-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, CSuHHhyD2Yt40CMdnriSWH5jS6cPu+GHGEYeEU0zk0oLqXNfhDU5yfxev1nh942U ArQ3ySDSisR9ivsTJSbsBw== 0000950115-99-001625.txt : 19991215 0000950115-99-001625.hdr.sgml : 19991215 ACCESSION NUMBER: 0000950115-99-001625 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 19990930 FILED AS OF DATE: 19991214 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ROLLINS TRUCK LEASING CORP CENTRAL INDEX KEY: 0000084244 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-AUTO RENTAL & LEASING (NO DRIVERS) [7510] IRS NUMBER: 510074022 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-05728 FILM NUMBER: 99774417 BUSINESS ADDRESS: STREET 1: ONE ROLLINS PLAZA STREET 2: 2200 CONCORD PIKE CITY: WILMINGTON STATE: DE ZIP: 19803 BUSINESS PHONE: 3024262700 FORMER COMPANY: FORMER CONFORMED NAME: RLC CORP DATE OF NAME CHANGE: 19900130 FORMER COMPANY: FORMER CONFORMED NAME: ROLLINS LEASING CORP DATE OF NAME CHANGE: 19691118 10-K 1 ANNUAL REPORT - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 - -------------------------------------------------------------------------------- FORM 10-K (Mark One) |X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended September 30, 1999 ------------------------------- OR |_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] For the transition period from ________________ to _______________ Commission file number 1-5728 ----------------------------- ROLLINS TRUCK LEASING CORP. ------------------------------------------------------ (Exact name of registrant as specified in its charter) DELAWARE 51-0074022 - ------------------------ --------------------------------------- (State of Incorporation) (I.R.S. Employer Identification Number) ONE ROLLINS PLAZA, WILMINGTON, DELAWARE 19803 (Address of principal executive offices) Registrant's telephone number including area code (302) 426-2700 Securities registered pursuant to Section 12(b) of the Act: Name of each exchange on Title of Class which registered - -------------------------- ---------------------------------------- Common Stock, $1 Par Value NEW YORK STOCK EXCHANGE PACIFIC STOCK EXCHANGE Securities registered pursuant to Section 12(g) of the Act: NONE Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES |X| NO __ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. |X| The aggregate market value of the voting stock held by non-affiliates of the registrant was $442,830,000 as of October 31, 1999. The number of shares of registrant's common stock outstanding as of October 31, 1999 was 56,812,381. The following documents are incorporated by reference: Part of this form into which Document incorporated - ---------------------------------------- ----------------------------- Proxy Statement in connection with Annual Meeting of Shareholders to be held January 27, 2000 III PART I ITEM I. BUSINESS. The Registrant, Rollins Truck Leasing Corp., together with its subsidiaries, is referred to as the "Company" unless the context clearly indicates otherwise. (a) General Development of Business There have been no significant changes in the business of the Company through September 30, 1999. Events subsequent to September 30, 1999 that are of significance to the Company are as follows: (1) On October 29, 1999, a subsidiary of the Company acquired the net assets and business of Keen Leasing, Inc. ("Keen") for a purchase price of $41,942,000 in cash and the assumption of liabilities of $3,264,000. Keen is a truck rental and leasing business headquartered in Harrisburg, Pennsylvania, which currently services approximately 1,800 vehicles from 13 locations in Pennsylvania, Maryland and Virginia. (2) On November 12, 1999, the Company executed a stock purchase agreement with the UPS Logistics Group ("UPS Logistics"), a unit of United Parcel Service, Inc., whereby a subsidiary of the Company would acquire UPS Truck Leasing. UPS Truck Leasing, which has its headquarters in Atlanta, Georgia, is in the truck rental and leasing business and currently maintains approximately 9,000 trucks from 54 facilities throughout the United States. The Company also executed an asset sales agreement to sell the assets and business of Rollins Logistics Inc., its dedicated carriage and logistics subsidiary, to UPS Logistics. Closing under these two agreements is subject to normal conditions and is expected to occur in early January 2000. In connection with the above, the Company also will enter into a Strategic Alliance Agreement (the "Alliance") with UPS Logistics. The Alliance is for an initial term of five years. Under the terms of the Alliance, Rollins would become the preferred provider of lease and rental vehicles and other ancillary services to Worldwide Dedicated Services, Inc., a unit of the UPS Logistics Group. In turn, the UPS Logistics Group would become the preferred provider of logistics management and dedicated logistics services to Rollins and its customers. The Company is expected to issue 2,000,000 shares of Common Stock as partial consideration for the purchase of UPS Truck Leasing with the remainder of the consideration to be paid in cash. The Company is expected to receive cash as consideration for the sale of Rollins Logistics Inc. (b) Financial Information about Industry Segments The Company operates principally in one industry segment and through its principal subsidiaries, Rollins Leasing Corp. ("Rollins") and Rollins Logistics Inc., is engaged primarily in full-service truck leasing and rentals and the provision and management of transportation and logistics systems. All of the Company's operations currently are conducted within the United States and Canada. The financial information concerning this business is included in this 1999 Annual Report on Form 10-K. (c) Narrative Description of Business Full-service leasing accounts for the major portion of Rollins' revenues. Under these leases, Rollins purchases vehicles and components that are custom-engineered to the customer's requirements. This equipment is then leased to the customer for periods usually ranging from three to eight years. Rollins provides fuel, oil, tires, washing and regularly scheduled maintenance and repairs at its facilities. In addition, Rollins arranges for licenses and insurance, pays highway and use taxes and supplies a 24-hour-a-day emergency road service to its customers. 1 Through Rollins Logistics Inc. and its subsidiaries, the Company provides and manages transportation and logistics systems for companies in a wide range of industries throughout the United States. These services are designed to meet the higher demand for the outsourcing of transportation, distribution and logistics functions. Dedicated Carriage Services analyzes a customer's specific distribution needs and then custom-designs and operates a transportation/distribution system, which can include any of the services mentioned previously plus management, drivers and other operating personnel. The Company also offers logistics management services and warehouse management to companies that desire to outsource their distribution and warehousing functions to a third-party provider. These services can range from selection and negotiation of core carrier contracts to selection of the most cost effective carrier for specific traffic lane movements. The commercial rental fleet, which at September 30, 1999 consisted of more than 9,600 units with payload capacities ranging from 4,000 to 45,000 pounds, offers tractors, trucks and trailers to customers for short periods of time ranging from one day to several months. The Company's commercial rental fleet also provides additional vehicles to full service lease customers to handle their peak or seasonal business needs. The rental fleet's average age is approximately two years. The utilization rate of the rental fleet during fiscal year 1999 averaged in excess of 85%. Rollins does not offer services in the consumer one-way truck rental market. Rollins also furnishes a guaranteed maintenance service to private fleet customers who choose to own their vehicles. This service includes preventive maintenance, fuel procurement, tax reporting, permitting, licensing and access to the Rollins 24-hour-a-day emergency road service. There are many companies engaged in all aspects of vehicle rental and leasing, some of which also operate on a nationwide basis and are larger than the Company's business. Ryder System, Inc. and Penske Truck Leasing Co., L.P., Inc. are respectively the largest and second largest competitors in the truck leasing industry. The Company believes Rollins is the third largest competitor in the field of full-service leasing and short-term rental of heavy duty trucks in the United States. Since the unit cost of vehicles and the cost of the borrowed funds used to purchase such vehicles are believed to be similar for most vehicle leasing companies, successful competition is based in part on service. At September 30, 1999, a total of 3,964 persons were employed by the Company. ITEM 2. PROPERTIES. The Company's headquarters is located in a modern 15-story office building of approximately 245,000 square feet owned by the Company at One Rollins Plaza, Wilmington, DE 19803. In addition to providing administrative office space to the Company and its subsidiaries, a lesser portion of the building is leased to Matlack Systems, Inc. for its use as administrative offices and corporate headquarters. The Company's principal operating properties consist of land and buildings used in its truck leasing and rental business. These properties generally consist of an equipment repair facility and administrative offices. Rollins owns or leases 217 facilities in 41 states and one Canadian province. ITEM 3. LEGAL PROCEEDINGS. Neither the Company nor any of its subsidiaries is a party to any material legal proceedings. The Company and its subsidiaries are engaged in ordinary routine litigation incidental to the business. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. None. 2 PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS. STOCK PRICES AND DIVIDENDS At September 30, 1999, there were 2,067 holders of record of the Common Stock. The range of share prices for the Common Stock on the New York and Pacific Stock Exchanges and per share dividends paid on Common Stock for the fiscal years ended September 30, 1999 and 1998 are as follows:
Prices Dividends -------------------------------------------------- -------------- 1999 1998 1999 1998 ---------------------- ----------------------- ---- ---- High Low High Low ---- --- ---- --- Fiscal Quarter First ..................... $15 1/4 $10 3/16 $12 1/4 $10 5/16 $.05 $.037 Second .................... 14 1/2 9 1/16 14 5/16 11 7/16 .05 .037 Third ..................... 11 3/4 9 5/16 14 11 1/4 .05 .04 Fourth .................... 12 1/4 10 1/16 13 3/8 8 7/8 .05 .04
ITEM 6. SELECTED FINANCIAL DATA.
FIVE-YEAR SELECTED FINANCIAL DATA (Dollars in Millions, Except Per Share Amounts) Fiscal Year Ended September 30, 1999 1998 1997 1996 1995 - ----------------------------------------------------------------------------------------------- Revenues 627.4 610.2 556.7 513.8 482.6 Earnings before income taxes 92.7 85.1 70.2 55.9 67.1 Net earnings 56.5 52.0 42.8 34.1 41.3 Earnings per share: Basic .98 .86 .68 .52 .61 Earnings per share: Diluted .97 .85 .68 .52 .61 Dividends per common share .20 .15 .13 .12 .11 - ----------------------------------------------------------------------------------------------- At September 30, Total assets 1,412.9 1,297.5 1,191.8 1,125.2 1,027.0 Equipment on operating leases, net 1,012.3 924.9 847.9 784.3 727.9 Equipment financing obligations 802.5 749.9 671.8 641.4 574.2 Shareholders' equity 320.4 292.0 288.7 284.0 275.6 - -----------------------------------------------------------------------------------------------
3 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of Operations Items in Rollins Truck Leasing Corp.'s Consolidated Statement of Earnings for the three years ended September 30, 1999 as a percentage of revenues and the percentage changes in dollar amounts of the items compared with the previous year are as follows:
Percentage Percentage of Revenue Increase (Decrease) ----------------------------- ------------------------ Year ended September 30, Year 1999 Year 1998 1999 1998 1997 Over 1998 Over 1997 ---- ---- ---- --------- --------- Revenues 100.0% 100.0% 100.0% 2.8% 9.6% ----- ----- ----- Expenses Operating 38.1 40.0 41.1 (2.1) 6.7 Depreciation 31.8 30.1 30.5 8.7 7.9 Gain on sale (2.7) (1.6) (2.2) 73.8 (20.0) Selling and administrative 9.2 9.1 9.1 4.1 10.1 ----- ----- ----- 76.4 77.6 78.5 1.2 8.3 Operating earnings 23.6 22.4 21.5 8.3 14.4 Interest expense 8.8 8.4 8.9 7.3 4.7 ----- ----- ----- Earnings before income taxes 14.8 14.0 12.6 9.0 21.2 Income taxes 5.8 5.5 4.9 9.6 20.7 ----- ----- ----- Net earnings 9.0% 8.5% 7.7% 8.6% 21.6% ===== ===== =====
Fiscal Year 1999 vs. 1998 Revenues increased by $17.2 million as full-service lease and commercial rental revenues improved over the prior year. Full-service lease, guaranteed maintenance and logistics revenues represented approximately 72% of total revenues. Logistics and dedicated revenues declined by 9% due to the loss of two large accounts at the end of the last fiscal year. Commercial rental revenues, which represented the remainder of total revenues, increased by 8.9% due in large part to the increased level of rental business. Operating expenses decreased by $5.1 million. The decrease resulted from a reduction in driver payroll of $2.9 million and a reduction in fuel costs of $.8 million both related to the decline in logistics and dedicated revenues. Other operating expenses on a broad-basis increased as a result of the overall higher level of business, however, the increase was more than offset by a decrease in environmental costs as the Company completed its underground storage tank replacement program by the end of calendar year 1998. Depreciation expense increased by $15.9 million as a result of the Company's increased investment in equipment on operating leases and related transportation service facilities required to support the current level of business. Gain on sale of property and equipment increased by $7.2 million and reflected both higher average selling prices realized on transportation equipment and an increase in the number of units sold. Selling and administrative expenses increased by $2.3 million to $57.8 million from $55.5 million in 1998 and reflected the higher level of business. Increased employee compensation and related benefits and office expenses were offset in large part by reductions in advertising and insurance costs. 4 Interest expense increased by $3.8 million due to the increased level of borrowings experienced during the current year. Interest rates decreased slightly when compared with the prior year. The effective income tax rate was 39.1% in 1999 and 38.9% in 1998. Net earnings increased by $4.5 million to $56.5 million or $.97 per diluted share from $52.0 million or $.85 per diluted share in 1998. The increased net earnings resulted from the higher revenues and the increased gain realized from the sale of property and equipment. Fiscal Year 1998 vs. 1997 Revenues increased by $53.5 million as full-service lease, logistics and commercial rental revenues all improved over the prior year. Full-service lease, guaranteed maintenance and logistics revenues represented approximately 74% of total revenues. The revenue increase was in large part volume-related as competitive conditions limited price increases. Commercial rental revenues, which represented the remainder of total revenues, increased by 14.7% and was in part due to improved pricing and the increased level of business experienced in 1998. Operating expenses increased by $15.3 million reflecting the increase in revenues. The more significant operating expense increases resulted from increased drivers' wages of $9.0 million and increased shop payroll of $3.1 million. The remainder of the operating expense increase was broad-based and resulted from the overall higher level of business. Depreciation increased by $13.4 million principally due to the increased investment in equipment on operating leases and related transportation service facilities required to support the current level of business. Gain on sale of property and equipment decreased by $2.4 million to $9.8 million when compared with the 1997 gain of $12.2 million. The decrease resulted from lower unit selling prices realized on fewer units of equipment sold. Selling and administrative expenses increased by $5.0 million to $55.5 million from $50.5 million in 1997. Increased salaries, wages and sales commissions accounted for $3.0 million of the increase and reflected the higher level of business in 1998. Increased advertising costs of $1.1 million and increased information technology costs of $.9 million accounted for the most significant portion of the remainder of the increase. Interest expense increased by $2.3 million due to the higher level of borrowings related to the purchase of additional equipment when compared with the prior year. Interest rates remained essentially unchanged during the year. The effective income tax rate was 38.9% in 1998 and 39.0% in 1997. Net earnings increased by $9.2 million to $52.0 million or $.85 per diluted share from $42.8 million or $.68 per diluted share in 1997. Higher revenues, which resulted from the increased volume of business, produced the increased net earnings. Liquidity and Capital Resources The Company's primary operation is the full-service leasing and rental of tractors, trucks and trailers, which requires substantial amounts of capital and access to financing sources. At September 30, 1999, equipment on operating leases of $1,012.3 million represented 71.6% of the Company's assets. Funds for the acquisition of this equipment are provided principally by the cash flows from operations, the proceeds from the sale of used equipment and borrowings under the Company's revolving credit facility. Cash flows from operating activities of $267.2 million were generated principally from net earnings of $56.5 million and the noncash depreciation and amortization totaling $199.7 million. Because existing leases provide the primary source of funds from operations, the Company expects a similar amount of funds to be generated in 2000. 5 Investing activities reflect the Company's capital expenditures of $355.2 million in 1999 and $332.8 million in 1998. Proceeds from the sale of equipment amounted to $88.0 million in 1999 and $67.5 million in 1998. At September 30, 1999, the Company's commitment for the purchase of revenue equipment was $161.3 million. Based on the current level of business and including commitments already made at September 30, 1999, the Company anticipates spending approximately $425.0 million for equipment and facilities in 2000. Equipment financing obligations increased to $802.5 million at September 30, 1999 from $749.9 million a year earlier. Borrowings from external sources included equipment term loans, capitalized leases and, in April 1999, the sale of $100.0 million of 6.75% Collateral Trust Debentures, Series T, due April 5, 2006. At September 30, 1999, the Company could sell an additional $55.0 million of Collateral Trust Debentures under its current shelf registration statement. Based on its access to the debt markets and relationships with current lending institutions and others who have expressed an interest in providing financing, the Company expects to continue to be able to obtain financing for its equipment and facility purchases at market rates and under satisfactory terms and conditions. The Company's principal subsidiary, Rollins Leasing Corp., has revolving credit facilities available which aggregate $100.0 million at September 30, 1999. These facilities, used primarily to finance vehicle purchases on an interim basis pending placement of long-term financing, require the maintenance of specified financial ratios and restrict payments to the Company. At the option of the banks who provide the facilities, the credit facilities and the Company's Collateral Trust Debentures may be secured by certain leasing equipment. During 1999, the Company's financing activities included an increase in equipment financing obligations of $52.6 million, payment of dividends of $11.6 million and the purchase and retirement of 1,776,700 shares of $1 par value common stock for $18.3 million. At September 30, 1999, the Company was authorized to purchase 733,300 additional shares of its stock. At September 30, 1999 and 1998, the debt to equity ratio of the Company was 2.5 to 1 and 2.6 to 1, respectively. Year 2000 ("Y2K") Readiness Disclosure The Company is aware of the issues related to the approach of the year 2000 as they relate to information technology programming issues which could have a significant potential impact on its future operations and financial reporting. In this regard, the Company has assessed and investigated what steps must be taken to ensure that its critical systems and equipment will function appropriately after the turn of the century. The assessments included a review of what systems and equipment need to be changed or replaced in order to function correctly. The Company has further determined that onboard computer systems in Company-owned vehicles are not affected by the Y2K issue. The Company's Y2K project was broken down into Corporate host-based systems and field-based data collection processes. Overall, the Company's work effort was allocated approximately 80 percent to host-based systems and 20 percent to field-based data processes. Essentially all host-based coding and testing has been completed. Full production with regard to remediated systems also has been completed. As part of the Company's remediation efforts, the field data collection systems were rewritten. With the exception of remediation and implementation consequences not known to the Company at this time, the Company believes that all systems should be fully implemented as of November 30, 1999. As part of the Company's assessment of Y2K issues, consideration was given to the possible impact upon the Company from using purchased software, suppliers and outside service providers. The Company's efforts with regard to Y2K issues are dependent in part upon information received from such suppliers and vendors upon which the Company has reasonably relied. While it is not possible for the Company to predict all future outcomes and eventualities, the Company is not aware, at this time, of any Y2K non-compliant situations with regard to any of its purchased software or its use of suppliers and outside service providers. 6 The Company estimates that it will spend approximately $2.0 million to fully implement its Y2K compliance program of which $1.87 million has been expended through September 30, 1999. All Y2K costs have been and will continue to be funded from operations. The Company has formulated a Y2K contingency plan that addresses potential short-term business disruptions resulting from losses of power, system malfunctions and related issues. However, due to the complexity and widespread nature of such issues, the contingency planning process, of necessity, must be an ongoing one requiring possible further modification as more information becomes known regarding: (1) the Company's own systems and facilities, and (2) the status and changes therein of the Y2K compliance efforts of outside suppliers and vendors. While it is not possible for the Company to predict all future outcomes and eventualities, the Company is not aware, at this time, of any Y2K non-compliant situations with regard to any of its purchased software or its use of suppliers and outside service providers which would have a material adverse effect upon the Company. Forward-Looking Statements The Company may make forward-looking statements relating to anticipated financial performance, business prospects, acquisitions or divestitures, new products, market forces, commitments and other matters. The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements. In order to comply with the terms of the safe harbor, the Company notes that a variety of factors could cause the Company's actual results and experience to differ materially from the anticipated results or other expectations expressed in the Company's forward-looking statements. Forward-looking statements typically contain words such as "anticipates", "believes", "estimates", "expects", "forecasts", "predicts", or "projects", or variations of these words, suggesting that future outcomes are uncertain. Various risks and uncertainties may affect the operations, performance, development and results of the Company's business and could cause future outcomes to differ materially from those set forth in forward-looking statements, including the following factors: general economic conditions, competitive factors and pricing pressures, shift in market demand, the performance and needs of industries served by the Company, equipment utilization, management's success in developing and introducing new services and lines of business, potential increases in labor costs, potential increases in equipment, maintenance and fuel costs, uncertainties of litigation, the Company's ability to finance its future business requirements through outside sources or internally generated funds, the availability of adequate levels of insurance, success or timing of completion of ongoing or anticipated capital or maintenance projects, success or timing of closing under acquisitions or divestitures and efficient integration or utilization of newly acquired facilities, equipment and personnel, management retention and development, changes in Federal, State and local laws and regulations, including environmental regulations, as well as the risks, uncertainties and other factors described from time to time in the Company's SEC filings and reports. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. The consolidated financial statements of the Company, the Independent Auditors' Report and the financial statement schedules included in this report are shown on the Index to the Consolidated Financial Statements and Schedules. ITEM 9. DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None. 7 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. Except as presented below, the information called for by this Item 10 is incorporated by reference from the Company's Proxy Statement to be filed pursuant to Regulation 14A for the Annual Meeting of Shareholders to be held on January 27, 2000. Executive Officers of the Registrant. As of October 31, 1999, the Executive Officers of the registrant were:
Name Position Age Term of Office ---- -------- --- -------------- Patrick J. Bagley Vice President-Finance and 52 7/87 to date Treasurer 1/87 to date I. Larry Brown President and Chief Executive Officer, 54 1994 to date Rollins Leasing Corp. Klaus M. Belohoubek Vice President-General Counsel and Secretary 40 7/99 to date John W. Rollins Chairman of the Board and 83 1954 to date Chief Executive Officer 10/74 to date John W. Rollins, Jr. President and Chief Operating Officer 57 9/75 to date and Director Henry B. Tippie Chairman of the Executive Committee 72 3/74 to date and Vice Chairman of the Board
I. Larry Brown has been employed by Rollins Leasing Corp., a wholly owned subsidiary of Rollins Truck Leasing Corp., since 1973. Mr. Brown has been President of Rollins Leasing Corp. since 1994 and Chief Executive Officer since 1996. Klaus M. Belohoubek has been Vice President-General Counsel and Secretary to the Company since 1999 and was Assistant General Counsel from 1990 to 1999. Mr. Belohoubek also serves as Vice President-General Counsel and Secretary to Matlack Systems, Inc. and Vice President-General Counsel to Dover Downs Entertainment, Inc. The Company's Executive Officers are elected for the ensuing year and until their successors are elected. ITEM 11. EXECUTIVE COMPENSATION. The information called for by this Item 11 is incorporated by reference from the Company's Proxy Statement to be filed pursuant to Regulation 14A for the Annual Meeting of Shareholders to be held on January 27, 2000. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. The information called for by this Item 12 is incorporated by reference from the Company's Proxy Statement to be filed pursuant to Regulation 14A for the Annual Meeting of Shareholders to be held on January 27, 2000. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. During the year ended September 30, 1999, the following officers and/or directors of the Company were also officers and/or directors of Matlack Systems, Inc.; Patrick J. Bagley, Klaus M. Belohoubek, Michael B. Kinnard, William B. Philipbar, Jr., John W. Rollins, John W. Rollins, Jr. and Henry B. Tippie. John W. Rollins owns directly and of record 11.4% of the outstanding shares of Common Stock of Matlack Systems, Inc. at October 31, 1999. 8 The following officers and/or directors of the Company were also officers and/or directors of Dover Downs Entertainment, Inc.; Patrick J. Bagley, Klaus M. Belohoubek, Michael B. Kinnard, John W. Rollins, John W. Rollins, Jr. and Henry B. Tippie. John W. Rollins owns directly and of record 32.5% of the outstanding shares of Common Stock of Dover Downs Entertainment, Inc. at October 31, 1999. The description of transactions between the Company and Matlack Systems, Inc. and between the Company and Dover Downs Entertainment, Inc. appears under the caption "Transactions with Related Parties" of this 1999 Annual Report on Form 10-K. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K. (a) Financial Statements, Financial Statement Schedules and Exhibits. (1) Financial Statements - See accompanying Index to Consolidated Financial Statements and Schedules. (2) Financial Statements Schedules - See accompanying Index to Consolidated Financial Statements and Schedules. (3) Exhibits: (3)(a) Restated Certificate of Incorporation of Rollins Truck Leasing Corp. as last amended on January 25, 1990, as filed with the Company's Annual Report on Form 10-K for the year ended September 30, 1997, is incorporated herein by reference. (3)(b) By-Laws of Rollins Truck Leasing Corp. as last amended on October 28, 1999. (4)(a) Collateral Trust Indenture dated as of March 21, 1983, between RLC CORP. (now known as Rollins Truck Leasing Corp.) and Bank of America Illinois (formerly Continental Illinois National Bank and Trust Company of Chicago), as Trustee, as filed with the Company's Registration Statement No. 33-40476 on Form S-3 dated May 10, 1991, is incorporated herein by reference. (4)(b) Third Supplemental Collateral Trust Indenture dated February 20, 1986 to the Collateral Trust Indenture dated March 21, 1983 between RLC CORP. (now known as Rollins Truck Leasing Corp.) and Bank of America Illinois (formerly Continental Illinois National Bank and Trust Company of Chicago), as Trustee, as filed with the Company's Registration Statement No. 33-40476 on Form S-3 dated May 10, 1991, is incorporated herein by reference. (4)(c) Eighth Supplemental Collateral Trust Indenture dated May 15, 1990 to the Collateral Trust Indenture dated March 21, 1983 as supplemented and amended by a Third Supplemental Indenture thereto dated as of February 20, 1986, between Rollins Truck Leasing Corp. and Bank of America Illinois (formerly Continental Bank, N.A.), as Trustee, as filed with the Company's Registration Statement No. 33-67682 on Form S-3 dated August 20, 1993 is incorporated herein by reference. (4)(d) Eleventh Supplemental Collateral Trust Indenture dated March 15, 1993 to the Collateral Trust Indenture dated March 21, 1983 as supplemented and amended by a Third Supplemental Indenture thereto dated as of February 20, 1986 and by an Eighth Supplemental Indenture dated May 15, 1990, between Rollins Truck Leasing Corp. and Bank of America Illinois (formerly Continental Bank, N.A.), as Trustee, as filed with the Company's Registration Statement No. 333-21835 on Form S-3 dated February 14, 1997 is incorporated herein by reference. (4)(e) Twelfth Supplemental Collateral Trust Indenture dated March 15, 1994 to the Collateral Trust Indenture dated March 21, 1983 as supplemented and amended by a Third Supplemental Indenture thereto dated as of February 20, 1986 and by an Eighth Supplemental Indenture dated May 15, 1990, between Rollins Truck Leasing Corp. and Bank of America Illinois (formerly Continental Bank, N.A.), as Trustee, as filed with the Company's Registration Statement No. 333-21835 on Form S-3 dated February 14, 1997 is incorporated herein by reference. 9 (4)(f) Thirteenth Supplemental Collateral Trust Indenture dated March 15, 1995 to the Collateral Trust Indenture dated March 21, 1983 as supplemented and amended by a Third Supplemental Indenture thereto dated as of February 20, 1986 and by an Eighth Supplemental Indenture dated May 15, 1990, between Rollins Truck Leasing Corp. and Bank of America Illinois (formerly Continental Bank, N.A.), as Trustee, as filed with the Company's Registration Statement No. 333-21835 on Form S-3 dated February 14, 1997 is incorporated herein by reference. (4)(g) Fourteenth Supplemental Collateral Trust Indenture dated May 15, 1995 to the Collateral Trust Indenture dated March 21, 1983 as supplemented and amended by a Third Supplemental Indenture thereto dated as of February 20, 1986 and by an Eighth Supplemental Indenture dated May 15, 1990, between Rollins Truck Leasing Corp. and Bank of America Illinois (formerly Continental Bank, N.A.), as Trustee, as filed with the Company's Registration Statement No. 333-21835 on Form S-3 dated February 14, 1997 is incorporated herein by reference. (4)(h) Fifteenth Supplemental Collateral Trust Indenture dated March 15, 1996 to the Collateral Trust Indenture dated March 21, 1983 as supplemented and amended by a Third Supplemental Indenture thereto dated as of February 20, 1986 and by an Eighth Supplemental Indenture dated May 15, 1990, between Rollins Truck Leasing Corp. and First Trust of Illinois, National Association, as Trustee, as filed with the Company's Registration Statement No. 333-21835 on Form S-3 dated February 14, 1997 is incorporated herein by reference. (4)(i) Sixteenth Supplemental Collateral Trust Indenture dated August 7, 1996 to the Collateral Trust Indenture dated March 21, 1983 as supplemented and amended by a Third Supplemental Indenture thereto dated as of February 20, 1986 and by an Eighth Supplemental Indenture dated May 15, 1990, between Rollins Truck Leasing Corp. and First Trust of Illinois, National Association, as Trustee, as filed with the Company's Registration Statement No. 333-21835 on Form S-3 dated February 14, 1997 is incorporated herein by reference. (4)(j) Seventeenth Supplemental Collateral Trust Indenture dated as of March 10, 1997 to the Collateral Trust Indenture dated as of March 21, 1983 as supplemented and amended by a Third Supplemental Indenture thereto dated as of February 20, 1986 and by the Eighth Supplemental Indenture dated as of May 15, 1990 between Rollins Truck Leasing Corp. and First Union National Bank, as Trustee, as filed with the Company's Annual Report on Form 10-K for the year ended September 30, 1997, is incorporated herein by reference. (4)(k) Eighteenth Supplemental Collateral Trust Indenture dated as of July 16, 1998 to the Collateral Trust Indenture dated as of March 21, 1983 as supplemented and amended by a Third Supplemental Indenture thereto dated as of February 20, 1986, an Eighth Supplemental Indenture thereto dated as of May 15, 1990 and by the Seventeenth Supplemental Indenture dated as of March 10, 1997 between Rollins Truck Leasing Corp. and First Union National Bank, as Trustee, as filed with the Company's Annual Report on Form 10-K for the year ended September 30, 1998, is incorporated herein by reference. (4)(l) Nineteenth Supplemental Collateral Trust Indenture dated as of April 5, 1999 to the Collateral Trust Indenture dated as of March 21, 1983 as supplemented and amended by a Third Supplemental Indenture thereto dated as of February 20, 1986, an Eighth Supplemental Indenture thereto dated as of May 15, 1990 and by the Seventeenth Supplemental Indenture dated as of March 10, 1997 between Rollins Truck Leasing Corp. and First Union National Bank, as Trustee. (4)(m) Rollins Truck Leasing Corp. Rights Agreement dated as of June 1, 1999 as filed as an Exhibit to Registration Statement on Form 8-A filed by the Company on June 30, 1999 is incorporated herein by reference. (4)(n) Asset Purchase Agreement by and among Worldwide Dedicated Services, Inc., Rollins Truck Leasing Corp., Rollins Logistics Inc., Rollins Dedicated Carriage Services, Inc. and Rollins Transportation Systems, Inc. as of November 12, 1999. (4)(o) Stock Purchase Agreement by and between UPS Logistics Group, Inc., UPS Truck Leasing, Inc., Rollins Truck Leasing Corp. and Rollins Leasing Corp. as of November 12, 1999. 10 (4)(p) Strategic Alliance Agreement to be entered into as of December 31, 1999 in connection with the closing under the Stock Purchase Agreement filed as Exhibit (4)(o), above. (10)(a) RLC CORP. (now known as Rollins Truck Leasing Corp.) 1982 Incentive Stock Option Plan, as filed with the Company's Proxy Statement for the Annual Meeting of Shareholders held on January 27, 1983, is incorporated herein by reference. (10)(b) RLC CORP. (now known as Rollins Truck Leasing Corp.) 1986 Stock Option Plan, as filed with the Company's Proxy Statement for the Annual Meeting of Shareholders held on January 29, 1987, is incorporated herein by reference. (10)(c) Rollins Truck Leasing Corp. 1993 Stock Option Plan, as filed with the Company's Proxy Statement for the Annual Meeting of Shareholders held on January 27, 1994, is incorporated herein by reference. (10)(d) Rollins Truck Leasing Corp. 1997 Stock Option Plan, as filed with the Company's Proxy Statement for the Annual Meeting of Shareholders held on January 29, 1998, is incorporated herein by reference. (21) Rollins Truck Leasing Corp. Subsidiaries at September 30, 1999. (23) Consent of KPMG LLP, Independent Auditors, providing for incorporation by reference of their report dated October 27, 1999, except for the note "Subsequent Events" which is as of November 12, 1999, into Registration Statement No. 333-21835 filed on Form S-3. (27)(a) Rollins Truck Leasing Corp. Financial Data Schedule at September 30, 1999. (b) Reports on Form 8-K. On July 29, 1999, the Company filed a report on Form 8-K which, as an Item 5-Other Event, announced the appointment of Klaus M. Belohoubek, Esquire to the position of Vice President-General Counsel and Secretary. Additionally, the filing reported the resignation of Michael B. Kinnard, Esquire, formerly Vice President-General Counsel and Secretary as he had accepted the position of President and Chief Operating Officer of Matlack Systems, Inc. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. DATED: December 14, 1999 ROLLINS TRUCK LEASING CORP. ----------------- --------------------------- (Registrant) BY: /s/ John W. Rollins, Jr. ------------------------------------- John W. Rollins, Jr. President and Chief Operating Officer and Director Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated: /s/ Patrick J. Bagley Vice President-Finance and Treasurer December 14, 1999 - ------------------------------- Chief Financial Officer Patrick J. Bagley Chief Accounting Officer Director /s/ John W. Rollins Chairman of the Board and December 14, 1999 - ------------------------------- Chief Executive Officer John W. Rollins /s/ Gary W. Rollins Director December 14, 1999 - ------------------------------- Gary W. Rollins /s/ Henry B. Tippie Chairman of the Executive December 14, 1999 - ------------------------------- Committee and Vice Chairman Henry B. Tippie of the Board
11 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES (1) Consolidated ------------ Page(s) ------- Independent Auditors' Report on Financial Statements and Financial Statement Schedules 13 Consolidated Statement of Earnings for the years ended September 30, 1999, 1998 and 1997 14 Consolidated Balance Sheet at September 30, 1999 and 1998 15 Consolidated Statement of Cash Flows for the years ended September 30, 1999, 1998 and 1997 16 Consolidated Statement of Shareholders' Equity for the years\ ended September 30, 1999, 1998 and 1997 17 Notes to the Consolidated Financial Statements 18 to 26 (2) Financial Statement Schedules Rollins Truck Leasing Corp. (Parent) Schedule I - Condensed Financial Information Balance Sheet at September 30, 1999 and 1998 27 Statement of Earnings for the years ended September 30, 1999, 1998 and 1997 28 Statement of Cash Flows for the years ended September 30, 1999, 1998 and 1997 29 Notes to the Financial Statements 30 Rollins Truck Leasing Corp. and Subsidiaries Consolidated Schedule II - Valuation and Qualifying Accounts for the years ended September 30, 1999, 1998 and 1997 31 Any financial statement schedules otherwise required have been omitted because they are not applicable or the required information is shown in the financial statements or notes thereto. 12 Independent Auditors' Report The Shareholders and Board of Directors Rollins Truck Leasing Corp. We have audited the consolidated financial statements of Rollins Truck Leasing Corp. and subsidiaries as listed in the accompanying index. In connection with our audits of the consolidated financial statements, we also have audited the financial statement schedules as listed in the accompanying index. These consolidated financial statements and financial statement schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedules 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 Rollins Truck Leasing Corp. and subsidiaries as of September 30, 1999 and 1998, and the results of their operations and their cash flows for each of the years in the three-year period ended September 30, 1999, in conformity with generally accepted accounting principles. Also in our opinion, the related financial statement schedules, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly, in all material respects, the information set forth therein. KPMG LLP Wilmington, Delaware October 27, 1999, except for the note "Subsequent Events" which is as of November 12, 1999. 13 CONSOLIDATED STATEMENT OF EARNINGS
Year Ended September 30, - ------------------------------------------------------------------------------------------------ 1999 1998 1997 - ------------------------------------------------------------------------------------------------ Revenues $627,397,000 $610,157,000 $556,704,000 - ------------------------------------------------------------------------------------------------ Expenses Operating 239,162,000 244,260,000 228,957,000 Depreciation 199,342,000 183,465,000 170,039,000 Gain on sale of property and equipment (17,007,000) (9,787,000) (12,230,000) Selling and administrative 57,805,000 55,530,000 50,457,000 - ------------------------------------------------------------------------------------------------- 479,302,000 473,468,000 437,223,000 - ------------------------------------------------------------------------------------------------ Operating earnings 148,095,000 136,689,000 119,481,000 Interest expense, net 55,364,000 51,586,000 49,270,000 - ------------------------------------------------------------------------------------------------- Earnings before income taxes 92,731,000 85,103,000 70,211,000 Income taxes 36,258,000 33,080,000 27,417,000 - ------------------------------------------------------------------------------------------------- Net earnings $ 56,473,000 $ 52,023,000 $ 42,794,000 ================================================================================================= Earnings per share Basic $ .98 $ .86 $ .68 Diluted $ .97 $ .85 $ .68 Average shares outstanding Basic 57,833,000 60,340,000 62,681,000 Diluted 58,369,000 61,130,000 63,362,000
The Notes to the Consolidated Financial Statements are an integral part of these statements. 14 CONSOLIDATED BALANCE SHEET
September 30, - ------------------------------------------------------------------------------------------------------------------- 1999 1998 - ------------------------------------------------------------------------------------------------------------------- ASSETS Current assets Cash $ 34,280,000 $ 27,015,000 Accounts receivable, net of allowance for doubtful accounts: 1999-$2,479,000; 1998-$2,452,000 84,482,000 75,227,000 Inventories 8,074,000 7,394,000 Prepaid expenses 18,021,000 18,056,000 Deferred income taxes 5,189,000 7,034,000 - ------------------------------------------------------------------------------------------------------------------- Total current assets 150,046,000 134,726,000 Equipment on operating leases, net 1,012,307,000 924,887,000 Other property and equipment, net 228,445,000 219,343,000 Excess of cost over net assets of businesses acquired 16,117,000 11,816,000 Other assets 5,972,000 6,702,000 - ------------------------------------------------------------------------------------------------------------------- Total assets $1,412,887,000 $1,297,474,000 =================================================================================================================== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities (excluding equipment financing obligations) Accounts payable $ 30,077,000 $ 12,246,000 Accrued liabilities 48,372,000 52,023,000 Income taxes payable 1,574,000 1,292,000 - ------------------------------------------------------------------------------------------------------------------- Total current liabilities 80,023,000 65,561,000 Equipment financing obligations including maturities due within one year: 1999-$66,344,000; 1998-$51,699,000 802,458,000 749,876,000 Other liabilities 15,849,000 14,144,000 Deferred income taxes 194,171,000 174,908,000 Commitments and contingent liabilities (see Notes to the Consolidated Financial Statements) Shareholders' equity Common stock, $1 par value, outstanding: 1999-57,214,551 shares; 1998-58,799,281 shares 57,215,000 58,799,000 Additional paid-in capital -- 11,000 Accumulated other comprehensive income 518,000 941,000 Retained earnings 262,653,000 233,234,000 - ------------------------------------------------------------------------------------------------------------------- Total shareholders' equity 320,386,000 292,985,000 - ------------------------------------------------------------------------------------------------------------------- Total liabilities and shareholders' equity $1,412,887,000 $1,297,474,000 ===================================================================================================================
The Notes to the Consolidated Financial Statements are an integral part of these statements. 15 CONSOLIDATED STATEMENT OF CASH FLOWS
Year Ended September 30, - ------------------------------------------------------------------------------------------------------------------- 1999 1998 1997 - ------------------------------------------------------------------------------------------------------------------- Cash flows from operating activities Net earnings $ 56,473,000 $ 52,023,000 $ 42,794,000 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization 199,732,000 183,805,000 170,380,000 Net gain on sale of property and equipment (17,007,000) (9,787,000) (12,230,000) Changes in assets and liabilities: Accounts receivable (6,447,000) (4,062,000) (8,776,000) Accounts payable and accrued liabilities 13,536,000 1,866,000 8,787,000 Current and deferred income taxes 19,582,000 22,346,000 18,866,000 Other, net 1,343,000 (961,000) 1,754,000 - ------------------------------------------------------------------------------------------------------------------- Net cash provided by operating activities 267,212,000 245,230,000 221,575,000 - ------------------------------------------------------------------------------------------------------------------- Cash flows from investing activities Purchase of property and equipment (355,191,000) (332,779,000) (303,058,000) Proceeds from sales of property and equipment 88,021,000 67,526,000 75,621,000 Acquisition of subsidiary, net of cash acquired (6,935,000) -- -- - ------------------------------------------------------------------------------------------------------------------- Net cash used in investing activities (274,105,000) (265,253,000) (227,437,000) - ------------------------------------------------------------------------------------------------------------------- Cash flows from financing activities Proceeds of equipment financing obligations 179,992,000 186,930,000 140,150,000 Repayment of equipment financing obligations (137,186,000) (108,876,000) (109,690,000) Payment of dividends (11,569,000) (9,244,000) (8,353,000) Proceeds of stock options exercised 1,225,000 2,051,000 818,000 Common stock acquired and retired (18,305,000) (41,367,000) (30,633,000) Other -- (93,000) -- - ------------------------------------------------------------------------------------------------------------------- Net cash provided by (used in) financing activities 14,157,000 29,401,000 (7,708,000) - ------------------------------------------------------------------------------------------------------------------- Effect of exchange rate changes on cash 1,000 -- -- - ------------------------------------------------------------------------------------------------------------------- Net increase (decrease) in cash 7,265,000 9,378,000 (13,570,000) Cash beginning of period 27,015,000 17,637,000 31,207,000 - ------------------------------------------------------------------------------------------------------------------- Cash end of period $ 34,280,000 $ 27,015,000 $ 17,637,000 =================================================================================================================== Supplemental information Interest paid $ 53,978,000 $ 48,549,000 $ 49,212,000 Income taxes paid $ 15,995,000 $ 10,734,000 $ 8,551,000
The Notes to the Consolidated Financial Statements are an integral part of these statements. 16 CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY Year Ended September 30, 1999, 1998 and 1997
Accumulated $1 Par Value Additional Other Total Common Paid-in Comprehensive Comprehensive Retained Shareholders' Stock Capital Income Income Earnings Equity - --------------------------------------------------------------------------------------------------------------------------------- Balance at October 1, 1996 $43,384,000 $ -- $ 1,079,000 $240,664,000 $285,127,000 Net earnings $42,794,000 42,794,000 42,794,000 Other comprehensive income Unrealized gain on securities (net of tax of $146,000) 229,000 229,000 229,000 Dividends on common stock, $.13 per share (8,353,000) (8,353,000) Common stock acquired and retired (2,484,000) (377,000) (27,772,000) (30,633,000) Exercise of stock options 167,000 651,000 818,000 ------------ ----------- ----------- ----------- ------------ ------------ Comprehensive income $43,023,000 =========== Balance at September 30, 1997 41,067,000 274,000 1,308,000 247,333,000 289,982,000 Net earnings $52,023,000 52,023,000 52,023,000 Other comprehensive income Unrealized loss on securities (net of tax benefit of $233,000) (367,000) (367,000) (367,000) Dividends on common stock, $.16 per share (9,244,000) (9,244,000) Common stock acquired and retired (3,091,000) (1,937,000) (36,339,000) (41,367,000) Exercise of stock options 377,000 1,674,000 2,051,000 Three-for-two common stock split 20,446,000 (20,539,000) (93,000) ---------- ------------ ----------- ----------- ------------ ------------ Comprehensive income $51,656,000 =========== Balance at September 30, 1998 58,799,000 11,000 941,000 233,234,000 292,985,000 Net earnings $56,473,000 56,473,000 56,473,000 Other comprehensive income Unrealized loss on securities (net of tax benefit of $455,000) (708,000) (708,000) (708,000) Foreign currency translation adjustments 285,000 285,000 285,000 Dividends on common stock, $.20 per share (11,569,000) (11,569,000) Common stock acquired and retired (1,776,000) (1,044,000) (15,485,000) (18,305,000) Exercise of stock options 192,000 1,033,000 1,225,000 ----------- ------------ ----------- ----------- ------------ ------------ Comprehensive income $56,050,000 =========== Balance at September 30, 1999 $57,215,000 $ -- $ 518,000 $262,653,000 $320,386,000 =========== ============ =========== ============ ============
The Notes to the Consolidated Financial Statements are an integral part of these statements. 17 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Organization and Accounting Policies Organization - Rollins Truck Leasing Corp. is engaged primarily in full-service truck leasing and rentals and the provision and management of complete truck transportation and distribution systems. All of the Company's operations currently are conducted within the United States and Canada. Consolidation - The consolidated financial statements include the accounts of all subsidiaries. Intercompany transactions and balances among these subsidiaries have been eliminated. Revenue recognition - Lease, rental and other transportation service revenues including contingent rentals, which represent the mileage charges on full-service leases, are recognized over the terms of the respective contracts. Earnings per share - The number of weighted average shares used in computing basic and diluted earnings per share (EPS) are as follows: 1999 1998 1997 ---------- ---------- ---------- Basic EPS 57,833,000 60,340,000 62,681,000 Effect of Options 536,000 790,000 681,000 ---------- ---------- ---------- Diluted EPS 58,369,000 61,130,000 63,362,000 ========== ========== ========== No adjustments to net earnings available to common shareholders were required during the periods presented. Inventories - Inventories of transportation equipment parts and supplies are valued at the lower of first-in, first-out cost or market. Property and equipment - Property and equipment is carried at cost, net of applicable allowances. Tires placed in service on new equipment are capitalized as part of the original equipment cost. Depreciation is provided on a straight-line basis. Depreciable lives for equipment on operating leases and other property and equipment range from 3 to 12 years and 3 to 45 years, respectively. The cost and related accumulated depreciation of property and equipment sold or retired are eliminated from the property accounts and the resulting gain or loss is reflected in the Consolidated Statement of Earnings. Repairs and maintenance are expensed as incurred. Replacement tires are expensed when placed in service. Major additions and improvements are capitalized and written off over the remaining depreciable lives of the assets. Goodwill - The excess of cost over net assets of businesses acquired prior to October 30, 1970 amounting to $4,588,000 is not being amortized since its value, in management's opinion, has not diminished. The excess of cost over net assets of businesses acquired subsequently is being amortized on a straight-line basis over 15 to 40 years. Leasing operations - Leasing operations consist of the long-term leasing and short-term rental of transportation equipment. All leases are classified as operating leases and expire on various dates during the next eleven years. Claims and insurance reserves - The Company retains a specific portion of insurable risks with regard to public liability and workers' compensation claims. Retention levels are currently $500,000. Reserves are established for claims incurred plus an estimate for claims incurred but not reported. Reserve requirements are evaluated and established utilizing historical trends, the Company's experience, claim severity and other factors. Claims estimated to be paid within one year have been classified in accrued liabilities with the remainder included with other liabilities. 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. 18 Fair values of financial instruments - The carrying amounts reported in the balance sheet for current assets and current liabilities approximate their fair value at September 30, 1999. Impairment of long-lived assets - Periodically, the Company evaluates whether the remaining useful life of long-lived assets requires revision and assesses the recoverability of remaining unamortized balances. Should factors indicate that an asset should be evaluated for possible impairment, an estimate of the asset's cash flow is utilized in evaluating fair value. Should an impairment be determined, the impaired asset's value would be adjusted and a charge to operations would be recognized. To date, no impairment losses have been recognized. Stock-based compensation - The Company adopted the provisions of SFAS No. 123, "Accounting for Stock-Based Compensation," on October 1, 1996. SFAS No. 123 defines a fair value based method of accounting for stock-based compensation plans; however, it allows the continued use of the intrinsic value method under Accounting Principles Board Opinion ("APB"), No. 25, "Accounting for Stock Issued to Employees." The Company has elected to continue to use the intrinsic value method. Comprehensive income - In 1999, the Company adopted the provisions of SFAS No. 130, "Reporting Comprehensive Income." This statement requires presentation of comprehensive income (net income plus all other changes in net assets from non-owner sources) and its components in the financial statements. Prior year financial statements have been reclassified to conform to the requirements of SFAS No. 130. Foreign currency translation - Assets and liabilities of the Company's Canadian subsidiary are translated at the rate of exchange in effect on the balance sheet date; revenues and expenses are translated at the average rates of exchange prevailing during the year. The related translation adjustments are reflected as a separate component of accumulated other comprehensive income. Recent accounting pronouncements - The Company does not expect the adoption of recently issued accounting pronouncements to have a significant impact on its results of operations, financial position or cash flows. Reclassification - Certain prior year amounts have been reclassified to conform with the current year presentation. Equipment on Operating Leases The Company's investment in equipment on operating leases is as follows: September 30, ----------------------------------- 1999 1998 -------------- -------------- Transportation equipment $1,538,713,000 $1,402,267,000 Less accumulated depreciation (526,406,000) (477,380,000) -------------- -------------- $1,012,307,000 $ 924,887,000 ============== ============== Commitments for the purchase of transportation equipment amounted to $161,315,000 at September 30, 1999. At September 30, 1999, minimum future revenues from non-cancelable leases are as follows: Year Ending September 30, - ------------------------- 2000 $261,822,000 2001 219,696,000 2002 176,539,000 2003 129,308,000 2004 86,912,000 Later years 78,571,000 ------------ Total future minimum lease revenues $952,848,000 ============ 19 Other Property and Equipment The Company's other property and equipment accounts are as follows:
September 30, --------------------------------- 1999 1998 ------------- ------------- Land $ 61,979,000 $ 61,190,000 Transportation service facilities 224,820,000 205,923,000 Other operating assets 41,713,000 39,964,000 Less accumulated depreciation (100,067,000) (87,734,000) ------------- ------------- $ 228,445,000 $ 219,343,000 ============= =============
Accrued Liabilities Accrued liabilities are as follows:
September 30, --------------------------------- 1999 1998 ------------- ------------- Employee compensation $ 11,909,000 $ 15,018,000 Interest 9,906,000 7,451,000 Taxes other than income 8,991,000 12,684,000 Insurance reserves 6,727,000 6,781,000 Environmental 452,000 3,213,000 Unbilled services and supplies 5,324,000 2,662,000 Other 5,063,000 4,214,000 ------------- ------------- $ 48,372,000 $ 52,023,000 ============= =============
Equipment Financing Obligations Equipment financing obligations are as follows:
September 30, --------------------------------- 1999 1998 ------------- ------------- Collateral Trust Debentures: Series I, 10.35 %, due 2000 $ 50,000,000 $ 50,000,000 Series J, 8 5/8 %, due 1998 -- 30,000,000 Series L, 7 %, due 2003 70,000,000 70,000,000 Series M, 7 %, due 2001 60,000,000 60,000,000 Series N, 8.27 %, due 2002 100,000,000 100,000,000 Series O, 7.25 %, due 2005 50,000,000 50,000,000 Series P, 6.89 %, due 2004 75,000,000 75,000,000 Series Q, 6 7/8 %, due 2001 60,000,000 60,000,000 Series R, 7.30 %, due 2007 75,000,000 75,000,000 Series S, 6.52 %, due 2005 75,000,000 75,000,000 Series T, 6.75 %, due 2006 100,000,000 -- Capital lease obligations 75,732,000 66,330,000 Other equipment financing obligations 11,726,000 38,546,000 ------------- ------------- $802,458,000 $ 749,876,000 ============ =============
Credit available under the revolving credit facilities (the "Revolver") provided by two banks amounted to $100,000,000 at September 30, 1999. At the option of the banks, the Revolver and the Collateral Trust Debentures may be secured by certain leasing equipment. Termination of the Revolver would result in repayment of the outstanding balance over 48 months in equal installments; otherwise, no repayments are required unless the financing value of the eligible equipment available as security falls below the outstanding loan balance. The 20 Revolver provides for the maintenance of specified financial ratios and restricts payments to the Company by a consolidated subsidiary. Net assets of all subsidiaries not restricted under the Revolver totaled $93,187,000 at September 30, 1999. Capital lease obligations due within one year totaled $9,642,000 at September 30, 1999 with the balance payable through 2009. Interest rates on these obligations averaged 5.3% at September 30, 1999. The capital lease obligations are collateralized by certain leasing equipment. Other equipment financing obligations due within one year totaled $6,702,000 at September 30, 1999 with the balance payable through 2002. Interest rates on these obligations averaged 6.0% at September 30, 1999. The other equipment financing obligations are collateralized by certain leasing equipment. The Collateral Trust Debentures are secured by notes from Rollins Leasing Corp. Equipment financing obligations due within one year are not classified as current liabilities as the Company intends and has the ability to refinance them on a long-term basis through available credit facilities. Based on published bid prices at September 30, 1999, the estimated fair value of the Company's Collateral Trust Debentures was $708,431,000 compared with the recorded book amount of $715,000,000. The fair value of the remaining $87,458,000 of equipment indebtedness approximates its recorded amount. The aggregate amounts of maturities for all indebtedness over the next five years are as follows: 2000-$66,344,000; 2001-$138,390,000; 2002-$114,674,000; 2003-$83,958,000 and 2004-$89,332,000. Pension Plans The Company maintains a noncontributory pension plan for eligible employees not covered by pension plans under collective bargaining agreements. Pension costs are funded in accordance with the provisions of the Internal Revenue Code. The Company also maintains a nonqualified, noncontributory defined benefit pension plan for certain employees to restore pension benefits reduced by federal income tax regulations. The cost associated with the plan is determined using the same actuarial methods and assumptions as those used for the Company's qualified pension plan. The following table sets forth the funded status and the amount recognized in the Company's balance sheet for the plans: September 30, ----------------------------- 1999 1998 ------------ ------------ Change in benefit obligation: Benefit obligation at beginning of year $ 56,189,000 $ 43,679,000 Service cost 4,132,000 3,449,000 Interest cost 4,004,000 3,415,000 Amendments 3,539,000 -- Actuarial (gain) loss (14,534,000) 7,133,000 Benefits paid (1,854,000) (1,487,000) ------------ ------------ Benefit obligation at end of year 51,476,000 56,189,000 ------------ ------------ Change in plan assets: Fair value of plan assets at beginning of year 48,703,000 53,466,000 Actual return on plan assets 14,196,000 (4,976,000) Employer contribution 1,700,000 1,700,000 Benefits paid (1,854,000) (1,487,000) ------------ ------------ Fair value of plan assets at end of year 62,745,000 48,703,000 ------------ ------------ Funded status 11,269,000 (7,486,000) Unrecognized net (gain) loss (20,928,000) 2,758,000 Unrecognized prior service cost 3,881,000 639,000 Unrecognized overfunding at adoption (70,000) (140,000) ------------ ------------ Accrued pension cost $ (5,848,000) $ (4,229,000) ============ ============ 21 At September 30, 1999, the assets of the pension plans were invested 79.2% in equity securities, 17.9% in fixed income securities and the balance in other short-term interest bearing accounts. The discount rate in 1999 and 1998 was 8.5% and 7.0%, respectively. The assumed rate of compensation increase in 1999 and 1998 was 4.5% and 5.0%, respectively. The expected long-term rate of return on assets in 1999 and 1998 was 9.5% and 9.0%, respectively. The components of net periodic pension cost are as follows:
Year Ended September 30, -------------------------------------------------- 1999 1998 1997 ------------ ------------ ------------ Service cost $ 4,132,000 $ 3,449,000 $ 2,735,000 Interest cost 4,004,000 3,415,000 2,969,000 Return on plan assets (14,196,000) 4,976,000 (13,043,000) Net amortization and deferral 9,378,000 (10,378,000) 9,330,000 ------------ ------------ ------------ Net periodic pension cost $ 3,318,000 $ 1,462,000 $ 1,991,000 ============ ============ ============
The Company also maintains a defined contribution 401(k) plan which permits participation by substantially all employees not represented under a collective bargaining agreement. The Company expensed payments to multi-employer pension plans required by collective bargaining agreements of $102,000 in 1999, $119,000 in 1998 and $129,000 in 1997. The actuarial present value of accumulated plan benefits and net assets available for benefits to employees under these plans are not available. Shareholders' Equity The Company is authorized to issue 100,000,000 shares of its $1 Par Value Common Stock and 1,000,000 shares of Preferred Stock. The preferred shares are without par value, with terms and conditions of each issue as determined by the Board of Directors. Each share of common stock includes one common stock purchase right ("Right") which is non-exercisable until certain defined events occur, including tender offers or the acquisition by a person or group of affiliated or associated persons of 20% of the Company's common stock. Upon the occurrence of certain defined events, the Right entitles the holder to purchase additional stock of the Company or stock of an acquiring company at a 50% discount. The Right expires on June 30, 2009 unless earlier redeemed by the Company at a price of $.01 per Right. Stock Option Plans Under the Company's stock option plans, options to purchase common stock of the Company may be granted to officers and key employees at not less than 100% of the fair market value at the date of grant. Generally, options granted vest ratably over a six-year period and have a maximum life of eight years. The Company accounts for these plans under APB No. 25. Accordingly, no compensation cost has been recognized. Had compensation cost for these plans been determined consistent with SFAS No. 123, the Company's pro forma net earnings for 1999, 1998 and 1997 would have been reduced to $55,622,000 ($.95 per diluted share), $51,365,000 ($.84 per diluted share) and $42,524,000 ($.67 per diluted share), respectively. Because the SFAS 123 method of accounting has not been applied to options granted prior to October 1, 1995, the resulting pro forma compensation cost may not be representative of that to be expected in future years. 22 As of September 30, stock option activity under the Company's plans is as follows:
1999 1998 1997 -------- -------- -------- Weighted Weighted Weighted Average Average Average Exercise Exercise Exercise Shares Price Shares Price Shares Price --------- -------- --------- -------- --------- -------- Outstanding at beginning of year 2,286,755 $ 8.30 2,203,072 $ 6.57 2,374,119 $ 5.91 Granted 425,200 9.66 721,900 10.73 150,000 10.83 Exercised (191,970) 6.38 (478,919) 4.28 (250,904) 3.26 Expired or cancelled (50,025) 9.31 (159,298) 7.53 (70,143) 5.26 --------- -------- --------- -------- --------- -------- Outstanding at September 30 2,469,960 $ 8.66 2,286,755 $ 8.30 2,203,072 $ 6.57 ========= ======== ========= ======== ========= ======== Exercisable at September 30 898,081 $ 7.42 774,797 $ 6.85 984,880 $ 5.64 ========= ======== ========= ======== ========= ========
The weighted average fair value of options granted during 1999, 1998 and 1997 was $3.40, $3.20 and $3.43, respectively. The fair value for these options was estimated at the date of grant using a Black-Scholes option pricing model with the following weighted average assumptions for 1999, 1998 and 1997, respectively: risk-free interest rates of 6.2%, 4.3% and 6.1%; dividend yields of 1.7%, 1.7% and 1.9%; expected volatility of .27, .26 and .26 and a weighted average expected life of the option of 7 years, 7 years and 6 years. The following table summarizes information regarding stock options outstanding and exercisable at September 30, 1999:
Options Outstanding Options Exercisable ------------------------------------------- ----------------------- Weighted Average Weighted Weighted Range of Remaining Average Average Exercise Number Contractual Exercise Number Exercise Prices Outstanding Life Price Exercisable Price --------------------- ----------- ----------- -------- ----------- -------- $ 5.04 - $ 6.33 609,452 2.5 years $ 6.10 320,102 $ 5.89 $ 7.33 - $ 11.00 1,860,508 4.2 years $ 9.50 577,979 $ 8.27
At September 30, 1999, a total of 1,001,350 shares of common stock were available for future grants. Lease Commitments The Company leases some of the premises and equipment used in its operations. Leases classified as operating leases expire on various dates during the next 15 years. Some of the leases are renewable at the Company's option. Minimum future rental payments required under operating leases having non-cancelable terms in excess of one year as of September 30, 1999 are as follows: Year Ending September 30, - ------------------------- 2000 $ 7,692,000 2001 4,003,000 2002 3,239,000 2003 1,867,000 2004 867,000 Later years 2,019,000 ----------- Total minimum payments required $19,687,000 =========== Total rent expense for all operating leases except those with terms of one month or less was $8,493,000 in 1999, $7,919,000 in 1998 and $7,624,000 in 1997. 23 Commitments and Contingent Liabilities There are various routine claims and legal actions pending against the Company incidental to the ordinary operation of it business. The Company is of the opinion, based on the advice of counsel, that it is only remotely likely that the ultimate resolution of these claims and actions will be material. Income Taxes The tax provisions for the three years ended September 30, 1999 are comprised as follows:
Year Ended September 30, ------------------------------------------------------- 1999 1998 1997 --------------- --------------- --------------- Current: Federal $ 12,669,000 $ 11,113,000 $ 8,345,000 State 3,549,000 1,824,000 747,000 Deferred: Federal 18,381,000 17,507,000 15,138,000 State 1,659,000 2,636,000 3,187,000 --------------- --------------- --------------- Total income taxes $ 36,258,000 $ 33,080,000 $ 27,417,000 =============== =============== ===============
A reconciliation of the tax provisions for the three years ended September 30, 1999 with amounts calculated by applying the statutory federal tax rate to earnings before income taxes for those years is as follows:
Year Ended September 30, ------------------------------------------------------- 1999 1998 1997 --------------- --------------- --------------- Federal tax $ 32,456,000 $ 29,786,000 $ 24,574,000 State taxes, net of federal benefit 3,370,000 2,899,000 2,557,000 Other 432,000 395,000 286,000 --------------- --------------- --------------- Total income taxes $ 36,258,000 $ 33,080,000 $ 27,417,000 =============== =============== ===============
The tax effect of temporary differences and the tax credit carryforwards that comprise the current and non-current deferred tax amounts shown on the balance sheet are as follows:
September 30, ----------------------------------- 1999 1998 --------------- --------------- Depreciation $ 204,468,000 $ 193,303,000 Expenses deductible when paid (10,389,000) (11,522,000) Alternative minimum tax credit carryforwards (4,979,000) (14,130,000) Other (118,000) 223,000 --------------- --------------- Deferred income taxes, net $ 188,982,000 $ 167,874,000 =============== ===============
At September 30, 1999, the Company had alternative minimum tax credit carryforwards of $4,979,000 which have no expiration date. The Company has no tax credit carryforwards for financial reporting purposes since all such credits have been considered in the determination of deferred tax amounts. Environmental Regulation The Company is subject to certain regulations of the Environmental Protection Agency in that it stores and dispenses petroleum products. Most of these regulations address testing and replacement of underground tanks. The Company's adherence to these regulations is part of its normal business operations. These regulations have not had any material adverse effect upon the Company. Transactions with Related Parties Certain directors and officers of the Company are also directors and officers of Matlack Systems, Inc. and Dover Downs Entertainment, Inc. 24 The Company provided administrative services and rented office space to Matlack Systems, Inc. for aggregate charges of $4,093,000 in 1999, $4,401,000 in 1998 and $3,600,000 in 1997, which have been included in revenues or offset against operating expense, as appropriate, in the Consolidated Statement of Earnings. The Company provided administrative services to Dover Downs Entertainment, Inc. for aggregate charges of $461,000 in 1999, $430,000 in 1998 and $204,000 in 1997, which have been included in revenues or offset against operating expense, as appropriate, in the Consolidated Statement of Earnings. An officer of the Company is the trustee of an employee benefits trust, which provides certain insurance and health care benefits to employees of the Company. Contributions to the trust, which were charged to operating or selling and administrative expense, as appropriate, were $13,720,000 in 1999, $12,897,000 in 1998 and $12,497,000 in 1997. In the opinion of management of the Company, the foregoing transactions were effected at rates that approximate those the Company would have realized or incurred had such transactions been effected with independent third parties. Acquisition On August 2, 1999, a subsidiary of the Company acquired Range Transportation Systems, Inc. ("Range") in a purchase business combination for $6,935,000 in cash. Range is based in Toronto, Canada and is engaged in truck rental and leasing. The acquisition has been accounted for by the purchase method and, accordingly, the results of operations of Range have been included in the consolidated financial statements from the date of acquisition. The excess of the purchase price over fair market value of the underlying assets is being amortized on a straight-line basis over 15 years. The pro-forma results for 1999 and 1998, assuming the acquisition had been made at the beginning of the fiscal year, would not be materially different from reported results. Subsequent Event On October 29, 1999, a subsidiary of the Company acquired the net assets and business of Keen Leasing, Inc. ("Keen") for a purchase price of $41,492,000 in cash and the assumption of liabilities of $3,264,000. Keen is a truck rental and leasing business headquartered in Harrisburg, Pennsylvania which currently services approximately 1,800 vehicles from 13 locations in Pennsylvania, Maryland and Virginia. The purchase price will be allocated to the assets acquired and liabilities assumed based upon their estimated fair market values. The purchase price allocation will be determined during 2000 when additional information becomes available. Results of operations for Keen will be included with those of the Company beginning in fiscal 2000 subsequent to the date of acquisition. On November 12, 1999, the Company executed a stock purchase agreement with the UPS Logistics Group, a unit of United Parcel Service, Inc., whereby a subsidiary of the Company would acquire UPS Truck Leasing, which has its headquarters in Atlanta, Georgia. UPS Truck Leasing is in the truck rental and leasing business and currently maintains approximately 9,000 trucks from 54 facilities throughout the United States. The Company is expected to issue 2,000,000 shares of its $1.00 par value common stock as partial consideration for the purchase of UPS Truck Leasing with the remainder of the consideration to be paid in cash. The Company is expected to receive cash as consideration for the sale of Rollins Logistics Inc. Year 2000 ("Y2K") Readiness Disclosure (Unaudited) The Company is aware of the issues related to the approach of the year 2000 as they relate to information technology programming issues which could have a significant potential impact on its future operations and financial reporting. In this regard, the Company has assessed and investigated what steps must be taken to ensure that its critical systems and equipment will function appropriately after the turn of the century. The assessments included a review of what systems and equipment need to be changed or replaced in order to function correctly. 25 The Company has further determined that onboard computer systems in Company-owned vehicles are not affected by the Y2K issue. The Company's Y2K project was broken down into Corporate host-based systems and field-based data collection processes. Overall, the Company's work effort was allocated approximately 80 percent to host-based systems and 20 percent to field-based data processes. Essentially all host-based coding and testing has been completed. Full production with regard to remediated systems also has been completed. As part of the Company's remediation efforts, the field data collection systems were rewritten. With the exception of remediation and implementation consequences not known to the Company at this time, the Company believes that all systems should be fully implemented by November 30, 1999. As part of the Company's assessment of Y2K issues, consideration was given to the possible impact upon the Company from using purchased software, suppliers and outside service providers. The Company's efforts with regard to Y2K issues are dependent in part upon information received from such suppliers and vendors upon which the Company has reasonably relied. While it is not possible for the Company to predict all future outcomes and eventualities, the Company is not aware, at this time, of any Y2K non-compliant situations with regard to any of its purchased software or its use of suppliers and outside service providers. The Company estimates that it will spend approximately $2.0 million to fully implement its Y2K compliance program of which $1.87 million has been expended through September 30, 1999. All Y2K costs have been and will continue to be funded from operations. The Company has formulated a Y2K contingency plan that addresses potential short-term business disruptions resulting from losses of power, system malfunctions and related issues. However, due to the complexity and widespread nature of such issues, the contingency planning process of necessity must be an ongoing one requiring possible further modification as more information becomes known regarding (1) the Company's own systems and facilities, and (2) the status and changes therein of the Y2K compliance efforts of outside suppliers and vendors. While it is not possible for the Company to predict all future outcomes and eventualities, the Company is not aware, at this time, of any Y2K non-compliant situations with regard to any of its purchased software or its use of suppliers and outside service providers which would have a material adverse effect upon the Company. Quarterly Results (Unaudited)
December March June September 1999 31 31 30 30 ---- ------------ ------------ ------------ ------------ Revenues $155,345,000 $150,929,000 $156,617,000 $164,506,000 Gross profit $ 50,154,000 $ 45,807,000 $ 53,236,000 $ 56,703,000 Earnings before income taxes $ 23,034,000 $ 18,248,000 $ 25,022,000 $ 26,427,000 Net earnings $ 14,074,000 $ 11,149,000 $ 15,156,000 $ 16,094,000 Earnings per diluted share $ .24 $ .19 $ .26 $ .28 ------------ ------------ ------------ ------------
1998 ---- Revenues $149,022,000 $145,050,000 $155,215,000 $160,870,000 Gross profit $ 46,858,000 $ 42,419,000 $ 49,731,000 $ 53,211,000 Earnings before income taxes $ 21,173,000 $ 16,259,000 $ 22,570,000 $ 25,101,000 Net earnings $ 12,897,000 $ 9,936,000 $ 13,846,000 $ 15,344,000 Earnings per diluted share $ .21 $ .16 $ .23 $ .26 ----------- ------------ ------------ ------------
26 SCHEDULE I - Condensed Financial Information ROLLINS TRUCK LEASING CORP. BALANCE SHEET ($000 Omitted)
September 30, ----------------------------- Assets 1999 1998 ------ ----------- ----------- Current assets (excluding notes receivable from subsidiaries) Cash $ 7,678 $ 11,791 Accounts receivable 99 2,761 Accounts receivable from subsidiaries* 19 72 Other current assets 10 559 ----------- ----------- Total current assets 7,806 15,183 Notes receivable from subsidiary* 715,000 645,000 Investments in subsidiaries, at equity* 346,123 330,709 Advances to subsidiaries* 15,040 15,275 Property and equipment, at cost, net of accumulated depreciation 720 854 Other assets 64 150 Deferred income taxes (131) 481 ----------- ----------- Total assets $ 1,084,622 $ 1,007,652 =========== =========== Liabilities and Shareholders' Equity Current liabilities Accounts payable to subsidiaries* $ 9 $ 15 Accounts payable to others 239 649 Accrued liabilities 518 2,132 Income taxes payable (277) (97) ----------- ----------- Total current liabilities 489 2,699 Collateral Trust Debentures 10.35% Series I, due 2000 50,000 50,000 8 5/8% Series J, due 1998 -- 30,000 7 % Series L, due 2003 70,000 70,000 7 % Series M, due 2001 60,000 60,000 8.27% Series N, due 2002 100,000 100,000 7.25% Series O, due 2005 50,000 50,000 6.89% Series P, due 2004 75,000 75,000 6 7/8% Series Q, due 2001 60,000 60,000 7.30% Series R, due 2007 75,000 75,000 6.52% Series S, due 2005 75,000 75,000 6.75% Series T, due 2006 100,000 -- Advances from subsidiaries* 49,377 67,399 Other liabilities (112) 510 Commitments and contingent liabilities (see Notes to the Financial Statements) Shareholders' equity Common stock $1 par value, 100,000,000 shares authorized; issued and outstanding: 1999: 57,214,551; 1998: 58,799,281 57,215 58,799 Additional paid-in capital 0 11 Retained earnings 262,653 233,234 ----------- ----------- Total shareholders' equity 319,868 292,044 ----------- ----------- Total liabilities and shareholders' equity $ 1,084,622 $ 1,007,652 =========== ===========
* Eliminated in consolidation The Notes to the Financial Statements are an integral part of these statements. 27 SCHEDULE I - Condensed Financial Information (continued) ROLLINS TRUCK LEASING CORP. STATEMENT OF EARNINGS ($000 Omitted)
Year Ended September 30, -------------------------------------- 1999 1998 1997 -------- -------- -------- Revenues: Dividends from subsidiaries $ 41,000 $ 30,000 $ 15,150 Other income 7,015 8,200 7,191 -------- -------- -------- 48,015 38,200 22,341 -------- -------- -------- Expenses: Administrative 3,336 4,541 4,571 Depreciation and amortization 270 279 265 Gain on sale of property and equipment (29) -- -- -------- -------- -------- 3,577 4,820 4,836 -------- -------- -------- Earnings before interest and income taxes 44,438 33,380 17,505 Interest income 50,715 44,708 43,286 Interest expense (53,793) (47,031) (44,888) -------- -------- -------- Earnings before income taxes 41,360 31,057 15,903 Income taxes 380 512 297 -------- -------- -------- Net earnings of Rollins Truck Leasing Corp. 40,980 30,545 15,606 Equity in undistributed net earnings of subsidiaries 15,493 21,478 27,188 -------- -------- -------- Net earnings $ 56,473 $ 52,023 $ 42,794 ======== ======== ========
The Notes to the Financial Statements are an integral part of these statements. 28 SCHEDULE I - Condensed Financial Information (continued) ROLLINS TRUCK LEASING CORP. STATEMENT OF CASH FLOWS ($000 Omitted)
Year Ended September 30, ----------------------------------------- 1999 1998 1997 --------- --------- --------- Cash flows from operating activities: Earnings prior to equity in subsidiaries' undistributed earnings $ 40,980 $ 30,545 $ 15,606 Adjustments to reconcile earnings to net cash provided by operating activities: Depreciation and amortization 270 279 265 Changes in assets and liabilities: Accounts receivable 2,715 (2,691) (123) Accounts payable and accrued liabilities (2,030) 1,063 798 Current and deferred income taxes 430 (1,283) (1,419) Other, net 15 (403) 223 Net gain on sale of property and equipment (29) -- -- --------- --------- --------- Net cash provided by operating activities 42,351 27,510 15,350 --------- --------- --------- Cash flows from investing activities: Purchase of equipment (151) (128) (18) Proceeds from sale of equipment 123 7 -- --------- --------- --------- Net cash used in investing activities (28) (121) (18) --------- --------- --------- Cash flows from financing activities: Proceeds of equipment financing obligations 100,000 75,000 89,500 Issuance of notes receivable from subsidiary (100,000) (75,000) (75,000) Repayment of note by subsidiary 30,000 -- 50,000 Repayment of equipment financing obligations (30,000) -- (67,500) Payment of dividends (11,569) (9,244) (8,353) Proceeds of stock options exercised 1,225 2,051 818 Common stock acquired and retired (18,305) (41,367) (30,633) Subsidiary advances and payments (17,787) 31,882 25,754 Other -- (93) -- --------- --------- --------- Net cash used in financing activities (46,436) (16,771) (15,414) --------- --------- --------- Net increase (decrease) in cash (4,113) 10,618 (82) Cash beginning of period 11,791 1,173 1,255 --------- --------- --------- Cash end of period $ 7,678 $ 11,791 $ 1,173 ========= ========= ========= Supplemental information: Interest paid $ 47,119 $ 43,528 $ 42,934 Income taxes paid $ (50) $ 1,795 $ 1,716
The Notes to the Financial Statements are an integral part of these statements. 29 SCHEDULE I - Condensed Financial Information (continued) ROLLINS TRUCK LEASING CORP. Notes to the Financial Statements Accounting Policies The accounting policies of the Company and its subsidiaries are set forth in the Organization and Accounting Policies note in the consolidated financial statements of this 1999 Annual Report on Form 10-K. The Company's principal sources of earnings are dividends and management fees paid by its subsidiaries. Certain loan agreements restrict payments to the Company by its subsidiaries. Net assets of subsidiaries not restricted under such loan agreements totaled $93,187,000 at September 30, 1999. The Company also realizes cash receipts by assessing subsidiaries for federal taxes on income and expends cash in payment of such taxes on a consolidated basis. Tax assessments are based on the amount of federal income taxes which would be payable (recoverable) by each subsidiary company based on its current year's earnings (loss) reduced by that subsidiary's applicable portion of any consolidated credits utilized currently in the consolidated federal income tax return. Interest income on notes receivable from a subsidiary, which are pledged to secure the Collateral Trust Debentures (described in the Equipment Financing Obligations note in the consolidated financial statements of this 1999 Annual Report on Form 10-K), was $49,646,000, $44,547,000 and $43,286,000 in 1999, 1998 and 1997, respectively. Commitments and Contingencies The Company is obligated to a subsidiary for $326,000 annually ($734,000 in the aggregate) of future rentals under a lease through 2001. Rent expense was $317,000 in 1999, $302,000 in 1998 and $284,000 in 1997. Commitments of the Company have been collateralized by bank letters of credit issued on behalf of the Company in the amount of $8,000,000. The aggregate amounts of maturities for the Collateral Trust Debentures during the next five years are as follows: 2000 -- $50,000,000; 2001 -- $120,000,000; 2002 -- $100,000,000 and 2003 -- $70,000,000; and 2004 -- $75,000,000. 30 ROLLINS TRUCK LEASING CORP. AND SUBSIDIARIES SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS ($000 OMITTED)
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E - ----------------------------------------- ---------- ----------------------- ---------- ---------- Additions ----------------------- Balance at Charged to Charged Balance at Year Ended Beginning Costs and to Other End of September 30, Description of Period Expenses Accounts Deductions Period - ------------- ----------- --------- ---------- -------- ---------- ---------- 1999: Allowance for doubtful accounts $2,452 $1,326 $345(1) $1,644(2) $ 2,479 - ---- 1998: Allowance for doubtful accounts $2,126 $1,529 $484(1) $1,687(2) $ 2,452 - ---- 1997: Allowance for doubtful accounts $1,928 $1,454 $695(1) $1,951(2) $ 2,126 - ----
- ---------- (1) Recoveries. (2) Write-offs. 31 ROLLINS TRUCK LEASING CORP. Exhibits to Form 10-K For Fiscal Year Ended September 30, 1999 Index to Exhibits Exhibit (3)(b) By-Laws of Rollins Truck Leasing Corp. as last amended on October 28, 1999 Exhibit (4)(l) Nineteenth Supplemental Collateral Trust Indenture dated as of April 5, 1999 to the Collateral Trust Indenture dated as of March 21, 1983 as supplemented and amended by a Third Supplemental Indenture thereto dated as of February 20, 1986, an Eighth Supplemental Indenture thereto dated as of May 15, 1990 and by the Seventeenth Supplemental Indenture dated as of March 10, 1997 between Rollins Truck Leasing Corp. and First Union National Bank, as Trustee. Exhibit (4)(n) Asset Purchase Agreement by and among Worldwide Dedicated Services, Inc., Rollins Truck Leasing Corp., Rollins Logistics Inc., Rollins Dedicated Carriage Services, Inc. and Rollins Transportation Systems, Inc. as of November 12, 1999. Exhibit (4)(o) Stock Purchase Agreement by and between UPS Logistics Group, Inc., UPS Truck Leasing, Inc., Rollins Truck Leasing Corp. and Rollins Leasing Corp. as of November 12, 1999. Exhibit (4)(p) Strategic Alliance Agreement to be entered into as of December 31, 1999 in connection with the closing under the Stock Purchase Agreement filed as Exhibit (4)(o), above. Exhibit 21 Rollins Truck Leasing Corp. Subsidiaries at September 30, 1999 Exhibit 23 Consent of Independent Auditors Exhibit 27(a) Rollins Truck Leasing Corp. Financial Data Schedule at September 30, 1999 EX-21 2 SUBSIDIARIES Exhibit 21 ROLLINS TRUCK LEASING CORP. Subsidiaries of Registrant at September 30, 1999 JURISDICTION OF NAME INCORPORATION - ---- --------------- Rollins Logistics Inc. Delaware Rollins Leasing Corp. Delaware Rollins Properties, Inc. Delaware Transrisk, Limited Bermuda Concord Administrative Services, Inc. Delaware EX-23 3 CONSENT OF INDEPENDENT ACCOUNTANTS Exhibit 23 Consent of Independent Accountants The Board of Directors Rollins Truck Leasing Corp.: We consent to incorporation by reference in the registration statement (No. 333-21835) on Form S-3 of Rollins Truck Leasing Corp. of our report dated October 27, 1999, except for the note "Subsequent Events" which is as of November 12, 1999, relating to the consolidated balance sheets of Rollins Truck Leasing Corp. and subsidiaries as of September 30, 1999 and 1998 and the related consolidated statements of earnings, cash flows, and shareholders' equity and related financial statement schedules for each of the years in the three-year period ended September 30, 1999, which report appears in the 1999 Annual Report on Form 10-K of Rollins Truck Leasing Corp. KPMG LLP Wilmington, Delaware December 14, 1999 EX-27 4 FDS --
5 YEAR SEP-30-1999 SEP-30-1999 34,280 0 86,961 2,479 8,074 150,046 1,867,225 626,473 1,412,887 80,023 802,458 0 0 57,215 263,171 1,412,887 627,397 627,397 0 438,504 0 0 55,364 92,731 36,258 56,473 0 0 0 56,473 .98 .97
EX-99.3(B) 5 BY-LAWS BY-LAWS OF ROLLINS TRUCK LEASING CORP. ------------------------------------------------------------------ ARTICLE I The Corporation Section 1.1 Name. The title of this Corporation is Rollins Truck Leasing Corp. Section 1.2 Office. The registered office of this Corporation shall be located at One Rollins Plaza, Wilmington, County of New Castle, State of Delaware, or at such other place as the Board of Directors may designate in accordance with Section 133 of the Delaware Corporation Law. Section 1.3 Seal. The corporate seal of the Corporation shall have inscribed thereon the name of the Corporation and the year of its creation (1954) and the words "Incorporated Delaware". ARTICLE II Stockholders Section 2.1 Annual Meeting. The annual meeting of stockholders shall be held at such place within or without the State of Delaware as the Board of Directors from time to time determine. A majority of the amount of the stock issued and outstanding and entitled to vote shall constitute a quorum for the transaction of all business, except as otherwise provided by law, the charter of the corporation or these by-laws. Each stockholder shall be entitled to one vote, either in person or by proxy, for each share of stock standing registered in his or her name on the books of the Corporation on the record date selected by the Board of Directors in accordance with these by-laws, unless more or less than one vote per share is, by the terms of the instrument creating special or preferred shares, conferred upon the holders thereof. Notice of the annual meeting shall be mailed by the Secretary to each stockholder at his or her last known post office address no less than ten days and no more than fifty days prior thereto. Section 2.2 Special Meetings. Special meetings of stockholders for any purpose or purposes may be called at any time by the Chairman of the Board of Directors, the Vice Chairman of the Board of Directors, the Chairman of the Executive Committee or the President and not by any other person. Section 2.3 Notice of Meetings. Whenever stockholders are required or permitted to take any action at a meeting, a written notice of the meeting shall be given which shall state the place, date and hour of the meeting, and, in the case of a special meeting, the purpose or purposes for which the meeting is called. Unless otherwise provided by law, the written notice of any meeting shall be given not less than ten nor more than sixty days before the date of the meeting to each stockholder entitled to vote at such meeting. If mailed, such notice shall be deemed to be given when deposited in the mail, postage prepaid, directed to the stockholder at his address as it appears on the records of the Corporation. Section 2.4 Adjournments. Any meeting of the stockholders, annual or special, may adjourn from time to time to reconvene at the same or some other place, and notice need not be given of any such adjourned meeting if the time and place thereof are announced at the meeting at which the adjournment is taken. At the adjourned meeting the Corporation may transact any business which might have been transacted at the original meeting. If the adjournment is for more than thirty days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting. Section 2.5 Quorum. At each meeting of stockholders, except where otherwise provided by law or the certificate of incorporation or these by-laws, the holders of a majority of the outstanding shares of stock entitled to vote at the meeting, present in person or by proxy, shall constitute a quorum. In the absence of a quorum, the stockholders so present may, by majority vote, adjourn the meeting from time to time in the manner provided in Section 2.4 of these by-laws until a quorum shall attend. Section 2.6 Organization. Meetings of stockholders shall be presided over by the Chairman of the Board, if any, or in his absence by the Vice Chairman of the Board, if any, or in his absence by the President, or in his absence by a Vice President, or in the absence of the foregoing 2 persons by a chairman designated by the Board of Directors, or in the absence of such designation by a chairman chosen at the meeting. The Secretary shall act as secretary of the meeting, but in his absence the chairman of the meeting may appoint any person to act as secretary of the meeting. Section 2.7 Voting; Proxies. Unless otherwise provided in the certificate of incorporation, each stockholder entitled to vote at any meeting of stockholders shall be entitled to one vote for each share of stock held by him which has voting power upon the matter in question. Each stockholder entitled to vote at a meeting of stockholders may authorize another person or persons to act for him by proxy, but no such proxy shall be voted or acted upon after three years from its date, unless the proxy provides for a longer period. A duly executed proxy shall be irrevocable if it states that it is irrevocable and if, and only as long as, it is coupled with an interest sufficient in law to support an irrevocable power. A stockholder may revoke any proxy which is not irrevocable by attending the meeting and voting in person or by filing an instrument in writing revoking the proxy or another duly executed proxy bearing a later date with the Secretary of the Corporation. Voting at meetings of stockholders need not be by written ballot and need not be conducted by inspectors unless the holders of a majority of the outstanding shares of all classes of stock entitled to vote thereon present in person or by proxy at such meeting shall so determine. At all meetings of stockholders for the election of directors a plurality of the votes cast shall be sufficient to elect. All other elections and questions shall, unless otherwise provided by law or by the certificate of incorporation or these by-laws, be decided by the vote of the holders of a majority of the outstanding shares of stock entitled to vote thereon present in person or by proxy at the meeting, provided that (except as otherwise required by law or by the certificate of incorporation or these by-laws) the Board of Directors may require a larger vote upon any election or question. Section 2.8 Fixing Date for Determination of Stockholders of Record. In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion of exchange or stock or for the purpose of any other lawful action, the Board of Directors may fix, in advance, a record date, which shall not be more than sixty nor less than ten days before the date of such meeting, nor more than sixty days prior to any other action. If no record date is fixed: (1) the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held; and (2) the record date for determining stockholders for any other purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting. Section 2.9 List of Stockholders Entitled To Vote. The Secretary shall prepare and make, at least ten days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof and may be inspected by any stockholder who is present. The stock ledger shall be the only evidence as to who are the stockholders entitled to examine the stock ledger, the list of stockholders or the books of the Corporation, or to vote 3 in person or by proxy at any meeting of stockholders. Section 2.10 Action by Consent Of Stockholders. No action required to be taken or which may be taken at any annual or special meeting of stockholders of the Corporation may be taken without a meeting, and the power of stockholders to consent in writing, without a meeting, to the taking of any action is specifically denied. 4 ARTICLE III Board of Directors Section 3.1 Number; Qualifications. The Board of Directors shall consist of up to the number of directors provided for in the Corporation's Certificate of Incorporation. Directors need not be stockholders. Section 3.2 Election; Resignation; Removal; Vacancies. At each annual meeting of stockholders, the stockholders shall elect Directors to replace those Directors whose terms then expire. Any Director may resign at any time upon written notice to the Corporation. Stockholders may remove Directors only for cause. Any vacancy occurring in the Board of Directors for any cause may be filled only by the Board of Directors, acting by vote of a majority of the Directors then in office, although less than quorum. Each Director so elected shall hold office until the expiration of the term of office of the Director whom he has replaced. Section 3.3 Notice Of Nomination Of Directors. Nominations for the election of directors may be made by the Board of Directors or by any stockholder entitled to vote for the election of directors. Such nominations shall be made by notice in writing, delivered or mailed by first class United States mail, postage prepaid, to the Secretary of the Corporation not less than fourteen days nor more than fifty days prior to any meeting of the stockholders called for the election of directors; provided, however, that if less than twenty-one days' notice of the meeting is given to stockholders, such written notice shall be delivered or mailed, as prescribed, to the Secretary of the Corporation not later than the close of the seventh day following the day on which notice of the meeting was mailed to stockholders. Notice of nominations which are proposed by the Board of Directors shall be given by the Chairman on behalf of the Board. Each such notice shall set forth (i) the name, age, business address and, if known, residence address of each nominee proposed in such notice, (ii) the principal occupation or employment of each such nominee and (iii) the number of shares of stock of the Corporation which are beneficially owned by each such nominee. The Chairman of the meeting may, if the facts warrant, determine and declare to the meeting that a nomination was not made in accordance with the foregoing procedure, and if he should so determine, he shall so declare to the meeting and the defective nomination shall be disregarded. Section 3.4 Regular Meetings. Regular meetings of the Board of Directors may be held at such places within or without the State of Delaware and at such times as the Board of Directors may from time to time determine, and if so determined notices thereof need not be given. Section 3.5 Special Meetings. Special meetings of the Board of Directors may be held at any time or place within or without the State of Delaware whenever called by the President, the Chairman of the Board of Directors, the Vice Chairman of the Board of Directors, or by the Chairman of the Executive Committee. Reasonable notice thereof shall be given by the person calling the meeting, not later than the second day before the date of the special meeting. Section 3.6 Telephonic Meetings Permitted. Members of the Board of Directors, or any committee designated by the Board, may participate in any meeting of such Board or committee by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and participation in a meeting pursuant to this by-law shall constitute presence in person at such meeting. Section 3.7 Quorum; Vote Required For Action; Informal Action. At all meetings of the Board of Directors a majority of the whole Board shall constitute a quorum for the transaction 5 of business. Except in cases in which the certificate of incorporation or these by-laws otherwise provide, the vote of a majority of the directors present at a meeting at which a quorum is present shall be the act of the Board of Directors. Unless otherwise restricted by the certificate of incorporation or these by-laws, any action required or permitted to be taken at any meeting of the Board of Directors, or of any committee thereof, may be taken without a meeting if all members of the Board or such committee, as the case may be, consent thereto in writing, and the writing or writings are filed with the minutes of the proceedings of the Board or committee. Section 3.8 Organization. Meetings of the Board of Directors shall be presided over by the Chairman of the Board, if any, or in his absence by the Vice Chairman of the Board, if any, or in his absence by the President, or in their absence by a chairman chosen at the meeting. The Secretary shall act as a secretary of the meeting, but in his absence the chairman of the meeting may appoint any person to act as secretary of the meeting. Section 3.9 Compensation Of Directors. The Directors and members of standing committees shall receive such fees or salaries as fixed by resolution of the Executive Committee and in addition will receive expenses in connection with attendance or participation in each regular or special meeting. 6 ARTICLE IV Committees Section 4.1 Committees. The Board of Directors may, by resolution passed by a majority of the whole Board, designate one or more committees, each committee to consist of one or more of the directors of the Corporation. The Board may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. In the absence or disqualification of a member of the committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not he or they constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in place of any such absent or disqualified member. Any such committee, to the extent provided in the resolution of the Board of Directors, shall have and may exercise all the powers and authority of the Board of Directors in the management of the business and affairs of the Corporation, and may authorize the seal of the Corporation to be affixed to all papers which may require it; but no such committee shall have power or authority in reference to amending the certificate of incorporation of the Corporation, adopting an agreement of merger or consolidation, recommending to the stockholders the sale, lease or exchange or all or substantially all of the Corporation's property and assets, recommending to the stockholders a dissolution of the Corporation or a revocation of dissolution, or amending these by-laws. The Board of Directors shall, at the annual organization meeting thereof, elect an Executive Committee which shall consist of not more than four members, all of whom shall be members of the Board of Directors. The Executive Committee shall have and may exercise all of the powers and authority of the Board of Directors in the management of business and affairs of the Corporation to the fullest extent permitted by law (as presently allowed under Section 141 (c) to the Delaware General Corporation Law as revised effective July 1, 1996, and as may be allowed in the future pursuant to amendments or revisions to applicable law). Section 4.2 Committee Rules. Unless the Board of Directors otherwise provides, each committee designated by the Board may make, alter and repeal rules for the conduct of its business. In the absence of such rules each committee shall conduct its business in the same manner as the Board of Directors conducts its business pursuant to Article III of these by-laws. 7 ARTICLE V Officers Section 5.1 Executive Officers; Election; Qualifications; Term of Office; Resignation; Removal; Vacancies. The officers of the Corporation shall consist of a Chairman, Vice Chairman, President, Vice Presidents, Secretary, Assistant Secretaries, Treasurer, Assistant Treasurers, General Counsel, and such other officers as may from time to time be elected or appointed by the Board of Directors. The President shall be elected from the Board of Directors. Any officer may resign at any time upon written notice to the Corporation. The Board of Directors may remove any officer with or without cause at any time, but such removal shall be without prejudice to the contractual rights of such officer, if any, with the Corporation. Any number of offices may be held by the same person. Any vacancy occurring in any office of the Corporation by death, resignation, removal or otherwise may be filled for the unexpired portion of the term by the Board of Directors at any regular or special meeting. In the absence of any officer, the Board of Directors may delegate his power and duties to any other officer or to any director for the time being. Section 5.2 Duties Of The Chairman Of The Board And The Chairman Of The Executive Committee. The Chairman shall be the Chief Executive Officer of the Corporation, shall preside at all meetings of the Board, shall have general and active management of the business of the Corporation and shall see that all orders and resolutions of the Board are carried into effect. He shall submit a complete report of the operations and condition of the Corporation for the year to the stockholders at their annual meeting. In all cases, where a Chairman of the Executive Committee is elected, the Chairman of the Executive Committee shall, in the absence of the Chairman of the Board of Directors, act in the latter's capacity. Section 5.3 President. The President shall be the Chief Operating Officer of the Corporation, shall execute in the name of the Corporation all contracts and agreements authorized by the Board or the Executive Committee, and shall affix the seal to any instrument requiring the same, which shall always be attested by the signature of the President, the Vice President or the Secretary or any Assistant Secretary or the Treasurer. He may sign certificates of stock; he shall have general supervision and direction of all the other officers of the Corporation; he shall submit a complete report of the operations and condition of the Corporation for the year to the Chairman and to the directors at their regular meetings, and from time to time shall report to the directors all matters which the interest of the Corporation may require to be brought to their notice. He shall have the general powers and duties usually vested in the office of a President of a corporation. Section 5.4 Vice President Finance. The Vice President Finance shall be Chief Accounting and Chief Financial Officer of the Corporation and shall be responsible to the Board of Directors, the Executive Committee and the President for all financial control and internal audit of the Corporation and its subsidiaries. He shall perform such other duties as may be assigned to him by the Board of Directors, the Executive Committee or the President. Section 5.5 Vice Presidents. The Vice Presidents elected or appointed by the Board of Directors shall perform such duties and exercise such powers as may be assigned to them from time to time by the Board of Directors, the Executive Committee or the President. In the absence or disability of the President, the Vice President designated by the Board of Directors, the Executive Committee, or the President shall perform the duties and exercise the powers of the President. A Vice President may sign and execute contracts and other obligations pertaining to the regular course of his duties. Section 5.6 Secretary. The Secretary shall be ex-officio Secretary of the Board of Directors and of the standing committees. He shall attend all sessions of the Board, act as clerk 8 thereof, record all votes and keep the minutes of all proceedings in a book to be kept for that purpose. He shall perform like duties for the standing committees when required. He shall see that the proper notices are given of all meetings of stockholders and directors, and perform such other duties as may be prescribed from time to time by the Board of Directors, the Executive Committee, Chairman or President, and shall be sworn to the faithful discharge of his duties. He shall keep the accounts of stock registered and transferred in such form and manner and under such regulations as the Board of Directors or Executive Committee may prescribe. Section 5.7 Treasurer. The Treasurer shall keep full and accurate accounts of receipts and disbursements in books belonging to the Corporation and shall deposit all monies and other valuable effects in the name and to the credit of the Corporation, in such depositories as may be designated by the Board of Directors or Executive Committee. He shall disburse the funds of the Corporation as may be ordered by the Board, the Executive Committee or the President, taking proper vouchers therefor, and shall render to the President and the Executive Committee and Directors, whenever they may require it, an account of all his transactions as Treasurer, and of the financial condition of the Corporation, and at the annual organization meeting of the Board a like report for the preceding year. Section 5.8 General Counsel. The General Counsel shall be the legal adviser of the Corporation and shall perform such services as the Chairman, President, Board of Directors or Executive Committee may require. 9 ARTICLE VI Stock Section 6.1 Certificates. Every holder of stock shall be entitled to have a certificate signed by or in the name of the Corporation by the Chairman or Vice Chairman of the Board of Directors, if any, or the President of the Corporation, certifying the number of shares owned by him in the Corporation. Any of or all the signatures on the certificate may be a facsimile. In case any officer, transfer agent, or registrar who has signed or whose facsimile signature has been placed upon a certificate, shall have ceased to be such officer, transfer agent, or registrar before such certificate is issued, it may be issued by the Corporation with the same effect as if he were such officer, transfer agent, or registrar at the date of issue. Section 6.2 Lost, Stolen Or Destroyed Stock Certificates; Issuance Of New Certificates. The Corporation may issue a new certificate of stock in the place of any certificate theretofore issued by it, alleged to have been lost, stolen or destroyed, and the Corporation may require the owner of the lost, stolen or destroyed certificate, or his legal representative, to give the Corporation a bond sufficient to indemnify it against any claim that may be made against it on account of the alleged loss, theft or destruction of any such certificate or the issuance of such new certificate. 10 ARTICLE VII Indemnification Section 7.1. General. The Company shall indemnify, and advance Expenses (as hereinafter defined) to, Indemnitee (as hereinafter defined) to the fullest extent permitted by applicable law in effect on July 23, 1986, and to such greater extent as applicable law may thereafter from time to time permit. The rights of Indemnitee provided under the preceding sentence shall include, but shall not be limited to, the rights set forth in the other Sections of this Article. Section 7.2. Proceedings Other Than Proceedings By Or In The Right Of The Company. Indemnitee shall be entitled to the indemnification rights provided in this Section 7.2 if, by reason of his Corporate Status (as hereinafter defined), he is, or is threatened to be made, a party to any threatened, pending, or completed Proceeding (as hereinafter defined), other than a Proceeding by or in the right of the Company. Pursuant to this Section 7.2, Indemnitee shall be indemnified against Expenses, judgments, penalties, fines and amounts paid in settlement actually and reasonably incurred by him or on his behalf in connection with such Proceeding or any claim, issue or matter therein, if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Company, and, with respect to any criminal Proceeding, had no reasonable cause to believe his conduct was unlawful. Section 7.3. Proceedings By Or In The Right Of The Company. Indemnitee shall be entitled to the indemnification rights provided in this Section 7.3 to the fullest extent permitted by law if, by reason of his Corporate Status, he is, or is threatened to be made, a party to any threatened, pending or completed Proceeding brought by or in the right of the Company to procure a judgment in its favor. Pursuant to this Section 7.3, Indemnitee shall be indemnified against Expenses, judgments, penalties, fines and amounts paid in settlement actually and reasonably incurred by him or on his behalf in connection with such Proceeding if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interest of the Company. Section 7.4. Indemnification For Expenses Of A Party Who Is Wholly Or Partly Successful. Notwithstanding any other provision of this Article, to the extent that Indemnitee is, by reason of his Corporate Status, a party to and is successful, on the merits or otherwise, in any Proceeding, he shall be indemnified against all Expenses actually and reasonably incurred by him or on his behalf in connection therewith. If Indemnitee is not wholly successful in such Proceeding but is successful, on the merits or otherwise, as to one or more but less than all claims, issues or matters in such Proceeding, the Company shall indemnify Indemnitee against all Expenses actually and reasonably incurred by him or on his behalf in connection with each successfully resolved claim, issue or matter. For purposes of this Section and without limitation, the termination of any claim, issue or matter in such a Proceeding by dismissal, with or without prejudice, shall be deemed to be a successful result as to such claim, issue or matter. Section 7.5. Indemnification For Expenses Of A Witness. Notwithstanding any other provision of this Article, to the extent that Indemnitee is, by reason of his Corporate Status, a witness in any Proceeding, he shall be indemnified against all Expenses actually and reasonably incurred by him or on his behalf in connection therewith. Section 7.6. Advancement Of Expenses. The Company shall advance all reasonable Expenses incurred by or on behalf of Indemnitee in connection with any Proceeding within twenty days after the receipt by the Company of a statement or statements from Indemnitee requesting such advance or advances from time to time, whether prior to or after final disposition of such proceeding. Such statement or statements shall reasonably evidence the Expenses incurred by Indemnitee and shall include or be preceded or accompanied by an undertaking by or on behalf of Indemnitee to repay any 11 Expenses advanced if it shall ultimately be determined that Indemnitee is not entitled to be indemnified against such Expenses. Section 7.7. Procedure For Determination Of Entitlement To Indemnification. (a) To obtain indemnification under this Article, Indemnitee shall submit to the Company a written request, including therein or therewith such documentation and information as is reasonably available to Indemnitee and is reasonably necessary to determine whether and to what extent Indemnitee is entitled to indemnification. The determination of Indemnitee's entitlement to indemnification shall be made not later than 60 days after receipt by the Company of the written request for indemnification. The Secretary of the Company shall, promptly upon receipt of such a request for indemnification, advise the Board of Directors in writing that Indemnitee has requested indemnification. (b) Indemnitee's entitlement to indemnification under any of Sections 7.2, 7.3 or 7.4 of this Article shall be determined in the specific case: (i) by the Board of Directors by a majority vote of a quorum of the Board consisting of Disinterested Directors (as hereinafter defined); or (ii) by Independent Counsel (as hereinafter defined), in a written opinion, if (A) a Change of Control (as hereinafter defined) shall have occurred and Indemnitee so requests, or (B) if a quorum of the Board of Directors consisting of Disinterested Directors is not obtainable or, even if obtainable, such quorum of Disinterested Directors so directs; or (iii) by the stockholders of the Company; or (iv) as provided in Section 7.8 of this Article. (c) In the event the determination of entitlement to indemnification is to be made by Independent Counsel pursuant to Section 7.7(b) of this Article, the Independent Counsel shall be selected as provided in this Section 7.7(c). If a Change of Control shall not have occurred, the Independent Counsel shall be selected by the Board of Directors, and the Company shall give written notice to Indemnitee advising him of the identity of the Independent Counsel so selected. If a Change of Control shall have occurred, and if so requested by Indemnitee in his written request for indemnification, the Independent Counsel shall be selected by Indemnitee, and Indemnitee shall give written notice to the Company advising it of the identity of the Independent Counsel so selected. In either event, Indemnitee or the Company, as the case may be, may, within 7 days after such written notice of selection shall have been given, deliver to the Company or to Indemnitee, as the case may be, a written objection to such selection. Such objection may be asserted only on the ground that the Independent Counsel so selected does not meet the requirements of "Independent Counsel" as defined in Section 7.13 of this Article, and the objection shall set forth with particularity the factual basis of such assertion. If such written objection is made, the Independent Counsel so selected shall be disqualified from acting as such. If, within 20 days after submission by Indemnitee of a written request for indemnification pursuant to Section 7.7(a) hereof, no Independent Counsel shall have been selected, or if selected shall have been objected to, in accordance with this Section 7.7(c), either the Company or Indemnitee may petition the Court of Chancery of the State of Delaware for the appointment as Independent Counsel of a person selected by the Court or by such other person as the Court shall designate, and the person so appointed shall act as Independent Counsel under Section 7.7(b) hereof. The Company shall pay any and all reasonable fees and expenses of Independent Counsel incurred by such Independent Counsel in acting pursuant to Section 7.7(b) hereof, and the Company shall pay all reasonable fees and expenses incident to the procedures of this Section 7.7(c), regardless of the manner in which such Independent Counsel was selected or appointed. Section 7.8. Presumptions And Effect Of Certain Proceedings. If a Change of Control shall have occurred, Indemnitee shall be presumed (except as otherwise expressly provided in this Article) to be entitled to indemnification under this Article upon submission of a request for indemnification in accordance with Section 7.7(a) of this Article, and thereafter the Company shall have the burden of proof to overcome that presumption in reaching a determination contrary to that 12 presumption. Whether or not a Change of Control shall have occurred, if the person or persons empowered under Section 7.7 of this Article to determine entitlement to indemnification shall not have made a determination within 60 days after receipt by the Company of the request therefor, the requisite determination of entitlement to indemnification shall be deemed to have been made and Indemnitee shall be entitled to such indemnification unless (i) Indemnitee misrepresented or failed to disclose a material fact in making the request for indemnification, or (ii) such indemnification is prohibited by law. The termination of any Proceeding described in any of Sections 7.2, 7.3, or 7.4 of this Article, or of any claim, issue or matter therein, by judgment, order, settlement or conviction, or upon a plea of nolo contendere or its equivalent, shall not (except as otherwise expressly provided in this Article) of itself adversely affect the right of Indemnitee to indemnification or create a presumption that Indemnitee did not act in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the Company or, with respect to any criminal Proceeding, that Indemnitee had reasonable cause to believe that his conduct was unlawful. Section 7.9. Remedies Of Indemnitee. (a) In the event that (i) a determination is made pursuant to Section 7.7 of this Article that Indemnitee is not entitled to indemnification under this Article, (ii) advancement of Expenses is not timely made pursuant to Section 7.6 of this Article, or (iii) payment of indemnification is not made within five (5) days after a determination of entitlement to indemnification has been made or deemed to have been made pursuant to Sections 7.7 or 7.8 of this Article, Indemnitee shall be entitled to an adjudication in an appropriate court of the State of Delaware, or in any other court of competent jurisdiction, of his entitlement to such indemnification or advancement of Expenses. Alternatively, Indemnitee, at his option, may seek an award in arbitration to be conducted by a single arbitrator pursuant to the rules of the American Arbitration Association. The Company shall not oppose Indemnitee's right to seek any such adjudication or award in arbitration. (b) In the event that a determination shall have been made pursuant to Section 7.7 of this Article that Indemnitee is not entitled to indemnification, any judicial proceeding or arbitration commenced pursuant to this Section 7.9 shall be conducted in all respects as a de novo trial, or arbitration, on the merits and Indemnitee shall not be prejudiced by reason of that adverse determination. If a Change of Control shall have occurred, in any judicial proceeding or arbitration commenced pursuant to this Section 7.9 the Company shall have the burden of proving that Indemnitee is not entitled to indemnification or advancement of Expenses, as the case may be. (c) If a determination shall have been made or deemed to have been made pursuant to Sections 7.7 or 7.8 of this Article that Indemnitee is entitled to indemnification, the Company shall be bound by such determination in any judicial proceeding or arbitration commenced pursuant to this Section 7.9, unless (i) Indemnitee misrepresented or failed to disclose a material fact in making the request for indemnification, or (ii) such indemnification is prohibited by law. (d) The Company shall be precluded from asserting in any judicial proceeding or arbitration commenced pursuant to this Section 7.9 that the procedures and presumptions of this Article are not valid, binding and enforceable and shall stipulate in any such court or before any such arbitrator that the Company is bound by all the provisions of this Article. (e) In the event that Indemnitee, pursuant to this Section 7.9, seeks a judicial adjudication of, or an award in arbitration to enforce his rights under, or to recover damages for breach of, this Article, Indemnitee shall be entitled to recover from the Company, and shall be indemnified by the Company against, any and all expenses (of the types described in the definition of Expenses in Section 7.13 of this Article) actually and reasonably incurred by him in such judicial adjudication or arbitration, but only if he prevails therein. If it shall be determined in said judicial adjudication or arbitration that Indemnitee is entitled to receive part but not all of the indemnification 13 or advancement of Expenses sought, the expenses incurred by Indemnitee in connection with such judicial adjudication or arbitration shall be appropriately prorated. Section 7.10. Non-Exclusivity And Survival Of Rights. The rights of indemnification and to receive advancement of Expenses as provided by this Article shall not be deemed exclusive of any other rights to which Indemnitee may at any time be entitled under applicable law, the Certificate of Incorporation, the By-Laws, any agreement, a vote of stockholders or a resolution of directors, or otherwise. Notwithstanding any amendment, alteration or repeal of any provision of this Article, Indemnitee shall, unless otherwise prohibited by law, have the rights of indemnification and to receive advancement of Expenses as provided by this Article in respect of any action taken or omitted by Indemnitee in his Corporate Status and in respect of any claim asserted in respect thereof at any time when such provision of this Article was in effect. The provisions of this Article shall continue as to an Indemnitee whose Corporate Status has ceased and shall inure to the benefit of his heirs, executors and administrators. Section 7.11. Severability. If any provision or provisions of this Article shall be held to be invalid, illegal or unenforceable for any reason whatsoever: (a) the validity, legality and enforceability of the remaining provisions of this Article (including without limitation, each portion of any Section of this Article containing any such provision held to be invalid, illegal or unenforceable, that is not itself invalid, illegal or unenforceable) shall not in any way be affected or impaired thereby; and (b) to the fullest extent possible, the provisions of this Article (including, without limitation, each portion of any Section of this Article containing any such provision held to be invalid, illegal or unenforceable, that is not itself invalid, illegal or unenforceable) shall be construed so as to give effect to the intent manifested by the provision held invalid, illegal or unenforceable. Section 7.12. Certain Persons Not Entitled To Indemnification Or Advancement Of Expenses. Notwithstanding any other provision of this Article, no person shall be entitled to indemnification or advancement of Expenses under this Article with respect to any Proceeding, or any claim therein, brought or made by him against the Company. Section 7.13. Definitions. For purposes of this Article: (a) "Change in Control" means a change in control of the Company of a nature that would be required to be reported in response to Item 5(f) of Schedule 14A of Regulation 14A (or in response to any similar item on any similar schedule or form) promulgated under the Securities Exchange Act of 1934 (the "Act"), whether or not the Company is then subject to such reporting requirement; provided, however, that, without limitation, such a Change in Control shall be deemed to have occurred if (i) any "person" (as such term is used in Sections 13(d) and 14(d) of the Act) is or becomes the "beneficial owner") (as defined in Rule 13d-3 under the Act), directly or indirectly, of securities of the Company representing 20% or more of the combined voting power of the Company's then outstanding securities without the prior approval of at least two-thirds of the members of the Board of Directors in office immediately prior to such person attaining such percentage interest; (ii) the Company is a party to a merger, consolidation, sale of assets or other reorganization, or a proxy contest, as a consequence of which members of the Board of Directors in office immediately prior to such transaction or event constitute less than a majority of the Board of Directors thereafter; or (iii) during any period of two consecutive years, individuals who at the beginning of such period constituted the Board of Directors (including for this purpose any new director whose election or nomination for election by the Company's stockholders was approved by a vote of at least two-thirds of the directors then still in office who were directors at the beginning of such period) cease for any reason to constitute at least a majority of the Board of Directors. 14 (b) "Corporate Status" describes the status of a person who is or was a director, officer, employee, agent or fiduciary of the Company or of any other corporation, partnership, joint venture, trust, employee benefit plan or other enterprise which such person is or was serving at the request of the Company. (c) "Disinterested Director" means a director of the Company who is not and was not a party to the Proceeding in respect of which indemnification is sought by Indemnitee. (d) "Expenses" shall include all reasonable attorneys' fees, retainers, court costs, transcript costs, fees of experts, witness fees, travel expenses, duplicating costs, printing and binding costs, telephone charges, postage, delivery service fees, and all other disbursements or expenses of the types customarily incurred in connection with prosecuting, defending, preparing to prosecute or defend, investigating, or being or preparing to be a witness in a Proceeding. (e) "Indemnitee" includes any person who is, or is threatened to be made, a witness in or a party to any Proceeding as described in Sections 7.2, 7.3 or 7.4 of this Article by reason of his Corporate Status. (f) "Independent Counsel" means a law firm, or a member of a law firm, that is experienced in matters of corporation law and neither presently is, nor in the past five (5) years has been, retained to represent: (i) the Company or Indemnitee in any matter material to either such party, or (ii) any other party to the Proceeding giving rise to a claim for indemnification hereunder. Notwithstanding the foregoing, the term "Independent Counsel" shall not include any person who, under the applicable standards of professional conduct then prevailing, would have a conflict of interest in representing either the Company or Indemnitee in an action to determine Indemnitee's rights under this Article. (g) "Proceeding" includes any action, suit, arbitration, alternate dispute resolution mechanism, investigation, administrative hearing or any other proceeding whether civil, criminal, administrative or investigative, except one initiated by an Indemnitee pursuant to Section 7.9 of this Article to enforce his rights under this Article. Section 7.14. Miscellaneous. Use of the masculine pronoun shall be deemed to include usage of the feminine pronoun where appropriate. 15 ARTICLE VIII Miscellaneous Section 8.1 Fiscal Year. The fiscal year of the Corporation shall be determined by resolution of the Board of Directors. Section 8.2 Waiver Of Notice Of Meetings Of Stockholders, Directors, And Committees. Any written waiver of notice, signed by the person entitled to notice, whether before or after the time stated therein, shall be deemed equivalent to notice. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when the person attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of any regular or special meeting of the stockholders, directors, or members of a committee of directors need be specified in any written waiver of notice.. Section 8.3 Interested Directors; Quorum. No contract or transaction between the Corporation and one or more of its directors or officers, or between the Corporation and any other corporation, partnership, association, or other organization in which one or more of its directors or officers are directors or officers, or have a financial interest, shall be void or voidable solely for this reason, or solely because the director or officer is present at or participates in the meeting of the Board or committee thereof which authorizes the contract or transaction, or solely because his or their votes are counted for such purpose, if: (1) the material facts as to his relationship or interest and as to the contract or transaction are disclosed or are known to the Board of Directors or the committee, and the Board or the committee in good faith authorizes the contract or transaction by the affirmative vote of a majority of the disinterested directors, even though the disinterested directors be less than a quorum; or (2) the material facts as to his relationship or interest and as to the contract or transaction are disclosed or are known to the stockholders entitled to vote thereon, and the contract or transaction is specifically approved in good faith by vote of the stockholders; or (3) the contract or transaction is fair as to the Corporation as of the time it is authorized, approved or ratified, by the Board of Directors, a committee thereof, or the stockholders. Common or interested directors may be counted in determining the presence of a quorum at a meeting of the Board of Directors or of a committee which authorizes the contract or transaction. Section 8.4 Form Of Records. Any records maintained by the Corporation in the regular course of its business, including its stock ledger, books of account, and minute books, may be kept on, or be in the form of, punch cards, magnetic tape, photographs, microphotographs, or any other information storage device, provided that the records so kept can be converted into clearly legible form within a reasonable time. The Corporation shall so convert any records so kept upon the request of any person entitled to inspect the same. Section 8.5 Amendment Of By-Laws. The Board of Directors of the Corporation is expressly authorized to adopt, amend or repeal the by-laws of the Corporation by a vote of a majority of the entire Board. The stockholders may make, alter or repeal any by-law whether or not adopted by them, provided however, that any such additional by-laws, alterations or repeal may be adopted only by the affirmative vote of the holders of 75% or more of the outstanding shares of capital stock of the Corporation entitled to vote generally in the election of directors (considered for this purpose as one class), unless such additional by-laws, alterations or repeal shall have been recommended to the stockholders for adoption by a majority of the Board of Directors, in which event such additional by-laws, alterations or repeal may be adopted by the affirmative vote of the holders of a majority of the outstanding shares of capital stock of the Corporation entitled to vote generally in the election of directors (considered for this purpose as one class). 16 EX-99.4(L) 6 NINETEENTH SUPPLEMENTAL INDENTURE ROLLINS TRUCK LEASING CORP. and FIRST UNION NATIONAL BANK as Trustee NINETEENTH SUPPLEMENTAL INDENTURE Dated as of April 5, 1999 to the Collateral Trust Indenture Dated as of March 21, 1983 6.75% COLLATERAL TRUST DEBENTURES, Series T, DUE APRIL 5, 2006 TABLE OF CONTENTS* Page PARTIES 1 RECITALS: Execution of Collateral Trust Indenture Supplemental Indentures 1 Issuance of Series T Debentures 1 Text of Forms: Form of Face of Series T Debentures 1 Form of Trustee's Authentication Certificate for Series T Debentures 3 Form of Reverse of Series T Debentures 3 All Things Done 6 GRANTING CLAUSES: GRANTING CLAUSE I - Securities 7 GRANTING CLAUSE II - Agreements and Assignments 7 GRANTING CLAUSE III - Other Securities and Property 7 HABENDUM 7 GRANT IN TRUST 7 GENERAL COVENANT 7 SECTION 1. Series T Debentures: Terms and Provisions 8 SECTION 2. Authentication and Delivery of Series T Debentures 9 SECTION 3. Maintenance of Office or Agency; Authenticating Agent for Series T Debentures 9 SECTION 4. Original Indenture Ratified 9 SECTION 5. Trustee Not Responsible 10 SECTION 6. Defined Terms 10 SECTION 7. Counterparts 10 SECTION 8. Applicable Law 10 TESTIMONIUM 11 EXECUTION 11 ACKNOWLEDGEMENTS 11 - ------------ *Note: This Table of Contents has been inserted for convenience and does not constitute a part of the Nineteenth Supplemental Indenture. NINETEENTH SUPPLEMENTAL 0INDENTURE (herein called the "Nineteenth Supplemental Indenture"), dated as of April 5, 1999, between Rollins Truck Leasing Corp., (formerly RLC CORP.) a Delaware corporation (herein called the "Corporation"), and FIRST UNION NATIONAL BANK, as Trustee (herein called the "Trustee"). WHEREAS, the Corporation and the Trustee have heretofore executed and delivered a Collateral Trust Indenture dated as of March 21, 1983, as supplemented and amended by a Third Supplemental Indenture thereto dated as of February 20, 1986, by an Eighth Supplemental Indenture thereto dated May 15, 1990 and by a Seventeenth Supplemental Indenture thereto dated as of March 10, 1997 (the "Original Indenture"; the Original Indenture, and as supplemented by this Nineteenth Supplemental Indenture, being herein called the "Indenture"); WHEREAS, the Original Indenture provides that the Corporation and the Trustee may enter into indentures supplemental to the Original Indenture, among other things, to provide for the issuance from time to time of debentures (defined in the Original Indenture as "Debentures") of the Corporation; 1 WHEREAS, the Corporation has determined to issue hereunder a series of Debentures (herein called the "Series T Debentures") to be designated as "6.52% Collateral Trust Debentures, Series T, Due April 5, 2006", to be in the aggregate principal amount of $100,000,000; WHEREAS, the Series T Debentures and the Trustee's certificate to be endorsed on the Series T Debentures are to be in the following forms, with necessary or appropriate variations, omissions and insertions as permitted or required by the Indenture: (FORM OF FACE OF Series T DEBENTURES) Rollins Truck Leasing Corp. 6.75% COLLATERAL TRUST DEBENTURE, Series T, DUE APRIL 5, 2006 $____________________ PPN 775741 AJ 0 No._____________________ Rollins Truck Lesing Corp., a corporation organized and existing under the laws of the State of Delaware (herein called the "Corporation", which term shall include any successor corporation to the extent provided in the Indenture hereinafter referred to), for value received, hereby promises to pay to ____________________, or registered assigns, the principal sum of _____________ Dollars on April 5, 2006, in such coin or currency of the United States of America as at the time of payment shall be legal tender for public and private debts, and to pay interest on said principal sum at the rate of 6.75% per annum (and at the same rate per annum on any overdue principal and, to the extent legally enforceable, overdue installment of interest) in like coin or currency from the fifth day of April or October, as the case may be, to which interest on the Series T Debentures has been paid preceding the date hereof (unless the date hereof is an April 5 or October 5 to which interest has been paid, in which case from the date hereof, or unless no interest has been paid on the Series T Debentures since the original issuance of this Debenture, in which case from April 5, 1999), semiannually on each April 5 and October 5 until payment of said principal sum has been made or duly provided for. Notwithstanding the foregoing, if the date hereof is after March 20 or September 20 as the case may be, and before the following April 5 or October 5, this Debenture shall bear interest from such April 5 or October 5; provided, however, that if the Corporation shall default in the payment of interest due on such April 5 or October 5, then this Debenture shall bear interest from the next preceding April 5 or October 5 to which interest has been paid or, if no interest has been paid on the Series T Debentures since the original issuance of this Debenture, from April 5, 1999. The interest so payable on any April 5 or October 5 will, subject to certain exceptions provided in the Indenture referred to on the reverse hereof, be paid to the person in whose name this Debenture is registered at the close of business on March 20 or September 20, as the case may be, next preceding such April 5 or October 5. Payment of the principal of and interest on this Debenture will be made at the office or agency of the Corporation in the Borough of Manhattan, The City of New York, New York; provided, however, that interest may be paid, at the option of the Corporation, by check mailed to the registered holder hereof at such holder's address last appearing on the registry books for the Series T Debentures, or in such other manner as the Corporation may agree with the holder hereof as contemplated by Section 1(d) of the Nineteenth Supplemental Indenture referred to on the reverse hereof. Additional provisions of this Debenture are contained on the reverse hereof and such provisions shall for all purposes have the same effect as though fully set forth at this place. This Debenture shall not be entitled to any of the benefits of the Indenture or any indenture supplemental thereto, or be valid or obligatory for any purpose, unless the form of certificate of authentication hereon shall have been executed by or on behalf of the Trustee (referred to on the reverse hereof) or a successor trustee thereto under the Indenture. IN WITNESS WHEREOF, Rollins Truck Leasing Corp. has caused this instrument to be signed in its name by its President or a Vice President and by its Secretary or an Assistant Secretary, or by facsimiles of any of their signatures, and its corporate seal, or a facsimile thereof, to be hereto affixed. DATED: ------------------------- Rollins Truck Leasing Corp. 2 BY: ______________________________ (Title) (SEAL) ATTESTED: - ------------------------------ (Title) (FORM OF TRUSTEE'S AUTHENTICATION CERTIFICATE) TRUSTEE'S AUTHENTICATION CERTIFICATE THIS IS ONE OF THE DEBENTURES, OF THE SERIES DESIGNATED THEREIN, DESCRIBED IN THE WITHIN-MENTIONED INDENTURE. FIRST UNION NATIONAL BANK, AS TRUSTEE BY: ______________________________ AUTHORIZED OFFICER (FORM OF REVERSE OF Series T DEBENTURES) This Debenture is one of the Debentures of the Corporation (herein called the "Debentures"), all duly authorized or from time to time to be duly authorized and not limited in aggregate principal amount, all issued and to be issued in one or more series from time to time under and equally secured by a Collateral Trust Indenture dated as of March 21, 1983, between the Corporation and First Union National Bank, as Trustee (herein called the "Trustee", which term includes any successor trustee under the Indenture as hereinafter defined), as supplemented and amended by a Third Supplemental Indenture thereto dated as of February 20, 1986, by an Eighth Supplemental Indenture, dated as of May 15, 1990, by a Seventeenth Supplemental Indenture, dated as of March 10, 1997, and as last supplemented by the Nineteenth Supplemental Indenture, dated as of April 5, 1999 (said Indenture, as so supplemented and amended, being herein called the "Indenture"), to which Indenture and all indentures supplemental thereto reference is hereby made for a description of the property thereby pledged, the nature and extent of the security, the rights of the holders of the Debentures in respect of the security, the rights, duties and immunities of the Trustee and the rights and obligations of the Corporation in respect of the Debentures, and the terms and conditions upon which the Debentures are, and are to be, secured. The Debentures may be issued in series, for various principal sums, may mature at different times, may bear interest at different rates and may otherwise vary as in the Indenture provided. This Debenture is one of a series designated as the "6.75% Collateral Trust Debentures, Series T, due April 5, 2006" of the Corporation (herein called the "Series T Debentures"), duly authorized and lawfully issued in an aggregate principal amount of $100,000,000 under and secured by the Indenture. 3 The provisions of the Indenture may be waived, or modified or amended by supplemental indenture, to the extent and in the manner provided in the Indenture, but in certain instances only with the consent of the holders of a majority in aggregate principal amount of all Debentures at the time outstanding, and of 66 2/3% in aggregate principal amount of each series of the Debentures at the time outstanding which is affected by such waiver or supplemental indenture; provided, however, that, without the written consent of the holder of this Debenture, no such modification or amendment shall be made so as to (i) extend the fixed maturity of this Debenture or the time of payment of interest hereon, or reduce or otherwise modify the terms of payment of the principal of, or the rate of interest on, this Debenture, or adversely affect the right of the holder hereof to institute suit for the enforcement of any such payment, (ii) permit the creation of any lien ranking prior to or on a parity with the lien of the Indenture with respect to, or terminate the lien of the Indenture on, any of the property covered thereby, or deprive the holder hereof of the security afforded by the lien of the Indenture or (iii) reduce the percentage of the aggregate principal amount of Debentures, or of Series T Debentures, required to authorize any such modification or amendment or any waiver of any provision of, or default under, the Indenture. In case an Event of Default (as defined in the Indenture) shall occur, the principal of all the Debentures at any such time outstanding under the Indenture may be declared or may become due and payable upon the conditions and in the manner and with the effect provided in the Indenture. The Indenture provides that in certain events such Event of Default and its consequences may be waived and such declaration may be rescinded by the holders of outstanding Debentures in the manner provided in the Indenture. Any request, demand, authorization, direction, declaration, notice, consent, waiver or other action by the holder of this Debenture shall bind the holder of every Debenture issued upon the registration of transfer hereof or in exchange herefor or in lieu hereof, in respect of anything done or suffered to be done by or on behalf of the Trustee or the Corporation in reliance thereon, whether or not notation of such action is made upon this Debenture. The Series T Debentures may not be redeemed prior to maturity. The transfer of this Debenture may be registered by the registered holder hereof or by his duly authorized attorney at the office or agency of the Corporation in the Borough of Manhattan, the City of New York, New York, upon surrender of this Debenture for cancellation, accompanied by a written instrument of transfer in a form approved by the Corporation, duly executed by the registered holder of this Debenture or by his duly authorized attorney, and thereupon one or more new Debentures of the same series and aggregate principal amount will be issued in the name of the transferee or transferees in exchange herefor without service charge, except that the Corporation may require payment of a sum sufficient to pay any stamp taxes or other governmental charges that may be required with respect thereto, as provided in the Indenture. The person in whose name this Debenture shall be registered shall be deemed the absolute owner hereof for all purposes, and payment of or on account of the principal of and interest on, this Debenture shall be made only to or upon the written order of such registered owner or his duly authorized attorney. All such payments shall satisfy and discharge the liability upon this Debenture to the extent of the amounts so paid. No recourse shall be had for the payment of the principal of, or interest on, this Debenture, or for any claim based hereon, or otherwise in respect hereof, or based on or in respect of the Indenture or any indenture supplemental thereto, against any incorporator, stockholder, officer or director, as such, past, present or future, of the Corporation or any successor corporation, whether by virtue of any constitution, statute or rule of law, or by the enforcement of any assessment or penalty or otherwise, all such liability being, by the acceptance hereof and as part of the consideration for the issue hereof, expressly waived and released. (END OF FORM OF REVERSE OF Series T DEBENTURES) WHEREAS, the Debentures of any other series are to be substantially in the forms herein provided for Series T Debentures, with such omissions, insertions and variations as may be authorized and permitted by this Indenture; and WHEREAS, all acts and things prescribed by law, by the Certificate of Incorporation and the By-laws of the Corporation, and all other acts and things necessary to make the Series T Debentures, when executed by the 4 Corporation, and authenticated and delivered by the Trustee as in this Nineteenth Supplemental Indenture provided, the valid, binding and legal obligations of the Corporation, and to make this Nineteenth Supplemental Indenture a valid, binding and legal instrument for the security of the Series T Debentures, in accordance with its terms, have been done and performed; NOW, THEREFORE, THIS NINETEENTH SUPPLEMENTAL INDENTURE WITNESSETH: THAT the Corporation, in consideration of these premises, of the acceptance by the Trustee of the trusts created hereby, of the mutual covenants herein contained, of the purchase and acceptance of the Debentures by the holders thereof, of the sum of $10 duly paid by the Trustee to the Corporation at or before the ensealing and delivery of this Nineteenth Supplemental Indenture and for other valuable consideration, the receipt whereof is hereby acknowledged, and in order to secure the payment of the principal of, and premium, if any, and interest on, all Debentures at any time issued and Outstanding under the Indenture, according to their tenor and effect, and the performance and observance by the Corporation of all the covenants and conditions herein and therein contained on its part to be performed and observed, and to declare the terms and conditions upon and subject to which the Debentures are, and are to be, issued and secured, has executed and delivered this Indenture and has granted, bargained, sold, remised, released, conveyed, assigned, transferred, mortgaged, pledged, set over, confirmed and warranted, and by these presents does grant, bargain, sell, remise, release, convey, assign, transfer, mortgage, pledge, set over, confirm and warrant, to the Trustee, and to its successors in the trusts and its and their assigns forever, with power of sale, all and singular the following: GRANTING CLAUSE I Securities Note of Rollins Leasing Corp., a Delaware corporation, dated April 5, 1999, in the aggregate principal amount of $100,000,000. GRANTING CLAUSE II Agreements and Assignments The following agreements and assignments: A. A Loan Agreement, dated as of April 5, 1999, between the Corporation and Rollins Leasing Corp., which Loan Agreement shall be in the form attached hereto as Exhibit A. B. Assignment of Loan Agreement, dated as of April 5, 1999, assigning the Loan Agreement described in Subparagraph A of this Granting Clause II to the Trustee, which Assignment shall be in the form attached hereto as Exhibit B. GRANTING CLAUSE III Other Securities and Property All other securities and other property, including cash, and any and all security therefor of whatsoever nature, that may, from time to time hereafter, by delivery or by writing of any kind, be subjected to the lien hereof by the Corporation or by anyone on its behalf; and the Trustee is hereby authorized to receive the same as additional security hereunder. Such subjection to the lien hereof of such securities or other property, including cash, as additional security hereunder may be made subject to any reservations, limitations or conditions which shall not be prohibited by this Indenture and which shall be set forth in a written instrument executed by the Corporation or the person so acting on its behalf, respecting the use and disposition of such property or the proceeds thereof. TO HAVE AND TO HOLD the Pledged Property unto the Trustee and its successors and assigns forever; BUT IN TRUST, NEVERTHELESS, for the equal and proportionate benefit and security of the holders 5 from time to time of all the Debentures issued hereunder and Outstanding, without any priority of any of said Debentures over any of the others. IT IS HEREBY COVENANTED, DECLARED AND AGREED that all the Debentures are to be issued, authenticated and delivered, and that all property, including cash, subject or to become subject hereto is to be held, subject to the further covenants, conditions, uses and trusts hereinafter set forth, and the Corporation, for itself and its successors and assigns, hereby covenants and agrees to and with the Trustee and its successors in said trust for the equal and proportionate benefit and security of those who shall hold the Debentures, as hereinafter set forth. SECTION 1. Series T Debentures: Terms and Provisions. Series T Debentures shall be designated as "6.75% Collateral Trust Debentures, Series T, Due April 5, 2006" of the Corporation, and shall have the following terms and provisions: (a) Series T Debentures shall be in the form set forth in the recitals hereto. (b) The aggregate principal amount of Series T Debentures which may be issued shall be $100,000,000, except Series T Debentures issued in exchange for, in lieu of, in substitution for, or upon the registration of transfer of, other Series T Debentures pursuant to the provisions of Article II and Section 18.04 of the Original Indenture. (c) Series T Debentures shall be dated April 5, 1999. (d) Series T Debentures shall mature April 5, 2006 and shall bear interest (calculated on the basis of a 360 day year of twelve 30 day months) as provided in Section 2.06(b) of the Original Indenture, payable semiannually on April 5 and October 5 in each year, commencing October 5, 1999 at the rate of 6.75% per annum until the principal thereof shall become due and payable (whether at the stated maturity, by declaration or otherwise), and at the rate of 6.75% per annum on any overdue principal, and (to the extent legally enforceable) any overdue installment of interest. Payment of principal and interest shall be made at the Corporate Trust Office or at the other office or agency maintained by the Corporation as provided in Section 7.02(a) of the Original Indenture, in such coin or currency of the United States of America as at the time of payment shall be legal tender for the payment of public and private debts; provided, however, that interest may be paid, at the option of the Corporation, by check mailed to the Person entitled thereto at his address last appearing on the registry books required to be kept pursuant to Section 2.05 of the Original Indenture. Notwithstanding anything to the contrary above, the Corporation may enter into a written agreement with any person who is or is to become the holder of any of the Series T Debentures providing for the making of all payments on the account of such Series T Debentures directly to or for the account of such holder in the manner specified in or pursuant to such agreement without presentation or surrender thereof if there shall be filed with the Trustee a copy of such agreement. Notwithstanding any contrary provision hereof or of the Debentures or the Original Indenture, the Trustee shall act in accordance with any such agreement so filed with it. (e) Series T Debentures shall be issued in denominations of $1,000 and integral multiples thereof and may be fully printed or printed on steel engraved borders or fully or partly engraved. (f) Series T Debentures may not be redeemed prior to maturity. All monies received by the Trustee as a result of any prepayment of the Note made pursuant to Section 6(a) of the Loan Agreement (as required by Section 7.14 of the Original Indenture) shall be held by the Trustee as additional collateral security for the Series T Debentures to be applied thereto at the maturity thereof. Any monies so held may be invested or reinvested by the Trustee pursuant to Section 9.02 of the Original Indenture. SECTION 2. Authentication and Delivery of Series T Debentures. On or after the date of execution and delivery of the Nineteenth Supplemental Indenture and upon compliance with the provisions of Article IV of the Original Indenture, Series T Debentures shall be executed by the Corporation and delivered to the Trustee, and the Trustee shall, upon request, authenticate and deliver such Series T Debentures upon the 6 written order of the Corporation signed by its President or one of its Vice Presidents and its Treasurer or Controller, an Assistant Treasurer or an Assistant Secretary. SECTION 3. Maintenance of Office or Agency; Authenticating Agent for Series T Debentures. The provisions of Section 7.02 of the Original Indenture shall apply in all respects to the Series T Debentures to the same extent as if the words "Series T Debentures" were substituted for the words "Series A Debentures" in each place in which the latter quotation was employed in the aforesaid Section. SECTION 4. Original Indenture Ratified. The Original Indenture as amended by the Third Supplemental Indenture, dated as of February 20, 1986, by the Eighth Supplemental Indenture, dated as of May 15, 1990, and by the Seventeenth Supplemental Indenture, dated as of March 10, 1997, and as supplemented by this Nineteenth Supplemental Indenture is in all respects ratified and confirmed and the Nineteenth Supplemental Indenture and all its provisions shall be deemed a part thereof in the manner and to the extent herein provided, and the Original Indenture, as modified in the manner and to the extent herein provided, shall be deemed a part hereof as though fully set forth herein. SECTION 5. Trustee Not Responsible. The Trustee assumes no responsibility for or in respect of the validity or sufficiency of the Nineteenth Supplemental Indenture or the due execution hereof by the Corporation or for or in respect of the recitals and statements contained herein, all of which are made solely by the Corporation. The Trustee accepts the trusts created by the Nineteenth Supplemental Indenture upon the terms and conditions hereof and of the Original Indenture. SECTION 6. Defined Terms. All terms used in the Nineteenth Supplemental Indenture which are defined in the Original Indenture shall have the meanings assigned to them in the Original Indenture. SECTION 7. Counterparts. The Nineteenth Supplemental Indenture may be executed in any number of counterparts, each of which when so executed and delivered shall be an original; and all such counterparts shall together constitute but one and the same instrument. SECTION 8. Applicable Law. This Nineteenth Supplemental Indenture shall be construed in accordance with and governed by the laws of the State of Delaware. IN WITNESS WHEREOF, Rollins Truck Leasing Corp. has caused this Nineteenth Supplemental Indenture to be executed on its behalf by its President or one of its Vice Presidents and its corporate seal to be hereto affixed and said seal and this Nineteenth Supplemental Indenture to be attested by its Secretary or Assistant Secretary, and First Union National Bank, in evidence of its acceptance of the trusts hereby created, has caused this Nineteenth Supplemental Indenture to be executed on its behalf and its corporate seal to be affixed by one of its Vice Presidents or Assistant Vice Presidents and said seal and this Indenture to be attested by its Assistant Secretary or one of its Assistant Vice Presidents, as of April 5, 1999. Rollins Truck Leasing Corp. (CORPORATE SEAL) BY:______________________________ Vice President-Finance Title: Attest: - ------------------------------ Secretary FIRST UNION NATIONAL BANK, as Trustee (CORPORATE SEAL) BY:____________________________ Title: Attest: - ------------------------------ 7 EXHIBIT A --------------- ROLLINS TRUCK LEASING CORP. AND ROLLINS LEASING CORP. LOAN AGREEMENT Dated as of July 16, 1998 ----------------- 1 LOAN AGREEMENT (herein called the "Agreement") dated as of July 16, 1998 between Rollins Truck Leasing Corp., a corporation organized under the laws of the State of Delaware (herein called the "Corporation"), and Rollins Leasing Corp., a corporation organized under the laws of the State of Delaware (herein called the "Borrower"). WHEREAS, the Borrower desires to borrow from the Corporation, and the Corporation is willing to lend to the Borrower, a sum not exceeding $75,000,000, all upon the terms, provisions and conditions herein set forth; NOW, THEREFORE, in consideration of the premises and the mutual undertakings and obligations herein contained and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Borrower and the Corporation do hereby agree as follows: SECTION 1. Certain Definitions. The Corporation proposes to issue its 6.52% Collateral Trust Debentures, Series T, due July 15, 2005 (herein called the "Series T Debentures"), in an aggregate principal amount not exceeding $75,000,000, pursuant to a Collateral Trust Indenture dated as of March 21, 1983, as supplemented and amended by a Third Supplemental Indenture thereto dated as of February 20, 1986, by an Eighth Supplemental Indenture thereto dated as of May 15, 1990 and by a Seventeenth Supplemental Indenture thereto dated as of March 10, 1997 between the Corporation and First Union National Bank, as Trustee (the "Original Indenture"; the Original Indenture, as supplemented by the Nineteenth Supplemental Indenture dated as of July 16, 1998, being herein called the "Indenture"). A copy of the Indenture has been delivered to the Borrower, receipt of which is hereby acknowledged. The term "Note" shall mean the 6.52% Demand Promissory Note issued by the Borrower pursuant to this Agreement, substantially in the form attached hereto as Annex 1. In addition to the foregoing, the following terms shall in each case have the same meaning in this Agreement as they have in the Indenture as amended: "Debentures", "Equipment Indebtedness", "Note", "Outstanding", "Participating Subsidiary", "Permitted Indebtedness", "Person", "Pledged Property", "Series T Debentures", "Trustee" and "Vehicle". SECTION 2. Sale of Note. Subject to the terms of this Agreement, the Borrower will sell to the Corporation and the Corporation will purchase from the Borrower the Note in the principal amount of $75,000,000 at a price of 100% of such principal amount. The sale of the Note will take place immediately after the execution and delivery of this Agreement and upon the delivery, (a) by the Borrower to the Corporation of the Note, duly executed and dated July 16, 1998, together with all such assignments, documents and other instruments as may be required by the Corporation to enable it to effect the issuance of Series T Debentures referred to in Section 1, and (b) by the Corporation to the Borrower of a certified or official bank check or checks in clearing house funds (or in such other form as shall be acceptable to the Borrower) in an amount equal to $75,000,000; provided, however, that the obligation of the Corporation to purchase the Note shall be subject to the condition that, concurrently with the closing in respect of such purchase, the Corporation shall have issued and sold, and shall have received payment for, Series T Debentures in an aggregate principal amount equal to the sum of the principal amount of the Note. SECTION 3. Pledge and Assignment of Note and Agreement. In consideration of the purchase of the Note by the Corporation and the benefits to be derived by the Borrower as a result of the sale of the Note, the Borrower hereby agrees and consents to the pledge and assignment by the Corporation of the Note and this Agreement to the Trustee under and pursuant to the Indenture as security for the Debentures Outstanding and to be Outstanding thereunder. SECTION 4. Particular Covenants of the Borrower. So long as the Note shall be outstanding, the Borrower covenants, warrants and agrees as follows: 2 (a) Payment of Principal and Interest. The Borrower will duly and punctually pay, or cause to be paid, the principal of and interest on, the Note according to its terms and the terms of this Agreement. (b) Maintenance of Corporate Existence. Subject to the provisions of subsection (e) of this Section 4, the Borrower will maintain and preserve its corporate existence and right to carry on business. (c) Borrower a Participating Subsidiary; Validity of Note. The Borrower warrants that at the date of this Agreement it is a Participating Subsidiary as defined in Section 4 of the Eighth Supplemental Indenture dated as of May 15, 1990, and that the Note, when delivered to the Corporation will be, and when pledged and assigned to the Trustee as security under the Indenture, will continue to be, a legal and valid outstanding obligation of the Borrower. (d) Further Assurance. The Borrower will execute and deliver, or cause to be executed and delivered, all such additional instruments and do, or cause to be done, all such additional acts as (i) may be necessary or proper to carry out the purposes of this Agreement and to subject the Note to the lien of the Indenture, (ii) may be necessary or proper to effect the transfer, pledge and assignment of the Note and this Agreement to the Trustee or to any successor trustee and to confirm the lien of the Indenture on the Note, (iii) may be necessary or proper in connection with the granting of the security interest under subsection (f) of this Section 4 or (iv) the Trustee or the Corporation may reasonably request for any of the foregoing purposes. (e) Restrictions on Borrower's Disposition of Property, Consolidation, Merger, etc. The Borrower will not sell, transfer or otherwise dispose of the beneficial interest in all or substantially all its property or assets, or be a party to any consolidation, merger or amalgamation; provided, however, that the Borrower may take any such action or be such a party if: (i) the surviving corporation (if other than the Borrower), or the person to whom all, or substantially all, the property and assets of the Borrower shall have been transferred, sold or otherwise disposed of, shall execute and deliver to the Corporation and to the Trustee an agreement of assumption in which such surviving corporation or person shall expressly assume the due and punctual payment of the principal of and interest on, the Note, according to its tenor and effect, and the due and punctual performance and observance of all the covenants and conditions of the Note and this Agreement which are to be performed or observed by the Borrower, with the same effect as if such surviving corporation or person had been named herein as a party hereto in lieu of the Borrower; and (ii) immediately after such transfer, sale or other disposition, or consolidation, merger or amalgamation, no default shall have occurred and be continuing under this Agreement; and (iii) all the voting stock of the surviving corporation shall be owned directly or indirectly by the Corporation. (f) Creation of Security Interest. The Borrower will not create or permit to exist any claim, lien, security interest or other encumbrance on any of its Vehicles, or on its interest as lessor in any lease agreement relating to its Vehicles, except: (i) lessees' interests in Vehicles under any such lease agreement; and (ii) liens, security interests or other encumbrances for taxes which are not delinquent or which are being contested in good faith or of mechanics or materialmen arising in the ordinary course of business in respect of obligations which are not overdue or which are being contested in good faith; unless (x) such claim, lien, security interest or other encumbrance is for the benefit of a holder or holders of Equipment Indebtedness and (y) prior to or simultaneously with the inception of any such claim, lien, security interest or other encumbrance, the Borrower shall have executed and delivered to a Security Trustee (as hereinafter defined), a security agreement or security agreements and such other documents as the Security Trustee may reasonably request, each in form and substance satisfactory to the Trustee, granting to the Security Trustee the right to perfect a security interest in such Vehicles of the Borrower, such security interest, when perfected, to be 3 for the equal and ratable benefit of the Trustee, as holder of the Notes, and such other holder or holders of Equipment Indebtedness. Such security agreement or security agreements may provide, at the option of the Borrower, that the security interest granted to the Security Trustee shall terminate upon the termination of all other claims, liens, security interests and other encumbrances for the benefit of such other holder or holders of Equipment Indebtedness. The Security Trustee shall be such Person as may be selected by the Borrower or any such holder of Equipment Indebtedness and who shall be entitled to act without qualification or who shall qualify to act as such under the Trust Indenture Act of 1939. SECTION 5. Payments of Principal and Interest. So long as the Note shall be pledged with the Trustee under the Indenture, any payment of principal or interest on the Note, or any payments to be made pursuant to Section 6(a), shall be paid to the Trustee in Chicago Clearing House funds at least one business day prior to the dates on which the Corporation would be required to make related payments under the Indenture with respect to the relevant Debentures. The Trustee shall apply such payments in accordance with the provisions of the Indenture. SECTION 6. Prepayment of Note. (a) Prepayments Pursuant to Section 7.14 of the Original Indenture. So long as the Note shall be pledged with the Trustee under the Indenture, the Borrower shall pay, or cause to be paid, to the Trustee, as prepayments on the Note, amounts which may be required to be paid by the Borrower pursuant to Section 7.14 of the Original Indenture. Any such amounts shall be paid as provided in Section 5 of this Agreement and shall be applied as payment or prepayment on the Note in accordance with subsection (c) of this Section 6. (b) Notice of Certain Prepayments. If the Corporation is required to make payments pursuant to Section 7.14 of the Original Indenture, the Corporation shall give notice thereof to the Borrower, which notice shall state the circumstances under which such payments are to be made. Such notice shall be given not later than the first date on which the Corporation is required to give notice to the Trustee or to take any other action with respect to such payments. Failure to give any such notice to the Borrower or any defect therein shall not, however, affect the obligation of the Borrower to make the payments required under subsection (a) of this Section 6. (c) Prepayments on Principal Amount of Note. All payments made by the Borrower, or for the account of the Borrower, pursuant to this Section 6 shall be applied or credited as prepayments on the principal amount of the Note on the date such payments are received by the Trustee; provided, however, that to the extent a portion of such payments or moneys shall be applied or applicable by the Trustee, directly or indirectly, towards the payment of any interest or premium in respect of Debentures, such portion shall not be applied or credited as prepayments on the principal amount of the Note. It is the intention of this Section 6 that the principal amount of the Note shall be appropriately adjusted at appropriate times in order that the obligations to pay principal, premium, if any, and interest contained in all the Notes of all Participating Subsidiaries shall be sufficient, after giving effect to any moneys then held by the Trustee under Section 9.01 of the Original Indenture, in the aggregate, to pay all principal, premium, if any, and interest on all Debentures then Outstanding as the same become due and payable. (d) Corporation To Make Certain Payments. When and if the Borrower shall make any prepayments provided for in this Section 6, the Corporation shall promptly make such payments and take such other action with respect to the Debentures as shall be required to be made or taken by the Corporation in accordance with and pursuant to this Agreement and the Indenture. SECTION 7. Presentment of Note Not Required. So long as the Note shall be pledged with the Trustee under the Indenture, payments of principal thereof and interest thereon, shall be made without need for any presentment of the Note, but payments of principal shall be noted thereon by the Trustee. SECTION 8. Amendments, Consents and Waivers. So long as the Note shall be pledged with the Trustee under the Indenture (a) this Agreement may be modified, altered, supplemented or amended upon the execution and delivery of a written amendment by the parties hereto pursuant to Article XVIII of the Original Indenture, (b) any covenant or other condition of this Agreement may be waived as and to the extent 4 permitted in Section 11.02 of the Original Indenture and (c) any default under this Agreement and its consequences may be waived as and to the extent permitted in said Section 11.02 of the Original Indenture. SECTION 9. Loss, Theft, etc. of Note. Upon receipt of evidence of the loss, theft, destruction or mutilation of the Note and upon delivery of indemnity reasonably satisfactory to the Borrower (it being understood that the written agreement of the Trustee to indemnify the Borrower shall constitute such indemnity) and, in the case of any such mutilation, upon surrender and cancellation of the mutilated Note, and, in any case, upon reimbursement to the Borrower of any reasonable expense incidental thereto, the Borrower shall make and deliver a new Note of like tenor, in lieu of such lost, stolen or destroyed Note or in exchange for such mutilated Note. SECTION 10. Remedies. The holder of the Note, being a party to, or an assignee of, this Agreement, shall be entitled and empowered to institute any suits, actions or proceedings at law, in equity or otherwise, whether for the specific performance of any covenant or agreement contained herein or in the Note or in aid of the exercise of any power granted herein or in the Note, or may proceed to enforce the payment of the Note after demand, or to enforce any other legal or equitable right as the holder of the Note, or may proceed to take any action authorized or permitted under the terms of the Indenture with respect to the Note or under any applicable law. SECTION 11. Remedies Cumulative; Delay or Omission Not a Waiver. Every remedy given hereunder to the holder of the Note shall not be exclusive of any other remedy or remedies, and every such remedy shall be cumulative and in addition to every other remedy given hereunder or now or hereafter given by statute, law, equity or otherwise. No course of dealing between the Borrower and the Corporation or the Borrower and the holder of the Note or any delay or omission on the part of the Corporation or such holder to exercise any right, remedy or power accruing upon any default hereunder shall impair any such right, remedy or power or shall be construed to be a waiver of any such default or of any right of the Corporation or such holder or acquiescence therein. Every right, remedy and power given hereunder to the Corporation or to the holder of the Note may be exercised from time to time and as often as may be deemed expedient by the Corporation or such holder. SECTION 12. Successors and Assigns. All the covenants, warranties and agreements contained in this Agreement by or on behalf of the Corporation, the Borrower or the holder of the Note shall bind and inure to the benefit of their respective successors and assigns, whether so expressed or not. SECTION 13. Notices. All notices, presentments and demands to or upon the Borrower in respect of the Note or this Agreement may be delivered or mailed to the Borrower at One Rollins Plaza, P.O. Box 1791, Wilmington, Delaware 19899, or at such other address as the Borrower may specify from time to time in writing to the Corporation and the Trustee. All notices to or demands upon the Corporation in respect of the Note or this Agreement shall be delivered or mailed to the Corporation at One Rollins Plaza, P.O. Box 1791, Wilmington, Delaware 19899, or at such other address as the Corporation may specify from time to time in writing to the Borrower and the Trustee. SECTION 14. Payment or Notice on Saturday, Sunday, Legal Holiday. If the date of any payment or the giving of any notice under the Note or this Agreement shall be (a) a Saturday, a Sunday or a legal holiday at the place where payment is to be made or notice is to be given or (b) a day on which banking institutions at the place where payment is to be made or notice is to be given are authorized by law to remain closed, then such payment or notice shall be made not later than the next preceding business day which shall not be a day specified in (a) or (b) above. SECTION 15. Separability of Provisions. In case any one or more of the provisions contained in this Agreement or in the Note should be invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein and therein shall not in any way be affected or impaired thereby. SECTION 16. Counterparts. This Agreement may be executed in any number of counterparts, each of which when so executed and delivered shall be an original, and all such counterparts shall together 5 constitute but one and the same instrument. SECTION 17. Applicable Law. This Agreement shall be construed in accordance with and governed by the laws of the State of Delaware. IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be executed on its behalf by its President or one of its Vice Presidents and its corporate seal to be hereto affixed and said seal and this Agreement to be attested by its Secretary or one of its Assistant Secretaries, all as of the day and year first above written. Rollins Truck Leasing Corp. BY:____________________________ Patrick J. Bagley Title: (CORPORATE SEAL) Attest: - ------------------------------ Secretary Rollins Leasing Corp. BY:___________________________ President (CORPORATE SEAL) Title: Attest: - ------------------------------ Secretary 6 ANNEX 1 6.52% DEMAND PROMISSORY NOTE $75,000,000 Date: July 16, 1998 Rollins Leasing Corp., a corporation organized under the laws of Delaware, for value received, HEREBY PROMISES TO PAY to Rollins Truck Leasing Corp., a Delaware corporation, or order, upon demand, the principal sum of Seventy Five Million Dollars ($75,000,000), either in one sum or in several sums upon demand made from time to time (the receipt of any such sum to be noted hereon), in every case in such coin or currency of the United States of America as at the time of payment shall be legal tender for the payment of public and private debts, at the corporate trust office of First Union National Bank, in the City of Newark, New Jersey, AND TO PAY interest, at the said office and in like coin or currency, on the unpaid portion of the said principal sum from July 16, 1998, until the said principal sum shall have been paid, such interest to be paid semiannually at the rate of 6.52% per annum on the 15th day of January and July in each year commencing on the 15th day of January, 1999 (calculated on the basis of a 360-day year of twelve 30-day months). If any or all installments of said principal sum shall not be paid when demanded, such overdue principal and, to the extent that payment of interest on overdue interest is enforceable under applicable law, any overdue installment of interest on this Demand Promissory Note, shall bear interest at the rate of 8.52% per annum until paid. This Demand Promissory Note is the Demand Promissory Note referred to in the Loan Agreement dated as of July 16, 1998, between Rollins Truck Leasing Corp. and the maker hereof, and may be prepaid only as provided in said Loan Agreement. Rollins Leasing Corp. BY:______________________________ Title: 1 Pay to the order of First Union National Bank, as Trustee under the Collateral Trust Indenture dated as of March 21, 1983, as supplemented and amended by a Third Supplemental Indenture thereto dated as of February 20, 1986, by an Eighth Supplemental Indenture thereto dated as of May 15, 1990 and by a Seventeenth Supplemental Indenture thereto dated as of March 10, 1997 and as supplemented by a Nineteenth Supplemental Indenture dated as of July 16, 1998, between Rollins Truck Leasing Corp. and said Trustee, as from time to time further amended and supplemented. Rollins Truck Leasing Corp. BY:______________________________ Title: 2 EXHIBIT B ---------- ROLLINS TRUCK LEASING CORP., FIRST UNION NATIONAL BANK as Trustee AND ROLLINS LEASING CORP. ASSIGNMENT OF LOAN AGREEMENT Dated as of July 16, 1998 ---------- 1 ASSIGNMENT OF LOAN AGREEMENT ASSIGNMENT OF LOAN AGREEMENT dated as of July 16, 1998, among Rollins Truck Leasing Corp., a corporation organized under the laws of the State of Delaware (herein called the "Corporation"), First Union National Bank, as Trustee under the Indenture hereinafter referred to (herein called the "Trustee"), and Rollins Leasing Corp., a corporation organized under the laws of the State of Delaware (herein called the "Borrower"). WHEREAS, the Trustee is Trustee under a Collateral Trust Indenture dated as of March 21, 1983, (the "Original Indenture"; the Original Indenture, as supplemented and amended by a Third Supplemental Indenture thereto dated as of February 20, 1986, by an Eighth Supplemental Indenture thereto dated as of May 15, 1990 and by a Seventeenth Supplemental Indenture thereto dated as of March 10, 1997 and as supplemented by the Nineteenth Supplemental Indenture dated as of July 16, 1998, being herein called the "Indenture"), between the Corporation and the Trustee under and pursuant to which there are being and have been issued certain Collateral Trust Debentures of the Corporation (herein called the "Debentures"); and WHEREAS, pursuant to a Loan Agreement (herein called the "Loan Agreement") dated as of July 16, 1998, between the Corporation and the Borrower, the Borrower has borrowed from the Corporation, and the Corporation has loaned to the Borrower, $75,000,000, which is evidenced by a 6.52% Demand Promissory Note from the Borrower to the Corporation in the principal amount of $75,000,000 (herein called the "Note"); and WHEREAS, in order to secure the payment of the principal of, and premium, if any, and interest on, all Debentures at any time issued and outstanding under the Indenture, as and to the extent provided in the Indenture, and the performance and observance by the Corporation of all the covenants and conditions in the Indenture and the Debentures contained on its part to be observed and performed, the Corporation has endorsed, assigned and delivered to the Trustee the Note and is required to assign to the Trustee the Loan Agreement; NOW, THEREFORE, THIS ASSIGNMENT WITNESSETH: 1. The Corporation hereby assigns to the Trustee all the right, title and interest of the Corporation in, to and under the Loan Agreement in order to secure the payment of the principal of, and premium, if any, and interest on, all Debentures at any time issued and outstanding under the Indenture, as and to the extent provided in the Indenture, and the performance and observance by the Corporation of all the covenants and conditions in the Indenture and the Debentures contained on its part to be observed and performed. 2. The Trustee will hold the Loan Agreement and the Note and the right, title and interest of the Corporation therein in accordance with, and subject to, the terms of the Indenture. 3. The Borrower acknowledges notice of, and consents to, the assignment of the Loan Agreement and the Note and of the right, title and interest of the Corporation therein, all as provided in, and subject to the terms of, the Indenture and this Assignment. IN WITNESS WHEREOF, each of the parties hereto has caused this Assignment to be executed on its behalf by its President or one of its Vice Presidents or Assistant Vice Presidents and its corporate seal to be hereto affixed and said seal and this Assignment to be attested by its Secretary or one of its Assistant Secretaries or Assistant Vice Presidents, all as of the day and year first above written. Rollins Truck Leasing Corp. BY:____________________________ Patrick J. Bagley 1 Title: (CORPORATE SEAL) Attest:__________________________ Secretary FIRST UNION NATIONAL BANK, NATIONAL ASSOCIATION, as Trustee BY:________________________ Title: (CORPORATE SEAL) Attest:__________________________ Title 2 Rollins Leasing Corp. BY:________________________ Title: (CORPORATE SEAL) Attest:__________________________ Title 3 EX-99.4(N) 7 ASSET PURCHASE AGREEMENT - -------------------------------------------------------------------------------- ASSET PURCHASE AGREEMENT BY AND AMONG WORLDWIDE DEDICATED SERVICES, INC., ROLLINS TRUCK LEASING CORP., ROLLINS LOGISTICS INC., ROLLINS DEDICATED CARRIAGE SERVICES, INC., AND ROLLINS TRANSPORTATION SYSTEMS, INC. AS OF NOVEMBER 12, 1999 - -------------------------------------------------------------------------------- TABLE OF CONTENTS ARTICLE I PURCHASE AND SALE.............................................2 Section 1.1 Purchase and Sale.............................................2 Section 1.2 Assets........................................................3 Section 1.3 Excluded Assets...............................................5 Section 1.4 Assumption of Assumed Liabilities.............................5 Section 1.5 Excluded Liabilities..........................................6 Section 1.6 Purchase Price................................................7 Section 1.7 Payment of Purchase Price.....................................7 Section 1.8 Target Working Capital........................................8 Section 1.9 Adjustment of Purchase Price..................................8 Section 1.10 Closing......................................................10 Section 1.11 Deliveries by Seller.........................................11 Section 1.12 Deliveries by Buyer..........................................11 ARTICLE II RELATED MATTERS..............................................12 Section 2.1 Use of Seller's Name and Logos...............................12 Section 2.2 No Ongoing or Transition Services............................13 ARTICLE III REPRESENTATIONS AND WARRANTIES OF SELLER.....................13 Section 3.1 Organization.................................................13 Section 3.2 Authorization................................................14 Section 3.3 Consents and Approvals; No Violations........................15 Section 3.4 Financial Statements.........................................16 Section 3.5 Absence of Material Adverse Effect...........................16 Section 3.6 Title, Ownership and Related Matters.........................18 Section 3.7 Intellectual Property........................................19 Section 3.8 Computer Software............................................19 Section 3.9 Year 2000 Compliance.........................................19 Section 3.10 Litigation...................................................20 Section 3.11 Compliance with Applicable Law...............................20 Section 3.12 Certain Contracts and Arrangements...........................20 Section 3.13 Employee Benefit Plans; ERISA................................21 Section 3.14 Labor Matters................................................22 Section 3.15 Taxes........................................................22 Section 3.16 Environmental................................................24 - i - Section 3.17 Officers; Bank Accounts......................................25 Section 3.18 Certain Fees.................................................25 ARTICLE IV REPRESENTATIONS AND WARRANTIES OF BUYER......................25 Section 4.1 Organization and Authority of Buyer..........................25 Section 4.2 Consents and Approvals; No Violations........................26 Section 4.3 Litigation...................................................26 Section 4.4 Certain Fees.................................................27 ARTICLE V COVENANTS....................................................27 Section 5.1 Conduct of Seller's Business.................................27 Section 5.2 Access to Information........................................28 Section 5.3 Consents.....................................................29 Section 5.4 Reasonable Best Efforts......................................29 Section 5.5 Public Announcements.........................................29 Section 5.6 Covenant to Satisfy Conditions...............................30 Section 5.7 Employees; Employee Benefits.................................30 Section 5.8 Supplemental Disclosure......................................31 Section 5.9 Investigation by Buyer.......................................32 Section 5.10 Additional Actions...........................................32 Section 5.11 Parent Guarantee.............................................33 ARTICLE VI CONDITIONS TO OBLIGATIONS OF THE PARTIES.....................33 Section 6.1 Conditions to Each Party's Obligation........................33 Section 6.2 Conditions to Obligations of Seller..........................34 Section 6.3 Conditions to Obligations of Buyer...........................35 ARTICLE VII TERMINATION..................................................35 Section 7.1 Termination..................................................35 Section 7.2 Procedure and Effect of Termination..........................37 ARTICLE VIII SURVIVAL OF REPRESENTATIONS..................................38 Section 8.1 Survival of Representations, Warranties and Agreements.......38 ARTICLE IX INDEMNIFICATION..............................................39 Section 9.1 Indemnification Obligations of Seller........................39 Section 9.2 Indemnification Procedure....................................39 - ii - ARTICLE X MISCELLANEOUS................................................41 Section 10.1 Fees and Expenses............................................42 Section 10.2 Further Assurances...........................................42 Section 10.3 Notices......................................................42 Section 10.4 Severability.................................................44 Section 10.5 Binding Effect; Assignment...................................45 Section 10.6 No Third Party Beneficiaries.................................45 Section 10.7 Interpretation...............................................46 Section 10.8 Jurisdiction and Consent to Service..........................46 Section 10.9 Entire Agreement.............................................46 Section 10.10 Governing Law................................................47 Section 10.11 Specific Performance.........................................47 Section 10.12 Counterparts.................................................47 Section 10.13 Amendment, Modification and Waiver...........................47 Section 10.14 Knowledge....................................................48 Section 10.15 Schedules and Exhibits.......................................48 Section 10.16 Arbitration..................................................48 - iii - DEFINED TERMS Term Section - ---- ------- Acceptance Notice.......................................................1.9(c) Acquisition...........................................................Preamble Affiliate..............................................................10.7(c) Agreement.............................................................Preamble Allocation................................................................1.13 Assets.....................................................................1.1 Assumed Contracts.......................................................1.2(e) Assumed Liabilities........................................................1.4 Buyer.................................................................Preamble Buyer Auditor...........................................................1.9(b) Buyer Indemnified Parties..................................................9.1 Buyer Losses...............................................................9.1 Closing....................................................................1.1 Closing Date..............................................................1.10 Closing Date Working Capital............................................1.9(a) Confidentiality Agreement ..............................................5.2(b) Contracts.................................................................3.12 Dedicated.............................................................Preamble employee benefit plan...................................................5.7(a) employee welfare benefit plan...........................................5.7(a) Environmental Claims...................................................3.16(b) Environmental Laws.....................................................3.16(b) ERISA..................................................................3.13(a) Excluded Assets............................................................1.3 Excluded Liabilities.......................................................1.5 Final Balance Sheet.....................................................1.9(c) Final Working Capital Statement.........................................1.9(c) Financial Statements.......................................................3.4 GAAP....................................................................1.9(b) Hazardous Materials....................................................3.16(b) HSR Act....................................................................3.3 Indemnified Claims ........................................................1.5 Intellectual Property...................................................3.7(a) - iv - Interim Balance Sheet...................................................1.9(b) IRS....................................................................3.13(b) Leased Real Property.................................................3.6(a)(i) Litigation Claims.........................................................3.10 Logistics.............................................................Preamble Money Rates.............................................................1.7(b) Objection Notice........................................................1.9(c) Parent................................................................Preamble Person.................................................................10.7(b) Plans..................................................................3.13(a) Preliminary Balance Sheet...............................................1.9(b) Preliminary Working Capital Statement...................................1.9(b) Purchase Price.............................................................1.6 Retained Employees......................................................1.3(g) Rollins.................................................................1.3(c) Seller or Sellers.....................................................Preamble Seller Auditor..........................................................1.9(b) Seller Benefit Plans...................................................3.13(c) Seller Material Adverse Effect..........................................3.1(b) Seller Tradenames and Logos................................................2.1 Staffing Services Agreement.............................................6.2(d) Target Working Capital.....................................................1.8 Taxes...............................................................3.15(c)(i) Tax Return.........................................................3.15(c)(ii) To the Knowledge of Buyer................................................10.14 To the Knowledge of Sellers..............................................10.14 Transferred Employees...................................................1.2(l) Transition Agreement....................................................6.2(e) Transportation........................................................Preamble Unrelated Accounting Firm...............................................1.9(c) VEBA Audit..............................................................1.5(b) - v - SCHEDULES Schedule 1.2(f) Leases Schedule 1.2(l) Transferred Employees Schedule 1.3(a) Permits/Licenses Schedule 3.1 Foreign Qualifications Schedule 3.3 Consents Schedule 3.5 Absence of Change Schedule 3.6(a)(i) Leased Real Property Schedule 3.6(a)(iii) Condemnation/Appropriation Proceedings Schedule 3.6(b) Necessary Assets Schedule 3.7 Intellectual Property Schedule 3.10 Litigation Schedule 3.12 Contracts Schedule 3.12(i) Material Default Notices Schedule 3.13 Employee Benefits Schedule 3.14 Labor Matters Schedule 3.15 Taxes Schedule 3.16(a) Environmental Permits/Licenses Schedule 3.16(b) Environmental Notices Schedule 3.17 Officers; Bank Accounts Schedule 3.20 Bank Accounts Schedule 5.10 Additional Actions - vi - EXHIBITS Exhibit Number - ------- ------ Current Assets and Liabilities 1.9(a) Accounting Principles 1.9(b) Staffing Services Agreement 6.2(d) - vii - ASSET PURCHASE AGREEMENT THIS ASSET PURCHASE AGREEMENT, dated as of November 12, 1999 (this "Agreement"), is made and entered into by and between Worldwide Dedicated Services, Inc., a Delaware corporation ("Buyer"); Rollins Truck Leasing Corp., a Delaware corporation ("Parent"); Rollins Logistics, Inc., a Delaware corporation ("Logistics"), Rollins Dedicated Carriage Services, Inc., a Delaware corporation ("Dedicated") and Rollins Transportation Systems, Inc., ("Transportation" and together with Logistics and Dedicated hereinafter, individually occasionally referred to as the "Sellers" and collectively referred to as "Seller"). W I T N E S S E T H: WHEREAS, Buyer and Seller desire to enter into this Agreement pursuant to which Seller proposes to sell to Buyer, and Buyer proposes to purchase from Seller, the assets used or held for use by Seller in the conduct of its business, and Buyer proposes to assume certain of the liabilities and obligations of Seller (the "Acquisition"); and WHEREAS, Seller and Buyer desire to make certain representations, warranties and agreements in connection with the Acquisition. NOW, THEREFORE, in consideration of the foregoing and the respective representations, warranties, covenants, agreements and conditions hereinafter set forth, and intending to be legally bound hereby, the parties hereto agree as follows: ARTICLE I PURCHASE AND SALE -2- Section 1.1 Purchase and Sale. Subject to the terms and conditions set forth in this Agreement, at the closing provided for in Section 1.10 hereof (the "Closing") and except as otherwise specifically provided in this Article 1, Seller shall grant, convey, sell, assign, transfer and deliver to Buyer, and Buyer will purchase and acquire from Seller, all right, title and interest of Seller in and to (a) the business of Seller as a going concern and (b) except for the Excluded Assets (as hereinafter defined), all of the assets, properties and rights of Seller of every kind and description, tangible and intangible, wherever situated (which business, assets, properties and rights are hereinafter collectively referred to as the "Assets"), free and clear of all mortgages, liens, pledges, security interests, charges, claims, restrictions and encumbrances of any nature whatsoever, except Assumed Liabilities (as hereinafter defined). Section 1.2 Assets. Except as otherwise expressly set forth in Section 1.3 hereof, the Assets shall include, without limitation, the following assets, properties and rights of Seller as of the Closing Date (as hereinafter defined): (a) all accounts receivable and notes receivable; (b) all deposits, advances, prepaid expenses and credits; (c) all inventories, including finished products, work-in-process, raw materials, spare parts, stores and supplies, office supplies and other inventory items; -3- (d) all machinery, equipment, business machines, computer hardware, vehicles, furniture, fixtures, tools, parts and other tangible property not normally included in the inventory used in Seller's business, whether or not carried on the books of Seller; (e) except as otherwise set forth in Section 1.3(d), all right, title and interest of Seller in all contracts (written or oral), agreements or other instruments, including, without limitation, contracts with customers and suppliers and all leases of personal property (the "Assumed Contracts"); (f) except as otherwise set forth on Schedule 1.2(f), all leaseholds, leasehold improvements and other rights relating thereto; (g) all goodwill, patents, copyrights, methods, know-how, software, technical documentation, trade secrets, trademarks, trade names and general intangible (and all rights thereto and applications therefor); (h) except for the Indemnified Claims (as hereinafter defined), all rights to causes of action, lawsuits, judgments, claims and demands of any nature available to or being pursued by Seller, whether arising by way of counterclaim or otherwise; (i) all guarantees, warranties, indemnities and similar rights in favor of Seller; (j) all governmental permits, licenses or similar rights relating to the business of Seller, other than those set forth on Schedule 1.3(a); -4- (k) all information, files, correspondence, records, data, plans, contracts and recorded knowledge, including customer and supplier lists and all accounting or other books and records of Seller; (l) those employees of Seller listed on Schedule 1.2(l) who will be offered employment by Buyer on the Closing Date (the "Transferred Employees"); (m) all other tangible and intangible assets of any kind or description, wherever located, that are carried on the books of Seller or which are owned by Seller; and (n) all cash, cash equivalents, marketable securities and bank accounts. Section 1.3 Excluded Assets. Notwithstanding anything to the contrary set forth herein, the Assets shall not include the following assets, properties and rights of Seller (collectively, the "Excluded Assets"): (a) any governmental permit, license or similar right that by its terms is not transferable to Buyer, which permits, licenses and similar rights are set forth on Schedule 1.3(a); (b) minute books and stock ledger records of Seller; (c) all rights to the use of the name "Rollins" and all derivatives thereof; (d) the rights that accrue to Seller under this Agreement; (e) the rights to any federal, state, local or foreign income tax refunds; -5- (f) all insurance policies of Seller or acquired or assumed by Seller prior to the Closing Date pertaining to Seller's business and all rights of Seller of every nature and description under or arising out of such insurance policies; and (g) those employees of Seller other than those listed on Schedule 1.2(l) (the "Retained Employees"). Section 1.4 Assumption of Assumed Liabilities. Except to the extent specified in Section 1.5, Buyer shall, in connection with the transactions contemplated hereby, assume and agree to pay, discharge or perform, as appropriate, all liabilities and obligations of Seller accrued as of the Closing Date and all liabilities and obligations arising from Seller's operations prior to the Closing Date (the "Assumed Liabilities"). Section 1.5 Excluded Liabilities. The Assumed Liabilities shall not include, and in no event shall Buyer assume, agree to pay, discharge or perform or incur any liability or obligation under this Agreement or otherwise become responsible in respect of, the following (the "Excluded Liabilities"): (a) the Indemnified Claims (as hereinafter defined); (b) the items identified on Schedule 1.5(b); (c) any liability or obligation for Taxes (as hereinafter defined); (d) any liability or obligation under any collective bargaining agreement or otherwise relating to the Retained Employees; -6- (e) any liability or obligation to Parent or any of its Affiliates (as hereinafter defined), including intercompany debt for borrowed money, other than those obligations specified on Schedule 1.5(e); and (f) any debt for borrowed money to a third party. For purposes of this Agreement, the "Indemnified Claims" shall mean those Litigation Claims marked with an asterisk on Schedule 3.10 and any claim of the type described below brought against Seller (or Buyer as the successor to Seller) after the date hereof to the extent based on an occurrence in connection with Seller's operations prior to the Closing Date: workers' compensation, vehicle accident or other personal injury or property damage claims normally covered under a general liability insurance policy, and employee compensation and benefits (other than employee compensation and benefits accrued as a liability on the Final Closing Balance Sheet and reflected in the calculation of the Closing Date Working Capital). Section 1.6 Purchase Price. Subject to adjustment as provided in Section 1.7(b), the Purchase Price for the Assets will be an amount equal to $67,220,000 plus the assumption by Buyer of the Assumed Liabilities (such amount as adjusted is hereafter referred to as the "Purchase Price"). The Purchase Price shall be payable as provided in Section 1.7(a) and (c), together with any necessary post-closing adjustments as provided in Section 1.7(b). Section 1.7 Payment of Purchase Price. (a) At the Closing, Buyer shall deliver or cause to be delivered to Seller the Purchase Price (prior to the adjustment contemplated by Section 1.7(b) hereof). (b) Within five business days after the determination of the Final Working Capital Statement (as hereinafter defined) in accordance with Section 1.9 hereof, (i) if the amount of the Closing Date Working Capital (as hereinafter defined) calculated in accordance with -7- Section 1.9 is less than 97% of the Target Working Capital (as hereinafter defined), then Seller shall pay to Buyer an amount equal to the difference between 97% of the Target Working Capital and the Closing Date Working Capital plus interest or (ii) if the amount of the Closing Date Working Capital calculated in accordance with Section 1.9 is greater than 103% of the Target Working Capital, Buyer shall pay to Seller an amount equal to the difference between 103% of the Target Working Capital and the Closing Date Working Capital plus interest. Any payment required under this Section 1.7(b) shall include interest on the amount of that payment at the prime rate of interest (as published in the "Money Rates" table of The Wall Street Journal on the Closing Date) beginning on the Closing Date (as hereinafter defined) and ending on the date of any such payment. (c) All payments required under this Section 1.7 shall be made in cash by wire transfer of immediately available federal funds to such bank account(s) as shall be designated in writing by the recipient at least three days prior to the Closing or promptly upon the determination of the Final Balance Sheet (as hereinafter defined), as the case may be. Section 1.8 Target Working Capital. "Target Working Capital" shall equal $7,031,594. -8- Section 1.9 Adjustment of Purchase Price. (a) For purposes of this Agreement, the "Closing Date Working Capital" shall mean the consolidated book value of those categories of current assets of Seller listed on Exhibit 1.9(a) less the consolidated book value of those categories of current liabilities of Seller listed on Exhibit 1.9(a), in each case as reflected on the Final Balance Sheet. (b) Promptly following the Closing, Seller shall prepare (i) a balance sheet reflecting the Assets and the Assumed Liabilities as of the close of business on the Closing Date (the "Preliminary Balance Sheet"), in accordance with generally accepted accounting principles ("GAAP") on a basis consistent with the unaudited consolidated balance sheet of Seller as of September 30, 1999 (the "Interim Balance Sheet"), which principles are set forth on Exhibit 1.9(b), and (ii) a calculation of the Closing Date Working Capital based on the Preliminary Balance Sheet (the "Preliminary Working Capital Statement"). Seller shall engage, and be responsible for the fees and expenses of, KPMG Peat Marwick LLP (the "Seller Auditor") to audit the Preliminary Balance Sheet and the Preliminary Working Capital Statement and shall use all commercially reasonable efforts to deliver to Buyer a final draft of the Preliminary Balance Sheet and the Preliminary Working Capital Statement within 60 days after the Closing Date, together with a final report of the Seller Auditor thereon stating that the audit of the Preliminary Working Capital Statement has been made in accordance with GAAP on a basis consistent with the Interim Balance Sheet. Representatives of Buyer shall have the opportunity to observe the taking of the inventory of Seller in connection with the preparation of the Preliminary Balance Sheet, and to examine the work -9- papers, schedules and other documents prepared by Seller in connection with the preparation of the Preliminary Balance Sheet and the Preliminary Working Capital Statement. Seller shall use all commercially reasonable efforts to cause the Seller Auditor to permit Buyer and its accounting firm (the "Buyer Auditor") to examine the Seller Auditor's work papers used in connection with its audit of the Preliminary Balance Sheet and the Preliminary Working Capital Statement. Buyer shall be responsible for the fees and expenses of the Buyer Auditor. (c) If Buyer objects to the Preliminary Balance Sheet and the Preliminary Working Capital Statement, Buyer shall deliver to Seller a written notice of objection (an "Objection Notice") within 15 days following the delivery thereof. If Buyer has no objection to the Preliminary Balance Sheet and the Preliminary Working Capital Statement, Buyer shall promptly deliver to Seller a written notice of acceptance (an "Acceptance Notice"). The Preliminary Balance Sheet and the Preliminary Working Capital Statement shall be final and binding on the parties if an Acceptance Notice is delivered or if no Objection Notice is delivered to Seller within such 15-day period. Any payment or portion of any payment required under Section 1.7 not subject to an Objection Notice, shall be paid within five business days following the delivery of an Objection Notice. Any Objection Notice shall specify in reasonable detail the items on the Preliminary Balance Sheet and the Preliminary Working Capital Statement disputed and shall describe in reasonable detail the basis for the objection and all information in the possession of Buyer which forms the basis thereof, as well as the amount in dispute. If an Objection Notice is given, the parties shall consult with each other with respect to the objection. If the parties are unable to reach agreement within 15 days after an Objection Notice has been given, any unresolved disputed items -10- shall be promptly referred to an independent accounting firm designated by agreement of Seller and Buyer (the "Unrelated Accounting Firm"). The Unrelated Accounting Firm shall be directed to resolve disputed issues in accordance with the terms of this Agreement and render a written report on the unresolved disputed issues with respect to the Preliminary Balance Sheet and the Preliminary Working Capital Statement as promptly as practicable and to resolve only those issues of dispute set forth in the Objection Notice. The resolution of the dispute by the Unrelated Accounting Firm shall be final and binding on the parties. The fees and expenses of the Unrelated Accounting Firm shall be borne equally by Seller, on the one hand, and Buyer, on the other hand. The Preliminary Balance Sheet and the Preliminary Working Capital Statement as finally determined pursuant to this Section 1.9(c) is referred to herein, respectively, as the "Final Balance Sheet" and the "Final Working Capital Statement". Section 1.10 Closing. (a) The Closing of the transactions contemplated by this Agreement shall take place at the offices of King & Spalding, 191 Peachtree Street, Atlanta, Georgia. If all of the conditions to Closing set forth in Article VI hereof have been satisfied or waived prior to such time, the Closing shall take place at 12:01 a.m. Eastern Time on January 1, 2000. If the Closing does not occur at such time, the Closing shall take place (assuming satisfaction or waiver of all conditions to Closing) at 11:59 p.m. Eastern Time on January 31, 2000, or at such other time as the parties mutually agree. The date of the Closing is sometimes referred to herein as the "Closing Date". -11- Section 1.11 Deliveries by Seller. At the Closing, Seller will deliver or cause to be delivered to Buyer (unless delivered previously) the following: (a) The Transition Agreement (as hereinafter defined), executed by Seller or its Affiliate; (b) The Staffing Services Agreement executed by Seller or its Affiliate; (c) Bills of sale, instruments of assignment, certificates of title and other conveyance documents, dated the Closing Date, transferring to Buyer all of Seller's right, title and interest in and to the Assets together with possession of the Assets; (d) Documents evidencing the assignment and assumption of the Assumed Contracts and the Assumed Liabilities and the assignment of any assignable permits and licenses; and (e) All other documents, instruments and writings required by Buyer to be delivered by Seller at or prior to the Closing pursuant to this Agreement or otherwise reasonably required in connection herewith. Section 1.12 Deliveries by Buyer. At the Closing, Buyer will deliver or cause to be delivered to Seller (unless previously delivered) the following: (a) The Purchase Price in accordance with Section 1.7 hereof; (b) The Transition Agreement, executed by Buyer or its Affiliate; (c) The Staffing Services Agreement, executed by Buyer or its Affiliate; -12- (d) Documents evidencing the assignment and assumption of the Assumed Contracts and the Assumed Liabilities and the assignment of any assignable permits and licenses; and (e) All other documents, instruments and writings required by Seller to be delivered by the buyer at or prior to the Closing pursuant to this Agreement or otherwise reasonably required in connection herewith. Section 1.13 Allocation of Purchase Price. Seller and Buyer will use their reasonable best efforts to agree on the allocation of the Assets (the "Allocation") and will use the Allocation in reporting the deemed purchase and sale of the Assets for federal and state income tax purposes. If the parties are unable to agree upon the Allocation within 90 days before the due date of filing any Tax Return (as hereinafter defined) for which the Allocation is relevant, the Allocation shall be made by an independent accountant selected by the parties. ARTICLE II RELATED MATTERS Section 2.1 Use of Seller's Name and Logos. It is expressly agreed that Buyer is not purchasing, acquiring or otherwise obtaining any right, title or interest in the names "Rollins" or "Rollins Logistics", or any tradenames, trademarks, identifying logos or service marks related thereto or employing any part or variation of any of the foregoing or any confusingly similar tradename, trademark or logo (collectively, the "Seller Tradenames and Logos"). Buyer agrees that -13- neither it nor any of its Affiliates (as hereinafter defined) shall make any use of the Seller Tradenames and Logos from and after the Closing Date; provided, however, that Seller (or its Affiliate) shall grant Buyer a ninety (90) day license for use of the Rollins Logistics logo in order for Buyer to undertake the deletion or removal of the Rollins Logistics logo in a practical manner. Section 2.2 No Ongoing or Transition Services. Except as provided in the Transition Agreement, at the Closing, all data processing, accounting, insurance, banking, personnel, legal, communications, fuel procurement and other services provided to Seller by any Affiliate of Seller, including any agreements or understandings (written or oral) with respect thereto, will terminate. Section 2.3 Distributions. The parties agree that Seller shall have the right, at or prior to the Closing, to cause Seller to distribute all cash held by Seller to its Affiliates, by one or more cash dividends, repurchase of existing stock and/or other distributions. Except as provided in Section 1.9(b), no adjustment shall be made to the Purchase Price as a result of any such dividends, repurchases or other distributions paid to Seller or its Affiliates. ARTICLE III REPRESENTATIONS AND WARRANTIES OF SELLER Seller hereby represents and warrants to Buyer as follows: Section 3.1 Organization. (a) Each of the Sellers is a corporation validly existing and in good standing under the laws of the State of Delaware, and has all requisite power and authority to own, -14- lease and operate its properties and assets and to carry on its operations as now being conducted. Each of the Sellers is duly qualified or licensed and in good standing to do business in each jurisdiction in which the property or assets owned, leased or operated by each of the Sellers or the nature of the business conducted by each of the Sellers makes such qualification necessary, except where the failure to be so duly qualified or licensed and in good standing would not individually or in the aggregate have a Seller Material Adverse Effect (as hereinafter defined). Schedule 3.1 sets forth a list of all jurisdictions where each of the Sellers is qualified to do business. Seller has heretofore made available to Buyer complete and correct copies of the certificate of incorporation and by-laws of each of the Sellers, as currently in effect. (b) As used herein, a "Seller Material Adverse Effect" shall mean any event, change or effect that has occurred which has a material adverse effect upon the financial condition, operating results or business of Seller; provided, however, that Seller Material Adverse Effect shall not include any event, change in or effect upon the financial condition or business of Seller, directly or indirectly, arising out of, attributable to or as a consequence of: (a) conditions, events or circumstances generally affecting the vehicle leasing industry or the overall economy; or (b) the public announcement of either the execution of this Agreement or the transactions contemplated hereunder. Section 3.2 Authorization. Each of the Sellers has the corporate power and authority to execute and deliver this Agreement and perform its respective obligations hereunder. The execution and delivery of this Agreement and the performance by each of the Sellers of its -15- respective covenants and agreements hereunder has been duly and validly authorized by the Boards of Directors and shareholders of each Seller and the Board of Directors of Rollins Truck Leasing Corp., and no other corporate proceedings on the part of Seller or its Affiliates is necessary to authorize the execution, delivery and performance of this Agreement or the consummation of the transactions so contemplated. This Agreement has been duly executed and delivered by each of the Sellers and constitutes a valid and binding agreement of each of the Sellers, enforceable against each of the Sellers in accordance with its terms, except that (a) such enforcement may be subject to any bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer or other laws, now or hereafter in effect, relating to or limiting creditors' rights generally and (b) the remedy of specific performance and injunctive and other forms of equitable relief may be subject to equitable defenses and to the discretion of the court before which any proceeding therefor may be brought. Section 3.3 Consents and Approvals; No Violations. Except as set forth on Schedule 3.3 and for applicable requirements of the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act"), neither the execution and delivery of this Agreement nor the consummation of the transactions contemplated hereby will (a) conflict with or result in any breach of any provision of the certificate of incorporation or by-laws of any of the Sellers; (b) require any filing with, or the obtaining of any permit, authorization, consent or approval of, any governmental or regulatory authority; (c) violate, conflict with or result in a default (or any event which, with notice or lapse of time or both, would constitute a default) under, or give rise to any right of termination, cancellation or acceleration under, any of the terms, conditions or provisions of any note, mortgage, other evidence of indebtedness, guarantee, license, agreement, lease or other -16- contract, instrument or obligation to which any of the Sellers is a party or by which any of the Sellers or any of their respective assets may be bound; or (d) violate any order, injunction, decree, statute, rule or regulation applicable to any of the Sellers, excluding from the foregoing clauses (b), (c) and (d) such requirements, violations, conflicts, defaults or rights (i) which would not have Seller Material Adverse Effect and would not adversely affect the ability of any of the Sellers to consummate the transactions contemplated by this Agreement, or (ii) which become applicable as a result of the business or activities in which Buyer is or proposes to be engaged or as a result of any acts or omissions by, or the status of or any facts pertaining to, Buyer. Section 3.4 Financial Statements. Seller has made available to Buyer: (i) the unaudited consolidated balance sheets of Seller as of September 30, 1997 and 1998 and the unaudited consolidated statements of income and cash flows thereof for the respective fiscal years then ended, including the notes thereto; and (ii) the unaudited consolidated balance sheet of Seller as of September 30, 1999 and the unaudited consolidated statements of income and cash flows thereof for the six month period then ended, including the notes thereto. All of the foregoing financial statements are hereinafter collectively referred to as the "Financial Statements." Except as disclosed in the Financial Statements, the Financial Statements have been prepared from, and are in accordance with, the books and records of Seller and present fairly, in all material respects, the financial position and results of operations of Seller as of the dates and for the applicable periods indicated, in each case in conformity with GAAP. -17- Section 3.5 Absence of Material Adverse Effect. Except as set forth on Schedule 3.5, since September 30, 1999, Seller has: (a) conducted its business in the ordinary course; (b) not sold any asset at a price of more than $100,000 other than in the ordinary course of business; (c) maintained accounts receivable, inventory, accounts payable and other working capital accounts in a manner consistent with normal business practices; (d) not written up or down the value of any inventory or determined as collectible any notes or accounts receivable that were previously considered to be uncollectible, except for write-ups or write-downs and other determinations in accordance with GAAP and in the ordinary course of business and consistent with past practice; (e) not pledged or permitted the imposition of any lien on any of its assets; (f) not suffered any change in its financial condition, operating results or business or suffered any other event or condition of any character which individually or in the aggregate has had a Seller Material Adverse Effect; (g) not suffered any damage, destruction or loss of tangible assets, whether or not covered by insurance, in excess of $250,000, in the aggregate; (h) not paid, discharged or satisfied any claims, liabilities or obligations (absolute, accrued, contingent or otherwise), except in each case in the ordinary course of business; -18- (i) not canceled any debts or waived any claims or rights of substantial value, except in each case in the ordinary course of business; and (j) not granted any general increase in the compensation payable or to become payable to its officers, directors, consultants or employees (including any such increase pursuant to any bonus, severance, termination, pension, profit-sharing or other plan or commitment) or any special increase in the compensation payable or to become payable to any officer, director, consultant or employee, except for (i) normal merit and cost of living increases in the ordinary course of business and in accordance with past practice and (ii) severance commitments that are (and shall remain after Closing) the sole responsibility of Seller and its Affiliates. Section 3.6 Title, Ownership and Related Matters. (a) Real Property. (i) Seller does not own any real property. Schedule 3.6(a)(i) sets forth a list of the parcels of real property currently leased by Seller or from which Seller conducts any of its operations (together with all fixtures and improvements thereon, the "Leased Real Property"). (ii) To the Knowledge of Seller, it has a valid leasehold interest in the Leased Real Property, free and clear of any mortgage, liens, pledges, security interests, claims, restrictions or other encumbrances. -19- (iii) To the Knowledge of Seller, the improvements on the Leased Real Property are free from any material structural defects. Except as set forth on Schedule 3.6(a)(iii), to the Knowledge of Seller, there are no condemnation or appropriation or similar proceedings pending or threatened against any of the Leased Real Property or the improvements thereon. (b) Necessary Assets. To the Knowledge of Seller, except as set forth in Schedule 3.6(b), it has good and marketable title to its material assets, free and clear of all liens, pledges, security interests, charges, claims, restrictions and encumbrances of any nature whatsoever. -20- Section 3.7 Intellectual Property. (a) To the Knowledge of Seller (as herein defined), the conduct of its business does not infringe upon any intellectual property right of any third party. There are no pending, or to the Knowledge of Seller threatened, proceedings or litigation or other adverse claims by any Person (as hereinafter defined) against the use by Seller of any trademarks, trade names, service marks, service names, logos, assumed names, copyrights, patents or registrations and applications therefor which are owned by Seller and are necessary for the operation of the Seller's business as currently conducted (collectively, the "Intellectual Property"). Schedule 3.7 sets forth a list of all Intellectual Property owned by Seller. (b) Seller has valid licenses or other rights to use the Intellectual Property necessary to permit Seller to conduct its operations as currently conducted, except (i) for the Seller Tradenames and Logos and (ii) where the failure to have such ownership, licenses or rights would not have a Seller Material Adverse Effect. Section 3.8 Computer Software. Seller has valid licenses or other rights to use all material computer software programs to permit it to conduct its operations as currently conducted, except where the failure to have such ownership, licenses or rights would not have a Seller Material Adverse Effect. -21- Section 3.9 Year 2000 Compliance. Seller has provided Buyer true and complete copies of all material reports and analyses obtained by Seller with respect to Year 2000 compliance issues concerning its businesses. Seller's major systems have been modified, tested and certified. Section 3.10 Litigation. Schedule 3.10 identifies all claims, actions, suits, proceedings and governmental investigations pending or, to the Knowledge of Seller, threatened against Seller by or before any court, governmental or regulatory authority or by any third party (other than claims, actions, suits, proceedings, and governmental investigations set forth on Schedule 3.16(b) (the "Litigation Claims"). Section 3.11 Compliance with Applicable Law. To the Knowledge of Seller, it is in compliance in all material respects with all applicable laws, ordinances, rules and regulations of any federal, state, local or foreign governmental authority applicable to Seller or its operations and necessary to carry on its business as it is currently being conducted, to own or hold under lease the properties and assets it owns or holds under lease and to perform all of its obligations under the agreements to which it is a party. Section 3.12 Certain Contracts and Arrangements. Schedule 3.12 sets forth a list of the following contracts to which each of the Sellers is a party: (a) employment agreements; (b) indentures, mortgages, notes, installment obligations, agreements or other instruments relating to the borrowing of money or the guaranty by each of the Sellers of any obligation for the borrowing of money; (c) real property leases; or (d) contracts with Affiliates; or (e) other agreements, including without limitation, customer contracts, which individually involve the receipt or payment by each of -22- the Sellers after the date hereof of more than $100,000 and are not terminable without liability to each of the Sellers upon 30 days or less prior written notice (together with those contracts, agreements and understandings described in clauses (a), (b), (c) and (d), the "Contracts"). Seller has made available to Buyer copies of all Contracts. To the Knowledge of Seller, all such Contracts are valid, binding and enforceable in accordance with their terms and, to the Knowledge of Seller, neither Seller nor any other party thereto is in material default under any of the aforesaid Contracts. Schedule 3.12(i) sets forth a list of all unresolved material default notices received from or given to third parties pertaining to the Contracts. Section 3.13 Employee Benefit Plans; ERISA. Except as set forth on Schedule 3.13: (a) There are no "employee benefit plans" (as defined in Section 3.(3) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA")) maintained for the benefit of employees of Seller or other employee benefit, bonus or fringe benefit plans maintained for the benefit of the employees of Seller to which, or with respect to which, Seller has a material liability for the payment of benefits or makes material contributions annually (the "Plans"). (b) Each of the Plans that is subject to ERISA has been administered in compliance in all material respects with ERISA. Each of the Plans intended to be "qualified" within the meaning of Section 401(a) of the Code has a favorable determination letter from the Internal Revenue Service (the "IRS") to the effect that it is so qualified. Except as set forth on Schedule 3.13, none of the Plans is subject to Title IV of ERISA. There are no pending or, to the Knowledge -23- of Seller, threatened material claims (other than routine claims for benefits) by, on behalf of or against any of the Plans or any trusts which are a part of such Plans. (c) Seller has furnished to Buyer a correct, complete and correct copy of each plan, program, policy or arrangement which is set forth in writing and which provides cash or property or other compensation related benefits of any kind or description whatsoever to or on behalf of any current of former employee or director of Seller or any of their dependents and a complete description of any such plain, program, policy or arrangement which is not set forth in writing (collectively, the "Seller Benefit Plans"). A list of each Seller Benefit Plan is set forth on Schedule 3.13. Section 3.14 Labor Matters. Seller is in compliance with all federal and state laws respecting employment and employment practices, terms and conditions of employment, wages and hours, and is not engaged in any unfair labor or unlawful employment practice, the violation of or engagement in which would have a Seller Material Adverse Effect. Except as set forth on Schedule 3.14, there are no controversies pending or, to the Knowledge of the Seller, threatened, between it and any of its employees, which controversies have had or are reasonably likely to have a Seller Material Adverse Effect. Except as set forth on Schedule 3.14, Seller is not a party to any collective bargaining agreement or other labor union contract applicable to Persons employed by Seller. There are no unfair labor practice complaints pending against Seller before the National Labor Relations Board. To the Knowledge of Seller, there are no strikes, slowdowns, work stoppages, lockouts, or threats thereof, by or with respect to any of its employees. -24- Section 3.15 Taxes. (a) Seller (i) has timely filed or caused to be filed on a timely basis with the appropriate taxing authorities all material Tax Returns (as hereinafter defined) required to be filed by or with respect to Seller (including the consolidated federal income Tax Returns and any consolidated, combined or unitary state Tax Returns in which the Seller is included), and (ii) has paid or made adequate provision for the payment of all Taxes (as hereinafter defined) shown to be due on such Tax Returns or otherwise due and payable by the Seller. All such Tax Returns are true, correct and complete in all material respects. (b) Except as set forth on Schedule 3.15, (i) there are no liens for Taxes with respect to the assets of Seller (except for statutory liens for current taxes not yet delinquent) and no material claims with respect to Taxes are being asserted by any taxing authority in writing; (ii) none of the Tax Returns applicable to Seller are currently being audited or examined by any taxing authority and there is no other action or proceeding currently pending concerning Taxes relating to the Seller; (iii) there is no material unpaid tax deficiency, determination or proposed assessment currently outstanding against Seller or for which the Seller could be jointly or severally liable; (iv) there are no outstanding agreements or waivers extending the statute of limitations relating to the assessment of Taxes applicable to Seller; (v) the Seller is not a party to any agreement that would result, separately or in the aggregate, in the payment of an excess parachute payment pursuant to Section 280G of the Code; (vi) the Seller is not a member of any partnership or joint venture or the holder of a beneficial interest in any trust (other than a trust that is treated as a -25- grantor trust or otherwise is disregarded as a separate taxable entity for federal income tax purposes); and (vii) to the Seller's Knowledge, there are no proposed reassessments of any of the Assets that will result in a material increase in the amount of Tax to which such Assets will be subject for periods after the Closing Date. (c) As used in this Agreement: (i) "Taxes" shall mean all taxes, levies, charges or fees including income, corporation, advance corporation, gross receipts, transfer, excise, property, sales, use, value-added, license, payroll, pay-as-you-earn, withholding, social security and franchise or other governmental taxes or charges, imposed by the United States or any state, county, local or foreign government, and such term shall include any interest, penalties or additions to tax attributable to such taxes. (ii) "Tax Return" shall mean any report, return or statement required to be supplied to a taxing authority in connection with Taxes. Section 3.16 Environmental. (a) To the Knowledge of Seller, except as set forth on Schedule 3.16(a), Seller possesses, and is in compliance with, all material permits, licenses and government authorizations relating to protection of the environment, pollution control and hazardous materials applicable to Seller; (b) To the Knowledge of Seller, except as set forth on Schedule 3.16(b), neither Seller nor any of its Affiliates has received notice from a state or federal governmental authority that Seller is responsible under any applicable federal, state or local law, regulation or -26- ordinance relating to the protection of the environment in effect at the time of this Agreement (the "Environmental Laws") to investigate and/or remediate Hazardous Materials (as hereinafter defined) on property Seller leases or operates on (collectively, the "Environmental Claims"). For purposes of this Agreement, "Hazardous Materials" shall mean any waste, pollutant, hazardous substance, toxic, ignitable, reactive or corrosive substance, hazardous waste, special waste, industrial substance, by-product, process intermediate product or waste, petroleum or petroleum-derived substance or waste, chemical liquids or solids, liquid or gaseous products regulated under Environmental Laws; and (c) There are no underground storage tank systems for which Seller is responsible under applicable laws or existing agreements which have not been upgraded or removed in compliance with 40 CFR Part 280 and any other applicable laws. Section 3.17 Officers; Bank Accounts. Schedule 3.17 lists each of the officers of Seller and all of the accounts (and signatures thereto) of Seller with any bank, brokerage firm or other financial institution or depository. Section 3.18 Certain Fees. Seller will not have any liability for any financial advisory or finders' fees in connection with this Agreement or the transactions contemplated hereby. ARTICLE IV REPRESENTATIONS AND WARRANTIES OF BUYER Buyer hereby represents and warrants to Seller as follows: -27- Section 4.1 Organization and Authority of Buyer. Buyer is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware. Buyer has the corporate power and authority to execute and deliver this Agreement and perform its obligations hereunder. The execution and delivery of this Agreement and the performance by Buyer of its covenants and agreements hereunder have been duly and validly authorized by the Board of Directors of Buyer, and no other corporate proceedings on the part of Buyer are necessary to authorize the execution, delivery and performance of this Agreement or the consummation of the transactions so contemplated. This Agreement has been duly executed and delivered by Buyer and constitutes a valid and binding agreement of Buyer, enforceable against Buyer in accordance with its terms, except that (i) such enforcement may be subject to any bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer or other laws, now or hereafter in effect, relating to or limiting creditors' rights generally, and (ii) the remedy of specific performance and injunctive and other forms of equitable relief may be subject to equitable defenses and to the discretion of the court before which any proceeding therefor may be brought. Section 4.2 Consents and Approvals; No Violations. Except for applicable requirements of the HSR Act, neither the execution and delivery of this Agreement nor the consummation of the transactions contemplated hereby will (a) conflict with or result in any breach of any provision of the incorporation documents or by-laws of Buyer; (b) require any filing with, or the obtaining of any permit, authorization, consent or approval of, any governmental or regulatory authority; (c) violate, conflict with or result in a default (or any event which, with notice or lapse of time or both, would constitute a default) under, or give rise to any right of termination, cancellation -28- or acceleration under, any of the terms, conditions or provisions of any note, mortgage, other evidence of indebtedness, guarantee, license, agreement, lease or other contract, instrument or obligation to which Buyer is a party or by which Buyer or any of its assets may be bound; or (d) violate any order, injunction, decree, statute, rule or regulation applicable to Buyer, excluding from the foregoing clauses (b), (c) and (d) such requirements, violations, conflicts, defaults or rights (i) which would not adversely affect the ability of Buyer to consummate the transactions contemplated by this Agreement or (ii) which become applicable as a result of any acts or omissions by, or the status of or any facts pertaining to, Seller. Section 4.3 Litigation. There is no claim, action, suit, proceeding or governmental investigation pending or, to the Knowledge of Buyer (as hereinafter defined), threatened against Buyer, by or before any court, governmental or regulatory authority or by any third party which challenges the validity of this Agreement or which would be reasonably likely to adversely affect or restrict Buyer's ability to consummate the transactions contemplated hereby. Section 4.4 Certain Fees. Except for the engagement of Warburg Dillon Read, neither Buyer nor any of its Affiliates has employed any financial advisor or finder or incurred any liability for any financial advisory or finders' fees in connection with this Agreement or the transactions contemplated hereby. ARTICLE V COVENANTS -29- Section 5.1 Conduct of Seller's Business. Seller agrees that, during the period from the date of this Agreement to the Closing, except as otherwise contemplated by this Agreement, the Schedules or consented to by Buyer in writing, Seller shall: (a) to use its reasonable best efforts to conduct its business operations in the ordinary course consistent with past practice; (b) to use its reasonable best efforts to (i) maintain and preserve its business operations, (ii) retain the services of its employees, except for attrition of such employees in the ordinary course of business, and (iii) maintain, preserve and retain relationships with its suppliers and customers; (c) not to sell or dispose of any material business assets, except in the ordinary course of business; (d) not to amend its certificate of incorporation or bylaws; (e) not to incur any indebtedness for borrowed money or guarantee any such indebtedness of another person, other than borrowings in the ordinary course of business consistent with past practice; (f) not to change its accounting policies except as required by generally accepted accounting principles; and (g) not to make any change in employment terms for any of its employees other than terminations for cause or customary salary increases and adjustments in benefits in the -30- ordinary course of business consistent with past practice, other than severance commitments that are (and still remain) the sole responsibility of Seller and its Affiliates. Section 5.2 Access to Information. (a) Between the date of this Agreement and the Closing, Seller shall (i) give Buyer and its authorized representatives reasonable access to all its books, records, offices and other facilities and properties and to the Seller Executives (as hereinafter defined); (ii) permit Buyer to make such inspections thereof as Buyer may reasonably request; and (iii) cause its officers to furnish Buyer with such financial and operating data and other information with respect to its business and properties as Buyer may from time to time reasonably request; provided, however, that any such investigation shall be conducted during normal business hours under the supervision of Seller's personnel and in such a manner as to maintain the confidentiality of this Agreement and the transactions contemplated hereby and not interfere unreasonably with the business operations of Seller. (b) All information concerning Seller furnished or provided by Seller or their Affiliates to Buyer or its representatives (whether furnished before or after the date of this Agreement) shall be held subject to a confidentiality agreement by and between United Parcel Service of America, Inc. and Rollins Leasing Corporation, dated as of August 24, 1999 (the "Confidentiality Agreement"). -31- Section 5.3 Consents. (a) Each of Seller and Buyer shall cooperate, and use its reasonable best efforts, to make all filings (including without limitation all filings required under the HSR Act) and obtain all licenses, permits, consents, approvals, authorizations, qualifications and orders of governmental authorities and other third parties necessary to consummate the transactions contemplated by this Agreement. In addition to the foregoing, Buyer agrees to provide such assurances as to financial capability, resources and creditworthiness as may be reasonably requested by any third party whose consent or approval is sought in connection with the transactions contemplated hereby. (b) With respect to any agreements for which any required consent or approval is not obtained prior to the Closing, Seller and Buyer shall each use their reasonable best efforts to obtain any such consent or approval after the Closing Date until such consent or approval has been obtained. Section 5.4 Reasonable Best Efforts. Each of Seller and Buyer shall cooperate, and use its reasonable best efforts to take, or cause to be taken, all action, and to do, or cause to be done, all things necessary, proper or advisable under applicable laws and regulations to consummate the transactions contemplated by this Agreement. Section 5.5 Public Announcements. Except as otherwise agreed to by the parties, the parties shall not issue any report, statement or press release or otherwise make any public statements with respect to this Agreement and the transactions contemplated hereby, except as in the reasonable judgment of the party may be required by law. Upon the execution of this Agreement and the Closing, Seller and Buyer will consult with each other with respect to the issuance of a joint report, statement or press release with respect to this Agreement and the transactions contemplated hereby. -32- Section 5.6 Covenant to Satisfy Conditions. Seller will use its reasonable best efforts to ensure that the conditions set forth in Article VI hereof are satisfied, insofar as such matters are within the control of Seller, and Buyer will use its reasonable best efforts to ensure that the conditions set forth in Article VI hereof are satisfied, insofar as such matters are within the control of Buyer. Seller and Buyer further covenant and agree, with respect to a threatened or pending preliminary or permanent injunction or other order, decree or ruling or statute, rule, regulation or executive order that would adversely affect the ability of the parties hereto to consummate the transactions contemplated hereby, to use all reasonable efforts to prevent or lift the entry, enactment or promulgation thereof, as the case may be. Section 5.7 Employees; Employee Benefits. (a) Buyer shall treat all service completed by a Transferred Employee with Seller or any Affiliate thereof, and any predecessor thereto, the same as service completed with Buyer for all purposes, including waiting periods relating to preexisting conditions under medical plans, vacations, severance pay, eligibility to participate in, vesting or payment of benefits under, and eligibility for early retirement or any subsidized benefit provided for under any employee benefit plan (including, but not limited to, any "employee benefit plan" as defined in Section 3(3) of ERISA) maintained by Buyer on or after the Closing Date except for purposes of computing benefits under the actual benefit formula in a pension plan (as defined in Section 3(2) of ERISA). Prior to the Closing, Seller shall furnish Buyer with a list of the length of service with it or its Affiliates for each of the Transferred Employees. For purposes of computing deductible amounts (or like adjustments or limitations on coverage) -33- under any employee welfare benefit plan (including, without limitation, any "employee welfare benefit plan" as defined in Section 3(l) of ERISA), expenses and claims previously recognized for similar purposes under the applicable welfare benefit plan of Seller or any Affiliate shall be credited or recognized under the comparable plan maintained after the Closing Date by Buyer. (b) After the Closing Date, Buyer shall be responsible for, and shall indemnify and hold harmless Seller and their Affiliates and their officers, directors, employees, Affiliates and agents and the fiduciaries (including plan administrators) of the Plans, from and against, any and all claims, losses, damages, costs and expenses (including, without limitation, attorneys' fees and expenses) and other liabilities and obligations relating to or arising out of (i) all salaries, bonuses, commissions, vacation entitlements and other benefits accrued by Seller but unpaid as of the Closing, and (ii) any claims of, or damages or penalties sought by, any Transferred Employee, or any governmental entity on behalf of or concerning any Transferred Employee, with respect to any act or failure to act by Buyer to the extent arising from the employment, discharge, layoff or termination of any Transferred Employee after the Closing. Section 5.8 Supplemental Disclosure. If any event or matter arises or comes to the attention of Seller or Parent after the date of this Agreement which, if existing or occurring or known to Seller or Parent at the date of this Agreement, would have been required to be set forth or described in the Schedules or which is necessary to correct any information in the Schedules which has been rendered inaccurate thereby in any material respect, then Seller shall promptly supplement or amend and deliver to Buyer the Schedules which it has delivered pursuant to this Agreement, and Buyer shall have the right, within five business days of receipt by Buyer of such supplement or amendment, to terminate the Agreement pursuant to Section 7.1(e). Section 5.9 Investigation by Buyer. Buyer has conducted its own independent review and analysis of the business, operations, technology, assets, liabilities, results of operations, financial condition and prospects of Seller and acknowledges that Seller has provided Buyer with access to its personnel, properties, premises and records for this purpose. In entering into this -34- Agreement, Buyer has relied solely upon its own investigation and analysis, and Buyer (a) acknowledges that neither Seller nor any of its respective directors, officers, employees, Affiliates, controlling Persons, agents or representatives makes or has made any representation or warranty, either express or implied, as to the accuracy or completeness of any of the information provided or made available to Buyer or its directors, officers, employees, Affiliates, controlling Persons, agents or representatives, and (b) agrees, to the fullest extent permitted by law, that neither Seller nor any of its respective directors, officers, employees, Affiliates, controlling Persons, agents or representatives shall have any liability or responsibility whatsoever to Buyer or its directors, officers, employees, Affiliates, controlling Persons, agents or representatives on any basis (including, without limitation, in contract or tort, under federal or state securities laws or otherwise) based upon any information provided or made available, or statements made, to Buyer or its directors, officers, employees, Affiliates, controlling Persons, agents or representatives (or any omissions therefrom), except as and only to the extent expressly set forth herein with respect to the representations and warranties of Seller in Article III and subject to the limitations and restrictions contained herein. Buyer's sole rights and remedies relative to transactions contemplated herein are limited to those set forth herein. Section 5.10 Additional Actions. Following the Closing, Buyer, Parent and Seller agree to take such actions with regard to Seller as are specified on Schedule 5.10. -35- Section 5.11 Parent Guarantee. Parent hereby unconditionally and irrevocably guarantees to Buyer the full payment and performance of all of the obligations of Seller (and each Seller individually) under this Agreement, including without limitation under Article IX hereof. ARTICLE VI CONDITIONS TO OBLIGATIONS OF THE PARTIES Section 6.1 Conditions to Each Party's Obligation. The respective obligation of each party to consummate the transactions contemplated herein is subject to the satisfaction at or prior to the Closing of the following conditions: (a) No statute, rule or regulation shall have been enacted, promulgated or enforced by any court or governmental authority which prohibits or restricts the consummation of the transactions contemplated hereby; (b) There shall not be in effect any judgment, order, injunction or decree of any court of competent jurisdiction enjoining the consummation of the transactions contemplated hereby; (c) Any waiting periods applicable to the transactions contemplated by this Agreement under the HSR Act shall have expired or early termination shall have been granted; (d) All consents, authorizations, waivers and approvals of any governmental authority or other regulatory body or from parties to contracts or other agreements to which Seller is a party as may be required to be obtained in connection with the performance of this -36- Agreement, the failure to obtain which would prevent the consummation of the transactions contemplated hereby or have a Seller Material Adverse Effect, shall have been obtained; or (e) The transactions contemplated by that Stock Purchase Agreement, dated the date hereof, between Buyer, Seller, UPS Truck Leasing, Inc. and Rollins Leasing Corp. shall have been consummated simultaneously with the Closing. Section 6.2 Conditions to Obligations of Seller. The obligations of Seller to consummate the transactions contemplated hereby are further subject to the satisfaction (or waiver) at or prior to the Closing of the following conditions: (a) The representations and warranties of Buyer contained in Article IV of this Agreement shall be true and correct in all material respects at the date hereof and as of the Closing as if made at and as of such time, except for changes permitted or contemplated hereby and except for representations and warranties which are as of a specific date; (b) Buyer shall have performed in all material respects its obligations under this Agreement required to be performed by it at or prior to the Closing pursuant to the terms hereof; (c) Buyer shall have delivered to Seller or its Affiliates those items set forth in Section 1.12 hereof; (d) Buyer or its Affiliate shall have executed and delivered a staffing services agreement in the form of Exhibit 6.2(d) hereto (the "Staffing Services Agreement"); and -37- (e) Buyer or its Affiliate shall have executed and delivered a transition services agreement ("the Transition Agreement") in form and substance reasonably satisfactory to Buyer and Seller. Section 6.3 Conditions to Obligations of Buyer. The obligations of Buyer to consummate the transactions contemplated hereby are further subject to the satisfaction (or waiver) at or prior to the Closing of the following conditions: (a) The representations and warranties of Seller contained in Article III of this Agreement shall be true and correct in all material respects at the date hereof and as of the Closing as if made at and as of such time, except for changes permitted or contemplated hereby and except for representations and warranties which are as of a specific date; (b) Seller shall have performed in all material respects its obligations under this Agreement required to be performed by it at or prior to the Closing pursuant to the terms hereof; (c) Seller shall have delivered to Buyer those items set forth in Section 1.11 hereof; (d) Seller or its Affiliate shall have executed and delivered the Staffing Services Agreement; and (e) Seller or its Affiliate shall have executed and delivered the Transition Agreement. -38- ARTICLE VII TERMINATION Section 7.1 Termination. This Agreement may be terminated and the transactions contemplated hereby may be abandoned: (a) at any time, by mutual written consent of Seller and Buyer; (b) by either party if the transactions contemplated hereby shall have been permanently enjoined by a court of competent jurisdiction, provided that no party hereto who brought or is affiliated with the party who brought the action seeking the permanent enjoinment of the transactions contemplated hereby may seek termination of this Agreement pursuant to this Section 7.1(b); (c) by Buyer if (i) any of the conditions set forth in Sections 6.1 or 6.3 shall have become incapable of fulfillment and shall not have been waived by Buyer or (ii) Seller shall breach in any material respect any of its representations, warranties, covenants or other obligations hereunder and, within twenty (20) days after written notice of such breach to Seller from Buyer, such breach shall not have been cured in all material respects or waived by Buyer, or Seller shall not have provided reasonable assurance to Buyer that such breach will be cured in all material respects on or before the Closing Date; or (d) by Seller if (i) any of the conditions set forth in Sections 6.1 or 6.2 shall have become incapable of fulfillment and shall not have been waived by Seller or (ii) Buyer -39- shall breach in any material respect any of its representations, warranties, covenants or other obligations hereunder and, within twenty (20) days after written notice of such breach to Buyer from Seller, such breach shall not have been cured in all material respects or waived by Seller or Buyer shall not have provided reasonable assurance to Seller that such breach will be cured in all material respects on or before the Closing Date; (e) by Buyer, within five (5) days following receipt of any supplement or amendment to the Schedules, by written notice to Seller if the matter which gives rise to such supplement or amendment individually, or together with any other such matters, in the aggregate has caused any of the representations and warranties of Seller set forth in Article III (without giving effect to such supplement or amendment) to be inaccurate in any material respect; or (f) by Buyer or Seller, at any time on or after February 1, 2000, if the Closing shall not have occurred on or prior to such date; provided, however, that the right to terminate this Agreement under this Section 7.1(f) shall not be available to any party whose failure to fulfill any obligation under this Agreement has been the primary cause of, or resulted in, the failure of the Closing to have occurred on or before such date. Section 7.2 Procedure and Effect of Termination. In the event of the termination of this Agreement and the abandonment of the transactions contemplated hereby pursuant to Section 7.1 hereof, written notice thereof shall forthwith be given by Seller, on the one hand, or Buyer, on the other hand, so terminating to the other party and this Agreement shall terminate and the transactions contemplated hereby shall be abandoned, without further action by Seller, or Buyer. If this Agreement is terminated pursuant to Section 7.1 hereof: -40- (a) each party shall redeliver all documents, work papers and other materials of the other parties relating to the transactions contemplated hereby, whether so obtained before or after the execution hereof, to the party furnishing the same or, upon prior written notice to such party, shall destroy all such documents, work papers and other materials and deliver notice to the parties seeking destruction of such documents that such destruction has been completed, and all confidential information received by any party hereto with respect to the other party shall be treated in accordance with the Confidentiality Agreement and Section 5.2(b) hereof; (b) all filings, applications and other submissions made pursuant hereto shall, at the option of Seller, and to the extent practicable, be withdrawn from the agency or other Person to which made; and (c) there shall be no liability or obligation hereunder on the part of Seller or Buyer or any of their respective directors, officers, employees, Affiliates, controlling Persons, agents or representatives, except that Seller or Buyer, as the case may be, shall have liability to the other party if the basis of termination is a willful, material breach by Seller or Buyer, as the case may be, of one or more of the provisions of this Agreement, and except that the obligations provided for in this Section in Section 10.1 hereof and in the Confidentiality Agreement and the non-compete obligations of the Alliance Agreement shall survive any such termination. ARTICLE VIII SURVIVAL OF REPRESENTATIONS -41- Section 8.1 Survival of Representations, Warranties and Agreements. The representations and warranties of Seller and Buyer made in Articles III and IV hereof, respectively, shall not survive the Closing and, except as provided in Section 7.2(c) hereof, shall not survive any termination of this Agreement; provided that any covenant or agreement of any party contained herein which by its terms shall survive the Closing shall survive until fully performed, and provided, further, that this Section 8.1 is not intended in any way to limit any covenant or agreement of the parties which contemplates performance after the Closing, including, without limitation, the covenants and agreements set forth in Section 5.7 hereof. ARTICLE IX INDEMNIFICATION Section 9.1 Indemnification Obligations of Seller. Seller shall defend and hold harmless Buyer and its Affiliates, each of their respective officers, directors, employees, agents and representatives and each of the heirs, executors, successors and assigns of any of the foregoing (collectively, the "Buyer Indemnified Parties") from, against and in respect of any and all claims, liabilities, obligations, losses, costs, expenses, penalties, fines and judgments (at equity or at law) and damages whenever arising or incurred (including, without limitation, amounts paid in settlement, costs of investigation and reasonable attorneys' fees and expenses) arising out of or relating to the (i) Excluded Liabilities and (ii) any accounts receivable of Seller reflected in the Closing Date Working Capital that Buyer is unable to collect within 90 days following the Closing Date; provided (A) Buyer has used its reasonable best efforts to collect such receivable, (B) in the -42- event Buyer seeks indemnity under Section 9.1(ii) of this Agreement, Buyer shall assign such receivable and all proceeds thereof to Seller and (C) the indemnification to which Seller is entitled will be limited to the face amount of any uncollected receivables. The claims, liabilities, obligations, losses, costs, expenses, penalties, fines and damages of the Buyer Indemnified Parties described in this Section 9.1 as to which the Buyer Indemnified Parties are entitled to indemnification are hereinafter collectively referred to as "Buyer Losses." Section 9.2 Indemnification Procedure. (a) Promptly after receipt by a Buyer Indemnified Party of notice by a third party of threatened or filed claim or of the threatened or actual commencement of any action or proceeding with respect to which such Buyer Indemnified Party may be entitled to receive payment from the other party for any Buyer Losses, such Buyer Indemnified Party shall notify Seller, within 30 days of the notice of threatening or filing of such claim or of the threatened or actual commencement of such action or proceeding; provided, however, that the failure to so notify Seller shall relieve Buyer from liability under this Agreement with respect to such claim only if, and only to the extent that, such failure to notify Seller results in the forfeiture by Seller of rights and defenses otherwise available to Seller with respect to such claim. Seller shall have the right, upon written notice delivered to the Buyer Indemnified Party within 30 days thereafter, to assume the defense of such action or proceeding, including the employment of counsel reasonably satisfactory to the Buyer Indemnified Party and the payment of the fees and disbursements of such counsel. In any action or proceeding with respect to which indemnification is being sought hereunder, the Buyer Indemnified Party or Seller, whichever is not assuming the defense of such action, shall have -43- the right to participate in such litigation and to retain its own counsel at such party's own expense. Seller or the Buyer Indemnified Party, as the case may be, shall at all times use reasonable efforts to keep Seller or the Buyer Indemnified Party, as the case may be, reasonably apprised of the status of the defense of any action the defense of which they are maintaining and to cooperate in good faith with each other with respect to the defense of any such action. (b) The Buyer Indemnified Party may not settle or compromise any claim or consent to the entry of any judgment with respect to which indemnification is being sought hereunder without the prior written consent of Seller. Seller may not, without the prior written consent of the Buyer Indemnified Party, settle or compromise any claim or consent to the entry of any judgment with respect to which indemnification is being sought hereunder unless (i) simultaneously with the effectiveness of such settlement, compromise or consent, Seller pays in full any obligation imposed on the Buyer Indemnified Party by such settlement, compromise or consent and (ii) such settlement, compromise or consent does not contain any equitable order, judgment or term which in any manner affects, restrains or interferes with the business of the Buyer Indemnified Party or any of the Buyer Indemnified Party's affiliates. (c) In the event the Buyer Indemnified Party shall claim a right to payment pursuant to this Agreement not involving a third party claim covered by Section 9.2(a), the Buyer Indemnified shall send written notice of such claim to Seller. Such notice shall specify the basis for such claim. As promptly as possible after the Buyer Indemnified Party has given such notice, such Buyer Indemnified Party and Seller shall establish the merits and amount of such claim (by mutual agreement, litigation, arbitration or otherwise) and, within five business days of the final -44- determination of the merits and amount of such claim, Seller shall pay to the Buyer Indemnified Party immediately available funds in an amount equal to such claim as determined hereunder. Section 9.3 Exclusive Remedies. Following the Closing, neither Buyer nor Seller shall make any claim nor have any remedy against the other party arising out of or relating to the transactions contemplated hereby other than any claim arising out of or related to (a) indemnification pursuant to Section 5.7(b) or 9.1 or (b) a breach of any covenant set forth in this Agreement or any agreement contemplated hereby required to be performed after the Closing. ARTICLE X MISCELLANEOUS Section 10.1 Fees and Expenses. Except as set forth in this Section 10.1, whether or not the transactions contemplated herein are consummated pursuant hereto, each of Seller and Buyer shall pay all fees and expenses incurred by, or on behalf of, Seller or Buyer, respectively, in connection with, or in anticipation of, this Agreement and the consummation of the transactions contemplated hereby. Section 10.2 Further Assurances. From time to time after the Closing Date, at the reasonable request of the other party hereto and at the expense of the party so requesting, each of the parties hereto shall execute and deliver to such requesting party such documents and take such other action as such requesting party may reasonably request in order to consummate more effectively the transactions contemplated hereby. -45- Section 10.3 Notices. All notices, requests, demands, waivers and other communications required or permitted to be given under this Agreement shall be in writing and may be given by any of the following methods: (a) personal delivery; (b) facsimile transmission; (c) registered or certified mail, postage prepaid, return receipt requested; or (d) UPS next day air or document exchange. Notices shall be sent to the appropriate party at its address or facsimile number given below (or at such other address or facsimile number for such party as shall be specified by notice given hereunder): If to Seller, to: Rollins Leasing Corp. 2200 Concord Pike One Rollins Plaza Wilmington, DE 19803 Fax No. (302) 426-3815 Attention: Patrick J. Bagley with a copy to: Rollins Leasing Corp. 2200 Concord Pike One Rollins Plaza Wilmington, DE 19803 Fax No. (302) 426-3555 Attention: Klaus M. Belohoubek -46- If to Buyer, to: United Parcel Service, Inc. 55 Glenlake Parkway Atlanta, GA 30328 Fax No. (404) 828-6440 Attention: Legal Department with a copy to: King & Spalding 191 Peachtree Street Atlanta, Georgia 30303-1763 Fax No. (404) 572-5145 Attention: Michael J. Egan III All such notices, requests, demands, waivers and communications shall be deemed received upon (i) actual receipt thereof by the addressee, (ii) actual delivery thereof to the appropriate address or (iii) in the case of a facsimile transmissions, upon transmission thereof by the sender and issuance by the transmitting machine of a confirmation slip that the number of pages constituting the notice have been transmitted without error. In the case of notices sent by facsimile transmission, the sender shall contemporaneously mail a copy of the notice to the addressee at the address provided for above. However, such mailing shall in no way alter the time at which the facsimile notice is deemed received. Section 10.4 Severability. Should any provision of this Agreement for any reason be declared invalid or unenforceable, such decision shall not affect the validity or enforceability of any of the other provisions of this Agreement, which remaining provisions shall remain in full force and effect and the application of such invalid or unenforceable provision to Persons or -47- circumstances other than those as to which it is held invalid or unenforceable shall be valid and enforced to the fullest extent permitted by law. Section 10.5 Binding Effect; Assignment. This Agreement and all of the provisions hereof shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors and permitted assigns. Neither this Agreement nor any of the rights, interests or obligations hereunder shall be assigned, directly or indirectly, including, without limitation, by operation of law, by any party hereto without the prior written consent of the other parties hereto. Section 10.6 No Third Party Beneficiaries. This Agreement is solely for the benefit of Seller, and its successors and permitted assigns, with respect to the obligations of Buyer under this Agreement, and for the benefit of Buyer, and its respective successors and permitted assigns, with respect to the obligations of Seller, under this Agreement, and for the benefit of the Employees with respect to the obligations of Buyer under Section 5.7 of this Agreement, and this Agreement shall not be deemed to confer upon or give to any other third party any remedy, claim, liability, reimbursement, cause of action or other right. -48- Section 10.7 Interpretation. (a) The Article and Section headings contained in this Agreement are solely for the purpose of reference, are not part of the agreement of the parties and shall not in any way affect the meaning or interpretation of this Agreement. (b) As used in this Agreement, the term "Person" shall mean and include an individual, a partnership, a joint venture, a corporation, a trust, an unincorporated organization and a government or any department or agency thereof. (c) As used in this Agreement, the term "Affiliate" shall mean a person that directly or indirectly through one or more intermediaries, controls or is controlled by, or is under common control with the person specified. Section 10.8 Jurisdiction and Consent to Service. Without limiting the jurisdiction or venue of any other court, each of Seller and Buyer (a) agrees that any suit, action or proceeding arising out of or relating to this Agreement may be brought solely in the state or federal courts of Delaware; (b) consents to the exclusive jurisdiction of each such court in any suit, action or proceeding relating to or arising out of this Agreement; (c) waives any objection which it may have to the laying of venue in any such suit, action or proceeding in any such court; and (d) agrees that service of any court paper may be made in such manner as may be provided under applicable laws or court rules governing service of process. Section 10.9 Entire Agreement. This Agreement, the Confidentiality Agreement, -49- the Alliance Agreement, the Schedules and other documents referred to herein or delivered pursuant hereto which form a part hereof constitute the entire agreement among the parties with respect to the subject matter hereof and supersede all other prior agreements and understandings, both written and oral, between the parties or any of them with respect to the subject matter hereof. Section 10.10 Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware (regardless of the laws that might otherwise govern under applicable principles of conflicts of laws thereof) as to all matters, including but not limited to matters of validity, construction, effect, performance and remedies. Section 10.11 Specific Performance. The parties acknowledge and agree that any breach of the terms of this Agreement would give rise to irreparable harm for which money damages would not be an adequate remedy and accordingly the parties agree that, in addition to any other remedies, each shall be entitled to enforce the terms of this Agreement by a decree of specific performance without the necessity of proving the inadequacy of money damages as a remedy. Section 10.12 Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed to be an original, but all of which shall constitute one and the same agreement. Section 10.13 Amendment, Modification and Waiver. This Agreement may be amended, modified or supplemented at any time by written agreement of Seller and Buyer. Any failure of Seller or Buyer to comply with any term or provision of this Agreement may be waived, with respect to Buyer, by Seller and, with respect to Seller, by Buyer, by an instrument in writing -50- signed by or on behalf of the appropriate party, but such waiver or failure to insist upon strict compliance with such term or provision shall not operate as a waiver of, or estoppel with respect to, any subsequent or other failure to comply. Section 10.14 Knowledge. "To the Knowledge of Seller" or any similar phrase contained in this Agreement shall mean the actual knowledge of the officers of Seller and Parent. "To the Knowledge of Buyer" or any similar phrase contained in this Agreement shall mean the actual knowledge of the officers of Buyer. Solely for the purposes of this Section 10.14, the officers of Buyer and Seller shall be deemed to have actual knowledge of any written notice previously delivered to Buyer or Seller, respectively. Section 10.15 Schedules and Exhibits. The Schedules and all exhibits hereto are hereby incorporated into this Agreement and are hereby made a party hereof as if set out in full in this Agreement. Section 10.16 Arbitration. (a) Any controversy, claim or question or interpretation arising out of or relating to this Agreement or the breach thereof shall be finally settled by arbitration in the State of Delaware under the then-effective Commercial Arbitration Rules of the American Arbitration Association as modified by this Agreement, and judgment on the award rendered by the arbitrators may be entered in any court having jurisdiction. The award rendered by the arbitrators shall be final and binding on the parties and not subject to further appeal. Such arbitration can be initiated by -51- written notice by either party to the other party, which notice shall identify the claimant's selected arbitrator. The party receiving such notice shall identify its arbitrator within five (5) business days following its receipt of such notice. The arbitrator selected by the claimant and the arbitrator selected by the respondent shall, within five (5) business days of their appointment, select a third neutral arbitrator. In the event that they are unable to do so, either party may request the American Arbitration Association to appoint the third neutral arbitrator. The arbitrators shall have the authority to award any remedy or relief that a court in Delaware could order or grant, including, without limitation, specific performance of any obligation created under this agreement, the awarding of punitive damages, the issuance of injunctive or other provisional relief, or the imposition of sanctions for abuse or frustration of the arbitration process. The arbitration awards will be in writing and specify the factual and legal basis for the award. (b) It is the intent of the parties that any arbitration shall be concluded as quickly as practicable (but, barring extraordinary circumstances, in any event not more than twenty (20) days after the date the third arbitrator is selected). Unless the parties otherwise agree, once commenced, the hearing on the disputed matters shall be held four days a week until concluded with each hearing date to begin at 9:00 a.m. and to conclude at 5:00 p.m. The arbitrators shall use their best efforts to issue the final award or awards within a period of five (5) business days after closure of the proceedings. Failure of the arbitrators to meet the time limits of this Section 10.16 shall not be a basis for challenging the award. (c) The arbitrators shall instruct the non-prevailing party to pay all costs of the proceedings, including the fees and expenses of the arbitrators and the reasonable attorneys' -52- fees and expenses of the prevailing party. If the arbitrators determine that there is not a prevailing party, each party shall be instructed to bear its own costs and to pay one-half of the fees and expenses of the arbitrators. (d) Notwithstanding the foregoing, nothing contained herein shall prevent either party from seeking injunctive relief in any court. -53- IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the date first above written. WORLDWIDE DEDICATED SERVICES, INC. By: /s/ Daniel P. DiMaggio ------------------------ Name: Daniel P. DiMaggio Title: Chief Executive Officer and President ROLLINS TRUCK LEASING CORP. By: /s/ Patrick J. Bagley -------------------------- Name: Patrick J. Bagley Title: Vice President Finance and Treasurer ROLLINS LOGISTICS, INC. By: /s/ Neil L. Vonnahme -------------------------- Name: Neil L. Vonnahme Title: Executive Vice President ROLLINS DEDICATED CARRIAGE SERVICES, INC. By: /s/ Neil L. Vonnahme ----------------------------- Name: Neil L. Vonnahme Title: Executive Vice President -54- ROLLINS TRANSPORTATION SYSTEMS, INC. By: /s/ James W. McCaughan ------------------------------ Name: James W. McCaughan Title: President -55- EX-99.4(O) 8 STOCK PURCHASE AGREEMENT - -------------------------------------------------------------------------------- STOCK PURCHASE AGREEMENT by and between UPS LOGISTICS GROUP, INC., UPS TRUCK LEASING, INC. ROLLINS TRUCK LEASING CORP. and ROLLINS LEASING CORP. As of November 12, 1999 - -------------------------------------------------------------------------------- TABLE OF CONTENTS ARTICLE I TRANSFER OF COMPANY SHARES; PURCHASE PRICE.............. 2 Section 1.1 Purchase and Sale ...................................... 2 Section 1.2 Purchase Price ......................................... 3 Section 1.3 Payment of Purchase Price .............................. 3 Section 1.4 Target Working Capital ................................. 4 Section 1.5 Adjustment of Purchase Price ........................... 4 Section 1.6 Closing ................................................ 7 Section 1.7 Deliveries by Seller ................................... 7 Section 1.8 Deliveries by Buyer .................................... 8 ARTICLE II RELATED MATTERS......................................... 9 Section 2.1 Use of Seller's Name and Logos ......................... 9 Section 2.2 No Ongoing or Transition Services ...................... 9 Section 2.3 Distributions .......................................... 9 ARTICLE III REPRESENTATIONS AND WARRANTIES OF SELLER................ 10 Section 3.1 Organization ........................................... 10 Section 3.2 Authorization .......................................... 11 Section 3.3 Capital Stock........................................... 12 Section 3.4 Ownership of the Common Stock .......................... 12 Section 3.5 Consents and Approvals; No Violations .................. 12 Section 3.6 Financial Statements ................................... 13 Section 3.7 Absence of Material Adverse Effect ..................... 14 Section 3.8 Title, Ownership and Related Matters ................... 15 Section 3.9 Intellectual Property .................................. 17 Section 3.10 Computer Software....................................... 17 Section 3.11 Year 2000 Compliance ................................... 17 Section 3.12 Litigation ............................................. 18 Section 3.13 Compliance with Applicable Law ......................... 18 Section 3.14 Certain Contracts and Arrangement ...................... 18 Section 3.15 Employee Benefit Plans; ERISA .......................... 19 Section 3.16 Labor Matters .......................................... 20 Section 3.17 Taxes .................................................. 21 - i - Section 3.18 Environmental .......................................... 22 Section 3.19 Officers; Bank Accounts ................................ 23 Section 3.20 Certain Fees ........................................... 23 ARTICLE IV REPRESENTATIONS AND WARRANTIES OF BUYER................. 23 Section 4.1 Organization and Authority of Buyer .................... 24 Section 4.2 Consents and Approvals; No Violations .................. 24 Section 4.3 Litigation ............................................. 25 Section 4.4 Certain Fees ........................................... 25 Section 4.5 Certain Filings ........................................ 26 ARTICLE V COVENANTS............................................... 27 Section 5.1 Conduct of the Company's Business ...................... 27 Section 5.2 Access to Information .................................. 28 Section 5.3 Consents ............................................... 29 Section 5.4 Reasonable Best Effort ................................. 29 Section 5.5 Public Announcements ................................... 29 Section 5.6 Covenant to Satisfy Conditions ......................... 30 Section 5.7 Employees; Employee Benefits ........................... 30 Section 5.8 Certain Tax Matters .................................... 32 Section 5.9 Supplemental Disclosure ................................ 40 Section 5.10 Guarantees ............................................. 41 Section 5.11 Investigation by Buyer ................................. 41 Section 5.12 UPS Owned Facilities ................................... 42 Section 5.13 Rental Fleet Sales ..................................... 42 Section 5.14 Outstanding Debt ....................................... 44 Section 5.15 Reimbursement Program .................................. 44 Section 5.16 Additional Actions ..................................... 44 Section 5.17 Off-Balance Sheet Financing ............................ 45 ARTICLE VI CONDITIONS TO OBLIGATIONS OF THE PARTIES................ 45 Section 6.1 Conditions to Each Party's Obligation .................. 45 Section 6.2 Conditions to Obligations of Seller .................... 46 Section 6.3 Conditions to Obligations of Buyer ..................... 48 ARTICLE VII TERMINATION............................................. 49 - ii - Section 7.1 Termination ............................................ 49 Section 7.2 Procedure and Effect of Termination .................... 50 ARTICLE VIII SURVIVAL OF REPRESENTATIONS............................. 51 Section 8.1 Survival of Representations, Warranties and Agreements.. 52 ARTICLE IX INDEMNIFICATION......................................... 52 Section 9.1 Indemnification Obligations of Seller .................. 52 Section 9.2 Indemnification Procedure .............................. 54 Section 9.3 Orlando North VOH Plume Indemnification ................ 56 Section 9.4 Liability Limits ....................................... 57 Section 9.5 Claims Period .......................................... 57 Section 9.6 Exclusive Remedies ..................................... 58 ARTICLE X MISCELLANEOUS........................................... 58 Section 10.1 Fees and Expenses ...................................... 58 Section 10.2 Further Assurances ..................................... 59 Section 10.3 Notices ................................................ 59 Section 10.4 Severability ........................................... 60 Section 10.5 Binding Effect; Assignment ............................. 61 Section 10.6 No Third Party Beneficiaries ........................... 61 Section 10.7 Interpretation ......................................... 61 Section 10.8 Jurisdiction and Consent to Service .................... 62 Section 10.9 Entire Agreement ....................................... 62 Section 10.10 Governing Law .......................................... 62 Section 10.11 Specific Performance ................................... 63 Section 10.12 Counterparts ........................................... 63 Section 10.13 Amendment, Modification and Waiver ..................... 63 Section 10.14 Knowledge .............................................. 63 Section 10.15 Schedules and Exhibits ................................. 64 Section 10.16 Arbitration ............................................ 64 - iii - DEFINED TERMS Term Section - ---- ------- Acceptance Notice........................................................1.5(c) Access Agreement.........................................................9.3(c) Adjustment Event.........................................................1.3(a) Affiliate...............................................................10.7(c) Agreement..............................................................Preamble Alliance Agreement.......................................................6.2(d) Allocation...............................................................5.8(b) Buyer..................................................................Preamble Buyer Auditor............................................................1.5(b) Buyer Basket................................................................9.4 Buyer Indemnified Parties...................................................9.1 Buyer Losses................................................................9.1 Buyer Tax Group.......................................................5.8(a)(i) Cap Amount..................................................................9.4 Claims Period...............................................................9.5 Closing.....................................................................1.1 Closing Date.............................................................1.6(a) Closing Date Working Capital.............................................1.5(a) Code........................................................................1.9 Common Stock.............................................................1.3(a) Company................................................................Preamble Company Material Adverse Effect..........................................3.1(b) Company Shares.........................................................Preamble Confidentiality Agreement ...............................................5.2(b) Consultant...............................................................9.3(a) Contracts..................................................................3.14 Corrective Action........................................................9.3(a) Employee.................................................................5.7(a) employee benefit plans...................................................5.7(a) employee welfare benefit plan............................................5.7(a) Environmental Claims....................................................3.18(b) - iv - Environmental Laws......................................................3.18(b) Environmental Liabilities...................................................9.1 ERISA...................................................................3.15(a) Exchange Act................................................................4.5 FDEP.....................................................................9.3(a) Final Balance Sheet......................................................1.5(c) Final Working Capital Statement..........................................1.5(c) Financial Statements........................................................3.6 GAAP.....................................................................1.5(b) Guarantors.................................................................5.10 Hazardous Materials.....................................................3.18(b) HSR Act.....................................................................3.5 Indemnified Claims .........................................................9.1 Indemnification Statement ..........................................5.8(b)(iii) Independent Accountants..............................................5.8(a)(ii) Intellectual Property....................................................3.9(a) Interim Balance Sheet....................................................1.5(b) Investor Rights Agreement................................................6.2(e) Investor Rights Agreement Term Sheet.....................................6.2(e) IRS.....................................................................3.15(b) Leased Real Property..................................................3.8(a)(i) Litigation Claims..........................................................3.12 MADSP....................................................................5.8(b) Objection Notice.........................................................1.5(c) Orlando North VOH Plume..................................................9.3(a) Outstanding Debt............................................................1.2 Owned Real Property...................................................3.8(a)(i) Parent.................................................................Preamble Permitted Liens......................................................3.8(a)(ii) Person..................................................................10.7(b) Plans...................................................................3.15(a) Pre-Closing Period..................................................5.8(a)(iii) - v - Preliminary Balance Sheet................................................1.5(b) Preliminary Working Capital Statement....................................1.5(b) Pre-Closing Period Returns............................................5.8(b)(i) Prior Operations Liability..................................................9.1 Purchase Price..............................................................1.2 Real Property.........................................................3.8(a)(i) Realization Amount......................................................5.13(c) Sale Vehicles...........................................................5.13(a) SEC.........................................................................4.5 SEC Reports.................................................................4.5 Section 338(h)(10)...................................................5.8(a)(iv) Securities Act..............................................................4.5 Seller or Sellers......................................................Preamble Seller Auditor...........................................................1.5(b) Seller Benefit Plans....................................................3.15(c) Seller Tradenames and Logos.................................................2.1 Straddle Period......................................................5.8(a)(iv) Straddle Period Returns..............................................5.8(c)(ii) Target Working Capital......................................................1.4 Tax Claim............................................................5.8(d)(iv) Tax Indemnified Party................................................5.8(d)(iv) Tax Indemnifying Party...............................................5.8(d)(iv) Taxes................................................................3.17(c)(i) Tax Return..........................................................3.17(c)(ii) To the Knowledge of Buyer.................................................10.14 To the Knowledge of Seller................................................10.14 Transition Services Agreement............................................6.2(f) Unrelated Accounting Firm................................................1.5(c) UPS........................................................................5.10 UPS Owned Facilities.......................................................5.12 - vi - SCHEDULES Schedule 3.1 ......................................... Foreign Qualifications Schedule 3.3 ......................................... Capital Stock Schedule 3.5 ......................................... Consents Schedule 3.7 ......................................... Absence of Change Schedule 3.8 ......................................... Title to Real Property Schedule 3.8(b) ...................................... Necessary Assets Schedule 3.9 ......................................... Intellectual Property Schedule 3.12 ........................................ Litigation Schedule 3.14 ........................................ Contracts Schedule 3.15 ........................................ Employee Benefits Schedule 3.16 ........................................ Labor Matters Schedule 3.17 ........................................ Taxes Schedule 3.18 ........................................ Environmental Schedule 3.19 ........................................ Officers; Bank Accounts Schedule 5.15 ........................................ Reimbursement for Environmental Remediation Activities - vii - EXHIBITS Exhibit Number - ------- ------ Current Assets and Liabilities ........................................ 1.5(a) Accounting Principles ................................................. 1.5(b) Strategic Alliance Agreement .......................................... 6.2(d) Investor Rights Agreement Term Sheet .................................. 6.2(e) - viii - STOCK PURCHASE AGREEMENT THIS STOCK PURCHASE AGREEMENT, dated as of November 12, 1999 (this "Agreement), is made and entered into by and between UPS Logistics Group, Inc., a Delaware corporation ("Seller"), UPS Truck Leasing, Inc., a Delaware corporation (the "Company"), Rollins Leasing Corp., a Delaware corporation ("Buyer"), and Rollins Truck Leasing Corp., a Delaware corporation ("Parent"). W I T N E S S E T H: WHEREAS, Seller owns all of the issued and outstanding shares of capital stock (the "Company Shares") of the Company; and WHEREAS, pursuant to the terms and conditions of this Agreement, Seller desires to sell, and Buyer desires to purchase, the Company Shares. NOW, THEREFORE, in consideration of the foregoing and the respective representations, warranties, covenants, agreements and conditions hereinafter set forth, and intending to be legally bound hereby, the parties hereto agree as follows: ARTICLE I TRANSFER OF COMPANY SHARES; PURCHASE PRICE Section 1.1 Purchase and Sale. Subject to the terms and conditions set forth in this Agreement, at the closing provided for in Section 1.6 hereof (the "Closing"), Seller agrees to sell, transfer and deliver to Buyer, and Buyer agrees to purchase, acquire and accept from Seller, the Company Shares. 2 Section 1.2 Purchase Price. Subject to adjustment as provided in Section 1.3(b), the Purchase Price will be an amount equal to $171,506,000 minus the amount of Outstanding Debt (as defined below) (the "Purchase Price"). The Purchase Price shall be payable as provided in Section 1.3. "Outstanding Debt" shall mean, as of the Closing Date, any indebtedness of the Company owed to Seller or any of its Affiliates (as hereinafter defined), as adjusted in accordance with Section 5.17. Seller shall advise Buyer of the amount of Outstanding Debt on the day prior to the Closing Date. Section 1.3 Payment of Purchase Price. (a) At the Closing, Buyer shall pay to Seller (subject to adjustment as provided in Section 1.3(b)) the Purchase Price, which shall be paid in the form of (i) a certificate representing 2,000,000 shares of Parent Common Stock (the "Common Stock"), (which solely for the purposes of this Section 1.3(a) shall be deemed to have an aggregate value of $20,000,000) and (ii) the balance in cash. In the event of any change in the Common Stock between the date of this Agreement and the Closing by reason of any stock dividend, stock split, subdivision, reclassification, recapitalization, combination, exchange of shares or the like (an "Adjustment Event"), the number of shares of Common Stock referenced in Section 1.3(a)(i) shall be appropriately adjusted so that Seller will receive the same proportionate amount of the Common Stock Seller was entitled to receive immediately prior to such Adjustment Event. 3 (b) Within five business days after the determination of the Final Working Capital Statement (as hereinafter defined) in accordance with Section 1.5 hereof, (i) if the amount of the Closing Date Working Capital (as hereinafter defined) calculated in accordance with Section 1.5 is less than 97% of the Target Working Capital (as hereinafter defined), then Seller shall pay to Buyer an amount equal to the difference between 97% of the Target Working Capital and the Closing Date Working Capital plus interest or (ii) if the amount of the Closing Date Working Capital calculated in accordance with Section 1.5 is greater than 103% of the Target Working Capital, Buyer shall pay to Seller an amount equal to the difference between 103% of the Target Working Capital and the Closing Date Working Capital plus interest. Any payment under this Section 1.3(b) shall include interest on the amount of that payment at the prime rate of interest (as published in the "Money Rates" table of The Wall Street Journal on the Closing Date) beginning on the Closing Date (as hereinafter defined) and ending on the date of any such payment. Any payments required under this Section 1.3(b) shall be paid in cash. (c) All cash payments required under this Section 1.3 shall be made by wire transfer of immediately available federal funds to such bank account(s) as shall be designated in writing by the recipient at least three days prior to the Closing or promptly upon the determination of the Final Balance Sheet (as hereinafter defined), as the case may be. Section 1.4 Target Working Capital. "Target Working Capital" shall equal $15,289,000. 4 Section 1.5 Adjustment of Purchase Price. (a) For purposes of this Agreement, the "Closing Date Working Capital" shall mean the book value of those categories of current assets of the Company listed on Exhibit 1.5(a) less the book value of those categories of current liabilities of the Company listed on Exhibit 1.5(a), in each case as reflected on the Final Balance Sheet. (b) Promptly following the Closing, Seller shall prepare (i) a balance sheet of the Company as of the Effective Time (the "Preliminary Balance Sheet"), in accordance with generally accepted accounting principles ("GAAP") on a basis consistent with the unaudited interim balance sheet of the Company as of September 30, 1999 (the "Interim Balance Sheet"), which principles are set forth on Exhibit 1.5(b), and (ii) a calculation of the Closing Date Working Capital based on the Preliminary Balance Sheet (the "Preliminary Working Capital Statement"). Seller shall engage, and be responsible for the fees and expenses of, Deloitte & Touche LLP (the "Seller Auditor") to audit the Preliminary Balance Sheet and the Preliminary Working Capital Statement and shall use all commercially reasonable efforts to deliver to Buyer a final draft of the Preliminary Balance Sheet and the Preliminary Working Capital Statement within 60 days after the Closing Date, together with a final report of the Seller Auditor thereon stating that the audit of the Preliminary Balance Sheet has been made in accordance with GAAP on a basis consistent with the Interim Balance Sheet. Representatives of Buyer shall have the opportunity to observe the taking of the inventory of the Company in connection with the preparation of the Preliminary Balance Sheet, and to examine the work papers, schedules and other documents prepared by Seller in connection with the preparation 5 of the Preliminary Balance Sheet and the Preliminary Working Capital Statement. Seller shall use all commercially reasonable efforts to cause the Seller Auditor to permit Buyer and its accounting firm (the "Buyer Auditor") to examine the Seller Auditor's work papers used in connection with its audit of the Preliminary Balance Sheet and the Preliminary Working Capital Statement. Buyer shall be responsible for the fees and expenses of the Buyer Auditor. (c) If Buyer objects to the Preliminary Balance Sheet and the Preliminary Working Capital Statement, Buyer shall deliver to Seller a written notice of objection (an "Objection Notice") within 15 days following the delivery thereof. If Buyer has no objection to the Preliminary Balance Sheet and the Preliminary Working Capital Statement, Buyer shall promptly deliver to Seller a written notice of acceptance (an "Acceptance Notice"). The Preliminary Balance Sheet and the Preliminary Working Capital Statement shall be final and binding on the parties if an Acceptance Notice is delivered or if no Objection Notice is delivered to Seller within such 15-day period. Any payment or portion of any payment required under Section 1.3 not subject to an Objection Notice, shall be paid within five business days following the delivery of an Objection Notice. Any Objection Notice shall specify in reasonable detail the items on the Preliminary Balance Sheet and the Preliminary Working Capital Statement disputed and shall describe in reasonable detail the basis for the objection and all information in the possession of Buyer which forms the basis thereof, as well as the amount in dispute. If an Objection Notice is given, the parties shall consult with each other with respect to the objection. If the parties are unable to reach agreement within 15 days after an Objection Notice has been given, any unresolved disputed items 6 shall be promptly referred to an independent accounting firm designated by agreement of Seller and Buyer (the "Unrelated Accounting Firm"). The Unrelated Accounting Firm shall be directed to resolve disputed issues in accordance with the terms of this Agreement and render a written report on the unresolved disputed issues with respect to the Preliminary Balance Sheet and the Preliminary Working Capital Statement as promptly as practicable and to resolve only those issues of dispute set forth in the Objection Notice. The resolution of the dispute by the Unrelated Accounting Firm shall be final and binding on the parties. The fees and expenses of the Unrelated Accounting Firm shall be borne equally by Seller, on the one hand, and Buyer, on the other hand. The Preliminary Balance Sheet and the Preliminary Working Capital Statement as finally determined pursuant to this Section 1.5(c) are referred to herein respectively as the "Final Balance Sheet" and the "Final Working Capital Statement". Section 1.6 Closing. (a) The Closing of the transactions contemplated by this Agreement shall take place at the offices of King & Spalding, 191 Peachtree Street, Atlanta, Georgia. If all of the conditions to Closing set forth in Article VI hereof have been satisfied or waived prior to such time, the Closing shall take place at 12:01 a.m. Eastern Time on January 1, 2000. If the Closing does not occur at such time, the Closing shall take place (assuming satisfaction or waiver of all conditions to Closing) at 11:59 p.m. Eastern Time on January 31, 2000, or at such other time as the parties mutually agree. The date of the Closing is sometimes referred to herein as the "Closing Date." 7 (b) Notwithstanding any other provision of Section 1.3, if the Closing occurs on January 1, 2000, the cash portion of the Purchase Price payable at Closing shall be paid by Buyer on the first business day following the Closing Date. Section 1.7 Deliveries by Seller. At the Closing, Seller will deliver or cause to be delivered to Buyer (unless delivered previously) the following: (a) The stock certificate or certificates representing all of the Company Shares, duly endorsed in blank or accompanied by stock powers duly executed in blank; (b) The Transition Agreement (as hereinafter defined), executed by Seller or its Affiliate; (c) The Alliance Agreement (as hereinafter defined), executed by Seller or its Affiliate; (d) The Investor Rights Agreement (as hereinafter defined), executed by Seller or its Affiliate; and (e) All other documents, instruments and writings required by Buyer to be delivered by Seller at or prior to the Closing pursuant to this Agreement or otherwise reasonably required in connection herewith. Section 1.8 Deliveries by Buyer. At the Closing, Parent and Buyer will deliver or cause to be delivered to Seller (unless previously delivered) the following: (a) The Purchase Price in accordance with Section 1.2 hereof (including a 8 certificate representing the Common Stock); (b) The Transition Agreement, executed by Buyer or its Affiliate; (c) The Alliance Agreement, executed by Buyer or its Affiliate; (d) The Investor Rights Agreement, executed by Buyer or its Affiliate; and (e) All other documents, instruments and writings required by Seller to be delivered by the Buyer at or prior to the Closing pursuant to this Agreement or otherwise reasonably required in connection herewith. ARTICLE II RELATED MATTERS Section 2.1 Use of Seller's Name and Logos. It is expressly agreed that Buyer is not purchasing, acquiring or otherwise obtaining any right, title or interest in the names "UPS" or "UPS Truck Leasing", or any tradenames, trademarks, identifying logos or service marks related thereto or employing any part or variation of any of the foregoing or any confusingly similar tradename, trademark or logo (collectively, the "Seller Tradenames and Logos"). Buyer agrees that neither it nor any of its Affiliates shall make any use of the Seller Tradenames and Logos from and after the Closing Date; provided, however, that Seller (or its Affiliate) shall grant Buyer a ninety (90) day license for use of the UPS Truck Leasing logo as it currently appears on the trucks of the Company in order for Buyer to undertake the deletion or removal of the UPS Truck Leasing logo from such trucks in a practical manner. 9 Section 2.2 No Ongoing or Transition Services. Except as provided in the Transition Agreement, at the Closing, all data processing, accounting, insurance, banking, personnel, legal, communications, fuel procurement and other services provided to the Company by Seller or any Affiliate of Seller, including any agreements or understandings (written or oral) with respect thereto, will terminate. Section 2.3 Distributions. The parties agree that Seller shall have the right, at or prior to the Closing, to cause the Company to distribute all cash held by the Company to Seller or its Affiliates, by one or more cash dividends, repurchase of existing stock and/or other distributions. Except as provided in Section 1.3(b), no adjustment shall be made to the Purchase Price as a result of any such dividends, repurchases or other distributions paid to Seller or its Affiliates. ARTICLE III REPRESENTATIONS AND WARRANTIES OF SELLER Seller hereby represents and warrants to Buyer as follows: 10 Section 3.1 Organization. (a) The Company is a corporation validly existing and in good standing under the laws of the State of Delaware, and has all requisite power and authority to own, lease and operate its properties and assets and to carry on its operations as now being conducted. The Company is duly qualified or licensed and in good standing to do business in each jurisdiction in which the property or assets owned, leased or operated by the Company or the nature of the business conducted by the Company makes such qualification necessary, except where the failure to be so duly qualified or licensed and in good standing would not individually or in the aggregate have a Company Material Adverse Effect (as hereinafter defined). Schedule 3.1 sets forth a list of all jurisdictions where the Company is qualified to do business. Seller has heretofore made available to Buyer complete and correct copies of the certificate of incorporation and by-laws of the Company, as currently in effect. (b) As used herein, a "Company Material Adverse Effect" shall mean any event, change or effect that has occurred which has a material adverse effect upon the financial condition, operating results or business of the Company; provided, however, that a Company Material Adverse Effect shall not include any event, change in or effect upon the financial condition or business of the Company, directly or indirectly, arising out of, attributable to or as a consequence of: (a) conditions, events or circumstances generally affecting the vehicle leasing industry or the overall economy; or (b) the public announcement of either the execution of this Agreement or the transactions contemplated hereunder. 11 Section 3.2 Authorization. Seller is a corporation validly existing and in good standing under the laws of the State of Delaware. Each of Seller and the Company has the corporate power and authority to execute and deliver this Agreement and perform its obligations hereunder. The execution and delivery of this Agreement and the performance by Seller and the Company of its respective covenants and agreements hereunder has been duly and validly authorized by the Boards of Directors of Seller, the Company and United Parcel Service of America, Inc., and the shareholder of the Company, and no other corporate proceedings on the part of Seller or the Company is necessary to authorize the execution, delivery and performance of this Agreement or the consummation of the transactions so contemplated. This Agreement has been duly executed and delivered by Seller and the Company and constitutes a valid and binding agreement of Seller and the Company, enforceable against Seller and the Company in accordance with its terms, except that (a) such enforcement may be subject to any bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer or other laws, now or hereafter in effect, relating to or limiting creditors' rights generally and (b) the remedy of specific performance and injunctive and other forms of equitable relief may be subject to equitable defenses and to the discretion of the court before which any proceeding therefor may be brought. Section 3.3 Capital Stock. Schedule 3.3 sets forth the authorized, issued and outstanding capital stock of the Company. The Company Shares constitute all of the issued and outstanding shares of capital stock of the Company. The Company Shares have been validly issued and are fully paid and non-assessable. There are no shares of capital stock of the Company held as 12 treasury shares. There are no preemptive rights existing with respect to the capital stock of the Company. There are not any outstanding securities convertible into, exchangeable for, or carrying the right to acquire, equity securities of the Company, nor are there any subscriptions, warrants, options, rights or other arrangements or commitments which could obligate the Company to issue any shares of its capital stock or equity interests. The Company does not own, directly or indirectly, any capital stock or any other equity or debt securities of any corporation, firm, partnership, joint venture, association or other entity. Section 3.4 Ownership of the Common Stock. Seller is the sole owner of the Company Shares. Seller has good title to the Company Shares, free and clear of all liens, claims, options, security interests or other encumbrances. Section 3.5 Consents and Approvals; No Violations. Except as set forth on Schedule 3.5 and for applicable requirements of the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act"), neither the execution and delivery of this Agreement nor the consummation of the transactions contemplated hereby will (a) conflict with or result in any breach of any provision of the certificate of incorporation or by-laws of the Company or Seller; (b) require any filing with, or the obtaining of any permit, authorization, consent or approval of, any governmental or regulatory authority; (c) violate, conflict with or result in a default (or any event which, with notice or lapse of time or both, would constitute a default) under, or give rise to any right of termination, cancellation or acceleration under, any of the terms, conditions or provisions of 13 any note, mortgage, other evidence of indebtedness, guarantee, license, agreement, lease or other contract, instrument or obligation to which the Company or Seller is a party or by which the Company or Seller or any of their respective assets may be bound; or (d) violate any order, injunction, decree, statute, rule or regulation applicable to the Company or Seller, excluding from the foregoing clauses (b), (c) and (d) such requirements, violations, conflicts, defaults or rights (i) which would not have a Company Material Adverse Effect and would not adversely affect the ability of Seller to consummate the transactions contemplated by this Agreement, or (ii) which become applicable as a result of the business or activities in which Buyer is or proposes to be engaged or as a result of any acts or omissions by, or the status of or any facts pertaining to, Buyer. Section 3.6 Financial Statements. Seller has made available to Buyer: (i) the unaudited balance sheets of the Company as of December 31, 1997 and 1998 and the unaudited statements of income and cash flows thereof for the respective fiscal years then ended, including the notes thereto; and (ii) the unaudited balance sheet of the Company as of September 30, 1999 and the unaudited statements of income and cash flows thereof for the six month period then ended, including the notes thereto. All of the foregoing financial statements are hereinafter collectively referred to as the "Financial Statements". Except as disclosed in the Financial Statements, the Financial Statements have been prepared from, and are in accordance with, the books and records of the Company and present fairly, in all material respects, the financial position and results of operations of the Company as of the dates and for the applicable periods indicated, in each case in conformity with GAAP. 14 Section 3.7 Absence of Material Adverse Effect. Except as set forth on Schedule 3.7, since September 30, 1999, the Company has: (a) conducted the Company's business in the ordinary course; (b) not sold any asset of the Company at a price of more than $100,000 other than in the ordinary course of business; (c) maintained accounts receivable, inventory, accounts payable and other working capital accounts in a manner consistent with normal business practices; (d) not written up or down the value of any inventory or determined as collectible any notes or accounts receivable that were previously considered to be uncollectible, except for write-ups or write-downs and other determinations in accordance with GAAP and in the ordinary course of business and consistent with past practice; (e) not pledged or permitted the imposition of any lien on any of its assets; (f) not suffered any change in its financial condition, operating results or business or suffered any other event or condition of any character which individually or in the aggregate has had a Company Material Adverse Effect; (g) not suffered any damage, destruction or loss of tangible assets, whether or not covered by insurance, in excess of $250,000, in the aggregate; (h) not paid, discharged or satisfied any claims, liabilities or obligations (absolute, accrued, contingent or otherwise), except in each case in the ordinary course of business; 15 (i) not canceled any debts or waived any claims or rights of substantial value, except in each case in the ordinary course of business; and (j) not granted any general increase in the compensation payable or to become payable to its officers, directors, consultants or employees (including any such increase pursuant to any bonus, severance, termination, pension, profit-sharing or other plan or commitment) or any special increase in the compensation payable or to become payable to any officer, director, consultant or employee, except for (i) normal merit and cost of living increases in the ordinary course of business and in accordance with past practice and (ii) severance commitments that are (and shall remain after Closing) the sole responsibility of Seller and its Affiliates (other than the Company). Section 3.8 Title, Ownership and Related Matters. (a) Real Property. (i) To the Knowledge of Seller, Schedule 3.8(a)(i) sets forth a list of the parcels of real property owned by the Company (together with the fixtures and improvements thereon, the "Owned Real Property") and the UPS Owned Facilities (as hereinafter defined). Schedule 3.8(a)(i) also sets forth a list of the parcels of real property currently leased by the Company (together with all fixtures and improvements thereon, the "Leased Real Property" and collectively with the Owned Real Property and the UPS Owned Facilities, the "Real Property"). (ii) To the Knowledge of Seller, except as set forth on Schedule 3.8(a)(ii) 16 the Company has good and marketable title to the Owned Real Property, and an Affiliate of the Company has good and marketable title to the UPS Owned Facilities, in each case free and clear of all liens, pledges, security interests, charges, claims, leasehold interests, tenancies, restrictions and encumbrances of any nature whatsoever other than (i) liens for taxes not yet due and payable, (ii) statutory liens of landlords and liens of carriers, warehousemen, mechanics, materialmen and repairmen incurred in the ordinary course of business and not yet delinquent, and (iii) matters of record, zoning, building or other restrictions, variances, covenants, rights of way, encumbrances, easements and other minor irregularities in title, none of which, individually or in the aggregate, interfere with the present use of or occupancy of any of the Owned Real Property or the UPS Owned Facilities by the Company (collectively, "Permitted Liens"). (iii) To the Knowledge of Seller, the Seller has a valid leasehold interest in the Leased Real Property, free and clear of any mortgages, pledges, liens, security interests or other encumbrances of any nature, except for Permitted Liens. (iv) To the Knowledge of Seller, the improvements on the Real Property are free from any material structural defects. Except as set forth on Schedule 3.8(a)(iv), to the Knowledge of Seller, there are no condemnation or appropriation or similar proceedings pending or threatened against any of the Real Property or the improvements thereon. (b) Necessary Assets. To the Knowledge of Seller, except as set forth in Schedule 3.8(b), the Company has good and marketable title to its material assets, free and clear of 17 all liens, pledges, security interests, charges, claims, restrictions and encumbrances of any nature whatsoever (except, with respect to the Real Property, Permitted Liens). Section 3.9 Intellectual Property. (a) To the Knowledge of Seller (as herein defined), the conduct of the business of the Company does not infringe upon any intellectual property right of any third party. There are no pending, or to the Knowledge of Seller threatened, proceedings or litigation or other adverse claims by any Person (as hereinafter defined) against the use by the Company of any trademarks, trade names, service marks, service names, logos, assumed names, copyrights, patents or registrations and applications therefor which are owned by the Company and are necessary for the operation of the Company's business as currently conducted (collectively, the "Intellectual Property"). Schedule 3.9 sets forth a list of all Intellectual Property owned by the Company. (b) The Company has valid licenses or other rights to use the Intellectual Property necessary to permit the Company to conduct its operations as currently conducted, except (i) for the Seller Tradenames and Logos and (ii) where the failure to have such ownership, licenses or rights would not have a Company Material Adverse Effect. Section 3.10 Computer Software. The Company has valid licenses or other rights to use all material computer software programs to permit it to conduct its operations as currently conducted, except where the failure to have such ownership, licenses or rights would not have a Company Material Adverse Effect. 18 Section 3.11 Year 2000 Compliance. Seller has provided Buyer true and complete copies of all material reports and analyses obtained by the Company or Seller with respect to Year 2000 compliance issues concerning the Company. The Company's major systems have been modified, tested and certified. Section 3.12 Litigation. Schedule 3.12 identifies all claims, actions, suits, proceedings and governmental investigations pending or, to the Knowledge of Seller, threatened against the Company by or before any court, governmental or regulatory authority or by any third party (other than claims, actions, suits, proceedings and governmental investigation set forth on Schedule 3.18(b)) (the "Litigation Claims"). Section 3.13 Compliance with Applicable Law. To the Knowledge of Seller, the Company is in compliance in all material respects with all applicable laws, ordinances, rules and regulations of any federal, state, local or foreign governmental authority applicable to the Company or its operations and necessary to carry on its business as it is currently being conducted, to own or hold under lease the properties and assets it owns or holds under lease and to perform all of its obligations under the agreements to which it is a party. Section 3.14 Certain Contracts and Arrangements. Schedule 3.14 sets forth a list of the following contracts to which the Company is a party: (a) employment agreements; (b) indentures, mortgages, notes, installment obligations, agreements or other instruments relating to the borrowing of money or the guaranty by the Company of any obligation for the borrowing of money; (c) real 19 property leases; (d) contracts with Affiliates; or (e) other agreements, including without limitation, customer contracts, which individually involve the receipt or payment by the Company after the date hereof of more than $100,000 and are not terminable without liability to the Company upon 30 days or less prior written notice (together with those contracts, agreements and understandings described in clauses (a), (b), (c) and (d) the "Contracts"). Seller has made available to Buyer copies of all Contracts. To the Knowledge of Seller, all such Contracts are valid, binding and enforceable in accordance with their terms and, to the Knowledge of Seller, neither the Company nor any other party thereto is in material default under any of the aforesaid Contracts. Schedule 3.14 sets forth a list of all unresolved material default notices received from or given to third parties pertaining to the Contracts and identifies all Contracts containing fuel pricing guarantees. Section 3.15 Employee Benefit Plans; ERISA. Except as set forth on Schedule 3.15: (a) There are no "employee benefit plans" (as defined in Section 3.(3) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA")) maintained for the benefit of employees of the Company or other employee benefit, bonus or fringe benefit plans maintained for the benefit of the employees of the Company to which, or with respect to which, the Company has a material liability for the payment of benefits or makes material contributions annually (the "Plans"). (b) Each of the Plans that is subject to ERISA has been administered in compliance in all material respects with ERISA. Each of the Plans intended to be "qualified" within 20 the meaning of Section 401(a) of the Code has a favorable determination letter from the Internal Revenue Service (the "IRS") to the effect that it is so qualified. Except as set forth on Schedule 3.15, none of the Plans is subject to Title IV of ERISA. There are no pending or, to the Knowledge of Seller, threatened material claims (other than routine claims for benefits) by, on behalf of or against any of the Plans or any trusts which are a part of such Plans. (c) Seller has furnished to Buyer a correct, complete and correct copy of each plan, program, policy or arrangement which is set forth in writing and which provides cash or property or other compensation related benefits of any kind or description whatsoever to or on behalf of any current of former employee or director of Seller or any of their dependents and a complete description of any such plain, program, policy or arrangement which is not set forth in writing (collectively, the "Seller Benefit Plans"). A list of each Seller Benefit Plan is set forth on Schedule 3.15. Section 3.16 Labor Matters. The Company is in compliance with all federal and state laws respecting employment and employment practices, terms and conditions of employment, wages and hours, and is not engaged in any unfair labor or unlawful employment practice, the violation of or engagement in which would have a Company Material Adverse Effect. Except as set forth on Schedule 3.16, there are no controversies pending or, to the Knowledge of the Seller, threatened, between the Company and any of its employees, which controversies have had or are reasonably likely to have a Company Material Adverse Effect. The Company is not a party to any 21 collective bargaining agreement or other labor union contract applicable to Persons employed by the Company. There are no unfair labor practice complaints pending against the Company before the National Labor Relations Board. To the Knowledge of Seller, there are no strikes, slowdowns, work stoppages, lockouts, or threats thereof, by or with respect to any employees of the Company. 22 Section 3.17 Taxes. (a) Either Seller or the Company (i) has timely filed or caused to be filed on a timely basis with the appropriate taxing authorities all material Tax Returns (as hereinafter defined) required to be filed by or with respect to the Company (including the consolidated federal income Tax Returns and any consolidated, combined or unitary state Tax Returns in which the Company is included), and (ii) has paid or made adequate provision for the payment of all Taxes (as hereinafter defined) shown to be due on such Tax Returns or otherwise due and payable by the Company. All such Tax Returns are true, correct and complete in all material respects. (b) Except as set forth on Schedule 3.17, (i) there are no liens for Taxes with respect to the assets of the Company (except for statutory liens for current taxes not yet delinquent) and no material claims with respect to Taxes are being asserted by any taxing authority in writing; (ii) none of the Tax Returns applicable to the Company are currently being audited or examined by any taxing authority and there is no other action or proceedings currently pending concerning Taxes relating to the Company; (iii) there is no material unpaid tax deficiency, determination or proposed assessment currently outstanding against the Company or for which the Company could be jointly or severally liable; (iv) there are no outstanding agreements or waivers extending the statute of limitations relating to the assessment of Taxes applicable to the Company; (v) neither the Company nor Seller on behalf of the Company has filed a consent pursuant to Section 341(f) of the Code; (vi) the Company is not a party to any agreement that would result, separately or in the aggregate, in the payment of an excess parachute payment pursuant to Section 280G of the Code; (vii) the Company 23 is not a member of any partnership or joint venture or the holder of a beneficial interest in any trust (other than a trust that is treated as a grantor trust or otherwise is disregarded as a separate taxable entity for federal income tax purposes); and (viii) to the Company's knowledge, there are no proposed reassessments of any property owned by the Company that will result in a material increase in the amount of Tax to which such property will be subject for periods after the Closing Date. (c) As used in this Agreement: (i) "Taxes" shall mean all taxes, levies, charges or fees including income, corporation, advance corporation, gross receipts, transfer, excise, property, sales, use, value-added, license, payroll, pay-as-you-earn, withholding, social security and franchise or other governmental taxes or charges, imposed by the United States or any state, county, local or foreign government, and such term shall include any interest, penalties or additions to tax attributable to such taxes. (ii) "Tax Return" shall mean any report, return or statement required to be supplied to a taxing authority in connection with Taxes. Section 3.18 Environmental. (a) To the Knowledge of Seller, except as set forth on Schedule 3.18(a), the Company possesses, and is in compliance with, all material permits, licenses and government authorizations relating to protection of the environment, pollution control and hazardous materials applicable to the Company; 24 (b) To the Knowledge of Seller, except as set forth on Schedule 3.18(b), neither the Company nor any of its Affiliates has received notice from a state or federal governmental authority that the Company is responsible under any applicable federal, state, or local law, regulation or ordinance relating to the protection of the environment in effect at the time of this Agreement (the "Environmental Laws") to investigate and/or remediate Hazardous Materials (as hereinafter defined) on property the Company owns or on which it operates (collectively, the "Environmental Claims"). For purposes of this Agreement, "Hazardous Materials" shall mean any waste, pollutant, hazardous substance, toxic, ignitable, reactive or corrosive substance, hazardous waste, special waste, industrial substance, by-product, process intermediate product or waste, petroleum or petroleum-derived substance or waste, chemical liquids or solids, liquid or gaseous products regulated under Environmental Laws; and (c) Except as set forth in Schedule 3.18(c), the underground storage tank systems for which the Company is responsible under applicable laws or existing agreements have been upgraded or removed in compliance with 40 CFR Part 280 and any other applicable laws. Section 3.19 Officers; Bank Accounts. Schedule 3.19 lists each of the officers of the Company and all of the accounts (and signatures thereto) of the Company with any bank, brokerage firm or other financial institution or depository. Section 3.20 Certain Fees. The Company will not have any liability for any financial advisory or finders' fees in connection with this Agreement or the transactions contemplated hereby. 25 ARTICLE IV REPRESENTATIONS AND WARRANTIES OF BUYER Buyer hereby represents and warrants to Seller as follows: Section 4.1 Organization and Authority of Buyer. Each of the Parent and Buyer is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware. Parent owns all of the issued and outstanding stock of Buyer. Each of Parent and Buyer has the corporate power and authority to execute and deliver this Agreement and perform its obligations hereunder. The execution and delivery of this Agreement and the performance by Parent and Buyer of its respective covenants and agreements hereunder have been duly and validly authorized by the Board of Directors of Parent and Buyer and the sole shareholder of Buyer, and no other corporate proceedings on the part of Parent or Buyer are necessary to authorize the execution, delivery and performance of this Agreement or the consummation of the transactions so contemplated. This Agreement has been duly executed and delivered by Parent and Buyer and constitutes a valid and binding agreement of Parent and Buyer, enforceable against Parent and Buyer in accordance with its terms, except that (i) such enforcement may be subject to any bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer or other laws, now or hereafter in effect, relating to or limiting creditors' rights generally, and (ii) the remedy of specific performance and injunctive and other forms of equitable relief may be subject to equitable defenses and to the discretion of the court before which any proceeding therefor may be brought. Section 4.2 Consents and Approvals; No Violations. Except for applicable 26 requirements of the HSR Act, neither the execution and delivery of this Agreement nor the consummation of the transactions contemplated hereby will (a) conflict with or result in any breach of any provision of the incorporation documents or by-laws of Parent or Buyer; (b) require any filing with, or the obtaining of any permit, authorization, consent or approval of, any governmental or regulatory authority; (c) violate, conflict with or result in a default (or any event which, with notice or lapse of time or both, would constitute a default) under, or give rise to any right of termination, cancellation or acceleration under, any of the terms, conditions or provisions of any note, mortgage, other evidence of indebtedness, guarantee, license, agreement, lease or other contract, instrument or obligation to which Parent or Buyer is a party or by which Parent or Buyer or any of its assets may be bound; or (d) violate any order, injunction, decree, statute, rule or regulation applicable to Parent or Buyer, excluding from the foregoing clauses (b), (c) and (d) such requirements, violations, conflicts, defaults or rights (i) which would not adversely affect the ability of Parent or Buyer to consummate the transactions contemplated by this Agreement or (ii) which become applicable as a result of any acts or omissions by, or the status of or any facts pertaining to, Parent or Buyer. Section 4.3 Litigation. There is no claim, action, suit, proceeding or governmental investigation pending or, to the Knowledge of Buyer (as hereinafter defined), threatened against Parent or Buyer, by or before any court, governmental or regulatory authority or by any third party which challenges the validity of this Agreement or which would be reasonably likely to adversely affect or restrict Parent's or Buyer's ability to consummate the transactions contemplated hereby. 27 Section 4.4 Certain Fees. Except for the engagement of Merrill Lynch neither Buyer nor any of its Affiliates has employed any financial advisor or finder or incurred any liability for any financial advisory or finders' fees in connection with this Agreement or the transactions contemplated hereby. Section 4.5 Certain Filings. Parent has filed all forms, reports, statements and documents required to be filed with the Securities and Exchange Commission (the "SEC") since January 1, 1997 (collectively, the "SEC Reports"), each of which has complied in all material respects with the applicable requirements of the Securities Act of 1933, as amended (the "Securities Act"), and the rules and regulations promulgated thereunder, or the Securities Exchange Act of 1934 (the "Exchange Act"), and the rules and regulations promulgated thereunder, each as in effect on the date so filed. None of the SEC Reports (including, but not limited to, any financial statements or schedules included or incorporated by reference therein) contained when filed any untrue statement of a material fact or omitted or omits to state a material fact required to be stated or incorporated by reference therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. ARTICLE V COVENANTS Section 5.1 Conduct of the Company's Business. Seller agrees that, during the 28 period from the date of this Agreement to the Closing, except as otherwise contemplated by this Agreement, the Schedules or consented to by Buyer in writing, Seller shall cause the Company: (a) to use its reasonable best efforts to conduct its business operations in the ordinary course consistent with past practice; (b) to use its reasonable best efforts to (i) maintain and preserve its business operations, (ii) retain the services of its employees, except for attrition of such employees in the ordinary course of business, and (iii) maintain, preserve and retain relationships with its suppliers and customers; (c) not to sell or dispose of any material business assets, except in the ordinary course of business; (d) not to amend its certificate of incorporation or bylaws; (e) not to incur any indebtedness for borrowed money or guarantee any such indebtedness of another person, other than borrowings in the ordinary course of business consistent with past practice; (f) not to change its accounting policies except as required by generally accepted accounting principles; and (g) not to make any change in employment terms for any of its employees other than terminations for cause or customary salary increases and adjustments in benefits in the ordinary course of business consistent with past practice, other than severance commitments that are (and 29 still remain) the sole responsibility of Seller and its Affiliates (other than the Company). Section 5.2 Access to Information. (a) Between the date of this Agreement and the Closing, Seller shall (i) give Buyer and its authorized representatives reasonable access to all books, records, offices and other facilities and properties of the Company, including Phase I and/or Phase II environmental audits, and to the Company Executives (as hereinafter defined); (ii) permit Buyer to make such inspections thereof as Buyer may reasonably request; and (iii) cause the officers of the Company to furnish Buyer with such financial and operating data and other information with respect to the business and properties of the Company as Buyer may from time to time reasonably request; provided, however, that any such investigation shall be conducted during normal business hours under the supervision of Seller's personnel and in such a manner as to maintain the confidentiality of this Agreement and the transactions contemplated hereby and not interfere unreasonably with the business operations of Seller or the Company. (b) All information concerning Seller or the Company furnished or provided by Seller or their Affiliates to Buyer or its representatives (whether furnished before or after the date of this Agreement) shall be held subject to a confidentiality agreement by and between Seller and Buyer, dated as of August 24, 1999 (the "Confidentiality Agreement"). Section 5.3 Consents. (a) Each of Seller and Buyer shall cooperate, and use its reasonable best efforts, to make all filings (including without limitation all filings required under the 30 HSR Act) and obtain all licenses, permits, consents, approvals, authorizations, qualifications and orders of governmental authorities and other third parties necessary to consummate the transactions contemplated by this Agreement. In addition to the foregoing, Buyer agrees to provide such assurances as to financial capability, resources and creditworthiness as may be reasonably requested by any third party whose consent or approval is sought in connection with the transactions contemplated hereby. (b) With respect to any agreements for which any required consent or approval is not obtained prior to the Closing, Seller and Buyer shall each use their reasonable best efforts to obtain any such consent or approval after the Closing Date until such consent or approval has been obtained. Section 5.4 Reasonable Best Efforts. Each of Seller and Buyer shall cooperate, and use its reasonable best efforts to take, or cause to be taken, all action, and to do, or cause to be done, all things necessary, proper or advisable under applicable laws and regulations to consummate the transactions contemplated by this Agreement. Section 5.5 Public Announcements. Except as otherwise agreed to by the parties, the parties shall not issue any report, statement or press release or otherwise make any public statements with respect to this Agreement and the transactions contemplated hereby, except as in the reasonable judgment of the party may be required by law. Upon the execution of this Agreement and the Closing, Seller and Buyer will consult with each other with respect to the issuance of a joint report, statement or press release with respect to this Agreement and the transactions contemplated hereby. 31 Section 5.6 Covenant to Satisfy Conditions. Seller will use its reasonable best efforts to ensure that the conditions set forth in Article VI hereof are satisfied, insofar as such matters are within the control of Seller, and Buyer will use its reasonable best efforts to ensure that the conditions set forth in Article VI hereof are satisfied, insofar as such matters are within the control of Buyer. Seller and Buyer further covenant and agree, with respect to a threatened or pending preliminary or permanent injunction or other order, decree or ruling or statute, rule, regulation or executive order that would adversely affect the ability of the parties hereto to consummate the transactions contemplated hereby, to use all reasonable efforts to prevent or lift the entry, enactment or promulgation thereof, as the case may be. Section 5.7 Employees; Employee Benefits. (a) Buyer shall treat all service completed by an Employee (as hereinafter defined) with the Company or any Affiliate thereof, and any predecessor thereto, the same as service completed with Buyer for all purposes, including waiting periods relating to preexisting conditions under medical plans, vacations, severance pay, eligibility to participate in, vesting or payment of benefits under, and eligibility for early retirement or any subsidized benefit provided for under any employee benefit plan (including, but not limited to, any "employee benefit plan" as defined in Section 3(3) of ERISA) maintained by Buyer on or after the Closing Date except for purposes of computing benefits under the actual benefit formula in a pension plan (as defined in Section 3(2) of ERISA). Prior to the Closing, Seller shall furnish 32 Buyer with a list of the length of service with the Company or its Affiliates for each of the Employees. For purposes of computing deductible amounts (or like adjustments or limitations on coverage) under any employee welfare benefit plan (including, without limitation, any "employee welfare benefit plan" as defined in Section 3(l) of ERISA), expenses and claims previously recognized for similar purposes under the applicable welfare benefit plan of the Company or any Affiliate shall be credited or recognized under the comparable plan maintained after the Closing Date by Buyer. For purposes of this Agreement, "Employee" shall mean each person employed by the Company as of the Closing. (b) After the Closing Date, Buyer shall be responsible for, and shall indemnify and hold harmless Seller and their Affiliates and their officers, directors, employees, Affiliates and agents and the fiduciaries (including plan administrators) of the Plans, from and against, any and all claims, losses, damages, costs and expenses (including, without limitation, attorneys' fees and expenses) and other liabilities and obligations relating to or arising out of (i) all salaries, bonuses, commissions, vacation entitlements and other benefits accrued by the Company but unpaid as of the Closing, and (ii) any claims of, or damages or penalties sought by, any Employee, or any governmental entity on behalf of or concerning any Employee, with respect to any act or failure to act by Buyer to the extent arising from the employment, discharge, layoff or termination of any Employee after the Closing. (c) At least 30 days prior to the Closing, Buyer shall provide Seller with a list of those employees of the Company that Buyer desires to employ immediately following the Closing. Seller will take necessary actions to assure that as of the Closing only those persons (and other persons 33 approved by Buyer) are employed by the Company and shall assume all costs associated therewith. (d) Any Employee that is terminated by Buyer during 2000 will be paid for accrued vacation in accordance with the Company's prior practice; provided that the aggregate liability of Buyer for such payments will not exceed the vacation accrual on the Final Balance Sheet. Section 5.8 Certain Tax Matters. (a) Certain Definitions. As used in this Agreement: (i) "Buyer Tax Group" means the affiliated group, within the meaning of Section 1504(a) of the Code, of which Buyer is the common parent. (ii) "Independent Accountants" means Arthur Andersen & Co. (iii) "Pre-Closing Period" means any taxable period, including that portion of any Straddle Period, which ends on or before the Effective Time. (iv) "Section 338(h)(10) Election" means the election to be made by Buyer and Seller pursuant to Section 338(h)(10) of the Code, as described in Section 5.8(b) hereof. (v) "Straddle Period" means any taxable period that includes (but does not end on) the Closing Date. (b) Section 338(h)(10) Election. Seller will join with Buyer in making the Section 338(h)(10) Election to treat the transaction hereunder as the deemed sale of the assets of the Company for federal and state income tax purposes. Seller and Buyer will use their reasonable best 34 efforts to agree on the allocation of the "MADSP" among the assets of the Company pursuant to the applicable Treasury Regulations under Section 338 of the Code (the "Allocation") and will use the Allocation in reporting the deemed purchase and sale of the assets of the Company for federal and state income tax purposes. If the parties are unable to agree upon the Allocation within 90 days before the due date of filing any Tax Return for which the Allocation is relevant, the Allocation shall be made by the Independent Accountants. (c) Return Filing, Refunds, Credits and Transfer Taxes. (i) Except with regard to Tax Returns for Straddle Periods, Seller shall prepare, or cause to be prepared, and file, or cause to be filed, on a timely basis all Tax Returns of or including the Company for all Pre-Closing Periods (the "Pre-Closing Period Returns"). Seller shall pay, or cause to be paid, all Taxes with respect to the Company shown to be due on the Pre-Closing Period Returns. (ii) Buyer shall prepare, or cause to be prepared, and shall file, or cause to be filed, on a timely basis all Tax Returns other than the Pre-Closing Period Returns with respect to the Company, including Tax Returns, if any, for the Straddle Period (the "Straddle Period Returns"). Buyer shall pay, or cause to be paid, all Taxes shown to be due on such Tax Returns. (iii) Buyer shall provide Seller with copies of any Straddle Period Returns at least thirty business days prior to the due date thereof (giving effect to any extensions thereto), accompanied by a statement calculating in reasonable detail Seller's indemnification obligation 35 pursuant to Section 5.8(e) hereof (the "Indemnification Statement"). Seller shall have the right to review such Straddle Period Returns and Indemnification Statement prior to the filing of such Straddle Period Returns. If Seller disputes any amounts shown to be due on such Tax Returns or the amount calculated in the Indemnification Statement, Seller and Buyer shall consult and resolve in good faith any issues arising as a result of the review of such Straddle Period Return and Indemnification Statement. If Seller agrees to the Indemnification Statement amount, Seller shall pay to Buyer an amount equal to the Taxes shown on the Indemnification Statement less any amounts paid by Seller or Company on or before the Effective Time with respect to estimated taxes (which have not been taken into account in determining the Indemnification Statement amount) not later than three business days before the due date (including any extensions thereof) for payment of Taxes with respect to such Straddle Period Return. If the parties are unable to resolve any dispute within fifteen business days after Seller's receipt of such Straddle Period Return and Indemnification Statement, such dispute shall be resolved by the Independent Accountants, which shall resolve any issue in dispute as promptly as practicable. If the Independent Accountants are unable to make a final determination with respect to any disputed issue prior to the due date (including any extensions) for the filing of the Straddle Period Return in question, (A) Buyer shall file, or shall cause to be filed, such Straddle Period Return without such final determination having been made and (B) Seller shall pay to Buyer, not later than three days before the due date (including any extensions thereof) for the payment of Taxes with respect to such Straddle Period Return, an amount tentatively determined by the Independent Accountants as the proper amount chargeable to 36 Sellers pursuant to this Section 5.8. Upon delivery to Seller and Buyer by the Independent Accountants of its final determination, appropriate adjustments shall be made to the amount paid by Seller in accordance with the immediately preceding sentence in order to reflect the final decision of the Independent Accountants. The determination by the Independent Accountants shall be final, conclusive and binding on the parties. (iv) Seller and Buyer shall reasonably cooperate, and shall cause their respective Affiliates, officers, employees, agents, auditors and representatives reasonably to cooperate, in preparing and filing all Tax Returns (including amended returns and claims for refund), including maintaining and making available to each other all records necessary in connection with Taxes and in resolving all disputes and audits with respect to all taxable periods relating to Taxes. Buyer recognizes that Seller will need access, from time to time, after the Effective Time, to certain accounting and tax records and information held by the Company to the extent such records and information pertain to events occurring prior to the Effective Time; therefore, Buyer agrees that from and after the Effective Time Buyer shall, and shall cause the Company to, (A) retain and maintain such records until such time as Seller determines that such retention and maintenance is no longer necessary and (B) allow Seller and their agents and representatives (and agents and representatives of its Affiliates) to inspect, review and make copies of such records as Seller reasonably may deem necessary or appropriate from time to time. Buyer shall indemnify Seller from and against any penalties, additions to tax or interest imposed on Seller as a result of any failure of Buyer to provide tax records or other information to Seller in a timely manner. 37 (v) Buyer shall not, and shall cause the Company not to, dispose of or destroy any of the business records and files of the Company relating to Taxes in existence at the Effective Time without first offering to turn over possession thereof to Seller by written notice to Seller at least thirty days prior to the proposed date of such disposition or destruction. (vi) Any refunds and credits of Taxes of the Company or similar benefit (including any interest or similar benefit) which are not included as assets or as a reduction of a liability or reserve on the Interim Balance Sheet but which are received by the Company or Buyer or for which the Company is entitled to a credit with respect to (A) Taxes paid for any taxable period ending on or before the Effective Time or (B) Taxes for which Seller has indemnified the Buyer under the Agreement, shall be for the account of Seller, and if received or utilized by Buyer or the Company, shall be paid to Seller within five business days after Buyer or Company receives such refund or utilizes such credit. Except as provided in the next sentence, any refunds or credits of the Company with respect to any Straddle Period shall be apportioned between Seller, on the one hand, and Buyer, on the other hand, on the basis of an interim closing of the books. In the case of a refund or credit attributable to any Taxes that are imposed on a periodic basis and are attributable to the Straddle Period, other than Taxes based upon or related to gross or net income or receipts, the refund or credit of such Taxes of the Company for the Pre-Closing Period shall be deemed to be the amount of such refund or credit for the Straddle Period multiplied by a fraction the numerator of 38 which is the number of days in the Straddle Period ending on the Closing Date and the denominator of which is the number of days in the Straddle Period. (vii) Notwithstanding any other provisions of this Agreement to the contrary, all sales, use, transfer, gains, stamp, duties, recording and similar Taxes incurred in connection with the transactions contemplated by this Agreement shall be paid by Buyer and Buyer shall, at its own expense, accurately file or cause to be filed all necessary Tax Returns and other documentation with respect to such Taxes and timely pay all such Taxes. If required by applicable law, Seller will join in the execution of any such Tax Returns or such other documentation. (d) Elections. Except as may be required by law, Buyer shall not, and shall cause the Company not to, make, amend, or revoke any Tax election if such action would adversely affect Seller or any Person (other than the Company) as to whom or with whom Seller has filed a consolidated return with respect to any taxable period ending on or before the Effective Time or for the Pre-Closing Period or any Tax refund with respect thereto. (e) Tax Indemnification. (i) Buyer shall indemnify, defend and hold harmless Seller and its Affiliates, at any time after the Closing, from and against any liability for Taxes of the Company for any taxable period ending after the Effective Time except for Straddle Periods, in which case Buyer's indemnity will cover only that portion of any such Taxes that is not attributable to the Pre-Closing Period. 39 (ii) Seller shall indemnify, defend and hold harmless Buyer and its Affiliates, at any time after the Closing, from and against any liability for Taxes of the Company (including any joint or several liability imposed under Treasury Regulation Section 1.1502-6 or any similar provision of state, local or foreign Tax law as a result of the inclusion of the Company in any consolidated, combined or unitary Tax Return), except as provided in Section 5.8(c)(vii) hereof, for the Pre-Closing Period (including the portion of any Straddle Period ending on the Closing Date). (iii) In determining the responsibility of Seller and Buyer for Taxes attributable to any Straddle Period, Taxes based upon or related to gross or net income or receipts shall be apportioned on the basis of an interim closing of the books as of the Effective Time, and all other Taxes shall be prorated on a daily basis. (iv) If a claim for Taxes shall be made by any taxing authority in writing, which, if successful, might result in an indemnity payment pursuant to this Section 5.8, the party seeking indemnification (the "Tax Indemnified Party") shall promptly notify the other party (the "Tax Indemnifying Party") in writing of such claim (a "Tax Claim") within a reasonably sufficient period of time to allow the Tax Indemnifying Party effectively to contest such Tax Claim, and in reasonable detail to apprise the Tax Indemnifying Party of the nature of the Tax Claim, and provide copies of all correspondence and documents received by it from the relevant taxing authority. Failure to give prompt notice of a Tax Claim hereunder shall affect the Tax Indemnifying Party's 40 obligation under this Section to the extent that the Tax Indemnifying Party is prejudiced by such failure to give prompt notice. (v) With respect to any Tax Claim which might result in an indemnity payment to Buyer pursuant to this Section 5.8(e) (including, without limitation, Taxes of the Company for a Straddle Period), Seller shall control all proceedings taken solely in connection with such Tax Claim, provided that Seller acknowledges in writing its liability to indemnify Buyer hereunder with respect to such Tax Claim. Without limiting the foregoing, Seller may in its reasonable discretion and at its sole expense pursue or forego any and all administrative appeals, proceedings, hearings and conferences with any taxing authority with respect to any Tax Claim for which Seller may have an Indemnification obligation hereunder, and may, in its reasonable discretion, either pay the Tax claimed and sue for a refund where applicable law permits such refund suits or contest such Tax Claim. Neither Buyer nor Seller shall under any circumstances settle or otherwise compromise any Tax Claim without first obtaining the other parties prior written consent, which consent shall not be unreasonably withheld. In connection with any proceeding taken in connection with such Tax Claim, (A) Seller shall keep Buyer informed of all material developments and events relating to such Tax Claim if involving a material liability for Taxes and (B) Buyer shall have the right, at its sole expense, to participate in any such proceedings. Buyer shall cooperate with Seller in contesting such Tax Claim (without charge to Seller), which cooperation shall include, without limitation, the retention and the provision to Seller of records and information which are reasonably relevant to such Tax Claim, and making employees available to Seller to 41 provide additional information or explanation of any material provided hereunder or to testify at proceedings relating to such Tax Claim, provided that no charges shall be incurred by Seller for the services of such employees. In the event that an audit or proceeding involving a Tax Claim contested by Seller also involves a potential adjustment for which Buyer would be liable, Buyer shall have the right, at its expense, to control the audit or proceeding with respect to the latter potential adjustment. With respect to any issue arising in connection with a Tax claim for which both of the Seller and Buyer could be liable, or which recurs for any period ending after the Closing Date (whether or not the subject of audit at such time), each party may participate in the audit or proceeding and the audit or proceeding shall be controlled by that party which would bear the burden of the greater portion of the sum of the Tax Claim and any corresponding adjustments that may reasonably be anticipated in future Tax periods. The principle set forth in the preceding sentence shall govern also for purposes of deciding any issue that must be decided jointly (in particular, choice of judicial forum) in situations in which separate issues are otherwise controlled hereunder by Buyer and Seller. (vi) With respect to any Tax Claim not described in Section 5.8(e)(v) hereof which might result in an indemnity payment to Seller pursuant hereto, all proceedings shall be conducted in accordance with provisions that are parallel to those in Section 5.8(e)(v) hereof. (f) Miscellaneous. (i) Seller and Buyer agree to treat all payments made by either to or for 42 the benefit of the other (including any payments to the Company) under Article V or Article IX as adjustments to the purchase price or as capital contributions for Tax purposes and that such treatment shall govern for purposes hereto except to the extent that the laws of a particular jurisdiction provide otherwise, in which case such payment shall be made in an amount sufficient in indemnify the relevant party on an after-Tax basis. (ii) Notwithstanding any provision herein to the contrary, the obligations of Seller to indemnify and hold harmless Buyer and the Company pursuant to this Section 5.8 shall terminate at the close of business on the 120th day following the expiration of the applicable statute of limitations with respect to the Tax liabilities in question (giving effect to any waiver, mitigation or extension thereof). (iii) Buyer or Seller shall be entitled to recover professional fees and related costs that it may reasonably incur to enforce the provisions of this Section 5.8 in the event of a breach of the obligations under this Section 5.8. Section 5.9 Supplemental Disclosure. If any event or matter arises or comes to the attention of Seller or the Company after the date of this Agreement which, if existing or occurring or known to Seller or the Company at the date of this Agreement, would have been required to be set forth or described in the Schedules or which is necessary to correct any information in the Schedules which has been rendered inaccurate thereby in any material respect, then the Company shall promptly supplement or amend and deliver to Buyer the Schedules which it 43 has delivered pursuant to this Agreement, and Buyer shall have the right, within five business days of receipt by Buyer of such supplement or amendment, to terminate the Agreement pursuant to Section 7.1(e). Section 5.10 Guarantees. Prior to the Closing, Buyer shall use commercially reasonable efforts (which efforts shall include, if necessary, a replacement guaranty by Parent) to have United Parcel Service of America, Inc. ("UPS") and its Affiliates (collectively, the "Guarantors") released as guarantor from all off-balance sheet financing related to leased equipment utilized by the Company and from all real property leases to which the Company is a party, provided that if any such guarantee cannot be removed prior to Closing Buyer agrees to fully and unconditionally indemnify the Guarantors for any costs associated with such guarantees. If requested by Seller, Buyer shall execute and deliver at Closing a specific indemnification instrument relating to any such continuing guarantee obligations. Section 5.11 Investigation by Buyer. Buyer has conducted its own independent review and analysis of the business, operations, technology, assets, liabilities, results of operations, financial condition and prospects of the Company and acknowledges that Seller has provided Buyer with access to the personnel, properties, premises and records of the Company for this purpose. In entering into this Agreement, Buyer has relied solely upon its own investigation and analysis, and Buyer (a) acknowledges that neither Seller, the Company nor any of their respective directors, officers, employees, Affiliates, controlling Persons, agents or representatives makes or has made 44 any representation or warranty, either express or implied, as to the accuracy or completeness of any of the information provided or made available to Buyer or its directors, officers, employees, Affiliates, controlling Persons, agents or representatives, and (b) agrees, to the fullest extent permitted by law, that neither Seller, Company nor any of their respective directors, officers, employees, Affiliates, controlling Persons, agents or representatives shall have any liability or responsibility whatsoever to Buyer or its directors, officers, employees, Affiliates, controlling Persons, agents or representatives on any basis (including, without limitation, in contract or tort, under federal or state securities laws or otherwise) based upon any information provided or made available, or statements made, to Buyer or its directors, officers, employees, Affiliates, controlling Persons, agents or representatives (or any omissions therefrom), except as and only to the extent expressly set forth herein with respect to the representations and warranties of Seller in Article III and subject to the limitations and restrictions contained herein. Buyer's sole rights and remedies relative to transactions contemplated herein are limited to those set forth herein. Section 5.12 UPS Owned Facilities. Buyer and Seller will use their good faith efforts to enter into an agreement with terms and conditions mutually acceptable to both parties prior to the Closing relating to certain UPS owned facilities that are currently utilized in the business of the Company (the "UPS Owned Facilities"). All current agreements and arrangements between UPS or any of its Affiliates and the Company regarding any of the UPS Owned Facilities will be terminated simultaneously with the Closing. 45 Section 5.13 Rental Fleet Sales. (a) Following the Closing, Buyer will continue to utilize the Company's historic depreciation schedule with respect to those vehicles in the Company's rental fleet with model years 1996 and earlier (the "Sale Vehicles"). (b) Buyer anticipates that it will sell each Sale Vehicle following the 54-month anniversary of the date such Sale Vehicle was put in service. All such sales will be for cash, and Buyer will use its reasonable best efforts to maximize the sales price for each Sale Vehicle in accordance with its customary practices for sales out of Buyer's rental fleet (including, without limitation, obtaining at least two bona fide bids for each Sale Vehicle), and Buyer will not give priority to sales out of its existing fleet. Buyer will consult with Seller at Seller's request regarding the process for sale of the Sale Vehicles and will provide Seller and its representatives with full access to all records regarding the sale of the Sale Vehicles. (c) Within five (5) business days following each sale of a Sale Vehicle, Buyer will provide to Seller a detailed written calculation of the Realization Amount (as defined below) with respect to such Sale Vehicle. The "Realization Amount" shall equal (i) the sales price of the applicable Sale Vehicle minus (ii) the sum of (A) the net book value of such Sale Vehicle reflected on the Company's books as of the date of sale and (B) Buyer's standard preparation for sale charges for such type of Sale Vehicle (which maximum charges currently range from $250-600 per vehicle). If the Realization Amount is a positive number, the written calculation of the Realization Amount 46 shall be accompanied by payment to Seller (by wire transfer of immediately available funds to an account designated by Buyer) in an amount equal to 75% of the Realization Amount. If the Realization Amount is a negative number, Seller shall pay to Buyer (by wire transfer of immediately available funds to an account designated by Buyer) within two business days following notification of such calculation an amount equal to the Realization Amount (expressed as a positive number). Neither party shall have any obligation under this Section 5.13 with respect to any sale of a Sale Vehicle that occurs (i) prior to the 54-month anniversary of the date such vehicle was placed in service or (ii) more than 24 months following the Closing Date. (d) Seller may give notice to Buyer at any time that Seller desires to assume responsibility for the sale of the Sale Vehicles. If Seller gives such notice, the provisions of Section 5.13(c) above shall no longer be applicable. Instead, following such notice, Seller will purchase each Sale Vehicle from Buyer on the fifty-four month anniversary of the date such Sale Vehicle was placed in service for a cash price equal to such Sale Vehicle's net book value. Thereafter, Seller will have no further obligation to Buyer with respect to such Sale Vehicle or any proceeds thereof. Section 5.14 Outstanding Debt. At the Closing (or, if the Closing occurs on January 1, 2000, on the first business day thereafter), Buyer shall repay in full the Outstanding Debt with funds provided by Buyer. Section 5.15 Reimbursement Program. Following the Closing, Buyer agrees to remit to Seller within five days following receipt by Buyer any amounts received from a governmental 47 entity as reimbursement to the Company for environmental remediation activities taken by the Company prior to the Closing and set forth on Schedule 5.15. Section 5.16 Additional Actions. After the execution of this Agreement, upon Buyer's request and solely at Buyer's expense, Seller will cause Deloitte & Touche LLP to audit the balance sheets of the Company as of December 31, 1997 and 1998 and statements of income and cash flows thereof for the respective fiscal years then ended. Section 5.17 Off-Balance Sheet Financing. For the purpose of this Agreement, from October 31, 1999, the Outstanding Debt will be increased solely by capital expenditures and decreased solely by the net proceeds from asset sales. The Company will make a good faith effort to monetize certain fleet assets through outside financing generating $39.2 million in net proceeds (structured on the same basis as similar transactions previously undertaken by the Company or on such other basis as is mutually agreeable to Buyer and Seller), which the parties anticipate will reduce the Outstanding Debt to approximately $101 million at the Closing Date. To the extent Outstanding Debt at Closing is more than $101 million, Buyer will pay the difference to Seller in cash at Closing. To the extent Outstanding Debt at Closing is less than $101 million, Seller will pay the difference to Buyer in cash at Closing. ARTICLE VI CONDITIONS TO OBLIGATIONS OF THE PARTIES Section 6.1 Conditions to Each Party's Obligation. The respective obligation of 48 each party to consummate the transactions contemplated herein is subject to the satisfaction at or prior to the Closing of the following conditions: (a) No statute, rule or regulation shall have been enacted, promulgated or enforced by any court or governmental authority which prohibits or restricts the consummation of the transactions contemplated hereby; (b) There shall not be in effect any judgment, order, injunction or decree of any court of competent jurisdiction enjoining the consummation of the transactions contemplated hereby; (c) Any waiting periods applicable to the transactions contemplated by this Agreement under the HSR Act shall have expired or early termination shall have been granted; (d) All consents, authorizations, waivers and approvals of any governmental authority or other regulatory body or from parties to contracts or other agreements to which the Company is a party as may be required to be obtained in connection with the performance of this Agreement, the failure to obtain which would prevent the consummation of the transactions contemplated hereby or have a Company Material Adverse Effect, shall have been obtained; and the transactions contemplated by that certain Asset Purchase Agreement, dated the date hereof, by and among Worldwide Dedicated Services, Inc., Rollins Logistics, Inc., Rollins Dedicated Carriages, Inc. and Rollins Transportation Systems, Inc. shall have been consummated simultaneously with the Closing. 49 Section 6.2 Conditions to Obligations of Seller. The obligations of Seller to consummate the transactions contemplated hereby are further subject to the satisfaction (or waiver) at or prior to the Closing of the following conditions: (a) The representations and warranties of Buyer contained in Article IV of this Agreement shall be true and correct in all material respects at the date hereof and as of the Closing as if made at and as of such time, except for changes permitted or contemplated hereby and except for representations and warranties which are as of a specific date; (b) Buyer shall have performed in all material respects its obligations under this Agreement required to be performed by it at or prior to the Closing pursuant to the terms hereof; (c) Buyer shall have delivered to Seller or its Affiliates those items set forth in Section 1.8 hereof; (d) Buyer or its Affiliate shall have executed and delivered an alliance agreement substantially in the form attached hereto as Exhibit 6.2(d) (the "Alliance Agreement"); (e) Buyer or its Affiliate shall have executed and delivered an investor rights agreement (the "Investor Rights Agreement") substantially in accordance with the terms and conditions set forth on the Investor Rights Agreement Term Sheet attached hereto as Exhibit 6.2(e) (the "Investor Rights Agreement Term Sheet"); (f) Buyer or its Affiliate shall have executed and delivered a transition services agreement in form and substance reasonably satisfactory to Buyer and Seller (the "Transition 50 Services Agreement") and shall have reached agreement with Seller on certain other material transitional issues; and (g) Buyer or its Affiliate shall have executed and delivered the Access Agreement (as hereinafter defined). Section 6.3 Conditions to Obligations of Buyer. The obligations of Buyer to consummate the transactions contemplated hereby are further subject to the satisfaction (or waiver) at or prior to the Closing of the following conditions: (a) The representations and warranties of Seller contained in Article III of this Agreement shall be true and correct in all material respects at the date hereof and as of the Closing as if made at and as of such time, except for changes permitted or contemplated hereby and except for representations and warranties which are as of a specific date; (b) Seller shall have performed in all material respects its obligations under this Agreement required to be performed by it at or prior to the Closing pursuant to the terms hereof; (c) The officers and directors of the Company shall have tendered letters of resignation to Buyer, effective as of the Closing Date; (d) Seller shall have delivered to Buyer those items set forth in Section 1.7 hereof; (e) Seller or its Affiliate shall have executed and delivered the Alliance Agreement; 51 (f) Seller or its Affiliate shall have executed and delivered the Investor Rights Agreement; (g) Seller or its Affiliate shall have executed and delivered the Transition Services Agreement and shall have reached agreement with Buyer on certain other material transition issues; and (h) Seller or its Affiliate shall have executed and delivered the Access Agreement. ARTICLE VII TERMINATION Section 7.1 Termination. This Agreement may be terminated and the transactions contemplated hereby may be abandoned: (a) at any time, by mutual written consent of Seller and Buyer; (b) by either party if the transactions contemplated hereby shall have been permanently enjoined by a court of competent jurisdiction, provided that no party hereto who brought or is affiliated with the party who brought the action seeking the permanent enjoinment of the transactions contemplated hereby may seek termination of this Agreement pursuant to this Section 7.1(b); (c) by Buyer if (i) any of the conditions set forth in Sections 6.1 and 6.3 shall have become incapable of fulfillment and shall not have been waived by Buyer or (ii) Seller shall 52 breach in any material respect any of its representations, warranties, covenants or other obligations hereunder and, within twenty (20) days after written notice of such breach to Seller from Buyer, such breach shall not have been cured in all material respects or waived by Buyer, or Seller shall not have provided reasonable assurance to Buyer that such breach will be cured in all material respects on or before the Closing Date; or (d) by Seller if (i) any of the conditions set forth in Sections 6.1 or 6.2 shall have become incapable of fulfillment and shall not have been waived by Seller or (ii) Buyer shall breach in any material respect any of its representations, warranties, covenants or other obligations hereunder and, within twenty (20) days after written notice of such breach to Buyer from Seller, such breach shall not have been cured in all material respects or waived by Seller or Buyer shall not have provided reasonable assurance to Seller that such breach will be cured in all material respects on or before the Closing Date; (e) by Buyer, within five (5) business days following receipt of any supplement or amendment to the Schedules, by written notice to Seller if the matter which gives rise to such supplement or amendment individually, or together with any other such matters, in the aggregate has caused any of the representations and warranties of Seller set forth in Article III (without giving effect to such supplement or amendment) to be inaccurate in any material respect; or (f) by Buyer or Seller, at any time on or after February 1, 2000, if the Closing shall not have occurred on or prior to such date; provided, however, that the right to terminate this 53 Agreement under this Section 7.1(f) shall not be available to any party whose failure to fulfill any obligation under this Agreement has been the primary cause of, or resulted in, the failure of the Closing to have occurred on or before such date. Section 7.2 Procedure and Effect of Termination. In the event of the termination of this Agreement and the abandonment of the transactions contemplated hereby pursuant to Section 7.1 hereof, written notice thereof shall forthwith be given by Seller, on the one hand, or Buyer, on the other hand, so terminating to the other party and this Agreement shall terminate and the transactions contemplated hereby shall be abandoned, without further action by Seller, or Buyer. If this Agreement is terminated pursuant to Section 7.1 hereof: (a) each party shall redeliver all documents, work papers and other materials of the other parties relating to the transactions contemplated hereby, whether so obtained before or after the execution hereof, to the party furnishing the same or, upon prior written notice to such party, shall destroy all such documents, work papers and other materials and deliver notice to the parties seeking destruction of such documents that such destruction has been completed, and all confidential information received by any party hereto with respect to the other party shall be treated in accordance with the Confidentiality Agreement and Section 5.2(b) hereof; (b) all filings, applications and other submissions made pursuant hereto shall, at the option of Seller, and to the extent practicable, be withdrawn from the agency or other Person to which made; and 54 (c) there shall be no liability or obligation hereunder on the part of Seller, the Company or Buyer or any of their respective directors, officers, employees, Affiliates, controlling Persons, agents or representatives, except that Seller or Buyer, as the case may be, shall have liability to the other party if the basis of termination is a willful, material breach by Seller or Buyer, as the case may be, of one or more of the provisions of this Agreement, and except that the obligations provided for in this Section, in Section 10.1 hereof, in the Confidentiality Agreement and the non-compete obligations in the Alliance Agreement shall survive any such termination. ARTICLE VIII SURVIVAL OF REPRESENTATIONS Section 8.1 Survival of Representations, Warranties and Agreements. The representations and warranties of Seller and Buyer made in Articles III and IV hereof, respectively, shall not survive the Closing and, except as provided in Section 7.2(c) hereof, shall not survive any termination of this Agreement; provided that any covenant or agreement of any party contained herein which by its terms shall survive the Closing shall survive until fully performed, and provided, further, that this Section 8.1 is not intended in any way to limit any covenant or agreement of the parties which contemplates performance after the Closing, including, without limitation, the covenants and agreements set forth in Sections 5.7 and 5.8 hereof. 55 ARTICLE IX INDEMNIFICATION Section 9.1 Indemnification Obligations of Seller. Subject to the limitations set forth in this Article IX, Seller shall defend and hold harmless Buyer and its Affiliates, each of their respective officers, directors, employees, agents and representatives and each of the heirs, executors, successors and assigns of any of the foregoing (collectively, the "Buyer Indemnified Parties") from, against and in respect of any and all claims, liabilities, obligations, losses, costs, expenses, penalties, fines and judgments (at equity or at law) and damages whenever arising or incurred (including, without limitation, amounts paid in settlement, costs of investigation and reasonable attorneys' fees and expenses) arising out of or relating to: (i) the Indemnified Claims (as hereinafter defined); (ii) the Orlando North VOH Plume (as hereinafter defined); (iii) the Environmental Claims (excluding the Orlando North VOH Plume) and any other claim or enforcement action of any governmental authority or any third party (other than the Orlando North VOH Plume) and any remediation activities of Buyer, in each case to the extent arising out of the generation, discharge, release, treatment, transportation, storage or disposal by the Company of any Hazardous Materials at any time prior to the Closing (collectively, "Environmental Liabilities") to the extent not constituting a Prior Operations Liability (as defined below), (iv) any Environmental Liability arising with respect to real property that was previously owned or leased by the Company but is no longer owned or leased by the Company as of the Closing Date (a "Prior Operations Liability"); and (v) any accounts receivable of the Company reflected in the Closing Date Working Capital that Buyer is unable to collect within 90 days following the Closing Date; provided, (A) Buyer has used its reasonable best efforts to collect such receivable, (B) in the event Buyer seeks indemnity under this Section 9.1(iv), 56 Buyer shall assign such receivable and all proceeds thereof to Seller and (C) the indemnification to which Buyer is entitled will be limited to the face amount of any uncollected receivables. For purposes of this Agreement, the "Indemnified Claims" shall mean those Litigation Claims marked with an asterisk on Schedule 3.12 and any claim of the type described below brought against the Company (or Buyer as the successor to the Company) after the date hereof to the extent based on an occurrence in connection with the Company's operations prior to the Closing Date: workers' compensation, vehicle accident or other personal injury or property damage claims normally covered under a general liability insurance policy and employee compensation and benefits (other than employee compensation and benefits accrued as a liability on the Final Closing Balance Sheet and reflected in the calculation of the Closing Date Working Capital). The claims, liabilities, obligations, losses, costs, expenses, penalties, fines and damages of the Buyer Indemnified Parties described in this Section 9.1 as to which the Buyer Indemnified Parties are entitled to indemnification are hereinafter collectively referred to as "Buyer Losses." Section 9.2 Indemnification Procedure. (a) Promptly after receipt by a Buyer Indemnified Party of notice by a third party of threatened or filed claim or of the threatened or actual commencement of any action or proceeding with respect to which such Buyer Indemnified Party may be entitled to receive payment from the other party for any Buyer Losses, such Buyer Indemnified Party shall notify Seller, within 30 days of the notice of threatening or filing of such claim or of the threatened or actual 57 commencement of such action or proceeding; provided, however, that the failure to so notify Seller shall relieve Buyer from liability under this Agreement with respect to such claim only if, and only to the extent that, such failure to notify Seller results in the forfeiture by Seller of rights and defenses otherwise available to Seller with respect to such claim. Seller shall have the right, upon written notice delivered to the Buyer Indemnified Party within 30 days thereafter, to assume the defense of such action or proceeding, including the employment of counsel reasonably satisfactory to the Buyer Indemnified Party and the payment of the fees and disbursements of such counsel. In any action or proceeding with respect to which indemnification is being sought hereunder, the Buyer Indemnified Party or Seller, whichever is not assuming the defense of such action, shall have the right to participate in such litigation and to retain its own counsel at such party's own expense. Seller or the Buyer Indemnified Party, as the case may be, shall at all times use reasonable efforts to keep Seller or the Buyer Indemnified Party, as the case may be, reasonably apprised of the status of the defense of any action the defense of which they are maintaining and to cooperate in good faith with each other with respect to the defense of any such action. (b) The Buyer Indemnified Party may not settle or compromise any claim or consent to the entry of any judgment with respect to which indemnification is being sought hereunder without the prior written consent of Seller. Seller may not, without the prior written consent of the Buyer Indemnified Party, settle or compromise any claim or consent to the entry of any judgment with respect to which indemnification is being sought hereunder unless (i) simultaneously with the effectiveness of such settlement, compromise or consent, Seller pays in full 58 any obligation imposed on the Buyer Indemnified Party by such settlement, compromise or consent and (ii) such settlement, compromise or consent does not contain any equitable order, judgment or term which in any manner affects, restrains or interferes with the business of the Buyer Indemnified Party or any of the Buyer Indemnified Party's affiliates. (c) In the event the Buyer Indemnified Party shall claim a right to payment pursuant to this Agreement not involving a third party claim covered by Section 9.2(a), the Buyer Indemnified Party shall send written notice of such claim to Seller. Such notice shall specify the basis for such claim. As promptly as possible after the Buyer Indemnified Party has given such notice, such Buyer Indemnified Party and Seller shall establish the merits and amount of such claim (by mutual agreement, litigation, arbitration or otherwise) and, within five business days of the final determination of the merits and amount of such claim, Seller shall pay to the Buyer Indemnified Party immediately available funds in an amount equal to such claim as determined hereunder. 59 Section 9.3 Orlando North VOH Plume Indemnification. (a) Seller has retained an environmental consultant (the "Consultant"), who is assessing the extent of the dissolved volatile organic hydrocarbon plume as identified in the Groundwater Quality Monitoring Report dated September 1999 prepared by Blasand, Bouck & Lee, Inc. ("Orlando North VOH Plume"). Seller is currently negotiating with the Florida Department of Environmental Protection ("FDEP") to formalize any assessment, remediation, monitoring, risk evaluation and reporting (as hereinafter referred to as "Corrective Action") that is required by FDEP. Pursuant to its Section 9.1 indemnification obligation, Seller shall undertake the Corrective Action agreed to with FDEP (which could include either long-term groundwater monitoring or risk-based corrective action or remediation) until the earlier of: (A) FDEP issues a letter indicating that the Company (or Buyer as the successor to the Company) is not required to perform any further action with respect to the Orlando North VOH Plume; or (B) the Consultant has issued a letter or report to FDEP indicating that the Corrective Action (as approved by FDEP) has been satisfactorily performed, and FDEP has not objected to the letter or report. (b) Seller shall manage and control the Corrective Action of the Orlando North VOH Plume, including, without limitation, the right to retain consultants and counsel, to manage any investigations, clean-up, response, remediation and associated activities, and to negotiate, litigate, otherwise contest or settle any claim relating thereto. (c) Buyer agrees to reasonably cooperate with Seller to ensure that the 60 obligations and commitments with respect to the Orlando North VOH Plume are carried out. Buyer agrees to provide to Seller such information as may be reasonably requested regarding the Orlando North VOH Plume and to provide Seller reasonable access to Buyer's employees on a mutually convenient basis. Buyer also agrees to provide access to the Orlando North property for the purpose of allowing Seller to perform activities to fulfill Seller's obligations hereunder in accordance with the terms of an access agreement to be mutually agreed upon by the parties hereto ("Access Agreement"); provided that Seller shall conduct such activities so as to not unreasonably interfere with Buyer's operations. (d) Buyer shall operate after the Closing Date so as not to compound or exacerbate the Orlando North VOH Plume. Seller shall not be required to indemnify Buyer with respect to any compounding or exacerbation of the Orlando North VOH Plume arising from post-Closing operations of Buyer. Section 9.4 Liability Limits. Notwithstanding anything to the contrary set forth herein, Buyer Indemnified Parties shall not make a claim against Seller for indemnification under Section 9.1(iii) for Buyer Losses unless and until the aggregate amount of such Buyer Losses exceeds $1,000,000 (the "Buyer Basket"), in which event the Buyer Indemnified Parties may claim indemnification only for fifty percent of the Buyer Losses that exceed the Buyer Basket and that arise under or pursuant to Section 9.1(iii). Seller's indemnification obligations under Section 9.1(iii) shall not exceed in the aggregate an amount equal to $10,000,000 (the "Cap Amount"). 61 Section 9.5 Claims Period. For purposes of this Agreement, a "Claims Period" is the period during which a Buyer Indemnified Party may initiate a claim for indemnification pursuant to Section 9.1. The Claims Period under this Agreement shall commence on the Closing Date and shall terminate as follows: (a) with respect to Buyer Losses arising under Section 9.1(ii), the Claims Period shall terminate on the fifth anniversary of the earlier to occur of the actions (or lack of actions) by FDEP described in the last sentence of Section 9.3(a). (b) with respect to Buyer Losses arising under Section 9.1(iii), the Claims Period shall terminate on the fifth anniversary of the Closing Date; and (c) with respect to Buyer Losses arising under Sections 9.1(i),(iv) and (v), the Claims Period shall continue indefinitely, except as limited by law (including by applicable statutes of limitations). Section 9.6 Exclusive Remedies. Following the Closing, neither Buyer nor Seller shall make any claim nor have any remedy against the other party arising out of or relating to the transactions contemplated hereby other than any claim arising out of or related to (a) indemnification pursuant to Section 5.7(b), 5.8(d) or 9.1 or (b) a breach of any covenant set forth in this Agreement or any agreement contemplated hereby required to be performed after the Closing. 62 ARTICLE X MISCELLANEOUS Section 10.1 Fees and Expenses. Except as set forth in this Section 10.1, whether or not the transactions contemplated herein are consummated pursuant hereto, each of Seller and Buyer shall pay all fees and expenses incurred by, or on behalf of, Seller or Buyer, respectively, in connection with, or in anticipation of, this Agreement and the consummation of the transactions contemplated hereby. Section 10.2 Further Assurances. From time to time after the Closing Date, at the reasonable request of the other party hereto and at the expense of the party so requesting, each of the parties hereto shall execute and deliver to such requesting party such documents and take such other action as such requesting party may reasonably request in order to consummate more effectively the transactions contemplated hereby. Section 10.3 Notices. All notices, requests, demands, waivers and other communications required or permitted to be given under this Agreement shall be in writing and may be given by any of the following methods: (a) personal delivery; (b) facsimile transmission; (c) registered or certified mail, postage prepaid, return receipt requested; or (d) UPS next day air or document exchange. Notices shall be sent to the appropriate party at its address or facsimile number given below (or at such other address or facsimile number for such party as shall be specified by notice given hereunder): 63 If to Buyer or Parent, to: Rollins Leasing Corp. 2200 Concord Pike One Rollins Plaza Wilmington, DE 19803 Fax No. (302) 426-3815 Attention: Patrick J. Bagley with a copy to: Rollins Leasing Corp. 2200 Concord Pike One Rollins Plaza Wilmington, DE 19803 Fax No. (302) 426-3555 Attention: Klaus M. Belohoubek 64 If to Seller or the Company, to: United Parcel Service, Inc. 55 Glenlake Parkway Atlanta, GA 30328 Fax No. (404) 828-6440 Attention: Legal Department with a copy to: King & Spalding 191 Peachtree Street Atlanta, Georgia 30303-1763 Fax No. (404) 572-5145 Attention: Michael J. Egan III All such notices, requests, demands, waivers and communications shall be deemed received upon (i) actual receipt thereof by the addressee, (ii) actual delivery thereof to the appropriate address or (iii) in the case of a facsimile transmissions, upon transmission thereof by the sender and issuance by the transmitting machine of a confirmation slip that the number of pages constituting the notice have been transmitted without error. In the case of notices sent by facsimile transmission, the sender shall contemporaneously mail a copy of the notice to the addressee at the address provided for above. However, such mailing shall in no way alter the time at which the facsimile notice is deemed received. Section 10.4 Severability. Should any provision of this Agreement for any reason be declared invalid or unenforceable, such decision shall not affect the validity or enforceability of any of the other provisions of this Agreement, which remaining provisions shall remain in full force and effect and the application of such invalid or unenforceable provision to Persons or 65 circumstances other than those as to which it is held invalid or unenforceable shall be valid and enforced to the fullest extent permitted by law. Section 10.5 Binding Effect; Assignment. This Agreement and all of the provisions hereof shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors and permitted assigns. Neither this Agreement nor any of the rights, interests or obligations hereunder shall be assigned, directly or indirectly, including, without limitation, by operation of law, by any party hereto without the prior written consent of the other parties hereto. Section 10.6 No Third Party Beneficiaries. This Agreement is solely for the benefit of Seller, and its successors and permitted assigns, with respect to the obligations of Buyer under this Agreement, and for the benefit of Buyer, and its respective successors and permitted assigns, with respect to the obligations of Seller, under this Agreement, and this Agreement shall not be deemed to confer upon or give to any other third party any remedy, claim, liability, reimbursement, cause of action or other right. Section 10.7 Interpretation. (a) The Article and Section headings contained in this Agreement are solely for the purpose of reference, are not part of the agreement of the parties and shall not in any way affect the meaning or interpretation of this Agreement. (b) As used in this Agreement, the term "Person" shall mean and include an individual, a partnership, a joint venture, a corporation, a trust, an unincorporated organization and a government or any department or agency thereof. 66 (c) As used in this Agreement, the term "Affiliate" shall mean a person that directly or indirectly through one or more intermediaries, controls or is controlled by, or is under common control with the person specified. Section 10.8 Jurisdiction and Consent to Service. Without limiting the jurisdiction or venue of any other court, each of Seller and Buyer (a) agrees that any suit, action or proceeding arising out of or relating to this Agreement may be brought solely in the state or federal courts of Georgia; (b) consents to the exclusive jurisdiction of each such court in any suit, action or proceeding relating to or arising out of this Agreement; (c) waives any objection which it may have to the laying of venue in any such suit, action or proceeding in any such court; and (d) agrees that service of any court paper may be made in such manner as may be provided under applicable laws or court rules governing service of process. Section 10.9 Entire Agreement. This Agreement, the Confidentiality Agreement, the Schedules and other documents referred to herein or delivered pursuant hereto which form a part hereof constitute the entire agreement among the parties with respect to the subject matter hereof and supersede all other prior agreements and understandings, both written and oral, between the parties or any of them with respect to the subject matter hereof. Section 10.10 Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Georgia (regardless of the laws that might otherwise 67 govern under applicable principles of conflicts of laws thereof) as to all matters, including but not limited to matters of validity, construction, effect, performance and remedies. Section 10.11 Specific Performance. The parties acknowledge and agree that any breach of the terms of this Agreement would give rise to irreparable harm for which money damages would not be an adequate remedy and accordingly the parties agree that, in addition to any other remedies, each shall be entitled to enforce the terms of this Agreement by a decree of specific performance without the necessity of proving the inadequacy of money damages as a remedy. Section 10.12 Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed to be an original, but all of which shall constitute one and the same agreement. Section 10.13 Amendment, Modification and Waiver. This Agreement may be amended, modified or supplemented at any time by written agreement of Seller and Buyer. Any failure of Seller or Buyer to comply with any term or provision of this Agreement may be waived, with respect to Buyer, by Seller and, with respect to Seller, by Buyer, by an instrument in writing signed by or on behalf of the appropriate party, but such waiver or failure to insist upon strict compliance with such term or provision shall not operate as a waiver of, or estoppel with respect to, any subsequent or other failure to comply. Section 10.14 Knowledge. "To the Knowledge of Seller" or any similar phrase contained in this Agreement shall mean the actual knowledge of the officers of Seller and the 68 Company. "To the knowledge of Buyer" or any similar phrase contained in this Agreement shall mean the actual knowledge of the officers of Buyer and Parent. Solely for the purposes of this Section 10.14, the officers of Buyer, Parent, Seller and the Company shall be deemed to have actual knowledge of any written notice previously delivered to Buyer, Parent, Seller, or the Company, respectively. Section 10.15 Schedules and Exhibits. The Schedules and all exhibits hereto are hereby incorporated into this Agreement and are hereby made a party hereof as if set out in full in this Agreement. Section 10.16 Arbitration. (a) Any controversy, claim or question or interpretation arising out of or relating to this Agreement or the breach thereof shall be finally settled by arbitration in the State of Georgia under the then-effective Commercial Arbitration Rules of the American Arbitration Association as modified by this Agreement, and judgment on the award rendered by the arbitrators may be entered in any court having jurisdiction. The award rendered by the arbitrators shall be final and binding on the parties and not subject to further appeal. Such arbitration can be initiated by written notice by either party to the other party, which notice shall identify the claimant's selected arbitrator. The party receiving such notice shall identify its arbitrator within five (5) business days following its receipt of such notice. The arbitrator selected by the claimant and the arbitrator selected by the respondent shall, within five (5) business days of their appointment, select a third neutral arbitrator. 69 In the event that they are unable to do so, either party may request the American Arbitration Association to appoint the third neutral arbitrator. The arbitrators shall have the authority to award any remedy or relief that a court in Georgia could order or grant, including, without limitation, specific performance of any obligation created under this agreement, the awarding of punitive damages, the issuance of injunctive or other provisional relief, or the imposition of sanctions for abuse or frustration of the arbitration process. The arbitration awards will be in writing and specify the factual and legal basis for the award. (b) It is the intent of the parties that any arbitration shall be concluded as quickly as practicable (but, barring extraordinary circumstances, in any event not more than twenty (20) days after the date the third arbitrator is selected). Unless the parties otherwise agree, once commenced, the hearing on the disputed matters shall be held four days a week until concluded with each hearing date to begin at 9:00 a.m. and to conclude at 5:00 p.m. The arbitrators shall use their best efforts to issue the final award or awards within a period of five (5) business days after closure of the proceedings. Failure of the arbitrators to meet the time limits of this Section 10.16 shall not be a basis for challenging the award. (c) The arbitrators shall instruct the non-prevailing party to pay all costs of the proceedings, including the fees and expenses of the arbitrators and the reasonable attorneys' fees and expenses of the prevailing party. If the arbitrators determine that there is not a prevailing party, each party shall be instructed to bear its own costs and to pay one-half of the fees and expenses of the arbitrators. (d) Notwithstanding the foregoing, nothing contained herein shall prevent either party from seeking injunctive relief in any court. 70 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the date first above written. UPS LOGISTICS GROUP, INC. By: /s/ Daniel P. DiMaggio -------------------------------------------- Name: Daniel P. DiMaggio Title: Chief Executive Officer and President UPS TRUCK LEASING, INC. By: /s/ Daniel P. DiMaggio -------------------------------------------- Name: Daniel P. DiMaggio Title: Chief Executive Officer and President ROLLINS TRUCK LEASING CORP. By: /s/ Patrick J. Bagley -------------------------------------------- Name: Patrick J. Bagley Title: Vice President Finance and Treasurer ROLLINS LEASING CORP. By: /s/ I. Larry Brown -------------------------------------------- Name: I. Larry Brown Title: Chief Executive Officer and President 71 EX-99.4(P) 9 STRATEGIC ALLIANCE AGREEMENT Exhibit 99.4(p) STRATEGIC ALLIANCE AGREEMENT THIS STRATEGIC ALLIANCE AGREEMENT, is made and entered into this _____ day of January, 2000 (the "Alliance Agreement"), by and between WORLDWIDE DEDICATED SERVICES, INC., a Delaware corporation ("WDS"), UPS LOGISTICS GROUP, INC., a Delaware corporation ("Logistics"), which is a wholly owned subsidiary of United Parcel Service of America, Inc. ("United Parcel") which is a wholly owned subsidiary of United Parcel Service, Inc., a Delaware corporation ("UPS"), ROLLINS LEASING CORP., a Delaware corporation ("Rollins"), and ROLLINS TRUCK LEASING CORP., a Delaware corporation ("RTL", and together with WDS, Logistics and Rollins sometimes referred to herein individually as a "Party" and collectively as the "Parties"). W I T N E S S E T H: WHEREAS, WDS is engaged in the business of providing vehicles, drivers, dispatch services and route planning for customers; WHEREAS, prior to the execution and delivery of this Alliance Agreement, UPS Truck Leasing, Inc. ("UPS Truck Leasing"), a wholly owned subsidiary of Logistics, had supplied WDS with vehicles and certain maintenance services used in connection with its business; WHEREAS, simultaneously with the execution and delivery of this Alliance Agreement, Rollins and UPS have consummated the transactions under a Stock Purchase Agreement (the "Stock Purchase Agreement"), pursuant to which UPS Truck Leasing has been transferred to Rollins; WHEREAS, prior to the execution and delivery of this Alliance Agreement, Rollins had been engaged in a logistics management and dedicated logistics business through Rollins Logistics, Inc. ("Rollins Logistics"); WHEREAS, simultaneously with the execution and delivery of this Alliance Agreement, certain Affiliates of Rollins and Logistics have consummated an Asset Purchase Agreement (the "Logistics Agreement"), pursuant to which an Affiliate of Logistics has purchased substantially all of the assets of Rollins Logistics; WHEREAS, WDS and Rollins have agreed to form a strategic alliance (the "Alliance") that, based on the terms of this Alliance Agreement, will promote the Logistics Group as the preferred provider of logistics management and dedicated logistics services to customers of Rollins' truck leasing services and will promote Rollins as the preferred provider of truck leasing and related services to customers of WDS's dedicated logistics services; and WHEREAS, WDS and Rollins are entering into this Alliance Agreement in order to provide a flexible and effective framework to govern the Alliance, and Logistics and RTL are entering into this Agreement for the purpose of extending the brand licenses referred to in Sections 4.5 and 4.6. NOW, THEREFORE, in consideration of the premises and the representations, warranties, covenants and agreements contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties, intending to be legally bound, hereby agree as follows: ARTICLE 1 DEFINITIONS 1.1 Definitions. The following defined terms used in this Alliance Agreement will have the meanings specified below. "Affiliate" shall mean, with respect to any Person, (i) any Person directly or indirectly controlling, controlled by or under common control with such Person, (ii) any officer, director, general partner, managing member or trustee of such Person, or (iii) any Person who is an officer, director, general partner, managing member or trustee of any Person described in clauses (i) or (ii) of this sentence. For purposes of this definition, the term "control," (including, with correlative meanings, the terms "controlling," "controlled by" or "under common control with") means the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract or otherwise. Notwithstanding any implication to the contrary contained in this definition, for purposes of this Agreement, the following entities will not be deemed to be Affiliates of Rollins: Matlack Systems, Inc.; Dover Downs Entertainment, Inc.; Rollins, Inc.; and RPC, Inc. "Alliance" shall have the meaning set forth in the recitals to this Alliance Agreement. "Business Day" shall mean any day other than a Saturday, Sunday or day on which banks are authorized to be closed under the laws of the State of Georgia. "Business Plan" shall mean the annual initial Business Plan and each subsequent business plan, substantially in the form of Exhibit A hereto, as revised from time to time during the Term in accordance with Article 4. "Change in Control" shall mean (a) the consolidation or merger of the subject corporation with or into any organization (other than a consolidation or merger in which the subject corporation is the surviving corporation in such consolidation or merger unless such consolidation or merger has the effect of an acquisition of ownership referred to in (c) hereof), (b) the direct or indirect sale, transfer or other disposition of all or substantially all of the subject corporation's assets, in a single transaction or a series of related transactions, (c) the direct or indirect acquisition by an entity, or group of entities acting in concert, of beneficial ownership of more than 25% of the outstanding voting securities of the subject corporation in a single -2- transaction or a series of related transactions, excluding acquisitions by Rollins family members, existing officers or directors of Rollins, or trusts established by any of them. "Committee Member" shall have the meaning set forth in Section 3.1 hereof. "Joint Planning Committee" shall have the meaning set forth in Section 3.1 hereof. "Logistics Group" shall mean Logistics and any directly or indirectly held wholly-owned subsidiary of Logistics that provides Logistics Services as of the date hereof. "Logistics Services" shall mean and include the following services: (i) Warehousing, building and/or leasing facilities, labeling, receiving, inspection, sorting, parts kitting, order, returns and repairs management, service parts management, supply chain engineering, inventory management, and billing and receivables management; (ii) Domestic and international intermodal or multimodal surface, air, and sea transport management, pick-up and delivery of consignments, track and trace inventory systems management, and export/import customs clearance; and (iii) Software systems planning, development, management, application, maintenance, upgrade, systems integration, and systems procedure related to warehousing and transportation. "Person" shall mean an individual, partnership, association, limited liability company, corporation, joint venture, sole proprietorship, trust or other entity. "Rollins Group" shall mean Rollins and any directly or indirectly held wholly-owned subsidiary of Rollins that provides Truck Leasing Services as of the date hereof. "Term" shall have the meaning set forth in Section 5.1 hereof. "Territory" shall mean North America. "Truck Leasing Services" shall mean and include long and short term vehicle leasing, vehicle rental, vehicle maintenance, washing, emergency road services, and ancillary services such as permitting, licensing and may include fueling and fuel tax reporting (based on mutual agreement of the Parties), but shall not include the provision of drivers for the vehicles. ARTICLE 2 ALLIANCE SERVICES 2.1 Purpose. WDS and Rollins desire to enter into and create the Alliance in order to achieve the following goals: -3- (a) To provide Rollins with a stream of revenues from the provision of Truck Leasing Services to WDS and its customers of Logistics Services. (b) To promote the Logistics Group as the preferred provider of Logistics Services to the Rollins Group and their respective customers of Truck Leasing Services. (c) To promote Rollins as the preferred provider of Truck Leasing Services to customers of WDS's dedicated Logistics Services. (d) To work together to achieve growth in the Logistics Group's Logistics Services business and Rollins' Truck Leasing Services business. (e) To provide the customers of each of WDS and Rollins with the best services and solutions to meet their truck leasing and logistics needs at competitive rates. 1.2 Provision of the Truck Leasing Services. (a) During the Term, Rollins will be the preferred provider of Truck Leasing Services to WDS, and to the customers of WDS to whom WDS provides Logistics Services, to the extent necessary to meet their respective requirements for Truck Leasing Services. In connection with the foregoing, and except as provided in Section 2.2(b) below, WDS will cause the members of the Logistics Group to refer to Rollins all inquiries they receive from logistics customers seeking Truck Leasing Services. Whenever reasonably practicable, WDS shall promote the Alliance by referring to its "alliance" or "partnership" with Rollins as the "preferred provider of Truck Leasing Services" to the customers of WDS. Without limiting the generality of the foregoing, unless otherwise agreed upon by the Rollins Committee Member, proposals by WDS to customers seeking Logistics Services will include references to Rollins as the preferred provider of Truck Leasing Services. (b) Notwithstanding the provisions of Section 2.2(a) above, WDS shall not be obligated under Section 2.2(a): (i) to the extent a WDS customer has an existing obligation to a provider of Truck Leasing Services other than Rollins that it is unwilling to cancel or the cancellation of which would not be cost effective; (ii) where a provider of Truck Leasing Services other than Rollins brings the customer to WDS; (iii) where Rollins (or other member of the Rollins Group) is unable or unwilling to provide the Truck Leasing Services; (iv) where a significant benefit may be derived by a customer of WDS from an alternative truck leasing solution, and Rollins has chosen not to (or is unable to) deliver the customer's desired solution; or -4- (v) where a WDS customer insists on an alternative truck leasing solution, whether prior to or following discussions with Rollins. With regard to Section 2.2(b)(iii) above, whether Rollins has an existing facility in close enough proximity to properly service a WDS customer at the time negotiations begin with such customer shall not be determinative with respect to Rollins' ability to provide Truck Leasing Services. If WDS offers a new business opportunity to Rollins (whether in an area where Rollins does not have a facility in close enough proximity to properly service the customer (as determined by WDS and Rollins or the relevant customer) or otherwise), Rollins shall have seven Business Days to (x) if applicable, determine whether it will commit to providing the necessary facilities, and (y) notify WDS in writing of its determination to provide such additional facilities and/or pursue negotiations with such customer (it being understood that any failure of Rollins to so deliver such written notice shall be deemed a decision by Rollins not to provide Truck Leasing Services to such customer). Failure of Rollins to respond within such seven Business Day period shall excuse WDS from its preferred provider obligations with respect to such opportunity. For purposes of the foregoing, the seven Business Day period shall begin once Rollins has been given (or otherwise obtained) the following information concerning the scope of the business opportunity in question: (A) the term of the relevant commitment, (B) the number and type of vehicles involved, (C) the type of cargo involved, (D) the frequency and duration of trips required to service the business, (E) the expected mileage per vehicle and (F) if applicable, notification that Rollins' existing facilities are not adequate. (c) The Truck Leasing Services will be provided by Rollins to WDS and its customers substantially in accordance with the terms of the contract attached hereto as Exhibit B, with such changes as the Parties (or Rollins and the customer, if applicable) shall mutually agree upon prior to the execution of each contract to provide the Truck Leasing Services during the Term. If the relevant parties cannot agree on changes requested by either party with respect to a particular arrangement, the contract set forth as Exhibit B shall govern the arrangement in question. All such contracts shall be with WDS, and not with the customer, unless otherwise requested by the relevant customer. (d) The pricing for the provision of the Truck Leasing Services by Rollins to WDS for the initial year of the Term shall be in accordance with the pricing schedule attached hereto as Exhibit C. Following the initial year, the Joint Planning Committee will oversee annual negotiation to determine any adjustments to the pricing schedule for the subsequent years during the Term, which adjustments will be based on changes in individual cost components in accordance with the methodology set forth on Exhibit D attached hereto. Notwithstanding the foregoing, in no event will the price charged to WDS for Truck Leasing Services exceed the most favorable price that Rollins charges to any third party for similar services. WDS and Rollins will consider in good faith and discuss with each other from time to time alternative pricing for Truck Leasing Services and Logistics Services for the Parties to be competitive in bidding for certain projects. -5- 2.3 Dedicated Logistics. (a) During the Term, WDS (directly or through its Affiliates) will be the preferred provider of Logistics Services to members of the Rollins Group, and to customers of the Rollins Group to whom members of the Rollins Group provide Truck Leasing Services, to the extent necessary to meet their respective requirements for Logistics Services. In connection with the foregoing, and except as provided in Section 2.3(b) below, Rollins will cause the members of the Rollins Group to refer to WDS all inquiries it receives from its customers seeking Logistics Services. Whenever reasonably practicable, members of the Rollins Group shall promote the Alliance by referring to its "alliance" or "partnership" with the Logistics Group as the "preferred provider of Logistics Services" to customers of the Rollins Group. (b) Notwithstanding the provisions of Section 2.3(a), no member of the Rollins Group shall be obligated to comply with Section 2.3(a): (i) to the extent the customer has an existing obligation to a provider of Logistics Services other than WDS that it is unwilling to cancel or the cancellation of which would not be cost effective; (ii) where a provider of Logistics Services other than WDS brings the customer to the Rollins Group; (iii) where WDS (or other member of the Logistics Group) is unable or unwilling to provide the Logistics Services; (iv) where a significant benefit may be derived by a Rollins Group customer from an alternative logistics solution, and WDS has chosen not to (or is unable to) deliver the customer's desired solution; or (v) where a Rollins Group customer insists on an alternative logistics solution (whether prior to or following discussions with WDS). When Rollins offers a new business opportunity to WDS, WDS shall have seven Business Days to (x) determine whether it wishes to pursue negotiations with the customer, (y) notify Rollins in writing of such determination (it being understood that any failure of WDS to so notify Rollins shall be deemed a determination not to pursue such negotiations, and (z) if requested by the relevant customer, make appropriate personnel available to begin negotiations). Failure of WDS to respond within such seven Business Day period shall excuse Rollins from its preferred provider obligations with respect to such opportunity. For purposes of this Section 2.3(b), the seven Business Day period shall begin once WDS has been given (or otherwise obtained) reasonably sufficient information concerning the scope of the business opportunity in question. -6- ARTICLE 3 ORGANIZATION 3.1. Joint Planning Committee. (a) WDS and Rollins hereby establish a committee to oversee the Alliance (the "Joint Planning Committee"), the initial members of which (the "Committee Members") shall be the individuals identified on Exhibit E hereto. The Joint Planning Committee will at all times be composed of four designees from WDS and four designees from Rollins. WDS shall designate one WDS Committee Member to act as chairman of the Joint Planning Committee (the "Chairman"). Any vacancy in the Joint Planning Committee created by a Committee Member designated by WDS shall be filled as soon as is reasonably practicable by WDS, and any vacancy created by a Committee Member designated by Rollins shall be filled as soon as is reasonably practicable by Rollins. Either such Party may change its representatives on the Joint Planning Committee upon 30 days prior written notice to the other Party. (b) Initially, the Joint Planning Committee will meet monthly to: (i) discuss and resolve any issues relating to the provision of Truck Leasing Services by Rollins to WDS and its customers; (ii) discuss and resolve any issues relating to the provision of Logistics Services by WDS to the Rollins Group and its customers; (iii) develop and implement a Business Plan and approve any changes thereto; (iv) discuss and monitor the performance of WDS and Rollins against the Business Plan; (v) evaluate and plan joint marketing activities between WDS and Rollins; and (vi) design a cross-selling incentive plan and review revenues generated by each such Party against the targets set forth in the Business Plan. (c) Initially, the Joint Planning Committee shall meet at least monthly, or more frequently as WDS and Rollins agree, to review the status of the Alliance's operations and strategies (as described above). Such meetings are to be held alternately at WDS's principal place of business, and at Rollins' principal place of business, or at such other place as the Joint Planning Committee may establish. Meetings may be held by telephone conference call or similar equipment if all Committee Members participating in the meeting can hear each other, and be heard by each other, at the same time. The Chairman shall be responsible for giving written notices of such regular meetings (including descriptions of the matters to be considered at such meetings) to all Committee -7- Members at least seven days before each meeting. Any Committee Member may call a special meeting of the Joint Planning Committee at any time by giving at least seven days prior written notice of the meeting to all other Committee Members. Such notice of meeting shall describe the matters to be considered by the Joint Planning Committee in reasonable detail. A Committee Member may waive the right to receive notice of a particular meeting at any time before, during or after that meeting. No meeting of the Joint Planning Committee will be effective to conduct business or to take any action unless (i) there is present at least one WDS Committee Member and one Rollins Committee Member, and (ii) a majority of the Committee Members are present. The Chairman (or in his absence, his designee) shall chair all meetings of the Joint Planning Committee. The Joint Planning Committee may adopt such procedural rules as they deem appropriate for the conduct of the Joint Planning Committee's business. (d) Unless otherwise required or permitted by this Alliance Agreement, the Joint Planning Committee shall act by resolutions passed unanimously by the Committee Members present and voting at duly constituted meetings of the Joint Planning Committee at which at least a majority of all Committee Members are present and at which at least one WDS Committee Member and one Rollins Committee Member are present. Rollins shall cause each Rollins Committee Member to grant a revocable proxy to each other Rollins Committee Member to vote at any meeting of the Joint Planning Committee at which such Rollins Committee Member is not present or is present but cannot vote with respect to such matter. WDS shall cause each WDS Committee Member to grant a revocable proxy to each other WDS Committee Member to vote at any meeting of the Joint Planning Committee at which such WDS Committee Member is not present or is present but cannot vote with respect to such matter. 3.2 Access to Books and Records. Each of Rollins and WDS will create and maintain accurate books and records regarding the provision of Truck Leasing Services and Logistics Services, respectively, and of its respective obligations under this Alliance Agreement. For purposes of ensuring compliance with this Alliance Agreement, and for such other reasonable purposes in connection with the consummation of the transactions contemplated by this Alliance Agreement, WDS and Rollins shall each have the right, upon reasonable notice and during normal business hours, to inspect, examine, and take extracts from or make copies of such books and records maintained by the other Party. WDS and Rollins shall each permit representatives of the other access to its place of business upon reasonable notice and during normal business hours for the purpose of such examinations. ARTICLE 4 JOINT BUSINESS PLANNING 4.1. Purpose of Business Plan. The Business Plan will serve as a blueprint for the business, activities and development of the Alliance and the targeted financial impact of such business, activities and development on WDS and Rollins. The Business Plan will focus on developing a joint marketing plan driven by customers and market research to promote cross-selling of Rollins' and the Logistics Group's services and will outline quarterly projections for -8- revenue generated by cross-sales. In addition, it will outline a training program by each of WDS and Rollins for the other Party's sales personnel. WDS and Rollins agree that the Business Plan is not intended to be, nor will it be construed as, an enforceable contract or legal agreement between the Parties, except as provided in Section 5.2(a). 4.2. Business Plan Review. The Joint Planning Committee will have the primary responsibility for formulating a mutually agreeable Business Plan each year and then implementing it. Each Business Plan will encompass a one year period. 4.3. Marketing Materials. The Joint Planning Committee (or a relevant subcommittee formed thereby) will develop joint marketing materials to promote the Alliance and the services of Rollins and the Logistics Group (including (a) promotional and sales materials, brochures and advertising materials and (b) press releases, speeches and other publicity attempts) to customers. Drafts of any such materials may also be submitted by WDS or Rollins to the Joint Planning Committee for its consideration and review. Copies of all such materials will be approved by the Joint Planning Committee in advance of the distribution thereof or of publication activities conducted or made with respect thereto. 4.4 Cross Selling. WDS and Rollins will design a cross-selling incentive plan in which their respective sales forces will participate. Sales personnel of each such Party will receive training from the other Party and will be encouraged to promote the Truck Leasing Services provided by Rollins and the Logistics Services provided by WDS, as applicable. To that end, each of WDS and Rollins will provide the other Party with direct access to its customers for the purpose of promoting their Logistics Services and Truck Leasing Services, respectively; provided, however, that all inquiries to Rollins from its customers regarding Logistics Services will be directed to WDS, and all inquires to WDS (or members of the Logistics Group) from its customers regarding stand alone Truck Leasing Services will be directed to Rollins. 4.5. Use of the Logistics Group Marks. (a) Logistics hereby grants to Rollins a non-exclusive, royalty free, nontransferable license to use the Logistics Group Marks described on Exhibit F hereto (the "UPS Marks") in the Territory (directly or through a sublicense to the members of the Rollins Group, as necessary) during the Term for the purpose of marketing, promoting and selling the Alliance and the Logistics Services promoted to the customers of the Rollins Group in accordance with the terms of this Alliance Agreement. Rollins shall cause each member of the Rollins Group to properly display and use the UPS Marks in accordance with this Alliance Agreement. (b) (i) Logistics has the right, at all reasonable times, to inspect the Rollins Group's relevant facilities and review the manner in which the Rollins Group uses the UPS Marks so that Logistics may satisfy itself that the UPS Marks are used in accordance with this Alliance Agreement; provided, however, that Logistics will not exercise such right in a manner which unreasonably interferes with the Rollins Group's normal business operations. -9- (ii) The Rollins Group shall adhere to the trademark usage guidelines furnished by Logistics for the depiction of the UPS Marks ("Trademark Usage Guidelines") and any reasonable modifications or amendments thereto. The guidelines set forth on Exhibit G hereto will function as the current version of the Trademark Usage Guidelines. The Rollins Group shall also adhere to the marketing communications guidelines furnished by Logistics and any reasonable modifications or amendments thereto (the "Marketing Communications Guidelines"), the current version of which is attached hereto as Exhibit H. In the event of a conflict between this Alliance Agreement on the one part and either of the Trademark Usage Guidelines or Marketing Communications Guidelines on the other part, this Alliance Agreement shall govern. (iii) The Rollins Group shall include on all advertising and promotional materials, packaging and labels bearing the UPS Marks the following notice: "[UPS Marks] is a registered trademark of United Parcel Service, Inc. and its subsidiaries. Used under license." [With respect to electronic presentations of the UPS Marks, this notice may be contained on Rollins' web-site under "Legal Information" or, if software, in the "About" box or where the Rollins' own proprietary notices appear.] (iv) Prior to any first use of the UPS Marks on advertising or promotional materials by the Rollins Group, Rollins agrees to furnish Logistics with samples of such advertising and promotional materials, packaging and labels bearing any of the UPS Marks for trademark usage approval (which approval shall not be unreasonably withheld). The Rollins Group shall amend the future use of the UPS Marks in any such advertising and promotional materials, packaging and labels if the use of the UPS Marks are not approved by Logistics. Logistics will have ten Business Days from the date of receipt to approve or object to materials submitted for trademark usage approval. If no objection is received by Rollins within such ten Business Days, such materials will be deemed approved. Use of the UPS Marks by the Rollins Group that is substantially identical to uses of the UPS Marks that have previously been approved or that is being used for the same program (with substantially similar presentation of the UPS Marks) as has previously been approved do not require submission for approval. (v) The Rollins Group must immediately cease using any previously approved material from which Logistics withdraws its approval. Logistics will not unreasonably rescind approval of any materials previously approved. (c) (i) The Rollins Group acquires and will acquire no rights, title or interest in the UPS Marks or the goodwill associated with them, other than the right to -10- use the UPS Marks in accordance with this Alliance Agreement. In accepting this Alliance Agreement, Rollins acknowledges (on behalf of the Rollins Group) UPS's ownership of the UPS Marks, its validity and the goodwill connected with it. The Rollins Group will not attack the UPS Marks, nor assist anyone in attacking it. Rollins further agrees that the Rollins Group will not make any application to register the UPS Marks, nor will they use any confusingly similar trademark, service mark, trade name, or derivation, during the term of this Alliance Agreement or thereafter. This paragraph will survive the termination of this Agreement. (ii) At the request and sole expense of Logistics, Rollins will execute and will cause any relevant member of the Rollins Group to execute, any papers or documents reasonably necessary to protect the rights of UPS in the UPS Marks and execute and deliver such other documents as may be reasonably requested by Logistics. (iii) Logistics represents and warrants that as of the date hereof the UPS Marks do not infringe upon any trademarks and are not involved in any opposition, invalidation, cancellation or litigation that would threaten the Rollins Group's use of the UPS Marks in connection with the transactions contemplated by this Alliance Agreement and, to Logistics' knowledge, no such action is threatened with respect to the UPS Marks. In the event that such action occurs, Logistics will cause UPS to vigorously protect the UPS Marks. (d) Rollins shall promptly notify Logistics of any unauthorized use of the UPS Marks that comes to the Rollins Group's attention. Logistics in its reasonable discretion may take such action as may be required to prosecute the infringement. In the event that Logistics decides that action should be taken against such third parties, Logistics may take such action either in its own name (or in the name of UPS or any subsidiary thereof), or alternatively, Logistics may authorize Rollins to initiate such action in Rollins' name but Rollins shall have no obligation to do so. In either event, Rollins agrees and agrees to cause the relevant members of the Rollins Group to cooperate fully with Logistics (or UPS or relevant subsidiary thereof), at Logistics' expense, to whatever extent it is necessary to prosecute such action, all expenses being borne by Logistics and all damages that may be recovered being solely for the account of Logistics. (e) In the event the Rollins Group violates the UPS Trademark Usage Guidelines or the UPS Marketing Communications Guidelines and continues to do so for a continuous 45 day period or for three periods of 30 days each during a calendar year following written notice from Logistics, such violation shall constitute a material breach of this Agreement and Logistics may terminate this Agreement in accordance with Section 5.2 hereof. (f) The Parties agree that a breach of this Section 4.5 may give rise to irreparable injury to the non-breaching Party and its Group that cannot be compensated for adequately by damages. Consequently, the Parties agree that each Party shall be entitled, in addition to all other remedies available, to injunctive and other equitable relief -11- to prevent a breach of this Section 4.5 and to secure the enforcement of the provisions of this Section 4.5 in any court of competent jurisdiction in the United States or any state thereof (and the Parties agree to waive any requirement for the posting of bond in connection with such remedy). 4.6. Use of the RTL Marks. (a) RTL hereby grants to WDS a non-exclusive, royalty free, nontransferable license to use the RTL Marks described on Exhibit I hereto (the "RTL Marks") in the Territory (directly or through a sublicense to the other members of the Logistics Group, as necessary) during the Term for the purpose of marketing, promoting and selling the Alliance and the Truck Leasing Services to the customers of WDS in accordance with the terms of this Alliance Agreement. WDS shall properly display and use the RTL Marks in accordance with this Alliance Agreement. (b) (i) RTL has the right, at all reasonable times, to inspect WDS's relevant facilities and review the manner in which WDS uses the RTL Marks so that RTL may satisfy itself that the RTL Marks are used in accordance with this Alliance Agreement; provided, however, that RTL will not exercise such right in a manner which unreasonably interferes with WDS's normal business operations. (ii) WDS shall adhere to the trademark usage guidelines furnished by RTL for the depiction of the RTL Marks ("Trademark Usage Guidelines") and any reasonable modifications or amendments thereto. The guidelines set forth on Exhibit J hereto will function as the current version of the Trademark Usage Guidelines. WDS shall also adhere to the marketing communications guidelines furnished by RTL and any reasonable modifications or amendments thereto (the "Marketing Communications Guidelines"), the current version of which is attached hereto as Exhibit K. In the event of a conflict between this Alliance Agreement on the one part and either of the Trademark Usage Guidelines or Marketing Communications Guidelines on the other part, this Alliance Agreement shall govern. (iii) WDS shall include on all advertising and promotional materials, packaging and labels bearing the RTL Marks the following notice: "[RTL Marks] is a registered trademark of Rollins Truck Leasing Corp. Used under license." [With respect to electronic presentations of the RTL Marks, this notice may be contained on WDS' web-site under "Legal Information" or, if software, in the "About" box or where WDS's own proprietary notices appear.] (iv) Prior to any first use of the RTL Marks on advertising or promotional materials by WDS, WDS agrees to furnish RTL with samples of such advertising and promotional materials, packaging and labels bearing any of the -12- RTL Marks for trademark usage approval (which approval shall not be unreasonably withheld). WDS shall amend the future use of the RTL Marks in any such advertising and promotional materials, packaging and labels if the use of the RTL Marks are not approved by RTL. RTL will have ten Business Days from the date of receipt to approve or object to materials submitted for trademark usage approval. If no objection is received by WDS within such ten Business Days, such materials will be deemed approved. Use of the RTL Marks by WDS that is substantially identical to uses of the RTL Marks that have previously been approved or that is being used for the same program (with substantially similar presentation of the RTL Marks) as has previously been approved do not require submission for approval. (v) WDS must immediately cease using any previously approved material from which RTL withdraws its approval. RTL will not unreasonably rescind approval of any materials previously approved. (c) (i) WDS acquires and will acquire no rights, title or interest in the RTL Marks or the goodwill associated with them, other than the right to use the RTL Marks in accordance with this Alliance Agreement. In accepting this Alliance Agreement, WDS acknowledges RTL' ownership of the RTL Marks, its validity and the goodwill connected with it. WDS will not attack the RTL Marks, nor assist anyone in attacking it. WDS further agrees that WDS will not make any application to register the RTL Marks, nor will they use any confusingly similar trademark, service mark, trade name, or derivation, during the term of this Alliance Agreement or thereafter. This paragraph will survive the termination of this Agreement. (ii) At the request and sole expense of RTL, WDS will execute any papers or documents reasonably necessary to protect the rights of RTL in the RTL Marks and execute and deliver such other documents as may be reasonably requested by RTL. (iii) RTL represents and warrants that as of the date hereof the RTL Marks do not infringe upon any trademarks and are not involved in any opposition, invalidation, cancellation or litigation that would threaten WDS's use of the RTL Marks in connection with the transactions contemplated by this Alliance Agreement and, to RTL' knowledge, no such action is threatened with respect to the RTL Marks. In the event that such action occurs, RTL will vigorously protect the RTL Marks. (d) WDS shall promptly notify RTL of any unauthorized use of the RTL Marks that comes to WDS's attention. RTL in its reasonable discretion may take such action as may be required to prosecute the infringement. In the event that RTL decides that action should be taken against such third parties, RTL may take such action either in its own name, or alternatively, RTL may authorize WDS to initiate such action in WDS' -13- name but WDS shall have no obligation to do so. In either event, WDS agrees to cooperate fully with RTL, at RTL' expense, to whatever extent it is necessary to prosecute such action, all expenses being borne by RTL and all damages that may be recovered being solely for the account of RTL. (e) In the event WDS violates the RTL Trademark Usage Guidelines or the RTL Marketing Communications Guidelines and continues to do so for a continuous 45 day period or for three periods of 30 days each during a calendar year following written notice from RTL, such violation shall constitute a material breach of this Agreement and RTL may terminate this Agreement in accordance with Section 5.2 hereof. (f) The Parties agree that a breach of this Section 4.6 may give rise to irreparable injury to the non-breaching Party and its Group that cannot be compensated for adequately by damages. Consequently, the Parties agree that each Party shall be entitled, in addition to all other remedies available, to injunctive and other equitable relief to prevent a breach of this Section 4.6 and to secure the enforcement of the provisions of this Section 4.6 in any court of competent jurisdiction in the United States or any state thereof (and the Parties agree to waive any requirement for the posting of bond in connection with such remedy). (g) WDS shall have the right to extend the rights to use the RTL Marks under this Section 4.6 to any members of the Logistics Group, in which event WDS will assure compliance by such members with the terms of this Section. ARTICLE 5 TERM AND TERMINATION; REMEDIES 5.1 Term. This Alliance Agreement will commence on the date hereof and shall remain in full force and effect for a period of five years (such period together with any extensions as provided herein, the "Term"), unless terminated earlier pursuant to Section 5.2 below. This Alliance Agreement will renew for such additional terms as will be agreed upon by WDS and Rollins. 5.2 Termination. This Alliance Agreement may be terminated at any time during the Term: (a) by either WDS or Rollins in the event of a material breach by the other Party of the terms of this Alliance Agreement or the Staffing Services Agreement that is not cured within 30 days following written notice of such breach (or as otherwise provided under Sections 4.5 and 4.6 hereof); (b) by either WDS or Rollins in the event of a Change of Control of the other Party; -14- (c) by either WDS or Rollins in the event of the bankruptcy of the other Party; (d) by either WDS or Rollins if any of the performance goals set forth on Exhibit L hereto are not met; or (e) by either WDS or Rollins by notice to the other Party given within 30 days following the first anniversary of this Agreement, which termination shall be effective 90 days following the giving of such notice (but not earlier than 90 days following the first anniversary). Termination under this Section 5.2 will not be deemed a waiver of any right or remedy either Party may have for breach hereunder. 5.3 Specific Performance. In the event of a breach of this Alliance Agreement, the aggrieved Party shall be entitled to seek specific performance or other equitable relief in addition to any other remedies that may be available to such Party. ARTICLE 6 CONFIDENTIALITY/NON-COMPETITION 6.1 Confidential Information. In the performance of their respective obligations under this Alliance Agreement, WDS, other members of the Logistics Group and Rollins may disclose to each other certain confidential and proprietary information relating to their respective businesses ("Confidential Information"). All information exchanged by the Parties (including, for purposes of this Article 6, any member of the Logistics Group that is not a Party hereto) under this Alliance Agreement shall be considered Confidential Information unless it is subject to any of the exceptions in Section 6.3. 6.2 Non-Disclosure. Each recipient of Confidential Information agrees that it shall (and shall cause its respective officers, directors, employees, agents and Affiliates to): (a) make no use of any Confidential Information belonging to the other Party except as necessary for the performance of its obligations under this Alliance Agreement; (b) not disclose to third parties any of the Confidential Information belonging to the other Party without the prior written consent of such Party; (c) take such precautions as it normally takes with its own confidential and proprietary information to prevent disclosure of Confidential Information to third parties, and (d) upon the expiration of the Term or earlier termination of this Alliance Agreement, promptly return any Confidential Information and all copies thereof (in -15- whatever format) in its possession to the other Party (or, upon the written request of the other Party, to destroy all such materials). 6.3 Exceptions. Notwithstanding any of the foregoing, the obligations under Section 6.2 shall not apply to: (a) any information which at the time of disclosure is publicly available or public knowledge; (b) any information which the receiving Party possesses at the time of disclosure of the Confidential Information and which was not acquired, directly or indirectly from the other Party; (c) any information required by applicable law or court order to be disclosed, but then only (i) to the extent such disclosure is so required; and (ii) following written notice of such obligation to the affected Party; and (d) any information acquired from a third party who has a right to disclose such information. 6.4 Non-Competition. (a) Except as permitted in Section 6.4(c) below, during the Term and for a period of two years following the end of the Term, (i) none of the members of the Logistics Group and none of their respective Affiliates will engage in the provision of Truck Leasing Services to any third party that is not an Affiliate of such member in the Territory and (ii) none of the members of the Rollins Group and none of their respective Affiliates will engage in the provision of Logistics Services in the Territory to any third party that not an Affiliate of such member. (b) If either Party or its Affiliate (the "Bidding Party") anticipates making an offer to a potential seller to acquire a business that has a division or subsidiary, or certain customer contracts, the ownership of which would violate Section 6.4(a) (a "Prohibited Business"), the Bidding Party shall notify the other Party (the "Non-Bidding Party") sufficiently in advance of the making of such offer to permit the Parties to discuss in good faith a joint offer pursuant to which the Non-Bidding Party would acquire the Prohibited Business. The Bidding Party will share with the Non-Bidding Party all information in its possession regarding the Prohibited Business, and the Bidding Party will assure that any confidentiality agreement entered into by it in connection with such transaction permits such sharing of information. (c) In the event either Party or its Affiliate acquires a Prohibited Business following the consultation required by Section 6.4(b) above, such Party (the "Selling Party") agrees (i) to notify the other Party (the "Non-Selling Party") in writing of such acquisition, including a reasonable description of the Prohibited Business, (ii) to make the personnel, facilities and books and records of the Prohibited Business fully available to -16- the Non-Selling Party and its representatives to the extent requested by the Non-Selling Party, and (iii) to use commercially reasonable efforts to sell or otherwise dispose of the Prohibited Business within one year from the date of acquisition. Within 30 days of the delivery of the notice described in clause (i) above, the Non-Selling Party shall have the right to provide a written offer (the "Offer") to purchase the Prohibited Business. For a period of 30 days following the delivery of the Offer, the Selling Party will negotiate in good faith with the Non-Selling Party regarding the Offer, and shall make such modifications to the Offer as are agreed upon in such negotiations. If the Selling Party declines to accept the Offer (as so modified), the Selling Party shall be free to sell the Prohibited Business to any Person that is not an Affiliate of the Selling Party (a "Bona Fide Purchaser"), subject to the remaining provisions of this Section 6.4(c). Thereafter, the Selling Party shall promptly notify the Non-Selling Party in writing (the "Third Party Notice") if the Selling Party receives an offer to purchase the Prohibited Business that it wishes to accept from any Bona Fide Purchaser (a "Third Party Offer"), which such Third Party Notice shall include a reasonable description of the terms of the Third Party Offer. If the purchase price (taking into account timing of payment and form of consideration) under the terms of the Third Party Offer is less than the purchase price under the terms of the Offer (as modified), then, for a period of 20 days after receipt of the Third Party Notice by the Non-Selling Party, the Non-Selling Party shall have the right to accept the Third Party Offer. Thereafter, the Parties shall work as promptly as is reasonably practicable to complete the acquisition of the Prohibited Business on the terms and conditions of the Third Party Offer. Notwithstanding the foregoing provisions of this Section 6.4, no sale or disposition of a Prohibited Business shall be required if (x) the annual revenues from such the Prohibited Business do not exceed $5,000,000, or (b) the Selling Party is not able to obtain an acceptable Third Party Offer using commercially reasonable efforts, in which event the Selling Party may operate the Prohibited Business through the normal termination dates contained in any relevant contracts, without extensions or renewals and without soliciting new business that would violate the terms of Section 6.4(a). ARTICLE 7 REPRESENTATIONS AND WARRANTIES Each Party hereby represents and warrants that it has all necessary corporate power and authority to execute and deliver this Alliance Agreement, to perform its obligations hereunder and to consummate the transactions contemplated hereby. The execution, delivery and performance by such Party of this Alliance Agreement, and the consummation by such Party of the transactions contemplated hereby, have been duly authorized by all necessary corporate action, and no other corporate proceedings on the part of such Party are necessary to authorize this Alliance Agreement or to consummate the transactions contemplated hereby. This Alliance Agreement has been duly executed and delivered by such Party and, assuming the due authorization, execution and delivery by the other Party, constitutes a legal, valid and binding obligation of such Party enforceable against it in accordance with its terms. -17- ARTICLE 8 INDEMNIFICATION 8.1 Indemnification. Each Party hereto agrees to indemnify, defend and hold harmless the other Party and their respective Affiliates, subsidiaries, officers, directors, employees and agents (any such Person, an "Indemnitee") from and against any and all claims, losses, damages, fines, penalties, costs and expenses (including reasonable legal and accounting fees) (collectively, "Losses") which may be imposed upon or incurred by or asserted against the Indemnitee as a result of or arising out of (a) the breach by such Party (the "Indemnifying Party") of any representation or warranty contained in this Alliance Agreement, (b) the failure of the Indemnifying Party to perform any covenant or agreement required to be performed by such Party under the terms of this Alliance Agreement, or (c) caused by the gross negligence or willful misconduct of the Indemnifying Party, any members of its Group, or the agents or employees of any thereof. 8.2 Procedures. (a) Subject to Section 8.2(b) below, if an Indemnified Party shall claim a right to payment pursuant to this Article 8, such Indemnified Party shall send written notice of such claim to the Indemnifying Party. Such notice shall specify the basis for such claim. As promptly as possible after the Indemnified Party has given such notice, such Indemnified Party and the Indemnifying Party shall establish the merits and amount of such claim (by mutual agreement, litigation, arbitration or otherwise) and, within five business days of the final determination of the merits and amount of such claim, the Indemnifying Party shall pay to the Indemnified Party immediately available funds in an amount equal to such claim as determined hereunder. (b) Promptly after receipt by an Indemnified Party of notice by a third party of any complaint or the commencement of any action or proceeding with respect to which such Indemnified Party may be entitled to receive payment from the other party for any Losses, such Indemnified Party shall notify the Indemnifying Party within 20 days of such complaint or of the commencement of such action or proceeding; provided, however, that the failure to so notify the Indemnifying Party shall relieve the Indemnifying Party from liability under this Alliance Agreement with respect to such claim only if, and only to the extent that, such failure results in the forfeiture by the Indemnifying Party of rights and defenses otherwise available to the Indemnifying Party with respect to such claim. The Indemnifying Party shall have the right, upon written notice delivered to the Indemnified Party within 30 days thereafter (which written notice must include a binding acknowledgment of the Indemnifying Party that such claim constitutes an indemnifiable Loss hereunder), to assume the defense of such action, including the employment of counsel reasonably satisfactory to the Indemnified Party and the payment of the fees and disbursements of such counsel. If the Indemnifying Party declines to assume the defense of the action within such 30-day period, then such Indemnified Party may employ counsel to represent or defend it in any such action and the Indemnifying Party shall pay the reasonable fees and disbursements of such counsel as incurred; provided, however, that the Indemnifying Party shall not be required to pay -18- the fees and disbursements of more than one counsel for all Indemnified Parties in any jurisdiction in any single action or proceeding. In any action with respect to which indemnification is being sought hereunder, the Indemnified Party or the Indemnifying Party, whichever is not assuming the defense of such action, shall have the right to participate in such litigation and to retain its own counsel at such party's own expense. The Indemnifying Party or the Indemnified Party, as the case may be, shall at all times use reasonable efforts to keep the Indemnifying Party or the Indemnified Party, as the case may be, reasonably apprised of the status of the defense of any action the defense of which they are maintaining and to cooperate in good faith with each other with respect to the defense of any such action. ARTICLE 9 MISCELLANEOUS 9.1 No Individual Authority. Neither Party shall, without the express, prior written consent of the other Party, take any action for or on behalf of or in the name of the other Party, assume, undertake or enter into any commitment, debt, duty or obligation binding upon any other Party, except for actions expressly provided for in this Alliance Agreement or pursuant to agreements entered into between the Parties. 9.2 Force Majeure. No Party shall be responsible or liable to the others for failure or delay in its performance of this Alliance Agreement due to war, fire, accident or other casualty, or any labor disturbance or act of God or the public enemy, or any other contingency beyond such Party's reasonable control ("Force Majeure Event"). In addition, in the event of the applicability of this Section 9.2, the Party affected by such Force Majeure Event shall use all commercially reasonable efforts to eliminate, cure and overcome any of such causes and resume performance of its obligations. 9.3 Governing Law. This Alliance Agreement shall be construed in accordance with, and governed by, the laws of the State of New York. 9.4 Severability. Should any part of this Alliance Agreement or any of the provisions hereof for any reason be declared to be invalid, such decision or determination shall not in any way affect the validity of the remaining portions of this Alliance Agreement, all of which shall remain in full force and effect as if the portion declared to be invalid had not been contained herein at the time of the execution of this Alliance Agreement. 9.5 Headings; Number. The subject headings of this Alliance Agreement are included for purposes of convenience only, and shall not affect the construction or interpretation of any of its provisions. Whenever the context so requires, the singular shall include the plural and the plural shall include the singular. 9.6 Assignment. This Alliance Agreement shall be binding on, and shall inure to the benefit of, each of the Parties and their respective successors and permitted assigns. No Party shall be permitted to assign its rights or obligations under this Alliance Agreement (whether by -19- merger, operation of law or otherwise) without the express written consent of the other Parties, except that (a) Rollins may assign its interest to a wholly-owned subsidiary of Rollins and (b) WDS may assign its interest to UPS or any wholly-owned subsidiary of UPS, so long as in the case of any such assignment under clause (a) or (b), the assignee agrees in writing to be bound by the terms of this Alliance Agreement, the assignee retains its wholly-owned status during the Term and the assignor remains primarily liable for all obligations hereunder. 9.7 Entire Agreement. This Alliance Agreement constitutes the entire agreement among the Parties regarding the subject matter hereof, and supersedes all prior agreements, negotiations or understandings between them concerning the subject matter hereof. 9.8 Amendments. This Alliance Agreement may not be amended, supplemented or modified except in a writing signed by the Parties hereto. 9.9 Waiver. No waiver of any default hereunder by either Party or any failure to enforce any rights hereunder shall be deemed to constitute a waiver of any subsequent default with respect to the same or any other provisions hereof. 9.10 Notices. Any notice required or permitted to be given hereunder shall be made in writing and shall be given to the Party to receive such notice by (i) hand delivery, (ii) first-class registered or certified mail, postage prepaid, return receipt requested, (iii) overnight courier service, postage prepaid or (iv) telecopy with evidence of confirmation of transmission, in each case at the address or telecopy number set forth below: To WDS or Logistics: UPS Logistics Group, Inc. 990 Hammond Drive Atlanta, Georgia 30328 Attention: Legal Manager Telefax No.: (770) 206-4444 With copies to: UPS Legal Department 55 Glenlake Parkway Atlanta, Georgia 30328 Attention: Chief Legal Counsel Telefax No.: (404) 828-6440 and to: King & Spalding 191 Peachtree Street Atlanta, Georgia 30303-1763 Attention: Michael J. Egan III Telefax No.: (404) 572-5100 -20- To Rollins or RTL: Rollins Leasing Corp. 2200 Concord Pike One Rollins Plaza Wilmington, DE 19803 Attention: Patrick J. Bagley Telefax No.: (302) 426-3815 With a copy to: Rollins Leasing Corp. 2200 Concord Pike One Rollins Plaza Wilmington, DE 19803 Attention: Klaus M. Belohoubek Telefax No.: (302) 426-3555 Either Party may change the information specified herein for the receipt of notices by giving written notice to the other Party in accordance with the provisions of this Section 9.10. 9.11 Counterparts. This Alliance Agreement may be executed in any number of counterparts, each of which will be deemed an original, but all of which taken together will constitute one and the same instrument. 9.12 Third Party Beneficiaries. This Alliance Agreement is for the sole benefit of the Parties hereto and no third party may claim any right, or enforce any obligation of the Parties, hereunder. 9.13 Relationship. The Parties intend to create an independent contractor relationship and nothing contained in this Alliance Agreement will be construed to make either (i) WDS or any member of the Logistics Group, or any Affiliates of any of the foregoing, on the one hand, or (ii) Rollins or any Affiliates of Rollins on the other hand, partners, principals, agents or employees of the other. Neither WDS and Logistics nor Rollins and RTL will have any right, power or authority, express or implied, to bind the other. 9.14 Dispute Resolution. Any controversy, claim or question of interpretation arising out of or relating to this Alliance Agreement (including without limitation a claimed breach of any of the provisions hereof) that is not resolved by the Parties (a "Dispute"), shall be resolved in accordance with the provisions of this Section 9.14: (a) Initially, any such Dispute may be submitted by either Party to the Joint Planning Committee for resolution, by delivering written notice of such Dispute, including a brief description thereof, to the Chairman of the Joint Planning Committee, with a copy to the other Party. The Joint Planning Committee shall work in good faith to resolve such Dispute (including by calling a meeting or meetings of the Joint Planning Committee, as reasonably necessary); provided, however, that if the Joint Planning Committee cannot resolve such Dispute within 30 days of its receipt of the notice described in this subsection (a), such Dispute shall be resolved in accordance with subsection (b) below. -21- (b) If the Dispute is not resolved in accordance with subsection (a) above, the Chief Financial Officer of Rollins (the "Rollins CFO") and the Chief Financial Officer of the Transportation Management Group of Logistics (the "Logistics CFO") shall meet in good faith to resolve such Dispute. If the Rollins CFO and the Logistics CFO are unable to resolve such Dispute within 60 days following the notice described in subsection (a) above, such Dispute may be submitted by either Party to binding arbitration in accordance with the remaining provisions of this Section 9.14. (c) If the Dispute is not resolved in accordance with subsection (b) above, the Dispute shall be finally settled by arbitration in the City of Washington, D.C. under the then-effective Commercial Arbitration Rules of the American Arbitration Association as modified by this Alliance Agreement, and judgment on the award rendered by the arbitrators may be entered in any court having jurisdiction. The award rendered by the arbitrators shall be final and binding on the Parties and not subject to further appeal. Such arbitration can be initiated by written notice by either Party (after compliance with the escalation provisions of subsections (a) and (b) above) to the other Party, which notice shall identify the claimant's selected arbitrator. The Party receiving such notice shall identify its arbitrator within five Business Days following its receipt of such notice. The arbitrator selected by the claimant and the arbitrator selected by the respondent shall, within five Business Days of their appointment, select a third neutral arbitrator. In the event that they are unable to do so, either Party may request the American Arbitration Association to appoint the third neutral arbitrator. The arbitrators shall have the authority to award any remedy or relief that a court in New York could order or grant, including, without limitation, specific performance of any obligation created under this Alliance Agreement, the awarding of punitive damages, the issuance of injunctive or other provisional relief, or the imposition of sanctions for abuse or frustration of the arbitration process. The arbitration awards will be in writing and specify the factual and legal basis for the award. (d) It is the intent of the Parties that any arbitration shall be concluded as quickly as practicable (but, barring extraordinary circumstances, in any event not more than 20 days after the date the third arbitrator is selected). Unless the Parties otherwise agree, once commenced, the hearing on the disputed matters shall be held four days a week until concluded with each hearing date to begin at 9:00 a.m. and to conclude at 5:00 p.m. The arbitrators shall use their best efforts to issue the final award or awards within a period of five Business Days after closure of the proceedings. Failure of the arbitrators to meet the time limits of this Section 9.14 shall not be a basis for challenging the award. (e) The arbitrators shall instruct the non-prevailing party to pay all costs of the proceedings, including the fees and expenses of the arbitrators and the reasonable attorneys' fees and expenses of the prevailing party. If the arbitrators determine that there is not a prevailing party, each party shall be instructed to bear its own costs and to pay one-half of the fees and expenses of the arbitrators. (f) Notwithstanding the foregoing, nothing contained herein shall prevent either Party from seeking injunctive relief in any court. -22- IN WITNESS WHEREOF, the Parties have caused this Alliance Agreement to be signed as of the date first above written. WORLDWIDE DEDICATED SERVICES, INC. By: ------------------------------- Name: Title: UPS LOGISTICS GROUP, INC. By: ------------------------------- Name: Title: ROLLINS LEASING CORP. By: ------------------------------- Name: Title: ROLLINS TRUCK LEASING CORP. By: ------------------------------- Name: Title: -----END PRIVACY-ENHANCED MESSAGE-----