ 158,633 $ (102,193)
=========== =========== ========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-71
<PAGE>
A & A TOOL RENTALS & SALES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON COMMON
STOCK STOCK
CLASS A CLASS B
--------------- ----------------- RETAINED
SHARES AMOUNT SHARES AMOUNT EARNINGS TOTAL
------- ------- ------- -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balances at October 31,
1994................... 720,000 $72,000 363,433 $487,609 $539,406 $1,099,015
Purchase Class B common
stock from ESOP........ -- -- (27,847) (29,796) -- (29,796)
Net loss................ -- -- -- -- (58,779) (58,779)
------- ------- ------- -------- -------- ----------
Balances at October 31,
1995................... 720,000 72,000 335,586 457,813 480,627 1,010,440
Purchase Class B common
stock from ESOP........ -- -- (58,414) (62,612) -- (62,612)
Net income.............. -- -- -- -- 203,029 203,029
------- ------- ------- -------- -------- ----------
Balances at October 31,
1996................... 720,000 72,000 277,172 395,201 683,656 1,150,857
Purchase Class B common
stock from ESOP........ -- -- (4,681) (16,487) -- (16,487)
Net loss................ -- -- -- -- (219,397) (219,397)
------- ------- ------- -------- -------- ----------
Balances at October 19,
1997................... 720,000 $72,000 272,491 $378,714 $464,259 $ 914,973
======= ======= ======= ======== ======== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-72
<PAGE>
A & A TOOL RENTALS & SALES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM
YEAR ENDED OCTOBER 31, NOVEMBER 1, 1996 NINE MONTHS ENDED JULY 31,
------------------------ TO OCTOBER 19, --------------------------
1995 1996 1997 1996 1997
----------- ----------- ---------------- ----------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM
OPERATING ACTIVITIES:
Net income (loss)...... $ (58,779) $ 203,029 $ (219,397) $ 158,633 $ (102,193)
Adjustments to recon-
cile net income (loss)
to net cash provided
by operating activi-
ties:
Depreciation and
amortization.......... 1,147,623 1,502,805 1,590,234 991,243 1,289,157
Provision for bad
debts................. 71,600 96,216 73,894 52,515 59,985
Provision for write-
down of inventory..... 31,709 -- 35,403 -- 35,403
Gain on sale of equip-
ment.................. (213,049) (364,504) (220,017) (196,325) (167,944)
Changes in operating
assets:
(Increase) decrease
in trade accounts
receivable........... (282,115) (151,882) (73,527) (190,069) 31,473
(Increase) decrease
in related party re-
ceivables............ (54,741) 748 (103,876) (30,385) (87,627)
(Increase) decrease
in merchandise in-
ventory.............. 38,955 (96,479) (50,568) (348,187) (95,337)
(Increase) decrease
in prepaid expenses
and other assets..... (29,102) 10,934 (174,821) (42,445) (50,309)
Increase (decrease)
in accounts payable,
trade................ 18,196 61,005 274,029 114,982 (62,882)
Increase (decrease)
in accrued liabili-
ties................. 52,801 9,680 (41,229) (39,228) (23,175)
Decrease in deferred
revenue.............. (4,440) -- -- -- --
Increase (decrease)
in income tax pay-
able................. -- 6,019 6,243 -- (3,027)
----------- ----------- ---------- ----------- ----------
Net cash provided by
operating
activities.......... 718,658 1,277,571 1,096,368 470,734 823,524
----------- ----------- ---------- ----------- ----------
CASH FLOWS FROM
INVESTING ACTIVITIES:
Proceeds from the sale
of rental equipment
and operating property
and equipment......... 277,390 469,489 348,374 245,232 213,013
Purchases of rental
equipment and operat-
ing property
and equipment......... (1,620,011) (2,689,358) (1,206,186) (2,042,083) (1,199,652)
Proceeds from sale of
marketable securi-
ties.................. 4,954 2,514 -- 2,514 --
----------- ----------- ---------- ----------- ----------
Net cash used in
investing
activities.......... (1,337,667) (2,217,355) (857,812) (1,794,337) (986,639)
----------- ----------- ---------- ----------- ----------
CASH FLOWS FROM
FINANCING ACTIVITIES:
Borrowings on long-term
debt.................. 788,967 3,062,482 855,435 3,224,342 828,345
Payments on long-term
debt.................. (574,595) (1,121,435) (1,743,022) (572,655) (1,311,670)
Net borrowings (pay-
ments) on short-term
debt.................. 513,771 (901,881) 359,270 (1,553,999) 394,300
Premiums paid for offi-
cers' life insurance.. (60,042) (64,743) (93,756) (50,799) (66,966)
Drawings on cash sur-
render value of offi-
cers' life insurance.. -- -- 200,000 -- 200,000
Purchase of Class B
common stock.......... (29,796) (62,612) (16,487) (59,590) (2,143)
----------- ----------- ---------- ----------- ----------
Net cash provided by
(used in) financing
activities.......... 638,305 911,811 (438,560) 987,299 41,866
----------- ----------- ---------- ----------- ----------
Net increase (de-
crease) in cash..... 19,296 (27,973) (200,004) (336,304) (121,249)
Cash at beginning of
period................. 317,008 336,304 308,331 336,304 308,331
----------- ----------- ---------- ----------- ----------
Cash at end of period... $ 336,304 $ 308,331 $ 108,327 $ -- $ 187,082
=========== =========== ========== =========== ==========
SUPPLEMENTAL SCHEDULE OF
CASH FLOW INFORMATION:
Cash paid during the
period for:
Interest............... $ 324,957 $ 401,204 $ 516,307 $ 264,613 $ 410,345
=========== =========== ========== =========== ==========
Income taxes........... $ 1,600 $ 1,600 $ 4,606 $ 1,600 $ 10,627
=========== =========== ========== =========== ==========
NONCASH INVESTING AND
FINANCING ACTIVITIES:
Sale of property and
equipment for
promissory note....... $ 10,000 $ -- $ -- $ -- $ --
=========== =========== ========== =========== ==========
Conversion of short-
term debt to long-term
debt.................. $ -- $ 686,963 $ -- $ -- $ --
=========== =========== ========== =========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-73
<PAGE>
A & A TOOL RENTALS & SALES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 1995 AND 1996 AND PERIOD FROM NOVEMBER 1, 1996 TO OCTOBER 19, 1997
(THE INFORMATION AS OF JULY 31, 1997 AND FOR THE NINE MONTHS ENDED JULY 31,
1997 AND 1996 IS UNAUDITED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Organization and Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
the Company and its wholly owned subsidiary Operations Management Systems,
Inc. (OMS). The Company rents and sells construction and industrial supplies
and power equipment in Northern California. OMS marketed and sold computer
hardware and software to construction related businesses. All significant
intercompany accounts and transactions were eliminated in consolidation. The
nature of the Company's business is such that short-term obligations are
typically met by cash flow generated from long-term assets. Consequently,
consistent with industry practice, the accompanying consolidated balance
sheets are presented on an unclassified basis.
As of October 31, 1995, the Company decided to discontinue the operations of
its subsidiary, OMS. Certain assets of OMS were sold as of October 31, 1995.
The Company disposed of the remaining assets and liabilities of OMS, which
included cash, accounts receivable, inventory, property and equipment,
accounts payable and accrued liabilities, during fiscal year 1996. The Company
recognized a loss on disposal of the remaining assets. The loss from the
disposal of OMS assets was $44,269 for the year ended October 31, 1996 and
$16,318 for the nine months ended July 31, 1996. The loss from the operations
of OMS was $55,929 for the year ending October 31, 1995.
(b) Interim Financial Statements
The accompanying consolidated balance sheet at July 31, 1997 and the
consolidated statements of operations, stockholders' 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-74
<PAGE>
A & A TOOL RENTALS & SALES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Depreciation for property and equipment is taken over the asset's useful
life of 5 years, except for leasehold improvements which are amortized over 10
to 20 years.
(f) Other Assets
Other assets consist primarily of the cash surrender value of officers' life
insurance net of loans against the cash surrender value of the policies and
unbilled rental revenue. The loans outstanding were $410,000 at October 31,
1995 and 1996, and $610,000 at October 19, 1997 and July 31, 1997. The Company
is named beneficiary under the life insurance policy. Unbilled rental revenue
represents the revenue recognized on contracts over twenty-eight days, but not
billed. At October 19, 1997 unbilled rental revenue was $180,178.
(g) Income Taxes
The Company accounts for income taxes using the asset and liability method
under which deferred tax assets and liabilities are recognized for the future
tax consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax
rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled. Under the asset
and liability method, the effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.
(h) Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
(i) Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of
The Company adopted the provisions of SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of,
on November 1, 1996. This Statement requires that long-lived assets and
certain identifiable intangibles be reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future net cash flows
expected to be generated by the asset. If such assets are considered to be
impaired, the impairment to be recognized is measured by the amount by which
the carrying amount of the assets exceed the fair value of the assets. Assets
to be disposed of are reported at the lower of the carrying amount or fair
value less costs to sell. Adoption of this statement did not have a material
impact on the Company's financial position, results of operations, or
liquidity.
(j) Reclassifications
Certain amounts in the 1995 and 1996 consolidated financial statements have
been reclassified to conform to the 1997 consolidated financial statement
presentation.
(2) SHORT-TERM DEBT
As of October 31, 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
F-75
<PAGE>
A & A TOOL RENTALS & SALES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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.
In 1997, the Company had borrowed on a credit facility that allows the
Company to borrow up to $500,000 at the bank's prime rate (8.5% at October 19,
1997 and July 31, 1997) plus 2%. At October 19, 1997 and July 31, 1997, the
amounts outstanding were $449,670 and $484,700, respectively.
(3) LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS
Long-term debt and capital lease obligations consist of the following:
<TABLE>
<CAPTION>
OCTOBER 31,
--------------------- OCTOBER 19, JULY 31,
1995 1996 1997 1997
---------- ---------- ----------- -----------
(UNAUDITED)
<S> <C> <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 $851,741 $989,334
American Equipment Leasing--
Various leases with combined
monthly payments of $24,149
including interest ranging
from 11.5% to 12%, due from
1997 through 1998.
Collateralized by
equipment................... 351,766 510,567 377,619 381,122
Atlas Copco, Inc.--Various
notes with a combined
monthly payment of $22,212
including interest ranging
from 8.5% to 12.36%, due
from 1996 through 1998.
Collateralized by
equipment................... 190,310 352,446 257,875 323,727
Clark Equipment Credit Co.--
Various notes with a
combined monthly payment of
$3,546 including interest
ranging from 8.7% to 12.39%,
due from 1996 through 1999.
Collateralized by
equipment................... 236,363 105,889 39,083 45,433
Ingersoll-Rand--One note with
a monthly payment of $3,254
including interest at 9.75%,
due in 1999. Collateralized
by equipment................ -- 91,121 52,069 61,832
Prospect Leasing--Two leases
with a combined monthly
payment of $1,798 including
interest at 10%, due in
1998. Collateralized by
equipment................... -- 36,364 18,712 24,106
</TABLE>
F-76
<PAGE>
A & A TOOL RENTALS & SALES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
OCTOBER 31,
--------------------- OCTOBER 19, JULY 31,
1995 1996 1997 1997
---------- ---------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
CURRENT PAYOR AND TERMS--
(CONTINUED)
Miller Electric Finance--Two
notes with a combined monthly
payment of $3,964 including
interest ranging from 10.25%
to 11.3%, due in 1999.
Collateralized by equipment.. -- 72,746 89,813 101,704
The Associates--Various notes
and leases with a combined
monthly payment of $35,365
including interest ranging
from 9% to 13.5%, due from
1996 through 2000.
Collateralized by equipment.. 609,507 924,064 1,002,327 1,175,627
JI Case Credit Corporation--
Three notes with combined
monthly payments of $14,428
including interest ranging
from 6.9% to 8.2%, due from
1997 through 2000.
Collateralized by equipment.. 268,365 515,184 349,235 346,540
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 3,540 6,195
Caterpillar Financial
Services--Various notes with
a combined monthly payment of
$12,279 including interest
ranging from 9.4% to 11.3%,
due from 1998 through 2001.
Collateralized by equipment.. 65,842 546,420 458,438 493,833
Colonial Pacific Leasing--One
note with a monthly payment
of $1,323 including interest
at 10%, due in 1997.
Collateralized by equipment.. 21,171 5,293 -- --
Newcourt Financial--Two notes
with a combined monthly
payment of $4,207 including
interest ranging from 10% to
11%, due in 1998 and 2001.
Collateralized by equipment.. 50,638 196,194 148,508 158,329
Other......................... 30,730 80,773 62,181 105,030
---------- ---------- ---------- ----------
Total long-term debt.......... 1,926,699 4,833,702 3,711,141 4,212,812
Less amounts representing
interest..................... 203,315 482,308 247,334 344,743
---------- ---------- ---------- ----------
Long-term debt, net of
interest..................... $1,723,384 $4,351,394 $3,463,807 $3,868,069
========== ========== ========== ==========
</TABLE>
Subsequent to October 19, 1997, all amounts outstanding under the long-term
debt agreements and capital lease agreements were paid except for $18,546
which is scheduled for payment in fiscal year 1998.
F-77
<PAGE>
A & A TOOL RENTALS & SALES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(4) INCOME TAXES
Income tax expense consists of the following:
<TABLE>
<CAPTION>
PERIOD FROM
YEAR ENDED NOVEMBER 1, NINE MONTHS
OCTOBER 31, 1996 TO ENDED JULY 31,
------------- OCTOBER 19, ---------------
1995 1996 1997 1996 1997
------ ------ ----------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Current............................ $1,600 $7,619 $15,270 $ 1,600 $ 6,000
Deferred........................... -- -- -- -- --
------ ------ ------- ------- -------
$1,600 $7,619 $15,270 $ 1,600 $ 6,000
====== ====== ======= ======= =======
</TABLE>
Deferred tax assets and deferred tax liabilities are comprised of the
following:
<TABLE>
<CAPTION>
OCTOBER 31,
-------------------- OCTOBER 19, JULY 31,
1995 1996 1997 1997
--------- --------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Current deferred tax assets:
Allowance for bad debts..... $ 36,800 $ 34,600 $ 34,600 $ 41,000
Inventory reserve........... 13,800 -- 6,600 --
Noncurrent deferred tax
assets:
Depreciation and
amortization expense....... 12,700 12,000 14,000 11,300
Net operating loss.......... 285,400 188,300 236,800 198,800
Alternative minimum taxes... 12,300 25,500 39,000 29,900
--------- --------- --------- ---------
Total deferred tax assets... 361,000 260,400 331,000 281,000
Less: Valuation allowance... (361,000) (260,400) (331,000) (281,000)
--------- --------- --------- ---------
Total deferred tax assets... -- -- -- --
Total deferred tax
liabilities................ -- -- -- --
--------- --------- --------- ---------
Net deferred tax
asset/liability.......... $ -- $ -- $ -- $ --
========= ========= ========= =========
</TABLE>
The effective rate for income tax expense differs from the statutory tax
rate of 34% when applied to income (loss) from continuing operations before
income taxes as a result of the following:
<TABLE>
<CAPTION>
OCTOBER 31,
------------ OCTOBER 19, JULY 31,
1995 1996 1997 1997
----- ----- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Expected U.S. Federal income tax...... (34%) 34% (34%) (34%)
State franchise tax, net.............. 128% 1% -- 2%
Net operating loss carryforward....... -- (34%) -- --
Effect of valuation allowance......... 34% -- 34% 34%
Alternative minimum tax............... -- 2% 7% 4%
----- ----- --- ----
Total............................. 128% 3% 7% 6%
===== ===== === ====
</TABLE>
F-78
<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, 1995 and 1996 and the period from November 1, 1996 to October 19, 1997 was
an increase of $8,000, a decrease of $100,600 and an increase of $70,600,
respectively.
(5) RELATED PARTY TRANSACTIONS
Building
The Company leased its Stockton, California premises from officers and
stockholders of the Company. The Company executed a new five year lease on
June 1, 1993 with monthly rent of $21,500. On October 20, 1997, this lease was
amended for an additional five years with monthly rent of $17,000. In
addition, the Company as lessee is to pay all taxes and insurance relating to
the property. At October 19, 1997, the remaining commitment under this lease,
as amended, is $1,020,000 plus property taxes and insurance.
Due From Related Party
Due from related party comprise the following:
<TABLE>
<CAPTION>
OCTOBER 31,
----------------- OCTOBER 19, JULY 31,
DUE FROM 1995 1996 1997 1997
-------- -------- -------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
President and shareholder.......... $206,296 $228,737 $317,613 $316,364
Vice president and shareholder..... 23,189 -- 15,000 --
-------- -------- -------- --------
$229,485 $228,737 $332,613 $316,364
======== ======== ======== ========
</TABLE>
The amounts due from related parties were paid subsequent to October 19,
1997.
(6) OPERATING LEASES
The Company leases vehicles from various unrelated companies through 1999.
The vehicle leases, as well as the lease for the Company's business premises,
are classified as operating leases. At October 19, 1997, future minimum lease
payments under the operating leases including amounts amended as discussed in
note (5) are:
<TABLE>
<CAPTION>
YEAR ENDING OCTOBER 31
----------------------
<S> <C>
1998............................................................ $ 442,636
1999............................................................ 305,036
2000............................................................ 204,000
2001............................................................ 204,000
2002............................................................ 204,000
----------
$1,359,672
==========
</TABLE>
Operating lease expense aggregated $520,210, $533,619 and $501,473 in 1995,
1996 and for the period from November 1, 1996 to October 19, 1997,
respectively, and $167,032 and $359,378 for the nine months ended July 31,
1996 and 1997, respectively.
(7) EMPLOYEE STOCK OWNERSHIP PLAN
Effective October 31, 1972, the Company established an Employee Stock
Ownership Plan (ESOP) for the benefit of its eligible employees. The ESOP is
designed to invest primarily in the stock of the Company. Contributions to the
ESOP are determined annually by the Board of Directors, however, in no case
may the
F-79
<PAGE>
A & A TOOL RENTALS & SALES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
contribution exceed the lesser of (a) fifteen percent (15%) of the
compensation of eligible employees, or (b) $30,000 for each participant. No
contributions were made in the years ended October 31, 1995 and 1996 or the
period from November 1, 1996 to October 19, 1997.
The ESOP measures compensation for Plan purposes as the Company's
contribution to the Plan. No compensation cost was recognized by the Plan for
the years ended October 31, 1995 and 1996, or the period from November 1, 1996
to October 19, 1997.
The ESOP held 335,586, 277,172, 272,491 and 275,242 allocated shares at
October 31, 1995 and 1996, October 19, 1997, and July 31, 1997, respectively.
No committed-to-be-released or suspense shares were held by the ESOP at
October 31, 1995 and 1996, October 19, 1997, or at July 31, 1997.
Following termination of employment, participants receive a distribution of
their vested ESOP account balance in the form of cash or Company shares in
accordance with the provisions of the ESOP. If shares are distributed to the
participant, the participant has the right to sell the shares back to the
Company, for a limited period of time, at the fair market value of the shares.
(8) PROFIT SHARING PLAN
In August 1995, the Company established a Profit Sharing/401(k) Savings Plan
(Plan) under Section 401 and 501 of the Internal Revenue Code. Substantially
all employees are eligible for the Plan. Yearly employer contributions to the
Plan are discretionary. Employees may also elect to contribute to the Plan.
For the years ended October 31, 1995 and 1996, and the period from November 1,
1996 to October 19, 1997, the Company contributed $8,245, $27,422, and
$27,064, respectively to the Plan and $19,780 and $19,779 for the nine months
ended July 31, 1996 and 1997.
(9) COMMITMENTS
Litigation, contingent liabilities, and claims, all arising in the ordinary
course of business, are not expected to involve any amounts that could be
material to the Company's financial position or results of operations.
(10) SUBSEQUENT EVENT
On October 17, 1997, the Company entered into a stock purchase agreement
with United Rentals, Inc. (United). The transaction closed on October 20, 1997
and under the terms of the stock purchase agreement, United purchased all of
the issued and outstanding common stock of the Company.
F-80
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Stockholders
J & J Rental Services, Inc.
We have audited the balance sheets of the predecessor companies to J & J
Rental Services, Inc. (see Note 1) as of December 31, 1996 and for J&J Rental
Services, Inc. as of October 22, 1997 and the related statements of income,
stockholders' equity and partners' capital and cash flows for each of the two
years in the period ended December 31, 1996, the six months ended June 30,
1997 and for the period from July 1, 1997 to October 22, 1997. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of the predecessor companies
to J & J Rental Services, Inc. at December 31, 1996, and for J&J Rental
Services, Inc. as of October 22, 1997 and the results of their operations and
their cash flows for each of the two years in the period ended December 31,
1996, the six months ended June 30, 1997 and for the period from July 1, 1997
to October 22, 1997 in conformity with generally accepted accounting
principles.
/s/ Ernst & Young LLP
MetroPark, New Jersey
January 23, 1998
F-81
<PAGE>
J & J RENTAL SERVICES, INC.
BALANCE SHEETS
(NOTE 1)
<TABLE>
<CAPTION>
PREDECESSORS COMPANY
------------ -----------
DECEMBER 31, OCTOBER 22,
1996 1997
------------ -----------
<S> <C> <C>
ASSETS
Cash................................................. $ 666,153 $ 1,431,287
Accounts receivable, net of allowance for doubtful
accounts of $428,270, and $226,273 at 1996 and 1997,
respectively........................................ 1,502,119 1,470,608
Trade notes receivable, net of allowance for doubtful
accounts of $93,337 at 1996......................... 37,081
Rental equipment, net................................ 6,669,365 7,961,850
Property and equipment, net.......................... 467,460 319,219
Investments in marketable equity securities.......... 81,175
Due from Predecessor Stockholder..................... 120,000
Due from Related Party............................... 354,388
Prepaid expenses and other assets.................... 126,221 4,006
Intangible assets, net............................... 3,270,614
---------- -----------
Total assets................................... $9,669,574 $14,811,972
========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY AND PARTNERS'
CAPITAL
Liabilities:
Accounts payable................................... $ 628,252 $ 936,725
Accrued expenses................................... 336,884 360,990
Income tax payable................................. 24,814
Deferred tax liability............................. 430,000
Debt............................................... 5,766,651 14,078,932
Due to Predecessor Stockholder..................... 336,498
---------- -----------
Total liabilities.............................. 7,523,099 15,376,647
Commitments and contingencies
Stockholders' equity and partners' capital:
Stockholder's equity--J & J Equipment, Inc.
Common stock, $1.00 par value, 50,000 shares
authorized, issued and outstanding.............. 50,000
Unrealized gain on marketable equity securities.. 1,165
Retained earnings................................ 981,955
----------
1,033,120
Partners' capital--Tri-Star Rentals, Ltd........... 1,113,355
----------
Stockholders' equity--J & J Rental Services, Inc.
Common stock, no par value, 1,000,000 shares au-
thorized, 77,500 shares issued and outstanding.. 1,000
Accumulated deficit.............................. (565,675)
-----------
Total stockholders' equity (deficit) and partners'
capital............................................. 2,146,475 (564,675)
---------- -----------
Total liabilities and stockholders' equity and
partners' capital............................... $9,669,574 $14,811,972
========== ===========
</TABLE>
See accompanying notes.
F-82
<PAGE>
J & J RENTAL SERVICES, INC.
STATEMENTS OF INCOME
(NOTE 1)
<TABLE>
<CAPTION>
PREDECESSORS COMPANY
------------------------------------------ ---------------
THE PERIOD FROM
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JULY 1, TO
------------------------ JUNE 30, OCTOBER 22,
1995 1996 1997 1997
----------- ----------- ---------------- ---------------
<S> <C> <C> <C> <C>
Revenues:
Equipment rentals................................................. $7,573,784 $7,769,716 $3,823,790 $2,544,233
Sales of equipment and parts...................................... 1,810,400 1,243,297 573,450 129,963
----------- ----------- ---------- ----------
Total revenues.................................................. 9,384,184 9,013,013 4,397,240 2,674,196
Cost of revenues:
Cost of revenues, excluding depreciation.......................... 3,906,336 3,544,040 1,629,299 1,363,085
Depreciation, equipment rentals................................... 2,048,619 2,389,929 1,171,685 359,672
Cost of revenues of equipment and parts........................... 898,190 452,522 326,847 46,653
----------- ----------- ---------- ----------
Total cost of revenues.......................................... 6,853,145 6,386,491 3,127,831 1,769,410
----------- ----------- ---------- ----------
Gross profit........................................................ 2,531,039 2,626,522 1,269,409 904,786
Selling, general and administrative expenses........................ 1,840,973 1,521,562 713,488 786,907
Non-rental depreciation............................................. 125,004 123,971 78,643 7,629
----------- ----------- ---------- ----------
Operating income................................................ 565,062 980,989 477,278 110,250
Interest expense.................................................... 411,731 478,341 180,769 378,231
Other (income), net................................................. (45,103) (27,523) (11,418) (26,306)
----------- ----------- ---------- ----------
Income (loss) before provision for income taxes................. 198,434 530,171 307,927 (241,675)
Provision for income taxes.......................................... 35,678 49,685 98,000 --
----------- ----------- ---------- ----------
Net income (loss)............................................... $ 162,756 $ 480,486 $ 209,927 $ (241,675)
- --------------------------------------------------
=========== =========== ========== ==========
</TABLE>
See accompanying notes.
F-83
<PAGE>
J & J RENTAL SERVICES, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY AND PARTNERS' CAPITAL
(NOTE 1)
<TABLE>
<CAPTION>
UNREALIZED
(LOSS) GAIN ON
COMMON STOCK MARKETABLE RETAINED PARTNERS'
SHARES AMOUNT SECURITIES EARNINGS CAPITAL
------ ------- -------------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Predecessors:
Balance at January 1,
1995................... 50,000 $50,000 $(6,500) $ 796,096 $ 927,272
Net income.............. 75,762 86,994
Distributions paid to
partners............... (169,741)
Unrealized gain on
marketable securities.. 9,250
------ ------- ------- ---------- ---------
Balance at December 31,
1995................... 50,000 50,000 2,750 871,858 844,525
Net income.............. 110,097 370,389
Distributions paid to
partners............... (101,559)
Unrealized loss on
marketable securities.. (1,585)
------ ------- ------- ---------- ---------
Balance at December 31,
1996................... 50,000 50,000 1,165 981,955 1,113,355
Net income (loss) from
January 1, 1997 to June
30, 1997............... 311,262 (101,335)
Distributions paid to
partners............... (50,500)
------ ------- ------- ---------- ---------
Balance at June 30,
1997................... 50,000 $50,000 $ 1,165 $1,293,217 $ 961,520
====== ======= ======= ========== =========
Company:
Issuance of common
stock.................. 77,500 $ 1,000
Net loss from July 1,
1997 to October 22,
1997................... $ (241,675)
Basis adjustment........ (324,000)
------ ------- ------- ---------- ---------
Balance at October 22,
1997................... 77,500 $ 1,000 $ (565,675)
====== ======= ======= ========== =========
</TABLE>
See accompanying notes.
F-84
<PAGE>
J & J RENTAL SERVICES, INC.
STATEMENTS OF CASH FLOWS
(NOTE 1)
<TABLE>
<CAPTION>
PREDECESSORS COMPANY
------------------------------------ -----------
THE PERIOD
SIX MONTHS FROM JULY 1
YEAR ENDED DECEMBER 31, ENDED TO
------------------------ JUNE 30, OCTOBER 22,
1995 1996 1997 1997
----------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)......................................................... $ 162,756 $ 480,486 $ 209,927 $ (241,675)
Adjustments to reconcile net income to net cash provided by (used in) op-
erating activities:
Depreciation and amortization............................................. 2,173,623 2,513,900 1,250,328 396,823
Bad debt expense (recovery)............................................... 128,092 (57,621) 7,214 226,273
Gain on sale of rental equipment.......................................... (396,704) (369,379) (210,390) (43,878)
Gain on sale of property and equipment.................................... (2,809) (6,591) -- --
Deferred taxes............................................................ 23,000 12,000 -- --
Changes in assets and liabilities:
Increase in accounts receivable.......................................... (64,895) (10,430) (512,942) (1,696,881)
(Increase) decrease in trade notes receivable............................ (170,337) 39,859 37,081 --
Increase in prepaid expenses and other assets............................ (31,561) (84,918) (26,028) (4,006)
Increase (decrease) in accounts payable.................................. 46,476 (41,052) 372,230 936,725
Increase in accrued expenses............................................. 53,632 1,919 123,765 360,990
Increase in income tax payable........................................... 7,613 17,201 73,186 --
Increase in Related Party receivable..................................... (354,388)
----------- ----------- ---------- ----------
Cash provided by (used in) operating activities......................... 1,928,886 2,495,374 1,324,371 (420,017)
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of property and equipment..................................... (270,369) (195,823) (614,414) (548,346)
Proceeds from sale of rental equipment.................................... 930,860 755,122 1,227,501 232,148
Proceeds from sale of property and equipment.............................. 24,634 74,585 -- --
Purchase of other company, net of cash acquired........................... (7,238,924)
Unrealized gain/(loss) on marketable securities........................... 9,250 (1,585) -- --
Purchase of marketable securities......................................... (9,250) (28,425) -- --
Payments on loans to Predecessor Stockholder.............................. (21,573) (73,724) (79,254) --
Proceeds received on Predecessor Stockholder loans........................ 94,857 -- 6,884 --
Loan to Predecessor Stockholder........................................... (120,000) -- -- --
----------- ----------- ---------- ----------
Cash provided by (used in) investing activities......................... 638,409 530,150 540,717 (7,555,122)
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowing under credit facilities......................................... 871,496 351,958 -- 10,000,000
Principal payments on debt................................................ (3,117,926) (3,171,213) (1,920,472) (593,574)
Distributions paid........................................................ (169,741) (101,559) (50,500) --
----------- ----------- ---------- ----------
Cash provided by (used in) financing activities......................... (2,416,171) (2,920,814) (1,970,972) 9,406,426
----------- ----------- ---------- ----------
Increase (decrease) in cash ............................................... 151,124 104,710 (105,884) 1,431,287
Cash at beginning of year.................................................. 410,319 561,443 666,153 --
----------- ----------- ---------- ----------
Cash at end of year..................................................... $ 561,443 $ 666,153 $ 560,269 $1,431,287
- --------------------------------------------------
=========== =========== ========== ==========
</TABLE>
See accompanying notes.
F-85
<PAGE>
J & J RENTAL SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1996
AND OCTOBER 22, 1997
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
J & J Rental Services, Inc. (the "Company") was formed in May 1997, and
pursuant to the terms of an Asset Purchase Agreement (the "Agreement"), on
June 30, 1997 acquired all of the rental equipment and property and equipment
from J & J Equipment, Inc. ("J & J"), and Tri-Star Rentals, Ltd. ("Tri-Star")
(collectively, the "Predecessors") and assumed all operations of the
Predecessors (the "Acquisition"). The purchase price of $10,700,000 consisted
of cash of $7,200,000 and a promissory note payable for $3,500,000. The sole
stockholder and partner of J & J and Tri-Star, respectively, (the "Predecessor
Stockholder") has, on a fully-diluted basis, a 9% ownership interest in the
outstanding common stock of the Company, and has continued in a management
role as chief operating officer.
The accompanying financial statements as of December 31, 1996 and for the
years ended December 31, 1995 and 1996, and for the six month period ended
June 30, 1997 present the accounts and results of operations of the
Predecessors on a combined, historical cost basis. Although the financial
statements of the Predecessors have been combined, the balance sheets and
statements of income and cash flows do not represent those of a single legal
entity. All significant intercompany accounts and transactions have been
eliminated in combination.
The financial statements as of October 22, 1997 and for the period from July
1 to October 22, 1997 present the accounts and results of operations of the
Company since the Acquisition.
The Acquisition has been accounted for as a purchase effective July 1, 1997
and, accordingly, at such date the Company recorded the assets acquired at
their estimated fair values, adjusted for the impact of the Predecessor
Stockholder's continuing residual interest as described below. The assets
acquired have been reduced by $324,000 representing the Predecessor
Stockholder's continuing residual interest in the Company with a corresponding
charge against the Company's retained earnings.
The adjusted purchase price and the preliminary allocation of the adjusted
purchase price to the historical assets of the Company as of July 1, 1997 are
as follows:
<TABLE>
<S> <C>
Purchase price.................................................. $10,739,000
Adjustment necessary to value Predecessor Stockholder's
continuing residual interest at Predecessor's basis............ 324,000
-----------
Adjusted purchase price......................................... $10,415,000
===========
Allocation of adjusted purchase price:
Net assets acquired, at fair values........................... $ 7,115,000
Covenant not to compete....................................... 50,000
Goodwill...................................................... 3,250,000
-----------
Total adjusted purchase price allocation.................... $10,415,000
===========
</TABLE>
Business Activity
The Company rents and sells light weight and heavy off-road construction
equipment for use by construction and maintenance companies, and has ancillary
sales of parts and supplies. The rentals are on a daily,
F-86
<PAGE>
J & J RENTAL SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
weekly or monthly basis. The Company has two locations in Houston, Texas and
its principal market area is the state of Texas. The nature of the Company's
business is such that short-term obligations are typically met by cash flow
generated from long-term assets. Consequently, consistent with industry
practice, the balance sheets are presented on an unclassified basis.
Rental Equipment
Rental equipment is recorded at cost. Depreciation for rental equipment is
computed using the straight-line method over estimated useful lives of three
to five years through June 30, 1997 and two to ten years subsequent to June
30, 1997. with no salvage value. Rental equipment costing less than $500 is
immediately expensed at the date of purchase. Equipment rental revenue is
recorded as earned under the operating method. Equipment rental revenue in the
statements of operations includes revenues earned on equipment rentals, and
related fuel sales and rental equipment delivery fees. Proceeds from the
disposal and the related net book value of the equipment are recognized in the
period of disposal and reported as revenue from rental equipment sales in the
statements of operations. Ordinary maintenance and repair costs are charged to
operations as incurred.
Property and Equipment
Property and equipment is stated at cost. Depreciation of property and
equipment is computed on the straight-line method over estimated useful lives
of 5 to 10 years.
The cost of assets sold, retired, or otherwise disposed of, and the related
accumulated depreciation is eliminated from the accounts and any resulting
gain or loss is included in operations. Ordinary maintenance and repair costs
are charged to operations as incurred.
Advertising Costs
The Company advertises primarily through trade journals, phone directories
and the distribution of promotional items. All advertising costs are expensed
as incurred. Advertising expenses amounted to approximately $40,095 and
$52,483 in the years ended December 31, 1995 and 1996, respectively, $1,297 in
the six months ended June 30, 1997, and $9,433 from July 1 to October 22,
1997.
Income Taxes
J & J applied an asset and liability approach to accounting for income
taxes. Deferred income tax assets and liabilities arise from differences
between the tax basis of an asset or liability and its reported amount in the
financial statements. Deferred tax balances are determined by using tax rates
expected to be in effect when the taxes will actually be paid or refunds
received. Under federal and state income tax law, Tri-Star, a partnership, is
not a taxable entity and, therefore, incurs no income tax liability. Any
profits and losses of Tri-Star flow through to the individual partners.
Investments
The Company's investments consist of marketable equity securities and are
classified as available for sale. Any unrealized gains or losses are excluded
from income and are presented as a component of stockholders' equity.
Intangible assets
Intangible assets are recorded at cost and consist of goodwill of $3,250,134
and covenant not to compete of $50,000. Goodwill is being amortized by the
straight-line method over its estimated useful life of forty years. The
covenant not to compete reflects an agreement made regarding confidentiality
and restricting competitive activity and is being amortized by the straight-
line method over the period of the agreement, which is 5 years. Amortization
expense was $29,520 for the period from July 1 to October 22, 1997.
F-87
<PAGE>
J & J RENTAL SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Accounting Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
2. CONCENTRATIONS OF CREDIT RISK
The Company maintains cash balances with a quality financial institution
and, accordingly, management believes this mitigates the amount of credit
risk. Concentrations of credit risk with respect to customer receivables are
limited due to the large number of customers comprising the Company's customer
base and its credit policy.
3. RENTAL EQUIPMENT
Rental equipment and related accumulated depreciation consists of the
following:
<TABLE>
<CAPTION>
DECEMBER 31, OCTOBER 22,
1996 1997
------------ -----------
<S> <C> <C>
Rental equipment.................................... $12,520,482 $8,313,840
Less accumulated depreciation....................... 5,851,117 351,990
----------- ----------
Rental equipment, net............................... $ 6,669,365 $7,961,850
=========== ==========
</TABLE>
4. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, OCTOBER 22,
1996 1997
------------ -----------
<S> <C> <C>
Transportation equipment............................ $ 763,402 $166,003
Furniture, fixtures and office equipment............ 92,082 59,760
Shop equipment...................................... 39,356
Leasehold improvements.............................. 38,386
Construction in progress............................ 101,085
--------- --------
933,226 326,848
Less accumulated depreciation....................... 465,766 7,629
--------- --------
Total............................................... $ 467,460 $319,219
========= ========
</TABLE>
F-88
<PAGE>
J & J RENTAL SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
5. DEBT
Debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, OCTOBER 22,
1996 1997
------------ -----------
<S> <C> <C>
CIT Group--Various notes dated from September 21,
1995 through August 5, 1997, with annual interest
rates ranging from 8% to 9.4% due in monthly
payments ranging from $867 to $43,987. ............. $ 1,246,231 $637,956
The Associates--Note dated April 1, 1996, with annual
interest of 8.8% due in monthly payments of
$3,609. ............................................ 110,450
Case Power & Equipment--Various notes dated from
January 1, 1992 through December 30, 1996, with
annual interest rates ranging from 5.5% to 7.9% due
in monthly payments ranging from $408 to $7,747. ... 795,344
Sterling Bank--Various notes dated from January 26,
1994 through December 20, 1996, with annual interest
rates ranging from 8% to 11% due in monthly payments
ranging from $582 to $2,084. ....................... 306,708
KDC Financial--Various notes dated from June 14, 1993
through December 31, 1996, with annual interest
rates ranging from 4.5% to 9.5% due in monthly
payments ranging from $840 to $4,691. .............. 1,443,971
John Deere Financial--Notes dated December 31, 1995
and September 10, 1996, with annual interest rates
of 7.9% and 6.9% due in monthly payments of $807 and
$1,083. ............................................ 69,247
Frost National Bank--Various notes dated from January
25, 1995 through August 15, 1995, with annual
interest rates ranging from 8.75% to 9.5% due in
monthly principal payments ranging from $582 to
$8,492. ............................................ 101,771
Citicorp--Note dated June 15, 1993, with an annual
interest rate of 5.9% due in monthly payments of
$921. .............................................. 5,433
First Prosperity Bank--Various notes dated from
September 8, 1994 through December 13, 1996, with
annual interest ranging from 7.25% through 9.9% due
in monthly payments ranging from $354 to $1,039. ... 55,139
CAT Financial--Notes dated June 2, 1995 and December
31, 1994, with annual interest rates of 9.69% and
9.5% due in monthly payments of $4,227 and
$3,036. ............................................ 152,293
CAT Financial--Notes dated October 11, 1996 and
November 25, 1996, non-interest bearing, with
monthly payments of $1,205 and $3,522. ............. 161,102
Chase/Clark Credit--Various notes dated from March
17, 1994 through September 28, 1994, with annual
interest rates ranging from 9.75% to 12.765% due in
monthly installments ranging from $194 to $1,430. .. 30,232
First Prosperity--Various notes dated from August 16,
1993 through December 13, 1996, with annual interest
rates ranging from 6.4% to 11% due in monthly
installments ranging from $423 to $4,205............ 171,518
Associates Commercial Credit Corp.--Various notes
dated from May 16, 1994 through July 8, 1996, with
annual interest rates ranging from 7.75% to 11.25%
due in monthly installments ranging from $912 to
$6,656.............................................. 246,570
</TABLE>
F-89
<PAGE>
J & J RENTAL SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31, OCTOBER 22,
1996 1997
------------ -----------
<S> <C> <C>
Ingersoll-Rand Company--Various notes dated from June
30, 1992 through September 8, 1996 with annual
interest rates ranging from 7% to 9.5% due in
monthly installments ranging from $301 to $7,794.... 316,003
Wacker Corporation--Various notes dated from January
7, 1994 through May 25, 1996, with annual interest
rates ranging from 6.25% to 10.25% due in monthly
installments ranging from $854 to $2,889............ 99,666
AEL Leasing Co., Inc.--Various notes dated from April
21, 1994 through May 20, 1996, with annual interest
rates ranging from 8.72% to 12.93% due in monthly
installments ranging from $371 to $4,883............ 261,043
AEL Leasing Co., Inc.--Various non-interest bearing
notes dated from April 21, 1994 through February 26,
1996, due in 12 principal installments ranging from
$8,022 to $18,249................................... 36,498
Shandee--Note dated August 31, 1995, with an annual
interest rate of 11.25% due in monthly installments
of $2,803........................................... 21,510
Sterling Bank--Note dated January 2, 1996, with an
annual interest rate of 9.5% due in 24 principal
installments of $4,118.............................. 53,538
Miller Financing--Various notes dated from February
15, 1996 through June 1, 1996, with annual interest
rates ranging from 9.25 % to 10.25% due in monthly
installments ranging from $375 to $2,922............ 82,384
Toyota Motor Credit Corp.--Notes dated July 12 and
August 28, 1997, with annual interest rates of 5.4%
and 6.9%, respectively, due in monthly installments
of $543 and $ 561, respectively..................... 47,460
AEL Leasing Co., Inc.--Note dated October 10, 1997
with annual interest of 9.33% due in monthly
payments of $3,345.................................. 157,807
Case Credit--Various notes dated June 30, 1997 with
an annual interest rate of 7.9% due in monthly
installments ranging from $1,685 to $2,254.......... 290,260
Case Credit--Term note dated June 30, 1997, with
interest due monthly at prime plus .75% (9.25% at
September 30, 1997). Principal is due June 30, 2002.
This note is secured by all of the Company's rental
assets and property, plant and equipment, and is
personally guaranteed by the majority owners of the
Company............................................. 7,445,449
J & J and Tri-Star--Promissory note dated June 30,
1997 with an annual interest rate of 7.5%. Principal
payments of $175,000 are due quarterly beginning
October 1, 2000..................................... 3,500,000
Equus II Incorporated--Senior subordinated note dated
June 30, 1997, with interest to be paid monthly on
the unpaid principal balance at a variable rate not
to exceed 10% (10% at September 30, 1997). Principal
is to be paid in four annual installments of
$500,000 beginning June 30, 2001.................... 2,000,000
---------- -----------
$5,766,651 $14,078,932
========== ===========
</TABLE>
Substantially all rental equipment collateralize the above notes.
All debt at October 22, 1997, except for $200,000 of the J & J and Tri-Star
note, were paid off by October 31, 1997 as a result of the acquisition
discussed in Note 10.
F-90
<PAGE>
J & J RENTAL SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
6. INCOME TAXES
The provision for income taxes relates to the operating results of J & J
before July 1, 1997 and consists of the following:
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS
DECEMBER 31, ENDED JUNE
--------------- 30,
1995 1996 1997
------- ------- ----------
<S> <C> <C> <C>
Current:
Federal............................................ $ 7,216 $32,054 $86,500
State.............................................. 5,462 5,631 11,500
------- ------- -------
12,678 37,685 98,000
Deferred:
Federal............................................ 20,300 10,600 --
State.............................................. 2,700 1,400 --
------- ------- -------
23,000 12,000 --
------- ------- -------
Total............................................ $35,678 $49,685 $98,000
======= ======= =======
</TABLE>
Tri-Star is a pass-through entity and, therefore incurs no tax liability.
Significant components of J & J's deferred tax liability at December 31, 1996
is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1996
------------
<S> <C>
Difference in basis of accounting......................... $221,000
Cumulative tax depreciation in excess of book............. 209,000
--------
Deferred tax liability $430,000
========
</TABLE>
Effective July 1, 1997, the Company and its shareholders have elected to be
taxed under the provisions of Subchapter S of the Internal Revenue Code for
federal tax purposes. Under those provisions the Company does not pay federal
income taxes; instead, the shareholders are liable for individual income taxes
on the Company's profit. Therefore, no provision for federal income taxes is
included in the Company's financial statements for the period from July 1 to
October 22, 1997.
7. SUPPLEMENTAL CASH FLOW INFORMATION
For the years ended December 31, 1995 and 1996; the six months ended June
30, 1997; and the period from July 1 to October 22, 1997, total interest paid
was $411,731 and $478,341; $180,769; and $259,705, respectively.
For the years ended December 31, 1995 and 1996; the six months ended June
30, 1997; and the period from July 1 to October 22, 1997, total income taxes
paid was $ -- and $ --; $24,814; and $ --, respectively.
During the years ended December 31, 1995 and 1996, and the six months ended
June 30, 1997, and for the period from July 1 to October 22, 1997 the Company
purchased $3,738,807, and $3,160,914; $1,172,917; and $1,172,506,
respectively, of equipment which was financed.
F-91
<PAGE>
J & J RENTAL SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
8. EMPLOYEE BENEFIT PLAN
The Predecessor sponsored a defined contribution 401(k) retirement plan,
which was implemented during 1995 and covers substantially all full time
employees. The Predecessor matched a portion of the participants'
contributions. Predecessor contributions to the plan were $9,272, $6,395, $--,
and $ -- for the years ended December 31, 1995, and 1996, for the six month
period ended June 30, 1997 and for the period from July 1 to October 22, 1997,
respectively.
9. RELATED PARTY TRANSACTIONS
On November 27, 1995, Tri-Star loaned $120,000 to the Predecessor
Stockholder. This non-interest bearing note is unsecured, and is due on
demand. The outstanding balance on this note receivable at December 31, 1996
was $120,000.
On November 30, 1995, Tri-Star issued a $100,000 note payable to the
Predecessor Stockholder, which bears interest at 11.4% per annum, requires
monthly principal and interest payments of $6,097, and is unsecured. The
outstanding balance on this note at December 31, 1996 was $79,254,
respectively.
J & J has a note payable outstanding to the Predecessor Stockholder, which
required interest to be paid quarterly at 6.5% per annum, and is due on
January 1, 1998. The outstanding balance on this note payable at December 31,
1996 was $257,244.
During the period from July 1 to October 22, 1997 the Company made payments
of $354,388 on behalf of another Company owned by the Company's Stockholder.
The Company leases its operating facilities from the Predecessor
Stockholder, and pays monthly rent of $8,600 through June 30, 1997. These
leases are month-to-month and can be canceled by either party.
10. SUBSEQUENT EVENT
On October 23, 1997, the Company entered into a stock purchase agreement
with United Rentals, Inc. ("United"). Under the terms of the stock purchase
agreement, United purchased all of the issued and outstanding capital stock of
the Company.
F-92
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
Coran Enterprises, Inc.
and
Monterey Bay Equipment Rental, Inc.
We have audited the accompanying combined statements of earnings,
stockholders' equity, and cash flows of Coran Enterprises, Inc., dba A-1
Rents, and Monterey Bay Equipment Rental, Inc. for the years ended
December 31, 1995 and 1996. We have also audited the combined statement of
earnings, stockholders' equity, and cash flows for the period January 1, 1997
through October 24, 1997. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the combined results of operations and combined cash
flows of Coran Enterprises, Inc. dba A-1 Rents, and Monterey Bay Equipment
Rental, Inc. for the years ended December 31, 1995 and 1996, and also for the
period January 1, 1997 through October 24, 1997 in conformity with generally
accepted accounting principles.
/s/ Grant Thornton LLP
San Jose, California
January 21, 1998
F-93
<PAGE>
CORAN ENTERPRISES, INC.
DBA A-1 RENTS AND
MONTEREY BAY EQUIPMENT RENTAL, INC.
COMBINED STATEMENTS OF EARNINGS
<TABLE>
<CAPTION>
PERIOD
JANUARY 1,
1997
YEAR ENDED DECEMBER 31, THROUGH
----------------------- OCTOBER 24,
1995 1996 1997
----------- ----------- -----------
<S> <C> <C> <C>
Revenues:
Equipment rentals........................ $ 6,962,130 $ 7,679,713 $6,743,497
Sales of parts, supplies and rental
equipment............................... 565,586 738,330 974,713
----------- ----------- ----------
Total revenues......................... 7,527,716 8,418,043 7,718,210
Costs
Cost of equipment rentals................ 3,835,982 4,254,243 3,764,346
Rental equipment depreciation............ 611,577 1,304,847 1,328,193
Cost of sales of supplies................ 200,746 257,500 204,248
Other.................................... 49,523 115,758 53,590
----------- ----------- ----------
Total costs............................ 4,697,828 5,932,348 5,350,377
----------- ----------- ----------
Gross margin........................... 2,829,888 2,485,695 2,367,833
Selling, general and administrative........ 1,786,650 2,062,246 1,768,439
Non-rental depreciation.................... 28,435 17,202 15,370
----------- ----------- ----------
Operating Income....................... 1,014,803 406,247 584,024
Interest expense........................... 21,120 96,464 170,183
----------- ----------- ----------
Earnings before income taxes........... 993,683 309,783 413,841
Provision for income taxes................. 12,275 8,221 276,383
----------- ----------- ----------
Net earnings............................. $ 981,408 $ 301,562 $ 137,458
=========== =========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
F-94
<PAGE>
CORAN ENTERPRISES, INC.
DBA A-1 RENTS AND
MONTEREY BAY EQUIPMENT RENTAL, INC.
COMBINED STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
SHARES ISSUED
-------------
CEI MBERI
------ ------ ADDITIONAL
$1 PAR NO PAR COMMON PAID-IN RETAINED
VALUE VALUE STOCK CAPITAL EARNINGS TOTAL
------ ------ -------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1,
1995................... 75,000 10,000 $275,000 $37,920 $1,691,541 $2,004,461
Net earnings.......... -- -- -- -- 981,408 981,408
------ ------ -------- ------- ---------- ----------
Balance at December 31,
1995................... 75,000 10,000 275,000 37,920 2,672,949 2,985,869
Net earnings.......... -- -- -- -- 301,562 301,562
Dividends paid to
stockholders......... -- -- -- -- (750,000) (750,000)
------ ------ -------- ------- ---------- ----------
Balance at December 31,
1996................... 75,000 10,000 275,000 37,920 2,224,511 2,537,431
Net earnings January
1, 1997 through
October 24, 1997..... -- -- -- -- 137,458 137,458
Dividends paid to
stockholders......... -- -- -- -- (781,852) (781,852)
Stock redemption...... -- (2,500) (50,000) -- (200,000) (250,000)
------ ------ -------- ------- ---------- ----------
Balance at October 24,
1997................... 75,000 7,500 $225,000 $37,920 $1,380,117 $1,643,037
====== ====== ======== ======= ========== ==========
</TABLE>
The accompanying notes are an integral part of this statement.
F-95
<PAGE>
CORAN ENTERPRISES, INC.
DBA A-1 RENTS AND MONTEREY BAY EQUIPMENT RENTAL, INC.
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD
JANUARY 1,
YEAR ENDED 1997
DECEMBER 31, THROUGH
---------------------- OCTOBER 24,
1995 1996 1997
--------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings............................. $ 981,408 $ 301,562 $ 137,458
Adjustments to reconcile net earnings to
net cash provided by operating
activities:
Depreciation and amortization............ 640,012 1,322,049 1,343,563
Gain on sale of equipment................ (85,747) (163,753) (446,621)
Change in assets and liabilities:
Accounts receivable..................... (210,091) 60,246 (61,976)
Other assets............................ 5,220 (3,108) 59,276
Accounts payable and accrued
liabilities............................ 36,638 32,355 625,287
--------- ----------- -----------
Net cash provided by operating
activities............................ 1,367,440 1,549,351 1,656,987
Cash flows from investing activities:
Purchases of rental equipment............ (633,519) (4,017,946) (315,346)
Proceeds from sale of equipment.......... 110,273 205,639 492,977
--------- ----------- -----------
Net cash provided by (used in)
investing activities.................. (523,246) (3,812,307) 177,631
Cash flows from financing activities:
Change in bank overdraft................. (15,760) -- --
Borrowings on equipment loans............ 244,235 1,096,820 --
Payments on equipment loans.............. (46,853) (158,893) (42,649)
Payment of dividends..................... -- (750,000) (781,853)
Stock redemption......................... -- -- (250,000)
Borrowings on notes payable--
stockholders............................ -- 1,249,988 --
Payments on notes payable--stockholders.. (95,888) -- (538,156)
--------- ----------- -----------
Net cash provided by (used in)
financing activities.................. 85,734 1,437,915 (1,612,658)
--------- ----------- -----------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS...................... 929,928 (825,041) 221,960
Cash and cash equivalents--beginning of
period................................... 35,259 965,187 140,146
--------- ----------- -----------
Cash and cash equivalents--end of period.. $ 965,187 $ 140,146 $ 362,106
========= =========== ===========
Supplementary disclosures of cash flow
information:
Cash paid during the period for:
Interest................................. $ 21,120 $ 95,958 $ 151,792
========= =========== ===========
Income taxes............................. $ 1,600 $ 23,047 $ 800
========= =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-96
<PAGE>
CORAN ENTERPRISES, INC.
DBA A-1 RENTS ANDMONTEREY BAY EQUIPMENT RENTAL, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995 AND 1996
AND THE PERIOD FROM JANUARY 1, 1997 THROUGH OCTOBER 24, 1997
NOTE A--SUMMARY OF ACCOUNTING POLICIES
1. Nature of Business and Basis of Presentation
The combined financial statements include the accounts of Coran Enterprises,
Inc. and Monterey Bay Equipment Rental, Inc. (collectively the "Company").
Coran Enterprises, Inc. ("CEI") and Monterey Bay Equipment Rental, Inc.
("MBERI") are combined due to common ownership and operations which are
complimentary. All significant intercompany balances and transactions have
been eliminated in combination.
The Company leases equipment for home and contractors' use under short-term
rental agreements principally in the Northern California area.
2. Property and Equipment
The Company provides for depreciation in amounts sufficient to relate the
costs of depreciable assets to operations over their estimated service lives
using the double-declining balance method. Leasehold improvements are
amortized on a straight-line basis over the lives of the improvements or the
term of the lease, whichever is shorter. Maintenance and repairs costs are
expensed as incurred. Supplies and replacement parts are expensed when
purchased.
3. Cash and Cash Equivalents
For purposes of the statement of cash flows, the Company considers all
highly liquid debt instruments purchased with a maturity of three months or
less to be cash equivalents.
4. Use of estimates
In preparing financial statements in conformity with generally accepted
accounting principles, management is required to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the financial
statements, as well as revenues and expenses during the reporting period.
Actual results could differ from those estimates.
NOTE B--RELATED PARTY TRANSACTIONS
The Company leases facilities from its stockholders on a month-to-month
basis. Total rent expense on the facilities was $662,880 and $667,638 for the
years ended December 31, 1995 and 1996. Total rent expense for the period from
January 1, 1997 through October 24, 1997 was $545,702.
The Company incurred interest expense of $17,755 and $27,627, respectively,
for the years ended December 31, 1995 and 1996, related to notes payable to
stockholders. For the period from January 1, 1997 through October 24, 1997 the
interest expense related to the stockholder notes was $80,693.
NOTE C--INCOME TAXES
The stockholders of the Company have elected "S" Corporation status for
income tax purposes. Therefore, income or loss for federal and California
state income tax purposes is reported on the shareholders' individual income
tax returns. Although the "S" Corporation tax treatment is recognized by the
State of California, the net corporate income is subject to a 1.5% corporate
surtax. (See Note E)
F-97
<PAGE>
CORAN ENTERPRISES, INC.
DBA A-1 RENTS AND
MONTEREY BAY EQUIPMENT RENTAL, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED DECEMBER 31, 1995 AND 1996
AND THE PERIOD FROM JANUARY 1, 1997 THROUGH OCTOBER 24, 1997
NOTE D -- EQUIPMENT LOANS
Equipment loans consist of notes payable, collateralized by equipment, due
in monthly installments ranging from $1,095 to $5,375 with interest rates from
5.75% to 8.75%. These loans were paid in full as of October 31, 1997. Interest
expense on the equipment loans aggregated $3,365 and $68,837, respectively,
for the years ended December 31, 1995 and 1996. Interest expense on the
equipment loans was $89,455 for the period January 1, 1997 through October 24,
1997.
NOTE E--CHANGE IN OWNERSHIP
Effective October 24, 1997, the stockholders of CEI and MBERI sold 100% of
the outstanding shares of each company to United Rentals, Inc. The Company
provided $270,000 for state income taxes resulting from the stock sale.
F-98
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Stockholders
Bronco Hi-Lift, Inc.
We have audited the balance sheets of Bronco Hi-Lift, Inc. as of December
31, 1996 and October 24, 1997 and the related statements of income,
stockholders' equity and cash flows for the years ended December 31, 1995 and
1996, and the period from January 1, 1997 to October 24, 1997. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Bronco Hi-Lift, Inc. at
December 31, 1996 and October 24, 1997, and the results of its operations and
its cash flows for the years ended December 31, 1995 and 1996, and the period
from January 1, 1997 to October 24, 1997 in conformity with generally accepted
accounting principles.
/s/ Ernst & Young LLP
MetroPark, New Jersey
January 19, 1998
F-99
<PAGE>
BRONCO HI-LIFT, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, OCTOBER
1996 24, 1997
------------ ----------
<S> <C> <C>
ASSETS
Cash................................................... $ 305,506 $ 180,745
Accounts receivable, net............................... 826,849 998,467
Unbilled receivables................................... 40,722 283,865
Inventory.............................................. 67,825 273,119
Rental equipment, net.................................. 1,972,910 2,725,464
Property and equipment, net............................ 234,914 423,918
Due from related party................................. -- --
Prepaid expenses and other assets...................... 13,530 44,273
---------- ----------
Total assets....................................... $3,462,256 $4,929,851
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Accounts payable, accrued expenses and other liabili-
ties................................................ $ 90,584 $ 277,651
Debt................................................. 3,051,711 3,473,516
---------- ----------
Total liabilities.................................. 3,142,295 3,751,167
Commitments and contingencies
Stockholders' equity:
Common stock, $.01 par value and $1.00 stated value,
100,000 shares authorized, 10,000 issued and out-
standing at December 31, 1996, and October 24, 1997. 10,000 10,000
Additional paid-in capital........................... 598,000 598,000
Notes receivable from stockholders................... (300,000) --
Retained earnings.................................... 11,961 570,684
---------- ----------
Total stockholders' equity......................... 319,961 1,178,684
---------- ----------
Total liabilities and stockholders' equity......... $3,462,256 $4,929,851
========== ==========
</TABLE>
See accompanying notes.
F-100
<PAGE>
BRONCO HI-LIFT, INC.
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
PERIOD
FROM
JANUARY 1,
YEAR ENDED DECEMBER 31 1997 TO
------------------------ OCTOBER
1995 1996 24, 1997
----------- ----------- ----------
<S> <C> <C> <C>
Revenues:
Equipment rentals...................... $ 3,427,596 $ 4,313,855 $4,330,000
New equipment sales.................... 266,308 611,033 533,370
Sales of parts, supplies and rental
equipment............................. 155,331 410,957 375,451
Other.................................. 147,214 194,469 182,355
----------- ----------- ----------
Total revenues....................... 3,996,449 5,530,314 5,421,176
Cost of revenues:
Cost of equipment rentals, excluding
depreciation.......................... 335,028 699,455 374,845
Depreciation, equipment rentals........ 637,766 736,525 660,598
Cost of new equipment sales............ 206,268 479,920 412,592
Cost of sales of parts, supplies and
equipment............................. 107,989 293,987 148,464
Other.................................. 32,418 119,315 112,107
----------- ----------- ----------
Total cost of revenues............... 1,319,469 2,329,202 1,708,606
----------- ----------- ----------
Gross profit............................. 2,676,980 3,201,112 3,712,570
Selling, general and administrative
expenses................................ 2,540,699 2,359,326 2,353,924
Non-rental depreciation.................. 84,463 99,669 85,707
----------- ----------- ----------
Operating income..................... 51,818 742,117 1,272,939
Interest expense......................... 171,305 334,035 229,154
Other (income), net...................... (26,575) (46,175) (29,938)
----------- ----------- ----------
Net income (loss).................... $ (92,912) $ 454,257 $1,073,723
=========== =========== ==========
</TABLE>
See accompanying notes.
F-101
<PAGE>
BRONCO HI-LIFT, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK NOTES RECEIVABLE RETAINED
----------------- PAID-IN FROM EARNINGS
SHARES AMOUNT CAPITAL STOCKHOLDERS (DEFICIT)
------- -------- --------- ---------------- -----------
<S> <C> <C> <C> <C> <C>
Balance at January 1,
1995................... 20,000 $ 20,000 $ 345,020 $ -- $ 693,596
Purchase and
retirement of common
stock................ (12,000) (12,000) (345,020) (1,042,980)
Issuance of common
stock................ 2,000 2,000 598,000 (500,000)
Net loss.............. (92,912)
------- -------- --------- -------- -----------
Balance at December 31,
1995................... 10,000 10,000 598,000 (500,000) (442,296)
Payment on notes
receivable from
stockholders......... 200,000
Net income............ 454,257
------- -------- --------- -------- -----------
Balance at December 31,
1996................... 10,000 10,000 598,000 (300,000) 11,961
Payments on notes
receivable from
stockholders......... 300,000
Net income............ 1,073,723
Dividends paid........ (515,000)
------- -------- --------- -------- -----------
Balance at October 24,
1997................... 10,000 $ 10,000 $ 598,000 $ -- $ 570,684
======= ======== ========= ======== ===========
</TABLE>
See accompanying notes.
F-102
<PAGE>
BRONCO HI-LIFT, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM
JANUARY 1,
YEAR ENDED DECEMBER 31 1997 TO
------------------------ OCTOBER 24,
1995 1996 1997
----------- ------------ -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)...................... $ (92,912) $ 454,257 $ 1,073,723
Adjustments to reconcile net income to
net cash provided by operating activi-
ties:
Depreciation........................... 722,229 836,194 746,305
Gain on equipment sales................ (317,871) (302,777) (355,159)
Interest expense not requiring cash.... 17,500
Changes in assets and liabilities:
Increase in accounts receivable....... (132,976) (235,655) (171,618)
Decrease (increase) in unbilled re-
ceivables............................ 5,646 27,632 (243,143)
(Increase) decrease in inventory...... (102,542) 89,645 (205,294)
Decrease (increase) in prepaid ex-
penses and other assets.............. 30,774 20,171 (30,743)
(Decrease) increase in accounts
payable, accrued expenses and other
liabilities.......................... (60,113) (14,377) 187,067
---------- ------------ -----------
Total adjustments.................... 145,147 438,333 (72,585)
---------- ------------ -----------
Cash provided by operating
activities.......................... 52,235 892,590 1,001,138
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of rental equipment........... (92,727) (1,368,253) (1,631,309)
Proceeds from sale of rental equip-
ment.................................. 350,739 745,687 573,316
Purchases of property and equipment,
net................................... (101,985) (90,932) (304,711)
---------- ------------ -----------
Cash provided by (used in) investing
activities.......................... 156,027 (713,498) (1,362,704)
CASH FLOWS FROM FINANCING ACTIVITIES
Cash dividends paid.................... (485,000)
Issuance of stock...................... 100,000
Re-payments on notes due from stock-
holders............................... 200,000 300,000
Principal payments on debt............. (742,891) (802,358) (278,195)
Principal payments on capital lease ob-
ligations............................. (32,711)
Advances to related party.............. (412,113)
Borrowings under credit facility....... 900,000 500,000 700,000
---------- ------------ -----------
Cash provided by (used) in financing
activities.......................... (187,715) (102,358) 236,805
---------- ------------ -----------
Increase (decrease) in cash............ 20,547 76,734 (124,761)
Cash balance at beginning period..... 208,225 228,772 305,506
---------- ------------ -----------
Cash balance at end of period........ $ 228,772 $ 305,506 $ 180,745
========== ============ ===========
</TABLE>
See accompanying notes.
F-103
<PAGE>
BRONCO HI-LIFT, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1996 AND OCTOBER 24, 1997
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business Activity
Bronco Hi-Lift, Inc. (the "Company") rents, sells and repairs aerial lift
equipment for use by construction companies and maintenance and media crews.
The rentals are on a daily, weekly or monthly basis. The Company is located in
Denver, Colorado and its principal market area is the state of Colorado. The
nature of the Company's business is such that short-term obligations are
typically met by cash flow generated from long-term assets. Consequently,
consistent with industry practice, the balance sheets are presented on an
unclassified basis.
Inventory
Inventories consists primarily of general replacement parts and fuel for the
equipment and are stated at the lower of cost, determined under the first-in,
first-out method, or market.
Rental Equipment
Rental equipment is recorded at cost. Depreciation for rental equipment is
computed using the straight-line method over an estimated five-year useful
life with no salvage value.
Ordinary maintenance and repair costs are charged to operations as incurred.
Proceeds from the disposal and the related net book value of the equipment are
recognized in the period of disposal and reported as revenue from sales of
equipment and cost of sales of equipment, respectively, in the statements of
operations.
Property and Equipment
Property and equipment is stated at cost. Depreciation of property and
equipment is computed on the straight-line method over estimated useful lives
of 5 to 10 years.
Ordinary maintenance and repair costs are charged to operations as incurred.
The cost of assets sold, retired, or otherwise disposed of, and the related
accumulated depreciation is eliminated from the accounts and any resulting
gain or loss is included in operations.
Rental Revenue
Rental revenue is recorded as earned under the operating method.
Advertising Costs
The Company advertises primarily through trade journals, trade associations
and phone directories. All advertising costs are expensed as incurred.
Advertising expenses amounted to approximately $74,400 and $43,000 in the
years ended December 31, 1995 and 1996, respectively, and $49,500 in the
period from January 1, 1997 to October 24, 1997.
Income Taxes
The Company has elected, by unanimous consent of its shareholders, to be
taxed under the provisions of Subchapter S of the Internal Revenue Code for
both federal and state purposes. Under those provisions the Company does not
pay federal or state income taxes; instead, the shareholders are liable for
individual income taxes on the Company's profits. Therefore, no provision for
federal or state income taxes is included in the accompanying financial
statements.
F-104
<PAGE>
BRONCO HI-LIFT, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Accounting Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
2. CONCENTRATIONS OF CREDIT RISK
The Company maintains cash balances with a quality financial institution
and, accordingly, management believes this mitigates the amount of credit
risk. Concentrations of credit risk with respect to customer receivables are
limited due to the large number of customers comprising the Company's customer
base and its credit policy.
3. RENTAL EQUIPMENT
Rental equipment and related accumulated depreciation consisted of the
following:
<TABLE>
<CAPTION>
OCTOBER
DECEMBER 31, 24,
1996 1997
------------ ----------
<S> <C> <C>
Rental equipment.................................... $5,176,658 $5,943,569
Less accumulated depreciation....................... 3,203,748 3,218,105
---------- ----------
Rental equipment, net............................... $1,972,910 $2,725,464
========== ==========
</TABLE>
4. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, OCTOBER 24,
1996 1997
------------ -----------
<S> <C> <C>
Furniture and fixtures.............................. $ 59,572 $172,839
Transportation equipment............................ 520,356 664,543
Shop equipment...................................... 37,591 37,591
-------- --------
617,519 874,973
Less accumulated depreciation....................... 382,605 451,055
-------- --------
Total............................................. $234,914 $423,918
======== ========
</TABLE>
F-105
<PAGE>
BRONCO HI-LIFT, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
5. DEBT
Debt consists of the following:
<TABLE>
<CAPTION>
OCTOBER
DECEMBER 31 24,
1996 1997
----------- ----------
<S> <C> <C>
Citicorp Dealer Finance Agreement.................... $1,585,000 $2,135,000
GMAC note dated October 27, 1994 paid in full in
August 1997......................................... 17,564 --
Kenworth/Trial-EZE dated July 11, 1994 paid in full
in September 1997................................... 49,147 --
Notes payable to a former shareholder for $900,000
and $500,000 at an annual interest rate of 9%. The
$900,000 note requires monthly interest payments
through January 31, 1998 at which time the note is
due in full. The $500,000 note requires monthly
interest payments through January 31, 1997.
Beginning February 1, 1997, the note is payable in
60 monthly installments of principal and interest of
$10,379 through December 31, 2001. The above
$500,000 note is subordinated to the Citicorp Dealer
Finance Agreement................................... 1,400,000 1,338,516
---------- ----------
$3,051,711 $3,473,516
========== ==========
</TABLE>
Substantially all of the Company's assets collateralize the debt outstanding
under the Financing Agreement. All debt at October 24, 1997 was paid off in
connection with the acquisition discussed in Note 10.
6. OPERATING LEASES
During 1994, the Company leased 7,000 square feet of office and shop space
on a twelve month lease, renewable annually. For the period from January 1,
1995 to April 30, 1995, the Company leased approximately 7,000 square feet of
office and shop space under a new month to month lease. Effective May 1, 1995,
the Company moved to a new location and entered into a lease agreement with a
related party, Coyote Investments, LLC ("Coyote") (see Note 9). The facility
consists of 17,000 square feet of office and shop area located on 1.8 acres.
The 15 year lease expires April 30, 2010. The Company is responsible for all
operating expenses of the facility including property taxes, assessments,
insurance, repairs and maintenance.
Rent expense under these leases totaled $52,000 and $78,000 for the years
ended December 31, 1995 and 1996 and $65,000 for the period from January 1,
1997 to October 24, 1997. Under the lease agreement with Coyote, rent is
payable in monthly installments of $6,500 for the first two years of the
lease. Thereafter the rent shall be increased annually to reflect the then
current fair market rent for the premises, provided that each annual increase
shall not exceed 10% of the previous year's rental rate. Future minimum rent
commitments are $78,000 each for years ended December 31, 1998 to December 31,
2009 and $26,000 for January 1, 2010 to April 30, 2010, provided there is no
increase in fair market rent for the premises.
7. COMMITMENTS
The Company has employment agreements, which expire in 1998, with three
officers which grant certain severance pay rights to these officers provided
that certain conditions of employment are met. Under terms of the employment
agreements, the officers received approximately $253,000, $703,000, and
$521,000 for the years ended December 31, 1995 and 1996 and for the period
from January 1, 1997 to October 24, 1997, respectively.
F-106
<PAGE>
BRONCO HI-LIFT, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Additional compensation to be paid to the officers, until the agreements
expire, amounts to approximately $100,000 for the two months ended December
31, 1997 and $270,000 during 1998.
The Company guarantees Coyote's debt on the building leased by the Company
(see Note 9).
8. SUPPLEMENTAL CASH FLOW INFORMATION
For the years ended December 31, 1995 and 1996 and for the period from
January 1, 1997 to October 24, 1997, total interest paid was $171,305,
$335,686 and $224,016, respectively.
During 1995, the Company purchased $726,355, of equipment which was
financed. There were no purchases in 1996 or for the period from January 1,
1997 to October 24, 1997.
On December 20, 1995, the Company purchased and retired 12,000 shares of its
stock for two notes totaling $1,400,000. On December 21, 1995, the Company
issued 2,000 shares of its stock to two officers of the Company in exchange
for $100,000 cash and $500,000 of notes receivable from these officers. During
1996, the officers repaid $200,000 in accordance with the note agreements. In
October of 1997, the notes were repaid in full.
During 1997, the Company paid dividends of $515,000, of which $30,000
represented a non-cash transfer of a fixed asset.
9. RELATED PARTY TRANSACTIONS
Coyote is owned by the shareholders of the Company. The Company leases its
office and shop facility from Coyote (see Note 6). All stockholders and the
Company have guaranteed Coyote's debt on the facility. The amount of debt
principal on the facility was $555,080 at December 31, 1996 and $540,200 at
October 24, 1997.
Advances to Coyote were $412,113 at December 31, 1995. Coyote paid $3,434 of
interest to the Company during 1996. As part of the Citicorp Amendment No. 1
Refinancing Agreement, the Company owed Coyote $152,187, which it paid with
interest of $7,990 during August 1996. These obligations were fulfilled with a
non-cash transaction in connection with the above mentioned amended agreement.
On December 21, 1995 the Company issued 2,000 shares to two officers of the
Company in exchange for $100,000 cash and two notes for $250,000 each. The
notes bear interest at 9% per annum and are payable bi-annually. Principal on
each note is payable $100,000 in 1996, $100,000 in 1997 and $50,000 in 1998.
Interest paid to the Company during 1996 by these stockholders was $42,400. In
October of 1997, the notes were repaid in full.
10. SUBSEQUENT EVENT
On October 24, 1997, the Company entered into a stock purchase agreement
with United Rentals, Inc. ("United"). Under the terms of the stock purchase
agreement, United purchased all of the issued and outstanding capital stock of
the Company.
F-107
<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
OR 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........................................................... 11
Dividend Policy........................................................... 12
Price Range of Common Stock............................................... 12
Capitalization............................................................ 13
Selected Historical and Pro Forma Consolidated Financial Information...... 14
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 16
Business.................................................................. 21
Management................................................................ 28
Principal Stockholders.................................................... 35
Description of Capital Stock.............................................. 37
Certain Charter and By-Law Provisions..................................... 38
Shares Eligible for Future Sale........................................... 41
Certain United States Federal Tax Considerations.......................... 42
Underwriting.............................................................. 45
Legal Matters............................................................. 48
Experts................................................................... 48
Available Information..................................................... 49
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
5,500,000 SHARES
[LOGO] UNITED RENTALS
COMMON STOCK
---------------
PROSPECTUS
---------------
MERRILL LYNCH & CO.
DEUTSCHE MORGAN GRENFELL
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
SALOMON SMITH BARNEY
, 1998
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS, DATED FEBRUARY 4, 1998
PROSPECTUS
5,500,000 SHARES
[LOGO] UNITED RENTALS
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, 1,100,000 shares are being offered
initially outside the United States and Canada by the International Managers
(the "International Offering"), and 4,400,000 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 public offering price and the underwriting
discount per share are identical for each of the Offerings. See "Underwriting."
The Common Stock is traded on the New York Stock Exchange under the symbol
"URI." On February 3, 1998, the last sale price of the Common Stock as reported
on the New York Stock Exchange was $24 5/16 per share. See "Price Range of
Common Stock."
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 $1,000,000.
(3) The Company has granted the International Managers and the U.S.
Underwriters options to purchase up to an additional 165,000 shares and
660,000 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 , 1998.
----------
MERRILL LYNCH INTERNATIONAL
DEUTSCHE MORGAN GRENFELL
DONALDSON, LUFKIN & JENRETTE INTERNATIONAL
SALOMON SMITH BARNEY INTERNATIONAL
----------
The date of this Prospectus is , 1998.
<PAGE>
UNDERWRITING
Subject to the terms and conditions set forth in an international purchase
agreement (the "International Purchase Agreement") among the Company and
Merrill Lynch International, Donaldson, Lufkin & Jenrette International,
Morgan Grenfell & Co. Limited and Smith Barney Inc. (together, the
"International Managers") and concurrently with the sale of 4,400,000 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 at the public
offering price less the underwriting discount set forth on the cover page of
this Prospectus.
<TABLE>
<CAPTION>
INTERNATIONAL MANAGER NUMBER OF SHARES
--------------------- ----------------
<S> <C>
Merrill Lynch International.............................
Donaldson, Lufkin & Jenrette International..............
Morgan Grenfell & Co. Limited...........................
Smith Barney Inc........................................
---------
Total.............................................. 1,100,000
=========
</TABLE>
The Company has also entered into a U.S. purchase agreement (the "U.S.
Purchase Agreement") with Merrill Lynch, Pierce, Fenner & Smith ("Merrill
Lynch"), Donaldson, Lufkin & Jenrette Securities Corporation, Deutsche Morgan
Grenfell Inc. and Smith Barney Inc. (the "U.S. Underwriters" and, together
with the International Managers, the "Underwriters"). Subject to the terms and
conditions set forth in the U.S. Purchase Agreement, and concurrently with the
sale of 1,100,000 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 4,400,000 shares of Common
Stock. The 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 International Managers have advised the Company that the International
Managers propose initially to offer the shares of Common Stock to the public
at the 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 shares of Common Stock are
released for sale to the public, 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 165,000 additional shares of Common Stock at the 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. 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 660,000
additional shares of Common Stock to cover over-allotments, if any, on terms
similar to those granted to the International Manager.
The Company and all its executive officers and directors (who hold an
aggregate of 13,262,414 shares of Common Stock) 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,
45
<PAGE>
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 & Co. 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 750,000 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 existing lock-up agreements
between the Company and its stockholders 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 the holders of
an aggregate of 2,901,705 shares of Common Stock 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. See "Shares Eligible for Future Sales."
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
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.
The Company has agreed to indemnify the U.S. Underwriters and the
International Managers against certain liabilities, including certain
liabilities under the Securities Act.
Certain of the Underwriters have from time to time provided certain
investment banking and advisory services to the Company for which services
such Underwriters received customary compensation. The Underwriters may in the
future provide additional investment banking and advisory services to the
Company.
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. Underwriters 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.
46
<PAGE>
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. Underwriters
may reduce that short position by purchasing Common Stock in the open market.
The U.S. Underwriters may also elect to reduce any short position by
exercising all or part of the over-allotment option described above.
The U.S. Underwriters may also impose a penalty bid on certain Underwriters
and selling group members. This means that if the U.S. Underwriters 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. Underwriters 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
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.
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.
47
<PAGE>
EXPERTS
The financial statements of United Rentals, Inc. at December 31, 1997 and
for the period from August 14, 1997 (Inception) to December 31, 1997, the
financial statements of J&J Rental Services, Inc. at December 31, 1996 and
October 22, 1997 and for each of the two years in the period ended December
31, 1996, the six months ended June 30, 1997 and for the period from July 1,
1997 to October 22, 1997, the financial statements of Bronco Hi-Lift, Inc. at
December 31, 1996 and October 24, 1997 and for each of the two years in the
period ended December 31, 1996 and for the period from January 1, 1997 to
October 24, 1997, and the financial statements of Mission Valley Rentals, Inc.
at June 30, 1996 and 1997 and for the years then ended, 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 consolidated financial statements of A&A Tool Rentals & Sales, Inc. and
subsidiary as of October 19, 1997, October 31, 1996, and 1995, and for the
period from November 1, 1996 to October 19, 1997 and for the years ended
October 31, 1996 and 1995, have been included herein and in the Registration
Statement in reliance upon the report of KPMG Peat Marwick LLP, independent
certified public accountants, appearing elsewhere herein, and upon the
authority of said firm as experts in accounting and auditing.
The financial statements of MERCER Equipment Company appearing in this
Prospectus have been audited by Webster Duke & Co., independent auditors, as
set forth in their reports thereon included elsewhere herein and in the
Registration Statement of which this Prospectus is a part, and are included in
reliance upon such reports given upon the authority of such firm as experts in
accounting and auditing.
The combined financial statements of Coran Enterprises, Inc. (dba A-1 Rents)
and Monterey Bay Equipment Rental, Inc., appearing in this Prospectus and
Registration Statement, have been audited by Grant Thornton LLP, independent
auditors, as set forth in their report thereon appearing elsewhere herein and
in the Registration Statement, and are included in reliance upon such report
given upon the authority of such firm as experts in accounting and auditing.
The combined financial statements of BNR Group of Companies as of March 31,
1996 and 1997 and for the years ended March 31, 1996 and 1997, have been
included herein and in the Registration Statement in reliance upon the report
of KPMG, independent chartered accountants, appearing elsewhere herein, and
upon the authority of said firm as experts in accounting and auditing.
The audited financial statements of Access Rentals, Inc., and Subsidiary and
Affiliate included in this Registration Statement have been included herein in
reliance on the report of Battaglia, Andrews & Moag, P.C., independent
certified public accountants, 210 East Main Street, Batavia, New York 14020,
for the periods indicated, given on the authority of that firm as experts in
auditing and accounting.
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
48
<PAGE>
by such reference. The Registration Statement, including all exhibits and
schedules thereto, may be inspected and copied at the public reference
facilities maintained by the Commission at the principal office of the
Commission located at 450 Fifth Street, N.W., Washington, D.C. 20549, and at
the Midwest Regional Office of the Commission located at Citicorp Center, 500
West Madison Street, Suite 1400, Chicago, Illinois 60661-2511 and at the
Northeast Regional office of the Commission located at Seven World Trade
Center, Suite 1300, New York, New York 10048. Copies of such material may be
obtained from the Public Reference Section of the Commission at 450 Fifth
Street, N.W., Room 1204, Washington, D.C. 20549, at prescribed rates.
The 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.
The Company is subject to the informational and periodic reporting
requirements of the Exchange Act, and in accordance therewith, files periodic
reports, proxy statements, and other information with the Commission. Such
periodic reports, proxy statements, and other information may be inspected and
copied at the public reference facilities maintained by the Commission and at
the Commission's regional offices at the addresses stated above. Copies of
such material may be obtained at prescribed rates from the Public Reference
Section of the Commission at the address stated above. The Common Stock is
listed on the New York Stock Exchange (the "NYSE"), and the Registration
Statement and such reports, proxy statements and other information can also be
inspected at the offices of the NYSE, 20 Broad Street, New York, New York
10005.
49
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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 OR IN THE AFFAIRS
OF THE COMPANY SINCE THE DATE HEREOF.
IN THE PROSPECTUS, REFERENCES TO "DOLLARS" AND "$" ARE TO UNITED STATES
DOLLARS, UNLESS OTHERWISE INDICATED.
---------------
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........................................................... 11
Dividend Policy........................................................... 12
Price Range of Common Stock............................................... 12
Capitalization............................................................ 13
Selected Historical and Pro Forma Consolidated Financial Information...... 14
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 16
Business.................................................................. 21
Management................................................................ 28
Principal Stockholders.................................................... 35
Description of Capital Stock.............................................. 37
Certain Charter and By-Law Provisions..................................... 38
Shares Eligible for Future Sale........................................... 41
Certain United States Federal Tax Considerations.......................... 42
Underwriting.............................................................. 45
Legal Matters............................................................. 48
Experts................................................................... 48
Available Information..................................................... 48
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
5,500,000 SHARES
[LOGO] UNITED RENTALS
COMMON STOCK
---------------
PROSPECTUS
---------------
MERRILL LYNCH INTERNATIONAL
DEUTSCHE MORGAN GRENFELL
DONALDSON, LUFKIN & JENRETTE
INTERNATIONAL
SALOMON SMITH BARNEY
INTERNATIONAL
, 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
<TABLE>
<S> <C>
SEC Registration Fee.......................................... $ 41,537
Listing Fee................................................... $ 24,500
NASD Filing Fee............................................... $ 15,878
Accounting Fees and Expenses*................................. $ 350,000
Printing and Engraving Expenses*.............................. $ 200,000
Legal Fees and Expenses (other than blue sky)*................ $ 250,000
Blue Sky Fees and Expenses*................................... $ 5,000
Transfer Agent and Registrar Fees*............................ $ 5,000
Miscellaneous Expenses*....................................... $ 108,085
----------
Total*........................................................ $1,000,000
==========
</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>
The Registrant has entered into indemnification agreements with certain
members of its management in the form filed as an exhibit to this registration
statement.
ITEM 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 Eilenberg Krause & Zivian LLP
10(a)* $155 Million Revolving Credit Facility, dated as of December 23,
1997, between the Company, various financial institutions, and Bank
of America National Trust and Savings Association, as agent
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
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
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
-------- -----------------------
<C> <S>
10(t)* Purchase Agreement, dated as of January 22, 1998, among the Company,
United Rentals of Canada, Inc., Access Rentals, Inc., Reinhart
Leasing, LLC and the Stockholders of Access Rentals, Inc.
10(u)* Stock Purchase Agreement, dated as of January 13, 1998, among the
Company, Mission Valley Rentals, Inc., Charles F. Journey and Connie
J. Journey
10(v)* Stock Purchase Agreement, dated as of January 22, 1998, among the
Company, United Rentals of Canada, Inc. and BNR Equipment Limited and
Affiliates
21* Subsidiaries of the Registrant
23(a)*** Consent of Ehrenreich Eilenberg Krause & Zivian LLP (included in
opinion filed as Exhibit 5)
23(b)*** Consent of 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 Ernst & Young LLP
23(g)* Consent of KPMG Peat Marwick LLP
23(h)* Consent of KPMG
23(i)* Consent of Webster Duke & Co. PA
23(j)* Consent of Grant Thornton LLP
23(k)* Consent of Battaglia, Andrews & Maag, P.C.
23(l)* Consent of Wayland R. Hicks
24* Power of Attorney (included in Part II of the Registration Statement
under the caption "Signatures")
27* Financial Data Schedule
</TABLE>
- --------
* Filed herewith.
** Incorporated by reference to the correspondingly numbered exhibit to the
Registrant's Registration Statement on Form S-1 (Registration No. 333-
39117).
*** To be filed by amendment.
+ Filed without exhibits and schedules (to be provided supplementally upon
request of the Commission).
(1) The Company issued a warrant in this form to the following officers of the
Company (or in certain cases to an entity controlled by such officer) for
the number of shares indicated: Bradley S. Jacobs (5,000,000); John N.
Milne (714,286); Michael J. Nolan (285,715); Robert P. Miner (142,857);
Sandra E. Welwood (50,000); Joseph J. Kondrup, Jr. (50,000); Kai E. Nyby
(50,000); and Richard A. Volonino (50,000).
(2) Each officer of the Company who purchased securities prior to the
Company's initial public offering in December 1997, other than Messrs.
Jacobs and Hicks, entered into a Private Placement Purchase Agreement in
this form (modified, in the case of Messrs. Barker and Imig, to reflect
the fact that such officers did not purchase Warrants) with respect to the
shares of Common Stock and Warrants purchased by such officer from the
Company as described under "Management--Capital Contributions by Officers
and Directors."
(3) Each purchaser of shares of Common Stock in the Company's September 1997
private placement entered into a Subscription Agreement in this form with
respect to the shares purchased.
ITEM 17. UNDERTAKINGS.
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
II-3
<PAGE>
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 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 FEBRUARY 3, 1998.
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. EACH PERSON WHOSE SIGNATURE APPEARS BELOW HEREBY AUTHORIZES EACH OF
BRADLEY S. JACOBS, JOHN N. MILNE AND MICHAEL J. NOLAN AND EACH WITH FULL POWER
OF SUBSTITUTION, TO EXECUTE IN THE NAME AND ON BEHALF OF SUCH PERSON ANY
AMENDMENT OR ANY POST-EFFECTIVE AMENDMENT TO THIS REGISTRATION STATEMENT, AND
ANY REGISTRATION STATEMENT RELATING TO ANY OFFERING MADE IN CONNECTION WITH
THE OFFERING COVERED BY THIS REGISTRATION STATEMENT THAT IS TO BE EFFECTIVE
UPON FILING PURSUANT TO RULE 462(B) UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, AND TO FILE THE SAME, WITH EXHIBITS THERETO, AND OTHER DOCUMENTS IN
CONNECTION THEREWITH, MAKING SUCH CHANGES IN THIS REGISTRATION STATEMENT AS
THE REGISTRANT DEEMS APPROPRIATE, AND APPOINTS EACH OF BRADLEY S. JACOBS, JOHN
N. MILNE AND MICHAEL J. NOLAN, EACH WITH FULL POWER OF SUBSTITUTION, ATTORNEY-
IN-FACT TO SIGN ANY AMENDMENT AND ANY POST-EFFECTIVE AMENDMENT TO THIS
REGISTRATION STATEMENT AND TO FILE THE SAME, WITH EXHIBITS THERETO, AND OTHER
DOCUMENTS IN CONNECTION THEREWITH.
SIGNATURE TITLE DATE
/s/ Bradley S. Jacobs Chairman, Chief February 3,
- ------------------------------------- Executive Officer 1998
BRADLEY S. JACOBS and Director
(Principal
Executive Officer)
/s/ John N. Milne Director February 3,
- ------------------------------------- 1998
JOHN N. MILNE
/s/ Ronald M. DeFeo Director February 3,
- ------------------------------------- 1998
RONALD M. DEFEO
/s/ Richard J. Heckmann Director February 3,
- ------------------------------------- 1998
RICHARD J. HECKMANN
/s/ Gerald Tsai, Jr. Director February 3,
- ------------------------------------- 1998
GERALD TSAI, JR.
/s/ Michael J. Nolan Chief Financial February 3,
- ------------------------------------- Officer (Principal 1998
MICHAEL J. NOLAN Financial Officer)
/s/ Sandra E. Welwood Vice President, February 3,
_____________________________________ Corporate 1998
SANDRA E. WELWOOD Controller
(Principal
Accounting Officer)
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT PAGE
NUMBER DESCRIPTION OF EXHIBITS NUMBER
-------- ----------------------- ------
<C> <S> <C>
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 Eilenberg Krause & Zivian LLP
10(a)* $155 Million Revolving Credit Facility, dated as of December
23, 1997, between the Company, various financial
institutions, and Bank of America National Trust and Savings
Association, as agent
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
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
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT PAGE
NUMBER DESCRIPTION OF EXHIBITS NUMBER
-------- ----------------------- ------
<C> <S> <C>
10(t)* Purchase Agreement, dated as of January 22, 1998, among the
Company, United Rentals of Canada, Inc., Access Rentals,
Inc., Reinhart Leasing, LLC and the Stockholders of Access
Rentals, Inc.
10(u)* Stock Purchase Agreement, dated as of January 13, 1998,
among the Company, Mission Valley Rentals, Inc., Charles F.
Journey and Connie J. Journey
10(v)* Stock Purchase Agreement, dated as of January 22, 1998,
among the Company, United Rentals of Canada, Inc. and BNR
Equipment Limited and Affiliates
21* Subsidiaries of the Registrant
23(a)*** Consent of Ehrenreich Eilenberg Krause & Zivian LLP
(included in opinion filed as Exhibit 5)
23(b)*** Consent of 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 Ernst & Young LLP
23(g)* Consent of KPMG Peat Marwick LLP
23(h)* Consent of KPMG
23(i)* Consent of Webster Duke & Co. PA
23(j)* Consent of Grant Thornton LLP
23(k)* Consent of Battaglia, Andrews & Maag, P.C.
23(l)* Consent of Wayland R. Hicks
24* Power of Attorney (included in Part II of the Registration
Statement under the caption "Signatures")
27* Financial Data Schedule
</TABLE>
- --------
* Filed herewith.
** Incorporated by reference to the correspondingly numbered exhibit to the
Registrant's Registration Statement on Form S-1 (Registration No. 333-
39117).
*** To be filed by amendment.
+ Filed without exhibits and schedules (to be provided supplementally upon
request of the Commission).
(1) The Company issued a warrant in this form to the following officers of the
Company (or in certain cases to an entity controlled by such officer) for
the number of shares indicated: Bradley S. Jacobs (5,000,000); John N.
Milne (714,286); Michael J. Nolan (285,715); Robert P. Miner (142,857);
Sandra E. Welwood (50,000); Joseph J. Kondrup, Jr. (50,000); Kai E. Nyby
(50,000); and Richard A. Volonino (50,000).
(2) Each officer of the Company who purchased securities prior to the
Company's initial public offering in December 1997, other than Messrs.
Jacobs and Hicks, entered into a Private Placement Purchase Agreement in
this form (modified, in the case of Messrs. Barker and Imig, to reflect
the fact that such officers did not purchase Warrants) with respect to the
shares of Common Stock and Warrants purchased by such officer from the
Company as described under "Management--Capital Contributions by Officers
and Directors."
(3) Each purchaser of shares of Common Stock in the Company's September 1997
private placement entered into a Subscription Agreement in this form with
respect to the shares purchased.
<PAGE>
EXHIBIT 10(a)
================================================================================
AMENDED AND RESTATED CREDIT AGREEMENT
dated as of December 24, 1997
among
UNITED RENTALS, INC.,
VARIOUS FINANCIAL INSTITUTIONS,
BANKBOSTON, N.A.,
COMERICA BANK
and
DEUTSCHE BANK AG,
as Co-Agents,
and
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION,
as Agent
================================================================================
Arranged by BANCAMERICA ROBERTSON STEPHENS
<PAGE>
TABLE OF CONTENTS
Page
SECTION 1 DEFINITIONS, ETC..................................................1
1.1 Definitions.....................................................1
SECTION 2 COMMITMENTS OF THE BANKS; LETTER OF CREDIT, BORROWING AND
CONVERSION PROCEDURES...............................................12
2.1 Commitments....................................................12
2.1.1 Loan Commitment.......................................12
2.1.2 L/C Commitment........................................12
2.2 Loan Procedures................................................12
2.2.1 Various Types of Loans................................12
2.2.2 Borrowing Procedures..................................12
2.2.3 Procedures for Conversion of Type of Loan.............13
2.3 Letter of Credit Procedures....................................13
2.3.1 L/C Applications......................................13
2.3.2 Participation in Letters of Credit....................14
2.3.3 Reimbursement Obligations.............................14
2.3.4 Limitation on BofA's Obligations......................14
2.3.5 Funding by Banks to BofA..............................14
2.3.6 Repayment of Participations...........................15
2.4 Commitments Several............................................15
2.5 Certain Conditions.............................................15
SECTION 3 NOTES EVIDENCING LOANS...........................................15
3.1 Notes..........................................................15
3.2 Recordkeeping..................................................16
SECTION 4 INTEREST.........................................................16
4.1 Interest Rates.................................................16
4.2 Interest Payment Dates.........................................16
4.3 Interest Periods...............................................16
4.4 Setting and Notice of Eurodollar Rates.........................17
4.5 Computation of Interest........................................17
SECTION 5 FEES.............................................................17
5.1 Non-Use Fee....................................................17
5.2 Letter of Credit Fees..........................................18
5.3 Arrangement and Agent's Fees...................................18
SECTION 6 REDUCTION AND TERMINATION OF THE COMMITMENTS;
PREPAYMENTS.........................................................18
-i-
<PAGE>
6.1 Reduction or Termination of the Commitments....................18
6.2 Voluntary Prepayments..........................................18
SECTION 7 MAKING AND PRORATION OF PAYMENTS; SETOFF; TAXES..................19
7.1 Making of Payments.............................................19
7.2 Application of Certain Payments................................19
7.3 Due Date Extension.............................................19
7.4 Setoff.........................................................19
7.5 Proration of Payments..........................................20
7.6 Taxes..........................................................20
SECTION 8 INCREASED COSTS; SPECIAL PROVISIONS
FOR EURODOLLAR LOANS........................................................21
8.1 Increased Costs................................................21
8.2 Basis for Determining Interest Rate Inadequate or Unfair.......22
8.3 Changes in Law Rendering Eurodollar Loans Unlawful.............23
8.4 Funding Losses.................................................23
8.5 Right of Banks to Fund through Other Offices...................24
8.6 Discretion of Banks as to Manner of Funding....................24
8.7 Mitigation of Circumstances; Replacement of Affected Bank......24
8.8 Conclusiveness of Statements; Survival of Provisions...........24
SECTION 9 WARRANTIES.......................................................25
9.1 Organization, etc..............................................25
9.2 Authorization; No Conflict.....................................25
9.3 Validity and Binding Nature....................................25
9.4 Information....................................................26
9.5 No Material Adverse Change.....................................26
9.6 Litigation and Contingent Liabilities..........................26
9.7 Ownership of Properties; Liens.................................26
9.8 Subsidiaries...................................................26
9.9 Pension and Welfare Plans......................................26
9.10 Investment Company Act........................................27
9.11 Public Utility Holding Company Act............................27
9.12 Regulation U..................................................27
9.13 Taxes.........................................................27
9.14 Solvency, etc.................................................27
9.15 Environmental Matters.........................................28
9.16 Year 2000 Problem.............................................28
SECTION 10 COVENANTS.......................................................28
10.1 Reports, Certificates and Other Information...................28
10.1.1 Audit Report.........................................28
10.1.2 Quarterly Reports....................................29
-ii-
<PAGE>
10.1.3 Monthly Reports......................................29
10.1.4 Compliance Certificates..............................29
10.1.5 Reports to SEC and to Shareholders...................29
10.1.6 Notice of Default, Litigation and ERISA Matters......29
10.1.7 Subsidiaries.........................................30
10.1.8 Management Reports...................................30
10.1.9 Projections..........................................30
10.1.10 Other Information...................................31
10.2 Books, Records and Inspections................................31
10.3 Insurance.....................................................31
10.4 Compliance with Laws; Payment of Taxes and Liabilities........31
10.5 Maintenance of Existence, etc.................................31
10.6 Financial Covenants...........................................32
10.6.1 Minimum Net Worth....................................32
10.6.2 Maximum Leverage.....................................32
10.6.3 Minimum Interest Coverage............................32
10.6.4 Funded Debt to Cash Flow Ratio.......................32
10.6.5 Senior Debt to Tangible Assets.......................33
10.7 Limitations on Debt...........................................33
10.8 Liens.........................................................34
10.9 Operating Leases..............................................35
10.10 Restricted Payments..........................................35
10.11 Mergers, Consolidations, Sales...............................35
10.12 Modification of Organizational Documents.....................36
10.13 Use of Proceeds..............................................36
10.14 Further Assurances...........................................36
10.15 Transactions with Affiliates.................................36
10.16 Employee Benefit Plans.......................................36
10.17 Environmental Laws...........................................36
10.18 Unconditional Purchase Obligations...........................36
10.19 Inconsistent Agreements......................................37
10.20 Business Activities..........................................37
10.21 Advances and Other Investments...............................37
SECTION 11 EFFECTIVENESS; CONDITIONS OF LENDING, ETC.......................38
11.1 Effectiveness.................................................38
11.1.1 Notes................................................38
11.1.2 Resolutions..........................................38
11.1.3 Consents, etc........................................38
11.1.4 Incumbency and Signature Certificates................38
11.1.5 Intercompany Guaranty................................38
11.1.6 Security Agreement...................................38
11.1.7 Pledge Agreements....................................39
11.1.8 Opinions of Counsel for the Company and the Guaran...39
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<PAGE>
11.1.9 Other................................................39
11.2 Conditions....................................................39
11.2.1 Compliance with Warranties, No Default, etc..........39
11.2.2 Confirmatory Certificate.............................40
SECTION 12 EVENTS OF DEFAULT AND THEIR EFFECT..............................40
12.1 Events of Default.............................................40
12.1.1 Non-Payment of the Loans, etc........................40
12.1.2 Non-Payment of Other Debt............................40
12.1.3 Other Material Obligations...........................40
12.1.4 Bankruptcy, Insolvency, etc..........................41
12.1.5 Non-Compliance with Provisions of This Agreement.....41
12.1.6 Warranties...........................................41
12.1.7 Pension Plans........................................41
12.1.8 Judgments............................................42
12.1.9 Invalidity of Intercompany Guaranty, etc.............42
12.1.10 Invalidity of Collateral Documents, etc.............42
12.1.11 Change in Control...................................42
12.2 Effect of Event of Default....................................42
SECTION 13 THE AGENT.......................................................43
13.1 Appointment and Authorization.................................43
13.2 Delegation of Duties..........................................43
13.3 Liability of Agent............................................43
13.4 Reliance by Agent.............................................44
13.5 Notice of Default.............................................44
13.6 Credit Decision...............................................44
13.7 Indemnification...............................................45
13.8 Agent in Individual Capacity..................................46
13.9 Successor Agent; Assignment of Agency.........................46
13.10 Withholding Tax..............................................47
13.11 Collateral Matters...........................................48
13.12 Co-Agents. None o...........................................48
SECTION 14 GENERAL.........................................................48
14.1 Waiver; Amendments............................................48
14.2 Confirmations.................................................49
14.3 Notices.......................................................49
14.4 Computations..................................................49
14.5 Regulation U..................................................50
14.6 Costs, Expenses and Taxes.....................................50
14.7 Subsidiary References.........................................50
14.8 Captions......................................................50
14.9 Assignments; Participations...................................50
-iv-
<PAGE>
14.9.1 Assignments..........................................50
14.9.2 Participations.......................................52
14.10 Governing Law................................................52
14.11 Counterparts.................................................52
14.12 Successors and Assigns.......................................53
14.13 Indemnification by the Company...............................53
14.14 Forum Selection and Consent to Jurisdiction..................53
14.15 Waiver of Jury Trial.........................................54
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<PAGE>
ANNEX I
SCHEDULE I Pricing Schedule
SCHEDULE 9.6(a) Litigation and Contingent Liabilities
SCHEDULE 9.6(b) Contingent Payments
SCHEDULE 9.7 Properties
SCHEDULE 9.8 Subsidiaries
SCHEDULE 9.15 Environmental Matters
SCHEDULE 10.7(c) Existing Equipment Debt
SCHEDULE 10.7(g) Other Existing Debt
SCHEDULE 10.8 Existing Liens
SCHEDULE 12.1.11 Key Executives
SCHEDULE 14.2 Addresses for Notices
EXHIBIT A Form of Note
(Section 3.1)
EXHIBIT B Form of Compliance Certificate
(Section 10.1.3)
EXHIBIT C Intercompany Guaranty
(Section 1)
EXHIBIT D Security Agreement
(Section 1)
EXHIBIT E Company Pledge Agreement
(Section 1)
EXHIBIT F Form of Subsidiary Pledge Agreement
(Section 11.1.7)
EXHIBIT G Form of Subordination Language
(Section 1)
EXHIBIT H Form of Assignment Agreement
(Section 14.9)
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<PAGE>
AMENDED AND RESTATED CREDIT AGREEMENT
-------------------------------------
This AMENDED AND RESTATED CREDIT AGREEMENT, dated as of December 24, 1997
(this "Agreement"), is entered into among UNITED RENTALS, INC., a Delaware
---------
corporation (the "Company"), the financial institutions that are or may from
-------
time to time become parties hereto (together with their respective successors
and assigns, the "Banks") and BANK OF AMERICA NATIONAL TRUST AND SAVINGS
-----
ASSOCIATION (in its individual capacity, "BofA"), as agent for the Banks.
----
WHEREAS, the Company, various financial institutions and the Agent have
entered into a Credit Agreement, dated as of October 8, 1997 (the "Existing
--------
Agreement");
- ---------
WHEREAS, the parties hereto have agreed to amend and restate the Existing
Agreement so as to, among other things, (a) increase the amount of the revolving
credit facility to $155,000,000, (b) amend certain covenants and various other
provisions of the Existing Agreement and (c) add additional financial
institutions to the lender group; and
WHEREAS, the parties hereto intend that this Agreement and the documents
executed in connection herewith not effect a novation of the obligations of the
Company under the Existing Agreement, but merely a restatement and, where
applicable, an amendment of the terms governing such obligations;
NOW, THEREFORE, in consideration of the mutual agreements contained herein,
the Existing Agreement is amended and restated in its entirety, and the parties
hereto agree as follows:
SECTION 1 DEFINITIONS, ETC.
1.1 Definitions. When used herein the following terms shall have the
-----------
following meanings (such definitions to be applicable to both the singular and
plural forms of such terms):
Affected Bank means any Bank that has given notice to the Company (which
-------------
has not been rescinded) of (i) any obligation by the Company to pay any amount
pursuant to Section 7.6 or 8.1 or (ii) the occurrence of any circumstances of
----------- ---
the nature described in Section 8.2 or 8.3.
----------- ---
Affiliate of any Person means (i) any other Person which, directly or
---------
indirectly, controls or is controlled by or is under common control with such
Person and (ii) any officer or director of such Person.
Agent means BofA in its capacity as agent for the Banks hereunder and any
-----
successor thereto in such capacity.
<PAGE>
Agent-Related Persons means BofA, in its capacity as Agent, and any
---------------------
successor agent arising under Section 13.9, together with their respective
------------
Affiliates (including, in the case of BofA, the Arranger), and the officers,
directors, employees, agents and attorneys-in-fact of such Persons and
Affiliates.
Agreement - see the Preamble.
--------- --------
Alternate Reference Rate means at any time the greater of (a) the Federal
------------------------
Funds Rate plus 0.5% and (b) the Reference Rate.
Arranger means BancAmerica Robertson Stephens, a Delaware corporation.
--------
Assignment Agreement - see Section 14.9.1.
-------------------- --------------
Bank - see the Preamble.
---- --------
BofA - see the Preamble.
---- --------
Business Day means any day on which BofA is open for commercial banking
------------
business in Chicago, New York and San Francisco and, in the case of a Business
Day which relates to a Eurodollar Loan, on which dealings are carried on in the
interbank eurodollar market.
Capital Lease means, with respect to any Person, any lease of (or other
-------------
agreement conveying the right to use) any real or personal property by such
Person that, in conformity with GAAP, is accounted for as a capital lease on the
balance sheet of such Person.
Cash Equivalent Investment means, at any time, (a) any evidence of Debt,
--------------------------
maturing not more than one year after such time, issued or guaranteed by the
United States Government or any agency thereof, (b) commercial paper, maturing
not more than one year from the date of issue, or corporate demand notes, in
each case (unless issued by a Bank or its holding company) rated at least A-l by
Standard & Poor's Ratings Group or P-l by Moody's Investors Service, Inc., (c)
any certificate of deposit (or time deposits represented by such certificates of
deposit) or bankers acceptance, maturing not more than one year after such time,
or overnight Federal Funds transactions that are issued or sold by a commercial
banking institution that is a member of the Federal Reserve System and has a
combined capital and surplus and undivided profits of not less than
$500,000,000, (d) any repurchase agreement entered into with any Bank (or other
commercial banking institution of the stature referred to in clause (c)) which
----------
(i) is secured by a fully perfected security interest in any obligation of the
type described in any of clauses (a) through (c) and (ii) has a market value at
----------- ---
the time such repurchase agreement is entered into of not less than 100% of the
repurchase obligation of such Bank (or other commercial banking institution)
thereunder and (e) investments in short-term asset management accounts offered
by any Bank for the purpose of investing in loans to any corporation (other than
the Company or an Affiliate of the Company), state or municipality, in each case
organized under the laws of any state of the United States or of the District of
Columbia.
-2-
<PAGE>
Code means the Internal Revenue Code of 1986.
----
Collateral Documents means the Company Pledge Agreement, each Subsidiary
--------------------
Pledge Agreement, the Security Agreement and any other agreement pursuant to
which the Company or any Guarantor grants collateral to the Agent for the
benefit of the Banks.
Commitment Amount - see Section 2.1.1.
----------------- -------------
Commitments means the Loan Commitment and the L/C Commitment.
-----------
Company - see the Preamble.
------- --------
Company Pledge Agreement means the Company Pledge Agreement dated as of
------------------------
October 20, 1997, between the Company and the Agent, a copy of which is attached
hereto as Exhibit E.
---------
Computation Period means each of the following periods: (i) the Fiscal
------------------
Quarter ending March 31, 1998; (ii) the period of two Fiscal Quarters ending
June 30, 1998; (iii) the period of three Fiscal Quarters ending September 30,
1998; and (iv) each period of four Fiscal Quarters ending on the last day of a
Fiscal Quarter on or after December 31, 1998.
Consolidated Net Income means, with respect to the Company and its
-----------------------
Subsidiaries for any period, the net income (or loss) of the Company and its
Subsidiaries for such period, excluding any extraordinary gains during such
---------
period.
Contingent Payment means any payment that has been (or is required to be)
------------------
made under any of the following circumstances:
(a) such payment is required to be made by the Company or any
Subsidiary in connection with the purchase of any asset or business, where
the obligation of the Company or the applicable Subsidiary to make such
payment (or the amount thereof) is contingent upon the financial or other
performance of such asset or business on an ongoing basis (e.g., based on
revenues or similar measures of performance);
(b) such payment is required to be made by the Company or any
Subsidiary in connection with the achievement of any particular business
goal (excluding employee compensation and bonuses in the ordinary course of
business);
(c) such payment is required to be made by the Company or any
Subsidiary under circumstances similar to those described in clause (a) or
----------
(b) or provides substantially the same economic incentive as would a
---
payment described in clause (a) or (b); or
---------- ---
(d) such payment is required to be made by the Company or any
Subsidiary in connection with the purchase of any real estate, where the
obligation to make such
-3-
<PAGE>
payment is contingent on any event or condition (other than customary
closing conditions for a purchase of real estate).
Controlled Group means all members of a controlled group of corporations
----------------
and all members of a controlled group of trades or businesses (whether or not
incorporated) under common control which, together with the Company, are treated
as a single employer under Section 414 of the Code or Section 4001 of ERISA.
Debt of any Person means, without duplication, (a) all indebtedness of such
----
Person for borrowed money, whether or not evidenced by bonds, debentures, notes
or similar instruments, (b) all obligations of such Person as lessee under
Capital Leases which have been or should be recorded as liabilities on a balance
sheet of such Person, (c) all obligations of such Person to pay the deferred
purchase price of property or services (including Contingent Payments and
Holdbacks but excluding trade accounts payable in the ordinary course of
business), (d) all indebtedness secured by a Lien on the property of such
Person, whether or not such indebtedness shall have been assumed by such Person
(it being understood that if such Person has not assumed or otherwise become
personally liable for any such indebtedness, the amount of the Debt of such
Person in connection therewith shall be limited to the lesser of the face amount
of such indebtedness or the fair market value of all property of such Person
securing such indebtedness), (e) all obligations, contingent or otherwise, with
respect to the face amount of all letters of credit (whether or not drawn) and
banker's acceptances issued for the account or upon the application of such
Person (including the Letters of Credit), (f) net liabilities of such Person
under all Hedging Obligations and (g) all Guaranties of such Person.
Disposal - see the definition of "Release".
-------- -------
Dollar and the sign "$" mean lawful money of the United States of America.
------ -
Effective Date - see Section 11.1.
-------------- ------------
Environmental Claims means all claims, however asserted, by any
--------------------
governmental, regulatory or judicial authority or other Person alleging
potential liability or responsibility for violation of any Environmental Law, or
for release or injury to the environment.
Environmental Laws means all federal, state or local laws, statutes, common
------------------
law duties, rules, regulations, ordinances and codes, together with all
administrative orders, directed duties, requests, licenses, authorizations and
permits of, and agreements with, any governmental authority, in each case
relating to environmental, health, safety and land use matters.
ERISA means the Employee Retirement Income Security Act of 1974.
-----
Eurocurrency Reserve Percentage means, with respect to any Eurodollar Loan
-------------------------------
for any Interest Period, a percentage (expressed as a decimal) equal to the
daily average during such Interest Period of the percentage in effect on each
day of such Interest Period, as prescribed by
-4-
<PAGE>
the Board of Governors of the Federal Reserve System (or any successor), for
determining the aggregate maximum reserve requirements applicable to
"Eurocurrency Liabilities" pursuant to Regulation D or any other then applicable
regulation of such Board of Governors which prescribes reserve requirements
applicable to "Eurocurrency Liabilities" as presently defined in Regulation D.
Eurodollar Loan means any Loan which bears interest at a rate determined by
---------------
reference to the Eurodollar Rate (Reserve Adjusted).
Eurodollar Margin - see Schedule I.
----------------- ----------
Eurodollar Office means with respect to any Bank the office or offices of
-----------------
such Bank which shall be making or maintaining the Eurodollar Loans of such Bank
hereunder or such other office or offices through which such Bank determines its
Eurodollar Rate. A Eurodollar Office of any Bank may be, at the option of such
Bank, either a domestic or foreign office.
Eurodollar Rate means, with respect to any Eurodollar Loan for any Interest
---------------
Period, the rate per annum at which Dollar deposits in immediately available
funds are offered to the Eurodollar Office of BofA two Business Days prior to
the beginning of such Interest Period by major banks in the interbank eurodollar
market as at or about 10:00 A.M., Chicago time, for delivery on the first day of
such Interest Period, for the number of days comprised therein and in an amount
equal or comparable to the amount of the Eurodollar Loan of BofA for such
Interest Period.
Eurodollar Rate (Reserve Adjusted) means, with respect to any Eurodollar
----------------------------------
Loan for any Interest Period, a rate per annum (rounded upwards, if necessary,
to the nearest 1/100 of 1%) determined pursuant to the following formula:
Eurodollar Rate = Eurodollar Rate
---------------
(Reserve Adjusted) 1-Eurocurrency
Reserve Percentage
Event of Default means any of the events described in Section 12.1.
---------------- ------------
Existing Agreement - see the Recitals.
------------------ --------
Federal Funds Rate means, for any day, the rate set forth in the weekly
------------------
statistical release designated as H.15(519), or any successor publication,
published by the Federal Reserve Bank of New York (including any such successor
publication, "H.15(519)") on the preceding Business Day opposite the caption
"Federal Funds (Effective)"; or, if for any relevant day such rate is not so
published on any such preceding Business Day, the rate for such day will be the
arithmetic mean as determined by the Agent of the rates for the last transaction
in overnight Federal funds arranged prior to 9:00 a.m. (New York City time) on
that day by each of three leading brokers of Federal funds transactions in New
York City selected by the Agent.
-5-
<PAGE>
Financial Letter of Credit means any Letter of Credit determined by the
--------------------------
Agent to be a "financial guaranty-type Standby Letter of Credit" as defined in
footnote 13 to Appendix A to the Risk Based Capital Guidelines issued by the
Comptroller of the Currency (or in any successor regulation, guideline or ruling
by any applicable banking regulatory authority).
Fiscal Quarter means a fiscal quarter of a Fiscal Year.
--------------
Fiscal Year means the fiscal year of the Company and its Subsidiaries,
-----------
which period shall be the 12-month period ending on December 31 of each year.
References to a Fiscal Year with a number corresponding to any calendar year
(e.g., "Fiscal Year 1997") refer to the Fiscal Year ending on December 31 of
such calendar year.
Floating Rate Loan means any Loan which bears interest at or by reference
------------------
to the Alternate Reference Rate.
Floating Rate Margin - see Schedule I.
-------------------- ----------
Funded Debt means all Debt of the Company and its Subsidiaries, excluding
-----------
(i) contingent obligations in respect of undrawn letters of credit and
Guaranties (except, in each case, to the extent constituting Guaranties in
respect of Funded Debt of a Person other than the Company or any Subsidiary),
(ii) Hedging Obligations and (iii) Debt of the Company to Subsidiaries and Debt
of Subsidiaries to the Company or to other Subsidiaries.
Funded Debt to Cash Flow Ratio means, as of the last day of any Fiscal
------------------------------
Quarter, the ratio of (i) Funded Debt as of the last day of such Fiscal Quarter
to (ii) Consolidated Net Income for the period of four Fiscal Quarters ending on
the last day of such Fiscal Quarter plus, to the extent deducted in determining
----
such Consolidated Net Income, Interest Expense, income tax expense, depreciation
and amortization for such period. For purposes of calculating the Funded Debt
to Cash Flow Ratio, clause (ii) of the preceding sentence shall be calculated on
-----------
a pro forma basis in accordance with Article 11 of Regulation S-X of the SEC.
--- -----
GAAP means generally accepted accounting principles set forth from time to
----
time in the opinions and pronouncements of the Accounting Principles Board and
the American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board (or agencies with
similar functions of comparable stature and authority within the U.S. accounting
profession), which are applicable to the circumstances as of the date of
determination.
Group - see Section 2.2.1.
----- -------------
Guarantor means, on any day, each Subsidiary that has executed a
---------
counterpart of the Intercompany Guaranty on or prior to that day (or is required
to execute a counterpart of the Intercompany Guaranty on that date).
-6-
<PAGE>
Guaranty means any agreement, undertaking or arrangement by which any
--------
Person guarantees, endorses or otherwise becomes or is contingently liable upon
(by direct or indirect agreement, contingent or otherwise, to provide funds for
payment, to supply funds to or otherwise to invest in a debtor, or otherwise to
assure a creditor against loss) any indebtedness, obligation or other liability
of any other Person (other than by endorsements of instruments in the course of
collection), or guarantees the payment of dividends or other distributions upon
the shares of any other Person. The amount of any Person's obligation under any
Guaranty shall (subject to any limitation set forth therein) be deemed to be the
principal amount of the debt, obligation or other liability supported thereby.
Hedging Obligations means, with respect to any Person, all liabilities of
-------------------
such Person under interest rate, currency and commodity swap agreements, cap
agreements and collar agreements, and all other agreements or arrangements
designed to protect such Person against fluctuations in interest rates, currency
exchange rates or commodity prices.
Holdback means an unsecured, non-interest-bearing obligation of the Company
--------
or any Subsidiary to pay a portion of the purchase price for any purchase or
other acquisition permitted hereunder which matures within nine months of the
date of such purchase or other acquisition.
Immaterial Law means any provision of any Environmental Law the violation
--------------
of which will not (a) violate any judgment, decree or order which is binding
upon the Company or any Subsidiary, (b) result in or threaten any injury to
public health or the environment or any material damage to the property of any
Person or (c) result in any liability or expense (other than any de minimis
-- -------
liability or expense) for the Company or any Subsidiary; provided that no
provision of any Environmental Law shall be an Immaterial Law if the Agent has
notified the Company that the Required Banks have determined in good faith that
such provision is material.
Intercompany Guaranty means the Guaranty dated as of October 20, 1997,
---------------------
executed by various Subsidiaries of the Company, a copy of which is attached
hereto as Exhibit C.
---------
Interest Coverage Ratio means the ratio of (a) Consolidated Net Income
-----------------------
before deducting Interest Expense and income tax expense for any Computation
Period to (b) Interest Expense for such Computation Period.
Interest Expense means for any period the consolidated interest expense of
----------------
the Company and its Subsidiaries for such period (including all imputed interest
on Capital Leases and before giving effect to any capitalization of interest but
excluding amortization of deferred financing costs).
Interest Period - see Section 4.3.
--------------- -----------
Investment means, relative to any Person, (a) any loan or advance made by
----------
such Person to any other Person (excluding any commission, travel or similar
advances made to directors, officers and employees of the Company or any of its
Subsidiaries), (b) any Guaranty of such
-7-
<PAGE>
Person, (c) any ownership or similar interest held by such Person in any other
Person and (d) deposits and the like relating to prospective acquisitions of
businesses (excluding deposits placed in escrow pursuant to bona fide
arrangements that provide for the return of such deposits to the Company in the
event that the related transaction is not consummated for any reason by a date
certain).
L/C Application means, with respect to any request for the issuance of a
---------------
Letter of Credit, a letter of credit application in the form being used by BofA
at the time of such request for the type of letter of credit requested.
L/C Commitment means the commitment of BofA to issue, and of each Bank to
--------------
participate in, Letters of Credit pursuant to Section 2.1.2.
-------------
Letter of Credit - see Section 2.1.2.
---------------- -------------
Lien means, with respect to any Person, any interest granted by such Person
----
in any real or personal property, asset or other right owned or being purchased
or acquired by such Person which secures payment or performance of any
obligation and shall include any mortgage, lien, encumbrance, charge or other
security interest of any kind, whether arising by contract, as a matter of law,
by judicial process or otherwise.
Loan Commitment means the commitment of the Banks to make Loans pursuant to
---------------
Section 2.1.1.
- -------------
Loan Documents means this Agreement, the Notes, the Intercompany Guaranty,
--------------
the L/C Applications and the Collateral Documents.
Loans - see Section 2.1.1.
----- -------------
Margin Stock means any "margin stock" as defined in Regulation U of the
------------
Board of Governors of the Federal Reserve System.
Material Adverse Effect means (a) a material adverse change in, or a
-----------------------
material adverse effect upon, the financial condition, operations, assets,
business, properties or prospects of the Company and its Subsidiaries taken as a
whole, or (b) a material adverse effect upon any substantial portion of the
collateral under the Collateral Documents or upon the legality, validity,
binding effect or enforceability against the Company or any Guarantor of any
Loan Document.
Multiemployer Pension Plan means a multiemployer plan, as such term is
--------------------------
defined in Section 4001(a)(3) of ERISA, and to which the Company or any member
of the Controlled Group may have any liability.
Net Worth means the Company's consolidated stockholders' equity (including
---------
preferred stock accounts).
-8-
<PAGE>
Non-Financial Letter of Credit means any Letter of Credit other than a
------------------------------
Financial Letter of Credit.
Note - see Section 3.1.
---- -----------
Operating Lease means any lease of (or other agreement conveying the right
---------------
to use) any real or personal property by the Company or any Subsidiary, as
lessee, other than (i) any Capital Lease or (ii) any lease with a remaining term
of six months or less which is not renewable solely at the option of the lessee.
PBGC means the Pension Benefit Guaranty Corporation and any entity
----
succeeding to any or all of its functions under ERISA.
Pension Plan means a "pension plan", as such term is defined in Section
------------
3(2) of ERISA, which is subject to Title IV of ERISA (other than a Multiemployer
Pension Plan), and to which the Company or any member of the Controlled Group
may have any liability, including any liability by reason of having been a
substantial employer within the meaning of Section 4063 of ERISA at any time
during the preceding five years, or by reason of being deemed to be a
contributing sponsor under Section 4069 of ERISA.
Percentage means, with respect to any Bank, the percentage specified
----------
opposite such Bank's name on Annex I hereto, reduced (or increased) by
-------
subsequent assignments pursuant to Section 14.9.1.
--------------
Person means any natural person, corporation, partnership, trust, limited
------
liability company, association, governmental authority or unit, or any other
entity, whether acting in an individual, fiduciary or other capacity.
Public Offering means the initial public offering of the Company's common
---------------
stock as described in the Prospectus dated as of December 18, 1997.
Reference Rate means, for any day, the rate of interest in effect for such
--------------
day as publicly announced from time to time by BofA in Chicago, Illinois, as its
"reference rate." (The "reference rate" is a rate set by BofA based upon
various factors, including BofA's costs and desired return, general economic
conditions and other factors, and is used as a reference point for pricing some
loans, which may be priced at, above, or below such announced rate.) Any change
in the reference rate announced by BofA shall take effect at the opening of
business on the day specified in the public announcement of such change.
Required Banks means Banks having Percentages aggregating 66-2/3% or more.
--------------
SEC means the Securities and Exchange Commission.
---
-9-
<PAGE>
Security Agreement means the Security Agreement dated as of October 8,
------------------
1997, among the Company, various Subsidiaries of the Company and the Agent, a
copy of which is attached as Exhibit D.
---------
Seller Subordinated Debt means unsecured indebtedness of the Company that:
------------------------
(a) is subordinated, substantially upon the terms set forth in
Exhibit G or other terms that are more favorable to the Agent and the
---------
Banks, in right of payment to the payment in full in cash of the Loans and
all other amounts owed under the Loan Documents (whether or not matured or
due and payable), including amounts required to provide cash collateral for
the Letters of Credit; and
(b) represents all or part of the purchase price payable by the
Company in connection with a transaction described in Section 10.11(c).
----------------
Senior Debt means all Funded Debt of the Company and its Subsidiaries other
-----------
than Subordinated Debt.
Stated Amount means, with respect to any Letter of Credit at any date of
-------------
determination, the maximum aggregate amount available for drawing thereunder at
any time during the then ensuing term of such Letter of Credit under any and all
circumstances, plus the aggregate amount of all unreimbursed payments and
disbursements under such Letter of Credit.
Subordinated Debt means (i) Seller Subordinated Debt and (ii) any other
-----------------
unsecured indebtedness of the Company which (x) is owed to Persons other than
officers, employees, directors or Affiliates of the Company, (y) has no
amortization prior to December 31, 2001 and (z) has subordination terms and
covenants approved by the Required Banks, the approval of which shall not be
unreasonably withheld.
Subsidiary means, with respect to any Person, a corporation of which such
----------
Person and/or its other Subsidiaries own, directly or indirectly, such number of
outstanding shares as have more than 50% of the ordinary voting power for the
election of directors. Unless the context otherwise requires, each reference to
Subsidiaries herein shall be a reference to Subsidiaries of the Company.
Subsidiary Pledge Agreement means each pledge agreement substantially in
---------------------------
the form of Exhibit F issued by any Subsidiary, whether pursuant to Section
--------- -------
11.1.7 or Section 10.14, as each may be amended or otherwise modified from time
- ------ -------------
to time.
Tangible Assets means at any time all assets of the Company and its
---------------
Subsidiaries excluding all Intangible Assets. For purposes of the foregoing,
---------
"Intangible Assets" means goodwill, patents, trade names, trademarks,
- ------------------
copyrights, franchises, experimental expense, organization expense and any other
assets that are properly classified as intangible assets in accordance with
GAAP.
-10-
<PAGE>
Termination Date means the earlier to occur of (a) October 8, 2000, or such
----------------
later date to which the Termination Date may be extended at the request of the
Company and with the consent of each Bank or (b) such other date on which the
Commitments shall terminate pursuant to Section 6 or 12.
--------- --
Type of Loan or Borrowing - see Section 2.2.1. The types of Loans or
------------------------- -------------
borrowings under this Agreement are as follows: Floating Rate Loans or
borrowings and Eurodollar Loans or borrowings.
Unmatured Event of Default means any event that, if it continues uncured,
--------------------------
will, with lapse of time or notice or both, constitute an Event of Default.
Welfare Plan means a "welfare plan", as such term is defined in Section
------------
3(1) of ERISA.
1.2 Other Interpretive Provisions.
-----------------------------
(a) Section, Schedule and Exhibit references are to this
------- -------- -------
Agreement unless otherwise specified.
(b) (i) The term "including" is not limiting and means
"including without limitation."
(ii) In the computation of periods of time from a specified date
to a later specified date, the word "from" means "from and including"; the
words "to" and "until" each mean "to but excluding", and the word "through"
means "to and including."
(c) Unless otherwise expressly provided herein, (i) references to
agreements (including this Agreement) and other contractual instruments shall be
deemed to include all subsequent amendments and other modifications thereto, but
only to the extent such amendments and other modifications are not prohibited by
the terms of any Loan Document, and (ii) references to any statute or regulation
are to be construed as including all statutory and regulatory provisions
consolidating, amending, replacing, supplementing or interpreting such statute
or regulation.
(d) This Agreement and the other Loan Documents may use several
different limitations, tests or measurements to regulate the same or similar
matters. All such limitations, tests and measurements are cumulative and shall
each be performed in accordance with their terms.
(e) This Agreement and the other Loan Documents are the result of
negotiations among and have been reviewed by counsel to the Agent, the Company,
the Banks and the other parties thereto and are the products of all parties.
Accordingly, they shall not be construed against the Agent or the Banks merely
because of the Agent's or Banks' involvement in their preparation.
-11-
<PAGE>
SECTION 2 COMMITMENTS OF THE BANKS; LETTER OF CREDIT, BORROWING AND
CONVERSION PROCEDURES.
2.1 Commitments. On and subject to the terms and conditions of this
-----------
Agreement, each of the Banks, severally and for itself alone, agrees to make
loans to, and to issue or participate in the issuance of letters of credit for
the account of, the Company as follows:
2.1.1 Loan Commitment. Each Bank will make loans on a revolving basis
---------------
("Loans") from time to time before the Termination Date in such Bank's
- -------
Percentage of such aggregate amounts as the Company may from time to time
request from all Banks; provided that the aggregate principal amount of all
--------
Loans which all Banks shall be committed to have outstanding at any one time
shall not exceed the excess, if any, of (a) $155,000,000, as such amount may be
reduced from time to time pursuant to Section 6.1 (as so reduced, the
-----------
"Commitment Amount"), over (b) the Stated Amount of all outstanding Letters of
- ------------------
Credit.
2.1.2 L/C Commitment. (a) BofA will issue standby letters of credit, in
--------------
each case containing such terms and conditions as are permitted by this
Agreement and are reasonably satisfactory to BofA (each, a "Letter of Credit"),
----------------
at the request of and for the account of the Company or any Subsidiary from time
to time before the Termination Date and (b) as more fully set forth in Section
-------
2.3.5, each Bank agrees to purchase a participation in each such Letter of
- -----
Credit; provided that the aggregate Stated Amount of all Letters of Credit shall
--------
not at any time exceed the lesser of (i) $10,000,000 and (ii) the excess, if
any, of the Commitment Amount over the aggregate principal amount of all
outstanding Loans.
2.2 Loan Procedures.
---------------
2.2.1 Various Types of Loans. Each Loan shall be either a Floating Rate
----------------------
Loan or a Eurodollar Loan (each a "type" of Loan), as the Company shall specify
----
in the related notice of borrowing or conversion pursuant to Section 2.2.2 or
-------------
2.2.3. Eurodollar Loans having the same Interest Period are sometimes called a
- -----
"Group" or collectively "Groups". Floating Rate Loans and Eurodollar Loans may
----- ------
be outstanding at the same time, provided that (i) not more than eight different
--------
Groups of Loans shall be outstanding at any one time and (ii) the aggregate
principal amount of each Group of Eurodollar Loans shall at all times be at
least $1,000,000 and an integral multiple of $500,000. All borrowings,
conversions and repayments of Loans shall be effected so that each Bank will
have a pro rata share (according to its Percentage) of all types and Groups of
Loans.
2.2.2 Borrowing Procedures. The Company shall give written notice or
--------------------
telephonic notice (followed immediately by written confirmation thereof) to the
Agent of each proposed borrowing not later than (a) in the case of a Floating
Rate borrowing, 10:00 A.M., Chicago time, on the proposed date of such
borrowing, and (b) in the case of a Eurodollar borrowing, 9:00 A.M., Chicago
time, at least two Business Days prior to the proposed date of such
-12-
<PAGE>
borrowing. Each such notice shall be effective upon receipt by the Agent, shall
be irrevocable, and shall specify the date, amount and type of borrowing and, in
the case of a Eurodollar borrowing, the initial Interest Period therefor.
Promptly upon receipt of such notice, the Agent shall advise each Bank thereof.
Not later than 1:00 p.m., Chicago time, on the date of a proposed borrowing,
each Bank shall provide the Agent at the office specified by the Agent with
immediately available funds covering such Bank's Percentage of such borrowing
and, so long as the Agent has not received written notice that the conditions
precedent set forth in Section 11 with respect to such borrowing have not been
----------
satisfied (and does not have knowledge of any default in the payment of any
principal, interest or fees to be paid to the Agent for the account of the
Banks), the Agent shall pay over the requested amount to the Company on the
requested borrowing date. Each borrowing shall be on a Business Day. Each
Floating Rate borrowing shall be in an aggregate amount of at least $300,000 and
an integral multiple of $100,000.
2.2.3 Procedures for Conversion of Type of Loan. Subject to the
-----------------------------------------
provisions of Section 2.2.1, the Company may convert all or any part of any
-------------
outstanding Loan into a Loan of a different type by giving written notice or
telephonic notice (followed immediately by written confirmation thereof) to the
Agent not later than (a) in the case of conversion into a Floating Rate Loan,
10:00 A.M., Chicago time, on the proposed date of such conversion, and (b) in
the case of a conversion into a Eurodollar Loan, 9:00 A.M., Chicago time, at
least two Business Days prior to the proposed date of such conversion. Each
such notice shall be effective upon receipt by the Agent, shall be irrevocable,
and shall specify the date and amount of such conversion, the Loan to be so
converted, the type of Loan to be converted into and, in the case of a
conversion into a Eurodollar Loan, the initial Interest Period therefor.
Promptly upon receipt of such notice, the Agent shall advise each Bank thereof.
Subject to Section 2.5, such Loan shall be so converted on the requested date of
-----------
conversion. Each conversion shall be on a Business Day. Each conversion of a
Eurodollar Loan on a day other than the last day of an Interest Period therefor
shall be subject to the provisions of Section 8.4.
-----------
2.3 Letter of Credit Procedures.
---------------------------
2.3.1 L/C Applications. The Company shall give notice to the Agent
----------------
(which shall promptly inform BofA) of the proposed issuance of each Letter of
Credit on a Business Day which is at least three Business Days (or such lesser
number of days as the Agent and BofA shall agree in any particular instance)
prior to the proposed date of issuance of such Letter of Credit. Each such
notice shall be accompanied by an L/C Application, duly executed by the Company
(together with any Subsidiary for the account of which the related Letter of
Credit is to be issued) and in all respects satisfactory to the Agent and BofA,
together with such other documentation as the Agent or BofA may request in
support thereof, it being understood that each L/C Application shall specify,
among other things, the date on which the proposed Letter of Credit is to be
issued, the expiration date of such Letter of Credit (which shall not be later
than the Termination Date) and whether such Letter of Credit is to be
transferable in whole or in part. So long as BofA has not received written
notice that the conditions precedent set forth in Section 11 with respect to the
----------
issuance of such Letter of Credit have not been satisfied (and does not have
knowledge of any default in the payment of any principal, interest or fees to be
paid to the
-13-
<PAGE>
Agent for the account of the Banks), BofA shall issue such Letter of Credit on
the requested issuance date.
2.3.2 Participation in Letters of Credit. Concurrently with the issuance
----------------------------------
of each Letter of Credit, BofA shall be deemed to have sold and transferred to
each other Bank, and each other Bank shall be deemed irrevocably and
unconditionally to have purchased and received from BofA, without recourse or
warranty, an undivided interest and participation, to the extent of such other
Bank's Percentage, in such Letter of Credit and the Company's reimbursement
obligations with respect thereto. For the purposes of this Agreement, the
unparticipated portion of each Letter of Credit shall be deemed to be BofA's
"participation" therein. BofA hereby agrees (a) to notify each Bank upon the
issuance of, or any increase in the amount of, any Letter of Credit; and (b)
upon request of any Bank, to deliver to such Bank a list of all outstanding
Letters of Credit, together with such information related thereto as such Bank
may reasonably request.
2.3.3 Reimbursement Obligations. The Company hereby unconditionally and
-------------------------
irrevocably agrees to reimburse BofA for each payment or disbursement made by
BofA under any Letter of Credit honoring any demand for payment made by the
beneficiary thereunder, in each case on the date that such payment or
disbursement is made. Any amount not reimbursed on the date of such payment or
disbursement shall bear interest from the date of such payment or disbursement
to the date that BofA is reimbursed by the Company therefor, payable on demand,
at a rate per annum equal to the Alternate Reference Rate from time to time in
effect plus the Floating Rate Margin (determined as set forth in Schedule I)
---- ----------
from time to time in effect plus 2%. BofA shall notify the Company whenever any
----
demand for payment is made under any Letter of Credit by the beneficiary
thereunder; provided, however, that the failure of BofA to so notify the Company
-------- -------
shall not affect the rights of BofA or the Banks in any manner whatsoever.
2.3.4 Limitation on BofA's Obligations. In determining whether to pay
--------------------------------
under any Letter of Credit, BofA shall have no obligation to the Company or any
Bank other than to confirm that any documents required to be delivered under
such Letter of Credit appear to have been delivered and appear to comply on
their face with the requirements of such Letter of Credit. Any action taken or
omitted to be taken by BofA under or in connection with any Letter of Credit, if
taken or omitted in the absence of gross negligence and willful misconduct,
shall not impose upon BofA any liability to the Company or any Bank and shall
not reduce or impair the Company's reimbursement obligations set forth in
Section 2.3.3 or the obligations of the Banks pursuant to Section 2.3.5.
- ------------- -------------
2.3.5 Funding by Banks to BofA. If BofA makes any payment or
------------------------
disbursement under any Letter of Credit and the Company has not reimbursed BofA
in full for such payment or disbursement by 11:00 A.M., Chicago time, on the
date of such payment or disbursement, or if any reimbursement received by BofA
from the Company is or must be returned or rescinded upon or during any
bankruptcy or reorganization of the Company or otherwise, each other Bank shall
be obligated to pay to BofA, in full or partial payment of the purchase price of
its participation in such Letter of Credit, its pro rata share (according to its
Percentage) of such payment or disbursement (but no such payment shall diminish
the obligations of the Company
-14-
<PAGE>
under Section 2.3.3), and the Agent shall promptly notify each other Bank
-------------
thereof. Each other Bank irrevocably and unconditionally agrees to so pay to
the Agent in immediately available funds for BofA's account the amount of such
other Bank's Percentage of such payment or disbursement. If and to the extent
any Bank shall not have made such amount available to the Agent by 2:00 P.M.,
Chicago time, on the Business Day on which such Bank receives notice from the
Agent of such payment or disbursement (it being understood that any such notice
received after noon, Chicago time, on any Business Day shall be deemed to have
been received on the next following Business Day), such Bank agrees to pay
interest on such amount to the Agent for BofA's account forthwith on demand for
each day from the date such amount was to have been delivered to the Agent to
the date such amount is paid, at a rate per annum equal to (a) for the first
three days after demand, the Federal Funds Rate from time to time in effect and
(b) thereafter, the Alternate Reference Rate from time to time in effect. Any
Bank's failure to make available to the Agent its Percentage of any such payment
or disbursement shall not relieve any other Bank of its obligation hereunder to
make available to the Agent such other Bank's Percentage of such payment, but no
Bank shall be responsible for the failure of any other Bank to make available to
the Agent such other Bank's Percentage of any such payment or disbursement.
2.3.6 Repayment of Participations. Upon (and only upon) receipt by the
---------------------------
Agent for the account of BofA of immediately available funds from the Company
(a) in reimbursement of any payment made by BofA under a Letter of Credit with
respect to which a Bank has paid the Agent for the account of BofA the amount of
such Bank's participation therein or (b) in payment of any interest thereon, the
Agent will pay to such Bank its pro rata share (according to its Percentage)
thereof (and BofA shall receive the amount otherwise payable to any Bank which
did not so pay the Agent the amount of such Bank's participation in the
applicable Letter of Credit).
2.4 Commitments Several. The failure of any Bank to make a requested
-------------------
Loan on any date shall not relieve any other Bank of its obligation to make a
Loan on such date, but no Bank shall be responsible for the failure of any other
Bank to make any Loan to be made by such other Bank.
2.5 Certain Conditions. Notwithstanding any other provision of this
------------------
Agreement, no Bank shall have an obligation to make any Loan, or to permit the
continuation of or any conversion into any Eurodollar Loan, and BofA shall have
no obligation to issue any Letter of Credit, if an Event of Default or Unmatured
Event of Default exists.
SECTION 3 NOTES EVIDENCING LOANS.
3.1 Notes. The Loans of each Bank shall be evidenced by a promissory
-----
note (each a "Note") substantially in the form set forth in Exhibit A, with
---- ---------
appropriate insertions, payable to the order of such Bank in an amount equal to
such Bank's Percentage of the Loan Commitment (or, if less, in the aggregate
unpaid principal amount of such Bank's Loans).
-15-
<PAGE>
3.2 Recordkeeping. Each Bank shall record in its records, or at its
-------------
option on the schedule attached to its Note, the date and amount of each Loan
made by such Bank, each repayment or conversion thereof and, in the case of each
Eurodollar Loan, the dates on which each Interest Period for such Loan shall
begin and end. The aggregate unpaid principal amount so recorded shall be
rebuttable presumptive evidence of the principal amount owing and unpaid on such
Note. The failure to so record any such amount or any error in so recording any
such amount shall not, however, limit or otherwise affect the obligations of the
Company hereunder or under any Note to repay the principal amount of the Loans
evidenced by such Note together with all interest accruing thereon.
SECTION 4 INTEREST.
4.1 Interest Rates. The Company promises to pay interest on the unpaid
--------------
principal amount of each Loan for the period commencing on the date of such Loan
until such Loan is paid in full as follows:
(a) at all times while such Loan is a Floating Rate Loan, at a rate
per annum equal to the sum of the Alternate Reference Rate from time to
time in effect plus the Floating Rate Margin (determined as set forth in
Schedule I) from time to time in effect; and
----------
(b) at all times while such Loan is a Eurodollar Loan, at a rate per
annum equal to the sum of the Eurodollar Rate (Reserve Adjusted) applicable
to each Interest Period for such Loan plus the Eurodollar Margin
(determined as set forth in Schedule I) from time to time in effect;
----------
provided, however, that at any time an Event of Default exists, the interest
- -------- -------
rate applicable to each Loan shall be increased by 2%.
4.2 Interest Payment Dates. Accrued interest on each Floating Rate Loan
----------------------
shall be payable in arrears on the last day of each calendar month and at
maturity. Accrued interest on each Eurodollar Loan shall be payable on the last
day of each Interest Period relating to such Loan (and, in the case of a
Eurodollar Loan with a six-month Interest Period, on the three-month anniversary
of the first day of such Interest Period) and at maturity. After maturity,
accrued interest on all Loans shall be payable on demand.
4.3 Interest Periods. Each "Interest Period" for a Eurodollar Loan shall
----------------
commence on the date such Eurodollar Loan is made or converted from a Floating
Rate Loan, or on the expiration of the immediately preceding Interest Period for
such Eurodollar Loan, and shall end on the date which is one, two, three or six
months thereafter, as the Company may specify:
(a) in the case of an Interest Period which commences on the date a
Eurodollar Loan is made or converted from a Floating Rate Loan, in the
related notice of borrowing or conversion pursuant to Section 2.2.2 or
-------------
2.2.3, or
-----
-16-
<PAGE>
(b) in the case of a succeeding Interest Period with respect to any
Eurodollar Loan, by written notice or telephonic notice (followed
immediately by written confirmation thereof) to the Agent (which shall
promptly notify each Bank) not later than 10:00 A.M., Chicago time, at
least three Business Days prior to the first day of such succeeding
Interest Period, it being understood that (i) each such notice shall be
effective upon receipt by the Agent and (ii) if the Company fails to give
such notice, such Loan shall automatically become a Floating Rate Loan at
the end of its then-current Interest Period.
Each Interest Period that begins on the last day of a calendar month (or on a
day for which there is no numerically corresponding day in the appropriate
subsequent calendar month) shall end on the last Business Day of the appropriate
subsequent calendar month. Each Interest Period which would otherwise end on a
day which is not a Business Day shall end on the immediately succeeding Business
Day (unless such immediately succeeding Business Day is the first Business Day
of a calendar month, in which case such Interest Period shall end on the
immediately preceding Business Day). The Company may not select any Interest
Period for a Loan which would end after the scheduled Termination Date.
4.4 Setting and Notice of Eurodollar Rates. The applicable Eurodollar
--------------------------------------
Rate for each Interest Period shall be determined by the Agent, and notice
thereof shall be given by the Agent promptly to the Company and each Bank. Each
determination of the applicable Eurodollar Rate by the Agent shall be conclusive
and binding upon the parties hereto, in the absence of demonstrable error. The
Agent shall, upon written request of the Company or any Bank, deliver to the
Company or such Bank a statement showing the computations used by the Agent in
determining any applicable Eurodollar Rate hereunder.
4.5 Computation of Interest. Interest shall be computed for the actual
-----------------------
number of days elapsed on the basis of a year of 360 days. The applicable
interest rate for each Floating Rate Loan shall change simultaneously with each
change in the Alternate Reference Rate.
SECTION 5 FEES.
5.1 Non-Use Fee. The Company agrees to pay to the Agent for the account
-----------
of each Bank a non-use fee, for the period from the Effective Date to the
Termination Date, at the rate per annum in effect from time to time pursuant to
Schedule I of the daily average of the unused amount of such Bank's Percentage
- ----------
of the Commitment Amount. For purposes of calculating usage under this Section,
the Commitment Amount shall be deemed used to the extent of the aggregate
principal amount of all outstanding Loans plus the undrawn amount of all Letters
of Credit. Such non-use fee shall be payable in arrears on the last day of each
calendar quarter and on the Termination Date for any period then ending for
which such non-use fee shall not have theretofore been paid. The non-use fee
shall be computed for the actual number of days elapsed on the basis of a year
of 360 days.
-17-
<PAGE>
5.2 Letter of Credit Fees.
---------------------
(a) The Company agrees to pay to the Agent for the account of the Banks pro
rata according to their respective Percentages a letter of credit fee for each
Letter of Credit in an amount equal to the rate per annum in effect from time to
time pursuant to Schedule I of the undrawn amount of such Letter of Credit
----------
(computed for the actual number of days elapsed on the basis of a year of 360
days); provided that the rate applicable to each Letter of Credit shall be
--------
increased by 2% at any time that an Event of Default exists. Such letter of
credit fee shall be payable in arrears on the last day of each calendar quarter
and on the Termination Date for the period from the date of the issuance of each
Letter of Credit to the date such payment is due or, if earlier, the date on
which such Letter of Credit expired or was terminated.
(b) In addition, with respect to each Letter of Credit, the Company agrees
to pay to BofA, for its own account, (i) such fees and expenses as BofA
customarily requires in connection with the issuance, negotiation, processing
and/or administration of letters of credit in similar situations and (ii) a
letter of credit fee in the amount separately agreed to by the Company and BofA.
5.3 Arrangement and Agent's Fees. The Company agrees to pay to the
----------------------------
Arranger and the Agent such arrangement and agent's fees as are mutually agreed
to from time to time by the Company and the Agent.
5.4 Closing Fees. On the Effective Date, the Company shall pay to the
------------
Agent for the account of each Bank a closing fee in an amount equal to 0.25% of
the excess (if any) of such Bank's Percentage of the Commitment Amount over such
Bank's "Percentage" of the "Commitment Amount" under the Existing Agreement.
SECTION 6 REDUCTION AND TERMINATION OF THE COMMITMENTS; PREPAYMENTS.
6.1 Reduction or Termination of the Commitments. The Company may from
-------------------------------------------
time to time on at least five Business Days' prior written notice received by
the Agent (which shall promptly advise each Bank thereof) permanently reduce the
Commitment Amount to an amount not less than the sum of the aggregate unpaid
principal amount of the Loans and the aggregate Stated Amount of all Letters of
Credit. Any such reduction shall be in an amount not less than $5,000,000 or a
higher integral multiple of $1,000,000. The Company may at any time on like
notice terminate the Commitments upon payment in full of all Loans and all other
obligations of the Company hereunder and cash collateralization in full,
pursuant to documentation in form and substance reasonably satisfactory to the
Banks, of all obligations arising with respect to the Letters of Credit. All
reductions of the Commitment Amount shall reduce the Commitments pro rata among
the Banks according to their respective Percentages.
6.2 Voluntary Prepayments. The Company may from time to time prepay the
---------------------
Loans in whole or in part, provided that (a) the Company shall give the Agent
--------
(which shall promptly
-18-
<PAGE>
advise each Bank) notice thereof not later than 10:00 A.M. (Chicago time) on the
day of such prepayment, specifying the Loans to be prepaid and the date and
amount of prepayment, (b) each partial prepayment shall be in a principal amount
of at least $100,000 and an integral multiple of $100,000 and (c) any prepayment
of a Eurodollar Loan on a day other than the last day of an Interest Period
therefor shall be subject to Section 8.4.
-----------
SECTION 7 MAKING AND PRORATION OF PAYMENTS; SETOFF; TAXES.
7.1 Making of Payments. All payments of principal of or interest on the
------------------
Notes, and of all non-use fees and Letter of Credit fees, shall be made by the
Company to the Agent in immediately available funds at the office specified by
the Agent not later than noon, Chicago time, on the date due; and funds received
after that hour shall be deemed to have been received by the Agent on the next
following Business Day. The Company hereby authorizes and instructs the Agent
to charge any demand deposit account of the Company maintained with BofA for the
amount of any such payment on the due date therefor, and (subject to there being
a sufficient balance in such account for such purpose) the Agent agrees to do
so, provided that the Agent's failure to so charge such account shall in no way
--------
affect the obligation of the Company to make any such payment. The Agent shall
promptly remit to each Bank or other holder of a Note its share of all such
payments received in collected funds by the Agent for the account of such Bank
or holder.
All payments under Section 8.1 shall be made by the Company directly to the
-----------
Bank entitled thereto.
7.2 Application of Certain Payments. Each payment of principal shall be
-------------------------------
applied to such Loans as the Company shall direct by notice to be received by
the Agent on or before the date of such payment or, in the absence of such
notice, as the Agent shall determine in its discretion. Concurrently with each
remittance to any Bank of its share of any such payment, the Agent shall advise
such Bank as to the application of such payment.
7.3 Due Date Extension. If any payment of principal or interest with
------------------
respect to any of the Notes, or of non-use fees or Letter of Credit fees, falls
due on a day which is not a Business Day, then such due date shall be extended
to the immediately following Business Day (unless, in the case of a Eurodollar
Loan, such immediately following Business Day is the first Business Day of a
calendar month, in which case such date shall be the immediately preceding
Business Day) and, in the case of principal, additional interest shall accrue
and be payable for the period of any such extension.
7.4 Setoff. The Company agrees that the Agent, each Bank and each other
------
holder of a Note have all rights of set-off and bankers' lien provided by
applicable law, and in addition thereto, the Company agrees that at any time (a)
any payment or other amount owing by the Company under this Agreement is then
due to the Agent, any Bank or any such holder or (b) any Unmatured Event of
Default under Section 12.1.4 with respect to the Company or any Event of Default
--------------
exists, the Agent, each Bank and each such holder may apply to the payment of
such
-19-
<PAGE>
payment or other amount (or, in the case of clause (b), to any obligations of
----------
the Company hereunder, whether or not then due) any and all balances, credits,
deposits, accounts or moneys of the Company then or thereafter with the Agent,
such Bank or such holder.
7.5 Proration of Payments. If any Bank shall obtain any payment or other
---------------------
recovery (whether voluntary, involuntary, by application of offset or otherwise,
but excluding any payment pursuant to Section 8.7 or 14.9) on account of
----------- ----
principal of or interest on any Note (or on account of its participation in any
Letter of Credit) in excess of its pro rata share of payments and other
recoveries obtained by all Banks on account of principal of and interest on
Notes (or such participation) then held by them, such Bank shall purchase from
the other Banks such participation in the Notes (or sub-participation in Letters
of Credit) held by them as shall be necessary to cause such purchasing Bank to
share the excess payment or other recovery ratably with each of them; provided,
--------
however, that if all or any portion of the excess payment or other recovery is
- -------
thereafter recovered from such purchasing Bank, the purchase shall be rescinded
and the purchase price restored to the extent of such recovery (but without
interest).
7.6 Taxes. All payments of principal of, and interest on, the Loans and
-----
all other amounts payable hereunder shall be made free and clear of and without
deduction for any present or future income, excise, stamp or franchise taxes and
other taxes, fees, duties, withholdings or other charges of any nature
whatsoever imposed by any taxing authority, but excluding franchise taxes and
taxes imposed on or measured by any Bank's net income or receipts (all non-
excluded items being called "Taxes"). If any withholding or deduction from any
-----
payment to be made by the Company hereunder is required in respect of any Taxes
pursuant to any applicable law, rule or regulation, then the Company will:
(a) pay directly to the relevant authority the full amount required to
be so withheld or deducted;
(b) promptly forward to the Agent an official receipt or other
documentation satisfactory to the Agent evidencing such payment to such
authority; and
(c) pay to the Agent for the account of the Banks such additional
amount or amounts as is necessary to ensure that the net amount actually
received by each Bank will equal the full amount such Bank would have
received had no such withholding or deduction been required.
Moreover, if any Taxes are directly asserted against the Agent or any Bank with
respect to any payment received by the Agent or such Bank hereunder, the Agent
or such Bank may pay such Taxes and the Company will promptly pay such
additional amounts (including any penalty, interest and expense) as is necessary
in order that the net amount received by such Person after the payment of such
Taxes (including any Taxes on such additional amount) shall equal the amount
such Person would have received had such Taxes not been asserted.
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<PAGE>
If the Company fails to pay any Taxes when due to the appropriate taxing
authority or fails to remit to the Agent, for the account of the respective
Banks, the required receipts or other required documentary evidence, the Company
shall indemnify the Banks for any incremental Taxes, interest or penalties that
may become payable by any Bank as a result of any such failure. For purposes of
this Section 7.6, a distribution hereunder by the Agent or any Bank to or for
-----------
the account of any Bank shall be deemed a payment by the Company.
Upon the request from time to time of the Company or the Agent, each Bank
that is organized under the laws of a jurisdiction other than the United States
of America or any State thereof shall execute and deliver to the Company and the
Agent one or more (as the Company or the Agent may reasonably request) United
States Internal Revenue Service Forms 4224 or Forms 1001 or such other forms or
documents, appropriately completed, as may be applicable to establish the
extent, if any, to which a payment to such Bank is exempt from withholding or
deduction of Taxes.
The obligations of the Company under this Section 7.6 (i) are subject to
-----------
the limitations set out in Section 14.9.1 and (ii) shall survive repayment of
--------------
the Loans, cancellation of the Notes, cancellation or expiration of the Letters
of Credit and any termination of the Agreement.
SECTION 8 INCREASED COSTS; SPECIAL PROVISIONS FOR EURODOLLAR LOANS.
8.1 Increased Costs.
---------------
(a) If, after the date hereof, the adoption of or any change in any
applicable law, rule or regulation, or any change in the interpretation or
administration thereof by any governmental authority, central bank or comparable
agency charged with the interpretation or administration thereof, or compliance
by any Bank (or any Eurodollar Office of such Bank) with any request or
directive (whether or not having the force of law) of any such authority,
central bank or comparable agency
(A) shall subject any Bank (or any Eurodollar Office of such Bank) to
any tax, duty or other charge with respect to its Eurodollar Loans, its
Note or its obligation to make Eurodollar Loans, or shall change the basis
of taxation of payments to any Bank of the principal of or interest on its
Eurodollar Loans or any other amounts due under this Agreement in respect
of its Eurodollar Loans or its obligation to make Eurodollar Loans (except
for changes in the rate of tax on the overall net income of such Bank or
its Eurodollar Office imposed by the jurisdiction in which such Bank's
principal executive office or Eurodollar Office is located); or
(B) shall impose, modify or deem applicable any reserve (including any
reserve imposed by the Board of Governors of the Federal Reserve System,
but excluding any reserve included in the determination of interest rates
pursuant to Section 4), special
---------
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<PAGE>
deposit or similar requirement against assets of, deposits with or for the
account of, or credit extended by any Bank (or any Eurodollar Office of
such Bank); or
(C) shall impose on any Bank (or its Eurodollar Office) any other
condition affecting its Eurodollar Loans, its Note or its obligation to
make Eurodollar Loans;
and the result of any of the foregoing is to increase the cost to (or in the
case of Regulation D of the Board of Governors of the Federal Reserve System, to
impose a cost on) such Bank (or any Eurodollar Office of such Bank) of making or
maintaining any Eurodollar Loan, or to reduce the amount of any sum received or
receivable by such Bank (or its Eurodollar Office) under this Agreement or under
its Note with respect thereto, then within 10 days after demand by such Bank
(which demand shall be accompanied by a statement setting forth the basis for
such demand, a copy of which shall be furnished to the Agent), the Company shall
pay directly to such Bank such additional amount as will compensate such Bank
for such increased cost or such reduction.
(b) If any Bank shall reasonably determine that the adoption or phase-in of
or any change in any applicable law, rule or regulation regarding capital
adequacy, or any change in the interpretation or administration thereof by any
governmental authority, central bank or comparable agency charged with the
interpretation or administration thereof, or compliance by any Bank or any
Person controlling such Bank with any request or directive regarding capital
adequacy (whether or not having the force of law) of any such authority, central
bank or comparable agency, has or would have the effect of reducing the rate of
return on such Bank's or such controlling Person's capital as a consequence of
such Bank's obligations hereunder (including such Bank's obligations under the
Loan Commitment or the L/C Commitment) or under any Letter of Credit to a level
below that which such Bank or such controlling Person could have achieved but
for such adoption, change or compliance (taking into consideration such Bank's
or such controlling Person's policies with respect to capital adequacy) by an
amount deemed by such Bank or such controlling Person to be material, then from
time to time, within 10 days after demand by such Bank (which demand shall be
accompanied by a statement setting forth the basis for such demand, a copy of
which shall be furnished to the Agent), the Company shall pay to such Bank such
additional amount or amounts as will compensate such Bank or such controlling
Person for such reduction.
8.2 Basis for Determining Interest Rate Inadequate or Unfair. If with
--------------------------------------------------------
respect to any Interest Period:
(a) deposits in Dollars (in the applicable amounts) are not being
offered to the Agent in the interbank eurodollar market for such Interest
Period, or the Agent otherwise reasonably determines (which determination
shall be binding and conclusive on the Company) that by reason of
circumstances affecting the interbank eurodollar market adequate and
reasonable means do not exist for ascertaining the applicable Eurodollar
Rate; or
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<PAGE>
(b) Banks having an aggregate Percentage of 30% or more advise the
Agent that the Eurodollar Rate (Reserve Adjusted) as determined by the
Agent will not adequately and fairly reflect the cost to such Banks of
maintaining or funding such Loans for such Interest Period (taking into
account any amount to which such Banks may be entitled under Section 8.1)
-----------
or that the making or funding of Eurodollar Loans has become impracticable
as a result of an event occurring after the date of this Agreement which in
the opinion of such Banks materially affects such Loans;
then the Agent shall promptly notify the other parties thereof and, so long as
- ----
such circumstances shall continue, (i) no Bank shall be under any obligation to
make or convert into Eurodollar Loans and (ii) on the last day of the current
Interest Period for each Eurodollar Loan, such Loan shall, unless then repaid in
full, automatically convert to a Floating Rate Loan.
8.3 Changes in Law Rendering Eurodollar Loans Unlawful. In the event
--------------------------------------------------
that any change in (including the adoption of any new) applicable laws or
regulations, or any change in the interpretation of applicable laws or
regulations by any governmental or other regulatory body charged with the
administration thereof, should make it (or in the good faith judgment of any
Bank cause a substantial question as to whether it is) unlawful for any Bank to
make, maintain or fund Eurodollar Loans, then such Bank shall promptly notify
each of the other parties hereto and, so long as such circumstances shall
continue, (a) such Bank shall have no obligation to make or convert into
Eurodollar Loans (but shall make Floating Rate Loans concurrently with the
making of or conversion into Eurodollar Loans by the Banks which are not so
affected, in each case in an amount equal to such Bank's pro rata share of all
Eurodollar Loans which would be made or converted into at such time in the
absence of such circumstances) and (b) on the last day of the current Interest
Period for each Eurodollar Loan of such Bank (or, in any event, on such earlier
date as may be required by the relevant law, regulation or interpretation), such
Eurodollar Loan shall, unless then repaid in full, automatically convert to a
Floating Rate Loan. Each Floating Rate Loan made by a Bank which, but for the
circumstances described in the foregoing sentence, would be a Eurodollar Loan
(an "Affected Loan") shall remain outstanding for the same period as the Group
of Eurodollar Loans of which such Affected Loan would be a part absent such
circumstances.
8.4 Funding Losses. The Company hereby agrees that upon demand by any
--------------
Bank (which demand shall be accompanied by a statement setting forth the basis
for the amount being claimed, a copy of which shall be furnished to the Agent),
the Company will indemnify such Bank against any net loss or expense which such
Bank may sustain or incur (including any net loss or expense incurred by reason
of the liquidation or reemployment of deposits or other funds acquired by such
Bank to fund or maintain any Eurodollar Loan), as reasonably determined by such
Bank, as a result of (a) any payment, prepayment or conversion of any Eurodollar
Loan of such Bank on a date other than the last day of an Interest Period for
such Loan (including any conversion pursuant to Section 8.3) or (b) any failure
-----------
of the Company to borrow, convert, continue or prepay any Loan on a date
specified therefor in a notice of borrowing, conversion, continuation or
prepayment pursuant to this Agreement. For this purpose, all notices to the
Agent pursuant to this Agreement shall be deemed to be irrevocable.
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<PAGE>
8.5 Right of Banks to Fund through Other Offices. Each Bank may, if it
--------------------------------------------
so elects, fulfill its commitment as to any Eurodollar Loan by causing a foreign
branch or affiliate of such Bank to make such Loan, provided that in such event
--------
for the purposes of this Agreement such Loan shall be deemed to have been made
by such Bank and the obligation of the Company to repay such Loan shall
nevertheless be to such Bank and shall be deemed held by it, to the extent of
such Loan, for the account of such branch or affiliate.
8.6 Discretion of Banks as to Manner of Funding. Notwithstanding any
-------------------------------------------
provision of this Agreement to the contrary, each Bank shall be entitled to fund
and maintain its funding of all or any part of its Loans in any manner it sees
fit, it being understood, however, that for the purposes of this Agreement all
determinations hereunder shall be made as if such Bank had actually funded and
maintained each Eurodollar Loan during each Interest Period for such Loan
through the purchase of deposits having a maturity corresponding to such
Interest Period and bearing an interest rate equal to the Eurodollar Rate for
such Interest Period.
8.7 Mitigation of Circumstances; Replacement of Affected Bank.
---------------------------------------------------------
(a) Each Bank shall promptly notify the Company and the Agent of any event
of which it has knowledge which will result in, and will use reasonable
commercial efforts available to it (and not, in such Bank's good faith judgment,
otherwise disadvantageous to such Bank) to mitigate or avoid, (i) any obligation
by the Company to pay any amount pursuant to Section 7.6 or 8.1 or (ii) the
----------- ---
occurrence of any circumstances of the nature described in Section 8.2 or 8.3
----------- ---
(and, if any Bank has given notice of any such event described in clause (i) or
----------
(ii) above and thereafter such event ceases to exist, such Bank shall promptly
- ----
so notify the Company and the Agent). Without limiting the foregoing, each Bank
will designate a different funding office if such designation will avoid (or
reduce the cost to the Company of) any event described in clause (i) or (ii) of
---------- ----
the preceding sentence and such designation will not, in such Bank's sole
judgment, be otherwise disadvantageous to such Bank.
(b) At any time any Bank is an Affected Bank, the Company may replace such
Affected Bank as a party to this Agreement with one or more other bank(s) or
financial institution(s) reasonably satisfactory to the Agent (and upon notice
from the Company such Affected Bank shall assign pursuant to an Assignment
Agreement, and without recourse or warranty, its Commitment, its Loans, its
Note, its participation in Letters of Credit, and all of its other rights and
obligations hereunder to such replacement bank(s) or other financial
institution(s) for a purchase price equal to the sum of the principal amount of
the Loans so assigned, all accrued and unpaid interest thereon, its ratable
share of all accrued and unpaid non-use fees and Letter of Credit fees, any
amounts payable under Section 8.4 as a result of such Bank receiving payment of
-----------
any Eurodollar Loan prior to the end of an Interest Period therefor and all
other obligations owed to such Affected Bank hereunder).
8.8 Conclusiveness of Statements; Survival of Provisions. Determinations
----------------------------------------------------
and statements of any Bank pursuant to Section 8.1, 8.2, 8.3 or 8.4 shall be
----------- --- --- ---
conclusive absent demonstrable error. Banks may use reasonable averaging and
attribution methods in determining
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<PAGE>
compensation under Sections 8.1 and 8.4, and the provisions of such Sections
------------ ---
shall survive repayment of the Loans, cancellation of the Notes, cancellation or
expiration of the Letters of Credit and any termination of this Agreement.
SECTION 9 WARRANTIES.
To induce BofA to issue Letters of Credit and to induce the Agent and the
Banks to enter into this Agreement and to induce the Banks to make Loans and
purchase participation in Letters of Credit hereunder, the Company warrants to
the Agent and the Banks that:
9.1 Organization, etc. The Company is a corporation duly organized,
------------------
validly existing and in good standing under the laws of the State of Delaware;
each Subsidiary is a corporation duly organized, validly existing and in good
standing under the laws of the state of its incorporation; and each of the
Company and each Subsidiary is duly qualified to do business in each
jurisdiction where the nature of its business makes such qualification necessary
(except in those instances in which the failure to be qualified or in good
standing does not have a Material Adverse Effect) and has full power and
authority to own its property and conduct its business as presently conducted by
it.
9.2 Authorization; No Conflict. The execution and delivery by the
--------------------------
Company of this Agreement and each other Loan Document to which it is a party,
the borrowings and obtaining of letters of credit hereunder, the execution and
delivery by each Guarantor of each Loan Document to which it is a party and the
performance by each of the Company and each Guarantor of its obligations under
each Loan Document to which it is a party are within the corporate powers of the
Company and each Guarantor, have been duly authorized by all necessary corporate
action on the part of the Company and each Guarantor (including any necessary
shareholder action), have received all necessary governmental approval (if any
shall be required), and do not and will not (a) violate any provision of law or
any order, decree or judgment of any court or other government agency which is
binding on the Company or any Guarantor, (b) contravene or conflict with, or
result in a breach of, any provision of the Certificate of Incorporation, By-
Laws or other organizational documents of the Company or any Guarantor or of any
agreement, indenture, instrument or other document which is binding on the
Company, any Guarantor or any other Subsidiary or (c) result in, or require, the
creation or imposition of any Lien on any property of the Company, any Guarantor
or any other Subsidiary (other than Liens arising under the Loan Documents).
9.3 Validity and Binding Nature. Each of this Agreement and each other
---------------------------
Loan Document to which the Company is a party is the legal, valid and binding
obligation of the Company, enforceable against the Company in accordance with
its terms; and each Loan Document to which any Guarantor is a party is, or upon
the execution and delivery thereof by such Guarantor will be, the legal, valid
and binding obligation of such Guarantor, enforceable against such Guarantor in
accordance with its terms.
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<PAGE>
9.4 Information. All information heretofore or contemporaneously
-----------
herewith furnished in writing by the Company or any Subsidiary to any Bank for
purposes of or in connection with this Agreement and the transactions
contemplated hereby is, and all written information hereafter furnished by or on
behalf of the Company or any Subsidiary to any Bank pursuant hereto or in
connection herewith will be, true and accurate in every material respect on the
date as of which such information is dated or certified, and none of such
information is or will be incomplete by omitting to state any material fact
necessary to make such information not misleading in light of the circumstances
under which made (it being recognized by the Agent and the Banks that any
projections and forecasts provided by the Company are based on good faith
estimates and assumptions believed by the Company to be reasonable as of the
date of the applicable projections or assumptions and that actual results during
the period or periods covered by any such projections and forecasts may differ
from projected or forecasted results).
9.5 No Material Adverse Change. Since October 1, 1997, there has been no
--------------------------
material adverse change in the financial condition, operations, assets,
business, properties or prospects of the Company and its Subsidiaries taken as a
whole.
9.6 Litigation and Contingent Liabilities.
-------------------------------------
(a) No litigation (including derivative actions), arbitration proceeding,
labor controversy or governmental investigation or proceeding is pending or, to
the Company's knowledge, threatened against the Company or any Subsidiary which
might reasonably be expected to have a Material Adverse Effect, except as set
forth in Schedule 9.6(a). Other than any liability incident to such litigation
---------------
or proceedings, neither the Company nor any Subsidiary has any material
contingent liabilities not listed in such Schedule 9.6(a) or 9.6(b).
--------------- ------
(b) Schedule 9.6(b) sets out descriptions of all arrangements existing on
---------------
the Effective Date pursuant to which the Company or any Subsidiary may be
required to pay any Contingent Payment.
9.7 Ownership of Properties; Liens. Except as set forth on Schedule 9.7,
------------------------------ ------------
each of the Company and each Subsidiary owns good and marketable title to all of
its properties and assets, real and personal, tangible and intangible, of any
nature whatsoever (including patents, trademarks, trade names, service marks and
copyrights), free and clear of all Liens, charges and material claims (including
material infringement claims with respect to patents, trademarks, copyrights and
the like) except as permitted pursuant to Section 10.8.
------------
9.8 Subsidiaries. The Company has no Subsidiaries except those listed in
------------
Schedule 9.8.
- ------------
9.9 Pension and Welfare Plans.
-------------------------
(a) During the twelve-consecutive-month period prior to the date of the
execution and delivery of this Agreement or the making of any Loan hereunder,
(i) no steps have been taken to terminate any Pension Plan and (ii) no
contribution failure has occurred with respect to
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<PAGE>
any Pension Plan sufficient to give rise to a lien under Section 302(f) of
ERISA. No condition exists or event or transaction has occurred with respect to
any Pension Plan which could result in the incurrence by the Company of any
material liability, fine or penalty. The Company has no contingent liability
with respect to any post-retirement benefit under a Welfare Plan, other than
liability for continuation coverage described in Part 6 of Subtitle B of Title I
of ERISA.
(b) All contributions (if any) have been made to any Multiemployer Pension
Plan that are required to be made by the Company or any other member of the
Controlled Group under the terms of such Multiemployer Pension Plan or of any
collective bargaining agreement or by applicable law; neither the Company nor
any member of the Controlled Group has withdrawn or partially withdrawn from any
Multiemployer Pension Plan, incurred any withdrawal liability with respect to
any Multiemployer Pension Plan, received notice of any claim or demand for
withdrawal liability or partial withdrawal liability from any Multiemployer
Pension Plan, and no condition has occurred which, if continued, might result in
a withdrawal or partial withdrawal from any Multiemployer Pension Plan; and
neither the Company nor any member of the Controlled Group has received any
notice that any Multiemployer Pension Plan is in reorganization, that increased
contributions may be required to avoid a reduction in plan benefits or the
imposition of any excise tax, that any Multiemployer Pension Plan is or has been
funded at a rate less than that required under Section 412 of the Code, that any
Multiemployer Pension Plan is or may be terminated, or that any Multiemployer
Pension Plan is or may become insolvent.
9.10 Investment Company Act. Neither the Company nor any Subsidiary is
----------------------
an "investment company" or a company "controlled" by an "investment company",
within the meaning of the Investment Company Act of 1940.
9.11 Public Utility Holding Company Act. Neither the Company nor any
----------------------------------
Subsidiary is a "holding company", or a "subsidiary company" of a "holding
company", or an "affiliate" of a "holding company" or of a "subsidiary company"
of a "holding company", within the meaning of the Public Utility Holding Company
Act of 1935.
9.12 Regulation U. The Company is not engaged principally, or as one of
------------
its important activities, in the business of extending credit for the purpose of
purchasing or carrying Margin Stock.
9.13 Taxes. Each of the Company and each Subsidiary has filed all tax
-----
returns and reports required by law to have been filed by it and has paid all
taxes and governmental charges thereby shown to be owing, except any such taxes
or charges which are being diligently contested in good faith by appropriate
proceedings and for which adequate reserves in accordance with GAAP shall have
been set aside on its books.
9.14 Solvency, etc. On the Effective Date (or, in the case of any Person
--------------
which becomes a Guarantor after the Effective Date, on the date such Person
becomes a Guarantor), and immediately prior to and after giving effect to the
issuance of each Letter of Credit and each
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<PAGE>
borrowing hereunder and the use of the proceeds thereof, (a) each of the
Company's and each Guarantor's assets will exceed its liabilities and (b) each
of the Company and each Guarantor will be solvent, will be able to pay its debts
as they mature, will own property with fair saleable value greater than the
amount required to pay its debts and will have capital sufficient to carry on
its business as then constituted.
9.15 Environmental Matters. The Company conducts in the ordinary course
---------------------
of business a review of the effect of existing Environmental Laws and existing
Environmental Claims on its business, operations and properties, and as a result
thereof the Company has reasonably concluded that, except as specifically
disclosed in Schedule 9.15, such Environmental Laws and Environmental Claims
-------------
could not, individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect.
9.16 Year 2000 Problem. The Company and its Subsidiaries have reviewed
-----------------
the areas within their business and operations which could be adversely affected
by, and have developed or are developing a program to address on a timely basis,
the "Year 2000 Problem" (that is, the risk that computer applications used by
the Company and its Subsidiaries may be unable to recognize and perform properly
date-sensitive functions involving certain dates prior to and any date after
December 31, 1999). Based on such review and program, the Company reasonably
believes that the "Year 2000 Problem" will not have a Material Adverse Effect.
SECTION 10 COVENANTS.
Until the expiration or termination of the Commitments and thereafter until
all obligations of the Company hereunder and under the other Loan Documents are
paid in full and all Letters of Credit have been terminated, the Company agrees
that, unless at any time the Required Banks shall otherwise expressly consent in
writing, it will:
10.1 Reports, Certificates and Other Information. Furnish to the Agent
-------------------------------------------
and each Bank:
10.1.1 Audit Report. Promptly when available and in any event within 90
------------
days after the close of each Fiscal Year: (a) a copy of the annual audit report
of the Company and its Subsidiaries for such Fiscal Year, including therein
consolidated balance sheets of the Company and its Subsidiaries as of the end of
such Fiscal Year and consolidated statements of earnings and cash flow of the
Company and its Subsidiaries for such Fiscal Year certified without
qualification by Ernst & Young or other independent auditors of recognized
standing selected by the Company and reasonably acceptable to the Required
Banks, together with a written statement from such accountants to the effect
that in making the examination necessary for the signing of such annual audit
report by such accountants, they have not become aware of any Event of Default
or Unmatured Event of Default that has occurred and is continuing or, if they
have become aware of any such event, describing it in reasonable detail; (b)
consolidating balance sheets of the Company and its Subsidiaries as of the end
of such Fiscal Year and consolidating statements of earnings and cash flows for
the Company and its Subsidiaries for such Fiscal Year, certified by the Chief
Financial Officer or the Vice President, Finance of the Company; and (c)
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<PAGE>
commencing with the Fiscal Year ending December 31, 1998, a copy of an annual
agreed-upon procedures report on the equipment fleet of the Company and its
Subsidiaries for such Fiscal Year as performed by the Company's independent
auditors.
10.1.2 Quarterly Reports. Promptly when available and in any event
-----------------
within 45 days after the end of each Fiscal Quarter (except the last Fiscal
Quarter) of each Fiscal Year, consolidated and consolidating balance sheets of
the Company and its Subsidiaries as of the end of such Fiscal Quarter, together
with consolidated and consolidating statements of earnings and consolidated
statements of cash flow for such Fiscal Quarter and for the period beginning
with the first day of such Fiscal Year and ending on the last day of such Fiscal
Quarter, certified by the Chief Financial Officer or the Vice President, Finance
of the Company.
10.1.3 Monthly Reports. Promptly when available and in any event within
---------------
30 days after the end of each of the first two months of each Fiscal Quarter,
consolidated balance sheets of the Company and its Subsidiaries as of the end of
such month, together with consolidated statements of earnings for such month and
for the period beginning with the first day of the Fiscal Year and ending on the
last day of such month, certified by the Chief Financial Officer or the Vice
President, Finance of the Company.
10.1.4 Compliance Certificates. Contemporaneously with the furnishing of
-----------------------
a copy of each annual audit report pursuant to Section 10.1.1 and of each set of
--------------
quarterly statements pursuant to Section 10.1.2, a duly completed compliance
--------------
certificate in the form of Exhibit B, with appropriate insertions, dated the
---------
date of such annual report or such quarterly statements and signed by the Chief
Financial Officer or the Vice President, Finance of the Company, containing a
computation of each of the financial ratios and restrictions set forth in
Section 10.6 and to the effect that such officer has not become aware of any
- ------------
Event of Default or Unmatured Event of Default that has occurred and is
continuing or, if there is any such event, describing it and the steps, if any,
being taken to cure it.
10.1.5 Reports to SEC and to Shareholders. Promptly upon the filing or
----------------------------------
sending thereof, copies of all regular, periodic or special reports of the
Company or any Subsidiary filed with the SEC (excluding exhibits thereto,
provided that the Company shall promptly deliver any such exhibit to the Agent
or any Bank upon request therefor); copies of all registration statements of the
Company or any Subsidiary filed with the SEC (other than on Form S-8); and
copies of all proxy statements or other communications made to security holders
generally concerning material developments in the business of the Company or any
Subsidiary.
10.1.6 Notice of Default, Litigation and ERISA Matters. Immediately upon
-----------------------------------------------
becoming aware of any of the following, written notice describing the same and
the steps being taken by the Company or the Subsidiary affected thereby with
respect thereto:
(a) the occurrence of an Event of Default or an Unmatured Event of
Default;
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<PAGE>
(b) any litigation, arbitration or governmental investigation or
proceeding not previously disclosed by the Company to the Banks which has
been instituted or, to the knowledge of the Company, is threatened against
the Company or any Subsidiary or to which any of the properties of any
thereof is subject which, if adversely determined, might reasonably be
expected to have a Material Adverse Effect;
(c) the institution of any steps by any member of the Controlled Group
or any other Person to terminate any Pension Plan, or the failure of any
member of the Controlled Group to make a required contribution to any
Pension Plan (if such failure is sufficient to give rise to a lien under
Section 302(f) of ERISA) or to any Multiemployer Pension Plan, or the
taking of any action with respect to a Pension Plan which could result in
the requirement that the Company furnish a bond or other security to the
PBGC or such Pension Plan, or the occurrence of any event with respect to
any Pension Plan or Multiemployer Pension Plan which could result in the
incurrence by any member of the Controlled Group of any material liability,
fine or penalty (including any claim or demand for withdrawal liability or
partial withdrawal from any Multiemployer Pension Plan), or any material
increase in the contingent liability of the Company with respect to any
post-retirement Welfare Plan benefit, or any notice that any Multiemployer
Pension Plan is in reorganization, that increased contributions may be
required to avoid a reduction in plan benefits or the imposition of an
excise tax, that any such plan is or has been funded at a rate less than
that required under Section 412 of the Code, that any such plan is or may
be terminated, or that any such plan is or may become insolvent;
(d) any cancellation or material change in any insurance maintained by
the Company or any Subsidiary;
(e) any event (including any violation of any Environmental Law or the
assertion of any Environmental Claim) which might reasonably be expected to
have a Material Adverse Effect; or
(f) any setoff, claims (including, with respect to the environmental
claims) withholdings or other defenses to which any of the collateral
granted under any Collateral Document, or the Banks' rights with respect to
any such collateral, are subject.
10.1.7 Subsidiaries. Promptly upon any change in the list of its
------------
Subsidiaries, a written report of such change.
10.1.8 Management Reports. Promptly upon the request of the Agent or any
------------------
Bank, copies of all detailed financial and management reports submitted to the
Company by independent auditors in connection with each annual or interim audit
made by such auditors of the books of the Company.
10.1.9 Projections. As soon as practicable and in any event within 60
-----------
days after the commencement of each Fiscal Year, financial projections for the
Company and its Subsidiaries
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<PAGE>
for such Fiscal Year prepared in a manner consistent with those projections
delivered by the Company to the Banks prior to the Effective Date or otherwise
in a manner satisfactory to the Agent.
10.1.10 Other Information. From time to time such other information
-----------------
concerning the Company and its Subsidiaries as any Bank or the Agent may
reasonably request.
10.2 Books, Records and Inspections. Keep, and cause each Subsidiary to
------------------------------
keep, its books and records in accordance with sound business practices
sufficient to allow the preparation of financial statements in accordance with
GAAP; permit, and cause each Subsidiary to permit, any Bank or the Agent or any
representative thereof to inspect the properties and operations of the Company
and of such Subsidiary; and permit, and cause each Subsidiary to permit, at any
reasonable time and with reasonable notice (or at any time without notice if an
Event of Default exists), any Bank or the Agent or any representative thereof to
visit any or all of its offices, to discuss its financial matters with its
officers and its independent auditors (and the Company hereby authorizes such
independent auditors to discuss such financial matters with any Bank or the
Agent or any representative thereof whether or not any representative of the
Company or any Subsidiary is present), and to examine (and, at the expense of
the Company or the applicable Subsidiary, photocopy extracts from) any of its
books or other corporate records.
10.3 Insurance. Maintain, and cause each Subsidiary to maintain, with
---------
responsible insurance companies, such insurance as may be required by any law or
governmental regulation or court decree or order applicable to it and such other
insurance, to such extent and against such hazards and liabilities, as is
customarily maintained by companies similarly situated; and, upon request of the
Agent or any Bank, furnish to the Agent or such Bank a certificate setting forth
in reasonable detail the nature and extent of all insurance maintained by the
Company and its Subsidiaries.
10.4 Compliance with Laws; Payment of Taxes and Liabilities. (a) Comply,
------------------------------------------------------
and cause each Subsidiary to comply, in all material respects with all
applicable laws (including Environmental Laws), rules, regulations, decrees,
orders, judgments, licenses and permits; and (b) pay, and cause each Subsidiary
to pay, prior to delinquency, all taxes and other governmental charges against
it or any of its property, as well as claims of any kind which, if unpaid, might
become a Lien on any of its property; provided, however, that the foregoing
-------- -------
shall not require the Company or any Subsidiary to pay any such tax or charge so
long as it shall contest the validity thereof in good faith by appropriate
proceedings and shall set aside on its books adequate reserves with respect
thereto in accordance with GAAP.
10.5 Maintenance of Existence, etc. Maintain and preserve, and (subject
------------------------------
to Section 10.11) cause each Subsidiary to maintain and preserve, (a) its
-------------
existence and good standing in the jurisdiction of its incorporation and (b) its
qualification and good standing as a foreign corporation in each jurisdiction
where the nature of its business makes such qualification necessary (except in
those instances in which the failure to be qualified or in good standing does
not have a Material Adverse Effect).
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<PAGE>
10.6 Financial Covenants.
-------------------
10.6.1 Minimum Net Worth. Not permit its Net Worth at the end of any
-----------------
month to be less than the sum of (a) $45,000,000 plus (b) 75% of the sum of
----
Consolidated Net Income plus any extraordinary gains during the period beginning
on October 1, 1997 and ending on the last day of the most recently-ended Fiscal
Quarter (provided that, if the sum of Consolidated Net Income plus any
--------
extraordinary gains is less than zero for any Fiscal Quarter, for purposes of
this Section 10.6.1 such sum will be deemed to have been zero for such quarter)
--------------
plus (c) 100% of the net proceeds of any equity issued by the Company or any of
- ----
its Subsidiaries (on a consolidated basis) after October 1, 1997.
10.6.2 Maximum Leverage. Not permit (a) the ratio of (i) Funded Debt to
----------------
(ii) Funded Debt plus Net Worth to exceed 0.60 to 1.0 at any time; and (b) the
----
ratio of (i) Senior Debt to (ii) Funded Debt plus Net Worth to exceed at any
----
time the applicable ratio set forth below during any period set forth below:
SENIOR DEBT TO FUNDED DEBT
FISCAL --------------------------
QUARTER ENDING: PLUS NET WORTH RATIO
--------------- --------------------
Effective Date through 12/31/98 0.55 to 1.0
1/1/99 through 12/31/99 0.50 to 1.0
1/1/2000 and thereafter 0.45 to 1.0
10.6.3 Minimum Interest Coverage. Not permit the Interest Coverage Ratio
-------------------------
for any Computation Period to be less than the applicable ratio set forth below:
COMPUTATION INTEREST
PERIOD ENDING: COVERAGE RATIO
-------------- --------------
3/31/98 through 12/31/98 1.5 to 1.0
3/31/99 through 12/31/99 2.0 to 1.0
3/31/2000 and thereafter 2.25 to 1.0.
10.6.4 Funded Debt to Cash Flow Ratio. Not permit the Funded Debt to
------------------------------
Cash Flow Ratio as of the last day of any Fiscal Quarter to exceed the
applicable ratio set forth below:
FISCAL FUNDED DEBT TO
QUARTER ENDING: CASH FLOW RATIO
-------------- ---------------
12/31/97 through 12/31/98 3.50 to 1.0
3/31/99 through 12/31/99 3.25 to 1.0
3/31/2000 and thereafter 3.00 to 1.0.
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<PAGE>
10.6.5 Senior Debt to Tangible Assets. Not permit the ratio of (i)
------------------------------
Senior Debt to (ii) Tangible Assets to exceed the applicable ratio set forth
below during any period set forth below:
SENIOR DEBT TO
PERIOD: TANGIBLE ASSETS RATIO:
------ ---------------------
Effective Date through 12/31/98 1.25 to 1.0
1/1/99 and thereafter 1.00 to 1.0.
10.7 Limitations on Debt. Not, and not permit any Subsidiary to, create,
-------------------
incur, assume or suffer to exist any Debt, except:
(a) obligations in respect of the Loans, the L/C Applications and the
Letters of Credit;
(b) unsecured Debt of the Company (excluding Contingent Payments and Seller
Subordinated Debt); provided that the aggregate principal amount of all
--------
such unsecured Debt (other than Holdbacks) shall not at any time exceed
$5,000,000;
(c) Debt in respect of Capital Leases or arising in connection with the
acquisition of equipment that, in each case, either is identified in
Schedule 10.7(c) or is incurred, or assumed in connection with an asset
----------------
purchase permitted by Section 10.11, after the date hereof (it being
-------------
understood that for purposes of this Section 10.7 Debt of any Person which
------------
becomes a Subsidiary after the date hereof shall be deemed to be incurred,
and equipment of such Person shall be deemed to be acquired, on the date
such Person becomes a Subsidiary so long as such Debt is not incurred in
contemplation of such Person becoming a Subsidiary), and refinancings of
any such Debt so long as the terms applicable to such refinanced Debt are
no less favorable to the Company or the applicable Subsidiary than the
terms in effect immediately prior to such refinancing, provided that the
--------
aggregate amount of all such Debt at any time outstanding shall not exceed
$12,500,000;
(d) Debt of Subsidiaries owed to the Company;
(e) unsecured Debt of the Company to Subsidiaries;
(f) Subordinated Debt; provided that the aggregate principal amount of all
--------
Seller Subordinated Debt at any time outstanding shall not exceed
$10,000,000;
(g) other Debt, not of a type described in clause (c), outstanding on the
----------
date hereof and listed in Schedule 10.7(g); and
----------------
(h) Contingent Payments, provided that the Company shall not, and shall not
--------
permit any Subsidiary to, incur any obligation to make Contingent Payments
the maximum
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<PAGE>
possible amount of which exceeds $10,000,000 in the aggregate for all
Contingent Payments at any time outstanding.
For purposes of the foregoing, a Contingent Payment shall be deemed to be
"outstanding" from the time that the Company or any Subsidiary enters into the
agreement containing the obligation to make such Contingent Payment until such
time as either such Contingent Payment has been made in full or it has become
certain that such Contingent Payment will never have to be made.
10.8 Liens. Not, and not permit any Subsidiary to, create or permit to
-----
exist any Lien on any of its real or personal properties, assets or rights of
whatsoever nature (whether now owned or hereafter acquired), except:
(a) Liens for taxes or other governmental charges not at the time
delinquent or thereafter payable without penalty or being contested in good
faith by appropriate proceedings and, in each case, for which it maintains
adequate reserves;
(b) Liens arising in the ordinary course of business (such as (i) Liens of
carriers, warehousemen, mechanics and materialmen and other similar Liens
imposed by law and (ii) Liens incurred in connection with worker's
compensation, unemployment compensation and other types of social security
(excluding Liens arising under ERISA) or in connection with surety bonds,
bids, performance bonds and similar obligations) for sums not overdue or
being contested in good faith by appropriate proceedings and not involving
any deposits or advances or borrowed money or the deferred purchase price
of property or services, and, in each case, for which it maintains adequate
reserves;
(c) Liens identified in Schedule 10.8;
-------------
(d) Liens securing Debt permitted by clause (c) of Section 10.7 (and
---------- ------------
attaching only to the property being leased (in the case of Capital Leases)
or the purchase price for which was or is being financed by such Debt (in
the case of other Debt));
(e) attachments, appeal bonds, judgments and other similar Liens, for sums
not exceeding $250,000 arising in connection with court proceedings,
provided the execution or other enforcement of such Liens is effectively
stayed and the claims secured thereby are being actively contested in good
faith and by appropriate proceedings;
(f) easements, rights of way, restrictions, minor defects or irregularities
in title and other similar Liens not interfering in any material respect
with the ordinary conduct of the business of the Company or any Subsidiary;
and
(g) Liens in favor of the Agent for the benefit of the Banks arising under
the Loan Documents.
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<PAGE>
10.9 Operating Leases. Not, and not permit any Subsidiary to, be party
----------------
to Operating Leases requiring rental payments in excess of $12,000,000 in the
aggregate (excluding intercompany leases) in any Fiscal Year for the Company and
its Subsidiaries taken as a whole.
10.10 Restricted Payments. Not, and not permit any Subsidiary to, (a)
-------------------
declare or pay any dividends on any of its capital stock (other than stock
dividends), (b) purchase or redeem any such stock or any warrants, units,
options or other rights in respect of such stock, (c) make any other
distribution to shareholders, (d) prepay, purchase, defease or redeem any
Subordinated Debt or (e) set aside funds for any of the foregoing; provided that
--------
(i) any Subsidiary may declare and pay dividends to the Company or to any other
wholly-owned Subsidiary; and (ii) so long as (x) no Event of Default or
Unmatured Event of Default exists or would result therefrom and (y) the
aggregate amount of all purchases of stock, warrants or units since October 1,
1997 does not exceed $12,000,000, the Company may purchase its common stock or
warrants, or units issued in respect thereof, from time to time on terms
consistent with those set forth under the heading "Certain Agreements Relating
to the Outstanding Securities" in the Company's Private Placement Memorandum
dated September 12, 1997.
10.11 Mergers, Consolidations, Sales. Not, and not permit any Subsidiary
------------------------------
to, be a party to any merger or consolidation, or purchase or otherwise acquire
all or substantially all of the assets or any stock of any class of, or any
partnership or joint venture interest in, any other Person, or, except in the
ordinary course of its business (including sales of equipment consistent with
industry practice), sell, transfer, convey or lease all or any substantial part
of its assets, or sell or assign with or without recourse any receivables,
except for (a) any such merger or consolidation, sale, transfer, conveyance,
lease or assignment of or by any wholly-owned Subsidiary into the Company or
into, with or to any other wholly-owned Subsidiary; (b) any such purchase or
other acquisition by the Company or any wholly-owned Subsidiary of the assets or
stock of any wholly-owned Subsidiary; (c) any such purchase or other acquisition
by the Company or any wholly-owned Subsidiary of the assets or stock of any
other Person where (1) such assets (in the case of an asset purchase) are for
use, or such Person (in the case of a stock purchase) is engaged, solely in the
equipment rental and related businesses; (2) immediately before and after giving
effect to such purchase or acquisition, no Event of Default or Unmatured Event
of Default shall have occurred and be continuing; and (3) either (i) the
aggregate consideration to be paid by the Company and its Subsidiaries
(including any Debt assumed or issued in connection therewith, the amount
thereof to be calculated in accordance with GAAP) in connection with such
purchase or other acquisition (or any series of related acquisitions) is less
than $10,000,000 or (ii) (x) the Company is in pro forma compliance with all the
financial ratios and restrictions set forth in Section 10.6 and (y) unless after
------------
giving effect to such purchase or acquisition the pro forma Funded Debt to Cash
--- -----
Flow Ratio will be less than 1.25 to 1.0, the Required Lenders have consented to
such purchase or acquisition; and (d) sales and dispositions of assets
(including the stock of Subsidiaries) so long as the net book value of all
assets sold or otherwise disposed of in any Fiscal Year does not exceed 5% of
the net book value of the consolidated assets of the Company and its
Subsidiaries as of the last day of the preceding Fiscal Year.
-35-
<PAGE>
10.12 Modification of Organizational Documents. Not permit the
----------------------------------------
Certificate of Incorporation, By-Laws or other organizational documents of the
Company or any Subsidiary to be amended or modified in any way which might
reasonably be expected to materially adversely affect the interests of the
Banks.
10.13 Use of Proceeds. Use the proceeds of the Loans, and the Letters of
---------------
Credit, solely to finance the Company's working capital, for acquisitions
permitted by Section 10.11, for capital expenditures and for other general
-------------
corporate purposes; and not use or permit any proceeds of any Loan to be used,
either directly or indirectly, for the purpose, whether immediate, incidental or
ultimate, of "purchasing or carrying" any Margin Stock.
10.14 Further Assurances. Take, and cause each Subsidiary to take, such
------------------
actions as are necessary or as the Agent or the Required Banks may reasonably
request from time to time (including the execution and delivery of guaranties,
security agreements, pledge agreements, financing statements and other
documents, the filing or recording of any of the foregoing, and the delivery of
stock certificates and other collateral with respect to which perfection is
obtained by possession) to ensure that (i) the obligations of the Company
hereunder and under the other Loan Documents are secured by substantially all of
the assets (other than real property) of the Company and guaranteed by all of
the Subsidiaries (including, promptly upon the acquisition or creation thereof,
any Subsidiary acquired or created after the date hereof) by execution of a
counterpart of the Intercompany Guaranty and (ii) the obligations of each
Guarantor under the Intercompany Guaranty are secured by substantially all of
the assets (other than real property) of such Guarantor.
10.15 Transactions with Affiliates. Not, and not permit any Subsidiary
----------------------------
to, enter into, or cause, suffer or permit to exist any transaction, arrangement
or contract with any of its other Affiliates (other than the Company and its
Subsidiaries) which is on terms which are less favorable than are obtainable
from any Person which is not one of its Affiliates.
10.16 Employee Benefit Plans. Maintain, and cause each Subsidiary to
----------------------
maintain, each Pension Plan in substantial compliance with all applicable
requirements of law and regulations.
10.17 Environmental Laws. Conduct, and cause each Subsidiary to conduct,
------------------
its operations and keep and maintain its property in compliance with all
Environmental Laws (other than Immaterial Laws).
10.18 Unconditional Purchase Obligations. Not, and not permit any
----------------------------------
Subsidiary to, enter into or be a party to any contract for the purchase of
materials, supplies or other property or services, if such contract requires
that payment be made by it regardless of whether or not delivery is ever made of
such materials, supplies or other property or services; provided that the
foregoing shall not prohibit the Company or any Subsidiary from entering into
options for the purchase of particular assets or businesses.
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<PAGE>
10.19 Inconsistent Agreements. Not, and not permit any Subsidiary to,
-----------------------
enter into any agreement containing any provision which (a) would be violated or
breached by any borrowing, or the obtaining of any Letter of Credit, by the
Company hereunder or by the performance by the Company or any Subsidiary of any
of its obligations hereunder or under any other Loan Document or (b) would
prohibit the Company or any Subsidiary from granting to the Agent, for the
benefit of the Banks, a Lien on any of its assets.
10.20 Business Activities. Not, and not permit any Subsidiary to, engage
-------------------
in any line of business other than the equipment rental business and businesses
reasonably related thereto.
10.21 Advances and Other Investments. Not, and not permit any Subsidiary
------------------------------
to, make, incur, assume or suffer to exist any Investment in any other Person,
except (without duplication) the following:
(a) equity Investments existing on the Effective Date in wholly-owned
Subsidiaries identified in Schedule 9.8;
------------
(b) equity Investments in Subsidiaries acquired after the Effective Date in
transactions permitted as acquisitions of stock or assets pursuant to
Section 10.11;
-------------
(c) in the ordinary course of business, contributions by the Company to the
capital of any of its Subsidiaries, or by any such Subsidiary to the
capital of any of its Subsidiaries;
(d) in the ordinary course of business, Investments by the Company in any
Subsidiary or by any of the Subsidiaries in the Company, by way of
intercompany loans, advances or guaranties, all to the extent permitted by
Section 10.7;
------------
(e) Guaranties permitted by Section 10.7;
------------
(f) good faith deposits made in connection with prospective acquisitions of
stock or assets permitted by Section 10.11;
-------------
(g) loans to officers and employees not exceeding (i) $100,000 in the
aggregate to any single individual or (ii) $300,000 in the aggregate for
all such individuals; and
(h) Cash Equivalent Investments;
provided, however, that (x) any Investment which when made complies with the
- -------- -------
requirements of the definition of the term "Cash Equivalent Investment" may
--------------------------
continue to be held notwithstanding that such Investment if made thereafter
would not comply with such requirements; and (y) no Investment otherwise
permitted by clause (b), (c), (d), (e), (f) or (g) shall be permitted to be made
---------- --- --- --- --- ---
if, immediately before or after giving effect thereto, any Event of Default or
Unmatured Event of Default shall have occurred and be continuing.
-37-
<PAGE>
SECTION 11 EFFECTIVENESS; CONDITIONS OF LENDING, ETC.
The obligation of each Bank to make its Loans and of BofA to issue Letters
of Credit is subject to the following conditions precedent:
11.1 Effectiveness. This Agreement shall become effective, and all
-------------
outstanding loans made and letters of credit issued under the Existing Agreement
shall be deemed to have been made and issued (respectively) hereunder, on the
date (the "Effective Date") that the Agent shall have received (a) all amounts
--------------
which are then due and payable pursuant to Section 5 and (to the extent billed)
---------
Section 14.6, (b) evidence, reasonably satisfactory to the Agent, that the
- ------------
Company has received net cash proceeds of not less than $100,000,000 from the
Public Offering and (c) all of the following, each duly executed and dated the
Effective Date (or such earlier date as shall be satisfactory to the Agent), in
form and substance satisfactory to the Agent, and each (except for the Notes, of
which only the originals shall be signed) in sufficient number of signed
counterparts to provide one for each Bank:
11.1.1 Notes. The Notes.
-----
11.1.2 Resolutions. Certified copies of resolutions of the Board of
-----------
Directors of the Company authorizing or ratifying the execution, delivery and
performance by the Company of this Agreement, the Notes and the other Loan
Documents to which the Company is a party; and certified copies of resolutions
of the Board of Directors of each Subsidiary (if any) which is to execute and
deliver any document pursuant to Section 11.1.5, 11.1.6 or 11.1.7 authorizing or
-------------- ------ ------
ratifying the execution, delivery and performance by such Subsidiary of each
Loan Document to which such Subsidiary is a party.
11.1.3 Consents, etc. Certified copies of all documents evidencing any
--------------
necessary corporate action, consents and governmental approvals (if any)
required for the execution, delivery and performance by the Company and each
Subsidiary of the documents referred to in this Section 11.
----------
11.1.4 Incumbency and Signature Certificates. A certificate of the
-------------------------------------
Secretary or an Assistant Secretary of the Company and each Subsidiary of the
Company as of the Effective Date certifying the names of the officer or officers
of such entity authorized to sign the Loan Documents to which such entity is a
party, together with a sample of the true signature of each such officer (it
being understood that the Agent and each Bank may conclusively rely on each such
certificate until formally advised by a like certificate of any changes
therein).
11.1.5 Intercompany Guaranty. The Intercompany Guaranty executed by each
---------------------
Subsidiary as of the Effective Date.
11.1.6 Security Agreement. The Security Agreement executed by the Company
------------------
and each Subsidiary as of the Effective Date, together with evidence,
satisfactory to the Agent, that all
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<PAGE>
filings necessary to perfect the Agent's Lien (for the benefit of the Banks) on
any collateral granted under the Security Agreement have been duly made and are
in full force and effect.
11.1.7 Pledge Agreements. The Company Pledge Agreement and pledge
-----------------
agreements, substantially in the form of Exhibit F, issued by each Subsidiary
---------
(if any) as of the Effective Date that in turn has one or more Subsidiaries, in
each case together with all collateral and other items required to be delivered
in connection therewith.
11.1.8 Opinions of Counsel for the Company and the Guarantors. The
------------------------------------------------------
opinions of (a) Weil, Gotshal & Manges LLP, special counsel to the Company, and
(b) Oscar D. Folger, counsel to the Company.
11.1.9 Other. Such other documents as the Agent or any Bank may
-----
reasonably request.
11.2 Conditions. The obligation (a) of each Bank to make each Loan and
----------
(b) of BofA to issue each Letter of Credit is subject to the following further
conditions precedent that:
11.2.1 Compliance with Warranties, No Default, etc. Both before and
--------------------------------------------
after giving effect to any borrowing and the issuance of any Letter of Credit
(but, if any Event of Default of the nature referred to in Section 12.1.2 shall
--------------
have occurred with respect to any other Debt, without giving effect to the
application, directly or indirectly, of the proceeds thereof) the following
statements shall be true and correct:
(a) the representations and warranties of the Company and the
Guarantors set forth in this Agreement (excluding Sections 9.6 and 9.8) and
------------ ---
the other Loan Documents shall be true and correct in all material respects
with the same effect as if then made (except to the extent stated to relate
to an earlier date, in which case such representations and warranties shall
be true and correct in all material respects as of such earlier date);
(b) except as disclosed by the Company to the Agent and the Banks
pursuant to Section 9.6,
-----------
(i) no litigation (including derivative actions), arbitration
proceeding, labor controversy or governmental investigation or
proceeding shall be pending or, to the knowledge of the Company,
threatened against the Company or any of its Subsidiaries which might
reasonably be expected to have a Material Adverse Effect or which
purports to affect the legality, validity or enforceability of this
Agreement, the Notes or any other Loan Document; and
(ii) no development shall have occurred in any litigation
(including derivative actions), arbitration proceeding, labor
controversy or governmental investigation or proceeding disclosed
pursuant to Section 9.6 which might reasonably be expected to have a
-----------
Material Adverse Effect; and
-39-
<PAGE>
(c) no Event of Default or Unmatured Event of Default shall have then
occurred and be continuing, and neither the Company nor any of its
Subsidiaries shall be in violation of any law or governmental regulation or
court order or decree where such violation or violations singly or in the
aggregate might reasonably be expected to have a Material Adverse Effect.
11.2.2 Confirmatory Certificate. If requested by the Agent or any Bank,
------------------------
the Agent shall have received (in sufficient counterparts to provide one to each
Bank) a certificate dated the date of such requested Loan or Letter of Credit
and signed by a duly authorized representative of the Company as to the matters
set out in Section 11.2.1 (it being understood that each request by the Company
--------------
for the making of a Loan or the issuance of a Letter of Credit shall be deemed
to constitute a warranty by the Company that the conditions precedent set forth
in Section 11.2.1 will be satisfied at the time of the making of such Loan or
--------------
the issuance of such Letter of Credit), together with such other documents as
the Agent or any Bank may reasonably request in support thereof.
SECTION 12 EVENTS OF DEFAULT AND THEIR EFFECT.
12.1 Events of Default. Each of the following shall constitute an Event
-----------------
of Default under this Agreement:
12.1.1 Non-Payment of the Loans, etc. Default in the payment when due of
------------------------------
the principal of any Loan; or default, and continuance thereof for five days, in
the payment when due of any interest, fee, reimbursement obligation with respect
to any Letter of Credit or other amount payable by the Company hereunder or
under any other Loan Document.
12.1.2 Non-Payment of Other Debt. Any default shall occur under the
-------------------------
terms applicable to any Debt of the Company or any Subsidiary (excluding
Holdbacks) in an aggregate amount (for all such Debt so affected) exceeding
$375,000 and such default shall (a) consist of the failure to pay such Debt when
due (subject to any applicable grace period), whether by acceleration or
otherwise, or (b) accelerate the maturity of such Debt or permit the holder or
holders thereof, or any trustee or agent for such holder or holders, to cause
such Debt to become due and payable prior to its expressed maturity; or any
default of the type referred to in clause (a) or (b) above shall occur under the
---------- ---
terms of any Holdback owed by the Company or any Subsidiary in an aggregate
amount (for all Holdbacks so affected) exceeding $3,000,000, provided that no
--------
amount payable in respect of any Holdback shall be deemed to be in default to
the extent that the obligation to pay such amount is being contested by the
Company or the applicable Subsidiary in good faith and by appropriate
proceedings and appropriate reserves have been set aside in respect of such
amount.
12.1.3 Other Material Obligations. Default in the payment when due, or
--------------------------
in the performance or observance of, any material obligation of, or condition
agreed to by, the Company or any Subsidiary with respect to any material
purchase or lease of goods or services where such default, singly or in the
aggregate with other such defaults might reasonably be
-40-
<PAGE>
expected to have a Material Adverse Effect (except only to the extent that the
existence of any such default is being contested by the Company or such
Subsidiary in good faith and by appropriate proceedings and appropriate reserves
have been made in respect of such default).
12.1.4 Bankruptcy, Insolvency, etc. The Company or any Subsidiary
----------------------------
becomes insolvent or generally fails to pay, or admits in writing its inability
or refusal to pay, debts as they become due; or the Company or any Subsidiary
applies for, consents to, or acquiesces in the appointment of a trustee,
receiver or other custodian for the Company or such Subsidiary or any property
thereof, or makes a general assignment for the benefit of creditors; or, in the
absence of such application, consent or acquiescence, a trustee, receiver or
other custodian is appointed for the Company or any Subsidiary or for a
substantial part of the property of any thereof and is not discharged within 60
days; or any bankruptcy, reorganization, debt arrangement, or other case or
proceeding under any bankruptcy or insolvency law, or any dissolution or
liquidation proceeding (except the voluntary dissolution, not under any
bankruptcy or insolvency law, of a Subsidiary), is commenced in respect of the
Company or any Subsidiary, and if such case or proceeding is not commenced by
the Company or such Subsidiary, it is consented to or acquiesced in by the
Company or such Subsidiary, or remains for 60 days undismissed; or the Company
or any Subsidiary takes any corporate action to authorize, or in furtherance of,
any of the foregoing.
12.1.5 Non-Compliance with Provisions of This Agreement. (a) Failure by
------------------------------------------------
the Company to comply with or to perform any covenant set forth in Sections 10.5
-------------
through 10.13, 10.15 or 10.16; or (b) failure by the Company to comply with or
----- ----- -----
to perform any other provision of this Agreement (and not constituting an Event
of Default under any of the other provisions of this Section 12) and continuance
----------
of such failure described in this clause (b) for 30 days (or, in the case of
----------
Section 10.14, five Business Days) after notice thereof to the Company from the
- -------------
Agent, any Bank or the holder of any Note.
12.1.6 Warranties. Any warranty made or deemed made by the Company
----------
herein is breached or is false or misleading in any material respect, or any
schedule, certificate, financial statement, report, notice or other writing
furnished by the Company to the Agent or any Bank in connection herewith is
false or misleading in any material respect on the date as of which the facts
therein set forth are (or are deemed) stated or certified.
12.1.7 Pension Plans. (i) Institution of any steps by the Company or any
-------------
other Person to terminate a Pension Plan if as a result of such termination the
Company could be required to make a contribution to such Pension Plan, or could
incur a liability or obligation to such Pension Plan, in excess of $375,000;
(ii) a contribution failure occurs with respect to any Pension Plan sufficient
to give rise to a Lien under section 302(f) of ERISA; or (iii) there shall occur
any withdrawal or partial withdrawal from a Multiemployer Pension Plan and the
withdrawal liability (without unaccrued interest) to Multiemployer Pension Plans
as a result of such withdrawal (including any outstanding withdrawal liability
that the Company and the Controlled Group have incurred on the date of such
withdrawal) exceeds $375,000.
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<PAGE>
12.1.8 Judgments. Final judgments which exceed an aggregate of $375,000
---------
shall be rendered against the Company or any Subsidiary and shall not have been
paid, discharged or vacated or had execution thereof stayed pending appeal
within 30 days after entry or filing of such judgments.
12.1.9 Invalidity of Intercompany Guaranty, etc. The Intercompany
-----------------------------------------
Guaranty shall cease to be in full force and effect with respect to any
Guarantor, any Guarantor shall fail (subject to any applicable grace period) to
comply with or to perform any applicable provision of the Intercompany Guaranty,
or any Guarantor (or any Person by, through or on behalf of such Guarantor)
shall contest in any manner the validity, binding nature or enforceability of
the Intercompany Guaranty with respect to such Guarantor.
12.1.10 Invalidity of Collateral Documents, etc. Any Collateral Document
----------------------------------------
shall cease to be in full force and effect with respect to the Company or any
Guarantor, the Company or any Guarantor shall fail (subject to any applicable
grace period) to comply with or to perform any applicable provision of any
Collateral Document to which such entity is a party, or the Company or any
Guarantor (or any Person by, through or on behalf of the Company or such
Guarantor) shall contest in any manner the validity, binding nature or
enforceability of any Collateral Document.
12.1.11 Change in Control. (a) Any Person or group of Persons (within
-----------------
the meaning of Section 13 or 14 of the Securities Exchange Act of 1934, but
excluding the executive managers of the Company as of the Effective Date) shall
acquire beneficial ownership (within the meaning of Rule 13d-3 promulgated under
such Act) of 25% or more of the outstanding shares of common stock of the
Company; (b) during any 24-month period, individuals who at the beginning of
such period constituted the Company's Board of Directors (together with any new
directors whose election by the Company's Board of Directors or whose nomination
for election by the Company's shareholders was approved by a vote of at least
two-thirds of the directors who either were directors at beginning of such
period or whose election or nomination was previously so approved) cease for any
reason to constitute a majority of the Board of Directors of the Company; or (c)
a period of 30 consecutive days shall have elapsed during which any two of the
individuals named in Schedule 12.1.11 shall have ceased to hold executive
----------------
offices with the Company at least equal in seniority to their present offices,
as set out in such Schedule 12.1.11, excluding any such individual who has been
---------------- ---------
replaced by another individual or individuals reasonably satisfactory to the
Required Banks (it being understood that any such replacement individual shall
be deemed added to Schedule 12.1.11 on the date of approval thereof by the
----------------
Required Banks).
12.2 Effect of Event of Default. If any Event of Default described in
--------------------------
Section 12.1.4 shall occur, the Commitments (if they have not theretofore
- --------------
terminated) shall immediately terminate and the Notes and all other obligations
hereunder shall become immediately due and payable and the Company shall become
immediately obligated to deliver to the Agent cash collateral in an amount equal
to the outstanding face amount of all Letters of Credit, all without
presentment, demand, protest or notice of any kind; and, if any other Event of
Default shall occur and be
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<PAGE>
continuing, the Agent (upon written request of the Required Banks) shall declare
the Commitments (if they have not theretofore terminated) to be terminated
and/or declare all Notes and all other obligations hereunder to be due and
payable and/or demand that the Company immediately deliver to the Agent cash
collateral in amount equal to the outstanding face amount of all Letters of
Credit, whereupon the Commitments (if they have not theretofore terminated)
shall immediately terminate and/or all Notes and all other obligations hereunder
shall become immediately due and payable and/or the Company shall immediately
become obligated to deliver to the Agent cash collateral in an amount equal to
the face amount of all Letters of Credit, all without presentment, demand,
protest or notice of any kind. The Agent shall promptly advise the Company of
any such declaration, but failure to do so shall not impair the effect of such
declaration. Notwithstanding the foregoing, the effect as an Event of Default
of any event described in Section 12.1.1 or Section 12.1.4 may be waived by the
-------------- --------------
written concurrence of all of the Banks, and the effect as an Event of Default
of any other event described in this Section 12 may be waived by the written
----------
concurrence of the Required Banks. Any cash collateral delivered hereunder
shall be held by the Agent (without liability for interest thereon) and applied
to obligations arising in connection with any drawing under a Letter of Credit.
After the expiration or termination of all Letters of Credit, such cash
collateral shall be applied by the Agent to any remaining obligations hereunder
and any excess shall be delivered to the Company or as a court of competent
jurisdiction may elect.
SECTION 13 THE AGENT.
13.1 Appointment and Authorization. Each Bank hereby irrevocably
-----------------------------
(subject to Section 13.9) appoints, designates and authorizes the Agent to take
------------
such action on its behalf under the provisions of this Agreement and each other
Loan Document and to exercise such powers and perform such duties as are
expressly delegated to it by the terms of this Agreement or any other Loan
Document, together with such powers as are reasonably incidental thereto.
Notwithstanding any provision to the contrary contained elsewhere in this
Agreement or in any other Loan Document, the Agent shall not have any duties or
responsibilities except those expressly set forth herein, nor shall the Agent
have or be deemed to have any fiduciary relationship with any Bank, and no
implied covenants, functions, responsibilities, duties, obligations or
liabilities shall be read into this Agreement or any other Loan Document or
otherwise exist against the Agent.
13.2 Delegation of Duties. The Agent may execute any of its duties under
--------------------
this Agreement or any other Loan Document by or through agents, employees or
attorneys-in-fact and shall be entitled to advice of counsel concerning all
matters pertaining to such duties. The Agent shall not be responsible for the
negligence or misconduct of any agent or attorney-in-fact that it selects with
reasonable care.
13.3 Liability of Agent. None of the Agent-Related Persons shall (i) be
------------------
liable for any action taken or omitted to be taken by any of them under or in
connection with this Agreement or any other Loan Document or the transactions
contemplated hereby (except for its own gross negligence or willful misconduct),
or (ii) be responsible in any manner to any of the Banks for
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<PAGE>
any recital, statement, representation or warranty made by the Company or any
Subsidiary or Affiliate of the Company, or any officer thereof, contained in
this Agreement or in any other Loan Document, or in any certificate, report,
statement or other document referred to or provided for in, or received by the
Agent under or in connection with, this Agreement or any other Loan Document, or
the validity, effectiveness, genuineness, enforceability or sufficiency of this
Agreement or any other Loan Document, or for any failure of the Company or any
other party to any Loan Document to perform its obligations hereunder or
thereunder. No Agent-Related Person shall be under any obligation to any Bank
to ascertain or to inquire as to the observance or performance of any of the
agreements contained in, or conditions of, this Agreement or any other Loan
Document, or to inspect the properties, books or records of the Company or any
of the Company's Subsidiaries or Affiliates.
13.4 Reliance by Agent. The Agent shall be entitled to rely, and shall
-----------------
be fully protected in relying, upon any writing, resolution, notice, consent,
certificate, affidavit, letter, telegram, facsimile, telex or telephone message,
statement or other document or conversation believed by it to be genuine and
correct and to have been signed, sent or made by the proper Person or Persons,
and upon advice and statements of legal counsel (including counsel to the
Company), independent accountants and other experts selected by the Agent. The
Agent shall be fully justified in failing or refusing to take any action under
this Agreement or any other Loan Document unless it shall first receive such
advice or concurrence of the Required Banks (or, if required, all Banks) as it
deems appropriate and, if it so requests, confirmation from the Banks of their
obligation to indemnify the Agent against any and all liability and expense
which may be incurred by it by reason of taking or continuing to take any such
action. The Agent shall in all cases be fully protected in acting, or in
refraining from acting, under this Agreement or any other Loan Document in
accordance with a request or consent of the Required Banks (or, if required, all
Banks) and such request and any action taken or failure to act pursuant thereto
shall be binding upon all of the Banks.
13.5 Notice of Default. The Agent shall not be deemed to have knowledge
-----------------
or notice of the occurrence of any Event of Default or Unmatured Event of
Default except with respect to defaults in the payment of principal, interest
and fees required to be paid to the Agent for the account of the Banks, unless
the Agent shall have received written notice from a Bank or the Company
referring to this Agreement, describing such Event of Default or Unmatured Event
of Default and stating that such notice is a "notice of default". The Agent
will promptly notify the Banks of its receipt of any such notice. The Agent
shall take such action with respect to such Event of Default or Unmatured Event
of Default as may be requested by the Required Banks (or, if required, all
Banks) in accordance with Section 12; provided, however, that unless and until
---------- -------- -------
the Agent has received any such request, the Agent may (but shall not be
obligated to) take such action, or refrain from taking such action, with respect
to such Event of Default or Unmatured Event of Default as it shall deem
advisable or in the best interest of the Banks.
13.6 Credit Decision. Each Bank acknowledges that none of the Agent-
---------------
Related Persons has made any representation or warranty to it, and that no act
by the Agent hereafter taken, including any review of the affairs of the Company
and its Subsidiaries, shall be deemed to
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<PAGE>
constitute any representation or warranty by any Agent-Related Person to any
Bank. Each Bank represents to the Agent that it has, independently and without
reliance upon any Agent-Related Person and based on such documents and
information as it has deemed appropriate, made its own appraisal of and
investigation into the business, prospects, operations, property, financial and
other condition and creditworthiness of the Company and its Subsidiaries, and
all applicable bank regulatory laws relating to the transactions contemplated
hereby, and made its own decision to enter into this Agreement and to extend
credit to the Company hereunder. Each Bank also represents that it will,
independently and without reliance upon any Agent-Related Person and based on
such documents and information as it shall deem appropriate at the time,
continue to make its own credit analysis, appraisals and decisions in taking or
not taking action under this Agreement and the other Loan Documents, and to make
such investigations as it deems necessary to inform itself as to the business,
prospects, operations, property, financial and other condition and
creditworthiness of the Company. Except for notices, reports and other
documents expressly herein required to be furnished to the Banks by the Agent,
the Agent shall not have any duty or responsibility to provide any Bank with any
credit or other information concerning the business, prospects, operations,
property, financial or other condition or creditworthiness of the Company which
may come into the possession of any of the Agent-Related Persons.
13.7 Indemnification. Whether or not the transactions contemplated
---------------
hereby are consummated, the Banks shall indemnify upon demand the Agent-Related
Persons (to the extent not reimbursed by or on behalf of the Company and without
limiting the obligation of the Company to do so), pro rata, from and against any
and all Indemnified Liabilities; provided, however, that no Bank shall be liable
-------- -------
for any payment to the Agent-Related Person of any portion of the Indemnified
Liabilities resulting solely from such Person's gross negligence or willful
misconduct. Without limitation of the foregoing (but subject to the proviso to
the foregoing sentence), each Bank shall reimburse the Agent upon demand for its
ratable share of any costs or out-of-pocket expenses (including reasonable fees
of attorneys for the Agent (including the allocable costs of internal legal
services and all disbursements of internal counsel)) incurred by the Agent in
connection with the preparation, execution, delivery, administration,
modification, amendment or enforcement (whether through negotiations, legal
proceedings or otherwise) of, or legal advice in respect of rights or
responsibilities under, this Agreement, any other Loan Document, or any document
contemplated by or referred to herein, to the extent that the Agent is not
reimbursed for such expenses by or on behalf of the Company. The undertaking in
this Section shall survive repayment of the Loans, cancellation of the Notes,
any foreclosure under, or any modification, release or discharge of, any or all
of the Collateral Documents, any termination of this Agreement and the
resignation or replacement of the Agent.
For the purposes of this Section 13.7, "Indemnified Liabilities" shall
------------ -----------------------
mean: any and all liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs, charges, expenses and disbursements (including
reasonable fees of attorneys for the Agent (including the allocable costs of
internal legal services and all disbursements of internal counsel)) of any kind
or nature whatsoever which may at any time (including at any time following
repayment of the Loans and the termination, resignation or replacement of the
Agent or the replacement of any Bank) be imposed on, incurred by or asserted
against any Agent-Related Person in any way
-45-
<PAGE>
relating to or arising out of this Agreement or any document contemplated by or
referred to herein, or the transactions contemplated hereby, or any action taken
or omitted by any such Person under or in connection with any of the foregoing,
including with respect to any investigation, litigation or proceeding (including
(a) any case, action or proceeding before any court or other governmental
authority relating to bankruptcy, reorganization, insolvency, liquidation,
receivership, dissolution, winding-up or relief of debtors, or (b) any general
assignment for the benefit of creditors, composition, marshalling of assets for
creditors, or other, similar arrangement in respect of its creditors generally
or any substantial portion of its creditors; undertaken under U.S. Federal,
state or foreign law, including the Bankruptcy Code, and including any appellate
proceeding) related to or arising out of this Agreement or the Commitments or
the use of the proceeds thereof, whether or not any Agent-Related Person, any
Bank or any of their respective officers, directors, employees, counsel, agents
or attorneys-in-fact is a party thereto.
13.8 Agent in Individual Capacity. BofA and its Affiliates may make
----------------------------
loans to, issue letters of credit for the account of, accept deposits from,
acquire equity interests in and generally engage in any kind of banking, trust,
financial advisory, underwriting or other business with the Company and its
Subsidiaries and Affiliates as though BofA were not the Agent hereunder and
without notice to or consent of the Banks. The Banks acknowledge that, pursuant
to such activities, BofA or its Affiliates may receive information regarding the
Company or its Affiliates (including information that may be subject to
confidentiality obligations in favor of the Company or such Subsidiary) and
acknowledge that the Agent shall be under no obligation to provide such
information to them. With respect to their Loans, BofA and its Affiliates shall
have the same rights and powers under this Agreement as any other Bank and may
exercise the same as though BofA were not the Agent, and the terms "Bank" and
"Banks" include BofA and its Affiliates, to the extent applicable, in their
individual capacities.
13.9 Successor Agent; Assignment of Agency. The Agent may, and at the
-------------------------------------
request of the Required Banks shall, resign as Agent upon 30 days' notice to the
Banks. If the Agent resigns under this Agreement, the Required Banks shall,
with (so long as no Event of Default exists) the consent of the Company (which
shall not be unreasonably withheld or delayed), appoint from among the Banks a
successor agent for the Banks. If no successor agent is appointed prior to the
effective date of the resignation of the Agent, the Agent may appoint, after
consulting with the Banks and the Company, a successor agent from among the
Banks. Upon the acceptance of its appointment as successor agent hereunder,
such successor agent shall succeed to all the rights, powers and duties of the
retiring Agent and the term "Agent" shall mean such successor agent, and the
retiring Agent's appointment, powers and duties as Agent shall be terminated.
After any retiring Agent's resignation hereunder as Agent, the provisions of
this Section 13 and Sections 14.6 and 14.13 shall inure to its benefit as to any
---------- ------------- -----
actions taken or omitted to be taken by it while it was Agent under this
Agreement. If no successor agent has accepted appointment as Agent by the date
which is 30 days following a retiring Agent's notice of resignation, the
retiring Agent's resignation shall nevertheless thereupon become effective and
the Banks shall perform all of the duties of the Agent hereunder until such
time, if any, as the Required Banks appoint a successor agent as provided for
above.
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<PAGE>
13.10 Withholding Tax.
---------------
(a) If any Bank is a "foreign corporation, partnership or trust"
within the meaning of the Code and such Bank claims exemption from, or a
reduction of, U.S. withholding tax under Section 1441 or 1442 of the Code,
such Bank agrees to deliver to the Agent:
(i) if such Bank claims an exemption from, or a reduction of,
withholding tax under a United States tax treaty, properly completed
Internal Revenue Service ("IRS") Forms 1001 and W-8 before the payment
---
of any interest in the first calendar year and before the payment of
any interest in each third succeeding calendar year during which
interest may be paid under this Agreement;
(ii) if such Bank claims that interest paid under this Agreement
is exempt from United States withholding tax because it is effectively
connected with a United States trade or business of such Bank, two
properly completed and executed copies of IRS Form 4224 before the
payment of any interest is due in the first taxable year of such Bank
and in each succeeding taxable year of such Bank during which interest
may be paid under this Agreement, and IRS Form W-9; and
(iii) such other form or forms as may be required under the Code
or other laws of the United States as a condition to exemption from,
or reduction of, United States withholding tax.
Such Bank agrees to promptly notify the Agent of any change in
circumstances which would modify or render invalid any claimed
exemption or reduction.
(b) If any Bank claims exemption from, or reduction of, withholding
tax under a United States tax treaty by providing IRS Form 1001 and such
Bank sells, assigns, grants a participation in, or otherwise transfers all
or part of the obligations of the Company to such Bank, such Bank agrees to
notify the Agent of the percentage amount in which it is no longer the
beneficial owner of such obligations of the Company hereunder. To the
extent of such percentage amount, the Agent will treat such Bank's IRS Form
1001 as no longer valid.
(c) If any Bank claiming exemption from United States withholding tax
by filing IRS Form 4224 with the Agent grants a participation in all or
part of the obligations of the Company to such Bank hereunder, such Bank
agrees to undertake sole responsibility for complying with the withholding
tax requirements imposed by Sections 1441 and 1442 of the Code.
(d) If any Bank is entitled to a reduction in the applicable
withholding tax, the Agent may withhold from any interest payment to such
Bank an amount
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<PAGE>
equivalent to the applicable withholding tax after taking into account such
reduction. If the forms or other documentation required by subsection (a)
--------------
of this Section are not delivered to the Agent, then the Agent may withhold
from any interest payment to such Bank not providing such forms or other
documentation an amount equivalent to the applicable withholding tax.
(e) If the IRS or any other governmental authority of the United
States asserts a claim that the Agent did not properly withhold tax from
amounts paid to or for the account of any Bank (because such Bank failed to
notify the Agent of a change in circumstances which rendered the exemption
from, or reduction of, withholding tax ineffective) such Bank shall
indemnify the Agent fully for all amounts paid, directly or indirectly, by
the Agent as tax or otherwise, including penalties and interest, and
including any taxes imposed by any jurisdiction on the amounts payable to
the Agent under this Section, together with all costs and expenses
(including reasonable fees of attorneys for the Agent (including the
allocable costs of internal legal services and all disbursements of
internal counsel)). The obligation of the Banks under this subsection
shall survive the repayment of the Loans, cancellation of the Notes, any
termination of this Agreement and the resignation or replacement of the
Agent.
13.11 Collateral Matters. The Banks irrevocably authorize the Agent, at
------------------
its option and in its discretion, to release any Lien granted to or held by the
Agent under any Collateral Document (i) upon termination of the Commitments and
payment in full of all Loans and all other obligations of the Company hereunder
and the expiration or termination of all Letters of Credit; (ii) covering
property sold or to be sold or disposed of as part of or in connection with any
disposition permitted hereunder; or (iii) subject to Section 14.1, if approved,
------------
authorized or ratified in writing by the Required Banks. Upon request by the
Agent at any time, the Banks will confirm in writing the Agent's authority to
release particular types or items of collateral pursuant to this Section 13.11.
-------------
13.12 Co-Agents. None of the Banks identified on the facing page of this
---------
Agreement as a "Co-Agent" shall have any right, power, obligation, liability,
responsibility or duty under this Agreement other than those applicable to all
Banks as such. Without limiting the foregoing, none of the Banks so identified
as a "Co-Agent" shall have or be deemed to have any fiduciary relationship with
any Bank. Each Bank acknowledges that it has not relied, and will not rely, on
any of the Banks so identified in deciding to enter into this Agreement or in
taking or not taking action hereunder.
SECTION 14 GENERAL.
14.1 Waiver; Amendments. No delay on the part of the Agent, any Bank or
------------------
any other holder of a Note in the exercise of any right, power or remedy shall
operate as a waiver thereof, nor shall any single or partial exercise by any of
them of any right, power or remedy preclude any other or further exercise
thereof, or the exercise of any other right, power or remedy. No
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<PAGE>
amendment, modification or waiver of, or consent with respect to, any provision
of this Agreement or the Notes shall in any event be effective unless the same
shall be in writing and signed and delivered by Banks having an aggregate
Percentage of not less than the aggregate Percentage expressly designated herein
with respect thereto or, in the absence of such designation as to any provision
of this Agreement or the Notes, by the Required Banks, and then any such
amendment, modification, waiver or consent shall be effective only in the
specific instance and for the specific purpose for which given. No amendment,
modification, waiver or consent shall change the Percentage of any Bank without
the consent of such Bank. No amendment, modification, waiver or consent shall
(i) extend or increase the amount of the Commitments, (ii) extend the date for
payment of any principal of or interest on the Loans or any fees payable
hereunder, (iii) reduce the principal amount of any Loan, the rate of interest
thereon or any fees payable hereunder, (iv) release the Intercompany Guaranty
(other than with respect to a Guarantor which ceases to be a Subsidiary as a
result of a transaction permitted hereunder) or all or substantially all of the
collateral granted under the Collateral Documents or (v) reduce the aggregate
Percentage required to effect an amendment, modification, waiver or consent
without, in each case, the consent of all Banks. No provision of Section 13 or
----------
other provision of this Agreement affecting the Agent in its capacity as such
shall be amended, modified or waived without the consent of the Agent.
14.2 Confirmations. The Company and each holder of a Note agree from
-------------
time to time, upon written request received by it from the other, to confirm to
the other in writing (with a copy of each such confirmation to the Agent) the
aggregate unpaid principal amount of the Loans then outstanding under such Note.
14.3 Notices. Except as otherwise provided in Section 2.2, all notices
------- -----------
hereunder shall be in writing (including facsimile transmission) and shall be
sent to the applicable party at its address shown on Schedule 14.2 or at such
-------------
other address as such party may, by written notice received by the other
parties, have designated as its address for such purpose. Notices sent by
facsimile transmission shall be deemed to have been given when sent; notices
sent by mail shall be deemed to have been given three Business Days after the
date when sent by registered or certified mail, postage prepaid; and notices
sent by hand delivery or overnight courier service shall be deemed to have been
given when received. For purposes of Section 2.2, the Agent shall be entitled
-----------
to rely on telephonic instructions from any person that the Agent in good faith
believes is an authorized officer or employee of the Company, and the Company
shall hold the Agent and each Bank harmless from any loss, cost or expense
resulting from any such reliance.
14.4 Computations. Where the character or amount of any asset or
------------
liability or item of income or expense is required to be determined, or any
consolidation or other accounting computation is required to be made, for the
purpose of this Agreement, such determination or calculation shall, to the
extent applicable and except as otherwise specified in this Agreement, be made
in accordance with GAAP, consistently applied; provided that if the Company
--------
notifies the Agent that the Company wishes to amend any covenant in Section 10
----------
to eliminate or to take into account the effect of any change in GAAP on the
operation of such covenant (or if the Agent notifies the Company that the
Required Banks wish to amend Section 10 for such purpose), then
----------
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<PAGE>
the Company's compliance with such covenant shall be determined on the basis of
GAAP in effect immediately before the relevant change in GAAP became effective,
until either such notice is withdrawn or such covenant is amended in a manner
satisfactory to the Company and the Required Banks.
14.5 Regulation U. Each Bank represents that it in good faith is not
------------
relying, either directly or indirectly, upon any Margin Stock as collateral
security for the extension or maintenance by it of any credit provided for in
this Agreement.
14.6 Costs, Expenses and Taxes. The Company agrees to pay on demand all
-------------------------
reasonable out-of-pocket costs and expenses of the Agent (including the
reasonable fees and charges of counsel for the Agent and of local counsel, if
any, who may be retained by said counsel) in connection with the preparation,
execution, delivery and administration of this Agreement, the other Loan
Documents and all other documents provided for herein or delivered or to be
delivered hereunder or in connection herewith (including any amendments,
supplements or waivers to any Loan Documents), and all reasonable out-of-pocket
costs and expenses (including reasonable attorneys' fees, court costs and other
legal expenses and allocated costs of staff counsel) incurred by the Agent and
each Bank after an Event of Default in connection with the enforcement of this
Agreement, the other Loan Documents or any such other documents. In addition,
the Company agrees to pay, and to save the Agent and the Banks harmless from all
liability for, (a) any stamp or other taxes (excluding income taxes and
franchise taxes based on net income) which may be payable in connection with the
execution and delivery of this Agreement, the borrowings hereunder, the issuance
of the Notes or the execution and delivery of any other Loan Document or any
other document provided for herein or delivered or to be delivered hereunder or
in connection herewith and (b) any fees of the Company's auditors in connection
with any reasonable exercise by the Agent and the Banks of their rights pursuant
to Section 10.2. All obligations provided for in this Section 14.6 shall
------------ ------------
survive repayment of the Loans, cancellation of the Notes and any termination of
this Agreement.
14.7 Subsidiary References. The provisions of this Agreement relating to
---------------------
Subsidiaries shall apply only during such times as the Company has one or more
Subsidiaries.
14.8 Captions. Section captions used in this Agreement are for
--------
convenience only and shall not affect the construction of this Agreement.
14.9 Assignments; Participations.
---------------------------
14.9.1 Assignments. Any Bank may, with the prior written consents of the
-----------
Company and the Agent (which consents shall not be unreasonably delayed or
withheld), at any time assign and delegate to one or more commercial banks or
other Persons (any Person to whom such an assignment and delegation is to be
made being herein called an "Assignee"), all or any fraction of such Bank's
--------
Loans and Commitments (which assignment and delegation shall be of a constant,
and not a varying, percentage of all the assigning Bank's Loans and Commitments)
in a minimum aggregate amount equal to the lesser of (i) the assigning Bank's
remaining aggregate
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<PAGE>
Commitments and (ii) $5,000,000; provided, however, that (a) no assignment and
-------- -------
delegation may be made to any Person if, at the time of such assignment and
delegation, the Company would be obligated to pay any greater amount under
Section 7.6 or Section 8 to the Assignee than the Company is then obligated to
- ----------- ---------
pay to the assigning Bank under such Sections (and if any assignment is made in
violation of the foregoing, the Company will not be required to pay the
incremental amounts) and (b) the Company and the Agent shall be entitled to
continue to deal solely and directly with such Bank in connection with the
interests so assigned and delegated to an Assignee until the date when all of
the following conditions shall have been met:
(x) five Business Days (or such lesser period of time as the Agent
and the assigning Bank shall agree) shall have passed after written notice
of such assignment and delegation, together with payment instructions,
addresses and related information with respect to such Assignee, shall have
been given to the Company and the Agent by such assigning Bank and the
Assignee,
(y) the assigning Bank and the Assignee shall have executed and
delivered to the Company and the Agent an assignment agreement
substantially in the form of Exhibit G (an "Assignment Agreement"),
--------- --------------------
together with any documents required to be delivered thereunder, which
Assignment Agreement shall have been accepted by the Agent, and
(z) the assigning Bank or the Assignee shall have paid the Agent a
processing fee of $3,500.
From and after the date on which the conditions described above have been met,
(x) such Assignee shall be deemed automatically to have become a party hereto
and, to the extent that rights and obligations hereunder have been assigned and
delegated to such Assignee pursuant to such Assignment Agreement, shall have the
rights and obligations of a Bank hereunder, and (y) the assigning Bank, to the
extent that rights and obligations hereunder have been assigned and delegated by
it pursuant to such Assignment Agreement, shall be released from its obligations
hereunder. Within five Business Days after the effectiveness of any assignment
and delegation, the Company shall execute and deliver to the Agent (for delivery
to the Assignee and the Assignor, as applicable) a new Note in the principal
amount of the Assignee's Loan Commitment and, if the assigning Bank has retained
a Loan Commitment hereunder, a replacement Note in the principal amount of the
Loan Commitment retained by the assigning Bank (such Note to be in exchange for,
but not in payment of, the predecessor Note held by such assigning Bank). Each
such Note shall be dated the effective date of such assignment. The assigning
Bank shall mark the predecessor Note "exchanged" and deliver it to the Company.
Accrued interest on that part of the predecessor Note being assigned shall be
paid as provided in the Assignment Agreement. Accrued interest and fees on that
part of the predecessor Note not being assigned shall be paid to the assigning
Bank. Accrued interest and accrued fees shall be paid at the same time or times
provided in the predecessor Note and in this Agreement. Any attempted
assignment and delegation not made in accordance with this Section 14.9.1 shall
--------------
be null and void.
-51-
<PAGE>
Notwithstanding the foregoing provisions of this Section 14.9.1 or any
--------------
other provision of this Agreement, any Bank may at any time assign all or any
portion of its Loans and its Note to a Federal Reserve Bank (but no such
assignment shall release any Bank from any of its obligations hereunder).
14.9.2 Participations. Any Bank may at any time sell to one or more
--------------
commercial banks or other Persons participating interests in any Loan owing to
such Bank, the Note held by such Bank, the commitments of such Bank hereunder,
the direct or participation interest of such Bank in any Letter of Credit or any
other interest of such Bank hereunder (any Person purchasing any such
participating interest being herein called a "Participant"). In the event of a
-----------
sale by a Bank of a participating interest to a Participant, (x) such Bank shall
remain the holder of its Note for all purposes of this Agreement, (y) the
Company and the Agent shall continue to deal solely and directly with such Bank
in connection with such Bank's rights and obligations hereunder and (z) all
amounts payable by the Company shall be determined as if such Bank had not sold
such participation and shall be paid directly to such Bank. No Participant
shall have any direct or indirect voting rights hereunder except with respect to
any of the events (excluding the events described in clause (v) thereof)
----------
described in the penultimate sentence of Section 14.1. Each Bank agrees to
------------
incorporate the requirements of the preceding sentence into each participation
agreement which such Bank enters into with any Participant. The Company agrees
that if amounts outstanding under this Agreement and the Notes are due and
payable (as a result of acceleration or otherwise), each Participant shall be
deemed to have the right of setoff in respect of its participating interest in
amounts owing under this Agreement, any Note and with respect to any Letter of
Credit to the same extent as if the amount of its participating interest were
owing directly to it as a Bank under this Agreement or such Note; provided that
--------
such right of setoff shall be subject to the obligation of each Participant to
share with the Banks, and the Banks agree to share with each Participant, as
provided in Section 7.5. The Company also agrees that each Participant shall be
-----------
entitled to the benefits of Section 7.6 and Section 8 as if it were a Bank
----------- ---------
(provided that no Participant shall receive any greater compensation pursuant to
Section 7.6 or Section 8 than would have been paid to the participating Bank if
- ----------- ---------
no participation had been sold).
14.10 Governing Law. This Agreement and each Note shall be a contract
-------------
made under and governed by the internal laws of the State of Illinois. Whenever
possible each provision of this Agreement shall be interpreted in such manner as
to be effective and valid under applicable law, but if any provision of this
Agreement shall be prohibited by or invalid under applicable law, such provision
shall be ineffective to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or the remaining provisions of this
Agreement. All obligations of the Company and rights of the Agent, the Banks
and any other holder of a Note expressed herein or in any other Loan Document
shall be in addition to and not in limitation of those provided by applicable
law.
14.11 Counterparts. This Agreement may be executed in any number of
------------
counterparts and by the different parties hereto on separate counterparts and
each such counterpart shall be deemed to be an original, but all such
counterparts shall together constitute but one and the same Agreement. When
counterparts executed by all of the parties hereto shall have been lodged with
-52-
<PAGE>
the Agent (or, in the case of any Bank as to which an executed counterpart shall
not have been so lodged, the Agent shall have received confirmation from such
Bank of execution of a counterpart hereof by such Bank), this Agreement shall
become effective as of the date hereof, and at such time the Agent shall notify
the Company and each Bank.
14.12 Successors and Assigns. This Agreement shall be binding upon the
----------------------
Company, the Banks and the Agent and their respective successors and assigns,
and shall inure to the benefit of the Company, the Banks and the Agent and the
successors and assigns of the Banks and the Agent. The Company may not assign
its rights or obligations hereunder without the prior written consent of all
Banks.
14.13 Indemnification by the Company.
------------------------------
(a) In consideration of the execution and delivery of this Agreement by the
Agent and the Banks and the agreement to extend the Commitments provided
hereunder, the Company hereby agrees to indemnify and exonerate the Agent, each
Bank and each of the officers, directors, employees, Affiliates and agents of
the Agent and each Bank (each a "Bank Party") against, and hold each Bank Party
----------
free and harmless from, any and all actions, causes of action, suits, losses,
liabilities, damages and expenses, including reasonable attorneys' fees and
charges and allocated costs of staff counsel (collectively, for purposes of this
Section 14.13, called the "Indemnified Liabilities"), incurred by the Bank
- ------------- -----------------------
Parties or any of them as a result of, or arising out of, or relating to (i) any
tender offer, merger, purchase of stock, purchase of assets or other similar
transaction financed or proposed to be financed in whole or in part, directly or
indirectly, with the proceeds of any of the Loans, (ii) the use, handling,
release, emission, discharge, transportation, storage, treatment or disposal of
any hazardous substance at any property owned or leased by the Company or any
Subsidiary, (iii) any violation of any Environmental Laws with respect to
conditions at any property owned or leased by the Company or any Subsidiary or
the operations conducted thereon, (iv) the investigation, cleanup or remediation
of offsite locations at which the Company or any Subsidiary or their respective
predecessors are alleged to have directly or indirectly disposed of hazardous
substances or (v) the execution, delivery, performance or enforcement of this
Agreement or any other Loan Document by any of the Bank Parties, except for any
such Indemnified Liabilities arising on account of any such Bank Party's gross
negligence or willful misconduct. If and to the extent that the foregoing
undertaking may be unenforceable for any reason, the Company hereby agrees to
make the maximum contribution to the payment and satisfaction of each of the
Indemnified Liabilities which is permissible under applicable law. Nothing set
forth above shall be construed to relieve any Bank Party from any obligation it
may have under this Agreement.
(b) All obligations provided for in this Section 14.13 shall survive
-------------
repayment of the Loans, cancellation of the Notes, any foreclosure under, or
any modification, release or discharge of any or all of the Collateral Documents
and any termination of this Agreement.
14.14 Forum Selection and Consent to Jurisdiction. ANY LITIGATION BASED
-------------------------------------------
HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH THIS
-53-
<PAGE>
AGREEMENT OR ANY OTHER LOAN DOCUMENT, SHALL BE BROUGHT AND MAINTAINED
EXCLUSIVELY IN THE COURTS OF THE STATE OF ILLINOIS OR IN THE UNITED STATES
DISTRICT COURT FOR THE NORTHERN DISTRICT OF ILLINOIS; PROVIDED, HOWEVER, THAT
-------- -------
ANY SUIT SEEKING ENFORCEMENT AGAINST ANY COLLATERAL OR OTHER PROPERTY MAY BE
BROUGHT, AT THE AGENT'S OPTION, IN THE COURTS OF ANY JURISDICTION WHERE SUCH
COLLATERAL OR OTHER PROPERTY MAY BE FOUND. THE COMPANY HEREBY EXPRESSLY AND
IRREVOCABLY SUBMITS TO THE JURISDICTION OF THE COURTS OF THE STATE OF ILLINOIS
AND OF THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF ILLINOIS
FOR THE PURPOSE OF ANY SUCH LITIGATION AS SET FORTH ABOVE. THE COMPANY FURTHER
IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS BY REGISTERED MAIL, POSTAGE
PREPAID, OR BY PERSONAL SERVICE WITHIN OR WITHOUT THE STATE OF ILLINOIS. THE
COMPANY HEREBY EXPRESSLY AND IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED
BY LAW, ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE
OF ANY SUCH LITIGATION BROUGHT IN ANY SUCH COURT REFERRED TO ABOVE AND ANY CLAIM
THAT ANY SUCH LITIGATION HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. TO THE
EXTENT THAT THE COMPANY HAS OR HEREAFTER MAY ACQUIRE ANY IMMUNITY FROM
JURISDICTION OF ANY COURT OR FROM ANY LEGAL PROCESS (WHETHER THROUGH SERVICE OR
NOTICE, ATTACHMENT PRIOR TO JUDGMENT, ATTACHMENT IN AID OF EXECUTION OR
OTHERWISE) WITH RESPECT TO ITSELF OR ITS PROPERTY, THE COMPANY HEREBY
IRREVOCABLY WAIVES SUCH IMMUNITY IN RESPECT OF ITS OBLIGATIONS UNDER THIS
AGREEMENT AND THE OTHER LOAN DOCUMENTS.
14.15 WAIVER OF JURY TRIAL. EACH OF THE COMPANY, THE AGENT AND EACH BANK
--------------------
HEREBY WAIVES ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO
ENFORCE OR DEFEND ANY RIGHTS UNDER THIS AGREEMENT, ANY NOTE, ANY OTHER LOAN
DOCUMENT AND ANY AMENDMENT, INSTRUMENT, DOCUMENT OR AGREEMENT DELIVERED OR WHICH
MAY IN THE FUTURE BE DELIVERED IN CONNECTION HEREWITH OR THEREWITH OR ARISING
FROM ANY BANKING RELATIONSHIP EXISTING IN CONNECTION WITH ANY OF THE FOREGOING,
AND AGREES THAT ANY SUCH ACTION OR PROCEEDING SHALL BE TRIED BEFORE A COURT AND
NOT BEFORE A JURY.
-54-
<PAGE>
Delivered at Chicago, Illinois, as of the day and year first above written.
UNITED RENTALS, INC.
By
----------------------------------------
Chief Financial Officer
BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION, as Agent
By
----------------------------------------
Title
-------------------------------------
BANK OF AMERICA NATIONAL TRUST AND
SAVING ASSOCIATION, as a Bank
By
----------------------------------------
Title
-------------------------------------
THE BANK OF NEW YORK
By
----------------------------------------
Title
-------------------------------------
CREDIT LYONNAIS
By
----------------------------------------
Title
-------------------------------------
-55-
<PAGE>
FIRST NATIONAL BANK OF MARYLAND
By
----------------------------------------
Title
-------------------------------------
SUMMIT BANK
By
----------------------------------------
Title
-------------------------------------
NATIONAL CITY BANK
By
----------------------------------------
Title
-------------------------------------
BANKBOSTON, N.A.
By
----------------------------------------
Title
-------------------------------------
COMERICA BANK
By
----------------------------------------
Title
-------------------------------------
DEUTSCHE BANK AG, New York Branch and/or
Cayman Islands Branch
By
----------------------------------------
Title
-------------------------------------
By
----------------------------------------
-56-
<PAGE>
Title
-------------------------------------
FLEET BANK, N.A.
By
----------------------------------------
Title
-------------------------------------
HARRIS TRUST AND SAVINGS BANK
By
----------------------------------------
Title
-------------------------------------
LASALLE NATIONAL BANK
By
----------------------------------------
Title
-------------------------------------
-57-
<PAGE>
ANNEX I
Portion of
Bank Commitment Amount Percentage
- -------------------------------------------------------------------
Bank of America National $ 30,000,000 19.354838710%
Trust and Savings Association
- -------------------------------------------------------------------
BankBoston, N.A. $ 15,000,000 9.677419355%
- -------------------------------------------------------------------
Comerica Bank $ 15,000,000 9.677419355%
- -------------------------------------------------------------------
Deutsche Bank AG $ 15,000,000 9.677419355%
- -------------------------------------------------------------------
The Bank of New York $ 10,000,000 6.451612903%
- -------------------------------------------------------------------
Credit Lyonnais $ 10,000,000 6.451612903%
- -------------------------------------------------------------------
First National Bank of Maryland $ 10,000,000 6.451612903%
- -------------------------------------------------------------------
Summit Bank $ 10,000,000 6.451612903%
- -------------------------------------------------------------------
National City Bank $ 10,000,000 6.451612903%
- -------------------------------------------------------------------
Fleet Bank, N.A. $ 10,000,000 6.451612903%
- -------------------------------------------------------------------
Harris Trust and Savings Bank $ 10,000,000 6.451612903%
- -------------------------------------------------------------------
LaSalle National Bank $ 10,000,000 6.451612903%
- -------------------------------------------------------------------
___________ ___
- -------------------------------------------------------------------
TOTALS $155,000,000 100%
- -------------------------------------------------------------------
-58-
<PAGE>
SCHEDULE I
PRICING SCHEDULE
The Floating Rate Margin, the Eurodollar Margin, the rate per annum
applicable for non-use fees and the rate per annum applicable for letter of
credit fees for Financial Letters of Credit and Non-Financial Letters of Credit,
respectively, shall be determined in accordance with the table below and the
other provisions of this Schedule I.
----------
LEVEL I LEVEL II LEVEL III LEVEL IV LEVEL V
- ---------------------------------------------------------------------------
Rate for
Non-Use Fee 0.375% 0.375% 0.375% 0.375% 0.375%
- ---------------------------------------------------------------------------
Eurodollar Margin 2.500% 2.250% 2.000% 1.750% 1.500%
- ---------------------------------------------------------------------------
Floating Rate Margin
0.250% 0.250% 0 0 0
- ---------------------------------------------------------------------------
Rate for
Non-Financial LC Fee 1.250% 1.125% 1.000% 0.875% 0.750%
- ---------------------------------------------------------------------------
Rate for
Financial LC Fee 2.500% 2.250% 2.000% 1.750% 1.500%
- ---------------------------------------------------------------------------
Level I applies when the Funded Debt to Cash Flow Ratio is equal to or
-------
greater than 3.25 to 1.0.
Level II applies when the Funded Debt to Cash Flow Ratio is equal to
--------
or greater than 2.75 to 1.0 but less than 3.25 to 1.0.
Level V applies when the Funded Debt to Cash Flow Ratio is less than
-------
1.75 to 1.0.
The applicable Level shall be adjusted, to the extent applicable, 45
days (or, in the case of the last Fiscal Quarter of any Fiscal Year, 90 days)
after the end of each Fiscal Quarter based on the Funded Debt to Cash Flow Ratio
as of the last day of such Fiscal Quarter; provided that if the Company fails to
--------
deliver the financial statements required by Section 10.1.1 or 10.1.2, as
-------------- ------
applicable, and the related certificate required by Section 10.1.4 by the 45th
--------------
day (or, if applicable, the 90th day) after any Fiscal Quarter, Level I shall
apply until such financial statements are delivered. Notwithstanding the
foregoing, the applicable Level shall be Level IV at all times prior to March
31, 1998.
-59-
<PAGE>
EXHIBIT 10(t)
================================================================================
PURCHASE AGREEMENT
among
UNITED RENTALS, INC.,
UNITED RENTALS OF CANADA, INC.,
ACCESS RENTALS, INC.,
REINHART LEASING, LLC
and
THE STOCKHOLDERS OF ACCESS RENTALS, INC.
Dated as of January 22, 1998
================================================================================
<PAGE>
TABLE OF CONTENTS
ARTICLE I
SALE AND PURCHASE..................................................... 1
1.1 Sale and Purchase of the Subsidiary Shares.................. 1
1.2 Sale and Purchase of Shares................................. 2
1.3 Sale and Purchase of Assets................................. 2
1.4 Assumed Obligations; Retained Liabilities................... 2
ARTICLE II
PURCHASE CONSIDERATION................................................ 2
2.1 Amount of Purchase Price.................................... 2
2.2 Adjustments to the Purchase Price........................... 3
2.3 Escrow...................................................... 6
2.4 Collection of Receivables................................... 7
ARTICLE III
CLOSING............................................................... 7
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE SELLERS 8
4.1 Organization and Good Standing.............................. 8
4.2 Authorization of Agreement.................................. 8
4.3 Capitalization.............................................. 9
4.4 Subsidiaries................................................ 9
4.5 Corporate Records........................................... 9
4.6 Conflicts; Consents......................................... 10
4.7 Ownership and Transfer of Shares............................ 10
4.8 Financial Statements........................................ 10
4.9 No Undisclosed Liabilities.................................. 11
4.10 Absence of Certain Developments............................. 11
4.11 Taxes 13
4.12 Real Property............................................... 15
4.13 Tangible Property; Assets................................... 16
4.14 Intangible Property......................................... 16
4.15 Material Contracts.......................................... 17
4.16 Employee Benefits........................................... 18
4.17 Labor; Personnel............................................ 20
4.18 Litigation.................................................. 20
4.19 Compliance with Laws; Permits............................... 21
4.20 Environmental Matters....................................... 21
4.21 Insurance................................................... 22
4.22 Related Party Transactions.................................. 22
i
<PAGE>
4.23 Banks....................................................... 23
4.24 Product Quality, Warranty Claims, Product Liability......... 23
4.25 Investment Intention........................................ 23
4.26 No Misrepresentation........................................ 24
4.27 Brokers; Finders............................................ 24
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF URI 24
5.1 Organization and Good Standing.............................. 24
5.2 Authorization of Agreement.................................. 24
5.3 Conflicts; Consents of Third Parties........................ 25
5.4 Litigation.................................................. 25
5.5 Investment Intention........................................ 25
5.6 Stock Consideration......................................... 25
5.7 Brokers; Finders............................................ 25
ARTICLE VI
COVENANTS............................................................. 26
6.1 Access to Information....................................... 26
6.2 Publicity; Non-disclosure................................... 26
6.3 Use of Name................................................. 26
6.4 Records..................................................... 27
6.5 Senior Managers; Bonuses.................................... 27
6.6 Release of Guarantees....................................... 27
ARTICLE VII
CLOSING DELIVERIES.................................................... 27
7.1 Closing Deliveries of ARI................................... 27
7.2 Closing Deliveries of URI Sub............................... 28
7.3 Closing Deliveries of the Sellers........................... 28
7.4 Closing Deliveries of URI................................... 29
ARTICLE VIII
INDEMNIFICATION; TAX MATTERS.......................................... 30
8.1 Indemnification............................................. 30
8.2 Survival of Representations and Warranties.................. 31
8.3 Limitations on Indemnification.............................. 31
8.4 Non-Tax Indemnification Procedures.......................... 32
8.5 Right of Set-Off............................................ 34
8.6 Tax Indemnification and Related Matters..................... 34
8.7 Tax Treatment of Indemnity Payments......................... 37
ARTICLE IX
MISCELLANEOUS......................................................... 37
ii
<PAGE>
9.1 Rules of Construction; Certain Definitions.................. 37
9.2 Payment of Sales, Use, Transfer or Similar Taxes............ 42
9.3 Bulk Sales Laws............................................. 42
9.4 Expenses.................................................... 42
9.5 Specific Performance........................................ 42
9.6 Further Assurances.......................................... 43
9.7 Entire Agreement; Amendments and Waivers.................... 43
9.8 Governing Law............................................... 43
9.9 Section Headings............................................ 43
9.10 Notices..................................................... 43
9.11 Severability................................................ 44
9.12 Binding Effect; Assignment.................................. 44
9.13 No Third Party Beneficiaries................................ 45
9.14 Sellers' Representative..................................... 45
iii
<PAGE>
PURCHASE AGREEMENT
------------------
PURCHASE AGREEMENT, dated as of January 22, 1998 (this "Agreement"), among
United Rentals, Inc., a Delaware corporation ("URI"), United Rentals of Canada,
Inc., an Ontario, Canada corporation and wholly-owned subsidiary of URI ("URI
Sub"), Access Rentals, Inc., a New York corporation ("ARI"), Reinhart Leasing,
LLC, a New York limited liability company ("Reinhart Leasing"), and the
stockholders of ARI executing a signature page hereto (the "Stockholders" and,
together with Reinhart Leasing, the "Sellers").
W I T N E S S E T H:
-------------------
WHEREAS, ARI, its wholly-owned subsidiary Access Lift Equipment Inc., a
Canadian corporation (the "Subsidiary"), and its affiliate, Reinhart Leasing,
are engaged in the equipment rental business;
WHEREAS, the Stockholders own an aggregate of 100 shares of Class A Voting
Common Stock, par value $1.00 per share, of ARI, and 9,900 shares of Class B
Nonvoting Common Stock, par value $1.00 per share, of ARI (such 10,000 shares of
common stock of ARI are hereinafter collectively referred to as the "Shares"),
constituting all of the issued and outstanding shares of capital stock of ARI;
WHEREAS, ARI desires to sell to URI Sub, and URI Sub desires to purchase from
ARI, all of the issued and outstanding shares of capital stock of the Subsidiary
(the "Subsidiary Shares"), for the purchase price and upon the terms and
conditions hereinafter set forth;
WHEREAS, the Stockholders desire to sell to URI, and URI desires to purchase
from the Stockholders, all of the Shares, and Reinhart Leasing desires to sell
to URI, and URI desires to purchase from Reinhart Leasing, the Assets of
Reinhart Leasing, in each case, for the purchase price and upon the terms and
conditions hereinafter set forth; and
WHEREAS, certain terms used in this Agreement are defined in Section 9.1.
NOW, THEREFORE, in consideration of the premises and the mutual covenants and
agreements hereinafter contained, the parties hereby agree as follows:
ARTICLE I
SALE AND PURCHASE
1.1 Sale and Purchase of the Subsidiary Shares. At the Closing (as
------------------------------------------
hereinafter defined), upon the terms and subject to the conditions contained
herein, ARI shall sell,
<PAGE>
assign, transfer, convey and deliver to URI Sub, free and clear of all Liens,
and URI Sub shall purchase from ARI, all of the Subsidiary Shares.
1.2 Sale and Purchase of Shares. At the Closing, immediately following the
---------------------------
sale and purchase of the Subsidiary Shares pursuant to Section 1.1 and upon the
terms and subject to the conditions contained herein, the Stockholders shall
sell, assign, transfer, convey and deliver to URI, free and clear of all Liens,
and URI shall purchase from the Stockholders, all of the Shares.
1.3 Sale and Purchase of Assets. At the Closing, immediately following the
---------------------------
sale and purchase of the Subsidiary Shares pursuant to Section 1.1 and upon the
terms and subject to the conditions contained herein, Reinhart Leasing shall
sell, assign, transfer, convey and deliver to URI, free and clear of all Liens,
and URI shall purchase from Reinhart Leasing, all of Reinhart Leasing's right,
title and interest in and to the Assets, such sale and transfer to be evidenced
by a Bill of Sale substantially in the form of Exhibit A hereto (the "Bill of
---------
Sale") and by such other instruments of transfer and assignment as URI may from
time to time reasonably request in order to evidence and more formally vest in
URI, as of the Closing, title to the Assets which are owned, and a valid and
assignable leasehold or other contractual interest in the Assets which are
leased or otherwise held under Contract, by Reinhart Leasing.
1.4 Assumed Obligations; Retained Liabilities. From and after the Closing,
-----------------------------------------
and prorated from and as of the Closing Date, URI shall assume, perform and
discharge the obligations and liabilities of Reinhart Leasing under the
equipment lease with KeyCorp Leasing Ltd. dated August 5, 1994 with ARI and
Equipment Schedule #1 thereto dated June 28, 1996 with Reinhart Leasing (lease
#11074) (collectively, the "Assumed Obligations") pursuant to an Assumption
Agreement substantially in the form of Exhibit B hereto (the "Assumption
---------
Agreement"); provided that URI shall have received all necessary consents with
--------
respect to the assignment thereof to URI. No other liabilities or obligations
of Reinhart Leasing are expressly or by implication being assumed by URI under
this Agreement. Without limiting the generality of the preceding sentence,
Reinhart Leasing shall retain and remain responsible for all Retained
Liabilities.
ARTICLE II
PURCHASE CONSIDERATION
2.1 Amount of Purchase Price.
------------------------
(a) Subsidiary Shares. The aggregate purchase price for the Subsidiary
-----------------
Shares shall be $1,000,000, payable in cash.
(b) Shares and Assets. The aggregate purchase price for the Shares,
-----------------
the Assets and the Non-Competition Agreements shall be (i) $86,507,600, which
amount shall
2
<PAGE>
be (x) decreased by the amount of the Closing Date Debt (as defined in Section
2.2(a)) and (y) subject to further adjustment pursuant to the provisions of
Section 2.2 (as so adjusted, the "Purchase Price") plus (ii) a warrant issued
substantially the form of Exhibit C hereto (the "Warrant") to purchase an
---------
aggregate of 30,000 shares of URI Common Stock. The Purchase Price shall be
payable as follows: (A) $79,907,600 shall be paid in cash (the "Cash Component")
and allocated among the Sellers in accordance with Schedule 2.1(b)(A), of which
aggregate amount $5,500,000 (the "Escrow Amount") will be deposited in escrow as
described in Section 2.3, and (B) URI shall issue (I) an aggregate of 347,369
shares of URI Common Stock (the "Stock Component") to the Sellers, allocated as
set forth on Schedule 2.1(b)(A), and (II) the Warrant
(c) Purchase Price Allocation. The Purchase Price and the Warrant
-------------------------
shall be allocated among the Shares, the Assets and the Non-Competition
Agreements in accordance with Exhibit D hereto. Subject to the requirements of
---------
any applicable Tax law, all Tax Returns and reports filed by URI and the Sellers
shall be prepared consistently with such allocation. In the event any purchase
price adjustments are made hereunder, the parties hereto agree to adjust such
allocation to reflect such purchase price adjustment and to file consistently
any Tax Returns and reports required as a result of such purchase price
adjustment.
2.2 Adjustments to the Purchase Price. The Purchase Price was or shall be
---------------------------------
adjusted as follows:
(a) Closing Date Debt. The "Closing Date Debt" shall be as set forth
on Schedule 2.2(a) and shall include (i) the amount of the aggregate debt
(excluding trade payables) of ARI and the Subsidiary, and of Reinhart Leasing to
the extent such debt constitutes an Assumed Obligation, outstanding on the close
of business on January 21, 1998 (the "Accounting Date") to be repaid by URI at
or immediately after the Closing and all prepayment penalties incurred or to be
incurred by URI and URI Sub in connection with the repayment of any such debt;
(ii) the amount of the aggregate debt (excluding trade payables) of ARI and the
Subsidiary, and of Reinhart Leasing to the extent such debt constitutes an
Assumed Obligation, outstanding on the Accounting Date which will remain
outstanding obligations of ARI, the Subsidiary or URI after the Closing Date,
including in each case all interest thereon accrued through and including the
Accounting Date; and (iii) the aggregate amount of the present value of all
capitalized lease obligations (determined in accordance with GAAP) of ARI and
the Subsidiary, and of Reinhart Leasing to the extent such obligations
constitute Assumed Obligations. Schedule 2.2(a) includes wire transfer
instructions for creditors whose Closing Date Debt will be repaid by URI, and
attached to Schedule 2.2(a) are pay-off letters or instructions from such
creditors.
(b) Equipment Adjustment. The Rental Asset Listings attached as
Schedule 2.2(b)(i) set forth the asset description, make, model, original cost
and net book value of all rental equipment and inventory held for rent to
customers and related transportation equipment (collectively, the "Equipment")
of ARI, the Subsidiary and Reinhart Leasing
3
<PAGE>
(A) as of March 31, 1997 (the "3/31/97 RAL"), and (B) as of the Accounting Date,
which Accounting Date RAL identifies and reflects all purchases and sales of
Equipment by the Company, the Subsidiary and Reinhart Leasing since March 31,
1997 (the "Closing Date RAL"), in each case, as used in the preparation of the
Balance Sheets (as defined in Section 4.8). The Equipment reflected on the
Closing Date RAL is Rental Ready (as defined below). The Purchase Price shall
be (i) reduced for each item of Equipment listed on the 3/31/97 RAL which is
missing (or non-existing), not Rental Ready, has been sold or is otherwise not
available for rent to customers, and (ii) increased by the cost of each item of
Equipment (including freight charges) not listed on the 3/31/97 RAL that was
purchased between March 31, 1997 and the Closing Date, excluding approximately
$600,000 of purchases of additional equipment for the Rent-It location
consisting of six Genie S-60 units, four Z-45/22 units and one JL600S unit
(collectively, the "Equipment Adjustment"). An estimated Equipment Adjustment
shall be made on the Closing Date based on a comparison of the 3/31/RAL and the
Closing Date RAL (the "Closing Date Equipment Adjustment"). Within 45 days
following the Closing Date, URI shall complete a physical inventory of each item
of Equipment on the Closing Date RAL, including by visiting renters' locations
as necessary to inspect such Equipment, and the Purchase Price shall be further
decreased or increased, if and as necessary, based on the Equipment Adjustment
resulting from the findings of URI's physical inventory (the "Post Closing
Equipment Adjustment"). The reduction in the Purchase Price described in clause
(i) of the definition of "Equipment Adjustment" above shall be calculated by the
aggregate fair market value (as determined by URI and the Representative) of all
missing or unavailable Equipment and at the lesser of (x) the repair cost and
(y) the replacement cost for all non-Rental Ready Equipment, but the Purchase
Price shall only be reduced by the extent that the aggregate fair market value
(determined as aforesaid) of all such missing, sold or unavailable Equipment,
plus the repair/replacement costs of all such non Rental Ready Equipment,
exceeds $25,000. In the event of a Purchase Price reduction due to a Post
Closing Equipment Adjustment, the Sellers shall pay URI the amount of such
adjustment and URI shall be entitled to be paid out of the Escrow Amount, and
URI and the Sellers shall give instructions to the Escrow Agent to pay, an
amount equal to such adjustment within five Business Days of completion of the
determination of the Equipment Adjustment. In the event of a Purchase Price
increase due to a Post Closing Equipment Adjustment, URI shall pay the
Representative the amount of such adjustment, net of any reductions to the
Purchase Price as a result of any provision of this Article II, not less than
120 but not more than 150 days following the Closing Date. For purposes of this
Agreement, an item of Equipment is "Rental Ready" only if all required
maintenance (other than routine maintenance) has been performed and it does not
require any repairs that would cost in excess of $750 per item. The parties
agree that the items of Equipment listed in Schedule 2.2(b)(ii) shall not give
rise to an Equipment Adjustment solely by reason of their failure to be Rental
Ready. Any disputes as to the physical count, fair market value or Rental
Readiness of any item of Equipment will, if possible, be resolved while the
physical inventory of such Equipment is being taken. Any disputes not so
resolved within 15 days shall be resolved by an independent third party mutually
acceptable to URI and the Representative or, if URI and the Representative
cannot agree
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on the designation of such independent third party within five Business Days, by
the Independent Firm, whose determination shall be final, binding and conclusive
on the parties hereto. Unless otherwise agreed to by URI in writing, operating
leases entered into by ARI, the Subsidiary or Reinhart Leasing shall not cause
an adjustment to the Purchase Price pursuant to an Equipment Adjustment.
(c) [Intentionally Omitted].
(d) Net Current Position Adjustment. Schedule 2.2(d) sets forth the
estimated consolidated Net Current Position (as hereinafter defined) of ARI, the
Subsidiary and Reinhart Leasing at the Accounting Date (the "Projected Net
Current Position"), which Schedule the Sellers represent and warrant to URI has
been prepared on a basis consistent with the Balance Sheets, subject to the
adjustments detailed on such Schedule. The Purchase Price shall be increased by
the amount shown as a positive balance on Schedule 2.2(d), or decreased by the
amount shown as a negative balance on Schedule 2.2(d). Promptly following the
Closing Date (but in any event no later than 90 days after the Closing Date),
URI shall prepare (on a basis consistent with the preparation of Schedule
2.2(d)) and deliver to the Representative a schedule showing the actual
consolidated Net Current Position of ARI and the Subsidiary at the Accounting
Date and after giving effect to the contribution and assignment by URI to ARI
immediately following the Closing of the Assets and the Assumed Liabilities (the
"Closing Net Current Position"). If the Sellers agree with the Closing Net
Current Position, it shall be accepted as final, binding and conclusive on the
parties hereto. If a notice of objection to the Closing Net Current Position is
given by the Sellers within 15 days after their receipt of such schedule
specifying any objections they may have (an "Objection Notice"), the Sellers and
URI shall attempt to reconcile such items as are in dispute. If the Sellers and
URI are unable to reconcile all such items within 15 days after the date on
which the Objection Notice is given, then such items as remain in dispute shall
be resolved by an independent third party mutually acceptable to URI and the
Sellers or, if the parties cannot agree on the designation of such independent
third party within five Business Days, by the Independent Firm, whose
determination shall be final, binding and conclusive on the parties hereto. If
the Closing Net Current Position is greater than the Projected Net Current
Position, then URI shall pay to the Sellers the amount of such excess. If the
Closing Net Current Position is less than the Projected Net Current Position,
the amount of such shortfall shall be deducted from the Purchase Price by
payment from the Escrow Amount or, if such amount is insufficient, the Sellers
shall pay to URI the amount of such shortfall.
As used in this Agreement, the term "Net Current Position" means, with
respect to any Person, the difference between the (A) aggregate current assets
(including cash and cash equivalents (including, in the case of ARI, the cash
received on the Accounting Date in consideration of the sale of Subsidiary
Shares to URI Sub pursuant to Section 1.1 hereof)), advances, unearned premiums,
notes receivable, prepaid expenses and deposits, the fair market value of
merchandise inventory (but not parts) held for
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resale, manufacturers' credits for warranty work performed prior to the
Accounting Date, 68% of the Alternative Minimum Tax credit of such Person as of
the Accounting Date, 90% of the net operating loss carryforward of the
Subsidiary as of the Accounting Date for Canadian federal and Ontario provincial
Tax purposes and, with respect to operating leases of equipment for which such
Person is a lessee, the net reduction in the amortizable principal balance from
the original purchase price to the lessee for such equipment as set forth in the
lease, which net reductions are identified and individually quantified on
Schedule 2.2(d), but excluding accounts receivable, and (B) aggregate current
liabilities (excluding the current portion of long-term debt) of such Person.
(e) The fees and expenses hereunder of the Sellers' accountants and
URI's accountants shall be paid by the Sellers and URI, respectively, and those
of the independent firms selected pursuant to Section 2.2(b) or 2.2(d) shall be
paid one-half by URI and one half by the Sellers.
(f) The parties agree that any deferred Tax obligations of ARI, the
Subsidiary or Reinhart Leasing, computed in accordance with GAAP, shall not be
included in the computation of any Purchase Price adjustment pursuant to the
foregoing provisions of this Section 2.2; it being understood that the Sellers
shall remain solely responsible for all Tax liabilities of ARI, the Subsidiary
and Reinhart Leasing for all periods through and including the Accounting Date.
2.3 Escrow. (a) The Escrow Amount shall be deposited with State Street Bank
------
and Trust Company (the "Escrow Agent") pursuant to, and shall be held, applied
and disbursed in accordance with, an escrow agreement substantially in the form
of Exhibit E-1 hereto (the "Escrow Agreement"). All interest and dividends
-----------
earned on the Escrow Amount during the term of the escrow shall be paid to the
parties entitled, pursuant to the provisions hereof, to such Escrow Amount on a
pro rata basis in relation to such entitlements.
(b) It is acknowledged and agreed that the adjustments made to the
Purchase Price on the Closing Date were based on estimates prepared by the
Sellers and delivered to URI. To the extent that the aggregate amount of the
adjustments pursuant to Section 2.2, as subsequently determined, exceed the
Escrow Amount, the Sellers, jointly and severally, shall pay to URI any such
deficiency by wire transfer of immediately available funds not later than five
Business Days after calculation of such deficiency. Notwithstanding anything in
this Article II, URI shall not be limited to the Escrow Amount as a sole remedy
in the event that any Purchase Price adjustment exceeds the Escrow Amount.
2.4 Collection of Receivables. On the Closing Date, URI shall deposit
-------------------------
$10,000,000 (the "Receivables Escrow Amount") with the Escrow Agent pursuant to
an escrow agreement substantially in the form of Exhibit E-2 hereto (the
-----------
"Receivables
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Escrow Agreement"). The Sellers represent and warrant that all of
the accounts receivable (including earned but not yet billed receivables) of ARI
and the Subsidiary existing as of the Closing Date (the "Receivables") have
arisen from bona fide transactions in the ordinary course of business consistent
with past practice, are good and valid, and will be collectable by ARI, URI Sub
and URI at the aggregate recorded amounts thereof not later than 120 days after
the Closing Date. URI shall instruct the Escrow Agent to pay to the
Representative, on a weekly basis, out of the Receivables Escrow Amount an
amount equal to the amount of Receivables collected by ARI and the Subsidiary
between the Closing Date and the date that is 120 days following the Closing
Date and, to the extent the Receivables Escrow Amount is insufficient to cover
such payments, URI shall cause ARI and/or the Subsidiary to pay the
Representative the amount of such shortfall upon completion of such 120 day
period. On the 120th day following the Closing Date, URI shall provide to the
Representative a reconciliation of the outstanding uncollected Receivables as of
such date. The parties will agree to such reconciliation and to the extent any
Receivables existing on the Closing Date remain outstanding following such 120
day period, URI shall be entitled to be paid, and the parties hereto shall give
instructions to the Escrow Agent to pay, out of the Receivables Escrow Amount an
amount (on a dollar-for-dollar basis) equal to the Receivables remaining unpaid
at such time (provided that no additional payment is due to URI from ARI or
Subsidiary if the Receivables remaining unpaid at such time shall exceed the
remaining Receivables Escrow Amount). Upon receipt of such payment in respect
of unpaid Receivables, URI shall assign such unpaid Receivables to the
Representative. For a period of 120 days following the Closing Date, URI and
URI Sub shall cause ARI and the Subsidiary to take all reasonable commercial
action, consistent with past practice, to collect the Receivables and, upon any
assignment to the Representative of any uncollected Receivables pursuant to the
preceding sentence, URI and URI Sub shall cause ARI and the Subsidiary to
continue to use reasonable commercial efforts, at the Representative's cost and
expense (including a reasonable allocation of the cost of ARI and Subsidiary
personnel), to collect the Receivables on behalf of the Representative for a
period to end not later than the first anniversary of the Closing Date. Unless
otherwise specified by the customer (in any remittance or otherwise) (i)
collected Receivables will be applied against invoices on a "FIFO" basis and
(ii) remittances from a customer received by ARI in respect of receivables that
arose after the Closing Date shall be first applied against the Receivables of
such customer, if any. All interest and dividends earned on the Receivables
Escrow Amount during the term of the escrow shall be paid to the party entitled,
pursuant to the provisions hereof, to such Receivables Escrow Amount on a pro
rata basis in relation to such entitlement.
ARTICLE III
CLOSING
The closing of the sale and purchase of the Subsidiary Shares, the Shares and
the Assets provided for in Article I hereof (the "Closing") took place
concurrently with the
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execution and delivery of this Agreement at 10:00 a.m., New York City time, at
the offices of Weil, Gotshal & Manges LLP, 767 Fifth Avenue, New York, New York
10153, on January 22, 1998 (the "Closing Date"), at which Closing the parties
also executed and delivered the items described in Article VII hereof.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE SELLERS
The Sellers hereby jointly and severally represent and warrant to URI and URI
Sub that as of the close of business on the Accounting Date:
4.1 Organization and Good Standing. ARI is a corporation duly organized,
------------------------------
validly existing and in good standing under the laws of the State of New York
and has all requisite corporate power and authority to own, lease and operate
its properties and to carry on its business as now conducted. Reinhart Leasing
is a limited liability company duly organized, validly existing and in good
standing under the laws of the State of New York and has all requisite limited
liability company power and authority to own, lease and operate its properties
and to carry on its business as now conducted. Each of ARI, the Subsidiary and
Reinhart Leasing is duly qualified and authorized to do business as a foreign
corporation in each jurisdiction listed on Schedule 4.1, which listed
jurisdictions are (except as set forth on such Schedule) the only jurisdictions
where the nature of their respective businesses or operations, or their
respective ownership or leasing of property, requires such qualification or
authorization (other than any jurisdiction where the failure to be so qualified
or authorized would not result in a Material Adverse Change).
4.2 Authorization of Agreement. ARI and Each Seller has all requisite
--------------------------
(corporate, limited liability company, partnership, trust or otherwise) power,
authority and legal capacity to execute and deliver this Agreement and each
other Seller Document to which such Person is a party, and to consummate the
transactions contemplated hereby and thereby. This Agreement and the other
Seller Documents have been duly authorized by all requisite action (corporate,
limited liability company, partnership, trust or otherwise) on the part of ARI
and the Sellers. This Agreement and each of the other Seller Documents have
been duly and validly executed and delivered by ARI and each Seller party
thereto and (assuming the due authorization, execution and delivery by the other
parties hereto and thereto) this Agreement and each of the other Seller
Documents constitutes legal, valid and binding obligations of ARI and each
Seller party thereto, enforceable against each Seller in accordance with their
respective terms, subject to applicable bankruptcy, insolvency, reorganization,
moratorium and similar laws affecting creditors' rights and remedies generally,
and subject, as to enforceability, to general principles of equity, including
principles of commercial reasonableness, good faith and fair dealing (regardless
of whether enforcement is sought in a proceeding at law or in equity).
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4.3 Capitalization. The authorized capital stock of ARI consists of 100
--------------
shares of Class A Voting Common Stock, par value $1.00 per share ("Class A
Stock"), and 10,000 shares of Class B Nonvoting Common Stock, par value $1.00
per share ("Class B Stock"), of which, as of the date hereof, there are 100
shares of Class A Stock issued and outstanding and 9,900 shares of Class B Stock
issued and outstanding. All of the issued and outstanding shares of capital
stock of ARI were duly authorized for issuance, are validly issued, fully paid
and non-assessable, and have not been issued in violation of any preemptive or
similar rights of any Person. The Shares being acquired by URI hereunder
constitute all of the outstanding shares of capital stock of ARI. There is no
existing option, warrant, call, right, commitment or other agreement of any
character to which any Stockholder or ARI is a party requiring, and there are no
securities of ARI outstanding which upon conversion or exchange would require,
the issuance, sale or transfer of any additional shares of capital stock or
other equity securities of ARI or other securities convertible into,
exchangeable for or evidencing the right to subscribe for or purchase shares of
capital stock or other equity securities of ARI. There are no voting trust or
other agreements with respect to any shares of capital stock of ARI or any
agreements relating to the issuance, sale, redemption, transfer or other
disposition of the capital stock of ARI.
4.4 Subsidiaries. The Subsidiary is the only Person in or of which ARI owns
------------
any stock, limited liability company membership, partnership or other equity
interest. The Subsidiary does not own any stock, limited liability company
membership, partnership or other equity interest in any Person. The authorized
capital stock of the Subsidiary is unlimited. As of the date hereof, there are
1,500 issued and outstanding shares of the Subsidiary's capital stock, all of
which shares are validly issued, fully paid and non-assessable and are owned
beneficially and of record by ARI, free and clear of any and all Liens. No
shares of capital stock are held by the Subsidiary as treasury stock. There is
no existing option, warrant, call, commitment or agreement to which the
Subsidiary is a party requiring, and there are no convertible or exchangeable
securities of the Subsidiary outstanding which upon conversion or exchange would
require, the issuance of any additional shares of capital stock or other equity
interests of the Subsidiary or other securities convertible into or exchangeable
for shares of capital stock or other equity interests of the Subsidiary or other
equity security of the Subsidiary. The Subsidiary has all requisite corporate
power and authority to own its properties and carry on its business as presently
conducted. ARI has the power and authority to sell, transfer, assign and
deliver the Subsidiary Shares to URI Sub as provided in this Agreement, and such
delivery will convey to URI Sub good and marketable title to the Subsidiary
Shares, free and clear of any and all Liens.
4.5 Corporate Records. The Stockholders have delivered to URI true, correct
-----------------
and complete copies of the certificate of incorporation of ARI and the
Subsidiary, certified by the Secretary of State of their respective
jurisdictions of incorporation, and the by-laws of ARI and the Subsidiary, each
certified by their respective corporate secretaries. The minute books of ARI and
the Subsidiary made available to URI contain complete and
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accurate records in all material respects of all meetings and accurately reflect
all other corporate action of the stockholders and board of directors (including
committees thereof) of ARI and the Subsidiary. The stock certificate books and
stock transfer ledgers of ARI and the Subsidiary delivered to URI are true,
correct and complete. All stock transfer taxes levied or payable with respect to
all transfers of shares of ARI and the Subsidiary prior to the date hereof have
been paid and appropriate transfer tax stamps affixed.
4.6 Conflicts; Consents. None of the execution, delivery or performance by
-------------------
the Sellers of this Agreement and the other Seller Documents, the consummation
of the transactions contemplated hereby or thereby, or compliance by the Sellers
with any of the provisions hereof or thereof will (a) conflict with, or result
in the breach of, any provision of the certificate of incorporation, by-laws or
comparable organizational documents of ARI or the Subsidiary, the certificate of
formation, limited liability company agreement or comparable organizational or
governing documents of Reinhart Leasing, or the trust documents of any
Stockholder; (b) except as set forth on Schedule 4.6, with notice, lapse of time
or both, conflict with, violate, result in the breach or termination of,
constitute a default or give rise to the right to accelerate the rights or
obligations of any Person under any note, bond, mortgage, indenture, license,
agreement, lease or other instrument or obligation to which any Seller, ARI or
the Subsidiary is a party or by which any of them or any of their respective
properties or assets is bound; (c) violate any statute, rule, regulation, order
or decree of any Governmental Body by which any Seller, ARI or the Subsidiary is
bound; or (d) result in the creation of any Lien upon the properties or assets
of any Seller, ARI or the Subsidiary. Except as set forth on Schedule 4.6
hereto, and except for any required filings under the HSR Act, no consent,
waiver, approval, Order, Permit or authorization of, declaration or filing with,
or notification to, any Person or Governmental Body is required on the part of
any Seller, ARI or the Subsidiary (pursuant to any Law, Material Contract (as
defined in Section 4.15) or otherwise) in connection with the execution and
delivery of this Agreement or the other Seller Documents, consummation of the
transactions contemplated hereby or thereby or the compliance by the Sellers
with any of the provisions hereof or thereof.
4.7 Ownership and Transfer of Shares. Schedule 4.7 sets forth the ownership
--------------------------------
of the outstanding Shares by the Stockholders. Each Stockholder is the record
and beneficial owner of all of the Shares indicated on Schedule 4.7 as being
owned by such Stockholder, free and clear of any and all Liens. Each
Stockholder has the power and authority to sell, transfer, assign and deliver
the Shares to URI as provided in this Agreement, and such delivery will convey
to URI good and marketable title to the Shares, free and clear of any and all
Liens.
4.8 Financial Statements. The Sellers have delivered to URI copies of (a)
--------------------
the audited balance sheets of (i) ARI as at September 30, 1995, March 31, 1996
and March
31, 1997, (ii) the Subsidiary as at December 31, 1995 and December 31, 1996 and
(iii) Reinhart Leasing as at December 31, 1996 and the related audited
statements of income and of cash flows of ARI, the Subsidiary and of Reinhart
Leasing for the years then
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ended, respectively, and (b) the unaudited balance sheets of ARI, the Subsidiary
and Reinhart Leasing as at December 31, 1997 and the related statement of income
of ARI for the 9-month period then ended and the related statement of income of
the Subsidiary and Reinhart Leasing for the 12-month period then ended (such
audited and unaudited statements, including the related notes and schedules
thereto, are referred to herein as the "Financial Statements"). Each of the
Financial Statements is complete and correct in all material respects, has been
prepared in accordance with GAAP (subject to normal year-end adjustments in the
case of the unaudited statements) and in conformity with the practices
consistently applied by ARI, the Subsidiary and Reinhart Leasing, respectively,
without modification of the accounting principles used in the preparation
thereof and presents fairly the financial position, results of operations and
cash flows of ARI, the Subsidiary and Reinhart Leasing, respectively, as at the
dates and for the periods indicated. For the purposes hereof, the balance sheets
of ARI, the Subsidiary and Reinhart Leasing as at December 31, 1997 are referred
to as the "Balance Sheets" and the date December 31, 1997 is referred to as the
"Balance Sheet Date."
4.9 No Undisclosed Liabilities; Operating Leases. (a) Except as set forth
--------------------------------------------
on Schedule 4.9(a), none of ARI, the Subsidiary or Reinhart Leasing has any
indebtedness, obligations or liabilities of any kind (whether accrued, absolute,
fixed, contingent or otherwise, and whether due or to become due) that would
have been required to be reflected in, reserved against or otherwise described
on the Balance Sheets or in the notes thereto in accordance with GAAP which was
not fully reflected in, reserved against or otherwise described in the Balance
Sheets or the notes thereto or was not incurred in the ordinary course of
business consistent with past practice since the Balance Sheet Date.
(b) Schedule 4.9(b) sets forth a list of all operating leases to which
ARI, the Subsidiary or Reinhart Leasing are a party, and for each such operating
lease, Schedule 4.9(b) sets forth the aggregate annual amount of lease and other
payments required to be made by the lessee thereunder.
4.10 Absence of Certain Developments. Except as expressly contemplated by
-------------------------------
this Agreement or as set forth on Schedule 4.10, since the Balance Sheet Date:
(i) there has not been any Material Adverse Change nor has there
occurred any event which is reasonably likely to result in a Material Adverse
Change;
(ii) there has not been any damage, destruction or loss with respect to
the property and assets of ARI, the Subsidiary or Reinhart Leasing having a
replacement cost of more than $10,000 for any single loss or $20,000 for all
such losses;
(iii) there has not been any declaration, setting aside or payment of
any dividend or other distribution in respect of any shares of capital stock of
ARI or any repurchase, redemption or other acquisition of capital stock or other
securities of, or other ownership interest in, ARI;
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(iv) there has not been any award, announcement or payment of bonuses
to employees of ARI, the Subsidiary or Reinhart Leasing except to the extent
accrued on the Balance Sheets (other than normal and customary year-end bonuses
in the ordinary course of business consistent with past practice and that in the
aggregate do not represent a material increase in the compensation expense of
ARI, the Subsidiary or Reinhart Leasing); none of ARI, the Subsidiary or
Reinhart Leasing has entered into any employment, deferred compensation,
severance or similar agreement (nor amended any such agreement) or agreed to
increase the compensation payable or to become payable by it to any of its
directors, officers, employees, agents or representatives or agreed to increase
the coverage or benefits available under any severance pay, termination pay,
vacation pay, salary continuation for disability, sick leave, deferred
compensation, bonus or other incentive compensation, insurance, medical plan,
pension or other employee benefit plan, payment or arrangement made to, for or
with such directors, officers, employees, agents or representatives (other than
normal increases in the ordinary course of business consistent with past
practice and that in the aggregate have not resulted in a material increase in
the benefits or compensation expense of ARI, the Subsidiary or Reinhart
Leasing);
(v) there has not been any change by ARI, the Subsidiary or Reinhart
Leasing in accounting or Tax reporting principles, methods or policies;
(vi) none of ARI, the Subsidiary or Reinhart Leasing has entered into
any transaction or Contract or conducted its business other than in the ordinary
course consistent with past practice;
(vii) none of ARI, the Subsidiary or Reinhart Leasing has failed to
promptly pay and discharge current liabilities except where disputed in good
faith by appropriate proceedings;
(viii) none of ARI, the Subsidiary or Reinhart Leasing has made any
loans, advances or capital contributions to, or investments in, any Person or
paid any fees or expenses to any Seller or any Affiliate of ARI or Reinhart
Leasing, in each case, except in the ordinary course consistent with past
practice;
(ix) none of ARI, the Subsidiary or Reinhart Leasing has mortgaged,
pledged or subjected to any Lien any of its assets, or acquired any assets or
sold, assigned, transferred, conveyed, leased or otherwise disposed of any of
its assets, except for assets acquired or sold, assigned, transferred, conveyed,
leased or otherwise disposed of in the ordinary course of business consistent
with past practice;
(x) none of ARI, the Subsidiary or Reinhart Leasing has discharged or
satisfied any Lien, or paid any obligation or liability (fixed or contingent),
except in the ordinary course of business consistent with past practice and
which, in the aggregate, would not cause a Material Adverse Change;
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(xi) none of ARI, the Subsidiary or Reinhart Leasing has canceled or
com promised any debt or claim or amended, canceled, terminated, relinquished,
waived or re leased any Contract or right except in the ordinary course of
business consistent with past practice and which, in the aggregate, would not
cause a Material Adverse Change;
(xii) none of ARI, the Subsidiary or Reinhart Leasing has made or
committed to make any capital expenditures or capital additions or betterments
in excess of $5,000 individually or $15,000 in the aggregate;
(xiii) none of ARI, the Subsidiary or Reinhart Leasing has instituted
or settled any material Legal Proceeding; and
(xiv) none of the Sellers, ARI or any of the Subsidiary has agreed to
do anything set forth in this Section 4.10.
4.11 Taxes. (a) Except as set forth on Schedule 4.11(a), (i) all Tax
-----
Returns required to be filed by or on behalf of ARI and the Subsidiary have been
properly prepared and duly and timely filed with the appropriate taxing
authorities in all jurisdictions in which such Tax Returns are required to be
filed (after giving effect to any valid extensions of time in which to make such
filings), and all such Tax Returns were true, complete and correct in all
material respects; and (ii) all Taxes that are due from ARI or the Subsidiary
with respect to the periods covered by such Tax Returns have been fully and
timely paid, and adequate reserves or accruals for Taxes have been provided in
the Balance Sheets with respect to any period for which Tax Returns have not yet
been filed or for which Taxes are not yet due and owing.
(b) Each of ARI and the Subsidiary has complied in all material respects
with all applicable Laws, rules and regulations relating to the payment and
withholding of Taxes and has duly and timely withheld from employee salaries,
wages and other compensation and has paid over to the appropriate taxing
authorities all amounts required to be so withheld and paid over for all periods
under all applicable Laws.
(c) URI has received complete copies of (i) all federal, state, local
and foreign income or franchise Tax Returns of ARI, the Subsidiary and Reinhart
Leasing relating to the last three taxable periods of ARI, the Subsidiary and
Reinhart Leasing and (ii) any audit report issued within the last three years
(or otherwise with respect to any audit or investigation in progress) relating
to Taxes due from or with respect to ARI or the Subsidiary, their respective
income, assets or operations. All income and franchise Tax Returns filed by or
on behalf of ARI and the Subsidiary for the taxable years ended on the
respective dates set forth on Schedule 4.11 have been examined by the relevant
taxing authority or the statute of limitations with respect to such Tax Returns
has expired.
(d) Schedule 4.11(d)(1) lists all material types of Taxes paid and
material types of Tax Returns filed by or on behalf of ARI and the Subsidiary.
Except as
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set forth on Schedule 4.11(d)(2), no claim has been made by a taxing
authority in a jurisdiction where ARI or the Subsidiary does not file Tax
Returns such that it is or may be subject to taxation by that jurisdiction.
(e) Except as set forth on Schedule 4.11(e), all deficiencies asserted
or assessments made as a result of any examinations by the Internal Revenue
Service (the "IRS") or any other taxing authority of the Tax Returns of or
covering or including ARI, the Subsidiary and Reinhart Leasing have been fully
paid, and there are no other audits or investigations by any taxing authority in
progress, nor has any Seller, ARI, the Subsidiary or any member of Reinhart
Leasing received any notice from any taxing authority that it intends to conduct
such an audit or investigation. No issue has been raised by a federal, state,
local or foreign Taxing authority in any current or prior examination which, by
application of the same or similar principles, could reasonably be expected to
result in a proposed deficiency for any subsequent taxable period. None of ARI,
the Subsidiary or Reinhart Leasing is subject to any private letter ruling of
the IRS or comparable rulings of other taxing authorities.
(f) Except as set forth on Schedule 4.11(f), none of the Sellers, ARI,
the Subsidiary, or any other Person on behalf of ARI or Reinhart Leasing has (i)
agreed to or is required to make any adjustments pursuant to Section 481(a) of
the Code or any similar provision of state, local or foreign Law by reason of a
change in accounting method initiated by ARI or the Subsidiary or has any
knowledge that the IRS has proposed any such adjustment or change in accounting
method, or has any application pending with any taxing authority requesting
permission for any changes in accounting methods that relate to the business or
operations of ARI or the Subsidiary, (ii) executed or entered into a closing
agreement pursuant to Section 7121 of the Code or any predecessor provision
thereof or any similar provision of state, local or foreign Law with respect to
ARI or the Subsidiary, (iii) extended the time within which to file any Tax
Return, which Tax Return has since not been filed or the assessment or
collection of Taxes, which Taxes have not since been paid or (iv) any power of
attorney with respect to any Tax matter currently in force.
(g) No property owned by ARI or Reinhart Leasing is (i) property
required to be treated as being owned by another Person pursuant to the
provisions of Section 168(f)(8) of the Internal Revenue Code of 1954, as amended
and in effect immediately prior to the enactment of the Tax Reform Act of 1986,
(ii) constitutes "tax-exempt use property" within the meaning of Section
168(h)(1) of the Code or (iii) is "tax-exempt bond financed property" within the
meaning of Section 168(g) of the Code.
(h) There are no Liens as a result of any unpaid Taxes upon any of the
assets of ARI, the Subsidiary or Reinhart Leasing.
(i) No Seller is a foreign person within the meaning of Section 1445 of
the Code.
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(j) Neither ARI nor the Subsidiary is a party to any tax sharing or
similar Contract or arrangement (whether or not written).
(k) There is no Contract, plan or arrangement involving ARI and covering
any Person that, individually or collectively, could give rise to the payment of
any amount that would not be deductible by URI, ARI or their Affiliates by
reason of Section 280G of the Code.
(l) Except as set forth on Schedule 4.11(l), ARI has no elections in
effect for federal income tax purposes under Sections 108, 168, 338, 441, 463,
472, 1017, 1033 or 4977 of the Code.
(m) Except as set forth on Schedule 4.11(m), ARI has never been a member
of any consolidated, combined or affiliated group of corporations for any Tax
purposes and the Subsidiary has not been a member of any consolidated, combined,
affiliated or similar group of corporations for any Tax purposes since December
31, 1989.
4.12 Real Property. (a) ARI, the Subsidiary and Reinhart Leasing own no
-------------
real property or interests in real property. Schedule 4.12 sets forth a
complete list of all real property and interests in real property leased by ARI,
the Subsidiary and Reinhart Leasing, respectively, and used in the operation of
their respective businesses (such real properties being referred to herein as
the "Company Property" and the leases covering such real properties being
referred to herein as the "Real Property Leases"). The Company Property
constitutes all interests in real property currently used or currently held for
use in connection with the businesses of ARI, the Subsidiary and Reinhart
Leasing and which are necessary for the continued operation of the businesses of
ARI, the Subsidiary and Reinhart Leasing as such businesses are currently
conducted. ARI, the Subsidiary and Reinhart Leasing have valid and enforceable
leasehold interests under each of the Real Property Leases to which they are a
party with Persons that are Affiliates of any Seller and, to the Sellers'
knowledge, under all other Real Property Leases, and none of the Sellers nor ARI
has received any notice of any default or event that with notice or lapse of
time, or both, would constitute a default by ARI, the Subsidiary or Reinhart
Leasing under any of the Real Property Leases. All of the Company Property,
buildings, fixtures and improvements thereon owned or leased by ARI, the
Subsidiary and Reinhart Leasing are in good operating condition and repair
(subject to normal wear and tear), with sufficient access to roads and utilities
to operate the businesses of ARI, the Subsidiary and Reinhart Leasing as
presently conducted. The Sellers have delivered to URI true, correct and
complete copies of the Real Property Leases, together with all amendments,
modifications or supplements, if any, thereto.
(b) ARI, the Subsidiary and Reinhart Leasing have all material
certificates of occupancy and Permits of any Governmental Body necessary or
useful for the current use and operation of each Company Property, and ARI, the
Subsidiary and Reinhart Leasing have fully complied with all material conditions
of the Permits applicable
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to them. No default or violation, or event that with the lapse of time or giving
of notice or both would become a default or violation, has occurred in the due
observance of any Permit, except for any default or violation that has not
caused and would not cause a Material Adverse Change.
(c) There does not exist any actual or, to the best knowledge of the
Sellers, threatened or contemplated condemnation or eminent domain proceedings
that affect any Company Property or any part thereof, and none of the Sellers
nor ARI has received any notice, oral or written, of the intention of any
Governmental Body or other Person to take or use all or any part thereof.
(d) Except as set forth on Schedule 4.12(d), none of ARI, the Subsidiary
or Reinhart Leasing owns or holds, or is obligated under or a party to, any
option, right of first refusal or other contractual right to purchase, acquire,
sell, assign or dispose of any real estate or any portion thereof or interest
therein.
4.13 Tangible Property; Assets. (a) Schedule 2.2(b) sets forth a list, as
-------------------------
of the date hereof, of all Equipment owned or leased by ARI, the Subsidiary and
Reinhart Leasing for lease or rent to their respective customers. Schedule 4.13
(a) sets forth a list, as of the date hereof, of all items of tangible property
(other than Equipment) owned or leased by ARI, the Subsidiary and Reinhart
Leasing having a fair market value in excess of $10,000 ("Other Assets").
(b) Except as set forth in Schedule 4.13(b), ARI, the Subsidiary and
Reinhart Leasing have good and marketable title to all of their Equipment and
Other Assets (except as sold or disposed of subsequent to the date indicated in
Section 4.13(a) in the ordinary course of business consistent with past
practice), free and clear of any and all Liens other than the Permitted
Exceptions. All such Other Assets are in good condition and in a state of good
maintenance and repair (ordinary wear and tear excepted) and are suitable for
the purposes used.
4.14 Intangible Property. Schedule 4.14 contains a complete and correct
-------------------
list of each patent, trademark, trade name, service mark and copyright owned or
used by ARI, the Subsidiary or Reinhart Leasing during the past five years, as
well as all registrations thereof and pending applications therefor, and each
license or other agreement relating thereto. Except as set forth on Schedule
4.14, each of the foregoing is owned by the party shown on such Schedule as
owning the same, free and clear of all Liens, and is in good standing and not
the subject of any challenge. There have been no claims made and neither the
Sellers nor ARI have received any notice or otherwise knows or has reason to
believe that any of the foregoing is invalid or conflicts with the asserted
rights of others.
4.15 Material Contracts. Schedule 4.15 sets forth all of the following
------------------
Contracts to which ARI, the Subsidiary or Reinhart Leasing is a party or by
which it is bound (collectively, the "Material Contracts"): (i) Contracts with
any stockholder, member,
16
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director, officer or manager of ARI, the Subsidiary or Reinhart Leasing that
will not terminate on or prior to the Closing Date without further obligation or
liability on the part of any party thereto; (ii) Contracts with any labor union
or association representing any employee of ARI, the Subsidiary or Reinhart
Leasing; (iii) Contracts for the sale of any assets (other than in the ordinary
course of business or as set forth on Schedule 4.10), or for the grant to any
Person of any preferential rights to purchase any of its assets or requiring any
Person to purchase or sell all or a fixed portion of its requirements or output
to or from another Person; (iv) Contracts containing covenants of ARI, the
Subsidiary or Reinhart Leasing not to compete in any line of business or with
any Person in any geographical area or covenants of any other Person not to
compete with ARI, the Subsidiary or Reinhart Leasing in any line of business or
in any geographical area; (v) Contracts relating to the acquisition by ARI, the
Subsidiary or Reinhart Leasing of any operating business or the capital stock of
any other Person; (vi) Contracts relating to the borrowing of money or the
issuance of guarantees; (vii) Contracts under which ARI, the Subsidiary or
Reinhart Leasing acts as a distributor, dealer, franchisor, licensee or
authorized service Person; or (viii) any other Contracts which (A) involve the
expenditure of more than $20,000 in the aggregate or $20,000 annually, (B) are
not terminable by each party thereto, without further obligation or liability,
upon less than 60 days' notice, or (C) require performance by any party more
than six months from the date hereof. There have been made available to URI and
its representatives true and complete copies of all of the Material Contracts.
Except as set forth on Schedule 4.15, all of the Material Contracts are in full
force and effect and are the legal, valid and binding obligation of ARI, the
Subsidiary, Reinhart Leasing and, to the best knowledge of the Sellers, each
other party thereto, enforceable against each such party in accordance with
their respective terms, subject to applicable bankruptcy, insolvency,
reorganization, moratorium and similar laws affecting creditors' rights and
remedies generally and subject, as to enforceability, to general principles of
equity. Except as set forth on Schedule 4.15, none of ARI, the Subsidiary or
Reinhart Leasing is, with notice or lapse of time, or both, in default in any
material respect under any Material Contracts nor, to the best knowledge of the
Sellers, is any other party to any Material Contract in default thereunder in
any material respect. None of the Sellers nor ARI has received notice that any
party to a Material Contract intends to terminate or not renew the same at its
next renewal date.
4.16 Employee Benefits. (a) Schedule 4.16(a) sets forth a complete and
-----------------
correct list of (i) all "employee benefit plans", as defined in Section 3(3) of
the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), and
any other benefit plans or employee benefit arrangements, programs or payroll
practices (including
severance pay, vacation pay, company awards, salary continuation for disability,
sick leave, retirement, deferred compensation, bonus or other incentive
compensation, stock purchase arrangements or policies, hospitalization, medical
insurance, life insurance and scholarship programs) maintained by ARI, the
Subsidiary or Reinhart Leasing or as to which any of ARI, the Subsidiary or
Reinhart Leasing has any obligation or liability (contingent or otherwise)
("Employee Benefit Plans") and (ii) all "employee pension plans", as defined in
Section 3(2) of ERISA, maintained by ARI, the Subsidiary or
17
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Reinhart Leasing or any trade or business (whether or not incorporated) which
are under control, or which are treated as a single employer, with ARI, the
Subsidiary or Reinhart Leasing under Section 414(b), (c), (m) or (o) of the Code
("ERISA Affiliate") or to which ARI, the Subsidiary, Reinhart Leasing or any
ERISA Affiliate contributed or is obligated to contribute thereunder ("Pension
Plans"). Schedule 4.16(a) clearly identifies, in separate categories, Employee
Benefit Plans or Pension Plans that are (i) subject to Section 4063 and 4064 of
ERISA ("Multiple Employer Plans"), (ii) multiemployer plans (as defined in
Section 4001(a)(3) of ERISA) ("Multiemployer Plans") or (iii) "benefit plans",
within the meaning of Section 5000(b)(1) of the Code providing continuing
benefits after the termination of employment (other than as required by Section
4980B of the Code or Part 6 of Title I of ERISA and at the former employee's or
his beneficiary's sole expense). True, correct and complete copies of the
following documents, with respect to each of the single employer Employee
Benefit Plans and Pension Plans (as applicable), have been delivered to URI: (i)
any plans, agreements, policies or other governing document and related trust
documents, and all amendments thereto, (ii) the most recent Forms 5500 and
schedules thereto, (iii) the most recent financial statements and actuarial
valuations, (iv) the most recent IRS determination letter, (v) the most recent
summary plan descriptions (including letters or other documents updating such
descriptions) and (v) written descriptions of all non-written agreements
relating to the Employee Benefit Plans and Pension Plans.
(b) ARI participates in and contributes to six Multiemployer Plans.
None of ARI, the Subsidiary, Reinhart Leasing or any ERISA Affiliate has
incurred any withdrawal liability (contingent or otherwise) under Title IV of
ERISA with respect to any Multiple Employer Plan or Multiemployer Plan.
(c) Each of the single employer Employee Benefit Plans and Pension Plans
intended to qualify under Section 401 of the Code ("Qualified Plans") so qualify
and the trusts maintained thereto are exempt from federal income taxation under
Section 501 of the Code and, except as disclosed on Schedule 4.16(c), nothing
has occurred with respect to the operation of any such plan which could cause
the loss of such qualification or exemption or the imposition of any liability,
penalty or tax under ERISA or the Code.
(d) All contributions and premiums required by Law or by the terms of
any Employee Benefit Plan or Pension Plan which are defined benefit plans or
money purchase plans or any agreement relating thereto have been timely made
(without regard to any waivers granted with respect thereto) to any funds or
trusts established thereunder or in connection therewith, and no accumulated
funding deficiencies exist in any of such plans subject to Section 412 of the
Code.
(e) The benefit liabilities, as defined in Section 4001(a)(16) of ERISA,
of each of the Employee Benefit Plans and Pension Plans (excluding any
Multiemployer Plan) subject to Title IV of ERISA using the actuarial assumptions
that would be used by
18
<PAGE>
the Pension Benefit Guaranty Corporation (the "PBGC") in the event it terminated
each such plan do not exceed the fair market value of the assets of each such
plan.
(f) There are no pending or, to the Sellers' knowledge, threatened Legal
Proceedings which have been asserted or instituted against any of the Employee
Benefit Plans or Pension Plans, the assets of any such plans or ARI, the
Subsidiary, Reinhart Leasing or the plan administrator or any fiduciary of the
single employer Employee Benefit Plans or Pension Plans with respect to the
operation of such plans (other than routine, uncontested benefit claims), and
there are no facts or circumstances known to the Sellers which could form the
basis for any such Legal Proceeding. There has been no "reportable event" as
that term is defined in Section 4043 of ERISA and the regulations thereunder
with respect to any of the single employer Pension Plans subject to Title IV of
ERISA which would require the giving of notice, or any event requiring notice to
be provided under Section 4041(c)(3)(C) or 4063(a) of ERISA.
(g) Each of the single employer Employee Benefit Plans and Pension Plans
has been maintained, in all material respects, in accordance with its terms and
all provisions of applicable Law. All amendments and actions required to bring
each of the single employer Employee Benefit Plans and Pension Plans into
conformity in all material respects with all of the applicable provisions of
ERISA and other applicable Laws have been made or taken except to the extent
that such amendments or actions are not required by law to be made or taken
until a date after the Closing Date.
(h) Neither ARI, the Subsidiary, Reinhart Leasing nor any ERISA
Affiliate has terminated any Employee Benefit Plan or Pension Plan subject to
Title IV of ERISA, or incurred any outstanding liability under Section 4062 of
ERISA to the PBGC or to a trustee appointed under Section 4042 of ERISA.
(i) Neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated hereby will (i) result in any
payment becoming due to any employee of ARI, the Subsidiary or Reinhart Leasing;
(ii) increase any benefits otherwise payable under any Employee Benefit Plan or
Pension Plan; or (iii) result in the acceleration of the time of payment or
vesting of any such benefits.
(j) No stock or other security issued by ARI, the Subsidiary or Reinhart
Leasing forms or has formed a material part of the assets of any Employee
Benefit Plan or Pension Plan.
4.17 Labor; Personnel. (a) Schedule 4.17(a) sets forth a complete list, as
----------------
of the date hereof, of all officers, directors and employees (by type or
classification) of ARI, the Subsidiary and Reinhart Leasing and their respective
rates of compensation, including (i) the portions thereof attributable to
bonuses, (ii) any other salary, bonus, equity participation, or other
compensation arrangement made with or promised to any of them, and (iii) copies
of all employment agreements with officers, directors and employees.
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<PAGE>
(b) Except as set forth on Schedule 4.17(b), none of ARI, the Subsidiary
or Reinhart Leasing is a party to any labor or collective bargaining agreement
and there are no labor or collective bargaining agreements which pertain to
their employees and none of their employees are represented by any labor
organization. No labor organization or group of employees of ARI, the
Subsidiary or Reinhart Leasing has made a pending demand for recognition, and
there are no representation proceedings or petitions seeking a representation
proceeding presently pending or, to the best knowledge of the Sellers,
threatened to be brought or filed, with the National Labor Relations Board or
other labor relations tribunal. There is no organizing activity involving ARI,
the Subsidiary or Reinhart Leasing pending or, to the best knowledge of any
Seller, threatened by any labor organization or group of employees of ARI, the
Subsidiary or Reinhart Leasing.
(c) There are no (i) strikes, work stoppages, slowdowns, lockouts or
arbitrations or (ii) material grievances or other labor disputes pending or, to
the best knowledge of any Seller, threatened against or involving ARI, the
Subsidiary or Reinhart Leasing. There are no unfair labor practice charges,
grievances or complaints pending or, to the best knowledge of any Seller,
threatened by or on behalf of any employee or group of employees of ARI, the
Subsidiary or Reinhart Leasing.
4.18 Litigation. Except as set forth in Schedule 4.18, there is no suit,
----------
action, proceeding, investigation, claim or order pending before any court, or
before any governmental department, commission, board, agency, or
instrumentality or, to the knowledge of the Sellers, threatened against ARI, the
Subsidiary or Reinhart Leasing (or to the knowledge of the Sellers, pending or
threatened against any of the officers, directors or key employees of ARI, the
Subsidiary or Reinhart Leasing with respect to their business activities on
behalf of ARI, the Subsidiary or Reinhart Leasing), or to which the Sellers, ARI
or the Subsidiary is otherwise a party or to which any of their properties or
operations is subject, in each case, which if adversely determined, could result
in a liability in excess of $50,000 or require any specific performance or act,
or injunction not to act, by any such Person; nor to the knowledge of the
Sellers is there any reasonable basis for any such action, proceeding, or
investigation. None of ARI, the Subsidiary or Reinhart Leasing is subject to
any judgment, order or decree of any Governmental Body, nor is any of them
engaged in any legal action to recover monies due it or for damages sustained by
it. All matters disclosed on Schedule 4.18 are covered by insurance in favor of
ARI, subject to deductibles not in excess of $10,000 per occurrence, and the
insurance carriers have not disputed or denied coverage for any such matter.
4.19 Compliance with Laws; Permits.
-----------------------------
(a) ARI, the Subsidiary and Reinhart Leasing are in compliance in all
material respects with all Laws applicable to them or to the conduct of their
respective businesses or operations or the use of their properties (including
any leased properties) and assets. Except as set forth on Schedule 4.19(a) or
as would not, individually or in the aggregate, cause a Material Adverse Change,
there has been no assertion by any party,
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and none of the Sellers, ARI or the Subsidiary has received any notice, of any
violation of any Laws.
(b) Schedule 4.19(b) sets forth a full and complete list of all Permits
owned by, issued to, or otherwise benefitting ARI, the Subsidiary and Reinhart
Leasing and which are material to the operation of their respective businesses.
Such Permits constitute all material Permits necessary or useful in the
operation of the businesses of ARI, the Subsidiary and Reinhart Leasing as
currently conducted. All of such material Permits are valid and in full force
and effect and there are no proceedings pending, or to the knowledge of the
Sellers, threatened which may result in the revocation, cancellation, suspension
or adverse modification of any such Permit.
4.20 Environmental Matters. The Sellers have provided to URI all
---------------------
environmentally related audits, studies, reports, analyses, and results of
investigations that have been performed with respect to the currently or
previously owned, leased or operated properties of ARI, the Subsidiary or
Reinhart Leasing. To the Sellers' knowledge, except as set forth on Schedule
4.20 hereto and except for any factual matters (as opposed to evaluations,
assessments, interpretations or recommendations) disclosed in any Phase 1
environmental study commissioned by URI with respect to the Company Property
that has been completed prior to the date hereof (copies of which have been
delivered to the Representative):
(a) the operations of ARI, the Subsidiary and Reinhart Leasing are in
compliance in all material respects with all applicable Environmental Laws and
all Permits issued pursuant to Environmental Laws or otherwise;
(b) ARI, the Subsidiary and Reinhart Leasing have obtained all Permits
required under all applicable Environmental Laws necessary to operate their
respective businesses;
(c) none of ARI, the Subsidiary or Reinhart Leasing is the subject of
any outstanding written order or Contract with any governmental authority or
Person respecting (i) Environmental Laws, (ii) Remedial Action or (iii) any
Release or threatened Release of a Hazardous Material;
(d) none of ARI, the Subsidiary or Reinhart Leasing has received any
communication alleging that it may be in violation of any Environmental Law or
any Permit issued pursuant to Environmental Law or may have any liability under
any Environmental Law;
(e) none of ARI, the Subsidiary or Reinhart Leasing has any current
contingent liability in connection with any Release of any Hazardous Materials
into the indoor or outdoor environment (whether on-site or off-site);
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(f) there are no investigations of the businesses, operations, or
currently or previously owned, operated or leased property of ARI, the
Subsidiary or Reinhart Leasing pending or threatened which could lead to the
imposition of any liability pursuant to Environmental Law; and
(g) there is not located at any of the properties of ARI, the Subsidiary
or Reinhart Leasing (including the Company Property) any (i) underground storage
tanks, (ii) asbestos-containing material or (iii) equipment containing
polychlorinated biphenyls.
4.21 Insurance. Schedule 4.21 sets forth (i) a complete and accurate list
---------
of all policies of insurance of any kind or nature covering ARI, the Subsidiary,
Reinhart Leasing or any of their respective employees, properties or assets,
including policies of life, disability, fire, theft, workers compensation,
employee fidelity and other casualty and lia bility insurance; and (ii) as to
each such policy, the name of the insurer, the type of risks insured, the
deductible and limits of coverage and the annual premium therefor. All such
policies are in full force and effect and, to the Sellers' knowledge, none of
ARI, the Subsidiary or Reinhart Leasing is in default of any provision thereof.
4.22 Related Party Transactions. Except as set forth on Schedule 4.22, no
--------------------------
Stockholder nor any other Affiliate of ARI, the Subsidiary or Reinhart Leasing
has borrowed any moneys from or has outstanding any indebtedness or other
similar obli gations to ARI, the Subsidiary or Reinhart Leasing. Except as set
forth in Schedule 4.22, no Stockholder nor any director, officer, member,
manager, employee or Affiliate of ARI or Reinhart Leasing (i) owns any direct or
indirect interest of any kind in, or controls or is a director, officer,
employee, member or partner of, or consultant to, or lender to or borrower from
or has the right to participate in the profits of, any Person which is (A) a
competitor, supplier, customer, landlord, tenant, creditor or debtor of ARI, the
Subsidiary or Reinhart Leasing, (B) engaged in a business related to the
business of ARI, the Subsidiary or Reinhart Leasing, or (C) a participant in any
transaction to which ARI, the Subsidiary or Reinhart Leasing is a party or (ii)
is a party to any Contract with ARI, the Subsidiary or Reinhart Leasing.
4.23 Banks. Schedule 4.23 contains a complete and correct list of the names
-----
and locations of all banks in which ARI or the Subsidiary has accounts or safe
deposit boxes and the names of all Persons authorized to draw thereon or to have
access thereto. Except as set forth on Schedule 4.23, no Person holds a power
of attorney to act on behalf of ARI or the Subsidiary.
4.24 Product Quality, Warranty Claims, Product Liability. All products and
---------------------------------------------------
services sold, rented, leased, provided or delivered by ARI, the Subsidiary and
Reinhart Leasing to their respective customers on or prior to the Closing Date
conform or will conform in all material respects to applicable contractual
commitments, express and implied warranties, product and service specifications
and quality standards and, to the knowledge of the Sellers, none of ARI, the
Subsidiary or Reinhart Leasing has any
22
<PAGE>
liability (and there is no basis for any present or future action, suit,
proceeding, hearing, investigation, charge, complaint, claim or demand against
ARI, the Subsidiary or Reinhart Leasing giving rise to any liability) for
replacement or repair thereof or other damages in connection therewith. No
product or service sold, leased, rented, provided or delivered by ARI, the
Subsidiary or Reinhart Leasing to customers on or prior to the Closing Date is
subject to any guaranty, warranty or other indemnity beyond the applicable
standard terms and conditions of sale, rent or lease. Except as set forth on
Schedule 4.24 and Schedule 4.18, none of ARI, the Subsidiary or Reinhart Leasing
has any liability (and there is no basis for any present or future action, suit,
proceeding, hearing, investigation, charge, complaint, claim or demand against
ARI, the Subsidiary or Reinhart Leasing which might give rise to any liability)
arising out of any injury to a person or property as a result of the ownership,
possession, provision or use of any Equipment, product or service sold, rented,
leased, provided or delivered by ARI, the Subsidiary or Reinhart Leasing on or
prior to the Closing Date, and all matters disclosed on Schedules 4.18 and 4.24
are covered by insurance in favor of ARI, subject to deductibles not in excess
of $10,000 per occurrence, and the insurance carriers have not disputed or
denied coverage for any such matter. All product liability claims that have been
asserted against ARI or Reinhart Leasing since January 1, 1991 or against the
Subsidiary since February 21, 1995, whether covered by insurance or not and
whether litigation has resulted or not, are listed and summarized on Schedules
4.18 and 4.24.
4.25 Investment Intention. Each of the Sellers listed on Schedule
--------------------
2.1(b)(A): (a) is acquiring the shares of URI Common Stock constituting the
Stock Component and the Warrant for its own account, for investment purposes
only and not with a view to the distribution thereof in contravention of the
Securities Act; (b) is an "accredited investor" as that term is defined in Rule
501(a) under the Securities Act; and (c) understands that (i) none of (A) the
shares of URI Common Stock constituting the Stock Component, (B) the Warrant or
(C) the shares of URI Common Stock issuable upon exercise of the Warrant have
been registered under the Securities Act or any state securities laws and,
accordingly, such securities cannot be sold unless registered under the
Securities Act and applicable state securities laws or pursuant to an available
exemption from such registration requirements and (ii) except as set forth in
that certain agreement between URI and certain Sellers, dated the Closing Date,
URI is under no obligation to register any of such securities under the
Securities Act.
4.26 No Misrepresentation. No representation or warranty of any Seller
--------------------
contained in this Agreement or any other Seller Document or in any schedule
hereto, or in any certificate or other instrument furnished by any Seller or ARI
to URI pursuant to the terms hereof, contains any untrue statement of a material
fact or omits to state a material fact necessary to make the statements
contained herein or therein not misleading.
4.27 Brokers; Finders. No Person has acted, directly or indirectly, as a
----------------
broker, finder or financial advisor for any Seller or ARI in connection with the
transactions
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contemplated by this Agreement and no Person is entitled to any fee, commission
or like payment in respect thereof.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF URI
URI hereby represents and warrants to the Sellers that:
5.1 Organization and Good Standing. URI is a corporation duly organized,
------------------------------
validly existing and in good standing under the laws of the State of Delaware.
5.2 Authorization of Agreement. URI has full corporate power and authority
--------------------------
to execute and deliver this Agreement and each of the other Purchaser Documents
to which it is a party, and to consummate the transactions contemplated hereby
and thereby. The execution, delivery and performance by URI of this Agreement
and each other Purchaser Document have been duly authorized by all necessary
corporate action on behalf of URI. This Agreement and each other Purchaser
Document to which URI is a party has been duly executed and delivered by URI and
(assuming the due authorization, execution and delivery by the other parties
hereto and thereto) this Agreement and each other Purchaser Document to which
URI is a party constitutes legal, valid and binding obligations of URI,
enforceable against URI in accordance with their respective terms, subject to
applicable bankruptcy, insolvency, reorganization, moratorium and similar laws
affecting creditors' rights and remedies generally, and subject, as to
enforceability, to general principles of equity, including principles of
commercial reasonableness, good faith and fair dealing (regardless of whether
enforcement is sought in a proceeding at law or in equity).
5.3 Conflicts; Consents of Third Parties.
------------------------------------
(a) Except as set forth on Schedule 5.3 hereto, neither the execution
and delivery by URI of this Agreement and the other Purchase Documents to which
URI is a party, nor the compliance by URI with any of the provisions hereof or
thereof will (i) conflict with, or result in the breach of, any provision of the
certificate of incorporation or by-laws of URI, (ii) conflict with, violate,
result in the breach of, or constitute a default under any note, bond, mortgage,
indenture, license, agreement or other obligation to which URI is a party or by
which URI or any of its properties or assets are bound or (iii) violate any
statute, rule, regulation, order or decree of any governmental body or authority
by which URI is bound, except, in the case of clauses (ii) and (iii), for such
violations, breaches or defaults as would not, individually or in the aggregate,
have a material adverse effect on the business, properties, results of
operations, prospects, conditions (financial or otherwise) of URI and its
subsidiaries, taken as a whole. Except as set forth on Schedule 5.3 hereto, and
except for any required filings under the HSR Act, no consent, waiver, approval,
Order, Permit or authorization of, or declaration or filing with, or
notification to, any Person or Governmental Body is required on the part of
24
<PAGE>
URI in connection with the execution and delivery of this Agreement or the other
Purchaser Documents to which URI is a party or the compliance by URI with any of
the provisions hereof or thereof.
5.4 Litigation. There are no Legal Proceedings pending or, to the best
----------
knowledge of URI, threatened that are reasonably likely to prohibit or restrain
the ability of URI to enter into this Agreement or consummate the transactions
contemplated hereby.
5.5 Investment Intention. URI is acquiring the Shares for its own account,
--------------------
for investment purposes only and not with a view to the distribution thereof in
contravention of the Securities Act. URI understands that the Shares have not
been registered under the Securities Act and cannot be sold unless registered
under the Securities Act or pursuant to an available exemption from such
registration requirements.
5.6 Stock Consideration. The shares of URI Common Stock constituting the
-------------------
Stock Component, and the shares of URI Common Stock issuable upon exercise of
the Warrant, have been duly authorized and, when issued against the
consideration therefor as provided herein, will be fully paid for and non-
assessable.
5.7 Brokers; Finders. No Person has acted, directly or indirectly, as a
----------------
broker, finder or financial advisor for URI in connection with the transactions
contemplated by this Agreement and no Person is entitled to any fee, commission
or like payment in respect thereof.
ARTICLE VI
COVENANTS
6.1 Access to Information. The Sellers agree that, prior to the Closing
---------------------
Date, URI shall be entitled, through its officers, employees and representatives
(including legal advisors and accountants), to make such investigation of the
properties, businesses and operations of ARI, the Subsidiary and Reinhart
Leasing and such examination of the books, records and financial condition of
ARI, the Subsidiary and Reinhart Leasing as URI reasonably requests and to make
extracts and copies of such books and records. Any such investigation and
examination shall be conducted during regular business hours and under
reasonable circumstances, and the Sellers shall cooperate, and shall cause ARI
and the Subsidiary to cooperate, fully therein. No investigation by URI prior
to or after the date of this Agreement shall diminish or obviate any of the
representations, warranties, covenants or agreements of the Sellers contained in
this Agreement or the Seller Documents. In order that URI may have full
opportunity to make such physical, business, accounting and legal review,
examination or investigation as it may reasonably request of the affairs of ARI,
the Subsidiary and Reinhart Leasing, the Sellers shall cause the officers,
employees, consultants, agents, accountants, attorneys and other representatives
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of ARI, the Subsidiary and Reinhart Leasing to cooperate fully with such
representatives in connection with such review and examination.
6.2 Publicity; Non-disclosure. (a) None of the Sellers, ARI or URI shall
-------------------------
issue any press release or public announcement concerning this Agreement or the
transactions contemplated hereby without obtaining the prior written approval of
the other parties hereto, which approval will not be unreasonably withheld or
delayed; provided, however, that URI may, in its exclusive judgement and
-------- -------
discretion, make such disclosure as URI deems is required by applicable Law or
by the rules of any stock exchange on which any securities of URI are listed.
(b) For a period of three years following the date hereof, URI will not
disclose the results of any "Phase 1" environmental study commissioned by URI
with respect to any Company Property without the prior consent of the
Representative, such consent not to be unreasonably withheld; provided, however,
-------- -------
that URI may, in its exclusive discretion, make such disclosure (i) to (A) URI's
lenders, (B) any prospective underwriter or placement agent of any securities of
URI or (C) any Person contemplating the acquisition of a material portion of the
securities or assets of URI (by merger, purchase or otherwise), (ii) pursuant to
any request or order of any Governmental Body or (iii) as URI deems is required
by applicable Law or by the rules of any stock exchange on which any securities
of URI are listed.
6.3 Use of Name. The Sellers hereby agree that upon the consummation of the
-----------
transactions contemplated hereby, URI and ARI shall have the sole right to the
use of the name "Access Rentals" and the Sellers shall not, and shall not cause
or permit any of their Affiliates to, use such name or any variation or
simulation thereof in any business.
6.4 Records. The Sellers and URI agree that each of them shall preserve and
-------
keep the records held by them relating to the business of ARI, the Subsidiary
and Reinhart Leasing for a period of three years from the Closing Date (except
that records pertaining to Tax matters shall be retained for a period of six
years or such other period as required by applicable Law) and shall make such
records and personnel available to the other as may be reasonably required by
such party in connection with, among other things, any insurance claims by,
legal proceedings against or governmental investigations or audits of their or
their Affiliates' businesses. In the event either the Sellers or URI desire to
destroy such records after that time, such party shall first give 60 days prior
written notice to the other and such other party shall have the right at its
option and expense, upon prior written notice given to such party within that 60
day period, to take possession of the records within 90 days after the date of
such notice.
6.5 Senior Managers; Bonuses. (a) URI agrees to cause ARI to offer at-will
------------------------
employment (subject to such terms and conditions, including covenants not to
compete, as are consistent with URI's custom and practice) to the senior
managers of ARI designated in writing by the Representative on the Closing Date.
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(b) Promptly following the Closing Date, URI shall cause ARI to pay the
senior managers of ARI designated by the Representative the bonuses set forth on
Schedule 6.5 hereto to the extent, and only to the extent, that the amounts of
such bonuses (and any Tax cost to ARI on account thereof) have been reflected in
a reduction in the Purchase Price pursuant to Section 2.2(d) hereof.
6.6 Release of Guarantees. As soon as practicable (and in any event within
---------------------
30 days) following the Closing Date, the Sellers shall use their best efforts to
cause ARI to be unconditionally released from, and discharged from all
obligations under, each of the guarantees described on Schedule 4.9 hereto
(other than the guarantees of obligations of the Subsidiary and Excelsior
Henderson listed on such Schedule) which have not been released or discharged on
or prior to the Closing Date.
ARTICLE VII
CLOSING DELIVERIES
7.1 Closing Deliveries of ARI. On the Closing Date, ARI delivered to URI
-------------------------
Sub certificates, duly endorsed in blank or accompanied by stock transfer powers
and with all requisite stock transfer tax stamps attached, representing 100% of
the Shares, for transfer to URI Sub, free and clear of any and all Liens.
7.2 Closing Deliveries of URI Sub. On the Closing Date, URI Sub delivered
-----------------------------
to ARI the purchase price set forth in Section 2.1 hereof, by wire transfer to
the account designated in writing by ARI.
7.3 Closing Deliveries of the Sellers. On or prior to the Closing Date, the
---------------------------------
Sellers delivered the following to URI:
(a) certificates, duly endorsed in blank or accompanied by stock transfer
powers and with all requisite stock transfer tax stamps attached, representing
100% of the Shares, for transfer to URI, free and clear of any and all Liens;
(b) the Bill of Sale, duly executed by Reinhart Leasing;
(c) a copy of the Escrow Agreement, executed by the Sellers and the Escrow
Agent;
(d) a copy of the Receivables Escrow Agreement, executed by the Sellers and
the Escrow Agent;
(e) copies of each of the Leases;
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(f) copies of the Non-Competition Agreements in the forms of Exhibit F-1 and
-----------
Exhibit F-2 hereto (the "Non-Competition Agreement"), executed by JLR, Jerry R.
- -----------
Reinhart and the other parties named therein;
(g) executed copies of Employment Agreements, duly executed by each of
Joseph DiFrancesco and Jerry R. Reinhart, in substantially the forms of Exhibit
-------
G-1 and Exhibit G-2 hereto, respectively;
- --- -----------
(h) an executed copy of the Consulting Agreement in substantially the form
of Exhibit H hereto, between ARI and JLR;
---------
(i) the opinion of Ferguson & Saunders, LLP, counsel to the Sellers,
addressed to URI, in substantially the form of Exhibit I hereto;
---------
(j) copies of all consents and waivers referred to in Section 4.6 hereof
with respect to the transactions contemplated by this Agreement and the other
Seller Documents;
(k) affidavits of non-foreign status that comply with Section 1445 of the
Code, executed by each of the Sellers;
(l) the written resignations of each director and officer of ARI and the
Subsidiary;
(m) releases, in the form of Exhibit J hereto, executed by each Stockholder
---------
and each officer or director of ARI and the Subsidiary;
(n) a copy of the agreement referred to in Section 4.25 hereof, executed by
the Sellers party thereto and Joseph A. DiFrancesco; and
(o) certificates of good standing with respect to ARI, the Subsidiary and
Reinhart Leasing issued by the Secretary of State or comparable official of
their jurisdiction of organization and for each jurisdiction in which they are
qualified to do business as a foreign corporation.
7.4 Closing Deliveries of URI. On or prior to the Closing Date, URI
-------------------------
delivered the following to the Representative on behalf of the Sellers:
(a) the Cash Component of the Purchase Price, by wire transfer to the
accounts designated in writing by the Representative, with the Escrow Amount
being contemporaneously delivered to the Escrow Agent;
(b) the Receivables Escrow Amount to the Escrow Agent;
(c) a stock certificate or certificates representing the Stock Component;
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(d) the Warrant;
(e) the Assumption Agreement, executed by URI;
(f) a copy of the Escrow Agreement, executed by URI and the Escrow Agent;
(g) a copy of the Receivables Escrow Agreement, executed by URI and the
Escrow Agent;
(h) a copy of the employment and consulting agreements and the Leases
referred to in Section 7.3, executed by ARI;
(i) a copy of the agreement referred to in Section 4.25 hereof, executed by
URI; and
(j) the opinion of Weil, Gotshal & Manges LLP, counsel to URI, in
substantially the form of Exhibit K hereto.
---------
ARTICLE VIII
INDEMNIFICATION; TAX MATTERS
8.1 Indemnification. (a) Subject to Sections 8.2, 8.3 and 8.6 hereof, the
---------------
Sellers hereby agree, jointly and severally, to indemnify and hold URI, URI Sub,
ARI and their respective Affiliates, directors, officers, employees, agents,
successors and assigns (collectively, the "URI Indemnified Parties") harmless
from and against:
(i) any and all Losses based upon, attributable to or resulting from
the failure of any representation or warranty of the Sellers set forth in
this Agreement, or any representation or warranty contained in any
certificate delivered by or on behalf of the Sellers pursuant to this
Agreement, to be true and correct in all respects;
(ii) any and all Losses based upon, attributable to or resulting from
the breach of any covenant or other agreement on the part of the Sellers
under this Agreement;
(iii) any and all Losses (including any loss of use of Company Property
or any of the Assets or tangible personal property of ARI or the
Subsidiary) arising from: (A) any Release of Hazardous Materials in, on,
at, or from Company Properties which occurred, or resulted from operations
occurring, as of or prior to the Closing; (B) any tort liability to third
parties as a result of any Releases or from exposure to Hazardous Materials
arising from any Releases as of or prior to the Closing; (C) notification
or designation under any Environmental Law as a
29
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potentially responsible party for on-site or off-site disposal of Hazardous
Materials, which disposal occurred as of or prior to the Closing, or the
listing of any Company Property on the CERCLA National Priorities List or
any similar list under any Environmental Law as a result of on-site
disposal of Hazardous Materials as of or prior to the Closing; and (D) any
fines or penalties with respect to any violation of Environmental Law
occurring as of or prior to the Closing;
(iv) any and all Losses in connection with any product liability,
failure to label or warn, or similar claims asserted with respect to items
rented, leased, serviced or sold by ARI, the Subsidiary or Reinhart Leasing
prior to the Closing;
(v) any and all Retained Liabilities;
(vi) any and all Losses attributable to or resulting from any guaranty
by ARI of obligations of any Person (other than the Subsidiary and
Excelsior Henderson, which in the case of Excelsior Henderson is in the
amount set forth on Schedule 4.9) in existence as of the Closing Date
(including the guarantees described on Schedule 4.9 hereto);
(vii) the operation of Reinhart Leasing or its business or assets after
the Closing; and
(viii) Reinhart Leasing's non-compliance with applicable "bulk sales"
Laws.
(b) Subject to Section 8.2 hereof, URI hereby agrees to indemnify and
hold the Sellers and their respective Affiliates, agents, successors and assigns
(collectively, the "Seller Indemnified Parties") harmless from and against:
(i) any and all Losses based upon, attributable to or resulting from
the failure of any representation or warranty of URI set forth in Article V
hereof, or any representation or warranty contained in any certificate
delivered by or on behalf of URI pursuant to this Agreement, to be true and
correct as of the date made;
(ii) any and all Losses based upon, attributable to or resulting from
the breach of any covenant or other agreement on the part of URI under this
Agreement; and
(iii) the Assumed Obligations.
8.2 Survival of Representations and Warranties. The parties hereto hereby
------------------------------------------
agree that the representations and warranties contained in this Agreement or in
any certificate, document or instrument delivered in connection herewith, shall
survive the execution and
30
<PAGE>
delivery of this Agreement, and the Closing hereunder, regardless of any
investigation made by the parties hereto; provided, however, that any claims or
actions with respect thereto (other than claims for indemnification with respect
to the representations and warranties contained in Sections 4.2, 4.3, 4.7, 4.27,
5.2 and 5.7, which shall survive indefinitely, and those in Sections 4.11, 4.16,
4.18 and 4.20, which shall survive for periods coterminous with any applicable
statutes of limitation) shall terminate on the date of the third anniversary of
the Closing Date unless prior to such date written notice of such claims is
given to the Representative, in the case of claims against the Sellers, or URI,
in the case of claims against URI, or such actions are commenced.
8.3 Limitations on Indemnification.
------------------------------
(a) The Sellers shall not have any liability under Section 8.1(a)(i) hereof
unless the aggregate amount of Losses to the URI Indemnified Parties finally
determined to arise thereunder based upon, attributable to or resulting from the
failure of any representation or warranty to be true and correct, exceeds
$500,000 (the "Deductible Amount") and, in such event, the indemnifying party
shall be required to pay the entire amount of such Losses in excess of $500,000;
provided, however, that Losses finally determined to arise thereunder based
- -------- -------
upon, attributable to or resulting from the failure of any representation or
warranty set forth in Sections 4.2, 4.3, 4.7, 4.11, the first sentence of
Section 4.13(b), Section 4.16 (to the extent such representations and warranties
relate to (x) Pension Plans or ERISA Affiliates or (y) any failure to file any
Form 5500 with respect to the Employee Benefit Plans, regardless of whether or
not such failure was disclosed on any Schedule), and Section 4.27 hereof to be
true and correct shall not be subject to the foregoing limitation and shall be
indemnified pursuant to this Article VIII even if less than the Deductible
Amount; and provided further, however, that Losses finally determined to arise
-------- ------- -------
based upon, attributable to or resulting from the failure of any representation
or warranty set forth in Sections 4.18 and 4.24 to be true and correct
(including the failure of any matter represented therein as being covered by
insurance to be so covered) shall be indemnifiable pursuant to Section 8.1(a)(i)
to the extent the aggregate amount of all such Losses exceeds $100,000 even if
such Losses, taken together with all other Losses indemnifiable pursuant to
Section 8.1(a)(i), aggregate less than the Deductible Amount. Solely for
purposes of this Section 8.3(a), the term "material" as used in any
representation or warranty in Article IV hereof shall refer to a value,
liability, cost or expense, as the case may be, in excess of $5,000; it being
understood that this qualification shall not apply to the defined term "Material
Adverse Change."
(b) The maximum amount of Losses for which the Sellers shall be liable for
pursuant to Section 8.1(a) shall not exceed $50,000,000.
8.4 Non-Tax Indemnification Procedures. (a) In the event that any Legal
----------------------------------
Proceedings shall be instituted or that any claim or demand ("Claim") shall be
asserted by any Person in respect of which payment may be sought under Section
8.1 hereof, the indemnified party shall reasonably and promptly cause written
notice of the assertion of
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<PAGE>
any Claim of which it has knowledge which is covered by this indemnity to be
forwarded to the indemnifying party. The indemnifying party shall have the
right, at its sole option and expense, to be represented by counsel of its
choice, which must be reasonably satisfactory to the indemnified party, and to
defend against, negotiate, settle or otherwise deal with any Claim which relates
to any Losses indemnified against hereunder; provided however, that URI shall
-------- -------
have the right to control the defense to the extent of any claim seeking
equitable relief or Remedial Action. If the indemnifying party elects to defend
against, negotiate, settle or otherwise deal with any Claim which relates to any
Losses indemnified against hereunder, it shall within fifteen (15) days (or
sooner, if the nature of the Claim so requires) notify the indemnified party of
its intent to do so. If the indemnifying party elects not to defend against,
negotiate, settle or otherwise deal with any Claim which relates to any Losses
indemnified against hereunder, fails to notify the indemnified party of its
election as herein provided or contests its obligation to indemnify the
indemnified party for such Losses under this Agreement, the indemnified party
may defend against, negotiate, settle or otherwise deal with such Claim;
provided that the indemnified party shall not settle any Claim without the
- --------
indemnifying party's prior consent, such consent not to be unreasonably
withheld. If the indemnified party defends any Claim, then the indemnifying
party shall reimburse the indemnified party for the costs and expenses
(including reasonable attorneys' and other professionals' fees and expenses) of
defending such Claim upon submission of periodic bills. If the indemnifying
party shall assume the defense of any Claim, the indemnified party may
participate, at his or its own expense, in the defense of such Claim; provided,
--------
however, that such indemnified party shall be entitled to participate in any
- -------
such defense with separate counsel at the expense of the indemnifying party if,
(i) so requested by the indemnifying party to participate or (ii) in the
reasonable opinion of counsel to the indemnified party, a conflict or potential
conflict exists between the indemnified party and the indemnifying party that
would make such separate representation advisable; and provided, further, that
-------- -------
the indemnifying party shall not be required to pay for more than one such
separate counsel for all indemnified parties in connection with any Claim. The
parties hereto agree to cooperate fully with each other in connection with the
defense, negotiation or settlement of any such Claim.
(b) After any final judgment or award shall have been rendered by a court,
arbitration board or administrative agency of competent jurisdiction and the
expiration of the time in which to appeal therefrom, or a settlement shall have
been consummated, or the indemnified party and the indemnifying party shall have
arrived at a mutually binding agreement with respect to a Claim hereunder, the
indemnified party shall forward to the indemnifying party notice of any sums due
and owing by the indemnifying party pursuant to this Agreement with respect to
such matter and the indemnifying party shall be required to pay all of the sums
so due and owing to the indemnified party by wire transfer of immediately
available funds within 10 Business Days after the date of such notice.
(c) The failure of an indemnified party to give reasonably prompt notice of
any Claim shall not release, waive or otherwise affect the indemnifying party's
obligations
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with respect thereto except to the extent that the indemnifying party can
demonstrate actual loss and prejudice as a result of such failure.
(d) Except for claims against Reinhart Leasing, and without limitation of, or
prejudice to, any of URI's rights under this Agreement, at Law or otherwise, URI
agrees to pursue any claim for indemnification under Section 8.1(a) against JLR
before pursuing such claim against the other Sellers, it being understood that
(i) URI need not exhaust its available remedies against JLR before pursuing any
claims against the other Sellers and (ii) the foregoing shall not limit the
ability of JLR to seek contribution from the other Sellers in connection with
any such claim.
(e) URI will use its reasonable commercial efforts to update the
Representative, upon request, as to the status of any pending litigation to
which ARI is a party for which the Sellers are obligated to indemnify the URI
Indemnified Parties hereunder.
8.5 Right of Set Off. URI may, but shall not be obligated to, set off
----------------
against any and all payments due to the Sellers out of the Escrow Amount, any
amount to which any URI Indemnified Party is entitled hereunder. URI shall have
no right of set off against the Receivables Escrow Amount. Such right of set
off shall be separate and apart from any and all other rights and remedies that
such Persons may have against the Sellers or their successors.
8.6 Tax Indemnification and Related Matters. (a) The Sellers, jointly and
---------------------------------------
severally, shall be responsible for and shall indemnify and hold harmless URI,
URI Sub, ARI and their respective Affiliates from and against any and all Losses
for or in respect of each of the following:
(i) any and all Taxes (including any Taxes resulting from the inclusion
of ARI and/or the Subsidiary in a consolidated, combined or unitary Tax
Return) with respect to all taxable periods of ARI and the Subsidiary
ending on or prior to the Closing Date and, to the extent provided in
Section 8.6(b) hereof, all taxable periods that include, and end after, the
Closing Date (other than, in each case, Taxes for which sufficient current
accruals have been made on the Balance Sheets); and
(ii) any and all Taxes resulting from any breach of the representations
and warranties contained in Section 4.11 hereof.
(b) The Sellers, ARI, the Subsidiary, and URI will, to the extent permitted
by applicable Law, close the taxable periods of ARI and the Subsidiary on the
Closing Date. In any case where applicable Law does not permit ARI and/or the
Subsidiary to close its taxable year on the Closing Date, then Taxes, if any,
attributable to the taxable periods of ARI and the Subsidiary beginning on or
before and ending after the Closing Date shall be allocated (i) to the Sellers
for the period up to and including the Closing Date, and (ii) to
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URI for the period subsequent to the Closing Date. For purposes of this Section
8.6(b), Taxes for the period up to and including the Closing Date and for the
period subsequent to the Closing Date shall be determined on the basis of an
interim closing of the books as of the Closing Date or, to the extent not
susceptible to such allocation, by apportionment on the basis of elapsed days.
(c) URI shall be responsible for, and shall pay or cause to be paid, and
shall indemnify and hold harmless the Sellers from and against any and all
Losses for or in respect of each of the following:
(i) any and all Taxes (including any Taxes resulting from the inclusion
of ARI and/or the Subsidiary in a consolidated, combined or unitary Tax
Return) with respect to all taxable periods of ARI and the Subsidiary
beginning after the Closing Date and, to the extent provided in Section
8.6(b) hereof, all taxable periods that include, and end after, the Closing
Date (other than, in each case, Taxes for which the Sellers are responsible
pursuant to Section 8.6(a)(ii) hereof);
(ii) Taxes for which sufficient current accruals have been made on the
Balance Sheets; and
(iii) Taxes incurred by ARI solely as a result of the purchase of the
Subsidiary Shares by URI Sub on the Closing Date.
(d) (i) The Sellers shall be responsible for causing to be filed all Tax
Returns required to be filed by or on behalf of ARI and the Subsidiary and any
of their operations and assets on or before the Closing Date (taking into
account applicable extensions of time) and shall pay or cause to be paid any
Taxes shown to be due thereon. The Sellers shall file all such Tax Returns in a
manner consistent with past practices and, upon URI's request, shall provide
copies of such Tax Returns to URI for URI's review and comment at least fifteen
(15) business days prior to filing. URI shall be responsible for filing or
causing to be filed all Tax Returns required to be filed by or on behalf of ARI
and the Subsidiary and any of their operations and/or assets after the Closing
Date (taking into account applicable extensions of time) and shall pay or cause
to be paid any Taxes shown to be due thereon.
(ii) With respect to any Tax Return required to be filed by URI for a
taxable period of ARI and/or the Subsidiary beginning on or before and ending on
or after the Closing Date, URI shall provide the Representative with a statement
setting forth the amount of Tax shown on such Tax Return for which the Sellers
are responsible pursuant to Section 8.6(a) hereof or that are allocable to the
Sellers pursuant to Section 8.6(b) hereof (as the case may be) (the "Statement")
at least thirty (30) business days prior to the due date for filing of such Tax
Return (including extensions). The Representative shall have the right to
review such Tax Return and the Statement prior to the filing of such Tax Return.
The Sellers and URI agree to consult and resolve in good faith any issue arising
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as a result of the review of such Tax Return and such Statement and to mutually
consent to the filing as promptly as possible of such Tax Return. If the
parties are unable to resolve any disagreement within fifteen Business Days
following the Representative's receipt of such Tax Return and Statement, the
parties shall jointly request the Independent Firm to resolve any issue in
dispute as promptly as possible and shall cooperate with the Independent Firm to
resolve such disagreement. If the Independent Firm is unable to make a
determination with respect to any disputed issue prior to the due date
(including extensions) for the filing of the Tax Return in question, then URI
may file such Tax Return on the due date (including extensions) therefor without
such determination having been made. Notwithstanding the filing of such Tax
Return, the Independent Firm shall make a determination with respect to any
disputed issue, and the amount of Taxes that are allocated to the Sellers
pursuant to this Section 8.6(d)(ii) shall be as determined by the Independent
Firm. The fees and expenses of the Independent Firm shall be paid one-half by
URI and one-half by the Sellers. Not later than five (5) Business Days before
the due date (including extensions) for payment of Taxes with respect to such
Tax Return or, in the case of a dispute, not later than five (5) Business Days
after notice to the Representative of resolution thereof, the Sellers shall pay
to URI an amount equal to the Taxes shown on the Statement or as shown in such
notice, as the case may be, as being the responsibility of the Sellers pursuant
to Section 8.6(a) hereof or allocable to the Sellers pursuant to Section 8.6(b)
hereof (as the case may be). No payment pursuant to this Section 8.6(d)(ii)
shall excuse the Sellers from their indemnification obligations pursuant to
Section 8.6(a) hereof should the amount of Taxes as ultimately determined (on
audit or otherwise), for the periods covered by such Tax Returns and which are
the responsibility of the Sellers, exceed the amount of the Sellers' payment
under this Section 8.6(d)(ii).
(iii) The Sellers may not file any amended Tax Returns or refund claims
in respect of any taxable period of ARI or the Subsidiary ending on or prior to
the Closing Date without the prior written consent of URI, such consent not to
be unreasonably withheld.
(iv) The Sellers shall cooperate fully with URI and make available to
URI in a timely fashion such Tax data and other information as may be reasonably
required for the preparation by URI of any Tax Returns required to be prepared
and filed by URI hereunder. The Sellers and URI shall make available to the
other, as reasonably requested, all information, records or documents in their
possession relating to Tax liabilities of ARI and/or the Subsidiary for all
taxable periods of ARI and the Subsidiary ending on, prior to or including the
Closing Date and shall preserve all such information, records and documents
until the expiration of any applicable Tax statute of limitations or extensions
thereof; provided, however, that if a proceeding has been instituted for which
-------- -------
the information, records or documents is required prior to the expiration of the
applicable statute of limitations, such information, records or documents shall
be retained until there is a final determination with respect to such
proceeding.
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(e) URI shall promptly notify the Representative in writing upon
receipt by URI, ARI or the Subsidiary of notice of any Tax audits of or proposed
assessments against ARI or the Subsidiary for taxable periods of ARI and the
Subsidiary ending on or prior to the Closing Date; provided, however, that the
-------- -------
failure of URI to give the Sellers prompt notice as required herein shall not
relieve the Sellers of any of their obligations under this Section 8.6, except
to the extent that the Sellers are actually and materially prejudiced thereby.
URI shall have the right to represent ARI's and the Subsidiary's interests in
any such Tax audit or administrative or court proceeding and to employ counsel
of its choice at URI's expense; provided, however, that URI may not agree to a
-------- -------
settlement or compromise thereof without the prior consent of the
Representative, which consent will not be unreasonably withheld. The Sellers
and their counsel may participate (at the Sellers' expense) in any such audit or
proceeding. The Sellers agree that they will cooperate fully with URI and its
counsel in the defense against or compromise of any claim in any said audit or
proceeding.
(f) Any dispute as to any matter covered hereby shall be resolved by an
independent accounting firm mutually acceptable to the Representative and URI.
The fees and expenses of such accounting firm shall be borne equally by the
parties.
(g) The parties hereto agree to furnish or cause to be furnished to
each other, at their own expense, such information, access to books and records,
and assistance, including making employees available during regular business
hours on a mutually convenient basis, as may reasonably be necessary for the
preparation and filing of any Tax Return contemplated by this Section 8.6.
8.7 Tax Treatment of Indemnity Payments. The Sellers and URI agree to treat
-----------------------------------
any indemnity payment made pursuant to this Article VIII as an adjustment to the
Purchase Price for federal, state, local and foreign income tax purposes.
ARTICLE IX
MISCELLANEOUS
9.1 Rules of Construction; Certain Definitions. (a) As used in this
------------------------------------------
Agreement, the words "herein," "hereof," "hereto" and "hereunder" and other
------ ------ ------ ---------
words of similar import refer to this Agreement as a whole, including the
Schedules hereto, and not to any subdivision contained in this Agreement. The
word "including" when used herein is not intended to be exclusive and means
---------
"including, without limitation." Statements, representations or warranties made
-----------------------------
to a Person's "knowledge" mean such Person's knowledge after diligent inquiry of
---------
appropriate Persons and sources using prudent business standards.
(b) For purposes of this Agreement, the following terms shall have the
meanings specified in this Section 9.1(b):
36
<PAGE>
"Affiliate" means, with respect to any Person, any other Person
---------
controlling, controlled by or under common control with such Person.
"Assets" means all of Reinhart Leasing's right, title and interest in
------
and to all assets (other than cash), properties and rights of Reinhart Leasing
of every kind and description, wherever located, whether tangible or intangible,
including the following: (a) all equipment, vehicles, tools, spare parts,
machinery, computers, furnishings, furniture, office supplies or other equipment
used in the operation of Reinhart Leasing's business (in each case, including
all accessories, supplies, operating manuals and other documentation with
respect thereto) and all of Reinhart Leasing's interests in the leases of the
equipment described in this clause (a) and all other fixed assets that are
located at Reinhart Leasing's facilities or otherwise used in its business; (b)
all inventories of parts, supplies, fuels, chemicals, solvents, components,
labels, stationary, forms, packing materials and other goods and personal
property used in Reinhart Leasing's business; (c) all Contracts of Reinhart
Leasing and all rights of Reinhart Leasing thereunder, and all rights of
Reinhart Leasing under any non-disclosure, confidentiality or non-competition
Contracts relating to Reinhart Leasing's business; (d) all rights of Reinhart
Leasing under or pursuant to all warranties, representations or guarantees made
by suppliers, manufacturers and contractors in connection with products or
services of, or used in, Reinhart Leasing's business, or otherwise affecting
Reinhart Leasing's equipment, assets or inventory; (e) all customer and vendor
lists relating to Reinhart Leasing's business, all files or documents relating
to customers and vendors of Reinhart Leasing's business, and all financial
records, files, books or documents otherwise relating to the Assets and the
Assumed Obligations, including computer programs, manuals, sales and advertising
materials, billing records, and sales, distribution and purchase correspondence;
(f) all intellectual property rights of Reinhart Leasing and all of Reinhart
Leasing's rights under all intellectual property license arrangements and all
documentation relating thereto in whatever media it is embodied, other than the
name "Reinhart Leasing"; (g) all computer software owned by Reinhart Leasing or
used by Reinhart Leasing in connection with its business, and all documentation
and specifications relating thereto; (h) all Permits and licenses issued by any
governmental authority held or used by Reinhart Leasing in connection with its
business; (i) all prepaid deposits, expenses or charges of Reinhart Leasing's
business; (j) all claims, choses of action and rights relating to the Assets and
the Assumed Obligations, and all insurance proceeds, judgements or settlements
with respect to the Assets and the Assumed Obligations; and (k) the current
telephone numbers and telephone listings of Reinhart Leasing's business.
"Balance Sheets" has the meaning ascribed to such term in Section 4.8.
--------------
"Business Day" means any day of the year on which national banking
------------
institutions in New York are open to the public for conducting business and are
not required or authorized to close.
37
<PAGE>
"Closing" and "Closing Date" have the respective meanings ascribed in
------- ------------
Article III hereof.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
----
"Company Property" shall have the meaning ascribed to such term in
----------------
Section 4.12 hereof.
"Contract" means any contract, agreement, indenture, note, bond, loan,
--------
instrument, lease, commitment or other arrangement.
"Environmental Law" means any foreign, federal, state or local Law or
-----------------
rule of common law as now or hereafter in effect in any way relating to the
protection of human health and safety or the environment, including the
Comprehensive Environmental Response, Compensation and Liability Act (42 U.S.C.
(S) 9601 et seq.), the Hazardous Materials Transportation Act (49 U.S.C. App.
-- ----
(S) 1801 et seq.), the Resource Conservation and Recovery Act (42 U.S.C. (S)
-- ----
6901 et seq.), the Clean Water Act (33 U.S.C. (S) 1251 et seq.), the Clean Air
-- ---- -- ----
Act (42 U.S.C. (S) 7401 et seq.) the Toxic Substances Control Act (15 U.S.C. (S)
-- ----
2601 et seq.), the Federal Insecticide, Fungicide, and Rodenticide Act (7 U.S.C.
-- ----
(S) 136 et seq.), and the Occupational Safety and Health Act (29 U.S.C. (S) 651
-- ----
et seq.), and the regulations promulgated pursuant thereto.
- -- ----
"Equipment" has the meaning ascribed to such term in Section 2.2(b).
---------
"GAAP" means generally accepted accounting principles in the United
----
States as of the date hereof.
"Governmental Body" means any government or governmental or regulatory
-----------------
body thereof, or political subdivision thereof, whether federal, state, local or
foreign, or any agency, instrumentality or authority thereof, or any court or
arbitrator (public or private).
"Hazardous Material" means any substance, material or waste which is
------------------
regulated by the United States, foreign jurisdictions in which ARI, the
Subsidiary or Reinhart Leasing conducts business, or any state or local
governmental authority, including petroleum and its by-products, asbestos, and
any material or substance which is defined as a "hazardous waste," "hazardous
substance," "hazardous material," "restricted hazardous waste," "industrial
waste," "solid waste," "contaminant," "pollutant," "toxic waste" or "toxic
substance" under any provision of Environmental Law.
"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of
-------
1976, as amended.
"Independent Firm" shall mean Deloitte & Touche LLP.
----------------
38
<PAGE>
"JLR" means Jerry L. Reinhart, an individual and one of the
---
Stockholders.
"Law" means any federal, state, local or foreign law (including common
---
law), statute, code, ordinance, rule, regulation or other requirement.
"Leases" shall mean the real property leases with Affiliates of the
------
Sellers, and the assignments of rights to, and landlord estoppel certificates
with respect to, real property leases with third-parties, in each case, to be
entered into on the Closing Date relating to each of the Company Properties.
"Legal Proceeding" means any judicial, administrative or arbitral
----------------
actions, suits, proceedings (public or private), claims or governmental
proceedings.
"Lien" means any lien, pledge, mortgage, encumbrance, deed or trust,
----
security interest, claim, lease, charge, option, right of first refusal,
easement, transfer restriction under any Contract or any other restriction or
limitation whatsoever.
"Losses" shall mean, collectively, with respect to any Person, any and
------
all losses, liabilities, obligations, damages, costs and expenses, and all
notices, actions, suits, proceedings, claims, demands, assessments, judgments,
costs, penalties and expenses, including attorneys' and other professionals'
fees and disbursements incident to any such loss, liability, obligation, damage,
cost or expense, in each case, incurred or suffered by such Person; provided
--------
that a Person shall be deemed not to have suffered or incurred a Loss to the
extent that such Person has (i) recovered insurance proceeds or has otherwise
been reimbursed by another Person or (ii) received an actual Tax benefit which
offsets an otherwise required Tax liability, in respect of the same.
"Material Adverse Change" means any material adverse change in the
-----------------------
business, assets, properties, results of operations, prospects, condition
(financial or otherwise) of ARI, the Subsidiary or Reinhart Leasing.
"Non-Competition Agreements" has the meaning ascribed to such term in
--------------------------
Section 7.3.
"Order" means any order, injunction, judgment, decree, ruling, writ,
-----
assessment or arbitration award.
"Permits" means any approvals, authorizations, consents, licenses,
-------
permits or certificates of any type.
"Permitted Exceptions" means (i) all defects, exceptions, restrictions,
--------------------
easements, rights of way and encumbrances disclosed in policies of title
insurance which have been made available to URI; (ii) statutory liens for
current taxes, assessments or other governmental charges not yet delinquent or
the amount or validity of which is being
39
<PAGE>
contested in good faith by appropriate proceedings, provided an appropriate
reserve is established therefor; (iii) mechanics', carriers', workers',
repairers' and similar Liens arising or incurred in the ordinary course of
business that are not material to the business, operations and financial
condition of the property so encumbered or the owner or user thereof; (iv)
zoning, entitlement and other land use and environmental regulations by any
Governmental Body, provided that such regulations have not been violated; and
(v) such other imperfections in title, charges, easements, restrictions and
encumbrances which do not materially detract from the value of or materially
interfere with the present use of any Company Property or other assets subject
thereto or affected thereby.
"Person" means any individual, corporation, limited liability company,
------
part nership, firm, joint venture, association, joint-stock company, trust,
unincorporated organization, Governmental Body or other entity.
"Purchaser Documents" shall mean, collectively, this Agreement, the
-------------------
Assumption Agreement, the Escrow Agreement and the Warrant.
"Release" means any release, spill, emission, leaking, pumping,
-------
injection, deposit, disposal, discharge, dispersal, or leaching into the indoor
or outdoor environment, or into or out of any property.
"Remedial Action" means all actions to (i) clean up, remove, treat or in
---------------
any other way address any Hazardous Material; (ii) prevent the Release of any
Hazardous Material so it does not endanger or threaten to endanger public health
or welfare or the indoor or outdoor environment; or (iii) perform pre-remedial
studies and investigations or post-remedial monitoring and care.
"Representative" has the meaning ascribed to such term in Section 9.14.
--------------
"Retained Liabilities" means all obligations and liabilities (known or
--------------------
unknown, contingent or fixed, liquidated or unliquidated, accrued or unaccrued,
or otherwise) relating to, arising out of or accruing from the operation of
Reinhart Leasing's business, including any and all obligations of Reinhart
Leasing for performance under Contracts (other than the Assumed Obligations),
any and all Taxes with respect to the ownership, use or leasing of any of the
assets or the operations of Reinhart Leasing on or prior to the Closing Date,
any liabilities under any Environmental Law, and any liabilities with respect to
any Employee Benefit Plan or Pension Plan.
"Securities Act" means the Securities Act of 1933, as amended.
--------------
"Seller Documents" shall mean, collectively, this Agreement, the Bill of
----------------
Sale, the Escrow Agreement, the Employment, Consulting and Non-Competition
Agreements referred to in Section 7.3 and the Leases.
40
<PAGE>
"Taxes" means (i) all federal, state, local or foreign taxes, charges,
-----
fees, imposts, levies or other assessments, including, without limitation, all
net income, gross receipts, capital, sales, use, ad valorem, value added,
transfer, franchise, profits, inven tory, capital stock, license, withholding,
payroll, employment, social security, unemployment, excise, severance, stamp,
occupation, property and estimated taxes, customs duties, fees, assessments and
charges of any kind whatsoever, (ii) all interest, penalties, fines, additions
to tax or additional amounts imposed by any taxing authority in connection with
any item described in clause (i) and (iii) any transferee liability in respect
of any items described in clauses (i) and/or (ii).
"Tax Return" means all returns, declarations, reports, estimates,
----------
information returns and statements required to be filed in respect of any Taxes.
"URI Common Stock" means the common stock, par value $.01 per share, of
----------------
URI.
"Warrant" has the meaning ascribed to such term in Section 2.1(b).
-------
9.2 Payment of Sales, Use, Transfer or Similar Taxes. All sales, use,
------------------------------------------------
transfer, recordation, documentary stamp or similar Taxes or charges, of any
nature whatsoever, applicable to, or resulting from, the transactions
contemplated by this Agreement shall be borne by the Sellers.
9.3 Bulk Sales Laws. The parties hereby waive compliance by Reinhart
---------------
Leasing with the requirements of Article 6 of the Uniform Commercial Code as in
effect in applicable jurisdictions and any other "bulk sales" Laws applicable to
the transfers contemplated by this Agreement, and the Sellers hereby covenant
and agree to indemnify URI and hold URI harmless from any costs or liabilities
resulting from such non-compliance.
9.4 Expenses. Except as otherwise provided in this Agreement, the Sellers
--------
and URI shall each bear their own expenses incurred in connection with the
negotiation and execution of this Agreement and each other agreement, document
and instrument contemplated by this Agreement and the consummation of the
transactions contemplated hereby and thereby; provided that ARI may pay any such
--------
expenses to the extent such expenses are reflected as a current liability on the
Net Current Position statement referred to in Section 2.2(d) hereof.
9.5 Specific Performance. The Sellers acknowledge and agree that the breach
--------------------
of this Agreement would cause irreparable damage to URI and that URI will not
have an adequate remedy at law. Therefore, the obligations of the Sellers under
this Agreement, including the Sellers' obligation to sell the Shares and the
Assets to URI, shall be enforceable by a decree of specific performance issued
by any court of competent jurisdiction, and appropriate injunctive relief may be
applied for and granted in connection
41
<PAGE>
therewith. Such remedies shall, however, be cumulative and not exclusive and
shall be in addition to any other remedies which any party may have under this
Agreement or otherwise.
9.6 Further Assurances. The Sellers and URI agree to execute and deliver
------------------
such other documents or agreements and to take such other action as may be
reasonably necessary or desirable for the implementation of this Agreement and
the consummation of the transactions contemplated hereby.
9.7 Entire Agreement; Amendments and Waivers. This Agreement (including the
----------------------------------------
schedules and exhibits hereto) represents the entire understanding and agreement
between the parties hereto with respect to the subject matter hereof and can be
amended, supplemented or changed, and any provision hereof can be waived, only
by written instrument making specific reference to this Agreement signed by the
party against whom enforcement of any such amendment, supplement, modification
or waiver is sought. No action taken pursuant to this Agreement, including any
investigation by or on behalf of any party, shall be deemed to constitute a
waiver by the party taking such action of compliance with any representation,
warranty, covenant or agreement contained herein. The waiver by any party
hereto of a breach of any provision of this Agreement shall not operate or be
construed as a further or continuing waiver of such breach or as a waiver of any
other or subsequent breach. No failure on the part of any party to exercise,
and no delay in exercising, any right, power or remedy hereunder shall operate
as a waiver thereof, nor shall any single or partial exercise of such right,
power or remedy by such party preclude any other or further exercise thereof or
the exercise of any other right, power or remedy. All remedies hereunder are
cumulative and are not exclusive of any other remedies provided by law.
9.8 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
-------------
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
9.9 Section Headings. The captions and section headings of this Agreement
----------------
are for reference purposes only and are to be given no effect in the
construction or interpretation of this Agreement.
9.10 Notices. All notices and other communications under this Agreement
-------
shall be in writing and shall be deemed given when delivered personally or by
facsimile transmission (with record of successful transmission/answerback
received), the Business Day following being sent by reputable next day delivery
service or three Business Days after being mailed by certified mail, return
receipt requested, to the parties (and shall also be transmitted by facsimile to
the Persons receiving copies thereof) at the following addresses (or to such
other address as a party may have specified by notice given to the other party
pursuant to this provision):
42
<PAGE>
If to any Seller or the Representative, to:
Mr. Jerry L. Reinhart
417 Garden Drive
Batavia, New York 14020
With a copy (which shall not constitute notice) to:
Ferguson & Saunders, LLP
3950 One Atlantic Center
1201 West Peachtree Street, N.W.
Atlanta, Georgia 30309
Attn: Kevin J. Saunders, Esq.
Facsimile: (404) 876-4010
If to URI or URI Sub, to:
United Rentals, Inc.
Four Greenwich Office Park
Greenwich, Connecticut 06830
Attn: Mr. John N. Milne
Facsimile: (203) 622-6080
With a copy (which shall not constitute notice) to:
Oscar D. Folger, Esq. -and- Weil, Gotshal & Manges LLP
521 Fifth Avenue 767 Fifth Avenue
New York, New York 10175 New York, New York 10153
Facsimile: (212) 697-5970 Attn: Stephen M. Besen, Esq.
Facsimile: (212) 310-8007
9.11 Severability. If any provision of this Agreement is invalid or
------------
unenforceable, the balance of this Agreement shall remain in effect.
9.12 Binding Effect; Assignment. This Agreement shall be binding upon and
--------------------------
inure to the benefit of the parties and their respective successors and
permitted assigns. Nothing in this Agreement shall create or be deemed to
create any third party beneficiary rights in any person or entity not a party to
this Agreement except as provided below. No assignment of this Agreement or of
any rights or obligations hereunder may be made by either the Sellers or URI (by
operation of law or otherwise) without the prior written consent of the other
parties hereto and any attempted assignment without the required consents shall
be void; provided, however, that URI may assign this Agreement and any or all
-------- -------
rights or obligations hereunder (including rights to purchase the Shares and the
Assets and rights to seek indemnification hereunder) to any Affiliate of URI,
and upon
43
<PAGE>
any such permitted assignment, the references in this Agreement to URI, as the
case may be, shall also apply to any such assignee unless the context otherwise
requires.
9.13 No Third Party Beneficiaries. Except as expressly set forth in this
----------------------------
Agreement, nothing herein, express or implied, is intended to or shall confer
upon any Person (including any employees of ARI, the Subsidiary or Reinhart
Leasing), other than the parties hereto and the Persons described in Section 8.1
hereof, any legal or equitable right, benefit or remedy of any nature whatsoever
under or by reason of this Agreement.
9.14 Sellers' Representative. JLR is hereby designated as the representative
-----------------------
(the "Representative") to act for and represent the Sellers with respect to all
matters arising out of Article II and Article VIII hereof, all matters relating
to the Escrow Agreement, and in those other matters with respect to which this
Agreement specifies that the Representative shall so act, as well as matters
which require notice to be given to the Sellers under this Agreement. Each of
the Sellers hereby appoints the Representative as such Seller's agent, proxy and
attorney-in-fact, with full power of substitution, for all purposes set forth in
this Agreement, including, without limitation, the full power and authority on
such Seller's behalf (i) to consummate the transactions contemplated by this
Agreement, (ii) to disburse any funds received hereunder to the Sellers, (iii)
to execute and deliver on behalf of each Seller any amendment or waiver under
this Agreement or the Escrow Agreement, and to agree to resolution of all
purchase price adjustments and Claims hereunder and thereunder, and (iv) to do
each and every act and exercise any and all rights which such Seller or Sellers
are permitted or required to do or exercise under this Agreement and the other
agreements, documents and certificates executed in connection herewith.
[signature pages follow]
44
<PAGE>
IN WITNESS WHEREOF, the parties hereto have, as appropriate, executed this
Agreement or caused this Agreement to be executed by their respective officers
thereunto duly authorized, as of the date first written above.
URI:
UNITED RENTALS, INC.
By: /s/ John N. Milne
----------------------------------
Name: John N. Milne
Title: Vice Chairman and
Chief Acquisition Officer
URI SUB:
UNITED RENTALS OF CANADA, INC.
By: /s/ John N. Milne
----------------------------------
Name: John N. Milne
Title:
REINHART LEASING:
REINHART LEASING; LLC
By: /s/ Jerry L. Reinhart
----------------------------------
Name: Jerry L. Reinhart
Title: Managing Member
ARI:
ACCESS RENTALS, INC.
By: /s/ Jerry L. Reinhart
----------------------------------
Name: Jerry L. Reinhart
Title: President
THE STOCKHOLDERS:
/s/ Jerry L. Reinhart
-------------------------------------
Jerry L. Reinhart
45
<PAGE>
JERRY L. REINHART CHARITABLE
REMAINDER UNITRUST
By: /s/ Paul J. Battaglia
----------------------------------
Name: Paul J. Battaglia
Title: Trustee
JERRY L. REINHART 1997 TRUST FOR
THE BENEFIT OF JERRY R. REINHART
By: /s/ Paul J. Battaglia
----------------------------------
Name: Paul J. Battaglia
Title: Trustee
JERRY L. REINHART 1997 TRUST FOR
THE BENEFIT OF ANGELINA REINHART
By: /s/ Paul J. Battaglia
----------------------------------
Name: Paul J. Battaglia
Title: Trustee
JERRY L. REINHART 1997 TRUST FOR
THE BENEFIT OF JASON REINHART
By: /s/ Paul J. Battaglia
----------------------------------
Name: Paul J. Battaglia
Title: Trustee
JERRY L. REINHART 1997 TRUST FOR
THE BENEFIT OF JENNIFER REINHART
By: /s/ Paul J. Battaglia
----------------------------------
Name: Paul J. Battaglia
Title: Trustee
46
<PAGE>
Schedule 5.3
------------
Consent of Bank of America National Trust and Savings Association, as
agent, under URI's Credit Agreement
47
<PAGE>
EXHIBIT 10(u)
STOCK PURCHASE AGREEMENT
Dated as of January 13, 1998, by and among
United Rentals, Inc.
Mission Valley Rentals, Inc.
Charles F. Journey
and
Connie J. Journey
<PAGE>
TABLE OF CONTENTS
Page
1. PURCHASE OF CORPORATION'S STOCK.......................... 1
1.1 Shares to be Purchased.............................. 1
1.2 Purchase Price...................................... 1
1.3 Adjustments to Purchase Price....................... 1
1.4 Hold Back........................................... 3
1.5 Excluded Assets..................................... 5
2. CLOSING TIME AND PLACE................................... 5
3. REPRESENTATIONS AND WARRANTIES OF THE CORPORATION
AND THE SHAREHOLDERS..................................... 5
3.1 Organization, Standing and Qualification............ 5
3.2 Capitalization...................................... 5
3.3 All Stock Being Acquired............................ 5
3.4 Authority for Agreement............................. 6
3.5 No Breach or Default................................ 6
3.6 Subsidiaries........................................ 6
3.7 Financial Statements................................ 6
3.8 Liabilities......................................... 7
3.9 Rental Asset Listing................................ 8
3.10 Permits and Licenses................................ 8
3.11 Certain Receivables................................. 9
3.12 Fixed Assets and Real Property...................... 9
3.13 Acquisition/Disposal of Assets...................... 10
3.14 Contracts and Agreements; Adverse Restrictions...... 11
3.15 Insurance........................................... 11
3.16 Personnel........................................... 11
3.17 Benefit Plans and Union Contracts................... 12
3.18 Taxes............................................... 13
3.19 Copies Complete..................................... 14
3.20 Product Quality, Warranty Claims, Product Liability. 14
3.21 No Change With Respect to Corporation............... 14
3.22 Closing Date Debt; Closing Date Current Assets and
Closing Date Current Liabilities.................... 16
3.23 Bank Accounts....................................... 16
3.24 Compliance With Laws................................ 16
3.25 Powers of Attorney.................................. 17
3.26 Underground Storage Tanks........................... 17
3.27 Patents, Trademarks, Trade Names, etc............... 18
3.28 Assets, etc., Necessary to Business................. 18
3.29 Condemnation........................................ 18
3.30 Manufacturers, Suppliers and Customers.............. 18
i
<PAGE>
Page
----
3.31 Absence of Certain Business Practices............... 18
3.32 Related Party Transactions.......................... 19
3.33 Disclosure Schedules................................ 19
3.34 No Misleading Statements............................ 19
3.35 Accurate and Complete Records....................... 19
3.36 Knowledge........................................... 19
3.37 Brokers; Finders.................................... 20
4. REPRESENTATIONS AND WARRANTIES OF UNITED................. 20
4.1 Existence and Good Standing......................... 20
4.2 No Contractual Restrictions......................... 20
4.3 Authorization of Agreement.......................... 20
4.4 No Misleading Statements............................ 20
4.5 Brokers; Finders.................................... 20
4.6 Disclosure Schedules................................ 21
5. CLOSING DELIVERIES....................................... 21
5.1 United Deliveries................................... 21
5.2 Shareholders Deliveries............................. 21
6. ADDITIONAL COVENANTS OF UNITED, THE CORPORATION AND
THE SHAREHOLDERS......................................... 22
6.1 Further Assurances and Additional Conveyances....... 22
6.2 Release of Guaranties............................... 22
6.3 Confidentiality..................................... 22
6.4 Brokers and Finders Fees............................ 22
6.5 Taxes............................................... 22
6.6 Short Year Tax Returns.............................. 23
6.7 General Release by Shareholders..................... 23
6.8 Shareholders' Representative........................ 24
7. INDEMNIFICATION.......................................... 25
7.1 Indemnity by the Shareholders....................... 25
7.2 Limitations on Shareholders' Indemnities............ 26
7.3 Notice of Indemnity Claim........................... 26
7.4 Survival of Representations, Warranties and
Agreements.......................................... 28
7.5 No Exhaustion of Remedies or Subrogation; Right of
Set Off............................................. 28
8. OTHER POST-CLOSING COVENANTS OF THE SHAREHOLDERS AND
UNITED................................................... 28
8.1 Restrictive Covenants............................... 28
8.2 Rights and Remedies Upon Breach..................... 30
9. GENERAL.................................................. 31
ii
<PAGE>
Page
----
9.1 Assignment.......................................... 31
9.2 Counterparts........................................ 31
9.3 Notices............................................. 31
9.4 Attorneys' Fees..................................... 32
9.5 Applicable Law...................................... 32
9.6 Payment of Fees and Expenses........................ 32
9.7 Incorporation by Reference.......................... 32
9.8 Captions............................................ 32
9.9 Number and Gender of Words; Corporation............. 32
9.10 Entire Agreement.................................... 32
9.11 Waiver.............................................. 33
9.12 Construction........................................ 33
10. ARBITRATION AND DISPUTE RESOLUTION....................... 33
iii
<PAGE>
STOCK PURCHASE AGREEMENT
STOCK PURCHASE AGREEMENT, dated as of January 13, 1998, is entered into
by and among United Rentals, Inc., a Delaware corporation ("United"), Mission
Valley Rentals, Inc., a California corporation (the "Corporation"), and Charles
F. Journey ("Charles") and Connie J. Journey ("Connie") (Charles and Connie
collectively the "Shareholders").
WHEREAS, the Corporation is engaged in the equipment rental, sales and
service business in Fremont, Tracy and Dublin, California;
WHEREAS, the Shareholders own all of the issued and outstanding capital
stock of the Corporation (the "Corporation's Stock");
WHEREAS, United wishes to acquire from the Shareholders all of the
issued and outstanding capital stock of the Corporation owned by the
Shareholders;
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements, representations, warranties, provisions and covenants herein
contained, the parties hereto, each intending to be bound hereby, agree as
follows:
1. PURCHASE OF CORPORATION'S STOCK
-------------------------------
1.1 SHARES TO BE PURCHASED. At the Closing (as hereinafter defined),
----------------------
the Shareholders sold and delivered to United all of the issued and outstanding
Corporation's Stock; being the number of shares of the Corporation set forth on
Schedule 3.2 opposite each Shareholder's name. At the Closing, United purchased
the Corporation's Stock and in exchange therefor delivered to the Shareholders
at the Closing or shall deliver thereafter as provided by this Agreement the
purchase price described in Section 1.2 (the "Purchase Price").
1.2 PURCHASE PRICE. The Purchase Price is twenty million dollars one
--------------
hundred ninety one thousand ($20,191,000), subject to adjustment as provided in
Section 1.3. The Purchase Price, as so adjusted, less the Hold Back (as defined
in Section 1.4) was paid in cash at the Closing by wire transfer to the account
of the Shareholders as set forth on Schedule 3.2.
1.3 ADJUSTMENTS TO PURCHASE PRICE. The Purchase Price was or shall
-----------------------------
be adjusted as follows:
(a) The Closing Date Debt was subtracted from the Purchase
Price. The Closing Date Debt is set forth on Schedule 1.3(a) and
includes: (i) the amount of the aggregate debt (excluding trade
payables) of the Corporation outstanding on the Closing Date to be
repaid by United at or immediately after the Closing Date and all
prepayment penalties incurred or to be incurred by United in connection
with the repayment of any such debt; (ii) the amount of the aggregate
debt (excluding trade payables) of the Corporation outstanding on the
Closing Date which will remain outstanding obligations
1
<PAGE>
of the Corporation after the Closing Date, including in each case all
interest accrued through and including the Closing Date; (iii) the
aggregate amount of the present value of all capitalized lease
obligations (determined in accordance with generally accepted
accounting principles) of the Corporation and (iv) the aggregate amount
of the present value, discounted at the lease rate factor, if known,
inherent in the lease or, if the lease rate factor is not known, at the
rate charged to the Corporation by a third party lender in connection
with its most recent borrowing to finance equipment, of all lease
obligations of the Corporation that are not capitalized lease
obligations. Schedule 1.3(a) includes wire transfer instructions for
creditors whose Closing Date Debt will be repaid by United, and
attached to Schedule 1.3(a) are pay-off letters or instructions from
such creditors.
(b) The amount by which the Closing Date Working Capital was
greater or less than zero was added to or subtracted from the Purchase
Price, as the case may be. The Closing Date Working Capital was
determined by subtracting the Closing Date Current Liabilities from the
Closing Date Current Assets. The Closing Date Current Assets consist of
the amount of the aggregate current assets of the Corporation as of the
Closing Date (other than accounts receivable), including prepaid
expenses, plus the accounts receivable (including unbilled receivables)
of the Corporation earned prior to January 1, 1998, and collectible on
or after January 1, 1998 (valued as set forth below), minus the
Inventory Value of the fuel and merchandise set forth on Schedule
1.3(c). The Closing Date Current Liabilities consist of the amount of
the aggregate current liabilities (including any reserve for unpaid
taxes and excluding the current portion of long-term debt to the extent
such current portion is included in Closing Date Debt) and trade
payables of the Corporation as of January 1, 1998, plus $70,000
attributable to the costs of monitoring and remediating the UST cleanup
with respect to 41655 Osgood Road described on Schedule 3.26. The
Closing Date Working Capital, the Closing Date Current Assets and the
Closing Date Current Liabilities are set forth on Schedule 1.3(b). For
purposes of valuing the accounts receivable of the Corporation in
determining Closing Date Current Assets, such accounts receivable will
be valued at ninety eight percent (98%) of their face value.
(c) There was added to the Purchase Price the Inventory Value
(as defined below) of the fuel and merchandise held for sale, which is
set forth on Schedule 1.3(c).
(d) There was added to the Purchase Price the invoice value of
any new Equipment listed on Schedule 1.3(d), which Equipment was not
included in the Rental Asset Listing described in Section 1.4(b)
because it was acquired by the Corporation after the date of the Rental
Asset Listing with United's consent.
(e) Prior to the Closing, United inspected the Equipment
included on the Rental Asset Listing (as described below) and the
Purchase Price payable pursuant to Section 1.2 was adjusted for
Equipment that was not Rental Ready. For purposes of this Agreement, an
item of Equipment was "Rental Ready" only if all required maintenance
had been performed and it did not require any repairs in excess of $200
per item for
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those items having a net book value of $5,000 or greater and $100 per
item for those items having a net book value less than $5,000 per item.
(f) Schedule 1.3(f) lists accounts receivable of the
Corporation which have been written off and which have not been
included in the Closing Date Current Assets. To the extent the
Corporation collects any such accounts after the Closing Date, the
amount collected shall first be applied to the costs of collection and
one-half of the remainder shall be paid to the Shareholders.
(g) If and when the Corporation receives reimbursement of up
to $25,000 from the State of California for remediating the UST cleanup
described on Schedule 3.26, the Corporation shall promptly pay one-half
of the amount received to the Shareholders.
1.4 HOLD BACK.
---------
(a) United held back from the Purchase Price the sum of two
million dollars ($2,000,000) (the "Hold Back"), which amount was
deposited by United with First Trust of California (the "Escrow Agent")
to be held pursuant to an Escrow Agreement (the "Escrow Agreement") for
later distribution pending the determination of the amount of the
Equipment Adjustment, Inventory Adjustment and Working Capital
Adjustment pursuant to Sections 1.4(b), 1.4(c) and 1.4(d),
respectively. United and the Shareholders' Representative will use
reasonable efforts to complete the Equipment Adjustment, the Inventory
Adjustment and the Working Capital Adjustment within 90 days after the
Closing Date, whereupon United shall notify the Shareholders'
Representative of the amount of such Adjustments. If there is no
disagreement between United and the Shareholders' Representative
regarding the Equipment Adjustment, the Inventory Adjustment and the
Working Capital Adjustment, United will adjust the Hold Back by the
amount of such Adjustments and will instruct the Escrow Agent to
release the Hold Back, as adjusted, to the Shareholders' Representative
90 days after the Closing Date. In the event of any disagreement
between United and the Shareholders' Representative regarding the
dollar amount of any such adjustment, United shall nevertheless adjust
the Hold Back by the amount of such Adjustments not in dispute and will
instruct the Escrow Agent to release to the Shareholders any portion of
the Hold Back, as adjusted, that is not in dispute. Promptly upon
resolution of any such disagreement in accordance with the terms
hereof, United shall adjust the remaining portion of the Hold Back and
shall instruct the Escrow Agent to release to the Shareholders any
remaining portion of the Hold Back, as adjusted, to which the
Shareholders are entitled. Notwithstanding the foregoing, United shall
not be limited to the Hold Back as a sole remedy in the event that any
Purchase Price adjustment exceeds the Hold Back.
(b) The Rental Asset Listing attached as Schedule 1.4(b) sets
forth the asset description, make, model, original cost and net book
value of all equipment held for rent to customers as of September 30,
1997. Within 30 days following the Closing Date, United and the
Shareholders' Representative jointly shall complete a physical
inventory
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of each item of Equipment on the Rental Asset Listing, including by
visiting renters' locations as necessary to inspect such Equipment. The
Purchase Price shall be reduced (the "Equipment Adjustment") for each
item of Equipment listed on the Rental Asset Listing which has been
sold, is missing, or is otherwise not available for rent to customers
by the Corporation, but only to the extent the aggregate fair market
value of all such Equipment exceeds $25,000. The reduction in the
Purchase Price shall be calculated by the aggregate fair market value
(as determined by United and the Shareholders' Representative) of all
missing or unavailable Equipment, and by the net proceeds to the
Corporation received from the sale of Equipment sold between the date
of the Rental Asset Listing and the Closing Date. In the event of a
Purchase Price reduction due to an Equipment Adjustment, United shall
be entitled to retain a portion of the Hold Back equal to such
reduction. Any disputes as to the physical count or fair market value
of any item of Equipment will, if possible, be resolved while the
physical inventory of such Equipment is being taken. Any disputes not
so resolved will be resolved by arbitration in accordance with Section
10.
(c) The Purchase Price shall be adjusted (the "Inventory
Adjustment") on a dollar-for-dollar basis pursuant to the procedures
set forth below by the amount, if any, by which the Inventory Value of
the fuel and merchandise included on Schedule 1.3(c) as of the Closing
Date is greater or less than the amount set forth on Schedule 1.3(c).
"Inventory Value" shall mean the lower of (x) vendor cost as last
received (including all freight) and (y) market value (excluding any
non-salable or obsolete merchandise, parts or supplies) as of the
Closing Date, as determined in accordance with generally accepted
accounting principles. Inventory Value shall be determined pursuant to
a physical inventory to be taken promptly following the Closing Date,
and shall be finalized within 90 days following the Closing Date. Any
disputes as to the physical condition, salability or obsolescence of
any item of Inventory will, if possible, be resolved by representatives
of United and the Shareholders' Representative while such physical
inventory is being taken. Any disputes regarding the foregoing not so
resolved will be resolved by arbitration in accordance with Section 10.
(d) The adjustment made to the Purchase Price wired on the
Closing Date pursuant to Section 1.3(b) is based on Schedule 1.3(b) as
delivered at the Closing, which the parties understand includes only an
estimate of the Closing Date Working Capital. Within 90 days after the
Closing Date, United will determine the actual Closing Date Working
Capital and will advise the Shareholders' Representative of such actual
amount. If the Purchase Price increases, United will promptly pay any
additional amount due to the Shareholders within 90 days after the
Closing Date; if the Purchase Price declines, United may deduct the
amount by which the Purchase Price declines from the Hold Back. To the
extent the parties disagree on such amount, United and the
Shareholders' Representative will attempt to resolve such dispute and,
if they are unable to do so, such dispute shall be decided by
arbitration in accordance with Section 10. The adjustments pursuant to
this Section 1.4(d) are herein called the "Working Capital Adjustment."
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1.5 EXCLUDED ASSETS. The Assets of the Corporation listed on
---------------
Schedule 1.5 (the "Excluded Assets") shall be distributed to the Shareholders
prior to the Closing, and United shall acquire no interest in or claim to any of
the Excluded Assets.
2. CLOSING TIME AND PLACE
----------------------
The closing of the transactions contemplated herein (the "Closing")
took place simultaneous with the execution of this Agreement (the "Closing
Date"). The Closing took place at the Law Offices of Shartsis, Friese & Ginsburg
LLP, One Maritime Plaza, Suite 1800, San Francisco, California 94111. At the
Closing, United and the Shareholders delivered to each other the documents,
instruments and other items described in Section 5 of this Agreement. For
accounting and tax reporting purposes, the Closing was deemed effective as of
January 1, 1998.
3. REPRESENTATIONS AND WARRANTIES OF THE CORPORATION AND
-----------------------------------------------------
THE SHAREHOLDERS
----------------
The Corporation and the Shareholders, jointly and severally, (i)
represent and warrant that each of the following representations and warranties
is true as of the Closing Date with respect to the Shareholders and the
Corporation, as the case may be, and (ii) agree that such representations and
warranties shall survive the Closing.
3.1 ORGANIZATION, STANDING AND QUALIFICATION. The Corporation is
----------------------------------------
duly organized, validly existing and in good standing under the laws of the
State of California. The Corporation has full corporate power and authority to
own and lease its properties and to carry on its business as now conducted. The
Corporation is not required to be qualified or licensed to conduct business as a
foreign corporation in any other jurisdiction.
3.2 CAPITALIZATION. Schedule 3.2 sets forth, as of the Closing Date,
--------------
the authorized and outstanding capital stock of the Corporation, the name,
addresses and social security numbers or taxpayer identification numbers of the
record and beneficial owners thereof, and the number of shares so owned, and
wire transfer instructions for each Shareholder relating to the bank account to
which the Purchase Price should be sent. On the Closing Date, all of the issued
and outstanding shares of the capital stock of the Corporation were owned of
record and beneficially by the Shareholders, as set forth in Schedule 3.2, and
were free and clear of all liens, security interests, encumbrances and claims of
every kind. Each share of the capital stock of the Corporation is validly
authorized and issued, fully paid and nonassessable, and was not issued in
violation of any preemptive rights of any past or present shareholder of the
Corporation. Except as disclosed on Schedule 3.5, no option, warrant, call,
conversion right or commitment of any kind (including any of the foregoing
created in connection with any indebtedness of the Corporation) exists which
obligates the Corporation to issue any of its authorized but unissued capital
stock or other equity interest, or which obligates any Shareholder to transfer
any Corporation's Stock to any person.
3.3 ALL STOCK BEING ACQUIRED. The Corporation's Stock being acquired
------------------------
by United hereunder constitutes all of the outstanding capital stock of the
Corporation.
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3.4 AUTHORITY FOR AGREEMENT. The Corporation and each of the
-----------------------
Shareholders have full right, power and authority to enter into this Agreement
and to perform its or his obligations hereunder. The execution and delivery of
this Agreement by the Corporation has been duly authorized by its Board of
Directors. This Agreement has been duly and validly executed and delivered by
the Corporation and the Shareholders and, subject to the due authorization,
execution and delivery by United, constitutes the legal, valid and binding
obligation of the Corporation and the Shareholders enforceable against the
Corporation and the Shareholders in accordance with its terms.
3.5 NO BREACH OR DEFAULT. Except as disclosed on Schedule 3.5, the
--------------------
execution and delivery by the Corporation and the Shareholders of this
Agreement, and the consummation by the Shareholders of the transactions
contemplated hereby, do not and will not:
(a) result in the breach of any of the terms or conditions of,
or constitute a default under, or allow for the acceleration or
termination of, in any manner release any party from any obligation
under, require any consent under, or will result in any lien, claim, or
encumbrance on the Corporation's Stock or the assets of the Corporation
under, any mortgage, lease, note, bond, indenture, or material
contract, agreement, license or other instrument or obligation of any
kind or nature to which the Corporation or any of the Shareholders is a
party, or by which the Corporation, or any of its assets, is or may be
bound or affected; or
(b) violate any law or any order, writ, injunction or decree
of any court, administrative agency or governmental authority, or
require the approval, consent or permission of any governmental or
regulatory authority; or
(c) violate the Articles of Incorporation or Bylaws of the
Corporation.
3.6 SUBSIDIARIES. Schedule 3.6 lists as of the Closing Date any and
------------
all subsidiaries of the Corporation and any securities of any other corporation
or any securities or other interest in any other business entity owned by the
Corporation or any of its subsidiaries.
3.7 FINANCIAL STATEMENTS. The Corporation has delivered to United,
--------------------
as Schedule 3.7, copies of the following financial statements ("Financial
Statements"): financial statements for the fiscal year ended June 30, 1996 and
1997, compiled by Thomas C. Tang and unaudited interim Financial Statements for
the Corporation for the period ended November 30, 1997 (the "Balance Sheet
Date"). The Financial Statements are true and correct and fairly present (i) the
financial position of the Corporation as of the respective dates of the balance
sheets included in said statements, and (ii) the results of operations for the
respective periods indicated. The Financial Statements have been prepared in
accordance with generally accepted accounting principles, applied consistently
with prior periods. Except to the extent reflected or reserved against in the
Corporation's balance sheet as of the Balance Sheet Sate, or as disclosed on
Schedule 3.7 or Schedule 3.8, the Corporation had as of the Balance Sheet Date,
and had, as of the Closing Date, no liabilities of any nature, whether accrued,
absolute, contingent or otherwise, including, without limitation, tax
liabilities due.
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3.8 LIABILITIES. Schedules 3.8(a), (b), (c) and (d), are accurate
-----------
lists and descriptions of all liabilities of the Corporation required to be
described below in the format set forth below.
(a) Schedule 3.8(a) lists, as of the Closing Date, other than
with respect to trade payables and as of the end of the month prior to
the Closing Date with respect to trade payables, all indebtedness for
money borrowed and all other fixed and uncontested liabilities of any
kind, character and description (excluding all real and personal
property leasehold interests included in Schedule 3.8 (d)), whether
reflected or not reflected on the Financial Statements and whether
accrued or absolute, and states as to each such liability the amount of
such liability and to whom payable. From the date as of which trade
payables are listed through the Closing Date, trade payables have been
incurred only in the ordinary course of business consistent with
comparable prior periods.
(b) Schedule 3.8(b) lists, as of the Closing Date, all claims,
suits and proceedings which are pending against the Corporation, all
contingent liabilities and, to the knowledge of the Corporation and the
Shareholders, all claims, suits and proceedings threatened or
anticipated against the Corporation. For each such liability, the
following is provided in Schedule 3.8(b):
(i) a summary description of such liability together
with copies of all material documents, reports and other
records relating thereto;
(ii) all amounts claimed or relief sought with
respect to such liability and the identity of the claimant;
and
(iii) without limitation of the foregoing, (A) the
name of each court, agency, bureau, board or body before which
any such claim, suit or proceeding is pending, (B) the date
such claim, suit or proceeding was instituted, (C) the parties
to such claim, suit or proceeding, (D) a description of the
factual basis alleged to underlie such claim, suit or
proceeding, including the date or dates of all material
occurrences, (E) the amount claimed and other relief sought,
and (F) all material pleadings, briefs and other documents
relating thereto to the extent the same are in the possession
or under the control of the Corporation or the Shareholders.
(c) Schedule 3.8(c) lists, as of the Closing Date and to the
extent not otherwise included in Schedule 3.8(a), all liens, claims and
encumbrances secured by or otherwise affecting any asset of the
Corporation (including any Corporate Property, as hereafter defined),
including a description of the nature of such lien, claim or
encumbrance, the amount secured if it secures a liability, the nature
of the obligation secured, and the party holding such lien, claim or
encumbrance.
(d) Schedule 3.8(d) lists, as of the Closing Date and to the
extent not otherwise included in Schedules 3.8(a) and (c), all real and
personal property leasehold interests to which the Corporation is a
party as lessor or lessee or, to the knowledge of the Corporation or
the Shareholders, affecting or relating to any Corporate Property,
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<PAGE>
including a description of the nature and principal terms of such
leasehold interest and the identity of the other party thereto.
Except as described on Schedules 3.8(a), (b), (c) and (d),
neither the Corporation nor the Shareholders has made any payment or committed
to make any payment since the Balance Sheet Date on or with respect to any of
the liabilities or obligations listed on Schedule 3.8(a), (b), (c) and (d)
except, in the case of liabilities and obligations listed on Schedule 3.8(a),
(c) and (d), periodic payments required to be made under the terms of the
agreements or instruments governing such obligations or liabilities.
3.9 RENTAL ASSET LISTING. The Rental Asset Listing attached as
--------------------
Schedule 1.4(b) lists all of the Equipment owned by the Corporation for lease or
rent to customers, other than Equipment acquired after the date of the Rental
Asset Listing and included on Schedule 1.3(d) or disposed of since the date of
the Rental Asset Listing.
3.10 PERMITS AND LICENSES.
--------------------
(a) Schedule 3.10(a) is a full and complete list, and includes
copies, of all material permits, licenses, titles (including motor
vehicle titles and current registrations), fuel permits, zoning and
land use approvals and authorizations, including, without limitation,
any conditional or special use approvals or zoning variances, occupancy
permits, and any other similar documents constituting a material
authorization or entitlement or otherwise material to the operation of
the business of the Corporation (collectively the "Governmental
Permits") owned by, issued to, held by or otherwise benefiting the
Corporation or the Shareholders as of the Closing Date. Any material
conditions to the Governmental Permits and, if applicable, the
expiration dates thereof, are also described in Schedule 3.10(a).
Schedule 3.10(a) also sets forth the name of any third party from whom
the Shareholders, the Corporation or United must obtain consent (the
"Required Governmental Consents") in order to effect a direct or
indirect transfer of the Governmental Permits required as a result of
the consummation of the transactions contemplated by this Agreement.
Except as set forth on Schedule 3.10(a), all of Governmental Permits
enumerated and listed on Schedule 3.10(a) are adequate for the
operation of the business of the Corporation and of each Corporate
Property as presently operated and are valid and in full force and
effect. All of said Governmental Permits and agreements have been duly
obtained and are in full force and effect, and there are no proceedings
pending or, to the knowledge of the Corporation or the Shareholders,
threatened which may result in the revocation, cancellation, suspension
or adverse modification of any of the same. Neither the Corporation nor
the Shareholders has any knowledge of any reason why all such
Governmental Permits and agreements will not remain in effect after
consummation of the transactions contemplated hereby.
(b) Schedule 3.10(b) lists, as of the Closing Date, each
facility owned, leased, operated or otherwise used by the Corporation,
the ownership, lease, operation or use of which is being transferred
to, assumed by or otherwise acquired directly or indirectly by United
pursuant to this Agreement (each, a "Facility" and collectively, the
"Facilities"). Except as otherwise disclosed on Schedule 3.10(b):
8
<PAGE>
(i) Each Facility is fully licensed, permitted and
authorized to carry on its current business under all
applicable federal, state and local statutes, orders,
approvals, zoning or land use requirements, rules and
regulations and there is no non-conforming use or other
activities subject to any restrictions regarding
reconstruction.
(ii) All activities and operations at each Facility
are being and have been conducted in compliance in all
material respects with the requirements, criteria, standards
and conditions set forth in all applicable federal, state and
local statutes, orders, approvals, permits, zoning or land use
requirements and restrictions, variances, licenses, rules and
regulations.
(iii) Each Facility is located on real property
leased by the Corporation ("Facility Property") and is legally
described on the surveys or site plans attached to Schedule
3.10(b) (the "Facility Surveys/Site Plans"), which when
delivered will accurately depict the respective Facility
Property.
(iv) There are no circumstances, conditions or
reasons which are likely to be the basis for revocation or
suspension of any Facility's site assessments, permits,
licenses, consents, authorizations, zoning or land use
permits, variances or approvals relating to such Facility
owned by the Corporation or owned by the Shareholders or an
Affiliate (as hereinafter defined) of the Shareholders and
leased to the Corporation, and to the knowledge of the
Corporation and the Shareholders there are no circumstances,
conditions or reasons which are likely to be the basis for
revocation or suspension of any site assessment, permits,
licenses, consents, authorizations, zoning or land use
permits, variances or approvals relating to the Facility.
3.11 CERTAIN RECEIVABLES. Schedule 3.11 is an accurate list as of
-------------------
the Closing Date of the accounts and notes receivable of the Corporation from
and advances to employees, former employees, officers, directors, the
Shareholders and Affiliates of the foregoing. For purposes of this Agreement,
the term "Affiliate" means, with respect to any person, any person that directly
or indirectly through one or more intermediaries controls, or is controlled by,
or is under common control with such person, and in the case of the Corporation
includes directors and officers, in the case of individuals includes the
individual's spouse, father, mother, grandfather, grandmother, brothers,
sisters, children and grandchildren and in the case of a trust includes the
grantors, trustees and beneficiaries of the trust.
3.12 FIXED ASSETS AND REAL PROPERTY.
------------------------------
(a) Schedule 3.12(a) lists, as of the Closing Date,
substantially all the fixed assets (other than real estate, inventory
subject to the Inventory Adjustment and Equipment included in the
Rental Asset Listing or on Schedule 1.3(d)) of the Corporation,
including, without limitation, identification of each vehicle by
description and serial number, identification of machinery, equipment
and general descriptions of parts, supplies and inventory. Except as
shall be described on Schedule 3.12(a), all of
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the Corporation's vehicles, machinery and equipment necessary for the
operation of its business and all of the Equipment listed on Schedule
1.3(d) and the Rental Asset Listing are in operable condition, and are
in material compliance with all applicable laws, rules and regulations.
All such vehicles and equipment (including such Equipment) are
substantially free of known defects that would cause them to fail. All
leases of fixed assets are in full force and effect and binding upon
the parties thereto; neither the Corporation nor any other party to
such leases is in breach of any of the material provisions thereof.
(b) Each parcel of real property leased, owned or being
purchased by the Corporation as of the Closing Date (the "Corporate
Property"), including the street address and, in the case of Corporate
Property owned or being purchased, the legal description thereof, is
listed on Schedule 3.12(b) and attached to said Schedule 3.12(b) are
copies of all leases, deeds, outstanding mortgages, other encumbrances
and existing title insurance policies relating to each Corporate
Property, as well as a current commitments for title insurance issued
by a title insurance company satisfactory to United with respect to
each Corporate Property owned or being purchased by the Corporation
together with copies of all of the title exceptions referred to in said
commitments. All leases listed on Schedule 3.12(b) are in full force
and effect and binding on the parties thereto; neither the Corporation
nor any other party to such leases is in breach of any of the material
provisions thereof. Except as described on Schedule 3.12(b) there are
no material physical or mechanical defects in or any Facility located
on any Corporate Property and each such Facility is in good condition
and repair.
(c) The Corporation has good, valid and marketable title to
all properties and assets, real, personal, and mixed, tangible and
intangible, actually used or necessary for the conduct of its business,
free of any encumbrance or charge of any kind except: (i) liens for
current taxes not yet due; (ii) minor imperfections of title and
encumbrances, if any, that are not substantial in amount, do not
materially detract from the value of the property subject thereto, do
not materially impair the value of the Corporation, and have arisen
only in the ordinary course of business and consistent with past
practice; and (iii) the liens identified on Schedule 3.8(c)
(collectively, the "Permitted Liens"). Except as described on Schedule
3.12(b) there are no leases, occupancy agreements, options, rights of
first refusal or any other agreements or arrangements, either oral or
written, that create or confer in any person or entity the right to
acquire, occupy or possess, now or in the future, any Facility, any
Corporate Property, or any portion thereof, or create in or confer on
any person or entity any right, title or interest therein or in any
portion thereof.
3.13 ACQUISITION/DISPOSAL OF ASSETS. Except as indicated on
------------------------------
Schedule 3.13, since the date of the Rental Asset Listing attached as Schedule
1.4(b) (September 30, 1997), the Corporation has not acquired or sold or
otherwise disposed of any properties or assets which have a value in excess of
$25,000 in the aggregate, or which are material to the operation of the
Corporation's business as presently conducted, without the prior written consent
of United.
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3.14 CONTRACTS AND AGREEMENTS; ADVERSE RESTRICTIONS.
----------------------------------------------
(a) Schedule 3.14(a) lists, as of the Closing Date, and
includes copies of, all material contracts and agreements (other than
standard rental agreements with customers, leases included with
Schedule 3.12(b) and documents included with Schedule 3.12(b)) to which
the Corporation is a party or by which it or any of its property is
bound (including, but not limited to, joint venture or partnership
agreements, contracts with any labor organizations, promissory notes,
loan agreements, bonds, mortgages, deeds of trust, liens, pledges,
conditional sales contracts or other security agreements). Except as
disclosed on Schedule 3.14(a), all such contracts and agreements
included in Schedule 3.14(a) are in full force and effect and binding
upon the parties thereto. Except as described or cross referenced on
Schedule 3.14(a), neither the Corporation nor, to the Shareholders'
knowledge, any other parties to such contracts and agreements is in
breach thereof, and none of the parties has threatened to breach any of
the material provisions thereof or notified the Corporation or the
Shareholders of a default thereunder, or exercised any options
thereunder. None of such contracts, agreements and licenses requires
notice to, or consent or approval of, any third party to any of the
transactions contemplated hereby, except such consents and approvals as
are listed on Schedule 3.14(a).
(b) Except as set forth on Schedule 3.14(b), there is no
outstanding judgment, order, writ, injunction or decree against the
Corporation, the result of which could materially adversely affect the
Corporation or its business or any of the Corporate Properties, nor has
the Corporation been notified that any such judgment, order, writ,
injunction or decree has been requested.
3.15 INSURANCE. Schedule 3.15 is a complete list and includes
---------
copies, as of the Closing Date, of all insurance policies in effect on the
Closing Date or, with respect to "occurrence" policies that were in effect,
carried by the Corporation in respect of the Facilities, the Corporate
Properties or any other property used by the Corporation specifying, for each
policy, the name of the insurer, the type of risks insured, the deductible and
limits of coverage, and the annual premium therefor. During the last five years,
there has been no lapse in any material insurance coverage of the Corporation.
For each insurer providing coverage for any of the contingent or other
liabilities listed on Schedule 3.8(b), except to the extent otherwise set forth
in Schedule 3.8(b), each such insurer, if required, has been properly and timely
notified of such liability, no reservation of rights letters have been received
by the Corporation and the insurer has assumed defense of each suit or legal
proceeding.
3.16 PERSONNEL. Schedule 3.16 is a complete list, as of the Closing
---------
Date, of all officers, directors and employees (by type or classification) of
each Corporation and their respective rates of compensation, including (i) the
portions thereof attributable to bonuses, (ii) any other salary, bonus, stock
option, equity participation, or other compensation arrangement made with or
promised to any of them, and (iii) copies of all employment agreements with
non-union officers, directors and employees. Schedule 3.16 shall also lists the
driver's license number for each driver of the Corporation's motor vehicles who
is required to have a
11
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commercial, chauffeur's, or other special class of drivers license in order to
operate commercial or heavy vehicles used in the Corporation's business.
3.17 BENEFIT PLANS AND UNION CONTRACTS.
---------------------------------
(a) Schedule 3.17(a) is a complete list as of the Closing
Date, and includes complete copies (or, in the case of oral
arrangements, descriptions), of all employee benefit plans and
agreements (written or oral) currently maintained or contributed to by
the Corporation, including employment agreements and any other
agreements containing "golden parachute" provisions, retirement plans,
welfare benefit plans and deferred compensation agreements, together
with copies of such plans, agreements and any trusts related thereto,
and classifications of employees covered thereby as of the Closing
Date. Except for the employee benefit plans described on Schedule
3.17(a), the Corporation has no other pension, retirement, welfare,
profit sharing, deferred compensation, stock option, employee stock
purchase or other employee benefit plans or arrangements with any
party. Except as disclosed on Schedule 3.17(a), all employee benefit
plans listed on Schedule 3.17(a) are fully funded and in substantial
compliance with all applicable federal, state and local statutes,
ordinances and regulations. All such plans that are intended to qualify
under Section 401(a) of the Internal Revenue Code have been determined
by the Internal Revenue Service to be so qualified, and copies of such
determination letters are included as part of Schedule 3.17(a). Except
as disclosed on Schedule 3.17(a), all reports and other documents
required to be filed with any governmental agency or distributed to
plan participants or beneficiaries (including, but not limited to,
actuarial reports, audits or tax returns) have been timely filed or
distributed, and copies thereof are included as part of Schedule
3.17(a). All employee benefit plans listed on such Schedule have been
operated in accordance with the terms and provisions of the plan
documents and all related documents and policies. The Corporation has
not incurred any liability for excise tax or penalty due to the
Internal Revenue Service or U.S. Department of Labor nor any liability
to the Pension Benefit Guaranty Corporation for any employee benefit
plan, nor has the Corporation, nor party-in-interest or disqualified
person, engaged in any transaction or other activity which would give
rise to such liability. The Corporation has not participated in or made
contributions to any "multi-employer plan" as defined in the Employee
Retirement Income Security Act of 1974 ("ERISA"), nor would the
Corporation or any affiliate be subject to any withdrawal liability
with respect to such a plan if any such employer withdrew from such a
plan immediately prior to the Closing Date. No employee pension benefit
plan is under funded on a termination basis as of the date of this
Agreement.
(b) Schedule 3.17(b) is a complete list, as of the Closing
Date, and includes complete copies of all union contracts and
agreements between the Corporation and any collective bargaining group.
The Corporation is in compliance in all material respects with all
applicable federal and state laws respecting employment and employment
practices, terms and conditions of employment, wages and hours, and
nondiscrimination in employment, and is not engaged in any unfair labor
practice. There is no charge pending or, to the Corporation's or the
Shareholders' knowledge, threatened, against the Corporation before any
court or agency and alleging unlawful discrimination in
12
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employment practices and there is no charge of or proceeding with
regard to any unfair labor practice against it pending before the
National Labor Relations Board. There is no labor strike, dispute, slow
down or stoppage as of the Closing Date, existing or threatened against
the Corporation; no union organizational activity exists respecting
employees of the Corporation not currently subject to a collective
bargaining agreement; the union contracts or other agreements delivered
as part of Schedule 3.17(b) constitute all agreements with the unions
or other collective bargaining groups, and there are no other
arrangements or established practices relating to the employees covered
by any collective bargaining agreement; and Schedule 3.17(b) will
contain as of the date it is delivered a list of all arbitration or
grievance proceedings that have occurred since the Balance Sheet Date.
No one has petitioned within the last five years, and no one is now
petitioning, for union representation of any employees of the
Corporation. The Corporation has not experienced any labor strike,
slow-down, work stoppage, labor difficulty or other job action during
the last five years.
(c) No payment made to any employee, officer, director or
independent contractor of the Corporation (the "Recipient") pursuant to
any employment contract, severance agreement or other arrangement (the
"Golden Parachute Payment") will be nondeductible by the Corporation
because of the application of Sections 280G and 4999 of the Code to the
Golden Parachute Payment, nor will a Corporation be required to
compensate any Recipient because of the imposition of an excise tax
(including any interest or penalties related thereto) on the Recipient
by reason of Sections 280G and 4999 of the Code.
3.18 TAXES.
-----
(a) The Corporation has timely filed all requisite federal,
state, local and other tax and information returns due for all fiscal
periods ended on or before the Closing Date. All such returns are
accurate and complete. Except as set forth on Schedule 3.18, there are
no open years, examinations in progress, extensions of any statute of
limitations or claims against the Corporation relating to federal,
state, local or other taxes (including penalties and interest) for any
period or periods prior to and including the Closing Date and no notice
of any claim for taxes has been received. Copies of (i) any tax
examinations, (ii) extensions of statutory limitations and (iii) the
federal income, and state franchise, income and sales tax returns of
the Corporation for its last three fiscal years are attached as part of
Schedule 3.18. Copies of all other federal, state, local and other tax
and information returns for all prior years of the Corporation's
existence have been made available to United and are among the records
of the Corporation which will accrue to United at the Closing. The
Corporation has not been contacted by any federal, state or local
taxing authority regarding a prospective examination.
(b) Except as set forth on Schedule 3.18 (which schedule also
includes the amount due with respect to such Corporation) the
Corporation has duly paid all taxes and other related charges required
to be paid prior to the Closing Date. The reserves for taxes contained
in the Financial Statements of the Corporation are adequate to cover
their tax liability as of the Closing Date.
13
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(c) The Corporation has withheld all required amounts from its
employees for all pay periods in full and complete compliance with the
withholding provisions of applicable federal, state and local laws. All
required federal, state and local and other returns with respect to
income tax withholding, social security, and unemployment taxes have
been duly filed by the Corporation for all periods for which returns
are due, and the amounts shown on all such returns to be due and
payable have been paid in full.
3.19 COPIES COMPLETE. Except as disclosed on Schedule 3.19, the
---------------
certified copies of the Articles of Incorporation and Bylaws of the Corporation,
both as amended to the Closing Date, and the copies of all standard form rental
agreements, leases, instruments, agreements, licenses, permits, certificates or
other documents that have been delivered to United in connection with the
transactions contemplated hereby are complete and accurate as of the Closing
Date and are true and correct copies of the originals thereof. Except as
specifically disclosed on Schedule 3.19, the rights and benefits of the
Corporation will not be adversely affected by the transactions contemplated
hereby, and the execution of this Agreement and the performance of the
obligations hereunder will not violate or result in a breach or constitute a
default under any of the terms or provisions thereof. None of such leases,
instruments, agreements, licenses, permits, site assessments, certificates or
other documents requires notice to, or consent or approval of, any governmental
agency or other third party to any of the transactions contemplated hereby,
except such consents and approvals as are listed on Schedule 3.19 and which have
been given or obtained prior to the Closing.
3.20 PRODUCT QUALITY, WARRANTY CLAIMS, PRODUCT LIABILITY. All
---------------------------------------------------
products and services sold, rented, leased, provided or delivered by the
Corporation to customers on or prior to the Closing Date conform to applicable
contractual commitments, express and implied warranties, product and service
specifications and quality standards, and the Corporation has no liability (and
there is no basis for any present or future action, suit, proceeding, hearing,
investigation, charge, complaint, claim or demand against the Corporation giving
rise to any liability) for replacement or repair thereof or other damages in
connection therewith. No product or service sold, leased, rented, provided or
delivered by the Corporation to customers on or prior to the Closing Date is
subject to any guaranty, warranty or other indemnity beyond the applicable
standard terms and conditions of sale, rent or lease. Except as set forth on
Schedule 3.20, the Corporation has no liability (and there is no basis for any
present or future action, suit, proceeding, hearing, investigation, charge,
complaint, claim or demand against the Corporation which might give rise to any
liability) arising out of any injury to a person or property as a result of the
ownership, possession, provision or use of any Equipment, product or service
sold, rented, leased, provided or delivered by the Corporation on or prior to
the Closing Date. All product liability claims that have been asserted against
the Corporation since January 1, 1992, whether covered by insurance or not and
whether litigation has resulted or not, are listed and summarized on Schedule
3.20.
3.21 NO CHANGE WITH RESPECT TO CORPORATION. Except as set forth on
-------------------------------------
Schedule 3.21, since the Balance Sheet Date, the business of the Corporation has
been conducted only in the ordinary course there has been no change in the
condition (financial or otherwise) of the assets, liabilities or operations of
the Corporation other than changes in the ordinary course of business, none of
which either singly or in the aggregate has been materially adverse.
Specifically, and
14
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without limiting the generality of the foregoing, except as set forth on
Schedule 3.21, with respect to the Corporation, since the Balance Sheet Date,
there has not been:
(a) any change in its financial condition, assets, liabilities
(contingent or otherwise), income, operations or business which would
have a material adverse effect on the financial condition, assets,
liabilities (contingent or otherwise), income, operations or business
of the Corporation, taken as a whole;
(b) any damage, destruction or loss (whether or not covered by
insurance) adversely affecting any material portion of its properties
or business;
(c) any change in or agreement to change (i) its shareholders,
(ii) ownership of its authorized capital or outstanding securities, or
(iii) its securities;
(d) any declaration or payment of, or any agreement to declare
or pay, any dividend or distribution in respect of its capital stock or
any direct or indirect redemption, purchase or other acquisition of any
of its capital stock;
(e) any increase or bonus or promised increase or bonus in the
compensation payable or to become payable by it, in excess of usual and
customary practices, to any of its directors, officers, employees or
agents, or any accrual or arrangement for or payment of any bonus or
other special compensation to any employee or any severance or
termination pay paid to any of its present or former officers or other
key employees;
(f) any labor dispute or any other event or condition of any
character, materially adversely affecting its business or future
prospects;
(g) any sale or transfer, or any agreement to sell or
transfer, any of its material assets, property or rights to any other
person, including, without limitation, the Shareholders and their
Affiliates, other than in the ordinary course of business;
(h) any cancellation, or agreement to cancel, any material
indebtedness or other material obligation owing to it, including,
without limitation, any indebtedness or obligation of the Shareholders
or any Affiliate thereof;
(i) any plan, agreement or arrangement granting any
preferential rights to purchase or acquire any interest in any of its
assets, property or rights or requiring consent of any party to the
transfer and assignment of any such assets, property or rights;
(j) any purchase or acquisition of, or any agreement, plan or
arrangement to purchase or acquire, any of its property, rights or
assets outside the ordinary course of its business;
(k) any waiver of any of its material rights or claims;
15
<PAGE>
(l) any new or any amendment or termination of any existing
material contract, agreement, license, permit or other right to which
it is a party;
(m) any decline in the stockholders equity of the Corporation
to an amount less than the stockholders equity of the Corporation as of
the Balance Sheet Date;
(n) any increase in the amount of indebtedness owed by the
Shareholders or their Affiliates to any person other than the
Corporation and secured by one or more Corporate Properties;
(o) any increase in the amount of aggregate indebtedness owed
by the Shareholders or their Affiliates to the Corporation; or
(p) any other transaction outside the ordinary course of its
business.
3.22 CLOSING DATE DEBT; CLOSING DATE CURRENT ASSETS AND CLOSING
----------------------------------------------------------
DATE CURRENT LIABILITIES. Schedule 1.3(a) accurately sets forth the Closing Date
- ------------------------
Debt of the Corporation. Schedule 1.3(b) accurately sets forth the Closing Date
Current Assets and Closing Date Current Liabilities of the Corporation.
3.23 BANK ACCOUNTS. Schedule 3.23 is a complete and accurate
-------------
list, as of the Closing Date, of:
(a) the name of each bank in which the Corporation has
accounts or safe deposit boxes;
(b) the name(s) in which the accounts or boxes are held;
(c) the type of account; and
(d) the name of each person authorized to draw thereon or have
access thereto.
3.24 COMPLIANCE WITH LAWS. Except as disclosed on Schedule 3.24,
--------------------
the Corporation has complied with, and the Corporation is presently in material
compliance with, federal, state and local laws, ordinances, codes, rules,
regulations, Governmental Permits, orders, judgments, awards, decrees, consent
judgments, consent orders and requirements applicable to it (collectively
"Laws"), including, but not limited to, the Americans with Disabilities Act, the
Federal Occupational Safety and Health Act, and Laws relating to the public
health, safety or protection of the environment (collectively, "Environmental
Laws"). Except as disclosed on Schedule 3.24, there has been no assertion by any
party that the Corporation is in violation of any Laws. Specifically and without
limiting the generality of the foregoing, except as disclosed on Schedule 3.24:
(i) except as permitted under Environmental Laws, the Corporation has not
processed, handled, transferred, generated, treated, stored or disposed of any
Hazardous Material (as defined below), (ii) no Hazardous Material, other than
that allowed under Environmental Laws has been disposed of, or otherwise
released on any Corporate Property, and (iii) no Corporate Property has ever
been subject to or received any notice of any private,
16
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administrative or judicial action, or notice of any intended private,
administrative or judicial action relating to the presence or alleged presence
of Hazardous Material in, under, upon or emanating from any Corporate Property
or any real property now or previously owned or leased by the Corporation. As
used in this Agreement, "Hazardous Material" shall mean the substances defined
as "Hazardous Waste" in 40 CFR 261, substances defined in any comparable
California statute or regulation and any substance the presence of which
requires remediation pursuant to any Environmental Laws.
3.25 POWERS OF ATTORNEY. The Corporation has not granted any power
------------------
of attorney (except routine powers of attorney relating to representation before
governmental agencies) or entered into any agency or similar agreement whereby a
third party may bind or commit the Corporation in any manner.
3.26 UNDERGROUND STORAGE TANKS. Except as set forth on Schedule
-------------------------
3.26, no underground storage tanks containing petroleum products or wastes or
other hazardous substances regulated by 40 CFR 280 or Environmental Laws are
currently or have been located on any Corporate Property. Except as set forth on
Schedule 3.26, the Corporation has never owned or leased any real property not
included in the Corporate Property having any underground storage tanks
containing petroleum products or wastes or other hazardous substances regulated
by 40 CFR 280. As to each such underground storage tank ("UST") identified on
Schedule 3.26, the Corporation has provided to United, on Schedule 3.26:
(a) the location of the UST, information and material,
including any available drawings and photographs, showing the location,
and whether the Corporation currently owns or leases the property on
which the UST is located (and if the Corporation does not currently own
or lease such property, the dates on which it did and the current owner
or lessee of such property);
(b) the date of installation and specific use or uses of the
UST;
(c) copies of tank and piping tightness tests and cathodic
protection tests and similar studies or reports for each UST;
(d) a copy of each notice to or from a governmental body or
agency relating to the UST;
(e) other material records with regard to the UST, including,
without limitation, repair records, financial assurance compliance
records and records of ownership; and
(f) to the extent not otherwise set forth pursuant to the
above, a summary description of instances, past or present, in which,
to the Corporation's, or the Shareholders's knowledge, the UST failed
to meet applicable standards and regulations for tightness or otherwise
and the extent of such failure, and any other operational or
environmental problems with regard to the UST, including, without
limitation, spills,
17
<PAGE>
including spills in connection with delivery of materials to the UST,
releases from the UST and soil contamination.
Except to the extent set forth on Schedule 3.26, the Corporation has
complied with Environmental Laws regarding the installation, use, testing,
monitoring, operation and closure of any UST described on Schedule 3.26.
3.27 PATENTS, TRADEMARKS, TRADE NAMES, ETC. Schedule 3.27 lists all
-------------------------------------
patents, tradenames, fictitious business names, trademarks, service marks, and
copyrights owned by the Corporation or which it is licensed to use (other than
licenses to use software for personal computer operating systems that were
provided when the computer was purchased and licenses to use software for
personal computers that are granted to retail purchasers of such software). No
patents, trade secrets, know-how, intellectual property, trademarks, trade
names, assumed names, copyrights, or designations used by the Corporation in its
business infringe on any patents, trademarks, or copyrights, or any other rights
of any person. Neither the Corporation nor any of the Shareholders knows or has
any reason to believe that there are any claims of third parties to the use of
any such names or any similar name, or knows of or has any reason to believe
that there exists any basis for any such claim or claims.
3.28 ASSETS, ETC., NECESSARY TO BUSINESS. The Corporation owns or
-----------------------------------
leases all properties and assets, real, personal, and mixed, tangible and
intangible, and, except as disclosed on Schedules 3.5, 3.10(a), 3.10(b), 3.14(a)
and 3.19, is a party to all Governmental Permits and other agreements necessary
to permit it to carry on its business as presently conducted. All of said
Governmental Permits and agreements have been duly obtained and, except as
disclosed on Schedules 3.5, 3.8(b), 3.10(a), 3.10(b), 3.14(a) and 3.19, are in
full force and effect and there are no proceedings pending or threatened which
may result in the revocation, cancellation, suspension or adverse modification
of any of the same. Neither the Corporation nor any of the Shareholders has any
knowledge of any reason why all such Governmental Permits and agreements will
not remain in effect after consummation of the transactions contemplated hereby.
3.29 CONDEMNATION. No Corporate Property owned or leased by the
------------
Corporation is the subject of, or would be affected by, any pending condemnation
or eminent domain proceedings, and, to the knowledge of the Corporation and the
Shareholders, no such proceedings are threatened.
3.30 MANUFACTURERS, SUPPLIERS AND CUSTOMERS. The relations between
--------------------------------------
the Corporation and its customers are good. Neither the Corporation nor any of
the Shareholders has knowledge of any fact (other than general economic and
industry conditions) which indicates that any of the manufacturers or suppliers
supplying products, components or materials to the Corporation intends to cease
providing such items to the Corporation, nor does the Corporation or any of the
Shareholders have knowledge of any fact (other than general economic and
industry conditions) which indicates that any of the customers of the
Corporation intends to terminate, limit or reduce its business relations with
the Corporation.
3.31 ABSENCE OF CERTAIN BUSINESS PRACTICES. Neither the Corporation
-------------------------------------
nor any of the Shareholders has directly or indirectly within the past five
years given or agreed to give any gift
18
<PAGE>
or similar benefit to any customer, supplier, governmental employee or other
person who is or may be in a position to help or hinder the business of the
Corporation in connection with any actual or proposed transaction which (a)
might subject the Corporation to any damage or penalty in any civil, criminal or
governmental litigation or proceeding, (b) if not given in the past, might have
had an adverse effect on the financial condition, business or results of
operations of the Corporation, or (c) if not continued in the future, might
adversely affect the financial condition, business or operations of the
Corporation or which might subject the Corporation to suit or penalty in any
private or governmental litigation or proceeding.
3.32 RELATED PARTY TRANSACTIONS. Except as disclosed in the
--------------------------
Financial Statements, none of the Shareholders nor their respective Affiliates
owns any direct or indirect interest of any kind in, or controls or is a
director, officer, employee, shareholder or partner of, or consultant to or
lender to or borrower from or has the right to participate in the profits of,
any Person which is a competitor, supplier, customer, landlord, tenant, creditor
or debtor of the Corporation.
3.33 DISCLOSURE SCHEDULES. Any matter disclosed on any Schedule to
--------------------
this Agreement shall be deemed to have been disclosed on every other Schedule
that refers to such Schedule by cross reference so long as the nature of the
matter disclosed is obvious from a fair reading of the Schedule on which the
matter is disclosed.
3.34 NO MISLEADING STATEMENTS. The representations and warranties
------------------------
of the Corporation and the Shareholders contained in this Agreement, the
Exhibits and Schedules hereto and all other documents and information furnished
to United and its representatives pursuant hereto are complete and accurate in
all material respects and do not include any untrue statement of a material fact
or omit to state any material fact necessary to make the statements made and to
be made not misleading.
3.35 ACCURATE AND COMPLETE RECORDS. The corporate minute books,
-----------------------------
stock ledgers, books, ledgers, financial records and other records of the
Corporation:
(a) have been made available to United and its agents at the
Corporation's offices or at the offices of United's attorneys or the
Corporation's attorneys;
(b) have been, in all material respects, maintained in
accordance with all applicable laws, rules and regulations; and
(c) are accurate and complete, reflect all material corporate
transactions required to be authorized by the Boards of Directors
and/or shareholders of the Corporation and do not contain or reflect
any material discrepancies.
3.36 KNOWLEDGE. Wherever reference is made in this Agreement to the
---------
"knowledge" of the Shareholders, such term means the actual knowledge of any of
the Shareholders or any knowledge which should have been obtained by any of the
Shareholders upon reasonable inquiry by a reasonable business person. Wherever
reference is made in this Agreement to the "knowledge" of the Corporation, such
term means the actual knowledge of any management
19
<PAGE>
employee, officer or director of the Corporation or any knowledge which should
have been obtained by any such person upon reasonable inquiry by a reasonable
business person.
3.37 BROKERS; FINDERS. Except as set forth on Schedule 3.37, no
----------------
person has acted directly or indirectly as a broker, finder or financial advisor
for the Corporation or the Shareholders in connection with the transactions
contemplated by this Agreement and no person is entitled to any broker's,
finder's, financial advisory or similar fee or payment in respect thereof based
in any way on any agreement, arrangement or understanding made by or on behalf
of the Corporation or the Shareholders.
4. REPRESENTATIONS AND WARRANTIES OF UNITED
----------------------------------------
United represents and warrants to the Shareholders that each of the
following representations and warranties is true as of the date of this
Agreement and will be true as of the Closing Date, and agrees that such
representations and warranties shall survive the Closing:
4.1 EXISTENCE AND GOOD STANDING. United is a Corporation duly
---------------------------
organized, validly existing and in good standing under the laws of the State of
Delaware.
4.2 NO CONTRACTUAL RESTRICTIONS. No provisions exist in any
---------------------------
article, document or instrument to which United is a party or by which it is
bound which would be violated by consummation of the transactions contemplated
by this Agreement.
4.3 AUTHORIZATION OF AGREEMENT. This Agreement has been duly
--------------------------
authorized, executed and delivered by United and, subject to the due
authorization, execution and delivery by the Shareholders, constitutes a legal,
valid and binding obligation of United. United has full corporate power, legal
right and corporate authority to enter into and perform its obligations under
this Agreement and to carry on its business as presently conducted. The
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby and the fulfillment of and compliance with the
terms and conditions hereof do not and will not, after the giving of notice, or
the lapse of time or otherwise: (a) violate any provisions of any judicial or
administrative order, award, judgment or decree applicable to United; (b)
conflict with any of the provisions of the Certificate of Incorporation or
Bylaws of United; or (c) conflict with, result in a breach of or constitute a
default under any material agreement or instrument to which United is a party or
by which it is bound.
4.4 NO MISLEADING STATEMENTS. The representations and warranties
------------------------
of United contained in this Agreement, the Exhibits and Schedules hereto and all
other documents and information furnished to the Shareholders pursuant hereto
are materially complete and accurate, and do not include any untrue statement of
a material fact or omit to state any material fact necessary to make the
statements made and to be made not misleading as of the Closing Date.
4.5 BROKERS; FINDERS. No person has acted directly or indirectly
----------------
as a broker, finder or financial advisor for United in connection with the
transactions contemplated by this Agreement and no person is entitled to any
broker's, finder's, financial advisory or similar fee
20
<PAGE>
or payment in respect thereof based in any way on any agreement, arrangement or
understanding made by or on behalf of United.
4.6 DISCLOSURE SCHEDULES. Any matter disclosed by United on any
--------------------
Schedule to this Agreement shall be deemed to have been disclosed on every other
Schedule that refers to such Schedule by cross reference so long as the nature
disclosed is obvious from a fair reading of the Schedule on which the matter is
disclosed.
5. CLOSING DELIVERIES
------------------
At the Closing, the respective parties made the deliveries
indicated:
5.1 UNITED DELIVERIES.
-----------------
(a) United delivered to the Shareholders the portion of the
Purchase Price required to be delivered on the Closing Date pursuant to
Section 1.2.
(b) United executed and delivered the Escrow Agreement.
(c) United entered into a Consulting Agreement with Charles on
terms and conditions satisfactory to Charles and United.
5.2 SHAREHOLDERS DELIVERIES.
-----------------------
(a) The Shareholders delivered to United the certificates
representing the outstanding Corporation's Stock, free and clear of all
liens, security interests, claims and encumbrances, accompanied by
stock powers duly executed in blank.
(b) The Shareholders delivered to United an opinion of counsel
for the Shareholders, dated as of the Closing Date.
(c) The Shareholders delivered evidence reasonably
satisfactory to United that all required third party consents to the
transactions contemplated hereby, including without limitation all
Required Governmental Consents and all required consents of the
landlords under all real estate leases to which the Corporation is a
party, were obtained.
(d) Except as provided in Sections 5.1(e) and 5.1(f), the
Corporation delivered to United evidence satisfactory to United showing
that all written employment contracts and all oral employment contracts
other than those that are terminable "at will" without payment of
severance (other than normal severance benefits approved by United) or
other benefits with non-union employees of the Corporation (including,
without limitation, stock options or other rights to obtain equity in
the Corporation) have been terminated, effective on or before the
Closing Date.
(e) The Shareholders caused each officer and director of the
Corporation to deliver a resignation as an officer and/or director of
the corporation together with a
21
<PAGE>
general release releasing the Corporation from all obligations under
any indemnification agreements, the charter documents of the
Corporation, or otherwise, arising out of or relating to this Agreement
or the consummation of the transactions contemplated thereby, other
than obligations arising after the Closing Date under this Agreement.
(f) The Shareholders executed and delivered the Escrow
Agreement.
6. ADDITIONAL COVENANTS OF UNITED, THE CORPORATION AND
---------------------------------------------------
THE SHAREHOLDERS
----------------
6.1 FURTHER ASSURANCES AND ADDITIONAL CONVEYANCES. Following the
---------------------------------------------
Closing, the Shareholders and United shall each deliver or cause to be delivered
at such times and places as shall be reasonably agreed upon such additional
instruments as United or the Shareholders may reasonably request for the purpose
of carrying out this Agreement. The Shareholders will cooperate with United
and/or the Corporation on and after the Closing Date in furnishing information,
evidence, testimony and other assistance in connection with any actions,
proceedings or disputes of any nature with respect to matters pertaining to all
periods prior to the Closing Date.
6.2 RELEASE OF GUARANTIES. United shall use reasonable efforts to
---------------------
obtain the termination and release promptly after the Closing Date of the
personal guaranties of the Shareholders listed on Schedule 6.2, all of which
relate to indebtedness of the Corporation included in the Financial Statements
as of the Balance Sheet Date. United shall indemnify the Shareholders and hold
them harmless from and against all losses, expenses or claims by third parties
to enforce or collect indebtedness owed by the Corporation as of the Closing
Date which is personally guaranteed by the Shareholders pursuant to such
guaranties. The Shareholders may notify the obligees under such guaranties that
they have terminated their obligations under such guaranties. The Shareholders
shall cooperate with United in obtaining such releases.
6.3 CONFIDENTIALITY. Neither the Corporation nor the Shareholders
---------------
shall disclose or make any public announcements of the transactions contemplated
by this Agreement without the prior written consent of United, unless required
to make such disclosure or announcement by law, in which event the party making
the disclosure or announcement shall notify United at least 24 hours before such
disclosure or announcement is expected to be made.
6.4 BROKERS AND FINDERS FEES. Each party shall pay and be
------------------------
responsible for any broker's, finder's or financial advisory fee incurred by
such party in connection with the transactions contemplated by this Agreement.
6.5 TAXES. United shall reasonably cooperate, at the expense of
-----
the Shareholders, with the Shareholders with respect to any matters involving
the Shareholders arising out of the Shareholders' ownership of the Corporation
prior to the Closing, including matters relating to tax returns and any tax
audits, appeals, claims or litigation with respect to such tax returns or the
preparation of such tax returns. In connection therewith, United shall make
available to the Shareholders such files, documents, books and records of the
Corporation for inspection and
22
<PAGE>
copying as may be reasonably requested by the Shareholders and shall cooperate
with the Shareholders with respect to retaining information and documents which
relate to such matters.
6.6 SHORT YEAR TAX RETURNS. After the Closing Date, the
----------------------
Shareholders shall prepare at their sole cost and expense, all short year
federal, state, county, local and foreign tax returns required by law for the
period beginning with the first day of the Corporation's fiscal year in which
the Closing occurs and ending December 31, 1997. Such return shall be prepared
in a financially responsible and conservative manner and shall be delivered to
United together with all necessary supporting schedules within 90 days following
the Closing Date for its approval (but such approval shall not relieve the
Shareholders of their responsibility for the taxes assessed under these
returns). The Shareholders shall be responsible for the payment of all taxes
(including without limitation any taxes arising as a result of the conversion of
the Corporation from a cash to an accrual basis of reporting) shown to be due or
that may come to be due on such returns or otherwise relating to the period
prior to January 1, 1998 in excess of the amount of any reserve for taxes
included in Closing Date Current Liabilities and, at the time of the delivery of
the returns, shall contemporaneously deliver to United checks payable to the
respective taxing authorities in amounts equal to that shown as being due on the
returns. United shall sign tax returns and cause such returns to be timely filed
with the appropriate authorities. The Shareholders shall be entitled to receive
all refunds shown on said returns and any such refunds received by the
Corporation or United shall be remitted to the Shareholders. United shall be
responsible for federal, state, county and foreign taxes of the Corporation from
and after January 1, 1998.
6.7 GENERAL RELEASE BY SHAREHOLDERS. Each of the Shareholders
-------------------------------
hereby fully releases and discharges the Corporation and its directors,
officers, agents and employees from all rights, claims and actions, known or
unknown, of any kind whatsoever, which any of such Shareholders now has or may
hereafter have against the Corporation and its directors, officers, agents and
employees, arising out of or relating to events arising prior to or on the
Closing Date, except (a) as may be described in written contracts disclosed in
Schedule 6.7 and expressly described and specifically excepted from this release
in Schedule 6.7, (b) compensation as an employee of the Corporation for current
periods expressly described and excepted from such release on schedule 6.7, and
(c) for the obligations of the Corporation arising after the Closing Date under
this Agreement. Specifically, but not by way of limitation, each of the
Shareholders waives any right of indemnification, contribution or other recourse
against the Corporation which he now has or may hereafter have against the
Corporation with respect to representations, warranties or covenants made in
this Agreement by the Corporation.
Each of the Shareholders hereby waives and relinquishes all
rights and benefits afforded by Section 1542 of the California Civil Code, which
states as follows:
"A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS TO WHICH THE
CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE
TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM MUST HAVE
MATERIALLY AFFECTED HIS SETTLEMENT WITH THE DEBTOR."
23
<PAGE>
Each of the Shareholders understands and acknowledges the significance and
consequence of this waiver of Section 1542 and nevertheless elects to, and does,
release those claims described in this Section 6.7, known or unknown, that it
may have now or in the future arising out of or relating to any event arising on
or prior to the date of this Agreement.
6.8 SHAREHOLDERS' REPRESENTATIVE.
----------------------------
(a) In order to administer efficiently the rights and
obligations of the Shareholders under this Agreement, the Shareholders
hereby designate and appoint Charles as the Shareholders'
Representative, to serve as the Shareholders' agent and
attorney-in-fact for the limited purposes set forth in this Agreement.
(b) Each of the Shareholders hereby appoints the
Shareholders' Representative as such Shareholder's agent, proxy and
attorney-in-fact, with full power of substitution, for all purposes set
forth in this Agreement, including, without limitation, the full power
and authority on such Shareholder's behalf (i) to consummate the
transactions contemplated by this Agreement, (ii) to disburse any funds
received hereunder to the Shareholders, (iii) to execute and deliver on
behalf of each Shareholder any amendment or waiver under this
Agreement, and to agree to resolution of all Adjustments pursuant to
Section 1.4 or 10, and of all Claims hereunder, (iv) to retain legal
counsel and other professional services, at the expense of the
Shareholders, in connection with the performance by the Shareholders'
Representative of this Agreement, and (v) to do each and every act and
exercise any and all rights which such Shareholder or Shareholders are
permitted or required to do or exercise under this Agreement and the
other agreements, documents and certificates executed in connection
herewith. Each of the Shareholders agrees that such agency and proxy
are coupled with an interest, are therefore irrevocable without the
consent of the Shareholders' Representative and shall survive the
death, bankruptcy or other incapacity of any Shareholder.
(c) Each of the Shareholders hereby agrees that any
amendment or waiver under this Agreement, and any action taken on
behalf of the Shareholders to enforce the rights of the Shareholders
under this Agreement, and any action taken with respect to any
Adjustment or Claim (including any action taken to object to, defend,
compromise or agree to the payment of such Adjustment or Claim), shall
be effective if approved in writing by the Shareholders' Representative
and the holders of a majority of the Corporation's Stock (including any
Corporation's Stock held by the Shareholders' Representative), or, in
the case of any amendment or waiver made or given or action taken after
the Closing, if so approved by persons who were the holders of a
majority of the Corporation's Stock immediately prior to the Closing,
and that each and every action so taken shall be binding and conclusive
on every Shareholder, whether or not such Shareholder had notice of, or
approved, such amendment or waiver.
(d) Charles shall serve as the Shareholders'
Representative until he resigns or is otherwise unable or unwilling to
serve. In the event that a Shareholders' Representative resigns from
such position or is otherwise unable or unwilling to serve, the
remaining Shareholders shall select, by the vote of the holders of a
majority of the
24
<PAGE>
Corporation's Stock immediately prior to the Closing, a successor
representative to fill such vacancy, shall provide prompt written
notice to United of such change and such substituted representative
shall then be deemed to be the Shareholders' Representative for all
purposes of this Agreement.
7. INDEMNIFICATION
---------------
7.1 INDEMNITY BY THE SHAREHOLDERS. Each of the Shareholders,
-----------------------------
subject to the limitations set forth in Section 7.2, covenants and agrees that
he will indemnify and hold harmless United, the Corporation and their respective
directors, officers and agents and their respective successors and assigns (the
"United Indemnitees"), from and after the date of this Agreement, against any
and all losses, damages, assessments, fines, penalties, adjustments,
liabilities, claims, deficiencies, costs, expenses (including specifically, but
without limitation, reasonable attorneys' fees and expenses of investigation),
expenditures, including, without limitation, any "Environmental Site Losses" (as
such term is hereinafter defined) identified by a United Indemnitee in a Claims
Notice (as defined in Section 7.3(a)), or asserted by a United Indemnitee in
litigation commenced against the Shareholders provided that in either case any
such Claims Notice shall be given or the litigation commenced prior to the
expiration of the periods set forth in Section 7.2(c) (irrespective of the date
of discovery), with respect to each of the following contingencies (all, the
"Indemnity Events"):
(a) Any misrepresentation, breach of warranty, or
nonfulfillment of any agreement or covenant on the part of the
Shareholders or the Corporation pursuant to the terms of this Agreement
or any misrepresentation in or omission from any Exhibit, Schedule,
list, certificate, or other instrument furnished or to be furnished to
United pursuant to the terms of this Agreement, regardless of whether,
in the case of a breach of a representation or a warranty, United
relied on the truth of such representation or warranty or had any
knowledge of any breach thereof.
(b) "Environmental Site Losses," which shall mean any and all
losses, damages (including exemplary damages and penalties),
liabilities, claims, deficiencies, costs, expenses, and expenditures
(including, without limitation, expenses in connection with site
evaluations, risk assessments and feasibility studies) arising out of
or required by an interim or final judicial or administrative decree,
judgment, injunction, mandate, interim or final permit condition or
restriction, cease and desist order, abatement order, compliance order,
consent order, clean-up order, exhumation order, reclamation order or
any other remedial action that is required to be undertaken under
federal, state or local law in respect of operating activities on or
affecting any Facility, any UST (other than the UST formerly installed
at 41655 Osgood Road to the extent described on Schedule 3.26) or any
other site, including, but not limited to (i) any actual or alleged
violation of any law or regulation respecting the protection of the
environment, or any other law or regulation respecting the protection
of the air, water and land occurring prior to the Closing Date and (ii)
any remedies or violations, whether by a private or public action,
alleged or sought to be assessed as a consequence, directly or
indirectly, of any Release of pollutants (including odors) or Hazardous
Materials from any Facility, any UST or any other environmental site
resulting from activities thereat occurring prior
25
<PAGE>
to the Closing Date, whether such Release is into the air, water
(including groundwater) or land and whether such Release occurring
before, during or after the Closing Date. The term "Release" as used
herein means any spilling, leaking, pumping, pouring, emitting,
emptying, discharging, injecting, escaping, leaching, dumping or
disposing into the ambient environment.
(c) Any liability arising from the matters described on
Schedule 3.8(b).
(d) All actions, suits, proceedings, demands, assessments,
adjustments, costs and expenses (including specifically, but without
limitation, reasonable attorneys' fees and expenses of investigation)
incident to any of the foregoing.
7.2 LIMITATIONS ON SHAREHOLDERS' INDEMNITIES.
----------------------------------------
(a) The obligations of the Shareholders to indemnify the
United Indemnitees as provided in Section 7.1 shall be equal to the
amount by which the cumulative amount of all such liabilities, claims,
damages deficiencies, actions, suits, proceedings, demands,
assessments, adjustments, costs and expenses, expenditures and
Environmental Site Losses with respect to any or all Indemnity Events
exceed $100,000 (the "General Deductible Amount"); provided, that the
amount of any obligation of indemnity arising pursuant to Section 7.1
with respect to any representation, warranty or covenant contained in
Sections 3.1 through 3.5; and 3.12(c) hereof shall not be subject to
the General Deductible Amount and the amount of any indemnity
obligation arising pursuant to Section 3.9 or 3.22 with respect to
Claims based on the Inventory Value and the Equipment included on the
Rental Asset Listing shall be subject to the applicable amounts set
forth in Sections 1.4(b) and 1.4(c) in lieu of the General Deductible
Amount.
(b) The maximum amount which United can recover as a result of
one or more Indemnity Events pursuant to the provisions hereof for
Claims shall not in the aggregate exceed the Purchase Price.
(c) The obligations of the Shareholders under Section 7.1
shall expire, unless a Claims Notice is given or litigation is
commenced, on or prior to the expiration of the applicable statute of
limitations.
7.3 NOTICE OF INDEMNITY CLAIM.
-------------------------
(a) In the event that any claim ("Claim") is hereafter
asserted against or arises with respect to any United Indemnitee as to
which such Indemnitee may be entitled to indemnification hereunder, the
United Indemnitee shall notify the Shareholders (collectively, the
"Indemnifying Party") in writing thereof (the "Claims Notice") within
10 days after (i) receipt of written notice of commencement of any
third party litigation against such United Indemnitee, (ii) receipt by
such United Indemnitee of written notice of any third party claim
pursuant to an invoice, notice of claim or assessment, against such
United Indemnitee, or (iii) such United Indemnitee becomes aware of the
existence of any other event in respect of which indemnification may be
sought from the
26
<PAGE>
Indemnifying Party (including, without limitation, any inaccuracy of
any representation or warranty or breach of any covenant). The Claims
Notice shall describe the Claim and the specific facts and
circumstances in reasonable detail, and shall indicate the amount, if
known, or an estimate, if possible, of the losses that have been or may
be incurred or suffered by the United Indemnitee.
(b) The Indemnifying Party may elect to defend any Claim for
money damages where the cumulative total of all Claims (including such
Claims) do not exceed the limit set forth in Section 7.2 at the time
the Claim is made, by the Indemnifying Party's own counsel; provided,
however, the Indemnifying Party may assume and undertake the defense of
such a third party Claim only upon written agreement by the
Indemnifying Party that the Indemnifying Party is obligated to fully
indemnify the United Indemnitee with respect to such action. The United
Indemnitee may participate, at the United Indemnitee's own expense, in
the defense of any Claim assumed by the Indemnifying Party. Without the
written approval of the United Indemnitee, which approval shall not be
unreasonably withheld, the Indemnifying Party shall not agree to any
compromise of a Claim defended by the Indemnifying Party.
(c) If, within 30 days of the Indemnifying Party's receipt of
a Claims Notice, the Indemnifying Party shall not have provided the
written agreement required by Section 7.3(b) and elected to defend the
Claim, the United Indemnitee shall have the right to assume control of
the defense and/or compromise of such Claim, and the costs and expenses
of such defense, including reasonable attorneys' fees, shall be added
to the Claim. The Indemnifying Party shall promptly, and in any event
within 30 days after demand therefor, reimburse the United Indemnitee
for the costs of defending the Claim, including attorneys' fees and
expenses.
(d) The party assuming the defense of any Claim shall keep the
other party reasonably informed at all times of the progress and
development of its or their defense of and compromise efforts with
respect to such Claim and shall furnish the other party with copies of
all relevant pleadings, correspondence and other papers. In addition,
the parties to this Agreement shall cooperate with each other and make
available to each other and their representatives all available
relevant records or other materials required by them for their use in
defending, compromising or contesting any Claim. The failure to timely
deliver a Claims Notice or otherwise notify the Indemnifying Party of
the commencement of such actions in accordance with this Section 7.3
shall not relieve the Indemnifying Party from the obligation to
indemnify hereunder but only to the extent that the Indemnifying Party
establishes by competent evidence that it has been prejudiced thereby.
(e) In the event both the United Indemnitee and the
Indemnifying Party are named as defendants in an action or proceeding
initiated by a third party, they shall both be represented by the same
counsel (on whom they shall agree), unless such counsel, the United
Indemnitee, or the Indemnifying Party shall determine that such counsel
has a conflict of interest in representing both the United Indemnitee
and the Indemnifying Party
27
<PAGE>
in the same action or proceeding and the United Indemnitee and the
Indemnifying Party do not waive such conflict to the satisfaction of
such counsel.
7.4 SURVIVAL OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS. The
------------------------------------------------------
representations and warranties of the parties contained in this Agreement and in
any certificate, Exhibit or Schedule delivered pursuant hereto, or in any other
writing delivered pursuant to the provisions of this Agreement (the
"Representations and Warranties") and the liability of the party making such
Representations and Warranties for breaches thereof shall survive the
consummation of the transactions contemplated hereby.
7.5 NO EXHAUSTION OF REMEDIES OR SUBROGATION; RIGHT OF SET OFF.
----------------------------------------------------------
Each of the Shareholders waives any right to require any United Indemnitee to
(i) proceed against the Corporation; (ii) proceed against any other person; or
(iii) pursue any other remedy whatsoever in the power of any United Indemnitee.
United may, but shall not be obligated to, set off against any and all payments
due the Shareholders pursuant to the Hold Back or under any other agreement, any
amount to which any United Indemnitee is entitled to be indemnified hereunder
with respect to any Indemnity Event. Such right of set off shall be separate and
apart from any and all other rights and remedies that the Indemnities may have
against any of the Shareholders or his successors.
8. OTHER POST-CLOSING COVENANTS OF THE SHAREHOLDERS AND
----------------------------------------------------
UNITED
------
8.1 RESTRICTIVE COVENANTS. As to the Corporation, the Shareholders
---------------------
and their Affiliates acknowledge that (i) United, as the purchaser of the
Corporation's Stock, is and will be engaged in the same business as the
Corporation (the "Business"); (ii) the Shareholders and their Affiliates are
intimately familiar with the Business; (iii) the Business is currently conducted
in the State of California and United intends to continue the Business in
California and intends, by acquisition or otherwise, to expand the Business into
other geographic areas of California where it is not presently conducted; (iv)
the Shareholders and their Affiliates have had access to trade secrets of, and
confidential information concerning, the Business; (v) the agreements and
covenants contained in this Section 8.1 are essential to protect the Business
and the goodwill being acquired; and (vi) the Shareholders and their Affiliates
have the means to support themselves and their dependents other than by engaging
in a business substantially similar to the Business and the provisions of this
Section 8 will not impair such ability. Each of the Shareholders covenants and
agrees as set forth in (a), (b) and (c) below with respect to the Corporation:
(a) NON-COMPETE. For a period commencing on the Closing Date
-----------
and terminating five years thereafter (the "Restricted Period"),
neither the Shareholders nor any of their Affiliates shall, anywhere in
the counties of Alameda, Contra Costa, Marin, San Francisco, San
Joaquin, San Mateo, Santa Clara and Solano, California, or any other
county in California where United or one of its subsidiaries owns or
operates a business similar to the Business (meaning any location where
rental equipment is used by a customer) (the "Restricted Counties"),
directly or indirectly, acting individually or as the owner,
shareholder, partner, or employee of any entity, (i) engage in the
operation of
28
<PAGE>
any equipment rental, sales or leasing business; (ii) enter the employ
of, or render any personal services to or for the benefit of, or assist
in or facilitate the solicitation of customers for, or receive
remuneration in the form of salary, commissions or otherwise from, any
business engaged in such activities; or (iii) receive or purchase a
financial interest in, make a loan to, or make a gift in support of,
any such business in any capacity, including, without limitation, as a
sole proprietor, partner, shareholder, officer, director, principal,
agent, trustee or lender; provided, however, that the Shareholders may
own, directly or indirectly, solely as an investment, securities of any
business traded on any national securities exchange or NASDAQ, provided
that none of the Shareholders is a controlling person of, or a member
of a group which controls, such business and further provided that the
Shareholders do not, in the aggregate, directly or indirectly, own 2%
or more of any class of securities of such business.
(b) CONFIDENTIAL INFORMATION. During the Restricted Period and
------------------------
thereafter, the Shareholders and their respective Affiliates shall keep
secret and retain in strictest confidence, and shall not use for the
benefit of themselves or others, all data and information relating to
the Business ("Confidential Information"), including without
limitation, know-how, trade secrets, customer lists, supplier lists,
details of contracts, pricing policies, operational methods, marketing
plans or strategies, bidding information, practices, policies or
procedures, product development techniques or plans, and technical
processes; provided, however, that the term "Confidential Information"
shall not include information that (i) is or becomes generally
available to the public other than as a result of disclosure by the
Shareholders, or (ii) is general knowledge in the equipment rental,
sales or leasing business and not specifically related to the Business.
(c) PROPERTY OF THE BUSINESS. All memoranda, notes, lists,
------------------------
records and other documents or papers (and all copies thereof) relating
to the Business, including such items stored in computer memories, on
microfiche or by any other means, made or compiled by or on behalf of
the Shareholders or the Corporation or made available to them relating
to the Business, but excluding any materials (other than the minute
books of the Corporation) maintained by any attorneys for the
Corporation or the Shareholders prior to the Closing, are and shall be
the property of United and have been delivered or will be delivered or
made available to United at the Closing.
(d) NON-SOLICITATION. Without the consent of United, which may
----------------
be granted or withheld by United in its discretion, the Shareholders
and their Affiliates shall not solicit any employees of the Corporation
to leave the employ of the Corporation and join the Shareholders or any
Affiliate in any business endeavor owned or pursued by the
Shareholders.
(e) NO DISPARAGEMENT. From and after the Closing Date, the
----------------
Shareholders shall not, in any way or to any person or entity or
governmental or regulatory body or agency, denigrate or derogate United
or any of its subsidiaries, or any officer, director or employee, or
any product or service or procedure of any such company whether or not
such denigrating or derogatory statements shall be true and are based
on acts or omissions which are learned by the Shareholders from and
after the date hereof or on
29
<PAGE>
acts or omissions which occur from and after the date hereof, or
otherwise. A statement shall be deemed denigrating or derogatory to any
person or entity if it adversely affects the regard or esteem in which
such person or entity is held by investors, lenders or licensing,
rating, or regulatory entities. Without limiting the generality of the
foregoing, the Shareholders shall not, directly or indirectly in any
way in respect of any such company or any such directors or officers,
communicate with, or take any action which is adverse to the position
of any such company with any person, entity or governmental or
regulatory body or agency who or which has dealings or prospective
dealings with any such company or jurisdiction or prospective
jurisdiction over any such company. This paragraph does not apply to
the extent that testimony is required by legal process, provided that
United has received not less than five days' prior written notice of
such proposed testimony.
8.2 RIGHTS AND REMEDIES UPON BREACH. If any of the Shareholders or
-------------------------------
any of their Affiliates breaches, or threatens to commit a breach of, any of the
provisions of Section 8.1 herein (the "Restrictive Covenants"), United shall
have the following rights and remedies, each of which rights and remedies shall
be independent of the others and severally enforceable, and each of which is in
addition to, and not in lieu of, any other rights and remedies available to
United at law or in equity:
(a) SPECIFIC PERFORMANCE. The right and remedy to have the
--------------------
Restrictive Covenants specifically enforced by any court of competent
jurisdiction, it being agreed that any breach or threatened breach of
the Restrictive Covenants would cause irreparable injury to United and
that money damages would not provide an adequate remedy to United.
Accordingly, in addition to any other rights or remedies, United shall
be entitled to injunctive relief to enforce the terms of the
Restrictive Covenants and to restrain the Shareholders from any
violation thereof.
(b) ACCOUNTING. The right and remedy to require the
----------
Shareholders to account for and pay over to United all compensation,
profits, monies, accruals, increments or other benefits derived or
received by the Shareholders as the result of any transactions
constituting a breach of the Restrictive Covenants.
(c) SEVERABILITY OF COVENANTS. Each of the Shareholders
-------------------------
acknowledges and agrees that the Restrictive Covenants are reasonable
and valid in geographical and temporal scope and in all other respects.
If any court determines that any of the Restrictive Covenants, or any
part thereof, is invalid or unenforceable, the remainder of the
Restrictive Covenants shall not thereby be affected and shall be given
full effect, without regard to the invalid portions.
(d) BLUE-PENCILING. If any court determines that any of the
--------------
Restrictive Covenants, or any part thereof, is unenforceable because of
the duration or geographic scope of such provision, such court shall
reduce the duration or scope of such provision, as the case may be, to
the extent necessary to render it enforceable and, in its reduced form,
such provision shall then be enforced.
30
<PAGE>
(e) ENFORCEABILITY IN JURISDICTION. United and the
------------------------------
Shareholders intend to and hereby confer jurisdiction to enforce the
Restrictive Covenants upon the courts of any jurisdiction within the
geographic scope of the Restrictive Covenants. If the courts of any one
or more of such jurisdictions hold the Restrictive Covenants
unenforceable by reason of the breadth of such scope or otherwise, it
is the intention of United and the Shareholders that such determination
not bar or in any way affect United's right to the relief provided
above in the courts of any other jurisdiction within the geographic
scope of the Restrictive Covenants as to breaches of such covenants in
such other respective jurisdictions, such covenants as they relate to
each jurisdiction being, for this purpose, severable into diverse and
independent covenants.
9. GENERAL
-------
9.1 ASSIGNMENT. This Agreement shall be binding upon and shall
----------
inure to the benefit of the parties hereto, the successors or assigns of United
and the heirs, legal representatives or assigns of the Shareholders; provided,
however, that any such assignment shall be subject to the terms of this
Agreement and shall not relieve the assignor of its or his responsibilities
under this Agreement.
9.2 COUNTERPARTS. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original and all of which
together shall constitute one and the same instrument.
9.3 NOTICES. All notices, requests, demands and other
-------
communications hereunder shall be deemed to have been duly given if in writing
and either delivered personally, sent by facsimile transmission or by air
courier service, or mailed by postage prepaid registered or certified U.S. mail,
return receipt requested, to the addresses designated below or such other
addresses as may be designated in writing by notice given hereunder, and shall
be effective upon personal delivery or facsimile transmission thereof or upon
delivery by registered or certified U.S. mail or one business day following
deposit with an air courier service:
If to the Shareholders: Charles F. Journey
26487 Palomares Road
Castro Valley, CA 94522
Fax: (650) 967-2687
With a copy to: David S. Lee, Esq.
4962 El Camino Real, Suite 223
Los Altos, CA 94022
Fax: (650) 967-2687
If to United: United Rentals, Inc.
Four Greenwich Office Park
Greenwich, CT 06830
Attention: John Milne
Fax: (203) 622-6080
31
<PAGE>
With a copy to: Oscar D. Folger, Esq.
521 Fifth Avenue
New York, NY 10175
Fax: (212) 697-7833
and
Robert D. Evans, Esq.
Shartsis, Friese & Ginsburg LLP
One Maritime Plaza, 18th Floor
San Francisco, CA 94111
Fax: (415) 421-2922
9.4 ATTORNEYS' FEES. In the event of any dispute or controversy
---------------
between United on the one hand and the Corporation or the Shareholders on the
other hand relating to the interpretation of this Agreement or to the
transactions contemplated hereby, the prevailing party shall be entitled to
recover from the other party reasonable attorneys' fees and expenses incurred by
the prevailing party. Such award shall include post-judgment attorney's fees and
costs.
9.5 APPLICABLE LAW. This Agreement shall be governed by and
--------------
construed in accordance with the laws of the State of California without regard
to its conflict of laws provisions.
9.6 PAYMENT OF FEES AND EXPENSES. Whether or not the transactions
----------------------------
herein contemplated shall be consummated, each party hereto will pay its own
fees, expenses and disbursements incurred in connection herewith and all other
costs and expenses incurred in the performance and compliance with all
conditions to be performed hereunder (including, in the case of the
Shareholders, any such fees, expenses and disbursements paid or accrued by, or
charged to, the Corporation).
9.7 INCORPORATION BY REFERENCE. All Schedules and Exhibits
--------------------------
attached hereto are incorporated herein by reference as though fully set forth
at each point referred to in this Agreement.
9.8 CAPTIONS. The captions in this Agreement are for convenience
--------
only and shall not be considered a part hereof or affect the construction or
interpretation of any provisions of this Agreement.
9.9 NUMBER AND GENDER OF WORDS; CORPORATION. Whenever the singular
---------------------------------------
number is used herein, the same shall include the plural where appropriate, and
shall apply to all of such number, and to each of them, jointly and severally,
and words of any gender shall include each other gender where appropriate.
9.10 ENTIRE AGREEMENT. This Agreement (including the Schedules and
----------------
Exhibits hereto) and the other documents delivered pursuant hereto constitute
the entire Agreement and
32
<PAGE>
understanding between the Corporation, the Shareholders and United and
supersedes any prior agreement and understanding relating to the subject matter
of this Agreement. This Agreement may be modified or amended only by a written
instrument executed by the Corporation, the Shareholders and United acting
through its officers, thereunto duly authorized by its Board of Directors.
9.11 WAIVER. No waiver by any party hereto at any time of any
------
breach of, or compliance with, any condition or provision of this Agreement to
be performed by any other party hereto may be deemed a waiver of similar or
dissimilar provisions or conditions at the same time or at any prior or
subsequent time.
9.12 CONSTRUCTION. The language in all parts of this Agreement must
------------
be in all cases construed simply according to its fair meaning and not strictly
for or against any party. Unless expressly set forth otherwise, all references
herein to a "day" are deemed to be a reference to a calendar day. All references
to "business day" mean any day of the year other than a Saturday, Sunday or a
public or bank holiday in Connecticut or California. Unless expressly stated
otherwise, cross-references herein refer to provisions within this Agreement and
are not references to the overall transaction or to any other document.
10. ARBITRATION AND DISPUTE RESOLUTION. THE PARTIES WAIVE THEIR
----------------------------------
RIGHT TO SEEK REMEDIES IN COURT, INCLUDING ANY RIGHT TO A JURY TRIAL, WITH
RESPECT TO ANY DISPUTE CONCERNING DETERMINATION OF THE ADJUSTMENTS TO THE
PURCHASE PRICE UNDER SECTIONS 1.3 AND 1.4 ONLY. The parties agree that in the
event United and the Shareholders' Representative are unable to resolve a
dispute concerning determination of the Adjustments to the Purchase Price, such
dispute shall be resolved exclusively by arbitration to be conducted only in San
Francisco, California in accordance with the rules of the Judicial Arbitration
and Mediation Service ("JAMS") applying the laws of California. The parties
agree that such arbitration shall be conducted by a retired judge who is
experienced in dispute resolution regarding business acquisitions and accounting
matters, that discovery shall not be permitted except as required by the rules
of JAMS, that the arbitration award shall not include factual findings or
conclusions of law, and that no punitive damages shall be awarded. The parties
understand that any party's right to appeal or to seek modification of any
ruling or award of the arbitrator is severely limited. Any award rendered by the
arbitrator shall be final and binding, and judgment may be entered on it in any
court of competent jurisdiction as otherwise provided by law. The preceding
portion of this Section does not apply to any dispute relating to any other
provision of the Agreement, or to any other aspect of the transactions
contemplated herein, and such other disputes may be resolved by the parties by
any means available, including without limitation court action and a jury trial.
The parties expressly do not waive any right to pursue any remedy available with
respect to any dispute other than one concerning determination of the
Adjustments to the Purchase Price under Sections 1.3 and 1.4, and expressly do
not waive the right to trial with respect any other dispute.
33
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement by
persons thereunto duly authorized as of the date first above written.
THE CORPORATION: MISSION VALLEY RENTALS, INC.
By: /s/ Charles F. Journey
-------------------------------
Charles F. Journey
President
THE SHAREHOLDERS:
/s/ Charles F. Journey
------------------------------------
Charles F. Journey
/s/ Connie F. Journey
------------------------------------
Connie F. Journey
UNITED: UNITED RENTALS, INC.
By: /s/ John Milne
-------------------------------
John Milne, Vice Chairman and
Chief Acquisition Officer
34
<PAGE>
EXHIBIT 10(v)
UNITED RENTALS, INC.
UNITED RENTALS OF CANADA, INC.
BNR GROUP
SHAREHOLDERS
---------------------------------------
STOCK PURCHASE AGREEMENT
DATED ON AND AS OF JANUARY 22, 1998
---------------------------------------
HEENAN BLAIKIE
Suite 2600
Royal Bank Plaza, South Tower
Toronto, Ontario
M5J 2J4
<PAGE>
TABLE OF CONTENTS
Page
1. PURCHASE OF STOCK.....................................2
Shares to be Purchased.....................................2
1.2 Purchase Price...................................2
1.3 Adjustments to Purchase Price....................2
1.4 Hold Back........................................3
1.5 Additional Purchase Price........................6
1.6 Excluded Assets..................................6
2. CLOSING TIME AND PLACE................................6
3. REPRESENTATIONS AND WARRANTIES
OF THE BNR GROUP AND THE SHAREHOLDERS............6
3.1 Organization, Standing and Qualification.........7
3.2 Capitalization...................................7
3.3 All Stock Being Acquired.........................7
3.4 Authority for Agreement..........................7
3.5 No Breach or Default.............................7
3.6 Subsidiaries.....................................8
3.7 Financial Statements.............................8
3.8 Liabilities......................................8
3.9 Rental Asset Listing............................10
3.10 Permits and Licenses............................10
3.11 Certain Receivables.............................11
3.12 Fixed Assets and Real Property..................11
3.13 Acquisition/Disposal of Assets..................13
3.14 Contracts and Agreements; Adverse Restrictions..13
3.15 Insurance.......................................13
3.16 Personnel.......................................14
3.17 Benefit Plans and Union Contracts...............14
3.18 Tax Matters.....................................15
3.19 Copies Complete.................................18
3.20 Product Quality, Warranty Claims,
Product Liability..............................19
3.21 No Change With Respect to BNR Group.............19
3.22 Closing Date Debt, Effective Date
Current Assets and Effective Date
Current Liabilities............................21
3.23 Bank Accounts...................................21
3.24 Compliance With Laws............................21
3.25 Powers of Attorney..............................22
3.26 Underground Storage Tanks.......................22
i
<PAGE>
3.27 Patents, Trademarks, Trade Names, etc...........23
3.28 Assets, etc., Necessary to Business.............23
3.29 Condemnation....................................24
3.30 Manufacturers, Suppliers and Customers..........24
3.31 Absence of Certain Business Practices...........24
3.32 Related Party Transactions......................24
3.33 Disclosure Schedules............................24
3.34 No Misleading Statements........................24
3.35 Accurate and Complete Records...................25
3.36 Knowledge.......................................25
3.37 Brokers: Finders................................25
4. REPRESENTATIONS AND WARRANTIES OF UNITED.............25
4.1 Existence and Good Standing.....................25
4.2 No Contractual Restrictions.....................26
4.3 Authorization of Agreement......................26
4.4 No Misleading Statements........................26
4.5 Brokers: Finders................................26
4.6 Disclosure Schedules............................26
5. CLOSING DELIVERIES...................................26
5.1 United Deliveries...............................26
5.2 BNR Group and Shareholder Deliveries............27
6. ADDITIONAL COVENANTS OF UNITED, THE BNR GROUP AND
THE SHAREHOLDERS....................................28
6.1 Further Assurances and Additional Conveyances...28
6.2 Release of Guaranties...........................28
6.3 Confidentiality.................................28
6.4 Brokers' and Finders' Fees......................28
6.5 Taxes...........................................28
6.6 (a) Short Year Tax Returns......................29
7. INDEMNIFICATION......................................29
7.1 Indemnity by the Shareholder....................29
7.2 Limitations on Shareholders' Indemnities........31
7.3 Notice of Indemnity Claim.......................31
7.4 Survival of Representations, Warranties
and Agreements.................................33
7.5 No Exhaustion of Remedies or Subrogation:
Right of Set Off...............................33
ii
<PAGE>
8. OTHER POST-CLOSING COVENANTS OF THE SHAREHOLDERS AND
UNITED..........................................33
8.1 Restrictive Covenants...........................33
(a) Non-Compete................................34
(b) Confidential Information...................34
(c) Property of the Business..............34
(d) Non-Solicitation......................35
(e) Teremination Without Cause............35
(f) No Disparagement......................35
8.2 Rights and Remedies Upon Breach.................36
(a) Specific Performance..................36
(b) Accounting............................36
(c) Severability of Covenants.............36
Enforceability in Jurisdiction.......................36
9. GENERAL..............................................36
9.1 Assignment......................................36
9.2 Counterparts....................................37
9.3 Notices.........................................37
9.4 Attorneys' Fees.................................38
9.5 Applicable Law and Attornment...................38
9.6 Payment of Fees and Expenses....................38
9.7 Incorporation by Reference......................38
9.8 Captions........................................38
9.9 Number and Gender of Words......................38
9.10 Entire Agreement................................38
9.11 Waiver..........................................38
9.12 Construction....................................39
10. ARBITRATION AND DISPUTE RESOLUTION...................39
SCHEDULES
iii
<PAGE>
STOCK PURCHASE AGREEMENT
------------------------
THIS STOCK PURCHASE AGREEMENT, made on and as of January 22, 1998, is
entered into by and among: 1. United Rentals, Inc. ("United US"), a Delaware
corporation, and United Rentals of Canada, Inc. ("United Canada"), an Ontario
corporation and wholly owned subsidiary of United Rentals, Inc. (collectively
"United"); 2. BNR Equipment Limited, 650310 Ontario Limited, 754643 Ontario
Limited and 766903 Ontario Inc.(collectively "BNR Canada"); 3. BNR Equipment,
Inc. ("BNR US"); and 4. Boyd Bell and 1270983 Ontario Limited (a company wholly
owned and controlled by Boyd Bell), David Nigh and 1270982 Ontario Limited (a
company wholly owned and controlled by David Nigh), 1270984 Ontario Limited
("Holdco"), BNR Equipment Limited, Dean Bell, Steve Fay, John Folkerson, William
McArthur, John Goetz, Harley Goldsworthy, Kirby Shantz, Randy Speaker, James
Luft, Marilyn Nigh and Carolynn Bell (individually a "Shareholder" and
collectively the "Shareholders"). Each BNR Canada company, BNR US and Holdco may
be referred to individually as a "BNR Company" and collectively as the "BNR
Companies" or the "BNR Group". In addition, Messrs. Boyd Bell and David Nigh
may be referred to as the "Principal Shareholders".
WHEREAS BNR Canada is engaged in the equipment rental, sales and service
business in Ontario, Canada;
AND WHEREAS BNR US is engaged in the equipment rental, sales and service
business in the State of New York;
AND WHEREAS the Shareholders (other than Steve Fay) own all of the issued
and outstanding capital stock of BNR Canada (the "BNR Canada Stock");
AND WHEREAS BNR Equipment Limited, Dean Bell and Steve Fay own all of the
issued and outstanding capital stock of BNR US (the "BNR US Stock");
AND WHEREAS 1270982 Ontario Limited and 1270983 Ontario Limited own all of
the issued and outstanding capital stock of Holdco (the "Holdco Stock");
AND WHEREAS United Canada wishes to acquire the BNR Canada Stock from the
Shareholders (other than Steve Fay) and the Holdco Stock from 1270982 Ontario
Limited and 1270983 Ontario Limited;
AND WHEREAS United US wishes to acquire the BNR US Stock from BNR Equipment
Limited, Dean Bell and Steve Fay.
1
<PAGE>
NOW THEREFORE, in consideration of the mutual agreements, representations,
warranties, provisions and covenants herein contained, the parties hereto, each
intending to be bound hereby, agree as follows:
1. PURCHASE OF STOCK
-----------------
1.1 SHARES TO BE PURCHASED. At the Closing (as hereinafter defined):
----------------------
(i) BNR Equipment Limited, Dean Bell and Steve Fay shall first sell and deliver
the BNR US Stock to United US; and then (ii) the Shareholders (other than Steve
Fay) shall sell and deliver the BNR Canada Stock to United Canada. United US
and United Canada shall pay the purchase price described in Section (the
"Purchase Price") to the Shareholders, all in accordance with the allocations
set forth in Schedule 1.1.
1.2 PURCHASE PRICE. The Purchase Price is CAD26,900,000, subject to
--------------
adjustment as provided for in Sections and 1.5. The Purchase Price, as
adjusted, less the Hold Back (as defined in Section ) shall be paid as follows:
(i) CAD26,359,000 shall be paid in cash by wire transfer and (ii) United shall
issue an aggregate of 22,952 Common Shares, all in accordance with the
allocations set forth in Schedule 1.1. The Purchase Price shall be paid by
United to the Shareholders in accordance with the allocations set forth in
Schedule 1.1.
1.3 ADJUSTMENTS TO PURCHASE PRICE. The Purchase Price shall be adjusted
-----------------------------
as follows:
(a) The Closing Date Debt shall be subtracted from the Purchase Price.
The Closing Date Debt is set forth in Schedule 1.3(a) and includes: (i) the
amount of the aggregate debt (excluding trade payables) of the BNR Group
outstanding on the Closing Date to be repaid by United at or immediately
after the Closing Date and all prepayment penalties incurred or to be
incurred by United in connection with the repayment of any such debt as at
the Closing Date; (ii) the amount of the aggregate debt (excluding trade
payables) of the BNR Group outstanding on the Closing Date which will
remain outstanding obligations of the BNR Group after the Closing Date,
including in each case all interest accrued through to and including the
Closing Date; (iii) the aggregate amount of the present value of all
capitalized lease obligations (determined in accordance with generally
accepted accounting principles) of the BNR Group as at the Closing Date;
(iv) the aggregate amount of the present value, discounted at the lease
rate factor, if known, inherent in the lease or, if the lease rate factor
is not known, at the rate charged to the BNR Group by a third party lender
in connection with its most recent borrowing to finance equipment, of all
lease obligations of the BNR Group that are not capitalized lease
obligations as at the Closing Date; and (v) any bonuses payable to
employees other than included in Section 1.3(b). Schedule 1.3(a) includes
wire transfer instructions for creditors whose Closing Date Debt will be
repaid by United, and attached to Schedule 1.3(a) are pay-off letters or
instructions from such creditors.
2
<PAGE>
(b) The amount by which the working capital as at January 1, 1998 (the
"Effective Date Working Capital") is greater or less than zero shall be
added to or subtracted from the Purchase Price, as the case may be. The
Effective Date Working Capital shall be determined by subtracting the
Effective Date Current Liabilities from the Effective Date Current Assets.
The Effective Date Current Assets consist of the amount of the aggregate
current assets of the BNR Group as of the Effective Date (other than
accounts receivable and cash), including prepaid expenses plus the accounts
receivable of the BNR Group earned prior to the Effective Date and
collectible on or after the Effective Date (subject to an allowance for
collectibility), minus the Inventory Value of the merchandise set forth in
Schedule 1.3(c). The Effective Date Current Liabilities consist of the
amount of the aggregate current liabilities (including any reserve for
unpaid taxes and excluding the current portion of long-term debt to the
extent such current portion is included in Effective Date Debt) and trade
payables of the BNR Group as of the Effective Date. The Effective Date
Working Capital, the Effective Date Current Assets and the Effective Date
Current Liabilities are set forth in Schedule 1.3(b). For greater
certainty, the balances of any deferred taxes of the BNR Group at Closing
shall not include in the assets or liabilities to be added or deducted from
the Purchase Price. In addition, the cash balances of the BNR Group as at
the Closing Date shall be added to the Purchase Price.
(c) The Inventory Value (as defined below) of the merchandise held for
sale, which is set forth in Schedule 1.3(c), shall be added to or
subtracted from the Purchase Price.
(d) The invoice value of any new Equipment listed in Schedule 1.3(d),
which Equipment was not included in the Rental Asset Listing described in
Section because it was acquired by the BNR Group after the date of the
Rental Asset Listing with United's consent shall be added to the Purchase
Price less the net proceeds to the BNR Group received from the sale of
Equipment sold between the date of the Rental Asset Listing and the Closing
Date.
1.4 HOLD BACK.
---------
(a) Two million dollars (CAD$2,000,000) shall be held back by United
(the "Hold Back") for later distribution pending the determination of the
amount of the Equipment Adjustment, Inventory Adjustment and Working
Capital Adjustment pursuant to Sections , and , respectively. Subject to
the terms of an escrow agreement to be entered into among United, the
Shareholders and an escrow agent to be mutually agreed upon by such
parties, the Hold Back shall be deposited in a Canadian Schedule I bank and
bear interest for the account of the party entitled to payment thereof at
the highest rate available for 90 day deposits at such bank. United and
the Shareholders will use reasonable commercial efforts to complete the
Equipment Adjustment, the Inventory
3
<PAGE>
Adjustment and the Working Capital Adjustment within 90 days after the
Closing Date (the "Adjustment Determination Date"), whereupon United shall
notify the Shareholders of the amount of such Adjustments. If there is no
disagreement between United and the Shareholders regarding the Equipment
Adjustment, the Inventory Adjustment and the Working Capital Adjustment,
United will adjust the Hold Back by the amount of such Adjustments and pay
the balance of the Hold Back to the Shareholders 120 days after the Closing
Date (the "Hold Back Period"). In the event of any disagreement among
United and the Shareholders regarding the dollar amount of any such
adjustment, United shall nevertheless adjust the Hold Back by the amount of
such Adjustments not in dispute and will pay the Shareholders any portion
of the Hold Back, as adjusted, that is not in dispute. Promptly upon
resolution of any such disagreement in accordance with the terms hereof,
United shall adjust the remaining portion of the Hold Back and shall pay
the Shareholders any remaining portion of the Hold Back, as adjusted, to
which the Shareholders are entitled. Notwithstanding the foregoing, United
shall not be limited to the Hold Back as a sole remedy in the event that
any Purchase Price adjustment exceeds the Hold Back.
(b) The Rental Asset Listing attached as Schedule 1.4(b) sets forth,
as of October 31, 1997, the asset description, make, model, original cost
and net book value of: (i) all equipment held for lease or rent to
customers; (ii) all transportation equipment (collectively the
"Equipment"); and (iii) equipment held for repair parts only. The
Equipment is Rental Ready (as defined below). Within 30 days following the
Closing Date, United and the Shareholders jointly shall complete a physical
inventory of each item of Equipment on the Rental Asset Listing and on
Schedule 1.3(d), including by visiting renters' locations as necessary to
inspect such Equipment. The Purchase Price shall be reduced (the
"Equipment Adjustment") for each item of Equipment listed on the Rental
Asset Listing on Schedule 1.3(d) which has been sold, is missing, is not
Rental Ready, or is otherwise not available for rent to customers by the
BNR Group. The reduction in the Purchase Price shall be calculated by the
aggregate fair market value (as determined by United and the Shareholders)
of all missing or unavailable Equipment, and by the net proceeds to the BNR
Group received from the sale of Equipment sold between the date of the
Rental Asset Listing and the Closing Date. With respect to non-Rental
Ready Equipment, the Purchase Price shall be adjusted by an amount equal to
the lesser of the cost of repairs and the fair market value of such
Equipment as if it was in reasonable operating condition. In the event of
a Purchase Price reduction due to an Equipment Adjustment, United shall be
entitled to retain a portion of the Hold Back equal to such reduction. For
purposes of this Agreement, an item of Equipment is "Rental Ready" only if
all required maintenance has been performed and it does not require repairs
in excess of 2.5% of the original cost to make it operable. Any disputes
as to the physical count, fair market value or Rental Readiness of any item
of Equipment will, if possible, be resolved while the physical inventory of
such Equipment is being taken. Any disputes not so resolved will be
resolved by arbitration in accordance with Section 10.
4
<PAGE>
In the event Equipment is not Rental Ready and an adjustment is
required hereunder, the Principal Shareholders may elect, on behalf of all
the Shareholders, on or before the Adjustment Determination Date, to either
(i) make, or have made, at their expense the repairs required to make such
Equipment Rental Ready; or (ii) purchase such Equipment at the fair market
value of such Equipment as if it was in reasonable operating condition.
(c) The Purchase Price shall be adjusted (the "Inventory Adjustment")
on a dollar-for-dollar basis pursuant to the procedures set forth below by
the amount, if any, by which the Inventory Value of the merchandise
included in Schedule 1.3(c) as of the Closing Date is greater or less than
the amount set forth in Schedule 1.3(c). "Inventory Value" shall mean the
lower of (x) vendor cost based on the last merchandise received (including
all freight) and (y) market value as of the Effective Date, as determined
in accordance with generally accepted accounting principles (no value shall
be ascribed to non-saleable or obsolete merchandise, parts or supplies).
Inventory Value shall be determined pursuant to a physical inventory to be
taken promptly following the Closing Date, and shall be finalized on or
before the Adjustment Determination Date. Any disputes as to the physical
condition, saleability or obsolescence of any item of Inventory will, if
possible, be resolved by representatives of United and the Shareholder
while such physical inventory is being taken. Any disputes regarding the
foregoing not so resolved will be resolved by arbitration in accordance
with Section .
(d) The adjustment made to the Purchase Price wired on the Closing
Date pursuant to Section is based on Schedule 1.3(b) as delivered at the
Closing, which the parties understand includes only an estimate of the
Effective Date Working Capital. On or before the Adjustment Determination
Date, United will determine the actual Effective Date Working Capital and
will advise the Shareholder of such actual amount. If the Purchase Price
increases, United will promptly pay any additional amount due to the
Shareholder on the Adjustment Determination Date; if the Purchase Price
declines, United may deduct the amount by which the Purchase Price declines
from the Hold Back. To the extent the parties disagree on such amount,
United and the Shareholder will attempt to resolve such dispute and, if
they are unable to do so, such dispute shall be decided by arbitration in
accordance with Section . The Purchase Price shall also be reduced on the
Adjustment Determination Date, on a dollar-for-dollar basis, by the value
of all accounts receivable included in Effective Date Current Assets that
have not been collected on or before the Adjustment Determination Date.
United will cause the BNR Group to use commercially reasonable efforts to
collect all such accounts receivable on or before the Adjustment
Determination Date. Payments received on or before the Adjustment
Determination Date with respect to accounts receivable for customers who
generate accounts receivable before and after the Closing Date shall be
credited to the oldest receivables first until the payments have been fully
credited. The adjustments pursuant to this Section 1.4(d) are herein
called the "Working Capital Adjustment." Any accounts receivable which
remain uncollected at the
5
<PAGE>
end of the Hold Back Period shall be assigned and allocated to the
Shareholders on a pro rata basis as set forth in Schedule 1.2.
1.5 ADDITIONAL PURCHASE PRICE.
-------------------------
In addition, for the period commencing January 1, 1998 and ending
December 31, 2001, United shall pay the Principal Shareholders an amount
equal to:
(i) 5% of any gross rental revenue which United or any subsidiary or
affiliate thereof, generates in the Province of Ontario and
Metropolitan Buffalo; and
(ii) 2.5% of any gross revenue from the sale of new or used equipment
or supplies, which United or any subsidiary or affiliate thereof
generates in the Province of Ontario and Metropolitan Buffalo.
Payments under this Section 1.5 shall be made on a quarterly basis within 30
days of the end of the preceding calendar quarter and shall continue until the
earlier of December 31, 2001 or until payments hereunder total CAD$4,000,000 in
the aggregate (for greater certainty, the parties acknowledge that a payment may
need to be made on or before March 30, 2002 with respect to the fiscal quarter
ended December 31, 2001).
1.6 EXCLUDED ASSETS. The assets of the BNR Group listed in Schedule 1.6
---------------
(the "Excluded Assets") shall be distributed to the Shareholders prior to
Closing in accordance with the steps set forth in Schedule 3.18(l), and United
shall acquire no interest in or claim to any of the Excluded Assets.
2. CLOSING TIME AND PLACE
----------------------
The closing of the transactions contemplated herein (the "Closing") shall
take place upon the execution of this Agreement in the following sequence:
firstly, the BNR US Stock shall be transferred and delivered to United US; and
secondly, the BNR Canada Stock and Holdco Stock shall be transferred and
delivered to United Canada, all on and as of the date first written above (the
"Closing Date"). The Closing shall take place at the offices of Heenan Blaikie,
Suite 2600, South Tower, Royal Bank Plaza, Toronto, Ontario M5J 2J7. At the
Closing, United, BNR Group and the Shareholders shall deliver to each other the
documents, instruments and other items described in Section 5 of this Agreement.
3. REPRESENTATIONS AND WARRANTIES
------------------------------
OF THE BNR GROUP AND THE SHAREHOLDERS
-------------------------------------
6
<PAGE>
Each BNR Company and the Shareholders, jointly and severally, (i) represent
and warrant to United that each of the following representations and warranties
is true and correct as of the Closing Date with respect to each BNR Company and
each Shareholder, as the case may be, and (ii) agree that such representations
and warranties shall survive the Closing.
3.1 ORGANIZATION, STANDING AND QUALIFICATION. Each BNR Company is duly
----------------------------------------
organized, validly existing and in good standing under jurisdiction of its
incorporation. Each BNR Company has full corporate power and authority to own
and lease its properties and to carry on its business as now conducted. No BNR
Company is required to be qualified or licensed to conduct business as a foreign
corporation in any other jurisdiction.
3.2 CAPITALIZATION. Schedule 3.2 sets forth, as of the Closing Date, the
--------------
authorized and outstanding capital stock of each BNR Company, the name,
addresses and social security numbers or taxpayer identification numbers of the
registered and beneficial owners thereof, and the number of shares so owned. On
the Closing Date, all of the issued and outstanding shares of the capital stock
of the BNR Group were owned of record and beneficially by the Shareholders, as
set forth in Schedule 3.2, and were free and clear of all liens, security
interests, encumbrances and claims of every kind. Each share in the capital
stock of a BNR Company is validly authorized and issued, fully paid and
nonassessable, and was not issued in violation of any preemptive rights of any
past or present shareholder of a BNR Company. Except as disclosed on Schedule
3.5, no option, warrant, call, conversion right or commitment of any kind
(including any of the foregoing created in connection with any indebtedness of a
BNR Company) exists which obligates a BNR Company to issue any of its authorized
but unissued capital stock or other equity interest, or which obligates a
Shareholder to transfer any BNR Shares to any person.
3.3 ALL STOCK BEING ACQUIRED. The BNR US Stock, BNR Canada Stock and the
------------------------
Holdco Stock being acquired by United hereunder constitutes all of the
outstanding capital stock of the BNR Companies.
3.4 AUTHORITY FOR AGREEMENT. Each BNR Company and Shareholder has full
-----------------------
right, power and authority to enter into this Agreement and to perform its his
or her obligations hereunder. The execution and delivery of this Agreement by
the BNR Companies has been duly authorized by its Board of Directors or
Shareholders as the case may be. This Agreement has been duly and validly
executed and delivered by each BNR Company and the Shareholders and, subject to
the due authorization, execution and delivery by United, constitutes the legal,
valid and binding obligation of each BNR Company and the Shareholders
enforceable against each BNR Company and the Shareholders in accordance with its
terms.
3.5 NO BREACH OR DEFAULT. Except as disclosed in Schedule 3.5, the
--------------------
execution and delivery by a BNR Company and the Shareholders of this Agreement,
and the consummation by the
7
<PAGE>
BNR Group and the Shareholders of the transactions contemplated hereby, do not
and will not:
(a) result in the breach of any of the terms or conditions of, or
constitute a default under, or allow for the acceleration or termination
of, or in any manner release any party from any obligation under, require
any consent under, result in any lien, claim, or encumbrance on the stock
or the assets of a BNR Company under any mortgage, lease, note, bond,
indenture, or material contract, agreement, license or other instrument or
obligation of any kind or nature to which a BNR Company or a Shareholder is
a party, or by a BNR Company, or by which any of its assets, is or may be
bound or affected;
(b) violate any law or any order, writ, injunction or decree of any
court, administrative agency or governmental authority, or require the
approval, consent or permission of any governmental or regulatory
authority; or
(c) violate the Articles of Incorporation, Bylaws or other constating
documents of or relating to a BNR Company.
3.6 SUBSIDIARIES. Schedule 3.6 lists, as of the Closing Date, any and all
------------
subsidiaries of a BNR Company and any securities of any other corporation or any
securities or other interest in any other business entity owned by a BNR Company
or any of its subsidiaries.
3.7 FINANCIAL STATEMENTS. BNR Group has delivered to United, as Schedule
--------------------
3.7, copies of the following financial statements ("Financial Statements"):
financial statements for the fiscal years ended March 31, 1996 and 1997,
compiled by KPMG, Chartered Accountants, and unaudited interim Financial
Statements for the BNR Group for the 10 month period ended October 31, 1997 (the
"Balance Sheet Date"). The Financial Statements are true and correct and fairly
present (i) the financial position of the BNR Group as of the respective dates
of the balance sheets included in said statements, and (ii) the results of
operations for the respective periods indicated. The Financial Statements have
been prepared in accordance with generally accepted accounting principles,
applied consistently with prior periods. Except to the extent reflected or
reserved against in the BNR Group balance sheet as of the Balance Sheet Date, or
as disclosed in Schedule 3.7 or Schedule 3.8, the BNR Group had, as of the
Balance Sheet Date, and had, as of the Closing Date, no liabilities of any
nature, whether accrued, absolute, contingent or otherwise, including, without
limitation, tax liabilities due.
3.8 LIABILITIES. Schedules 3.8(a), (b), (c) and (d), are accurate lists
-----------
and descriptions of all liabilities of the BNR Group required to be described
below in the format set forth below.
(a) Schedule 3.8(a) lists, as of the Closing Date, other than with
respect to trade payables and, as of the Effective Date with respect to
trade payables, all indebtedness for money borrowed and all other fixed and
uncontested liabilities of any kind, character and description (excluding
all real and personal property leasehold interests included in Schedule
8
<PAGE>
3.8 (d)), whether reflected or not reflected on the Financial Statements
and whether accrued or absolute, and states as to each such liability the
amount of such liability and to whom the liability is payable. From the
date as of which trade payables are listed through the Closing Date, trade
payables have been incurred only in the ordinary course of business
consistent with comparable prior periods.
(b) Schedule 3.8(b) lists, as of the Closing Date, all claims, suits
and proceedings which are pending against the BNR Group and, to the
knowledge of the BNR Group and the Shareholders, all contingent liabilities
and all claims, suits and proceedings threatened against the BNR Group.
For each such liability, the following is provided in Schedule 3.8(b):
(i) a summary description of such liability together with copies
of all material documents, reports and other records relating thereto;
(ii) all amounts claimed or relief sought with respect to such
liability and the identity of the claimant; and
(iii) without limitation of the foregoing, (A) the name of each
court, agency, bureau, board or body before which any such claim, suit
or proceeding is pending, (B) the date such claim, suit or proceeding
was instituted, (C) the parties to such claim, suit or proceeding, (D)
a description of the factual basis alleged to underlie such claim,
suit or proceeding, including the date or dates of all material
occurrences, (E) the amount claimed and other relief sought, and (F)
all material pleadings, briefs and other documents relating thereto to
the extent the same are in the possession or under the control of the
BNR Group or the Shareholders.
(c) Schedule 3.8(c) lists, as of the Closing Date and to the extent
not otherwise included in Schedule 3.8(a), all liens, claims and
encumbrances secured by or otherwise affecting any asset of the BNR Group
(including any Corporate Property, as hereafter defined), including a
description of the nature of such lien, claim or encumbrance, the amount
secured if it secures a liability, the nature of the obligation secured,
and the party holding such lien, claim or encumbrance.
(d) Schedule 3.8(d) lists, as of the Closing Date and to the extent
not otherwise included in Schedules 3.8(a) and (c), all real and personal
property leasehold interests to which the BNR Group is a party as lessor or
lessee or, to the knowledge of the BNR Group or the Shareholders, affecting
or relating to any Corporate Property, including a description of the
nature and principal terms of such leasehold interest and the identity of
the other party thereto.
9
<PAGE>
Except as described on Schedules 3.8(a), (b), (c) and (d), neither the
BNR Group nor the Shareholders have made any payment or committed to make
any payment since the Balance Sheet Date on or with respect to any of the
liabilities or obligations listed in Schedule 3.8(a), (b), (c) and (d)
except, in the case of liabilities and obligations listed in Schedule
3.8(a), (c) and (d), periodic payments required to be made under the terms
of the agreements or instruments governing such obligations or liabilities.
3.9 RENTAL ASSET LISTING. The Rental Asset Listing attached as Schedule
--------------------
1.4(b) lists all of the Equipment owned by the BNR Group for lease or rent to
customers and all transportation equipment, other than Equipment acquired after
October 31, 1997, the date of the Rental Asset Listing. All other Equipment
acquired or disposed of after October 31, 1997 is listed in Schedule 1.3(d).
3.10 PERMITS AND LICENSES.
--------------------
(a) Schedule 3.10(a) is a full and complete list, and includes copies,
of all material permits, licenses, titles (including motor vehicle titles
and current registrations), fuel permits, zoning and land use approvals and
authorizations, including, without limitation, any conditional or special
use approvals or zoning variances, occupancy permits, and any other similar
documents constituting a material authorization or entitlement or otherwise
material to the operation of the business of the BNR Group (collectively
the "Governmental Permits") owned by, issued to, held by or otherwise
benefiting the BNR Group or the Shareholders as of the Closing Date. Any
material conditions to the Governmental Permits and, if applicable, the
expiration dates thereof, are also described in Schedule 3.l0(a). Schedule
3.l0(a) also sets forth the name of any third party from whom the
Shareholder, the BNR Group or United must obtain consent (the "Required
Governmental Consents") in order to effect a direct or indirect transfer of
the Governmental Permits required as a result of the consummation of the
transactions contemplated by this Agreement. Except as set forth in
Schedule 3.10(a), all of Governmental Permits enumerated and listed in
Schedule 3.l0(a) are adequate for the operation of the business of the BNR
Group and of each Corporate Property as presently operated and are valid
and in full force and effect. All of said Governmental Permits and
agreements have been duly obtained and are in full force and effect, and
there are no proceedings pending or, to the knowledge of the BNR Group or
the Shareholders, threatened which may result in the revocation,
cancellation, suspension or adverse modification of any of the same.
Neither the BNR Group nor the Shareholders have any knowledge of any reason
why all such Governmental Permits and agreements will not remain in effect
after consummation of the transactions contemplated hereby.
(b) Schedule 3.10(b) lists, as of the Closing Date, each Facility
owned, previously owned, leased, operated or otherwise used by the BNR
Group, the ownership, lease, operation or use of which is being transferred
to, assumed by or otherwise acquired directly
10
<PAGE>
or indirectly by United pursuant to this Agreement (each, a "Facility" and
collectively, the "Facilities"). Except as otherwise disclosed in Schedule
3.l0(b):
(i) each Facility is fully licensed, permitted and authorized to
carry on its current business under all applicable federal, state,
provincial and local statutes, orders, approvals, zoning or land use
requirements, rules and regulations and there is no non-conforming use
or other activities subject to any restrictions regarding
reconstruction;
(ii) all activities and operations at each Facility are being and
have been conducted in compliance in all material respects with the
requirements, criteria, standards and conditions set forth in all
applicable federal, state, provincial and local statutes, orders,
approvals, permits, zoning or land use requirements and restrictions,
variances, licenses, rules and regulations;
(iii) each Facility is located on real property owned,
previously owned or leased by a BNR Company ("Facility Property") and
is legally described in Schedule 3.l0(b), which Schedule includes the
surveys and site plans in the possession or control of the BNR Group
(the "Facility Surveys/Site Plans"), which when delivered will
accurately depict the respective Facility Property; and
(iv) there are no circumstances, conditions or reasons which are
likely to be the basis for revocation or suspension of any Facility's
site assessments, permits, licenses, consents, authorizations, zoning
or land use permits, variances or approvals relating to such Facility
owned by a BNR Company or the Shareholders or an Affiliate (as
hereinafter defined) of the Shareholders and leased to a BNR Company,
and to the knowledge of the BNR Group and the Shareholders there are
no circumstances, conditions or reasons which are likely to be the
basis for revocation or suspension of any site assessment, permits,
licenses, consents, authorizations, zoning or land use permits,
variances or approvals relating to the Facilities.
3.11 CERTAIN RECEIVABLES. Schedule 3.11 is an accurate list as of the
-------------------
Effective Date of the accounts and notes receivable of the BNR Group from and
advances to employees, former employees, officers, directors, the Shareholders
and Affiliates of the foregoing. For purposes of this Agreement, the term
"Affiliate" means, with respect to any person, any person that directly or
indirectly through one or more intermediaries controls, or is controlled by, or
is under common control with such person, and in the case of a BNR Company
includes directors and officers, in the case of individuals includes the
individual's spouse, father, mother, grandfather, grandmother, brothers,
sisters, children and grandchildren and in the case of a trust includes the
grantors, trustees and beneficiaries of the trust.
11
<PAGE>
3.12 FIXED ASSETS AND REAL PROPERTY.
------------------------------
(a) Schedule 3.12(a) lists, as of the Closing Date, substantially all
the fixed assets (other than real estate, inventory subject to the
Inventory Adjustment and Equipment included in the Rental Asset Listing or
in Schedule 1.3(d)) of the BNR Group, including, without limitation,
identification of each vehicle by description and serial number,
identification of machinery, equipment and general descriptions of parts,
supplies and inventory. Except as shall be described in Schedule 3.12(a),
to the knowledge of the BNR Group and the Shareholders, all of the BNR
Group's vehicles, machinery and equipment necessary for the operation of
its business (other than the Equipment listed in Schedule 1.3(d) and the
Rental Asset Listing) are in operable condition, and are in material
compliance with all applicable laws, rules and regulations. All such
vehicles and equipment (including the Equipment) are substantially free of
actually known defects that would cause them to fail. All leases of fixed
assets are in full force and effect and binding upon the parties thereto;
neither the BNR Group nor any other party to such leases is in breach of
any of the material provisions thereof.
(b) Each parcel of real property leased, owned or being purchased by
the BNR Group as of the Closing Date (the "Corporate Property"), including
the street address and, in the case of Corporate Property owned or being
purchased, the legal description thereof, is listed in Schedule 3.12(b) and
attached to said Schedule 3.12(b) are copies of all leases, deeds,
outstanding mortgages, other encumbrances and existing title insurance
policies relating to each Corporate Property, as well as a current
commitments for title insurance issued by a title insurance company
satisfactory to United with respect to each Corporate Property owned or
being purchased by the BNR Group together with copies of all of the title
exceptions referred to in said commitments. All leases listed in Schedule
3.12(b) are in full force and effect and binding on the parties thereto.
Except as described in Schedule 3.12(b) there are no material physical or
mechanical defects in or any Facility located on any Corporate Property and
each such Facility is in good condition and repair.
(c) The BNR Group has good, valid and marketable title to all
properties and assets, real, personal, and mixed, tangible and intangible,
actually used or necessary for the conduct of its business, free of any
encumbrance or charge of any kind except: (i) liens for current taxes not
yet due; (ii) minor imperfections of title and encumbrances, if any, that
are not substantial in amount, do not materially detract from the value of
the property subject thereto, do not materially impair the value of the BNR
Group, and have arisen only in the ordinary course of business and
consistent with past practice; and (iii) the liens identified in Schedule
3.8(c) (collectively, the "Permitted Liens"). Except as described in
Schedule 3.12(b) there are no leases, occupancy agreements, options, rights
of first refusal or any other agreements or arrangements, either oral or
written, that create or confer in any person or entity the right to
acquire, occupy or possess, now or in the future, any Facility, any
12
<PAGE>
Corporate Property, or any portion thereof, or create in or confer on any
person or entity any right, title or interest therein or in any portion
thereof.
3.13 ACQUISITION/DISPOSAL OF ASSETS. Except as indicated in Schedule
------------------------------
3.13, since the date of the Rental Asset Listing attached as Schedule 1.4(b),
the BNR Group has not acquired or sold or otherwise disposed of any properties
or assets which have a value in excess of $25,000 in the aggregate, or which are
material to the operation of the BNR Group's business as presently conducted,
without the prior written consent of United.
3.14 CONTRACTS AND AGREEMENTS; ADVERSE RESTRICTIONS.
----------------------------------------------
(a) Schedule 3.14(a) lists, as of the Closing Date, and includes
copies of, all material contracts and agreements (other than standard
rental agreements with customers, a copy of which is attached as Schedule
3.14(a)), leases included with Schedule 3.12(b) and documents included with
Schedule 3.12(b)) to which a BNR Company is a party or by which it or any
of its property is bound (including, but not limited to, joint venture or
partnership agreements, contracts with any labour organizations, promissory
notes, loan agreements, bonds, mortgages, deeds of trust, liens, pledges,
conditional sales contracts or other security agreements). Except as
disclosed in Schedule 3.14(a), all such contracts and agreements included
in Schedule 3.14(a) are in full force and effect and binding upon the
parties thereto. Except as described or cross referenced in Schedule
3.14(a), no BNR Company, to the Shareholders' knowledge, any other parties
to such contracts and agreements is in breach thereof, and none of the
parties has threatened to breach any of the material provisions thereof or
notified the BNR Group or any Shareholder of a default thereunder, or
exercised any options thereunder. None of such contracts, agreements and
licenses requires notice to, or consent or approval of, any third party to
any of the transactions contemplated hereby, except such consents and
approvals as are listed in Schedule 3.14(a).
(b) Except as set forth in Schedule 3.14(b), there is no outstanding
judgment, order, writ, injunction or decree against the BNR Group, the
result of which could materially adversely affect a BNR Company or its
business or any of the Corporate Properties, nor has any BNR Company been
notified that any such judgment, order, writ injunction or decree has been
requested.
3.15 INSURANCE. Schedule 3.15 is a complete list and includes copies, as
---------
of the Closing Date, of all insurance policies in effect on the Closing Date or,
with respect to "occurrence" policies that were in effect, carried by the BNR
Group in respect of the Facilities, the Corporate Properties or any other
property used by the BNR Group specifying, for each policy, the name of the
insurer, the type of risks insured, the deductible and limits of coverage, and
the annual premium therefor. During the last five years, there has been no lapse
in any material insurance coverage of the BNR Group. For each insurer providing
coverage for any of the contingent or other liabilities listed in
13
<PAGE>
Schedule 3.8(b), except to the extent otherwise set forth in Schedule 3.8(b),
each such insurer, if required, has been properly and timely notified of such
liability, no reservation of rights letters have been received by the BNR Group
or a BNR Company and the insurer has assumed defence of each suit or legal
proceeding.
3.16 PERSONNEL. Schedule 3.16 is a complete list, as of the Closing Date,
---------
of all officers, directors and employees (by type or classification) of each BNR
Company and their respective rates of compensation, including (i) the portions
thereof attributable to bonuses, (ii) any other salary, bonus, stock option,
equity participation, or other compensation arrangement made with or promised to
any of them, and (iii) copies of all employment agreements with non-union
officers, directors and employees. Schedule 3.16 shall also lists the driver's
license number for each driver of a BNR Group motor vehicle who is required to
have a commercial, chauffeur's, or other special class of drivers license in
order to operate commercial or heavy vehicles used in the BNR Group's business.
3.17 BENEFIT PLANS AND UNION CONTRACTS.
---------------------------------
(a) Schedule 3.17(a) is a complete list as of the Closing Date, and
includes complete copies (or, in the case of oral arrangements,
descriptions), of all employee benefit plans and agreements (written or
oral) currently maintained or contributed to by a BNR Company, including
employment agreements and any other agreements containing "golden
parachute" provisions, retirement plans, welfare benefit plans and deferred
compensation agreements, together with copies of such plans, agreements and
any trusts related thereto, and classifications of employees covered
thereby as of the Closing Date. Except for the employee benefit plans
described in Schedule 3.17(a), the BNR Group has no other pension,
retirement, welfare, profit sharing, deferred compensation, stock option,
employee stock purchase or other employee benefit plans or arrangements
with any party. Except as disclosed in Schedule 3.17(a), all employee
benefit plans listed in Schedule 3.17(a) are fully funded and in
substantial compliance with all applicable federal, state, provincial and
local statutes, ordinances and regulations. Except as disclosed in
Schedule 3.17(a), all reports and other documents required to be filed with
any governmental agency or distributed to plan participants or
beneficiaries (including, but not limited to, actuarial reports, audits or
tax returns) have been timely filed or distributed, and copies thereof are
included as part of Schedule 3.17(a). All employee benefit plans listed on
such Schedule have been operated in accordance with the terms and
provisions of the plan documents and all related documents and policies.
The BNR Group has not sponsored, administered or otherwise participated in
or made contributions to any multi-employer pension plan or other pension
plan that is registered (or that should be registered) with the Ontario
Pension Commission or with any other regulatory authority in Canada or the
United States. No employee benefit plan or pension plan is under funded on
a termination basis or on a going concern basis as of the date of this
Agreement.
14
<PAGE>
(b) Schedule 3.17(b) is a complete list, as of the Closing Date, and
includes complete copies of all union contracts and agreements between a
BNR Company and any collective bargaining group. The BNR Group is in
compliance in all material respects with all applicable federal, state,
provincial and local laws respecting employment and employment practices,
terms and conditions of employment, wages and hours, and nondiscrimination
in employment, and is not engaged in any unfair labour practice. There is
no charge pending or, to the BNR Group's or the Shareholders' knowledge,
threatened, against a BNR Company before any court or agency and alleging
unlawful discrimination in employment practices and there is no charge of
or proceeding with regard to any unfair labour practice against it pending
before the Ontario Labour Relations Board. There is no labour strike,
dispute, slow down or stoppage as of the Closing Date, existing or
threatened against a BNR Company; no union organizational activity exists
respecting employees of a BNR Company; and there are no union contracts or
other agreements entered into or pending with respect to a BNR Company. No
one has petitioned within the last five years, and no one is now
petitioning, for union representation of any employees of a BNR Company.
The BNR Group has not experienced any labour strike, slow-down, work
stoppage, labour difficulty or other job action during the last five years.
(c) For greater certainty, no notice has been received by the BNR
Group of any complaint filed by any of the employees against a BNR Company
claiming that any BNR Company has violated the EMPLOYMENT STANDARDS ACT
(Ontario), the HUMAN RIGHTS CODE (Ontario), the PAY EQUITY ACT (Ontario)
(or any applicable employee, human rights or similar legislation in the
other jurisdictions in which the business is conducted) there are no
outstanding orders or charges against any BNR Company under the
OCCUPATIONAL HEALTH AND SAFETY ACT (Ontario) (or any applicable Health and
Safety legislation in other jurisdictions in which the BNR Group does
business). All levies, assessments and penalties made against any BNR
Company pursuant to the WORKPLACE SAFETY AND INSURANCE ACT (Ontario) (and
any applicable workers' compensation legislation in the other jurisdictions
in which the BNR Group's business is conducted) have been paid by BNR Group
and no BNR Company has been re-assessed under any such legislation during
the past five (5) years.
3.18 TAX MATTERS.
-----------
(a) Definitions. For purposes of this Agreement, the following
-----------
definitions shall apply:
(i) an "assessment" shall include a reassessment or additional
----------
assessment and the term "assessed" shall be interpreted in the same
--------
manner.
(ii) "Pre-Closing Distribution" means the distribution of the
------------------------
Excluded Assets to the Shareholders prior to the Closing Date as set
out in schedule 3.18(l)
15
<PAGE>
hereof.
(iii) "Closing Balance Sheet" means the unaudited consolidated
---------------------
balance sheet for the BNR Group for the period ending on the Closing
Date, which statement shall be prepared in accordance with GAAP and in
a manner that is consistent with the past practices of the BNR Group.
(iv) "Tax" and "Taxes" shall mean any or all Canadian federal,
--- -----
provincial, local or foreign (ie. non-Canadian) income, gross
receipts, real property gains, goods and services, license, payroll,
employment, excise, severance, stamp, occupation, premium, windfall
profits, environmental, customs duties, capital stock, franchise,
profits, withholding, social security (or similar), unemployment,
disability, real property, personal property, sales, use, transfer,
registration, value added, alternative or add-on minimum, or other
taxes, levies, governmental charges or assessments of any kind
whatsoever, including, without limitation, any estimated tax payments,
interest, penalties or other additions thereto, whether or not
disputed.
(v) "Tax Return" shall mean any return, declaration, report,
----------
estimate, information return or statement, or claim for refund
relating to, or required to be filed in connection with any Taxes,
including information returns or reports with respect to withholding
at source or payments to third parties, and any schedules or
attachments thereto or amendments of any of the foregoing.
(b) Each of the BNR Companies has filed on a timely basis all Tax
Returns required to be filed. To the knowledge of the BNR Group and the
Shareholders, all such Tax Returns are complete and accurate in all
respects. All Taxes due from or payable by the BNR Companies for periods
(or portions thereof) ending on or prior to the Closing Date that are shown
on any Tax Return including all Taxes arising as a result of the Pre-
Closing Distribution, except as disclosed in Schedule 3.18 (b), have been
paid or will be provided for in the Closing Balance Sheet. All
installments or other payments on account of Taxes that relate to periods
for which Tax Returns are not yet due have been paid on a timely basis.
None of the BNR Companies are currently the beneficiary of any extension of
time within which to file any Tax Return. Schedule 3.18 (b)(i) contains a
-----------------
complete and accurate summary of all Canadian or United States federal,
provincial or state income tax assessments that have been issued to each of
the BNR Companies covering all past periods up to and including the fiscal
years ended on or before the Closing Date. All amounts disclosed on
Schedule 3.18(b)(i) have been paid or settled in full. Schedule
3.18(b)(ii) contains a complete and accurate summary of all fiscal periods
that remain open for assessment of additional Taxes. Assessments for all
other applicable Canadian or United States federal, provincial or state
Taxes of the BNR Companies that are levied by way of assessment have
16
<PAGE>
been issued and any amounts owing thereunder have been paid, and only the
time periods described in Schedule 3.18 (b)(ii) remain open for
---------------------
reassessment of additional Taxes. There are no actions, objections,
appeals, suits or other proceedings or claims in progress, pending by or
against any of the BNR Companies or, to the knowledge of the Sellers,
threatened against any of the BNR Companies in respect of any Taxes, and in
particular there are no currently outstanding reassessments or written
enquiries which have been issued or raised by any government authority
relating to any such Taxes. No claim has ever been made by an authority of
any jurisdiction where any particular BNR Company does not file Tax Returns
that such BNR Company is or may be subject to taxation by that
jurisdiction. There are no security interests, liens, encumbrances, or
claims pending on or with respect to any of the assets of any of the BNR
Companies that arose in connection with any failure (or alleged failure) to
pay any Tax.
(c) To the knowledge of the BNR Group and the Shareholders, each of
the BNR Companies has withheld, collected and paid to the proper
governmental authority all Taxes required to have been withheld, collected
and paid in connection with (i) amounts paid, credited or owing to any
employee, independent or dependent contractor, creditor, shareholder, non-
resident of Canada or other third party, and (ii) goods and services
received from or provided to any person.
(d) None of the shareholders or the directors and officers (or
employees responsible for Tax matters) of any of the BNR Companies is aware
of any steps being taken by any authority to assess any additional Taxes
against any of the BNR Companies for any period for which Tax Returns have
been filed and none of the shareholders or the directors and officers (or
employees responsible for Tax matters) of any of the BNR Companies is aware
of any actual or pending investigations of any of such entity relating to
Taxes. United has been provided with correct and complete copies of all
Tax Returns of the BNR Companies, together with any notices of assessment,
examination reports or statements of deficiencies assessed against or
agreed to by any of the BNR Companies, for all taxable periods for which
the statute of limitations has not yet closed and any correspondence
relating thereto.
(e) None of the BNR Companies has waived any statute of limitations in
respect of Taxes or agreed to any extension of time with respect to a Tax
assessment, or deficiency.
(f) At the time of the Closing, the unpaid Taxes of each of the BNR
Companies attributable to all periods (or portions thereof) ending on or
prior to the Closing Date will not exceed the reserve for Tax liability set
forth on the face of the Closing Balance Sheet.
(g) Except as set forth in Schedule 3.18 (g), none of the BNR
---------------------
Companies (i) is a party to any Tax allocation or sharing agreement, (ii)
has been a member of an affiliated, combined or unitary group filing a
combined, unitary, or other return for provincial, local or
17
<PAGE>
foreign tax (ie. non-Canadian) purposes reflecting the income, assets, or
activities of affiliated companies, or (iii) has any liability for the
Taxes of any person or entity other than the Companies under any provision
of Canadian or United States federal, provincial, state, local or foreign
law, or as a transferee or successor, or by contract, or otherwise.
(h) None of the BNR Companies is a party to any joint venture,
partnership or other arrangement or contract that could be treated as a
partnership for Tax purposes.
(i) None of the Sellers are non-resident persons within the meaning of
the Income Tax Act (Canada) ("ITA").
(j) To the knowledge of the Shareholders and the BNR Group, the tax
basis of the assets of the BNR Companies by category including the
classification of such assets as being depreciable or amortizable as
reflected in their respective Tax Returns and related work papers is true
and correct in all material respects.
(k) There are no circumstances existing at or prior to the time of
Closing which could, in themselves, result in the application of any of the
Sections 80 to 80.03 of the ITA or any equivalent provincial provisions to
any of the BNR Companies; none of the BNR Companies have made (and none
will, at or prior to the time of Closing, make) any election pursuant to
Section 80.04 of the ITA or any equivalent provincial provision in which it
is an eligible transferee; none of the BNR Companies has filed, or will
file in respect of its taxation year ending at the time of Closing (the
"Closing Time Year") an agreement pursuant to Section 191.3 of the ITA or
------------------
any equivalent provincial provision; and none of the BNR Companies has
claimed and none will in their returns for the Closing Time Year claim any
reserve under any of the Sections 40(1) (a) (iii) or 20 (1) (n) of the ITA
or any equivalent provincial provision of any amount that could be included
in any BNR Company's income for any period ending after the time of Closing
in respect of any such reserve.
(l) The steps necessary to complete the Pre-Closing Distribution and
the amount of income, gains and Taxes arising as a result of the Pre-
Closing Distribution are fully and accurately set out in Schedule 3.18 (l)
-----------------
hereof.
3.19 COPIES COMPLETE. Except as disclosed in Schedule 3.19, the certified
---------------
copies of the Articles of Incorporation and Bylaws of each BNR Company, both as
amended to the Closing Date, and the copies of all standard form rental
agreements, leases, instruments, agreements, licenses, permits, certificates or
other documents that have been delivered to United in connection with the
transactions contemplated hereby are complete and accurate as of the Closing
Date and are true and correct copies of the originals thereof. Except as
specifically disclosed in Schedule 3.19, the rights and benefits of the BNR
Group will not be adversely affected by the transactions contemplated hereby,
and the execution of this Agreement and the performance of the obligations
hereunder will
18
<PAGE>
not violate or result in a breach or constitute a default under any of the terms
or provisions thereof. None of such leases, instruments, agreements, licenses,
permits, site assessments, certificates or other documents requires notice to,
or consent or approval of, any governmental agency or other third party to any
of the transactions contemplated hereby, except such consents and approvals as
are listed on Schedule 3.19 and which have been given or obtained prior to the
Closing.
3.20 PRODUCT QUALITY, WARRANTY CLAIMS, PRODUCT LIABILITY. All products
---------------------------------------------------
and services sold, rented, leased, provided or delivered by the BNR Group to
customers on or prior to the Closing Date conform to applicable contractual
commitments, express and implied warranties, product and service specifications
and quality standards, and the BNR Group has no liability (and there is no basis
for any present or future action, suit, proceeding, hearing, investigation,
charge, complaint, claim or demand against a BNR Company giving rise to any
liability) for replacement or repair thereof or other damages in connection
therewith. No product or service sold, leased, rented, provided or delivered by
a BNR Company to customers on or prior to the Closing Date is subject to any
guaranty, warranty or other indemnity beyond the applicable standard terms and
conditions of sale, rent or lease. Except as set forth on Schedule 3.20, the
BNR Group has no liability (and there is no basis for any present or future
action, suit, proceeding, hearing, investigation, charge, complaint, claim or
demand against the BNR Group which might give rise to any liability) arising out
of any injury to a person or property as a result of the ownership, possession,
provision or use of any Equipment, product or service sold, rented, leased,
provided or delivered by a BNR Company on or prior to the Closing Date. All
product liability claims that have been asserted against a BNR Company since
January 1, 1995, whether covered by insurance or not, and whether litigation has
resulted or not, are listed and summarized in Schedule 3.20.
3.21 NO CHANGE WITH RESPECT TO BNR GROUP. Except as set forth on Schedule
-----------------------------------
3.21, since the Balance Sheet Date, the business of the BNR Group has been
conducted only in the ordinary course and there has been no change in the
condition (financial or otherwise) of the assets, liabilities or operations of
the BNR Group other than changes in the ordinary course of business, none of
which either singly or in the aggregate has been materially adverse.
Specifically, and without limiting the generality of the foregoing, except as
set forth on Schedule 3.21, with respect to the BNR Group, since the Balance
Sheet Date, there has not been:
(a) any change in its financial condition, assets, liabilities
(contingent or otherwise), income, operations or business which would have
a material adverse effect on the financial condition, assets, liabilities
(contingent or otherwise), income, operations or business of a BNR Company
or the BNR Group, taken as a whole;
(b) any damage, destruction or loss (whether or not covered by
insurance) adversely affecting any material portion of its properties or
business;
(c) any change in or agreement to change (i) its shareholders, (ii)
ownership of
19
<PAGE>
its authorized capital or outstanding securities, or (iii) its securities;
(d) any declaration or payment of, or any agreement to declare or pay,
any dividend or distribution in respect of its capital stock or any direct
or indirect redemption, purchase or other acquisition of any of its capital
stock;
(e) any increase or bonus or promised increase or bonus in the
compensation payable or to become payable by it, in excess of usual and
customary practices, to any of its directors, officers, employees or
agents, or any accrual or arrangement for or payment of any bonus or other
special compensation to any employee or any severance or termination pay
paid to any of its present or former officers or other key employees;
(f) any labour dispute or any other event or condition of any
character, materially adversely affecting its business or future prospects;
(g) any sale or transfer, or any agreement to sell or transfer, any of
its material assets, property or rights to any other person, including,
without limitation, the Shareholders and their Affiliates, other than in
the ordinary course of business or as required by the Pre-Closing
Distribution;
(h) any cancellation, or agreement to cancel, any material
indebtedness or other material obligation owing to it, including, without
limitation, any indebtedness or obligation of the Shareholders or any
Affiliate thereof;
(i) any plan, agreement or arrangement granting any preferential
rights to purchase or acquire any interest in any of its assets, property
or rights or requiring consent of any party to the transfer and assignment
of any such assets, property or rights;
(j) any purchase or acquisition of, or any agreement, plan or
arrangement to purchase or acquire, any of its property, rights or assets
outside the ordinary course of its business;
(k) any waiver of any of its material rights or claims;
(l) any new or any amendment or termination of any existing material
contract, agreement, license, permit or other right to which it is a party;
(m) any decline in the stockholders equity of the BNR Group to an
amount less than the stockholders equity of the BNR Group as of the Balance
Sheet Date;
(n) any increase in the amount of indebtedness owed by the
Shareholders or their
20
<PAGE>
Affiliates to any person other than the BNR Group and secured by one or
more Corporate Properties;
(o) any increase in the amount of aggregate indebtedness owed by the
Shareholders or their Affiliates to the BNR Group; or
(p) any other transaction outside the ordinary course of its business.
3.22 CLOSING DATE DEBT, EFFECTIVE DATE CURRENT ASSETS AND EFFECTIVE DATE
-------------------------------------------------------------------
CURRENT LIABILITIES.
--------------------
Schedule 1.3(a) accurately sets forth the Effective Date Debt of the BNR
Group. Schedule 1.3(b) accurately sets forth the Effective Date Current
Assets and Effective Date Current Liabilities of the BNR Group.
3.23 BANK ACCOUNTS. Schedule 3.23 is a complete and accurate list, as of
-------------
the Closing Date, of:
(a) the name of each bank in which a BNR Company has accounts or safe
deposit boxes;
(b) the name(s) in which the accounts or boxes are held;
(c) the type of account; and
(d) the name of each person authorized to draw thereon or have access
thereto.
3.24 COMPLIANCE WITH LAWS. Except as disclosed in Schedule 3.24, the BNR
--------------------
Group and all activities undertaken on any and all Corporate Properties have
complied with, and the BNR Group and all such activities are presently in
material compliance with: (i) federal, state, provincial and local laws,
ordinances, codes, rules, regulations, Governmental Permits, orders, judgments,
awards, decrees, consent judgments, consent orders and requirements applicable
to it including, but not limited to, the AMERICANS WITH DISABILITIES ACT, the
FEDERAL OCCUPATIONAL SAFETY AND HEALTH ACT, OCCUPATIONAL HEALTH AND SAFETY ACT
(ONTARIO), THE HUMAN RIGHTS CODE, WORKPLACE SAFETY AND INSURANCE ACT (ONTARIO),
(collectively "Laws"); and (ii) laws relating to the public health, safety or
protection of the environment (collectively, "Environmental Laws"). Except as
disclosed in Schedule 3.24, there has been no assertion by any party that a BNR
Company is in violation of any Laws. Specifically and without limiting the
generality of the foregoing, except as disclosed in Schedule 3.24: (i) except as
permitted under Environmental Laws, the BNR Group has not processed, handled,
transferred, generated, treated, stored or disposed of any Hazardous Material
(as defined below), (ii) no Hazardous Material has been disposed of, other than
as allowed under
21
<PAGE>
Environmental Laws, or otherwise released on any Corporate Property, and (iii)
no Corporate Property has ever been subject to or received any notice of any
private, administrative or judicial action, or notice of any intended private,
administrative or judicial action relating to the presence or alleged presence
of Hazardous Material in, under, upon or emanating from any Corporate Property
or any real property now or previously owned or leased by a BNR Company. As used
in this Agreement, "Hazardous Material" shall mean contaminants, flammable
substances, explosives, radioactive materials, hazardous wastes or substances,
toxic wastes or substances, or petroleum or petroleum substances, or words of
similar import under any Environmental Law or any other wastes, materials or
pollutants included in the definition of "contaminant", "pollutant", "hazardous
substances", "toxic substance", "hazardous material", "hazardous waste",
"waste", "extremely hazardous waste", "restricted hazardous waste", or words of
similar import under any Environment Law, and any substance, the presence of
which requires remediation pursuant to any Environmental Laws. Notwithstanding
the foregoing, with respect to real property leased by the BNR Group, the
representations and warranties contained in this Section 3.24 as they pertain to
Environmental Laws are based on the knowledge of the BNR Group and the
Shareholders.
3.25 POWERS OF ATTORNEY. No BNR Company has granted any power of attorney
------------------
(except routine powers of attorney relating to representation before
governmental agencies) or entered into any agency or similar agreement whereby a
third party may bind or commit a BNR Company in any manner.
3.26 UNDERGROUND STORAGE TANKS. Except as set forth in Schedule 3.26, no
-------------------------
underground storage tanks containing petroleum products or wastes or other
Hazardous Material are currently or have been located on any Corporate Property.
Except as set forth in Schedule 3.26, the BNR Group has never owned or leased
any real property not included in the Corporate Property having any underground
storage tanks containing petroleum products or wastes or other Hazardous
Material. As to each such underground storage tank ("UST") identified in
Schedule 3.26, the BNR Group has provided to United, in Schedule 3.26:
(a) the location of the UST, information and material, including any
available drawings and photographs, showing the location, and whether the
BNR Group currently owns or leases the property on which the UST is located
(and if the BNR Group does not currently own or lease such property, the
dates on which it did and the current owner or lessee of such property);
(b) the date of installation and specific use or uses of the UST;
(c) copies of tank and piping tightness tests and cathodic protection
tests and similar studies or reports for each UST;
(d) a copy of each notice to or from a governmental body or agency
relating to
22
<PAGE>
the UST;
(e) other material records with regard to the UST, including, without
limitation, repair records, financial assurance compliance records and
records of ownership; and
(f) to the extent not otherwise set forth pursuant to the above, a
summary description of instances, past or present, in which, to the BNR
Group's, or a Shareholder's knowledge, the UST failed to meet applicable
standards and regulations for tightness or otherwise and the extent of such
failure, and any other operational or environmental problems with regard to
the UST, including, without limitation, spills, including spills in
connection with delivery of materials to the UST, releases from the UST and
soil contamination.
Except to the extent set forth in Schedule 3.26, the BNR Group has
complied with Environmental Laws regarding the installation, use, testing,
monitoring, operation and closure of any UST described in Schedule 3.26.
With respect to real property leased by the BNR Group, the
representations and warranties continued in this Section 3.26 as they
pertain to Environmental Laws are based on the knowledge of the BNR Group
and the Shareholders.
3.27 PATENTS, TRADEMARKS, TRADE NAMES, ETC. Schedule 3.27 lists all
-------------------------------------
patents, tradenames, fictitious business names, trademarks, service marks, and
copyrights owned by the BNR Group or which it is licensed to use (other than
licenses to use software for personal computer operating systems that were
provided when the computer was purchased and licenses to use software for
personal computers that are granted to retail purchasers of such software). No
patents, trade secrets, know-how, intellectual property, trademarks, trade
names, assumed names, copyrights, or designations used by a BNR Company in its
business infringe on any patents, trademarks, or copyrights, or any other rights
of any person. No BNR Company nor any Shareholder knows or has any reason to
believe that there are any claims of third parties to the use of any such names
or any similar name, or knows of or has any reason to believe that there exists
any basis for any such claim or claims.
3.28 ASSETS, ETC., NECESSARY TO BUSINESS. The BNR Group owns or leases
-----------------------------------
all properties and assets, real, personal, and mixed, tangible and intangible,
and, except as disclosed on Schedules 3.5, 3.l0(a), 3.l0(b), 3.14(a) and 3.19,
is a party to all Governmental Permits and other agreements necessary to permit
it to carry on its business as presently conducted. All of said Governmental
Permits and agreements have been duly obtained and, except as disclosed on
Schedules 3.5, 3.8(b), 3.10(a), 3.10(b), 3.14(a) and 3.19, are in full force and
effect and there are no proceedings pending or threatened which may result in
the revocation, cancellation, suspension or adverse modification
of any of the same. Neither the BNR Group nor the Shareholders have any
knowledge of any reason
23
<PAGE>
why all such Governmental Permits and agreements will not remain in effect after
consummation of the transactions contemplated hereby.
3.29 CONDEMNATION. No Corporate Property owned or leased by the BNR Group
------------
is the subject of, or would be affected by, any pending condemnation or eminent
domain proceedings, and, to the knowledge of the BNR Group and the Shareholders,
no such proceedings are threatened.
3.30 MANUFACTURERS, SUPPLIERS AND CUSTOMERS. To the knowledge of the BNR
--------------------------------------
Group and the Shareholders, the relations between the BNR Group and its
customers are good. Neither the BNR Group nor the Shareholders have any reason
to believe (other than general economic and industry conditions) that any of the
manufacturers or suppliers supplying products, components or materials to the
BNR Group intends to cease providing such items to the BNR Group, nor does the
BNR Group or the Shareholders have knowledge of any fact (other than general
economic and industry conditions) which indicates that any of the customers of
the BNR Group intends to terminate, limit or reduce its business relations with
the BNR Group.
3.31 ABSENCE OF CERTAIN BUSINESS PRACTICES. Neither the BNR Group nor the
-------------------------------------
Shareholders have, directly or indirectly, within the past five years, given or
agreed to give any gift or similar benefit to any customer, supplier,
governmental employee or other person who is or may be in a position to help or
hinder the business of the BNR Group in connection with any actual or proposed
transaction which (a) might subject the BNR Group to any damage or penalty in
any civil, criminal or governmental litigation or proceeding, (b) if not given
in the past, might have had an adverse effect on the financial condition,
business or results of operations of the BNR Group, or (c) if not continued in
the future, might materially adversely affect the financial condition, business
or operations of the BNR Group or which might subject the BNR Group or a BNR
Company to suit or penalty in any private or governmental litigation or
proceeding.
3.32 RELATED PARTY TRANSACTIONS. Except as disclosed in the Financial
--------------------------
Statements or Schedule 3.32, neither the Shareholders nor their Affiliates own
any direct or indirect interest of any kind in, or controls or is a director,
officer, employee, shareholder or partner of, or consultant to or lender to or
borrower from or has the right to participate in the profits of, any Person
which is a competitor, supplier, customer, landlord, tenant, creditor or debtor
of a BNR Company.
3.33 DISCLOSURE SCHEDULES. Any matter disclosed on any Schedule to this
--------------------
Agreement shall be deemed to have been disclosed on every other Schedule that
refers to such Schedule by cross reference so long as the nature of the matter
disclosed is obvious from a fair reading of the Schedule on which the matter is
disclosed.
3.34 NO MISLEADING STATEMENTS. The representations and warranties of the
------------------------
BNR Group and the Shareholders contained in this Agreement, the Exhibits and
Schedules hereto and all other
24
<PAGE>
documents and information furnished to United and their representatives pursuant
hereto are complete and accurate in all material respects and do not include any
untrue statement of a material fact or omit to state any material fact necessary
to make the statements made and to be made not misleading.
3.35 ACCURATE AND COMPLETE RECORDS. The corporate minute books, stock
-----------------------------
ledgers, books, ledgers, financial records and other records of the BNR Group:
(a) have been made available to United and its agents;
(b) have been, in all material respects, maintained in accordance with
all applicable laws, rules and regulations; and
(c) are accurate and complete, reflect all material corporate
transactions required to be authorized by the Boards of Directors and/or
shareholders of the BNR Group and do not contain or reflect any material
discrepancies
3.36 KNOWLEDGE. Wherever reference is made in this Agreement to the
---------
"knowledge" of a Shareholder or the Shareholders, such term means the actual
knowledge of a Shareholder or the Shareholders or any knowledge which should
have been obtained by a Shareholder or the Shareholders upon reasonable inquiry
by a reasonable business person. Wherever reference is made in this Agreement
to the "knowledge" of the BNR Group or a BNR Company, such term means the actual
knowledge of any management employee, officer or director of a BNR Company or
any knowledge which should have been obtained by any such person upon reasonable
inquiry by a reasonable business person.
3.37 BROKERS: FINDERS. Except as set forth in Schedule 3.37, no person
----------------
has acted directly or indirectly as a broker, finder or financial advisor for
the BNR Group or the Shareholders in connection with the transactions
contemplated by this Agreement and no person is entitled to any broker's,
finder's, financial advisory or similar fee or payment in respect thereof based
in any way on any agreement, arrangement or understanding made by or on behalf
of the BNR Group or the Shareholders.
4. REPRESENTATIONS AND WARRANTIES OF UNITED
----------------------------------------
United represents and warrants to the Shareholders that each of the
following representations and warranties is true and correct as of the Closing
Date, and agrees that such representations and warranties shall survive the
Closing:
4.1 EXISTENCE AND GOOD STANDING. United is a corporation duly organized,
---------------------------
validly
25
<PAGE>
existing and in good standing under the laws of its jurisdiction at
incorporation.
4.2 NO CONTRACTUAL RESTRICTIONS. No provisions exist in any article,
---------------------------
document or instrument to which United is a party or by which it is bound which
would be violated by consummation of the transactions contemplated by this
Agreement.
4.3 AUTHORIZATION OF AGREEMENT. This Agreement has been duly authorized,
--------------------------
executed and delivered by United and, subject to the due authorization,
execution and delivery by the BNR Group and the Shareholders, constitutes a
legal, valid and binding obligation of United. United has full corporate power,
legal right and corporate authority to enter into and perform its obligations
under this Agreement and to carry on its business as presently conducted. The
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby and the fulfilment of and compliance with the
terms and conditions hereof do not and will not, after the giving of notice, or
the lapse of time or otherwise: (a) violate any provisions of any judicial or
administrative order, award, judgment or decree applicable to United; (b)
conflict with any of the provisions of the Certificate of Incorporation or
Bylaws of United; or (c) conflict with, result in a breach of or constitute a
default under any material agreement or instrument to which United is a party or
by which it is bound.
4.4 NO MISLEADING STATEMENTS. The representations and warranties of
------------------------
United contained in this Agreement, the Exhibits and Schedules hereto and all
other documents and information furnished to the Shareholders pursuant hereto
are materially complete and accurate, and do not include any untrue statement of
a material fact or omit to state any material fact necessary to make the
statements made and to be made not misleading as of the Closing Date.
4.5 BROKERS: FINDERS. No person has acted directly or indirectly as a
----------------
broker, finder or financial advisor for United in connection with the
transactions contemplated by this Agreement and no person is entitled to any
broker's, finder's, financial advisory or similar fee or payment in respect
thereof based in any way on any agreement, arrangement or understanding made by
or on behalf of United.
4.6 DISCLOSURE SCHEDULES. Any matter disclosed by United on any Schedule
--------------------
to this Agreement shall be deemed to have been disclosed on every other Schedule
that refers to such Schedule by cross reference so long as the nature disclosed
is obvious from a fair reading of the Schedule on which the matter is disclosed.
5. CLOSING DELIVERIES
------------------
At the Closing, the respective parties shall make the following deliveries:
26
<PAGE>
5.1 UNITED DELIVERIES.
-----------------
United shall:
(a) pay to the Shareholders the portion of the Purchase Price required
to be delivered on the Closing Date pursuant to Section 1.1.2;
(b) enter into a consulting agreement with each of the Principal
Shareholders substantially in the form attached as Schedule 5.1(b);
(c) deliver to the Shareholders an opinion of counsel for United dated
as of the Closing Date substantially in the form or Schedule 5.1(c); and
(d) releases of the Shareholders substantially in the form of Schedule
5.1(d).
5.2 BNR GROUP AND SHAREHOLDER DELIVERIES.
------------------------------------
BNR Group and the Shareholders shall, as the case may be:
(a) deliver to United the certificates representing the BNR US Stock,
BNR Canada Stock and Holdco Stock free and clear of all liens, security
interests, claims and encumbrances, duly endorsed in blank for transfer
accompanied by stock powers duly executed in blank, as many be required;
(b) deliver to United an opinion of counsel for the BNR Group and the
Shareholders dated as of the Closing Date substantially in the form
attached as Schedule 5.2(b);
(c) deliver evidence reasonably satisfactory to United that all
required third party consents to the transactions contemplated hereby,
including without limitation all Required Governmental Consents and all
required consents of the landlords under all real estate leases to which a
BNR Company is a party, were obtained;
(d) deliver, or cause to be delivered, by each officer and director of
a BNR Company a resignation as an officer and/or director together with a
general release substantially in the form of Schedule 5.2(d) releasing the
BNR Group from all obligations under any indemnification agreements, the
charter documents of a BNR Company, or otherwise, arising out of or
relating to this Agreement or the consummation of the transactions
contemplated thereby, other than obligations arising after the Closing Date
under this Agreement;
27
<PAGE>
(e) enter into triple-net leases with United substantially in the form
attached as Schedule 5.2(e) for the Facilities located in Barrie, Ottawa,
Kitchener and Walkerton;
(f) enter into an option with United to lease property in Owen Sound
owned by the Principal Shareholders substantially in the form attached as
Schedule 5.2(f);
(g) transfer the Excluded Assets as provided for in Schedule 3.18(l).
6. ADDITIONAL COVENANTS OF UNITED, THE BNR GROUP AND THE SHAREHOLDERS
------------------------------------------------------------------
6.1 FURTHER ASSURANCES AND ADDITIONAL CONVEYANCES. Following the
---------------------------------------------
Closing, the Shareholders and United shall each deliver or cause to be delivered
at such times and places as shall be reasonably agreed upon such additional
instruments as United or the Shareholders may reasonably request for the purpose
of carrying out this Agreement. The Shareholders will cooperate with United
and/or the BNR Group on and after the Closing Date in furnishing information,
evidence, testimony and other assistance in connection with any actions,
proceedings or disputes of any nature with respect to matters pertaining to all
periods prior to the Closing Date.
6.2 RELEASE OF GUARANTIES. United shall use reasonable efforts to obtain
---------------------
the termination and release promptly after the Closing Date of the personal
guaranties of the Shareholders listed in Schedule 6.2, all of which relate to
indebtedness of the BNR Group included in the Financial Statements as of the
Balance Sheet Date. United shall indemnify the Shareholders and hold them
harmless from and against all losses, expenses or claims by third parties to
enforce or collect indebtedness owed by the BNR Group as of the Closing Date
which is personally guaranteed by the Shareholders pursuant to such guaranties.
The Shareholders may notify the obligees under such guaranties that he or she
has terminated their obligations under such guaranties. The Shareholders shall
cooperate with United in obtaining such releases.
6.3 CONFIDENTIALITY. Neither the BNR Group nor the Shareholders shall
---------------
disclose or make any public announcements of the transactions contemplated by
this Agreement without the prior written consent of United, unless required to
make such disclosure or announcement by law, in which event the party making the
disclosure or announcement shall notify United at least 24 hours before such
disclosure or announcement is expected to be made.
6.4 BROKERS' AND FINDERS' FEES. Each party shall pay and be responsible
--------------------------
for any broker's, finder's or financial advisory fee incurred by such party in
connection with the transactions contemplated by this Agreement.
6.5 TAXES. United, acting in a commercially reasonable manner, shall
-----
cooperate, at the
28
<PAGE>
expense of the Shareholders, with the Shareholders with respect to any matters
involving the Shareholders arising out of the Shareholders' ownership of the BNR
Group prior to the Closing, including matters relating to tax returns and any
tax audits, appeals, claims or litigation with respect to such tax returns or
the preparation of such tax returns. In connection therewith, United shall make
available to the Shareholders such files, documents, books and records of the
BNR Group for inspection and copying as may be reasonably requested by a
Shareholder and shall cooperate with the Shareholders with respect to retaining
information and documents which relate to such matters.
6.6 (a) SHORT YEAR TAX RETURNS. After the Closing Date, the Principal
----------------------
Shareholders shall prepare for and on behalf of the BNR Companies, at the cost
and expense of the Shareholders, all Tax Returns required by law to be filed by
members of the BNR Group for the period beginning with the first day of a BNR
Company's fiscal year in which the Closing occurs and ending with the Closing
Date. Such returns shall be prepared in a financially responsible and
conservative manner and shall be delivered to United together with all necessary
supporting schedules within 90 days following the Closing Date for its approval
(but such approval shall not relieve the Shareholders of their responsibility
for the taxes assessed against the BNR Group under these returns). The
Shareholders shall be responsible for the payment of all taxes shown to be due
or that may come to be due on such returns or otherwise payable by the BNR Group
relating to the period prior to the Closing Date in excess of the amount of any
reserve for taxes included in Effective Date Current Liabilities and, at the
time of the delivery of the returns, shall contemporaneously deliver to United
checks payable to the respective taxing authorities in amounts equal to that
shown as being due on the returns. United shall sign tax returns and cause such
returns to be filed on a timely basis with the appropriate authorities.
(b) CONSISTENT TAX REPORTING. The Shareholders, the BNR Companies and
------------------------
United shall (a) treat and report the transactions contemplated by this
Agreement in all respects consistently for purposes of any Canadian federal,
provincial, local or foreign (i.e non-Canadian) tax and (b) not take any actions
or positions inconsistent with the obligations of the parties set forth herein.
(c) TRANSACTION TAXES. All transfer, documentary, sales, goods and
-----------------
services, use, real property gains, stamp, registration, and other such taxes
and fees (including any penalties and interest) incurred in connection with this
Agreement or the Pre-Closing Distribution shall be for the account of the
Shareholders, and shall be paid by the Shareholders when due, and the BNR
Companies will, at the Shareholders expense, file all necessary Tax Returns and
other documentation with respect to all such transfer, documentary, sales, use,
real property gains, stamp, registration, and other taxes and fees.
6.7 ESTOPPEL CERTIFICATES. Following the closing the BNR Group shall use
---------------------
their best efforts to deliver estoppel certificates , substantially in the form
of Schedule 6.7, for the Facilities located in Meaford, Collingwood, Buffalo,
Kitchener and Owen Sound; and
29
<PAGE>
7. INDEMNIFICATION
---------------
7.1 INDEMNITY BY THE SHAREHOLDERS. Subject to the Purchaser being in
-----------------------------
material compliance with its obligations under Section 1.4, the Shareholders,
subject to the limitations set forth in Section , jointly and severally,
covenant and agree that they will indemnify and hold harmless United, the BNR
Group and their respective directors, officers and agents and their respective
successors and assigns (the "United Indemnitees"), from and after the date of
this Agreement, against any and all losses, damages, assessments, fines,
penalties, adjustments, liabilities, claims, deficiencies, costs, expenses
(including specifically, but without limitation, reasonable attorneys' fees and
expenses of investigation), expenditures, including, without limitation, any
"Environmental Site Losses" (as such term is hereinafter defined) identified by
a United Indemnitee in a Claims Notice (as defined in Section 7.3(a)), or
asserted by a United Indemnitee in litigation commenced against a Shareholder
provided that in either case any such Claims Notice shall be given or the
litigation commenced prior to the expiration of the periods set forth in Section
7.2(c) (irrespective of the date of discovery), with respect to each of the
following contingencies (all, the "Indemnity Events"):
(a) Any misrepresentation, breach of warranty, or nonfulfillment of
any agreement or covenant on the part of a Shareholder or the BNR Group
pursuant to the terms of this Agreement or any misrepresentation in or
omission from any Exhibit, Schedule, list, certificate, or other instrument
furnished or to be furnished to United pursuant to the terms of this
Agreement, regardless of whether, in the case of a breach of a
representation or a warranty, United relied on the truth of such
representation or warranty or had any knowledge of any breach thereof.
(b) "Environmental Site Losses", which shall mean any and all losses,
damages (including exemplary damages and penalties), liabilities, claims,
deficiencies, costs, expenses, and expenditures (including, without
limitation, expenses in connection with site evaluations, risk assessments
and feasibility studies) arising out of or required by an interim or final
judicial or administrative decree, judgment, injunction, mandate, interim
or final permit condition or restriction, cease and desist order, abatement
order, compliance order, consent order, clean-up order, exhumation order,
reclamation order or any other remedial action that is required to be
undertaken under federal, state, provincial or local law in respect of
operating activities on or affecting any Facility, any UST or any other
site, including, but not limited to (i) any actual or alleged violation of
any law or regulation respecting the protection of the environment, or any
other law or regulation respecting the protection of the air, water and
land occurring prior to the Closing Date and (ii) any remedies or
violations, whether by a private or public action, alleged or sought to be
assessed as a consequence, directly or indirectly, of any Release of
pollutants (including odours) or Hazardous Materials from any Facility, any
UST or any other environmental site resulting from activities thereat
occurring prior to the Closing Date, whether such Release is into the air,
water (including
30
<PAGE>
groundwater) or land and whether such Release occurred before, during or
after the Closing Date. The term "Release" as used herein means any
spilling, leaking, pumping, pouring, emitting, emptying, discharging,
injecting, escaping, leaching, dumping or disposing into the ambient or
natural environment.
(c) Any liability arising from the matters described in Schedule
3.8(b).
(d) Any liability of the BNR Group for Taxes arising prior to the
closing of the transactions contemplated herein. The obligation of the
Shareholders to indemnify the United Indemnitees is absolute and is not
qualified or limited in any way by the knowledge, or lack thereof, of any
Shareholder.
(e) All actions, suits, proceedings, demands, assessments,
adjustments, costs and expenses (including specifically, but without
limitation, reasonable attorneys' fees and expenses of investigation)
incident to any of the foregoing.
7.2 LIMITATIONS ON SHAREHOLDERS' INDEMNITIES.
----------------------------------------
(a) The obligations of a Shareholder to indemnify United Indemnitees
as provided in Section shall be equal to the amount by which the
cumulative amount of all such liabilities, claims, damages deficiencies,
actions, suits, proceedings, demands, assessments, adjustments, costs and
expenses, expenditures and Environmental Site Losses with respect to any or
all Indemnity Events exceed $25,000 (the "General Deductible Amount");
provided, that the amount of any obligation of indemnity arising pursuant
to Section with respect to any representation, warranty or covenant
contained in Sections 3.1 through 3.5; and 3.12(c) hereof shall not be
subject to the General Deductible Amount and the amount of any indemnity
obligation arising pursuant to Section 3.9 or 3.22 with respect to Claims
based on the Inventory Value and the Equipment included on the Rental Asset
Listing shall be subject to the applicable amounts set forth in Section
1.4(b) in lieu of the General Deductible Amount.
(b) The obligations of a Shareholder under Section 7.1 shall expire on
the following dates:
(i) with respect to Sections 3.1, 3.2, 3.3, 3.4 and all
environmental and tax related matters, upon expiration of the
applicable statute of limitations;
(ii) with respect to Schedule 3.8(b), five (5) years from the
Closing Date; and
(iii) with respect to all other Indemnity Events, three (3)
years from the Closing Date,
31
<PAGE>
unless a Claims Notice is given or litigation is commenced, on or
prior to such time.
7.3 NOTICE OF INDEMNITY CLAIM.
-------------------------
(a) In the event that any claim ("Claim") is hereafter asserted
against or arises with respect to any United Indemnitee as to which such
Indemnitee may be entitled to indemnification hereunder, a United
Indemnitee shall notify the Shareholders (collectively, the "Indemnifying
Party") in writing thereof (the "Claims Notice") within 10 days after (i)
receipt of written notice of commencement of any third party litigation
against such United Indemnitee, (ii) receipt by such United Indemnitee of
written notice of any third party claim pursuant to an invoice, notice of
claim or assessment, against such United Indemnitee, or (iii) such United
Indemnitee becomes aware of the existence of any other event in respect of
which indemnification may be sought from the Indemnifying Party (including,
without limitation, any inaccuracy of any representation or warranty or
breach of any covenant). The Claims Notice shall describe the Claim and
the specific facts and circumstances in reasonable detail, and shall
indicate the amount, if known, or an estimate, if possible, of the losses
that have been or may be incurred or suffered by a United Indemnitee.
(b) The Indemnifying Party may elect to defend any Claim for money
damages where the cumulative total of all Claims (including such Claims)
exceeds the limit set forth in Section 7.2 at the time the Claim is made,
by the Indemnifying Party's own counsel; provided, however, the
Indemnifying Party may assume and undertake the defence of such a third
party Claim only upon written agreement by the Indemnifying Party that the
Indemnifying Party is obligated to fully indemnify a United Indemnitee with
respect to such action. The United Indemnitee may participate, at the
United Indemnitee's own expense, in the defence of any Claim assumed by the
Indemnifying Party. Without the written approval of the United Indemnitee,
which approval shall not be unreasonably withheld, the Indemnifying Party
shall not agree to any compromise of a Claim defended by the Indemnifying
Party.
(c) If, within 30 days of the Indemnifying Party's receipt of a Claims
Notice, the Indemnifying Party shall not have provided the written
agreement required by Section 7.3(b) and elected to defend the Claim, the
United Indemnitee shall have the right to assume control of the defence
and/or compromise of such Claim, and the costs and expenses of such
defence, including reasonable attorneys' fees, shall be added to the Claim.
The Indemnifying Party shall promptly, and in any event within 30 days
after demand therefor, reimburse the United Indemnitee for the costs of
defending the Claim, including attorneys' fees and expenses.
(d) The party assuming the defence of any Claim shall keep the other
party reasonably informed at all times of the progress and development of
its or their defence of
32
<PAGE>
and compromise efforts with respect to such Claim and shall furnish the
other party with copies of all relevant pleadings, correspondence and other
papers. In addition, the parties to this Agreement shall cooperate with
each other and make available to each other and their representatives all
available relevant records or other materials required by them for their
use in defending, compromising or contesting any Claim. The failure to
timely deliver a Claims Notice or otherwise notify the Indemnifying Party
of the commencement of such actions in accordance with this Section 7.3
shall not relieve the Indemnifying Party from the obligation to indemnify
hereunder but only to the extent that the Indemnifying Party establishes by
competent evidence that it has been prejudiced thereby.
(e) In the event both the United Indemnitee and the Indemnifying Party
are named as defendants in an action or proceeding initiated by a third
party, they shall both be represented by the same counsel (on whom they
shall agree), unless such counsel, the United Indemnitee, or the
Indemnifying Party shall determine that such counsel has a conflict of
interest in representing both the United Indemnitee and the Indemnifying
Party in the same action or proceeding and the United Indemnitee and the
Indemnifying Party do not waive such conflict to the satisfaction of such
counsel.
7.4 SURVIVAL OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS. The
------------------------------------------------------
representations and warranties of the parties contained in this Agreement and in
any certificate, Exhibit or Schedule delivered pursuant hereto, or in any other
writing delivered pursuant to the provisions of this Agreement (the
"Representations and Warranties") and the liability of the party making such
Representations and Warranties for breaches thereof shall survive the
consummation of the transactions contemplated hereby.
7.5 NO EXHAUSTION OF REMEDIES OR SUBROGATION: RIGHT OF SET OFF. The
----------------------------------------------------------
Shareholders waive any right to require any United Indemnitee to (i) proceed
against the BNR Group; (ii) proceed against any other person; or (iii) pursue
any other remedy whatsoever in the power of any United Indemnitee. United shall
not set off against any payments due to the Shareholders pursuant to the Hold
Back any amount to which any United Indemnitee is entitled to be indemnified
hereunder with respect to any Indemnity Event (other than with respect to the
Purchase Price Adjustments provided for in Section 1.4.
8. OTHER POST-CLOSING COVENANTS OF THE SHAREHOLDERS AND UNITED
-----------------------------------------------------
8.1 RESTRICTIVE COVENANTS. The BNR Group, the Shareholders and their
---------------------
Affiliates acknowledge that (i) United, as purchaser of the BNR US Stock, BNR
Canada Stock and Holdco Stock is and will be engaged in the same business as the
BNR Group (the "Business"); (ii) the Shareholders and their Affiliates are
intimately familiar with the Business; (iii) the Business is currently conducted
principally in the Province of Ontario with operations in the State of New York
(the "Territory") and United intends to continue the Business in the Territory
and intends, by
33
<PAGE>
acquisition or otherwise, to expand the Business into other geographic areas
within the Territory where it is not presently conducted; (iv) the Shareholders
and their Affiliates have had access to trade secrets of, and confidential
information concerning, the Business; (v) the agreements and covenants contained
in this Section 8.1 are essential to protect the Business and the goodwill being
acquired; and (vi) the Shareholders and their Affiliates have the means to
support themselves and their dependents other than by engaging in a business
substantially similar to the Business and the provisions of this Section 8 will
not impair such ability. The Shareholders covenant and agree as set forth in
(a), (b) and (c) below with respect to the BNR Group:
(a) NON-COMPETE. For a period commencing on the Closing Date and
-----------
terminating five (5) years thereafter in the case of the Principal Shareholders
and two (2) years thereafter in the case of the other Shareholders (the
"Restricted Period"), neither the Shareholders nor any of their Affiliates
shall, anywhere in Ontario nor within 150 kilometres of Ottawa or Buffalo (the
"Designated Areas"), directly or indirectly, acting individually or as the
owner, shareholder, partner, or employee of any entity, (i) engage in the
operation of any equipment rental, sales or leasing business; (ii) enter the
employ of, or render any personal services to or for the benefit of, or assist
in or facilitate the solicitation of customers for, or receive remuneration in
the form of salary, commissions or otherwise from, any business engaged in such
activities; or (iii) receive or purchase a financial interest in, make a loan
to, or make a gift in support of, any such business in any capacity, including,
without limitation, as a sole proprietor, partner, shareholder, officer,
director, principal, agent, trustee or lender; provided, however, that a
Shareholder may own, directly or indirectly, solely as an investment, securities
of any business traded on any national securities exchange, NASDAQ or The
Toronto Stock Exchange, provided the Shareholder is not a controlling person of,
or a member of a group which controls, such business and further provided that
the Shareholder does not, in the aggregate, directly or indirectly, own 2% or
more of any class of securities of such business. Notwithstanding the foregoing,
the applicability of the non-competition covenants to Boyd Bell's Affiliates
contained in this Section 8.1(a) are modified as follows: (i) Jeffrey S. Bell
may be employed in a competitive business any time after the second anniversary
of the Closing Date; and (i) Kevin Bell may be employed in a competitive
business any time after the second anniversary of the Closing Date provided he
enters into an employment agreement with a BNR Company which includes covenants
and Salary Continuation provisions similar to those applicable to the
Shareholders (other than the Principal Shareholders) contained in this Section 8
on or before ., 1998. In the event that Kevin Bell enters into such an
agreement, the covenants contained therein shall govern. The provisions of this
Section 8.1(a) do not apply to Harley Goldsworthy.
(b) CONFIDENTIAL INFORMATION. During the Restricted Period and
------------------------
thereafter, the Shareholders and their Affiliates shall keep secret and retain
in strictest confidence, and shall not use for the benefit of themselves or
others, all data and information relating to the Business ("Confidential
Information"), including without limitation, know-how, trade secrets, customer
lists, supplier lists, details of contracts, pricing policies, operational
34
<PAGE>
methods, marketing plans or strategies, bidding information, practices, policies
or procedures, product development techniques or plans, and technical processes;
provided, however, that the term "Confidential Information" shall not include
information that (i) is or becomes generally available to the public other than
as a result of disclosure by a Shareholder, or (ii) is general knowledge in the
equipment rental, sales or leasing business and not specifically related to the
Business.
(c) PROPERTY OF THE BUSINESS. All memoranda, notes, lists, records
------------------------
and other documents or papers (and all copies thereof) relating to the Business,
including such items stored in computer memories, on microfiche or by any other
means, made or compiled by or on behalf of a Shareholder or the BNR Group or
made available to them relating to the Business, but excluding any materials
(other than the minute books of the BNR Group) maintained by any attorneys for
the BNR Group or the Shareholders prior to the Closing, are and shall be the
property of United and have been delivered or will be delivered or made
available to United at the Closing.
(d) NON-SOLICITATION. Without the consent of United, which may be
----------------
granted or withheld by United in its discretion, the Shareholders and their
Affiliates shall not solicit any employees of the BNR Group to leave the employ
of the BNR Group and join the Shareholder or any Affiliate in any business
endeavour owned or pursued by a Shareholder.
(e) TERMINATION WITHOUT CAUSE. In the event a Shareholder is
-------------------------
terminated without cause during the Restricted Period, United shall pay such
Shareholder his base salary for the balance of the Restricted Period without
bonus (the "Salary Continuation"). If, during the balance of the Restricted
Period, the Shareholder is paid or earns other employment, consulting,
commission or similar income (collectively "Additional Income") in excess of 50%
of the Salary Continuation, United's obligation to pay the Shareholder the
Salary Continuation for the remainder of the Restricted Period shall be reduced
by an amount equal to the amount of the Additional Income in excess of 50% of
the Salary Continuation. The Shareholder acknowledges that in the event he is
entitled to Salary Continuation, he is still bound by his covenants contained in
Section 8. Subject to payment of the Salary Continuation as provided for herein,
the BNR Group shall be released from all liabilities and obligations to the
Shareholder at common law for damages for wrongful termination of employment. In
no event will the Shareholder receive less than his minimum statutory
entitlement under the ONTARIO EMPLOYMENT STANDARDS ACT.
(f) NO DISPARAGEMENT. From and after the Closing Date, the
----------------
Shareholders shall not, in any way or to any person or entity or governmental or
regulatory body or agency, denigrate or derogate United or any of its
subsidiaries, or any officer, director or employee, or any product or service or
procedure of any such company whether or not such statements shall be true and
are based on acts or omissions which are learned by a Shareholder from and after
the date hereof or on acts or omissions which occur from and after the date
hereof, or
35
<PAGE>
otherwise. A statement shall be deemed denigrating or derogatory to any person
or entity if it adversely affects the regard or esteem in which such person or
entity is held by investors, lenders or licensing, rating, or regulatory
entities. Without limiting the generality of the foregoing, a Shareholder shall
not, directly or indirectly in any way in respect of any such company or any
such directors or officers, communicate with, or take any action which is
adverse to the position of any such company (except in conjunction with
enforcing his rights hereunder) with any person, entity or governmental or
regulatory body or agency who or which has dealings or prospective dealings with
any such company or jurisdiction or prospective jurisdiction over any such
company. This paragraph does not apply to the extent that testimony is required
by legal process, provided that United has received not less than five days
prior written notice of such proposed testimony.
8.2 RIGHTS AND REMEDIES UPON BREACH. If Shareholder or any Affiliate
-------------------------------
breaches, or threatens to commit a breach of, any of the provisions of Section
8.1 herein (the "Restrictive Covenants"), United shall have the following rights
and remedies, each of which rights and remedies shall be independent of the
others and severally enforceable, and each of which is in addition to, and not
in lieu of, any other rights and remedies available to United at law or in
equity:
(a) SPECIFIC PERFORMANCE. The right and remedy to have the
--------------------
Restrictive Covenants specifically enforced by any court of competent
jurisdiction, it being agreed that any breach or threatened breach of the
Restrictive Covenants would cause irreparable injury to United and that money
damages would not provide an adequate remedy to United. Accordingly, in addition
to any other rights or remedies, United shall be entitled to injunctive relief
to enforce the terms of the Restrictive Covenants and to restrain a Shareholder
from any violation thereof.
(b) ACCOUNTING. The right and remedy to require a Shareholder to
----------
account for and pay over to United all compensation, profits, monies, accruals,
increments or other benefits derived or received by such Shareholder as the
result of any transactions constituting a breach of the Restrictive Covenants.
(c) SEVERABILITY OF COVENANTS. The Shareholders acknowledge and
-------------------------
agree that the Restrictive Covenants are reasonable and valid in geographical
and temporal scope and in all other respects. If any court determines that any
of the Restrictive Covenants, or any part thereof, is invalid or unenforceable,
the remainder of the Restrictive Covenants shall not thereby be affected and
shall be given full effect, without regard to the invalid portions.
(d) ENFORCEABILITY IN JURISDICTION. United and the Shareholders
------------------------------
intend to and hereby confer jurisdiction to enforce the Restrictive
Covenants upon the courts of any jurisdiction within the geographic scope
of the Restrictive Covenants. If the courts of any one or more of such
jurisdictions hold the Restrictive Covenants unenforceable by reason of the
breadth of such scope or otherwise, it is the intention of United and the
Shareholder that
36
<PAGE>
such determination not bar or in any way affect United's right to the
relief provided above in the courts of any other jurisdiction within the
geographic scope of the Restrictive Covenants as to breaches of such
covenants in such other respective jurisdictions, such covenants as they
relate to each jurisdiction being, for this purpose, severable into diverse
and independent covenants.
9. GENERAL
-------
9.1 ASSIGNMENT. This Agreement shall be binding upon and shall inure to
----------
the benefit of the parties hereto, the successors or assigns of United and the
BNR Companies, and the heirs, legal representatives or assigns of the
Shareholders; provided, however, that any such assignment shall be subject to
the terms of this Agreement and shall not relieve the assignor of its, his or
her responsibilities under this Agreement.
9.2 COUNTERPARTS. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original and all of which
together shall constitute one and the same instrument.
9.3 NOTICES. All notices, requests, demands and other communications
-------
hereunder shall be deemed to have been duly given if in writing and either
delivered personally, sent by facsimile transmission or by air courier service,
or mailed by postage prepaid registered or certified mail, return receipt
requested, to the addresses designated below or such other addresses as may be
designated in writing by notice given hereunder, and shall be effective upon
personal delivery or facsimile transmission thereof or upon delivery by
registered or certified mail one business day following deposit with an air
courier service:
If to the Shareholders: See Schedule 3.2
With a copy to: WHITE, DUNCAN, OSTNER & LINTON,
45 Erb Street East
Waterloo, Ontario
Canada N2J 4B5
Attention: David Linton
FAX: (519) 886-8651
If to the BNR Group: BNR EQUIPMENT LIMITED
1182 Victoria Street West
Kitchener, Ontario
N2B 3C9
Attention: President
FAX: (519) 578-4287
37
<PAGE>
If to United: UNITED RENTALS, INC.
UNITED RENTALS OF CANADA, INC.
Four Greenwich Office Park
Greenwich, CT 06830
Attention: John Milne
FAX: (203) 622 6080
With a copy to: HEENAN BLAIKIE
Suite 2600, P.O. Box 185
Royal Bank Plaza, South Tower
Toronto, Ontario
M5J 2J4
Attention: Byron W. Loeppky
FAX: (416) 360-8425
9.4 ATTORNEYS' FEES. In the event of any dispute or controversy between
---------------
United on the one hand and the BNR Group or the Shareholder on the other hand
relating to the interpretation of this Agreement or to the transactions
contemplated hereby, the prevailing party shall be entitled to recover from the
other party reasonable attorneys' fees and expenses incurred by the prevailing
party. Such award shall include postjudgment attorney's fees and costs.
9.5 APPLICABLE LAW AND ATTORNMENT. This Agreement shall be governed by
-----------------------------
and construed in accordance with the laws of the province of Ontario and the
laws of Canada applicable therein. Each of the parties to this Agreement
irrevocably attorns to the jurisdiction of the courts of Ontario.
9.6 PAYMENT OF FEES AND EXPENSES. Whether or not the transactions herein
----------------------------
contemplated shall be consummated, each party hereto will pay its own fees,
expenses and disbursements incurred in connection herewith and all other costs
and expenses incurred in the performance and compliance with all conditions to
be performed hereunder (including, in the case of the Shareholders, any such
fees, expenses and disbursements paid or accrued by, or charged to, the BNR
Group).
9.7 INCORPORATION BY REFERENCE. All Schedules and Exhibits attached
--------------------------
hereto are incorporated herein by reference as though fully set forth at each
point referred to in this Agreement.
9.8 CAPTIONS. The captions in this Agreement are for convenience only
--------
and shall not be considered a part hereof or affect the construction or
interpretation of any provisions of this Agreement.
9.9 NUMBER AND GENDER OF WORDS. Whenever the singular number is used
--------------------------
herein, the same shall include the plural where appropriate, and shall apply to
all of such number, and to each
38
<PAGE>
of them, jointly and severally, and words of any gender shall include each other
gender where appropriate.
9.10 ENTIRE AGREEMENT. This Agreement (including the Schedules and
----------------
Exhibits hereto) and the other documents delivered pursuant hereto constitute
the entire Agreement and understanding between the BNR Group, the Shareholders
and United and supersedes any prior agreement and understanding relating to the
subject matter of this Agreement. This Agreement may be modified or amended
only by a written instrument executed by the BNR Group and the Shareholders, and
United acting through its officers, duly authorized by its Board of Directors.
9.11 WAIVER. No waiver by any party hereto at any time of any breach of,
------
or compliance with, any condition or provision of this Agreement to be performed
by any other party hereto may be deemed a waiver of similar or dissimilar
provisions or conditions at the same time or at any prior or subsequent time.
9.12 CONSTRUCTION. The language in all parts of this Agreement must be in
------------
all cases construed simply according to its fair meaning and not strictly for or
against any party. Unless expressly set forth otherwise, all references herein
to a "day" are deemed to be a reference to a calendar day. All references to
"business day" mean any day of the year other than a Saturday, Sunday or a
public or bank holiday in Connecticut or Ontario. Unless expressly stated
otherwise, cross-references herein refer to provisions within this Agreement and
are not references to the overall transaction or to any other document.
10. ARBITRATION AND DISPUTE RESOLUTION.
----------------------------------
THE PARTIES WAIVE THEIR RIGHT TO SEEK REMEDIES IN COURT, INCLUDING ANY
RIGHT TO A JURY TRIAL, WITH RESPECT TO ANY DISPUTE CONCERNING DETERMINATION OF
THE ADJUSTMENTS TO THE PURCHASE PRICE UNDER SECTIONS 1.3 AND 1.4 ONLY. The
parties agree that in the event United and the Shareholder are unable to resolve
a dispute concerning determination of the Adjustments to the Purchase Price,
such dispute shall be resolved exclusively by arbitration to be conducted only
in Ontario in accordance with the rules of the ARBITRATIONS ACT (Ontario). The
parties agree that such arbitration shall be conducted by a retired judge who
shall be selected from a list of three (3) persons submitted by each party who
is experienced in dispute resolution regarding business acquisitions and
accounting matters. If the parties are unable to agree on an arbitrator, the
arbitrator shall be selected by a judge of the Ontario Court (General Division),
from the lists submitted by each of the parties. The parties also agree that
discovery shall not be permitted except as required by the ARBITRATION ACT
(Ontario), that the arbitration award shall not include factual findings or
conclusions of law, and that no punitive damages shall be awarded. The parties
understand that any party's right to appeal or to seek modification of any
ruling or award of the arbitrator is severely limited. Any award rendered by
the arbitrator shall be final and binding, and judgment may be entered on it in
any court of competent jurisdiction as otherwise provided by law. Unless the
parties otherwise agree, the arbitration shall be heard within 30 days following
the appointment of the arbitrator. The successful
39
<PAGE>
party will be entitled to receive their legal costs on a party and party basis
from the other party. The preceding portion of this Section does not apply to
any dispute relating to any other provision of the Agreement, or to any other
aspect of the transactions contemplated herein, and such other disputes may be
resolved by the parties by any means available, including without limitation
court action and a jury trial. The parties expressly do not waive any right to
pursue any remedy available with respect to any dispute other than one
concerning determination of the Adjustments to the Purchase Price under Sections
1.3 and 1.4, and expressly do not waive the right to trial with respect any
other dispute.
* * * *
[SIGNATURE PAGES FOLLOW]
40
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement by
persons thereunto duly authorized as of the date first above written.
BNR EQUIPMENT LIMITED, UNITED RENTALS, INC.
650310 ONTARIO LIMITED, UNITED RENTALS OF CANADA, INC.
754643 ONTARIO LIMITED,
766903 ONTARIO INC.
BNR EQUIPMENT, INC. By:_________________________________
John Milne, Vice Chairman and
By:_____________________ Chief Acquisition Officer of United
Boyd Bell US and President of United Canada
By:_____________________
David Nigh
1270982 ONTARIO LIMITED
By:_____________________
David Nigh
1270983 ONTARIO LIMITED
By:_____________________
Boyd Bell
41
<PAGE>
THE SHAREHOLDERS:
________________________ ________________________
Boyd Bell John Goetz
________________________ ________________________
David Nigh Harley Goldsworthy
________________________ ________________________
BNR Equipment Limited Kirby Shantz
________________________ ________________________
Dean Bell Randy Speaker
________________________ ________________________
Steve Fay James Luft
________________________ ________________________
John Folkerson Marilyn Nigh
________________________ ________________________
William McArthur Carolynn Bell
1270984 ONTARIO LIMITED
By:_____________________
Boyd Bell
By:_____________________
David Nigh
42
<PAGE>
SUMMARY OF SCHEDULES
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
SCHEDULE # TITLE PRINCIPAL
SHAREHOLDER
(INITIALS ONLY)
- ----------------------------------------------------------------------------------------
<S> <C> <C>
1.1 Allocation of Payment of Purchase Price among
the Shareholders
- ----------------------------------------------------------------------------------------
1.3(a) Closing Date Debt - to be completed upon J.L.
receipt of pay-out letter
- ----------------------------------------------------------------------------------------
1.3(b) Effective Date Working Capital, Current Assets
and Liabilities
- ----------------------------------------------------------------------------------------
1.3(c) Inventory Value BNR to provide
- ----------------------------------------------------------------------------------------
1.3(d) Invoice Value of any New Equipment
- ----------------------------------------------------------------------------------------
1.4(b) Rental Asset Listing
- ----------------------------------------------------------------------------------------
1.6 Excluded Assets
- ----------------------------------------------------------------------------------------
3.2 Capital Stock of the BNR Companies
- ----------------------------------------------------------------------------------------
3.5 List of Exceptions re Breach or Default
- ----------------------------------------------------------------------------------------
3.6 List of Subsidiaries of BNR Group and
Securities
- ----------------------------------------------------------------------------------------
3.7 Financial Statements
- ----------------------------------------------------------------------------------------
3.8(a) Indebtedness and Other Fixed and Uncontested
Liabilities
- ----------------------------------------------------------------------------------------
3.8(b) Claims against the BNR Group
- ----------------------------------------------------------------------------------------
3.8(c) Liens, Claims and Encumbrances (note: J.L. to add
PPSA
summaries and U.C.C.
regulations)
- ----------------------------------------------------------------------------------------
3.8(d) Real and Personal Property Leasehold Interests
- ----------------------------------------------------------------------------------------
3.10(a) Material Permits, Licenses, Titles, Approvals BNR to provide
and Authorizations
- ----------------------------------------------------------------------------------------
3.10(b) Facilities
- ----------------------------------------------------------------------------------------
3.11 Accounts and Notes Receivable
- ----------------------------------------------------------------------------------------
</TABLE>
43
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
SCHEDULE # TITLE PRINCIPAL
SHAREHOLDER
(INITIALS ONLY)
- ----------------------------------------------------------------------------------------
<S> <C> <C>
3.12(a) Fixed Assets (other than Real Estate and (note: BNR to provide
Inventory) depreciation summary)
- ----------------------------------------------------------------------------------------
3.12(b) Corporate Property
- ----------------------------------------------------------------------------------------
3.13 Permitted Acquisitions and Dispositions
- ----------------------------------------------------------------------------------------
3.14(a) Material Contracts (including Form of Standard BNR to provide
Form Rental Contract) standard
form Rental Contract
- ----------------------------------------------------------------------------------------
3.14(b) Outstanding Judgments
- ----------------------------------------------------------------------------------------
3.15 Insurance Policies J.L. to obtain from
P. Seltzer
- ----------------------------------------------------------------------------------------
3.16 Directors, Officers and Employees J.M. to obtain from
U.R.I.
- ----------------------------------------------------------------------------------------
3.17(a) Employee Benefit Plans and Agreements
- ----------------------------------------------------------------------------------------
3.17(b) Union Contracts and Agreements
- ----------------------------------------------------------------------------------------
3.18(b) List of Exceptions re: Taxes
- ----------------------------------------------------------------------------------------
3.18(b)(i) Tax Assessments BNR: KPMG
- ----------------------------------------------------------------------------------------
3.18(b)(ii) Fiscal Periods Open for Assessment BNR: KPMG
- ----------------------------------------------------------------------------------------
3.18(l) Pre-Closing Distribution of Assets
- ----------------------------------------------------------------------------------------
3.19 List of Exceptions re: Delivery of Materials
- ----------------------------------------------------------------------------------------
3.20 List of Exceptions re: Product Quality,
Warranty
Claims and Liability
- ----------------------------------------------------------------------------------------
3.21 List of exceptions re: Change of the Assets,
Liabilities or Operations
- ----------------------------------------------------------------------------------------
3.23 Banking Information
- ----------------------------------------------------------------------------------------
3.24 List of Exceptions re: Compliance with Laws
- ----------------------------------------------------------------------------------------
3.26 Underground Storage Tanks, etc.
- ----------------------------------------------------------------------------------------
3.27 Intellectual Property
- ----------------------------------------------------------------------------------------
3.32 Related Party Transactions
- ----------------------------------------------------------------------------------------
</TABLE>
44
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
SCHEDULE # TITLE PRINCIPAL
SHAREHOLDER
(INITIALS ONLY)
- ----------------------------------------------------------------------------------------
<S> <C> <C>
3.37 Brokers, etc.
- ----------------------------------------------------------------------------------------
5.1(b) Form of Consulting Agreement
- ----------------------------------------------------------------------------------------
5.1(c) Opinion of Counsel to United BWL
- ----------------------------------------------------------------------------------------
5.1(d) Release of Shareholders Adam Kardash
- ----------------------------------------------------------------------------------------
5.2(b) Opinion of Counsel to BNR Group and D. Linton/BWL
Shareholders
- ----------------------------------------------------------------------------------------
5.2(d) Officers and Directors Release of the BNR Adam Kardash
Group
- ----------------------------------------------------------------------------------------
5.2(e) Form of Triple-Net Leases
- ----------------------------------------------------------------------------------------
5.2(f) Option to Lease
- ----------------------------------------------------------------------------------------
6.7 Form of Assignment of Lease and Estoppel
Certificate
- ----------------------------------------------------------------------------------------
</TABLE>
45
<PAGE>
EXHIBIT 21
UNITED RENTALS SUBSIDIARIES
Mercer Equipment Company, Inc. (NC)
Gene's Village Rental & Sales, Inc. (SC)
Salisbury Rental Center, Inc. (NC)
Access Rentals, Inc. (NY)
BNR Equipment, Inc. (NY)
United Rentals Of Canada, Inc.(CN)
Access Lift Equipment, Inc. (CN)
Manchester Equipment Rental & Sales, Inc. (CT)
Darien Rental Services, Inc., (CT)
Anchor Rental, Inc. (CT)
ASC Equipment Co., Inc. (NC)
Coran Enterprises, Inc. (CA)
A&A Tool Rentals & Sales, Inc. (CA)
Rent-It-Center, Inc. (UT)
J&J Rental Services, Inc. (TX)
A-1 Rents of Galveston, Inc. (TX)
Bronco Hi-Lift, Inc. (CO)
Mission Valley Rentals, Inc. (CA)
Channel Equipment Holdings, Inc. (TX)
River City Machinery, Inc. (TX)
Pro Rentals, Inc. (WA)
San Leandro Equipment Rentals Service, Inc. (CA)
Nevada High Reach Equipment, Inc. (NV)
America Rents (NV)
United Rentals of Utah, Inc. (UT)
(inactive)
United Rents Et. Al., Inc. (CA)
(inactive)
<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 January 30, 1998, with respect to the consolidated
financial statements of United Rentals, Inc. in the Registration Statement
(Form S-1 No. 333-xxxxx) and the related Prospectus of United Rentals, Inc.
for the registration of 6,325,000 shares of its common stock.
/s/ Ernst & Young LLP
MetroPark, New Jersey
February 3, 1998
<PAGE>
EXHIBIT 23(D)
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated January 23, 1998, with respect to the financial
statements of J&J Rental Services, Inc. in the Registration Statement (Form S-
1 No. 333-xxxxx) and the related Prospectus of United Rentals, Inc. for the
registration of 6,325,000 shares of its common stock.
/s/ Ernst & Young LLP
MetroPark, New Jersey
February 3, 1998
<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 January 19, 1998, with respect to the financial
statements of Bronco Hi-Lift, Inc., in the Registration Statement (Form S-1
No. 333-xxxxx) and the related Prospectus of United Rentals, Inc. for the
registration of 6,325,000 shares of its common stock.
/s/ Ernst & Young LLP
MetroPark, New Jersey
February 3, 1998
<PAGE>
EXHIBIT 23(F)
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated January 23, 1998, with respect to the financial
statements of Mission Valley Rentals, Inc., in the Registration Statement
(Form S-1 No. 333-xxxxx) and the related Prospectus of United Rentals, Inc.
for the registration of 6,325,000 shares of its common stock.
/s/ Ernst & Young LLP
MetroPark, New Jersey
February 3, 1998
<PAGE>
EXHIBIT 23(G)
The Board of Directors
A&A Tool Rentals & Sales, Inc.:
We consent to the use of our report dated November 20, 1997, with respect to
the financial statements of A&A Tool Rentals & Sales, Inc. included herein and
to the reference to our firm under the heading "Experts" in the prospectus.
KPMG Peat Marwick LLP
Sacramento, California
February 3, 1998
<PAGE>
EXHIBIT 23(H)
Board of Directors
The BNR Group of Companies:
We consent to the use of our reports included herein and to the reference to
our firm under the heading "Experts" in the prospectus.
KPMG
Waterloo, Canada
February 3, 1998
<PAGE>
EXHIBIT 23(I)
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated January 21, 1998, with respect to the financial
statements of MERCER Equipment Company in the Registration Statement (Form S-1
No. 333-xxxxx) and the related Prospectus of United Rentals, Inc. for the
registration of 6,325,000 shares of its common stock filed with the Securities
and Exchange Commission on February 4, 1998.
/s/ Webster, Duke & Co. PA
Charlotte, North Carolina
February 3, 1998
<PAGE>
EXHIBIT 23(J)
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have issued our report dated January 21, 1998, accompanying the combined
financial statements of Coran Enterprises, Inc., dba A-1 Rents, and Monterey
Bay Equipment Rental, Inc. contained in the Registration Statement and
Prospectus. We consent to the use of the aforementioned report in the
Registration Statement and Prospectus, on Form S-1 (File No. 333-xxxxx), and
to the use of our name as it appears under the caption "Experts."
/s/ Grant Thornton LLP
San Jose, California
February 3, 1998
<PAGE>
EXHIBIT 23(K)
INDEPENDENT PUBLIC ACCOUNTANTS' CONSENT
We hereby consent to the use in the Registration Statement on Form S-1-No.
333-XXXXX of our report dated January 22, 1998 relating to the financial
statements of Access Rentals, Inc., and Subsidiary and Affiliate. We also
consent to the reference to us under the heading "Experts" in such
Registration Statement.
/s/ BATTAGLIA, ANDREWS & MOAG, P.C.
Batavia, New York
February 3, 1998
<PAGE>
EXHIBIT 23(L)
CONSENT OF PERSON CHOSEN TO BECOME A DIRECTOR
Reference is made to the Registration Statement on Form S-1 being filed by
United Rentals, Inc., a Delaware corporation (the "Company"). The undersigned
consents to be named in the Registration Statement and any amendments thereto
as a person who will become a director of the Company upon completion of the
offering contemplation thereby.
/s/ Wayland R. Hicks
-------------------------------------
Wayland R. Hicks
Dated: As of February 3, 1998
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