RULE NO. 424(b)(1)
                                                     REGISTRATION NO. 333-60467

 
PROSPECTUS
 
                     UNITED RENTALS (NORTH AMERICA), INC.
 
                               OFFER TO EXCHANGE
 
 UP TO $200,000,000 OF 9 1/2% SENIOR SUBORDINATED NOTES DUE 2008, SERIES B FOR
   ANY AND ALL OF THE OUTSTANDING 9 1/2% SENIOR SUBORDINATED NOTES DUE 2008,
                                   SERIES A
 
                               ----------------
 
                 THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M.,
           NEW YORK CITY TIME, ON NOVEMBER 4, 1998, UNLESS EXTENDED.
 
                               ----------------
 
  United Rentals (North America), Inc. (the "Company") hereby offers (the
"Exchange Offer"), upon the terms and subject to the conditions set forth in
this Prospectus and the accompanying Letter of Transmittal (the "Letter of
Transmittal"), to exchange its outstanding 9 1/2% Senior Subordinated Notes
due 2008, Series A (the "Original Notes"), of which an aggregate of
$200,000,000 in principal amount is outstanding as of the date hereof, for an
equal principal amount of newly issued 9 1/2% Senior Subordinated Notes due
2008, Series B (the "Exchange Notes"). The Original Notes were issued on May
22, 1998 (the "Offering") by the Company. The form and terms of the Exchange
Notes will be the same in all material respects as the form and terms of the
Original Notes except that (i) the Exchange Notes will be registered under the
Securities Act of 1933, as amended (the "Securities Act"), and, therefore,
will not bear legends restricting the transfer thereof; and (ii) certain of
the registration rights under the Registration Rights Agreement (as defined
herein) relating to the Exchange Notes are different than those relating to
the Original Notes and, therefore, the defaults under the Registration Rights
Agreement that may require the Company to pay additional interest will be
different for the Exchange Notes and the Original Notes. The Exchange Notes
will evidence the same debt as the Original Notes and will be entitled to the
benefits of an indenture dated as of May 22, 1998, governing the Original
Notes and the Exchange Notes (the "Indenture"). The Indenture provides for the
issuance of both the Exchange Notes and the Original Notes. The Exchange Notes
and the Original Notes are sometimes referred to herein collectively as the
"Notes," and each holder of a Note is referred to as a "Holder".
 
  Interest on the Exchange Notes will be payable semi-annually in arrears on
June 1 and December 1 of each year, commencing December 1, 1998. The Exchange
Notes will mature on June 1, 2008. The Exchange Notes will be redeemable at
the option of the Company, in whole or in part, at any time on or after June
1, 2003 at the redemption prices set forth herein, plus accrued and unpaid
interest thereon to the date of redemption. In addition, on or prior to June
1, 2001, the Company may redeem Exchange Notes at a redemption price of 109.5%
of the principal amount thereof, plus accrued and unpaid interest thereon to
the date of redemption, with the net cash proceeds of one or more Public
Equity Offerings (as defined herein), provided that after giving effect to
such redemption the aggregate principal amount of the Notes outstanding must
equal at least $130 million. See "Description of the Notes--Optional
Redemption." Upon a Change of Control (as defined herein), each Holder will
have the right to require the Company to purchase all or a portion of such
Holder's Exchange Notes at a price equal to 101% of the principal amount
thereof, plus accrued and unpaid interest thereon to the date of purchase. See
"Description of the Notes--Change of Control."
 
                               ----------------
 
  SEE "RISK FACTORS" BEGINNING ON PAGE 15 FOR A DISCUSSION OF CERTAIN FACTORS
WHICH HOLDERS OF ORIGINAL NOTES AND PROSPECTIVE PURCHASERS OF EXCHANGE NOTES
SHOULD CONSIDER IN CONNECTION WITH THIS EXCHANGE OFFER.
 
                               ----------------
 
THESE SECURITIES HAVE  NOT BEEN APPROVED OR DISAPPROVED BY  THE SECURITIES AND
 EXCHANGE  COMMISSION  OR  ANY  STATE   SECURITIES  COMMISSION  NOR  HAS  THE
  SECURITIES AND  EXCHANGE  COMMISSION  OR ANY  STATE  SECURITIES COMMISSION
  PASSED   UPON  THE   ACCURACY  OR   ADEQUACY  OF   THIS  PROSPECTUS.   ANY
   REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
 
                               ----------------
 
                                            (cover page continued on next page)
 
               The date of this Prospectus is September 18, 1998

 
  The Exchange Notes will be unsecured senior subordinated obligations of the
Company and, as such, will be subordinated in right of payment to all existing
and future Senior Indebtedness (as defined herein) of the Company, including
borrowings under the Company's Credit Facility (as defined herein) and Term
Loan (as defined herein). The Exchange Notes will rank pari passu in right of
payment with all senior subordinated indebtedness of the Company, including
the Company's 8.80% Senior Subordinated Notes due 2008 (the "8.80% Notes") and
senior in right of payment to any future subordinated indebtedness of the
Company. The Exchange Notes will be unconditionally guaranteed (the
"Guarantees") on a senior subordinated basis by the Company's current and
future United States subsidiaries (each, a "Guarantor" and collectively, the
"Guarantors"). The Guarantees will be unsecured senior subordinated
obligations of the Guarantors and, as such, will be subordinated in right of
payment to all existing and future Guarantor Senior Indebtedness (as defined
herein). The Exchange Notes will also be effectively subordinated to all
obligations of any subsidiary of the Company that is not a Guarantor. At June
30, 1998, on a pro forma basis (after giving effect to all acquisitions
completed by the Company subsequent to such date (through September 14, 1998)
and the financing thereof), there was outstanding (i) $608.5 million of Senior
Indebtedness, (ii) $16.2 million of Guarantor Senior Indebtedness (other than
guarantees of the Company's Senior Indebtedness), (iii) $16.2 million of
obligations of subsidiaries that are not Guarantors (other than obligations to
the Company) and (iv) $205 million of indebtedness that is pari passu with the
Notes. The Indenture permits the Company and its subsidiaries to incur
additional debt, subject to certain limitations. See "Description of the
Notes."
 
  There is no established trading market for the Original Notes or the
Exchange Notes and the Company does not intend to apply for listing of the
Original Notes or the Exchange Notes on any securities exchange or for
inclusion of the Notes in any automated quotation system. Although the
Original Notes are currently eligible for trading through PORTAL (as defined
herein), the Exchange Notes will not be eligible for trading through PORTAL.
If a market for the Exchange Notes develops, the Exchange Notes could trade at
a discount from their principal amount.
 
  The Company will accept for exchange any and all Original Notes validly
tendered on or prior to 5:00 p.m., New York City time, on November 4, 1998 (if
and as extended, the "Expiration Date"). Tenders of Original Notes may be
withdrawn at any time prior to 5:00 p.m., New York City time, on the
Expiration Date. The Exchange Offer is not conditioned upon any minimum
principal amount of Original Notes being tendered for exchange. The Original
Notes may be tendered only in integral multiples of $1,000. In the event the
Company terminates the Exchange Offer and does not accept for exchange any
Original Notes, the Company will promptly return all previously tendered
Original Notes to the Holders thereof.
 
  The Original Notes were originally issued and sold on May 22, 1998 in a
transaction not registered under the Securities Act in reliance upon an
exemption from the registration requirements thereof and were offered for sale
by the initial purchasers of the Original Notes pursuant to Rule 144A and
Regulation S of the Securities Act. In general, the Original Notes may not be
offered or sold unless registered under the Securities Act, except pursuant to
an exemption from, or in a transaction not subject to, the Securities Act. The
Exchange Notes are being offered hereby in order to satisfy certain
obligations of the Company contained in the Registration Rights Agreement.
Following the Exchange Offer, any Holders of Original Notes will continue to
be subject to the existing restrictions on transfer and, subject to limited
exceptions, the Company will not have any further obligation to such Holders
to provide for registration under the Securities Act of transfers of the
Original Notes held by them. See "Registration Rights Agreement."
 
  Each Holder that wishes to exchange Original Notes for Exchange Notes in the
Exchange Offer will be required to make certain representations, including
that (i) it is not an affiliate of the Company, (ii) it is not a broker-dealer
that purchased such Original Notes directly from the Company, (iii) any
Exchange Notes that it acquires in the Exchange Offer will be acquired by it
in the ordinary course of its business and (iv) it has no arrangement with any
person to participate in the distribution of the Exchange Notes; provided,
however, that if the Holder is a broker-dealer that wishes to exchange
Original Notes that were acquired by it for its own account as a result of
market-making activities or other trading activities, it may represent, in
lieu of the representation set forth in clause (iv), that it has no
arrangement or understanding with the Company, or any affiliate of the
 
                                      ii

 
Company, to participate in the distribution of the Exchange Notes. See "The
Exchange Offer--Required Representations."
 
  Based on interpretations by the Staff of the Securities and Exchange
Commission (the "Commission") set forth in no-action letters issued to third
parties, the Company believes that the Exchange Notes issued pursuant to the
Exchange Offer may be offered for resale, resold or otherwise transferred by
any Holder thereof (other than an affiliate of the Company) without compliance
with the registration and prospectus delivery provisions of the Securities Act
(subject to the representations set forth in the preceding paragraph being
made and being accurate); provided, however, that in the case of a broker-
dealer that receives Exchange Notes in exchange for Original Notes that were
acquired by it for its own account as a result of market-making activities or
other trading activities, such broker-dealer must deliver a prospectus meeting
the requirements of the Securities Act in connection with any resales by it of
any such Exchange Notes. This Prospectus, as it may be amended or supplemented
from time to time, may, if permitted by the Company, be used by a broker-
dealer in order to satisfy such prospectus delivery requirements. The Company
has agreed in the Registration Rights Agreement that, for a period of 30 days
following consummation of the Exchange Offer (subject to extension under
certain circumstances), it will make this Prospectus available to any broker-
dealer for use in connection with any such resale (subject to the right of the
Company to restrict the use of this Prospectus under certain circumstances).
Each broker-dealer that participates in the Exchange Offer will be required to
confirm that it will comply with the prospectus delivery requirements
described above. See "The Exchange Offer--Resale of Exchange Notes" and
"Registration Rights Agreement--Certain Provisions Relating to Broker-
Dealers."
 
  Any Original Notes not tendered and accepted in the Exchange Offer will
remain outstanding. To the extent that Original Notes are tendered and
accepted in the Exchange Offer, a Holder's ability to sell untendered, or
tendered but unaccepted, Original Notes could be adversely affected.
 
  The Exchange Notes issued pursuant to the Exchange Offer will be issued in
the form of a single permanent Exchange Global Security (as defined herein),
which will be deposited with, or on behalf of, The Depository Trust Company
("DTC") and registered in its name or in the name of Cede & Co., its nominee.
Beneficial interests in the Exchange Global Security representing the Exchange
Notes will be shown on, and transfers thereof will be effected through,
records maintained by DTC and its participants. See "Description of the
Notes--Book-Entry, Delivery and Form."
 
  The Company will not receive any proceeds from, and has agreed to bear the
expense of, this Exchange Offer. No underwriter is being used in connection
with this Exchange Offer.
 
  THE EXCHANGE OFFER IS NOT BEING MADE TO, NOR WILL THE COMPANY ACCEPT TENDERS
FOR EXCHANGE FROM, HOLDERS OF THE ORIGINAL NOTES IN ANY JURISDICTION IN WHICH
THE EXCHANGE OFFER OR THE ACCEPTANCE THEREOF WOULD NOT BE IN COMPLIANCE WITH
THE SECURITIES OR BLUE SKY LAWS OF SUCH JURISDICTION.
 
 
                                      iii

 
                             AVAILABLE INFORMATION
 
  The Company has filed with the Commission in Washington, D.C. a Registration
Statement on Form S-4 (together with all amendments thereto, the "Registration
Statement"), under the Securities Act with respect to the Exchange Notes
offered hereby. This Prospectus does not contain all the information set forth
in the Registration Statement and the exhibits and schedules filed therewith,
certain portions of which have been omitted as permitted by the rules and
regulations of the Commission. For further information with respect to the
Company and the Exchange Notes offered hereby, reference is hereby made to the
Registration Statement and to the exhibits and schedules filed therewith.
Statements contained in this Prospectus regarding the contents of any contract
or other document referred to are not necessarily complete and, in each
instance, reference is made to the copy of such contract or other document
filed as an exhibit to the Registration Statement, each such statement being
deemed to be qualified in its entirety by such reference. The Registration
Statement, including all exhibits and schedules thereto, may be inspected and
copied at the public reference facilities maintained by the Commission at the
principal office of the Commission located at 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the Midwest Regional Office of the Commission
located at Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661-2511 and at the Northeast Regional office of the Commission
located at Seven World Trade Center, Suite 1300, New York, New York 10048.
Copies of such material may be obtained from the Public Reference Section of
the Commission at 450 Fifth Street, N.W., Room 1204, Washington, D.C. 20549,
at prescribed rates.
 
  The Company is subject to the informational and periodic reporting
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and in accordance therewith, files periodic reports, proxy statements,
and other information with the Commission. Such periodic reports, proxy
statements, and other information may be inspected and copied at the public
reference facilities maintained by the Commission at the principal office of
the Commission in Washington, D.C., and at the Commission's regional offices
at the addresses stated above. Copies of such material may be obtained at
prescribed rates from the Public Reference Section of the Commission at the
address stated above.
 
  The Commission maintains an Internet web site that contains reports, proxy
and information statements and other information regarding issuers that file
electronically with the Commission. The address of that site is
http://www.sec.gov.
 
            CAUTIONARY NOTICE REGARDING FORWARD LOOKING STATEMENTS
 
  Certain statements contained in this Prospectus are forward-looking in
nature. Such statements can be identified by the use of forward-looking
terminology such as "believes," "expects," "may," "will," "should," or
"anticipates" or the negative thereof or comparable terminology, or by
discussions of strategy. Prospective purchasers of Exchange Notes are
cautioned that the Company's business and operations are subject to a variety
of risks and uncertainties and, consequently, the Company's actual results may
materially differ from those projected by the forward-looking statements
contained in this Prospectus. Certain of such risks and uncertainties are
discussed under "Risk Factors," beginning on page 15 of this Prospectus, and
prospective purchasers of Exchange Notes are urged to carefully consider such
factors.
 
                                       1

 
                               PROSPECTUS SUMMARY
 
  The following summary is qualified in its entirety by, and should be read in
conjunction with, the more detailed information and financial statements and
notes thereto appearing elsewhere in this Prospectus. The term "the Acquired
Companies" refers collectively to the 72 companies acquired by the Company
during the period from its formation in September 1997 through September 14,
1998. Unless otherwise indicated, all financial and operating data for the
Company contained herein with respect to the year ended December 31, 1997 is on
a pro forma basis after giving effect to the acquisition of the Acquired
Companies and the financing thereof as of January 1, 1997.
 
  United Rentals (North America), Inc. (referred to herein as "URI") was
formerly named United Rentals, Inc. On August 5, 1998, a reorganization (the
"Reorganization") was effected pursuant to which (a) URI became a wholly owned
subsidiary of a newly formed holding company, (b) the name of URI was changed
from United Rentals, Inc. to United Rentals (North America), Inc. and (c) the
name of the new holding company became United Rentals, Inc. Unless otherwise
indicated or the context clearly requires otherwise, (i) the terms "United
Rentals" and "the Holding Company" refer to the new holding company, (ii) the
terms "URI' and the "Issuer" refer to United Rentals (North America), Inc. and
not its subsidiaries, (iii) the term "the Company" refers to URI and its
subsidiaries and (iv) the term "Common Stock" refers to the common stock of
URI, with respect to periods prior to the Reorganization, and to the common
stock of the Holding Company, with respect to periods thereafter.
 
                                  THE COMPANY
 
  The Company is a large, geographically diversified equipment rental company
with 269 rental locations in 31 states and Canada. The Company rents a broad
array of equipment to a diverse customer base that includes construction
industry participants, industrial companies, homeowners and other individuals.
The Company also sells used rental equipment, acts as a distributor for certain
new equipment, and sells related merchandise and parts. The Company commenced
equipment rental operations in October 1997 by acquiring six established
companies and acquired 66 additional companies in the first nine months of 1998
(through September 14, 1998). During the year ended December 31, 1997, the
Company on a pro forma basis rented equipment to approximately 395,000
customers (with the top ten customers representing less than 1% of total
revenues) and had pro forma revenues and EBITDA (as defined herein) of $768.9
million and $235.5 million, respectively.
 
  The types of rental equipment offered by the Company include a broad range of
light to heavy construction and industrial equipment (such as backhoes,
forklifts, aerial lifts, skid-steer loaders, compressors, pumps and
generators), general tools and equipment (such as hand tools and garden and
landscaping equipment) and, to a lesser extent, special event equipment (such
as tents, tables and chairs). The equipment mix varies at each of the Company's
locations, with some locations offering a general mix and some specializing in
specific equipment categories. As of September 14, 1998, the Company's rental
equipment included approximately 153,000 units (not including special event
equipment), had an original purchase price of approximately $849 million and
had a weighted average age (based on original purchase price) of approximately
32 months.
 
                                 PENDING MERGER
 
GENERAL
 
  On June 15, 1998, the Company entered into an Agreement and Plan of Merger,
as amended and restated on August 31, 1998 (the "Merger Agreement"), with U.S.
Rentals, Inc., a Delaware corporation ("U.S. Rentals"). The Merger Agreement
provides, subject to the terms and conditions set forth therein, for a
subsidiary of United Rentals to be merged with and into U.S. Rentals (the
"Merger"). Following the Merger, U.S. Rentals will become a wholly owned
subsidiary of URI. At the effective time of the Merger, (i) each outstanding
 
                                       2

 
share of U.S. Rentals common stock will be converted into 0.9625 shares of
Common Stock of United Rentals (the "Exchange Ratio") and (ii) all outstanding
options to purchase shares of U.S. Rentals common stock will be assumed by
United Rentals and converted into options to purchase Common Stock of United
Rentals, subject to adjustment for the Exchange Ratio. The Merger is expected
to be accounted for as a "pooling of interests" for financial accounting
purposes. See "Certain Information Concerning Pending Merger."
 
  U.S. Rentals is the second largest equipment rental company in the United
States and the largest in the Western United States based on 1997 rental
revenues. U.S. Rentals currently operates 131 equipment rental locations in 23
states and Mexico and generates an average of approximately 145,000 rental
contracts per month from a diverse base of customers including commercial and
residential construction, industrial and homeowner customers. U.S. Rentals
management estimates that more than 280,000 customers did business with U.S.
Rentals in 1997. U.S. Rentals owns more than 101,000 pieces of rental equipment
comprised of approximately 600 equipment categories, including aerial work
platforms, forklifts, paving and concrete equipment, compaction equipment, air
compressors, hand tools, plumbing, landscaping and gardening equipment. U.S.
Rentals management believes that U.S. Rentals' fleet, which had a weighted
average age of approximately 20 months and an original equipment cost of
approximately $725 million at June 30, 1998, is one of the most comprehensive
and well-maintained equipment rental fleets in the industry. U.S. Rentals also
sells new equipment manufactured by nationally known companies, used equipment
from its rental fleet and rental-related merchandise, parts and supplies.
 
COMBINED OPERATIONS OF THE COMPANY AND U.S. RENTALS
 
  The Company and U.S. Rentals on a combined basis (the "Combined Company")
currently operates 400 rental locations (360 in the United States, 39 in Canada
and one in Mexico). During the year ended December 31, 1997, the Combined
Company rented equipment to over 675,000 customers, of which the top 10
customers represented less than 2.0% of total revenues, and had revenues and
EBITDA of $1,193.6 million and $379.9 million, respectively, on a pro forma
basis (giving effect to the Merger and the acquisitions of the Acquired
Companies). As of September 14, 1998, the Combined Company's rental equipment
included approximately 254,000 units (excluding special event equipment) and
had an original purchase price of approximately $1,574.0 million and a weighted
average age (based on original purchase price) of approximately 26 months.
 
                                  THE INDUSTRY
 
  The Company estimates that the U.S. equipment rental industry (including used
and new equipment sales by rental companies) generates annual revenues in
excess of $20 billion. The combined equipment rental revenues of the 100
largest equipment rental companies have increased at an estimated compound
annual rate of approximately 23% from 1992 through 1997 (based upon 1992
revenues and 1997 pro forma revenues, giving effect to certain acquisitions
completed after the beginning of 1997, reported by the Rental Equipment
Register, an industry trade publication). The Company believes that growth in
the equipment rental industry primarily reflects increasing recognition by
customers of the many advantages that equipment rental may offer compared with
ownership, including the ability to: (i) avoid the large capital investment
required for equipment purchases, (ii) reduce storage and maintenance costs,
(iii) supplement owned equipment, thereby increasing the range and number of
jobs that can be worked on, (iv) access a broad selection of equipment and
select the equipment best suited for each particular job, (v) obtain equipment
as needed and minimize the costs associated with idle equipment, and (vi)
access the latest technology without investing in new equipment.
 
  The equipment rental industry is highly fragmented and consists of a small
number of multi-location regional or national operators and a large number of
relatively small, independent businesses serving discrete local markets. Based
upon rental revenues reported by the Rental Equipment Register for 1997: (i)
there were
 
                                       3

 
only 10 equipment rental companies that had 1997 equipment rental revenues in
excess of $100 million (with the largest company having had 1997 equipment
rental revenues of approximately $460 million), (ii) the largest 100 equipment
rental companies combined had less than a 22% share of the market based on 1997
equipment rental revenues and the Company's estimate of the size of the market
(with the largest company having had a market share of less than 3%), and (iii)
there were approximately 100 equipment rental companies that had 1997 equipment
rental revenues between $5 million and $100 million. In addition, the Company
estimates that there are more than 20,000 companies with annual equipment
rental revenues of less than $5 million. The Company believes that the
fragmented nature of the industry presents substantial consolidation and growth
opportunities for companies with access to capital and the ability to implement
a disciplined acquisition program and effectively integrate and operate
acquired companies.
 
                                GROWTH STRATEGY
 
  The Company's growth strategy is to continue to expand through internal
growth, a disciplined acquisition program and the opening of new rental
locations, and to further diversify its equipment categories and customer
markets. The Company believes that it has competitive advantages relative to
many smaller operators, including greater purchasing power, a lower cost of
capital, the ability to provide customers with a broader range of equipment and
services and with newer and better maintained equipment, greater flexibility to
transfer equipment among locations in response to customer demand, and greater
ability to efficiently dispose of used equipment through direct sales to
customers.
 
  The Company is seeking to make acquisitions of varying size, including
acquisitions of smaller companies to complement existing or anticipated
locations and combinations with relatively large companies that have an
established presence in one or more regions. In evaluating potential
acquisition targets, the Company considers a number of factors, including the
quality of the target's rental equipment and management, the opportunities to
improve operating margins and increase internal growth at the target, the
economic prospects of the region in which the target is located, the potential
for additional acquisitions in the region, and the competitive landscape in the
target's markets. The Company will continue to seek expansion opportunities in
North America and to pursue acquisition candidates with varying types of
equipment and customer specializations. The Company believes that geographic
and customer diversification will allow the Company to participate in the
overall growth of the equipment rental industry and reduce the Company's
sensitivity to fluctuations in regional economic conditions, adverse weather
impacting a particular region or changes that affect particular market
segments.
 
  The Company focuses substantial efforts on improving operating margins and
increasing internal growth at acquired companies. The Company seeks to improve
operating margins by efficiently integrating new and existing operations,
eliminating duplicative costs, reducing overhead, centralizing functions such
as purchasing and information technology, and applying best practices. The
Company seeks to increase internal growth by investing in additional and more
modern equipment, using advanced information technology systems to improve
asset utilization and tracking, increasing sales and marketing efforts, cross-
marketing between locations that offer different equipment categories,
expanding the customer segments and geographic areas served, and opening
complementary locations. The Company believes that the potential to increase
growth through capital investment is particularly significant at many acquired
companies because a lack of capital has constrained many small and mid-sized
equipment rental companies from adequately expanding and modernizing their
equipment.
 
                                   BACKGROUND
 
  The Company was founded by eight of the Company's officers. Each of the
founders was formerly a senior executive of United Waste Systems, Inc. ("United
Waste"), a solid waste management company that was sold in August 1997, or a
senior member of United Waste's acquisition team. United Waste executed a
growth
 
                                       4

 
strategy that combined a disciplined acquisition program (including over 200
acquisitions completed from January 1995 through August 1997), the integration
and optimization of acquired facilities, and internal growth. Since the
founding of the Company, the Company has recruited additional operating,
acquisition, finance and other personnel from the equipment rental industry and
other industries, including regional managers, store managers and acquisition
professionals with extensive experience in the equipment rental industry.
 
  URI was incorporated under the laws of the State of Delaware as "United
Rentals, Inc." in August 1997, initially capitalized in September 1997 and
commenced rental operations in October 1997. In August 1998, pursuant to the
Reorganization, URI became a wholly owned subsidiary of United Rentals and the
corporate name of URI was changed to "United Rentals (North America), Inc." The
executive offices of the Company are located at Four Greenwich Office Park,
Greenwich, Connecticut 06830, and its telephone number is (203) 622-3131.
 
       CERTAIN INFORMATION CONCERNING THE ISSUANCE OF THE ORIGINAL NOTES
 
  The Original Notes were originally issued and sold on May 22, 1998 in a
transaction not registered under the Securities Act in reliance upon an
exemption from the registration requirements thereof. The initial purchasers
(the "Initial Purchasers") of the Original Notes were: Merrill Lynch, Pierce,
Fenner & Smith Incorporated; Donaldson, Lufkin & Jenrette Securities
Corporation; Goldman, Sachs & Co.; and Salomon Brothers Inc. The Initial
Purchasers subsequently offered and resold the Original Notes pursuant to Rule
144A and Regulation S under the Securities Act. In connection with the issuance
of the Original Notes, the Company entered into a Registration Rights Agreement
with the Initial Purchasers (the "Registration Rights Agreement") which
provides the Holders of the Notes with certain registration and exchange
rights. The Exchange Offer is intended to satisfy certain of the Company's
obligations under the Registration Rights Agreement. See "Registration Rights
Agreement."
 
  The Original Notes are represented by two, permanent global notes which are
registered in the name of a nominee of DTC. Pursuant to procedures established
by DTC, interests in the global notes are held in book-entry form by
participants in the DTC system who have accounts with DTC ("DTC Participants").
Accordingly, ownership of beneficial interests in such Notes is limited to DTC
Participants or persons who hold such interests through DTC Participants.
 
  The term "Book-Entry Holder" with respect to any Notes means the DTC
Participant that is listed as the holder of such Notes in the records
maintained by DTC.
 
                                       5

 
 
                               THE EXCHANGE OFFER
 
The Exchange Offer..........  The Company is offering to exchange up to $200
                              million aggregate principal amount of Exchange
                              Notes for a like principal amount of Original
                              Notes. The Exchange Notes may be exchanged only
                              in multiples of $1,000 principal amount. The
                              Company will issue the Exchange Notes on or
                              promptly after the Expiration Date. See "The
                              Exchange Offer."
 
Required Representations....  In connection with any tender of Original Notes
                              pursuant to the Exchange Offer, the Book-Entry
                              Holder of such Original Notes will be required to
                              make certain representations in the Letter of
                              Transmittal, including that (i) it is not an
                              affiliate of the Company, (ii) it is not a
                              broker-dealer that purchased such Original Notes
                              directly from the Company, (iii) any Exchange
                              Notes that it acquires in the Exchange Offer will
                              be acquired by it in the ordinary course of its
                              business and (iv) it has no arrangement with any
                              person to participate in the distribution of the
                              Exchange Notes; provided, however, that if the
                              Book-Entry Holder is a broker-dealer that wishes
                              to tender Original Notes that were acquired by it
                              for its own account as a result of market-making
                              activities or other trading activities, it may
                              represent, in lieu of the representation set
                              forth in clause (iv) above, that it has no
                              arrangement or understanding with the Company, or
                              any affiliate of the Company, to participate in
                              the distribution of the Exchange Notes. In
                              addition, any Book-Entry Holder that holds any
                              Original Notes as nominee, will be required to
                              confirm that the beneficial owner for which it is
                              holding such Notes has made the representations
                              provided for in the preceding sentence.
 
Resale of the Exchange        Based on interpretations by the Staff of the
 Notes......................  Commission set forth in no-action letters issued
                              to third parties, the Company believes that the
                              Exchange Notes issued pursuant to the Exchange
                              Offer may be offered for resale, resold or
                              otherwise transferred by any Holder thereof
                              (other than an affiliate of the Company) without
                              compliance with the registration and prospectus
                              delivery provisions of the Securities Act
                              (subject to the representations set forth in the
                              preceding paragraph being made and being
                              accurate); provided, however, that in the case of
                              a broker-dealer that receives Exchange Notes in
                              exchange for Original Notes that were acquired by
                              it for its own account as a result of market-
                              making activities or other trading activities,
                              such broker-dealer must deliver a prospectus
                              meeting the requirements of the Securities Act in
                              connection with any resales by it of any such
                              Exchange Notes. This Prospectus, as it may be
                              amended or supplemented from time to time, may,
                              if permitted by the Company, be used by a broker-
                              dealer in order to satisfy such prospectus
                              delivery requirements. The Company has agreed in
                              the Registration Rights Agreement that, for a
                              period of 30 days following consummation of the
                              Exchange Offer (subject to extension under
                              certain circumstances), it will make this
                              Prospectus available to any broker-dealer for use
                              in connection with any such
 
                                       6

 
                              resale (subject to the right of the Company to
                              restrict the use of this Prospectus under certain
                              circumstances). Each broker-dealer that
                              participates in the Exchange Offer will be
                              required to confirm that it will comply with the
                              prospectus delivery requirements described above.
                              See "Registration Rights Agreement" and "Plan of
                              Distribution."
 
                              The conclusions set forth in the preceding
                              paragraph are based on interpretations by the
                              Staff of the Commission set forth in no-action
                              letters issued to third parties. The Company does
                              not intend to seek its own no-action letter with
                              respect to the Exchange Offer and there can be no
                              assurance that the Staff of the Commission would
                              make a similar determination with respect to the
                              Exchange Offer as it has in such no-action
                              letters to third parties.
 
Accrued Interest on the
 Original Notes.............
                              The Exchange Notes will bear interest at the rate
                              of 9 1/2% per annum from and including the last
                              interest payment date on the Original Notes (or,
                              if none has yet occurred, the date of issuance of
                              such Original Notes). Accordingly, Holders of
                              Original Notes that are accepted for exchange
                              will not receive interest that is accrued but
                              unpaid on the Original Notes at the time of
                              tender, but such interest will be payable in
                              respect of the Exchange Notes delivered in
                              exchange for such Original Notes on the first
                              interest payment date after the Expiration Date.
 
Procedures for Tendering
 Original Notes.............
                              To tender any Original Notes pursuant to the
                              Exchange Offer, the Book-Entry Holder of such
                              Original Notes must make book-entry delivery of
                              such Original Notes by causing DTC to transfer
                              such Original Notes to the account of the
                              Exchange Agent (as defined herein) at DTC in
                              accordance with DTC's Automated Tender Offer
                              Program ("ATOP"). In addition, either (i) DTC
                              must deliver an Agent's Message (as defined
                              below) prior to 5:00 p.m., New York City time, on
                              the Expiration Date, indicating that DTC has
                              received from such Book-Entry Holder an express
                              acknowledgment that such Book-Entry Holder has
                              received and agrees to be bound by the terms of
                              the accompanying Letter of Transmittal (the
                              "Letter of Transmittal") or (ii) such Book-Entry
                              Holder must complete, sign and date the Letter of
                              Transmittal or a facsimile thereof, in accordance
                              with the instructions contained herein and
                              therein, and deliver such Letter of Transmittal,
                              or such facsimile, and any other required
                              documentation to the Exchange Agent at the
                              address set forth herein prior to 5:00 p.m., New
                              York City time, on the Expiration Date. The term
                              "Agent's Message" means a message transmitted by
                              DTC to, and received by, the Exchange Agent and
                              forming part of the book-entry confirmation
                              relating to a book-entry transfer of Original
                              Notes through ATOP, which states that DTC has
                              received an express acknowledgment from the DTC
                              Participant that is tendering the Original Notes
                              which are the subject of such book entry
                              confirmation, that such DTC Participant has
                              received and agrees to be bound by the terms of
                              the Letter of Transmittal. See "The Exchange
                              Offer--Procedures for Tendering."
 
                                       7

 
 
Expiration Date.............  5:00 p.m., New York City time, on November 4,
                              1998, unless the Exchange Offer is extended, in
                              which case the term "Expiration Date" means the
                              latest date and time to which the Exchange Offer
                              is extended. See "The Exchange Offer--Expiration
                              Date; Extensions; Amendments."
 
Exchange Date...............  The date of acceptance for exchange of the
                              Original Notes tendered for exchange will be
                              when, as and if the Company gives oral or written
                              notice thereof to the Exchange Agent.
 
Withdrawal Rights...........  Tenders of Original Notes may be withdrawn at any
                              time prior to 5:00 p.m., New York City time, on
                              the Expiration Date by (i) furnishing a written
                              or facsimile notice of withdrawal to the Exchange
                              Agent containing the information set forth under
                              "The Exchange Offer--Withdrawal of Tenders" or
                              (ii) complying with the appropriate procedures of
                              DTC's ATOP system.
                              
Acceptance of Original       
 Notes and Delivery of       
 Exchange Notes.............  Subject to satisfaction or waiver of all the
                              conditions referred to below, the Company will
                              accept for exchange any and all Original Notes
                              which are properly tendered in the Exchange Offer
                              prior to 5:00 p.m., New York City time, on the
                              Expiration Date. The Exchange Notes issued
                              pursuant to the Exchange Offer will be delivered
                              promptly following the Expiration Date. See "The
                              Exchange Offer--Terms of the Exchange Offer."

Conditions to the Exchange   
 Offer......................  The Exchange Offer is not conditioned upon any
                              minimum aggregate principal amount of Original
                              Notes being tendered for exchange. The Exchange
                              Offer is subject to certain customary conditions
                              concerning, among other things, changes to
                              existing law and governmental approvals, which
                              may be waived by the Company. See "The Exchange
                              Offer--Conditions."

Federal Income Tax           
 Consequences...............  The exchange of Original Notes for Exchange Notes
                              pursuant to the terms set forth in this
                              Prospectus should not result in any material
                              federal income tax consequences to Holders
                              exchanging Original Notes for Exchange Notes. See
                              "The Exchange Offer--Certain Federal Income Tax
                              Considerations."
 
Use of Proceeds.............  There will be no cash proceeds to the Company
                              from the exchange of Original Notes pursuant to
                              the Exchange Offer. The net proceeds to the
                              Company from the sale of the Original Notes was
                              approximately $193.1 million. The Company (i)
                              used $102.8 million of the net proceeds from the
                              sale of the Original Notes to repay outstanding
                              indebtedness under the Credit Facility and (ii)
                              used the balance of such net proceeds for
                              acquisitions.
 
Exchange Agent..............  State Street Bank and Trust Company is serving as
                              exchange agent (the "Exchange Agent") in
                              connection with the Exchange Offer. The address
                              and telephone number of the Exchange Agent is set
                              forth under "The Exchange Offer--Exchange Agent."
                              State Street Bank and Trust Company also serves
                              as Trustee under the Indenture.
 
 
                                       8

 
Effect on the Holders of
 Original Notes.............
                              Upon consummation of the Exchange Offer, the
                              Holders of Original Notes will not have any
                              further registration rights under the
                              Registration Rights Agreement (subject to limited
                              exceptions as described under "Registration
                              Rights Agreement--Shelf Registration Statement").
                              Holders of the Original Notes who do not tender
                              their Original Notes in the Exchange Offer will
                              continue to hold such Original Notes and will be
                              entitled to all the rights and will be subject to
                              all the limitations applicable thereto under the
                              Indenture. All Original Notes that remain
                              outstanding upon consummation of the Exchange
                              Offer will continue to be subject to the
                              restrictions on transfer provided for in the
                              Original Notes and the Indenture. In general, the
                              Original Notes may not be offered or sold unless
                              registered under the Securities Act, except
                              pursuant to an exemption from, or in a
                              transaction not subject to, the registration
                              requirements of the Securities Act. To the extent
                              that the Original Notes are tendered and accepted
                              in the Exchange Offer, the trading market for
                              untendered Original Notes could be adversely
                              affected.
 
                                       9

 
 
                     SUMMARY OF TERMS OF THE EXCHANGE NOTES
 
  The Exchange Offer applies to $200 million aggregate principal amount of the
Original Notes. The terms of the Exchange Notes will be the same in all
material respects as the Original Notes except that (i) the Exchange Notes will
be registered under the Securities Act, and, therefore, will not bear legends
restricting the transfer thereof and (ii) certain of the registration rights,
under the Registration Rights Agreement, relating to the Exchange Notes are
different than those relating to the Original Notes and, therefore, the
defaults under the Registration Rights Agreement that may require the Company
to pay additional interest will be different for the Exchange Notes and the
Original Notes. The Exchange Notes will evidence the same debt as the Original
Notes and both series of Notes will be entitled to the benefits of the
Indenture and treated as a single class of debt securities.
 
Issuer......................  United Rentals (North America), Inc.
 
Maturity....................  June 1, 2008.
 
Interest Payment Dates......  June 1 and December 1 of each year, commencing
                              December 1, 1998.
 
Optional Redemption.........  The Exchange Notes will be redeemable at the
                              option of the Company, in whole or in part, at
                              any time on or after June 1, 2003, at the
                              redemption prices set forth herein, plus accrued
                              and unpaid interest thereon to the date of
                              redemption.
 
                              In addition, on or prior to June 1, 2001, the
                              Company may redeem Exchange Notes at a redemption
                              price of 109.5% of the principal amount thereof,
                              plus accrued and unpaid interest thereon to the
                              date of redemption, with the net cash proceeds of
                              one or more Public Equity Offerings (as defined
                              herein), provided that not less than $130 million
                              of principal amount of the Notes is outstanding
                              immediately after giving effect to such
                              redemption. See "Description of the Notes--
                              Optional Redemption."
 
Guarantees..................  The Exchange Notes will be unconditionally
                              guaranteed on a senior subordinated basis by the
                              Company's current and future United States
                              subsidiaries.
 
Ranking.....................  The Exchange Notes will be unsecured senior
                              subordinated obligations of the Issuer and, as
                              such, will be subordinated in right of payment to
                              all existing and future Senior Indebtedness (as
                              defined herein) of the Issuer, including
                              borrowings under the Company's $300 million
                              revolving credit facility (the "Credit Facility")
                              and $250 million term loan due 2005 (the "Term
                              Loan"). The Exchange Notes will rank pari passu
                              in right of payment with any senior subordinated
                              indebtedness of the Issuer, including the
                              Issuer's 8.80% Notes, and senior in right of
                              payment to any future subordinated indebtedness
                              of the Issuer. The Guarantees will be unsecured
                              senior subordinated obligations of the Guarantors
                              and, as such, will be subordinated in right of
                              payment to all existing and future Guarantor
                              Senior Indebtedness (as defined herein). The
                              Guarantees will rank pari passu with any future
                              senior subordinated Indebtedness of the
                              Guarantors, and senior in right of payment to
 
                                       10

 
                              any future subordinated indebtedness of the
                              Guarantors. The Company's Canadian subsidiaries
                              will not be Guarantors and, as a result, the
                              Exchange Notes will be effectively subordinated
                              to all obligations of such subsidiaries,
                              including trade payables of such subsidiaries. At
                              June 30, 1998, on a pro forma basis (after giving
                              effect to all acquisitions completed by the
                              Company subsequent to such date (through
                              September 14, 1998) and the financing thereof),
                              there was outstanding (i) $608.5 million of
                              Senior Indebtedness, (ii) $16.2 million of
                              Guarantor Senior Indebtedness (other than
                              guarantees of the Company's Senior Indebtedness),
                              (iii) $16.2 million of obligations of
                              subsidiaries that are not Guarantors (other than
                              obligations to the Company) and (iv) $205 million
                              of indebtedness that is pari passu with the
                              Notes. The Indenture permits the Company and its
                              subsidiaries to incur additional debt, subject to
                              certain limitations. See "Description of the
                              Notes--Subordination" and "--Certain Covenants--
                              Limitation on Indebtedness."
 
Change of Control...........  Following the occurrence of a Change of Control
                              (as defined herein), each Holder of Exchange
                              Notes will have the right to require the Company
                              to purchase all or a portion of such Holder's
                              Exchange Notes at a purchase price equal to 101%
                              of the aggregate principal amount thereof, plus
                              accrued and unpaid interest thereon to the date
                              of purchase. See "Description of the Notes--
                              Change of Control."
 
Certain Covenants...........  The Indenture contains certain covenants,
                              including (i) limitations on additional
                              indebtedness, (ii) limitations on restricted
                              payments, (iii) limitations on liens, (iv)
                              limitations on dividends and other payment
                              restrictions affecting Restricted Subsidiaries
                              (as defined herein), (v) limitations on preferred
                              stock of Restricted Subsidiaries, (vi)
                              limitations on transactions with affiliates,
                              (vii) limitations on the disposition of proceeds
                              of asset sales and (viii) limitations on
                              designations of Unrestricted Subsidiaries (as
                              defined herein). In addition, the Indenture
                              limits the ability of the Company to consolidate,
                              merge or sell all or substantially all of its
                              assets. These covenants are subject to important
                              exceptions and qualifications. See "Description
                              of the Notes--Certain Covenants."
 
Registration Rights.........  A broker-dealer (a "Participating Broker-Dealer")
                              that receives Exchange Notes in exchange for
                              Original Notes that were acquired by it for its
                              own account as a result of market-making
                              activities or other trading activities will be
                              required to deliver a prospectus meeting the
                              requirements of the Securities Act in connection
                              with any resales by it of any such Exchange
                              Notes. This Prospectus, as it may be amended or
                              supplemented from time to time, may, if permitted
                              by the Company, be used by a broker-dealer in
                              order to satisfy such prospectus delivery
                              requirements. The Company has agreed in the
                              Registration Rights Agreement that it will use
                              its best efforts to make this Prospectus
                              available to any such broker-dealer for use in
                              connection with any resales of such Exchange
                              Notes (subject to the right of the Company to
                              restrict the use of this
 
                                       11

 
                              Prospectus under certain circumstances). The
                              obligation of the Company to make this Prospectus
                              available as aforesaid will commence on the day
                              that the Exchange Offer is consummated and
                              continue in effect for a 30-day period (the
                              "Broker Prospectus Period"); provided, however,
                              that, if for any day during such period the
                              Company restricts the use of such prospectus, the
                              Broker Prospectus Period shall be extended on a
                              day-for-day basis.
 
                              The Company has agreed in the Registration Rights
                              Agreement that, if at the end of the Broker
                              Prospectus Period any Participating Broker-Dealer
                              continues to hold any Exchange Notes that it
                              received in the Exchange Offer, the Company will
                              (within the time period specified under
                              "Registration Rights Agreement"), if any such
                              broker-dealer so requests within 60 days after
                              the end of the Broker Prospectus Period, file
                              with the Commission a shelf registration
                              statement (a "Broker Shelf Registration
                              Statement") to cover the resale of such Exchange
                              Notes by such broker-dealers and use its best
                              efforts to have such registration statement
                              declared effective by the Commission; provided,
                              however, that (i) the Company may in lieu of
                              filing such registration statement extend the
                              Broker Prospectus Period by 60 days and (ii) the
                              Company will not be required to file such
                              registration statement until such time as the
                              Company becomes eligible to use a Form S-3 for
                              such registration statement. The interest rate on
                              the Exchange Notes is subject to increase under
                              certain circumstances if the Company is not in
                              compliance with its obligations under the
                              Registration Rights Agreement relating to the
                              Broker Shelf Registration Statement. See
                              "Registration Rights Agreement."
 
Absence of Public Market
 for Exchange Notes.........
                              The Exchange Notes are new securities for which
                              there is currently no established trading market.
                              Although the Initial Purchasers have informed the
                              Company that they currently intend to make a
                              market in the Exchange Notes, they are not
                              obligated to do so and any such market making may
                              be discontinued at any time without notice.
                              Accordingly, there can be no assurance as to the
                              development or liquidity of any market for the
                              Exchange Notes. The Company does not intend to
                              apply for listing of the Exchange Notes on any
                              securities exchange or for quotation through the
                              Nasdaq National Market. Although the Original
                              Notes are currently eligible for trading in the
                              Private Offerings, Resale and Trading through
                              Automated Linkages ("PORTAL") market of the
                              National Association of Securities Dealers, Inc.,
                              the Exchange Notes will not be eligible for
                              trading through PORTAL. If a market for the
                              Exchange Notes develops, the Exchange Notes could
                              trade at a discount from their principal amount.
 
                                  RISK FACTORS
 
  See "Risk Factors" beginning on page 15 for a discussion of certain factors
applicable to an investment in the Notes.
 
                                       12

 
      SUMMARY HISTORICAL AND PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
 
  The following unaudited pro forma income statement data and other financial
data with respect to the year ended December 31, 1997 and the six months ended
June 30, 1998 gives effect to (i) each acquisition of an Acquired Company
completed by the Company after the beginning of the period and the financing
thereof, as if each such transaction had occurred at the beginning of the
period, and (ii) completion of the Merger with U.S. Rentals using the "pooling
of interests" method of accounting, as if all such transactions had occurred at
the beginning of the period. The following unaudited pro forma income statement
data with respect to the years ended December 31, 1995 and 1996 gives effect to
(i) the acquisition of Rental Tools and Equipment Co. International, Inc.
(which was completed in August 1998 and accounted for as a "pooling of
interests"), as if such transaction had occurred at the beginning of the period
presented, and (ii) completion of the Merger with U.S. Rentals using the
"pooling of interests" method of accounting, as if such transaction had
occurred at the beginning of the period.
 
  The following unaudited pro forma balance sheet data as of June 30, 1998
gives effect to (i) each acquisition of an Acquired Company completed by the
Company subsequent to such date and the financing thereof, as if each such
transaction had occurred on such date, and (ii) completion of the Merger with
U.S. Rentals using the "pooling of interests" method of accounting, as if such
transaction had occurred on such date.
 
  The following data should be read in conjunction with (i) the information set
forth under "Use of Proceeds," "Capitalization," "Selected Historical and Pro
Forma Consolidated Financial Information" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations," (ii) the
Consolidated Financial Statements and the related notes thereto and Pro Forma
Consolidated Financial Statements and the related notes thereto of the Company
included elsewhere in this Prospectus and (iii) the financial statements of
certain of the Acquired Companies and of U.S. Rentals included elsewhere in
this Prospectus. The pro forma data set forth below is provided for
informational purposes only and does not purport to be indicative of the
results that would have actually been obtained had the acquisition of each of
the Acquired Companies and the Merger been completed at the beginning of the
periods presented or of the results that may be expected to occur in the
future.
 
                                       13

 
 


                            PERIOD FROM
                          AUGUST 14, 1997
                            (INCEPTION)     SIX MONTHS      YEAR ENDED DECEMBER 31,      SIX MONTHS
                              THROUGH          ENDED     ------------------------------     ENDED
                         DECEMBER 31, 1997 JUNE 30, 1998   1995      1996       1997    JUNE 30, 1998
                         ----------------- ------------- --------- --------- ---------- -------------
                            HISTORICAL      HISTORICAL   PRO FORMA PRO FORMA PRO FORMA    PRO FORMA
                         ----------------- ------------- --------- --------- ---------- -------------
                                        (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
                                                                      
INCOME STATEMENT DATA:
Total revenues..........      $10,633        $127,351    $282,887  $353,196  $1,193,622   $650,019
Gross profit............        3,811          47,239      89,246   104,578     409,638    213,785
Operating income........          238          18,322      42,183    49,282     154,257     82,823
Interest expense........          454           4,937       7,471    10,936      74,339     32,982
Net income..............           34           8,220      33,297    37,725      36,279     32,962
Basic earnings per
 share..................      $  0.00        $   0.27    $   1.47  $   1.66  $     0.55   $   0.49
Diluted earnings per
 share..................      $  0.00        $   0.23    $   1.47  $   1.66  $     0.53   $   0.45

 


                            PERIOD FROM
                          AUGUST 14, 1997
                            (INCEPTION)     SIX MONTHS                      SIX MONTHS
                              THROUGH          ENDED        YEAR ENDED         ENDED
                         DECEMBER 31, 1997 JUNE 30, 1998 DECEMBER 31, 1997 JUNE 30, 1998
                         ----------------- ------------- ----------------- -------------
                            HISTORICAL      HISTORICAL       PRO FORMA       PRO FORMA
                         ----------------- ------------- ----------------- -------------
                                             (DOLLARS IN THOUSANDS)
                                                               
OTHER FINANCIAL DATA:
EBITDA(1)...............      $1,539          $36,702        $379,857        $200,524
EBITDA margin(2)........        14.5%            28.8%           31.8%           30.8%
Interest expense(3).....      $  454          $ 4,937        $ 74,339        $ 32,982
Depreciation and
 amortization...........      $1,301          $18,380        $205,310        $117,701
Ratio of EBITDA to
 interest expense.......        3.4x             7.4x            5.1x            6.1x

 


                                                           AS OF JUNE 30, 1998
                                                          ---------------------
                                                          HISTORICAL PRO FORMA
                                                          ---------- ----------
                                                               (DOLLARS IN
                                                               THOUSANDS)
                                                               
BALANCE SHEET DATA:
Cash and cash equivalents................................  $  5,486  $   26,510
Rental equipment, net....................................   298,956   1,081,380
Total assets.............................................   889,164   2,374,226
Total debt...............................................   389,181   1,406,859
Stockholders' equity.....................................   418,394     669,823

- --------
(1) EBITDA is defined as net income (calculated excluding non-operating income
    and expense and excluding the $20.3 million Non-Recurring U.S. Rentals
    Charge) plus interest expense, income taxes and depreciation and
    amortization. EBITDA is presented to provide additional information
    concerning the Company's ability to meet its future debt service
    obligations and capital expenditure and working capital requirements.
    EBITDA is not a measure of financial performance under generally accepted
    accounting principles and should not be considered as an alternative to
    either net income as an indicator of the Company's operating performance or
    cash flows as an indicator of the Company's liquidity.
 
(2) EBITDA margin is defined as EBITDA as a percentage of revenues.
 
(3) Interest expense excludes the amortization of deferred financing fees.
 
                                       14

 
                                 RISK FACTORS
 
  In addition to the other information contained in this Prospectus, Holders
of Original Notes should carefully consider the following factors before
deciding to tender Original Notes in the Exchange Offer. Except as otherwise
indicated, the risk factors set forth below are generally applicable to both
the Original Notes and the Exchange Notes.
 
SUBSTANTIAL LEVERAGE; ABILITY TO SERVICE INDEBTEDNESS IS DEPENDENT ON FUTURE
PERFORMANCE
 
  The Company incurred substantial indebtedness in connection with its
acquisition of the Acquired Companies. As of June 30, 1998, the Company had
total debt of $1,028.3 million on a pro forma basis after giving effect to the
acquisitions completed by the Company subsequent to such date (through
September 14, 1998) and the financing thereof. The Company expects to obtain a
new, larger credit facility in connection with the pending Merger with U.S.
Rentals as described under "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources." In
addition, the Company will require substantial capital to finance future
acquisition growth and expects that it will incur substantial additional
indebtedness from time to time (including borrowings under its existing Credit
Facility and the new credit facility that it expects to obtain) for a variety
of purposes, including completing additional acquisitions, establishing new
rental locations and purchasing equipment. The Indenture and the other
agreements governing the Company's existing indebtedness permit the Company
and its subsidiaries to incur additional debt, subject to certain limitations.
See "--Dependence on Additional Capital to Finance Growth," "Capitalization,"
"Selected Historical and Pro Forma Consolidated Financial Information,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources" and "Description of the Notes--
Certain Covenants--Limitation on Indebtedness."
 
  The degree to which the Company is leveraged could have important
consequences to holders of the Notes, including, but not limited to, the
following: (i) a substantial portion of the Company's consolidated cash flow
from operations will be dedicated to the payment of the principal of and
interest on its debt and will not be available for other purposes, (ii) the
Company's ability to obtain additional financing in the future for
acquisitions, new rental locations, capital expenditures, general corporate
purposes or other purposes may be impaired, (iii) the Company is more
leveraged than certain of its competitors, which may place the Company at a
competitive disadvantage, (iv) a high degree of leverage may make the Company
more vulnerable to a downturn in its business or in the economy generally and
(v) certain of the Company's borrowings, including all borrowings under the
Credit Facility and the Term Loan are, or in the future may be, at variable
rates which may make the Company vulnerable to increases in interest rates.
 
  The Company's ability to make scheduled payments of principal of, or to pay
interest on or to refinance its debt (including the Notes) depends on its
future financial performance, which, to a certain extent, is subject to
general economic, financial, competitive, legislative, regulatory and other
factors beyond its control. There can be no assurance that the Company will
have sufficient cash from operations or other sources to service its debt
(including the Notes).
 
SUBORDINATION OF THE NOTES AND GUARANTEES; UNSECURED STATUS
 
  The Notes are general unsecured obligations of the Issuer and are
subordinated in right of payment to the prior payment in full of all existing
and future Senior Indebtedness of the Issuer, including all amounts owing
under the Credit Facility and the Term Loan. The Guarantees are general
unsecured obligations of the Guarantors and are subordinated in right of
payment to all existing and future Guarantor Senior Indebtedness. The
Company's Canadian subsidiaries are not Guarantors and, as a result, the Notes
are effectively subordinated to all obligations of such subsidiaries,
including trade payables of such subsidiaries. At June 30, 1998, on a pro
forma basis (after giving effect to all acquisitions completed by the Company
subsequent to such date (through September 14, 1998) and the financing
thereof), there was outstanding (i) $608.5 million of Senior Indebtedness,
(ii) $16.2 million of Guarantor Senior Indebtedness (other than guarantees of
the Company's Senior
 
                                      15

 
Indebtedness), (iii) $16.2 million of obligations of subsidiaries that are not
Guarantors (other than obligations to the Company) and (iv) $205 million of
indebtedness that is pari passu with the Notes. The Indenture permits the
Company and its subsidiaries to incur additional debt, subject to certain
limitations.
 
  The effect of such subordination provisions is that, (i) in the event of a
bankruptcy, liquidation, dissolution, reorganization or similar proceeding
with respect to the Issuer, the assets of the Issuer will be available to pay
obligations on the Notes only after all Senior Indebtedness has been paid in
full and (ii) in the event of any such occurrence with respect to a Guarantor,
the assets of such Guarantor will be available to pay obligations on the
Guarantee of such Guarantor only after all Guarantor Senior Indebtedness of
such Guarantor has been paid in full. In addition, no cash payments may be
made with respect to the Notes during the continuance of a payment default
with respect to Senior Indebtedness. Furthermore, under certain circumstances,
no cash payments with respect to the Notes may be made for a period of up to
179 days (during each period of 360 days) if a non-payment default exists with
respect to Senior Indebtedness. There can be no assurance that, after the
payment of all Senior Indebtedness and Guarantor Senior Indebtedness, there
will be sufficient assets remaining to pay amounts due on all or any of the
Notes.
 
  The Indenture permits the Company to incur certain secured indebtedness. The
Credit Facility and the Term Loan are secured by a lien on substantially all
the assets of the Company and the Guarantors. If an event of default occurs
under the Credit Facility or the Term Loan, the lenders thereunder will have
the right to exercise the remedies (such as foreclosure) available to a
secured lender under applicable law and the agreement governing the Credit
Facility or Term Loan. Since the Notes are unsecured, the effect of such
security interest is to give the lenders under the Credit Facility and the
Term Loan a prior claim on the assets of the Company and the Guarantors, in
addition to the priority that they have by virtue of the subordination
provisions described above.
 
RISKS ASSOCIATED WITH HOLDING COMPANY STRUCTURE
 
  The Company derives all its operating income from its subsidiaries and, as
of June 30, 1998, approximately 97% of the Company's consolidated assets were
held by its subsidiaries. Consequently, the Company's ability to meet its
financial obligations, including its obligations under the Notes, is dependent
upon the earnings of such subsidiaries and the distribution or other payment
of such earnings to the Company. The ability of the Company's subsidiaries to
make distributions or other payments to the Company is limited by applicable
law generally governing the payment of dividends and other distributions by
corporations. Furthermore, although at present there are no contractual
restrictions that limit the ability of the Company's subsidiaries to make
distributions or other payments to the Company, certain of the Company's
subsidiaries may in the future become subject to loan or other agreements that
contain such restrictions.
 
POSSIBLE INABILITY TO REPURCHASE NOTES UPON CHANGE OF CONTROL
 
  Upon the occurrence of a Change of Control, the Company is required under
certain circumstances to offer to repurchase the Notes for cash at a price
equal to 101% of the principal amount thereof, plus accrued and unpaid
interest thereon to the date of purchase. There can be no assurance, however,
that the Company would have sufficient cash to make such required repurchase.
Furthermore, the agreements governing the Credit Facility and Term Loan
prohibit the Company from purchasing the Notes and future agreements that the
Company may enter into relating to Senior Indebtedness may contain a similar
prohibition. In the event that a Change of Control occurs at a time when the
Company is prohibited from purchasing the Notes, the Company could seek the
consent of its lenders to the purchase of the Notes or could attempt to
refinance the borrowings that contain such prohibition. If the Company does
not obtain such consent or repay such borrowings, the Company will remain
prohibited from purchasing the Notes. In such case, the Company's failure to
purchase Notes that are tendered following a Change of Control would
constitute an event of default under the Indenture which would, in turn,
constitute a default under the Credit Facility and Term Loan and could
constitute a default under other Senior Indebtedness. In such circumstances,
the subordination provisions in the Indenture would likely restrict payments
to the Holders of the Notes.
 
                                      16

 
RESTRICTIVE COVENANTS
 
  The Indenture and the agreements governing the Company's existing
indebtedness contain, and future agreements governing the Company's long-term
debt may also contain, certain restrictive financial and operating covenants
which affect, and in many respects significantly limit or prohibit, among
other things, the ability of the Company to incur indebtedness, make
prepayments of certain indebtedness, make investments, create liens, make
acquisitions, sell assets and engage in mergers and consolidations. These
covenants may significantly limit the operating and financial flexibility of
the Company and may limit its ability to respond to changes in its business or
competitive activities. The failure by the Company to comply with such
covenants could result in an event of default under the applicable instrument,
which could permit acceleration of the debt under such instrument and in some
cases acceleration of debt under other instruments that contain cross-default
or cross-acceleration provisions. See "Description of the Notes--Certain
Covenants" and "Description of the Notes--Events of Default."
 
FRAUDULENT TRANSFER CONSIDERATIONS
 
  Various fraudulent conveyance laws enacted for the protection of creditors
may apply to the Guarantors' issuance of the Guarantees. To the extent that a
court were to find that (x) a Guarantee was incurred by a Guarantor with
actual intent to hinder, delay or defraud any present or future creditor or
(y) such Guarantor did not receive fair consideration or reasonably equivalent
value for issuing its Guarantee and such Guarantor (i) was insolvent, (ii) was
rendered insolvent by reason of the issuance of such Guarantee, (iii) was
engaged or about to engage in a business or transaction for which the
remaining assets of such Guarantor constituted unreasonably small capital to
carry on its business or (iv) intended to incur, or believed that it would
incur, debts beyond its ability to pay such debts as they matured, the court
could avoid such Guarantee or subordinate such Guarantee in favor of the
Guarantor's creditors. To the extent that the Guarantee of a Guarantor were
avoided as a fraudulent conveyance or held unenforceable for any other reason,
claims of Holders of the Notes against such Guarantor would be adversely
affected, Holders of the Notes would be solely creditors of the Issuer and the
other Guarantors and the Notes would be effectively subordinated to all
obligations of such Guarantor. To the extent that the claims of the Holders of
the Notes against any Guarantor were subordinated in favor of other creditors
of such Guarantor, such other creditors would be entitled to be paid in full
before any payment could be made on the Notes. In the event that one or more
of the Guarantees is avoided or subordinated, there can be no assurance that
after providing for all prior claims there would be sufficient assets
remaining to satisfy the claims of Holders of the Notes.
 
  Based upon financial and other information, the Company believes that the
Notes and the Guarantees are being incurred for proper purposes and in good
faith and that the Company and each Guarantor is solvent and will continue to
be solvent after issuing the Notes or its Guarantee, as the case may be, will
have sufficient capital for carrying on its business after such issuance and
will be able to pay its debts as they mature. There can be no assurance,
however, that a court passing on such standards would agree with the
foregoing. Among other things, a legal challenge of a Guarantee on fraudulent
conveyance grounds may focus on the benefits, if any, realized by the
Guarantor as a result of the issuance by the Company of the Notes.
 
CONSEQUENCES OF FAILURE TO EXCHANGE ORIGINAL NOTES
 
  All Original Notes that remain outstanding upon consummation of the Exchange
Offer will continue to be subject to the restrictions on transfer provided for
in the Original Notes and the Indenture. In general, the Original Notes may
not be offered or sold unless registered under the Securities Act, except
pursuant to an exemption from, or in a transaction not subject to, the
registration requirements of the Securities Act. Upon consummation of the
Exchange Offer, the Holders of Original Notes will not have any further
registration rights under the Registration Rights Agreement (subject to
limited exceptions as described under "Registration Right Agreement--Shelf
Registration Statement"). To the extent that the Original Notes are tendered
and accepted in the Exchange Offer, the trading market for untendered Original
Notes could be adversely affected.
 
                                      17

 
EXCHANGE OFFER PROCEDURES
 
  Issuance of the Exchange Notes for Original Notes pursuant to the Exchange
Offer will be made only after timely tender of the Original Notes in the
manner described under "The Exchange Offer--Procedure for Tendering."
Therefore, Holders desiring to tender their Original Notes pursuant to the
Exchange Offer should allow sufficient time to ensure timely tender of the
Original Notes. The Company is under no duty to give notification of defects
or irregularities with respect to tenders of Original Notes for exchange.
 
PROSPECTUS DELIVERY REQUIREMENTS APPLICABLE TO PARTICIPATING BROKER-DEALERS
 
  A broker-dealer that receives Exchange Notes in exchange for Original Notes
that were acquired by it for its own account as a result of market-making
activities or other trading activities will be required to deliver a
prospectus meeting the requirements of the Securities Act in connection with
any resales by it of any such Exchange Notes. In order for a broker-dealer to
participate in the Exchange Offer, it must acknowledge that it will comply
with such prospectus delivery requirements. The Company's obligation to make
this Prospectus available to broker-dealers for use by them in connection with
resales of the Exchange Notes is limited (as described under "Registration
Rights Agreement--Certain Provisions Relating to Broker-Dealers").
Accordingly, there can be no assurance that a prospectus meeting the
requirements of the Securities Act will be available for use by broker-dealers
in connection with any proposed resale of Exchange Notes.
 
NEED TO MAKE REPRESENTATIONS IN ORDER TO PARTICIPATE IN EXCHANGE OFFER
 
  In connection with any tender of Original Notes pursuant to the Exchange
Offer, the Book-Entry Holder of such Original Notes will be required to make
certain representations in the Letter of Transmittal, including that (i) it is
not an affiliate of the Company, (ii) it is not a broker-dealer that purchased
such Original Notes directly from the Company, (iii) any Exchange Notes that
it acquires in the Exchange Offer will be acquired by it in the ordinary
course of its business and (iv) it has no arrangement with any person to
participate in the distribution of the Exchange Notes; provided, however, that
if the Book-Entry Holder is a broker-dealer that wishes to exchange Original
Notes that were acquired by it for its own account as a result of market-
making activities or other trading activities, it may represent, in lieu of
the representation set forth in clause (iv) above, that it has no arrangement
or understanding with the Company, or any affiliate of the Company, to
participate in the distribution of the Exchange Notes. In addition, any Book-
Entry Holder that holds any Original Notes as nominee will be required to
confirm that the beneficial owner for which it is holding such Notes has made
the representations provided for in the preceding sentence. In the event that
any of the required representations is not true with respect to a Holder that
receives Exchange Notes pursuant to the Exchange Offer, the Exchange Notes
received by such Holder may be deemed to be restricted securities and, if so,
such Exchange Notes may not be offered or sold unless registered under the
Securities Act, except pursuant to an exemption from, or in a transaction not
subject to, the registration requirements of the Securities Act.
 
ABSENCE OF PUBLIC MARKET FOR THE EXCHANGE NOTES
 
  The Exchange Notes are a new issue of securities for which there is
currently no trading market. The Company does not intend to apply for listing
of the Exchange Notes on any securities exchange or for quotation through the
Nasdaq National Market. Although the Initial Purchasers have informed the
Company that they currently intend to make a market in the Exchange Notes,
they are not obligated to do so and any such market making may be discontinued
at any time without notice. Accordingly, there can be no assurance as to the
development of any market for the Exchange Notes, the liquidity of any such
market that may develop, the ability of the Holders of the Exchange Notes to
sell their Exchange Notes or the price at which such Holders would be able to
sell their Exchange Notes. If a market were to exist, the Exchange Notes could
trade at prices that may be lower than the initial offering price of the
Original Notes for which they were exchanged, depending on many factors,
including prevailing interest rates and the markets for similar securities,
general economic conditions and the financial condition and performance of,
and prospects for, the Company.
 
                                      18

 
SENSITIVITY TO GENERAL ECONOMIC AND WEATHER CONDITIONS
 
  The Company believes that the equipment rental business is sensitive to
changes in general economic conditions and may be temporarily disrupted by
adverse weather conditions. There can be no assurance that the Company's
business and financial condition will not be adversely affected by (i) changes
in general economic conditions, including changes in construction and
industrial activity, or increases in prevailing interest rates, or (ii)
adverse weather conditions that may temporarily decrease construction and
industrial activity in any one particular geographic area.
 
PENDING MERGER WITH U.S. RENTALS IS SUBJECT TO CERTAIN CONDITIONS
 
  The Merger is subject to the satisfaction or waiver of certain conditions.
See "Certain Information Concerning Pending Merger." Consequently, although
the Company expects that the Merger will be completed, there can be no
assurance of this.
 
ACQUIRED COMPANIES NOT HISTORICALLY OPERATED AS A COMBINED BUSINESS
 
  The Acquired Companies have been in existence an average of 26.5 years and
some have been in existence for more than 50 years. However, the businesses of
these companies have not historically been operated on a combined basis and
there can be no assurance that the Company will be able to integrate
successfully the businesses of the Acquired Companies (or the businesses of
any companies acquired in the future), to operate them profitably on a
combined basis, or to manage effectively the combined business. Failure by the
Company to integrate successfully or manage effectively the Acquired Companies
could have a material adverse effect on the Company's results of operations
and financial condition.
 
LIMITED OPERATING HISTORY
 
  The Company was incorporated in August 1997 and commenced equipment rental
and related operations in October 1997 by acquiring six established rental
companies. The Company acquired 66 additional companies in the first nine
months of 1998 (through September 14, 1998). Due to the recent commencement of
the Company's operations, the Company has a limited operating history upon
which an evaluation of the Company and its prospects can be based.
Furthermore, the Company's historical financial statements included herein do
not fully reflect its current operations in view of the fact that (i)
acquisitions completed after the commencement of a period are reflected in the
Company's results for only a portion of the period and (ii) acquisitions
completed subsequent to the end of a period are not reflected in the Company's
results for such period.
 
RISKS RELATING TO GROWTH STRATEGY
 
  The Company's growth strategy includes continued expansion through internal
growth, its ongoing acquisition program and the start-up of new locations.
However, there can be no assurance that the Company will successfully
implement its growth strategy or that this strategy will result in continued
profitability. In addition, under the terms of the Indenture, the indenture
governing the 8.80% Notes, and the agreements governing the Credit Facility
and the Term Loan, the Company may not make acquisitions unless certain
financial conditions are satisfied or the consent of the lenders is obtained.
Furthermore, there can be no assurance that the Company's growth rate will be
comparable to the past or future growth rate of the overall equipment rental
industry or any segment thereof. The Company's growth strategy involves a
number of risks and uncertainties, including:
 
 AVAILABILITY OF ACQUISITION TARGETS AND SITES FOR START-UP LOCATIONS
 
  The Company may encounter substantial competition in its efforts to identify
and acquire appropriate acquisition candidates and sites for start-up
locations. Competition for acquisitions could have the effect of increasing
prices required to be paid for such acquisitions. There can be no assurance
that the Company will
 
                                      19

 
succeed in identifying appropriate acquisition candidates or sites for start-
up locations or that the Company will be able to acquire any acquisition
candidate or site that it does identify on terms that are acceptable to the
Company.
 
 NEED TO INTEGRATE NEW OPERATIONS
 
  Realization of the anticipated benefits of completed and future acquisitions
(including the pending Merger with U.S. Rentals) will depend, in part, upon
the efficient, effective and timely integration of acquired operations.
Accordingly, the Company intends to continue to focus substantial efforts on
the efficient integration of new operations, the elimination of duplicative
costs and the reduction of overhead. There can be no assurance, however, that
the Company will be successful in these efforts or that these efforts may not
in certain circumstances adversely affect existing operations.
 
 CERTAIN RISKS RELATED TO START-UP LOCATIONS
 
  The Company expects that start-up locations may initially have a negative
impact on results of operations and margins due to several factors, including:
(i) the Company will incur significant start-up expenses in connection with
establishing each start-up location and (ii) it will generally take some time
following the commencement of operations for a start-up location to become
profitable. Although start-ups can generate long-term growth, there can be no
assurance that any start-up location will become profitable within any
specific time period, if at all.
 
DEPENDENCE ON ADDITIONAL CAPITAL TO FINANCE GROWTH
 
  The Company's growth strategy will require substantial capital investment.
Capital will be required by the Company for, among other purposes, completing
acquisitions, establishing new rental locations, integrating completed
acquisitions, acquiring rental equipment and maintaining the condition of its
rental equipment. The Company intends to pay for future acquisitions using
cash, United Rentals capital stock, notes and/or assumption of indebtedness.
To the extent that cash generated internally and cash available under the
Company's borrowing facilities is not sufficient to fund the Company's capital
requirements, the Company will require additional debt and/or equity
financing. There can be no assurance, however, that such financing will be
available or, if available, will be available on terms satisfactory to the
Company. Failure by the Company to obtain sufficient additional capital in the
future could limit the Company's ability to implement its business strategy.
Future debt financings, if available, may result in increased interest and
amortization expense, increased leverage and decreased income available to
fund further acquisitions and expansion, and may limit the Company's ability
to withstand competitive pressures and render the Company more vulnerable to
economic downturns. Future equity financings may dilute the equity interest of
existing stockholders of the Company. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
 
POSSIBLE UNDISCOVERED LIABILITIES OF ACQUIRED COMPANIES
 
  Although the Company performs a due diligence investigation of each business
that it acquires, there may nevertheless be liabilities of the Acquired
Companies or future acquired companies that the Company fails or is unable to
discover during its due diligence investigation and for which the Company, as
a successor owner, may be responsible. In connection with acquisitions, the
Company seeks to minimize the impact of these liabilities by obtaining
indemnities and warranties from the sellers which may be supported by
deferring payment of a portion of the purchase price. However, these
indemnities and warranties, if obtained, may not fully cover the liabilities
due to their limited scope, amount, or duration, the financial limitations of
the indemnitor or warrantor, or other reasons.
 
DEPENDENCE ON MANAGEMENT
 
  The Company is highly dependent upon its senior management team. The loss of
the services of any member of senior management may have a material adverse
effect on the Company. The agreements governing the Credit Facility and Term
Loan provide that the failure of certain members of the Company's current
senior
 
                                      20

 
management to continue to hold executive positions with the Company for a
period of 30 consecutive days constitutes an event of default under the Credit
Facility and the Term Loan unless replacement officers satisfactory to the
lenders are appointed. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources." The
Company does not presently maintain "key man" life insurance with respect to
members of senior management.
 
  The Company's rental locations are managed by local managers who have
extensive experience in the equipment rental industry and substantial
knowledge of the local markets served. These managers are generally former
owners or employees of the businesses acquired by the Company. The loss of one
or more of these managers may have a material adverse effect on the Company in
the event that the Company is unable to find a suitable replacement in a
timely manner.
 
COMPETITION
 
  The equipment rental industry is highly fragmented and competitive. The
Company's competitors include public companies or divisions of public
companies; regional competitors which operate in one or more states; small,
independent businesses with one or two rental locations; and equipment vendors
and dealers who both sell and rent equipment directly to customers. There can
be no assurance that the Company will not encounter increased competition from
existing competitors or new market entrants or that equipment manufacturers
will not commence, or increase their efforts, to rent or sell equipment
directly to the Company's customers. In addition, to the extent that
competitors seek to gain or retain market share by reducing prices, the
Company may be required to lower its prices, thereby affecting operating
results. See "Business--Competition."
 
QUARTERLY FLUCTUATIONS OF OPERATING RESULTS
 
  The Company expects that its revenues and operating results may fluctuate
from quarter to quarter due to a number of factors, including: seasonal rental
patterns of the Company's customers (with rental activity tending to be lower
in the winter); changes in general economic conditions in the Company's
markets; the timing of acquisitions and the opening of start-up locations
(which generally will require a period of time to become profitable) and
related costs; the effect of the integration of acquired businesses and start-
up locations; the timing of expenditures for new equipment and the disposition
of used equipment; and price changes in response to competitive factors. These
factors, among others, may result in the Company's results of operations in
some future period not meeting expectations, which could have a material
adverse impact on the price of the Notes.
 
LIABILITY AND INSURANCE
 
  The Company is subject to various possible claims, including claims for
personal injury or death caused by equipment rented or sold by the Company or
motor vehicle accidents involving the Company's delivery and service personnel
and compensation and other employment related claims. The Company carries a
broad range of insurance for the protection of its assets and operations.
However, such coverage is subject to a deductible of $250,000 and limited to a
maximum of $25 million per occurrence. In addition, the Company does not
maintain insurance coverage for environmental liability, since the Company
believes that the cost for such coverage is high relative to the benefit that
it provides. Furthermore, certain types of claims, such as claims for punitive
damages or for damages arising from intentional misconduct, which are often
alleged in third party lawsuits, might not be covered by the Company's
insurance. There can be no assurance that insurance will continue to be
available to the Company on economically reasonable terms, if at all, that
existing or future claims will not exceed the level of the Company's insurance
or relate to matters not covered by the Company's insurance (such as
environmental liability), or that the Company will have sufficient capital
available to pay any uninsured claims.
 
ENVIRONMENTAL REGULATION
 
  The Company uses hazardous materials, such as solvents, to clean and
maintain its rental equipment and generates and disposes of wastes such as
used motor oil, radiator fluid, solvents and batteries. In addition, the
Company currently dispenses, or may in the future dispense, petroleum products
from underground and above-
 
                                      21

 
ground storage tanks located at certain rental locations. These and other
activities of the Company are subject to various federal, state and local laws
and regulations governing the generation, handling, storage, transportation,
treatment and disposal of hazardous substances and wastes. Under such laws, an
owner or lessee of real estate may be liable for, among other things, (i) the
costs of removal or remediation of certain hazardous or toxic substances
located on, in, or emanating from, such property, as well as related costs of
investigation and property damage and substantial penalties for violations of
such laws, and (ii) environmental contamination at facilities where its waste
is or has been disposed. Such laws often impose such liability without regard
to whether the owner or lessee knew of, or was responsible for, the presence
of such hazardous or toxic substances. Although the Company investigates each
business or property that it acquires or leases and believes there are no
existing material liabilities relating to non-compliance with environmental
laws and regulations, there can be no assurance that there are no undiscovered
potential liabilities relating to non-compliance with environmental laws and
regulations, that historic or current operations have not resulted in
undiscovered conditions that will require investigation and/or remediation
under environmental laws, or that future uses or conditions will not result in
the imposition of environmental liability upon the Company or expose the
Company to third-party actions such as tort suits. Furthermore, there can be
no assurance that changes in environmental regulations in the future will not
require the Company to make significant capital expenditures to change methods
of disposal of hazardous materials or otherwise alter aspects of its
operations.
 
CONCENTRATED CONTROL
 
  The executive officers and directors of the Company own in the aggregate
shares of Common Stock which represent approximately 43.6% of United Rentals'
outstanding Common Stock on a pro forma basis giving effect to the exercise of
all currently exercisable options and warrants owned by such executive
officers and directors (46.6% giving effect to the exercise of all options and
warrants, including options that are not currently exercisable). Such share
ownership may effectively give such persons the ability to elect the entire
Board of Directors of United Rentals and to control the Company's management
and affairs.
 
RISKS RELATED TO INTERNATIONAL OPERATIONS
 
  The Company's operations outside the United States are subject to risks
normally associated with international operations, including currency
conversion risks and complying with foreign laws.
 
                                      22

 
                              THE EXCHANGE OFFER
 
  The following summary of certain terms of the Exchange Offer is qualified in
its entirety by reference to the full text of the documents underlying the
Exchange Offer, including the Letter of Transmittal and the Registration
Rights Agreement, copies of which are filed as exhibits to the Registration
Statement of which this Prospectus is a part.
 
  Participation in the Exchange Offer is voluntary, and Holders should
carefully consider whether to accept. Holders are urged to consult their
financial and tax advisors in making their decision on what action to take.
 
PURPOSE OF THE EXCHANGE OFFER; EFFECT ON HOLDERS OF ORIGINAL NOTES
 
  The Exchange Offer is being made in order to satisfy certain of the
Company's obligations under the Registration Rights Agreement. See
"Registration Rights Agreement."
 
  Upon consummation of the Exchange Offer, the Holders of Original Notes will
not have any further registration rights under the Registration Rights
Agreement (subject to limited exceptions as described under "Registration
Right Agreement--Shelf Registration Statement"). Holders of the Original Notes
who do not tender their Original Notes in the Exchange Offer will continue to
hold such Original Notes and will be entitled to all the rights and will be
subject to all the limitations applicable thereto under the Indenture. All
Original Notes that remain outstanding upon consummation of the Exchange Offer
will continue to be subject to the restrictions on transfer provided for in
the Original Notes and the Indenture. In general, the Original Notes may not
be offered or sold unless registered under the Securities Act, except pursuant
to an exemption from, or in a transaction not subject to, the registration
requirements of the Securities Act. To the extent that the Original Notes are
tendered and accepted in the Exchange Offer, the trading market for untendered
Original Notes could be adversely affected.
 
REQUIRED REPRESENTATIONS
 
  In connection with any tender of Original Notes pursuant to the Exchange
Offer, the Book-Entry Holder of such Original Notes will be required to make
certain representations in the Letter of Transmittal, including that (i) it is
not an affiliate of the Company, (ii) it is not a broker-dealer that purchased
such Original Notes directly from the Company, (iii) any Exchange Notes that
it acquires in the Exchange Offer will be acquired by it in the ordinary
course of its business and (iv) it has no arrangement with any person to
participate in the distribution of the Exchange Notes; provided, however, that
if the Book-Entry Holder is a broker-dealer that wishes to tender Original
Notes that were acquired by it for its own account as a result of market-
making activities or other trading activities, it may represent, in lieu of
the representation set forth in clause (iv), that it has no arrangement or
understanding with the Company, or any affiliate of the Company, to
participate in the distribution of the Exchange Notes. In addition, a Book-
Entry Holder that holds any Original Notes as nominee, will be required to
confirm that the beneficial owner for which it is holding such Notes has made
the representations provided for in the preceding sentence.
 
RESALE OF EXCHANGE NOTES
 
  Based on interpretations by the staff of the Commission set forth in no-
action letters issued to third parties, the Company believes that (except as
provided in the following two paragraphs) the Exchange Notes issued pursuant
to the Exchange Offer may be offered for resale, resold or otherwise
transferred by any Holder thereof (other than an affiliate of the Company)
without compliance with the registration and prospectus delivery provisions of
the Securities Act (subject to the representations set forth under "--Required
Representations" being made and being accurate).
 
  Any broker-dealer that receives Exchange Notes in exchange for Original
Notes that were acquired by it for its own account as a result of market-
making activities or other trading activities, must deliver a prospectus
meeting the requirements of the Securities Act in connection with any resales
by it of any such Exchange Notes.
 
                                      23

 
This Prospectus, as it may be amended or supplemented from time to time, may,
if permitted by the Company, be used by a broker-dealer in order to satisfy
such prospectus delivery requirements. The Company has agreed in the
Registration Rights Agreement that, for a period of 30 days following
consummation of the Exchange Offer (subject to extension under certain
circumstances described under "Registration Rights Agreement"), it will make
this Prospectus available to any broker-dealer for use in connection with any
such resale (subject to the right of the Company to restrict the use of this
Prospectus under certain circumstances). Each broker-dealer that participates
in the Exchange Offer will be required to confirm that it will comply with the
prospectus delivery requirements described above. A broker-dealer that
delivers a prospectus in connection with the resale of any Exchange Notes will
be subject to certain of the civil liability provisions under the Securities
Act. See "Registration Right Agreement" and "Plan of Distribution."
 
  In the event that any of the required representations set forth under "--
Required Representations" is not true with respect to a Holder that receives
Exchange Notes pursuant to the Exchange Offer, the Exchange Notes received by
such Holder may be deemed to be restricted securities and, if so, such
Exchange Notes may not be offered or sold unless registered under the
Securities Act, except pursuant to an exemption from, or in a transaction not
subject to, the registration requirements of the Securities Act.
 
  The conclusions set forth in the preceding three paragraphs are based on
interpretations by the Staff of the Commission set forth in no-action letters
issued to third parties. The Company does not intend to seek its own no-action
letter with respect to the Exchange Offer and there is no assurance that the
Staff of the Commission would make a similar determination with respect to the
Exchange Offer as it has in such no-action letters to third parties.
 
TERMS OF THE EXCHANGE OFFER
 
  Upon the terms and subject to the conditions set forth in this Prospectus
and in the accompanying Letter of Transmittal, the Company will accept for
exchange all Original Notes properly tendered and not withdrawn prior to 5:00
p.m., New York City time, on the Expiration Date. The Company will issue
$1,000 principal amount of Exchange Notes in exchange for each $1,000
principal amount of outstanding Original Notes accepted in the Exchange Offer.
Holders may tender some or all of their Original Notes pursuant to the
Exchange Offer in denominations of $1,000 and integral multiples thereof. The
Exchange Offer is not conditioned upon any minimum aggregate principal amount
of Original Notes being tendered.
 
  The terms of the Exchange Notes will be the same in all material respects as
the Original Notes except that (i) the Exchange Notes will be registered under
the Securities Act, and, therefore, will not bear legends restricting the
transfer thereof and (ii) certain of the registration rights, under the
Registration Rights Agreement, relating to the Exchange Notes are different
than those relating to the Original Notes and, therefore, the defaults under
the Registration Rights Agreement that may require the Company to pay
additional interest will be different for the Exchange Notes and the Original
Notes. See "Registration Rights Agreement--Certain Provisions Relating to
Additional Interest." The Exchange Notes will evidence the same debt as the
Original Notes and both series of Notes will be entitled to the benefits of
the Indenture and treated as a single class of debt securities.
 
  In connection with the issuance of the Original Notes, the Company arranged
for the Original Notes to be issued and transferable in book-entry form
through the facilities of DTC, acting as depositary. The Exchange Notes will
also be issuable and transferable in book-entry form through DTC. See
"Description of the Notes--Book Entry; Delivery and Form."
 
  The Company shall be deemed to have accepted validly tendered Original Notes
when, as and if the Company has given oral or written notice thereof to the
Exchange Agent. The Exchange Agent will act as agent for the tendering Holders
of Original Notes for the purposes of receiving the Exchange Notes from the
Company and delivering Exchange Notes to such Holders. The Company's
obligation to accept Original Notes for exchange pursuant to the Exchange
Offer is subject to certain customary conditions as set forth under "--
Conditions."
 
                                      24

 
  If any tendered Original Notes are not accepted for exchange because of an
invalid tender or the occurrence of certain other events set forth herein,
such unaccepted Original Notes will be returned, without expense, to the
tendering Holder thereof as promptly as practicable after the Expiration Date.
 
  Holders of Original Notes who tender pursuant to the Exchange Offer will not
be required to pay brokerage commissions or fees or, subject to the
instructions in the Letter of Transmittal, transfer taxes with respect to the
exchange of Original Notes pursuant to the Exchange Offer. The Company will
pay all charges and expenses, other than certain applicable taxes, in
connection with the Exchange Offer. See "--Solicitation of Tenders; Fees and
Expenses."
 
  Holders do not have appraisal or dissenters' rights under the Delaware
General Corporation Law or under the Indenture in connection with the Exchange
Offer. The Company intends to conduct the Exchange Offer in accordance with
the applicable requirements of Regulation 14E under the Exchange Act.
 
  NEITHER THE BOARD OF DIRECTORS OF THE COMPANY NOR THE COMPANY MAKES ANY
RECOMMENDATION TO HOLDERS OF ORIGINAL NOTES AS TO WHETHER TO TENDER OR REFRAIN
FROM TENDERING ALL OR ANY PORTION OF THEIR ORIGINAL NOTES PURSUANT TO THE
EXCHANGE OFFER. MOREOVER, NO ONE HAS BEEN AUTHORIZED TO MAKE ANY SUCH
RECOMMENDATION. HOLDERS OF ORIGINAL NOTES MUST MAKE THEIR OWN DECISION WHETHER
TO TENDER PURSUANT TO THE EXCHANGE OFFER AND, IF SO, THE AGGREGATE AMOUNT OF
ORIGINAL NOTES TO TENDER, AFTER READING THIS PROSPECTUS AND THE LETTER OF
TRANSMITTAL AND CONSULTING WITH THEIR ADVISORS, IF ANY, BASED ON THEIR OWN
FINANCIAL POSITION AND REQUIREMENTS.
 
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
 
  The Exchange Offer will remain open for acceptance for a period of not less
than 20 business days after the date notice of the Exchange Offer is mailed to
Holders of the Original Notes (or longer if required by applicable law). The
Expiration Date will be 5:00 p.m., New York City time, on November 4, 1998,
unless the Company, in its sole discretion, extends the Exchange Offer, in
which case the Expiration Date will be the latest business day to which the
Exchange Offer is extended. In order to extend the Expiration Date, the
Company will notify the Exchange Agent of any extension by oral or written
notice and will mail to the record Holders an announcement thereof, each prior
to 9:00 a.m., New York City time, on the next business day after the
previously scheduled Expiration Date. During any such extension, all Original
Notes previously tendered and not withdrawn as herein provided will remain
subject to the Exchange Offer and may be accepted for exchange by the Company.
 
INTEREST ON THE EXCHANGE NOTES
 
  Interest on the Notes is payable semi-annually on June 1 and December 1 of
each year at the rate of 9 1/2% per annum. The Exchange Notes will bear
interest from and including the last interest payment date on the Original
Notes (or, if none has yet occurred, the date of issuance of such Original
Notes). Accordingly, Holders of Original Notes that are accepted for exchange
will not receive interest that is accrued but unpaid on the Original Notes at
the time of tender, but such interest will be payable in respect of the
Exchange Notes delivered in exchange for such Original Notes on the first
interest payment date after the Expiration Date.
 
PROCEDURES FOR TENDERING
 
  Only a Book-Entry Holder of Original Notes may tender such Original Notes
pursuant to the Exchange Offer. To tender any Original Notes pursuant to the
Exchange Offer, the Book-Entry Holder of such Original Notes must make book-
entry delivery of such Original Notes by causing DTC to transfer such Original
Notes to the account of the Exchange Agent at DTC in accordance with DTC's
Automated Tender Offer Program ("ATOP") prior to 5:00 p.m., New York City
time, on the Expiration Date. In addition, either (i) DTC must deliver an
Agent's Message (as defined below) prior to 5:00 p.m., New York City time, on
the Expiration Date,
 
                                      25

 
indicating that DTC has received from such Book-Entry Holder an express
acknowledgment that such Book-Entry Holder has received and agrees to be bound
by the terms of the Letter of Transmittal or (ii) such Book-Entry Holder must
complete, sign and date the Letter of Transmittal or a facsimile thereof, in
accordance with the instructions contained herein and therein and deliver such
Letter of Transmittal, or such facsimile, and any other required documentation
to the Exchange Agent at the address set forth herein prior to 5:00 p.m., New
York City time, on the Expiration Date. DELIVERY OF DOCUMENTS TO DTC DOES NOT
CONSTITUTE DELIVERY TO THE EXCHANGE AGENT.
 
  The term "Agent's Message" means a message transmitted by DTC to, and
received by, the Exchange Agent and forming part of the book-entry
confirmation relating to a book-entry transfer of Original Notes through ATOP,
which states that DTC has received an express acknowledgment from the DTC
Participant that is tendering the Original Notes which are the subject of such
book entry confirmation, that such DTC Participant has received and agrees to
be bound by the terms of the Letter of Transmittal.
 
  The tender by a Holder of Original Notes and the acceptance thereof by the
Company will constitute an agreement between such Holder and the Company in
accordance with the terms and subject to the conditions set forth herein and
in the Letter of Transmittal.
 
  THE METHOD OF DELIVERY OF THE LETTER OF TRANSMITTAL AND ALL OTHER REQUIRED
DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND RISK OF THE HOLDER.
INSTEAD OF DELIVERY BY MAIL, IT IS RECOMMENDED THAT HOLDERS USE AN OVERNIGHT
OR HAND DELIVERY SERVICE. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO
ASSURE TIMELY DELIVERY TO THE EXCHANGE AGENT BEFORE THE EXPIRATION DATE. NO
LETTER OF TRANSMITTAL SHOULD BE SENT TO THE COMPANY.
 
  All questions as to the validity, form, eligibility (including time of
receipt), acceptance of tendered Original Notes and withdrawal of tendered
Original Notes will be determined by the Company in its sole discretion, which
determination will be final and binding. The Company reserves the absolute
right to reject any and all Original Notes not properly tendered or any
Original Notes the Company's acceptance of which would, in the opinion of
counsel for the Company, be unlawful. The Company also reserves the right to
waive any irregularities or conditions of tender as to particular Original
Notes. The Company's interpretation of the terms and conditions of the
Exchange Offer (including the instructions in the Letter of Transmittal) will
be final and binding on all parties. Unless waived, any defects or
irregularities in connection with tenders of Original Notes must be cured
within such time as the Company shall determine. Neither the Company, the
Exchange Agent nor any other person shall be under any duty to give
notification of defects or irregularities with respect to tenders of Original
Notes, nor shall any of them incur any liability for failure to give such
notification. Tenders of Original Notes will not be deemed to have been made
until such irregularities have been cured or waived. Any Original Notes
received by the Exchange Agent that are not properly tendered or the tender of
which is otherwise rejected by the Company and as to which the defects or
irregularities have not been cured or waived will be returned by the Exchange
Agent to the Book-Entry Holder that tendered such Original Notes (by crediting
an account maintained at DTC designated by such Book-Entry Holder) as soon as
practicable following the Expiration Date.
 
WITHDRAWAL OF TENDERS
 
  Except as otherwise provided herein, tenders of Original Notes may be
withdrawn at any time prior to 5:00 p.m., New York City time, on the
Expiration Date.
 
  To withdraw a tender of Original Notes pursuant to the Exchange Offer, the
Book-Entry Holder that tendered such Original Notes must, prior to 5:00 p.m.,
New York City time, on the Expiration Date, either (i) withdraw such tender in
accordance with the appropriate procedures of the ATOP system or (ii) deliver
to the Exchange Agent a written or facsimile transmission notice of withdrawal
at the address set forth herein. Any such notice of withdrawal must contain
the name and number of the Book-Entry Holder, the amount of Original Notes to
which such withdrawal relates, the account at DTC to be credited with the
withdrawn Original Notes
 
                                      26

 
and the signature of the Book-Entry Holder. All questions as to the validity,
form and eligibility (including time of receipt) of such withdrawal notices
will be determined by the Company in its sole discretion, whose determination
will be final and binding on all parties. Any Original Notes so withdrawn will
be deemed not to have been validly tendered for purposes of the Exchange
Offer, and no Exchange Notes will be issued with respect thereto unless the
Original Notes so withdrawn are validly retendered. Any Original Notes which
have been tendered but which are withdrawn will be returned by the Exchange
Agent to the Book-Entry Holder that tendered such Original Notes (by crediting
an account maintained at DTC designated by such Book-Entry Holder) as soon as
practicable after withdrawal. Properly withdrawn Original Notes may be
retendered at any time prior to the Expiration Date by following the
procedures described under "--Procedures for Tendering."
 
CONDITIONS
 
  Notwithstanding any other term of the Exchange Offer, the Company shall not
be required to accept for exchange, or to exchange Exchange Notes for, any
Original Notes, and may terminate or amend the Exchange Offer as provided
herein before the acceptance of such Original Notes, if:
 
  (a) any action or proceeding is instituted or threatened in any court or by
      or before any governmental agency or regulatory authority or any
      injunction, order or decree is issued with respect to the Exchange
      Offer which, in the sole judgment of the Company, might impair the
      ability of the Company to proceed with the Exchange Offer; or
 
  (b) any governmental approval has not been obtained, which approval the
      Company, in its sole discretion, deems necessary for the consummation
      of the Exchange Offer; or
 
  (c) there shall have been proposed, adopted or enacted any law, statute,
      rule or regulation (or an amendment to any existing law, statute, rule
      or regulation) which, in the sole judgment of the Company, might
      materially impair the ability of the Company to proceed with the
      Exchange Offer.
 
  If the Company determines in its reasonable judgment that any of the
conditions set forth above are not satisfied, the Company may (i) terminate
the Exchange Offer and refuse to accept any Original Notes and return all
tendered Original Notes to the tendering Holders, (ii) extend the Exchange
Offer and retain all Original Notes tendered prior to the expiration of the
Exchange Offer subject, however, to the rights of Holders to withdraw such
Original Notes (see "--Withdrawals of Tenders") or (iii) waive such
unsatisfied conditions with respect to the Exchange Offer and accept all
properly tendered Original Notes which have not been withdrawn. Moreover,
regardless of whether any of such conditions has occurred, the Company may
amend the Exchange Offer in any manner which, in its good faith judgment, is
advantageous to Holders of the Original Notes.
 
  The foregoing conditions are for the sole benefit of the Company and may be
asserted by the Company regardless of the circumstances giving rise to any
such condition or may be waived by the Company in whole or in part at any time
and from time to time in its sole discretion. The failure by the Company at
any time to exercise any of the foregoing rights shall not be deemed a waiver
of any such right, and each such right shall be deemed an ongoing right which
may be asserted at any time and from time to time. If a waiver constitutes a
material change in the Exchange Offer, the Company will disclose such change
by means of a supplement to this Prospectus that will be distributed to each
Book-Entry Holder, and the Company will extend the Exchange Offer for a period
of five to ten business days, depending upon the significance of the waiver
and the manner of disclosure to the Book-Entry Holders, if the Exchange Offer
would otherwise expire during such period. Any determination by the Company
concerning the events described above will be final and binding upon all
parties.
 
  In addition, the Company will not accept for exchange any Original Notes
tendered, and no Exchange Notes will be issued in exchange for any such
Original Notes, if at such time any stop order shall be threatened or in
effect with respect to the Registration Statement of which this Prospectus is
a part or if the Indenture is not qualified under the Trust Indenture Act of
1939, as amended. The Company is required to use every reasonable effort to
obtain the withdrawal of any such stop order at the earliest possible time.
 
                                      27

 
  The Exchange Offer is not conditioned upon any minimum principal amount of
Original Notes being tendered for exchange.
 
EXCHANGE AGENT
 
  State Street Bank and Trust Company, the Trustee under the Indenture, has
been appointed as Exchange Agent for the Exchange Offer. In such capacity, the
Exchange Agent has no fiduciary duties to the Holders of the Notes and will be
acting solely on the basis of directions of the Company. All executed Letters
of Transmittal must be directed to the Exchange Agent at the applicable
address set forth below. Questions and requests for assistance and requests
for additional copies of this Prospectus or the Letter of Transmittal should
be directed to the Exchange Agent addressed as follows:
 
        By Mail:                 By Facsimile           By Overnight or Hand
                                 Transmission:
(registered or certified                                      Delivery:        
      recommended)               (for Eligible                                 
  State Street Bank and       Institutions only)        State Street Bank and  
      Trust Company                                         Trust Company       
     Corporate Trust            (617) 664-5290             Corporate Trust      
       Department          Attention: Kellie Mullen          Department         
      P.O. Box 778           Confirm by Telephone:     Two International Plaza  
  Boston, MA 02102-0078         (617) 664-5587          Boston, MA 02110-0078   
Attention: Kellie Mullen                                    Fourth Floor        
                                                      Attention: Kellie Mullen  
                                                                                
 
  DELIVERY OF THE LETTER OF TRANSMITTAL TO AN ADDRESS OR FACSIMILE NUMBER
OTHER THAN SET FORTH ABOVE WILL NOT CONSTITUTE A VALID DELIVERY.
 
SOLICITATION OF TENDERS; FEES AND EXPENSES
 
  The expenses of soliciting tenders pursuant to the Exchange Offer will be
borne by the Company. The principal solicitation for tenders pursuant to the
Exchange Offer is being made by mail; however, additional solicitations may be
made by telegraph, facsimile, telephone or in person by officers and regular
employees of the Company and its affiliates.
 
  The Company has not retained any dealer-manager in connection with the
Exchange Offer and will not make any payments to brokers, dealers or other
persons soliciting acceptances of the Exchange Offer. The Company will,
however, pay the Exchange Agent reasonable and customary fees for its services
and will reimburse the Exchange Agent for its reasonable out-of-pocket
expenses in connection therewith and pay other expenses of the Exchange Offer,
including fees and expenses of the Trustee, filing fees, blue sky fees,
accounting and legal fees and printing and distribution expenses. The Company
may also pay brokerage houses and other custodians, nominees and fiduciaries
the reasonable out-of-pocket expenses incurred by them in forwarding copies of
this Prospectus, Letters of Transmittal and related documents to the
beneficial owners of the Original Notes and in handling or forwarding tenders
for exchange.
 
  The Company will pay all transfer taxes, if any, applicable to the exchange
of Original Notes pursuant to the Exchange Offer. If, however, Exchange Notes
or Original Notes for principal amounts not tendered or accepted for exchange
are to be delivered to, or are to be registered or issued in the name of, any
person other than the Book-Entry Holder of the Original Notes tendered, or if
a transfer tax is imposed for any reason other than the exchange of Original
Notes pursuant to the Exchange Offer, then the amount of any such transfer
taxes (whether imposed on the Book-Entry Holder or any other persons) will be
payable by the tendering Holder. If satisfactory evidence of payment of such
taxes or exemption therefrom is not submitted with the Letter of Transmittal,
the amount of such transfer taxes will be billed directly to such tendering
Holder.
 
 
                                      28

 
ACCOUNTING TREATMENT
 
  The Exchange Notes will be recorded at the same carrying value as the
Original Notes for which they are exchanged, which is the aggregate principal
amount of the Original Notes, as reflected in the Company's accounting records
on the date of exchange. Accordingly, no gain or loss for accounting purposes
will be recognized in connection with the Exchange Offer. The cost of the
Exchange Offer will be deferred and amortized over the term of the Exchange
Notes.
 
OTHER
 
  The Company may in the future seek to acquire untendered Original Notes, to
the extent permitted by applicable law, in open market or privately negotiated
transactions, through subsequent exchange offers or otherwise. The Company has
no present plans to acquire any Original Notes that are not tendered in the
Exchange Offer or to file a registration statement to permit resales of any
untendered Original Notes.
 
CERTAIN U.S. FEDERAL INCOME TAX CONSIDERATIONS
 
  The following is a general discussion of certain U.S. federal income tax
consequences of the Exchange Offer. This discussion is based on the current
provisions of the Internal Revenue Code of 1986, as amended (the "Code"),
applicable Treasury regulations, judicial authority and administrative rulings
and practice. This discussion is generally limited to the tax consequences to
Holders of the Notes that hold the Notes as capital assets (within the meaning
of Section 1221 of the Code). There can be no assurance that the Internal
Revenue Service (the "Service") will not take a contrary view, and no ruling
from the Service has been or will be sought. Legislative, judicial or
administrative changes or interpretations may be forthcoming that could alter
or modify the statements and conditions set forth herein. Any such changes or
interpretations may or may not be retroactive and could affect the tax
consequences to Holders. Certain Holders, including insurance companies, tax-
exempt organizations, financial institutions, broker-dealers, foreign
corporations and persons who are not citizens or residents of the United
States, may be subject to special rules not discussed below.
 
  For U.S. federal income tax purposes, the exchange of Original Notes for
Exchange Notes pursuant to the Exchange Offer should not be treated as a
taxable transaction for federal income tax purposes. As a result, there should
be no federal income tax consequences to Holders exchanging Original Notes for
Exchange Notes pursuant to the Exchange Offer. A Holder should have the same
adjusted basis and holding period in an Exchange Note as it had in an Original
Note immediately prior to the exchange.
 
  THE FOREGOING DISCUSSION IS BASED ON THE PROVISIONS OF THE CODE,
REGULATIONS, TREASURY REGULATIONS, RULINGS AND JUDICIAL DECISIONS NOW IN
EFFECT, ALL OF WHICH ARE SUBJECT TO CHANGE. ANY SUCH CHANGES MAY BE APPLIED
RETROACTIVELY IN A MANNER THAT COULD ADVERSELY AFFECT HOLDERS EXCHANGING
NOTES. EACH HOLDER OF NOTES SHOULD CONSULT ITS OWN TAX ADVISOR WITH RESPECT TO
THE TAX CONSEQUENCES TO IT, INCLUDING THE TAX CONSEQUENCES UNDER STATE, LOCAL,
FOREIGN AND OTHER TAX LAWS, OF EXCHANGING ORIGINAL NOTES FOR EXCHANGE NOTES
PURSUANT TO THE EXCHANGE OFFER.
 
                                      29

 
                         REGISTRATION RIGHTS AGREEMENT
 
  In connection with the issuance of the Original Notes, the Company entered
into a Registration Rights Agreement with the Initial Purchasers (the
"Registration Rights Agreement"). Set forth below is a summary of certain
provisions of the Registration Rights Agreement. Such summary does not purport
to be complete and is subject to, and is qualified in its entirety by
reference to, all the provisions of the Registration Rights Agreement, a copy
of which is filed as an exhibit to the Registration Statement of which this
Prospectus forms a part.
 
EXCHANGE OFFER
 
  The Registration Rights Agreement provides that the Company is obligated to
(unless applicable law or Commission policy does not permit) (i) on or prior
to 90 days after the date (the "Issue Date") the Original Notes were
originally issued, file a registration statement (the "Exchange Registration
Statement") with the Commission with respect to an offer to exchange the
Original Notes for Exchange Notes, (ii) use its best efforts to cause the
Exchange Registration Statement to become effective under the Securities Act
on or prior to 150 days after the Issue Date, (iii) commence the exchange
offer contemplated by the Exchange Registration Statement promptly after the
registration statement is declared effective by the Commission and keep such
exchange offer open for acceptance for a period (the "Exchange Period") of 20
business days after the date notice of the exchange offer is mailed to the
Holders (or for such longer period as may be required by law), (iv) use its
best efforts to issue, promptly after the end of the Exchange Period, Exchange
Notes in exchange for all Original Notes that have been properly tendered for
exchange during the Exchange Period and (v) use its best efforts to maintain
the effectiveness of the Exchange Registration Statement during the Exchange
Period and thereafter until such time as the Company has issued Exchange Notes
in exchange for all Original Notes that have been properly tendered for
exchange during the Exchange Period. The exchange offer contemplated by the
Registration Rights Agreement will be deemed consummated, for purposes of the
Registration Rights Agreement, if the Company makes such offer, such offer
remains open for Exchange Period, and the Company issues Exchange Notes in
respect of all Original Notes that are properly tendered during the Exchange
Period.
 
  The Exchange Offer being made hereby is intended to satisfy the Company's
obligations under the Registration Rights Agreement described in the preceding
paragraph.
 
SHELF REGISTRATION STATEMENT
 
  If (i) the Company is not permitted to file the Exchange Registration
Statement or to consummate the exchange offer contemplated by the Registration
Rights Agreement because such offer is not permitted by applicable law or
Commission policy; (ii) for any other reason, the exchange offer contemplated
by the Registration Rights Agreement is not consummated within 180 days after
the Issue Date of the Original Notes; (iii) any Holder of Notes notifies the
Company prior to the 20th day following consummation of the Exchange Offer
that (a) due to a change in law or policy such Holder is not entitled to
participate in the Exchange Offer, (b) due to a change in law or policy such
Holder may not resell the Exchange Notes acquired by it in the Exchange Offer
to the public without delivering a prospectus and the prospectus contained in
the Exchange Registration Statement is not appropriate or available for such
resales by such Holder or (c) such Holder is a broker-dealer and owns Original
Notes acquired directly from the Company or an affiliate of the Company; or
(iv) the Holders of a majority in aggregate principal amount of the Original
Notes are not eligible to participate in the Exchange Offer and to receive
Exchange Notes that they may resell to the public without restriction under
the Securities Act and without restriction under applicable blue sky or state
securities laws, then the Company is required to file with the Commission a
shelf registration statement ("Shelf Registration Statement") to cover resales
of the Transfer Restricted Notes (as defined below) by the Holders thereof.
 
  If the Company is required to file the Shelf Registration Statement as
described in the preceding paragraph, the Company is obligated (i) to use its
best efforts to file the Shelf Registration Statement on or prior to the 90th
day after such filing obligation arises (except that, if the obligation to
file the Shelf Registration Statement arises because the exchange offer
contemplated by the Registration Rights Agreement has not been consummated
within 180 days after the Issue Date, then the Company will use its best
efforts to file the Shelf Registration
 
                                      30

 
Statement on or prior to the 30th day after such filing obligation arises),
(ii) following the filing of the Shelf Registration Statement, to use its best
efforts to cause the Shelf Registration Statement to be declared effective by
the Commission on or prior to the 150th day after such filing obligation
arises and (iii) after the Shelf Registration Statement is declared effective
by the Commission, to use its best efforts to keep such Shelf Registration
Statement continuously effective, supplemented and amended (including through
a post-effective amendment on Form S-3 when the Company becomes eligible to
file such Form) until the second anniversary of the effective date of the
Shelf Registration Statement or such shorter period that will terminate when
all the Transfer Restricted Notes covered by the Shelf Registration Statement
have been sold pursuant thereto.
 
  The term "Transfer Restricted Notes" means (i) each Original Note and (ii)
each Exchange Note that is issued to a broker-dealer in exchange for Original
Notes that were acquired by such broker-dealer for its own account as a result
of market-making activities or other trading activities; provided, however,
that a Note shall cease to be a Transfer Restricted Note when (a) such Note
has been effectively registered under the Securities Act and disposed of in
accordance with the Shelf Registration Statement or Broker Shelf Registration
Statement (as defined herein), or (b) such Note is eligible for distribution
to the public pursuant to Rule 144(k) under the Securities Act (or any similar
provision then in force, but not Rule 144A under the Securities Act), or (c)
such Note shall have been otherwise transferred by the holder thereof and a
new Note not bearing a legend restricting further transfer shall have been
delivered by the Company and subsequent disposition of such Note shall not
require registration or qualification under the Securities Act or any similar
state law then in force, or (d) such Note ceases to be outstanding or (e) in
the case of an Exchange Note that is a Transfer Restricted Note, such Exchange
Note is sold to a purchaser who receives from the seller on or prior to the
date of such sale a copy of the prospectus contained in the Exchange
Registration Statement, as amended or supplemented
 
CERTAIN PROVISIONS RELATING TO BROKER-DEALERS
 
  A broker-dealer (a "Participating Broker-Dealer") that receives Exchange
Notes in exchange for Original Notes that were acquired by it for its own
account as a result of market-making activities or other trading activities,
will be required to deliver a prospectus meeting the requirements of the
Securities Act in connection with any resales by it of any such Exchange
Notes. This Prospectus, as it may be amended or supplemented from time to
time, may, if permitted by the Company, be used by a broker-dealer in order to
satisfy such prospectus delivery requirements. The Company has agreed in the
Registration Rights Agreement that it will use its best efforts to make this
Prospectus available to any such broker-dealer for use in connection with any
resales of such Exchange Notes (subject to the right of the Company to
restrict the use of this Prospectus under certain circumstances specified in
the Registration Rights Agreement). The obligation of the Company to make this
Prospectus available as aforesaid will commence on the day that the Exchange
Offer is consummated and continue in effect for a 30-day period (the "Broker
Prospectus Period"); provided, however, that, if for any day during such
period the Company restricts the use of such prospectus, the Broker Prospectus
Period shall be extended on a day-for-day basis.
 
  If at the end of the Broker Prospectus Period any Participating Broker-
Dealer continues to hold any Exchange Notes that it received in the Exchange
Offer, the Company is required (within the time period specified below), if
any such broker-dealer so requests within 60 days after the end of the Broker
Prospectus Period, to file with the Commission a shelf registration statement
(a "Broker Shelf Registration Statement") to cover the resale of such Exchange
Notes by such broker-dealers and use its best efforts to have such
registration statement declared effective by the Commission; provided,
however, that (i) the Company may in lieu of filing such registration
statement extend the Broker Prospectus Period by 60 days and (ii) the Company
will not be required to file such registration statement until such time as
the Company becomes eligible to use a Form S-3 for such registration
statement.
 
  If the Company is required to file the Broker Shelf Registration Statement
as described in the preceding paragraph, the Company is obligated to (i) file
the Broker Shelf Registration Statement within 30 days following the date on
which the Company first becomes eligible to use a Form S-3 for such
registration statement (or, if later, within 30 days of the date the request
for such registration statement is first made in accordance with the
 
                                      31

 
Registration Rights Agreement) and (ii) use its best efforts to have the
Broker Shelf Registration Statement declared effective by the Commission on or
prior to the 90th day following the date on which the Company first becomes
eligible to use a Form S-3 for such registration statement (or, if later, the
90th day following the date the request for such registration statement is
first made in accordance with the Registration Rights Agreement). The Company
will be required to use its best efforts to keep the Broker Shelf Registration
Statement continuously effective, supplemented and amended for a 60-day
period; provided, however, that, if for any day during such period such
registration statement is not usable in connection with the resale of the
Exchange Notes covered thereby, such period shall be extended on a day-for-day
basis.
 
CERTAIN PROVISIONS RELATING TO ADDITIONAL INTEREST
 
  If a Registration Default (as defined herein) exists, the interest rate on
the Specified Notes (as defined below) will increase, with respect to the
first 90-day period (or portion thereof) while a Registration Default is
continuing immediately following the occurrence of such Registration Default,
 .25% per annum, such interest rate increasing by an additional .25% per annum
at the beginning of each subsequent 90-day period (or portion thereof) while a
Registration Default is continuing until all Registration Defaults have been
cured, up to a maximum rate of additional interest of 1.00% per annum.
Following the cure of all Registration Defaults the accrual of additional
interest on the Specified Notes will cease and the interest rate will revert
to the original rate. The Indenture will provide that additional interest as
aforesaid will constitute liquidated damages and will be the exclusive
monetary remedy available to Holders of the Notes in respect of any
Registration Default. The Specified Notes mean the Original Notes (and not the
Exchange Notes); provided, however, that the Specified Notes means the
Exchange Notes (and not the Original Notes) with respect to (a) any
Registration Default that arises pursuant to clause (i) or (ii) of the
definition of such term and relates solely to the Broker Shelf Registration
Statement and (b) any Registration Default that arises solely pursuant to
clause (v) or (vi) of the definition of such term.
 
  A "Registration Default" will exist (subject to the following sentence) if
(i) the Company fails to file any of the registration statements required by
the Registration Rights Agreement on or prior to the date specified for such
filing, (ii) any of such registration statements is not declared effective by
the Commission on or prior to the date specified for such effectiveness, (iii)
an exchange offer is required to be consummated under the Registration Rights
Agreement and is not consummated within 180 days after the Issue Date, (iv)
the Shelf Registration Statement is declared effective but thereafter, during
the period for which the Company is required to maintain the effectiveness of
such registration statement, it ceases to be effective or usable in connection
with the resale of the Notes covered by such registration statement for a
period of 60 days, whether or not consecutive, (v) the Exchange Offer
Registration Statement is declared effective but thereafter, during the Broker
Prospectus Period, it ceases to be effective (or the Company restricts the use
of the prospectus included therein) for a period of 60 days, whether or not
consecutive, or (vi) the Broker Shelf Registration Statement is declared
effective but thereafter, during the period for which the Company is required
to maintain the effectiveness of such registration statement, it ceases to be
effective or usable in connection with the resale of the Exchange Notes
covered by such registration statement for a period of 60 days, whether or not
consecutive. Notwithstanding the foregoing, (a) any Registration Default
specified in clause (i), (ii) or (iii) of the preceding sentence that relates
to the Exchange Offer Registration Statement or the Exchange Offer shall be
deemed cured at such time as the Shelf Registration Statement is declared
effective by the Commission and (b) any Registration Default specified in
clause (v) of the preceding sentence shall be deemed cured at such time as the
Broker Shelf Registration Statement is declared effective by the Commission.
 
                                      32

 
                                USE OF PROCEEDS
 
  The Company will not receive any cash proceeds from the issuance of the
Exchange Notes. In consideration for issuing the Exchange Notes as
contemplated in this Prospectus, the Company will receive in exchange Original
Notes in like principal amount, which will be cancelled and as such will not
result in any increase in indebtedness of the Company.
 
                      RATIO OF EARNINGS TO FIXED CHARGES
 


                             PERIOD FROM
                           AUGUST 14, 1997    SIX MONTHS    SIX MONTHS
                         (INCEPTION) THROUGH     ENDED         ENDED        YEAR ENDED     SIX MONTHS ENDED
                          DECEMBER 31, 1997  JUNE 30, 1998 JUNE 30, 1998 DECEMBER 31, 1997  JUNE 30, 1998
                         ------------------- ------------- ------------- ----------------- ----------------
                                                                           SUPPLEMENTAL      SUPPLEMENTAL
                             HISTORICAL       HISTORICAL   PRO FORMA(2)    PRO FORMA(3)      PRO FORMA(3)
                         ------------------- ------------- ------------- ----------------- ----------------
                                                                            
Ratio of earnings to
 fixed charges (1)......         1.1x             3.0x          2.5x            2.0x             2.4x

- --------
(1) For purposes of computing such ratio, (i) earnings consist of income
    before provision for income taxes plus fixed charges and (ii) fixed
    charges consist of interest expense, amortization of debt issuance costs
    and the estimated portion of rental expense attributable to interest.
(2) The pro forma ratio of earnings to fixed charges gives effect to the
    issuance of the Notes and the application of a portion of the net proceeds
    therefrom to repay outstanding indebtedness, as if such transactions had
    occurred at the beginning of the period.
(3) The supplemental pro forma ratio of earnings to fixed charges gives effect
    to (i) each acquisition completed by the Company after the beginning of
    the period and the financing thereof and (ii) completion of the Merger
    with U.S. Rentals using the "pooling of interest" method of accounting, as
    if all such transactions had occurred at the beginning of the period.
 
 
                                      33

 
                                CAPITALIZATION
 
  The following table sets forth the capitalization of the Company as of June
30, 1998, on an historical and pro forma basis. The following unaudited pro
forma data as of June 30, 1998 gives effect to (i) the acquisitions completed
by the Company subsequent to such date (through September 14, 1998) and the
financing of each such acquisition, (ii) the completion of the pending Merger
with U.S. Rentals using the "pooling of interests" method of accounting and
(iii) an increase in the size of the Credit Facility required in order to
repay certain indebtedness of U.S. Rentals (see "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources--Cash Requirements Relating to the Merger"), as if all such
transactions had occurred on such date.
 
 


                                                         AS OF JUNE 30, 1998
                                                     ---------------------------
                                                       ACTUAL    PRO FORMA
                                                     ---------- ------------
                                                     (DOLLARS IN THOUSANDS)
                                                                    
Cash and cash equivalents........................... $    5,486 $     26,510
                                                     ========== ============
Debt (including current portion):
  Credit Facility(1)................................ $  173,000 $    714,178
  Term Loan ........................................        --       250,000
  9 1/2% Senior Subordinated Notes..................    200,000      200,000
  8.80% Senior Subordinated Notes...................        --       205,000
  Other Debt........................................     16,181       37,681
                                                     ---------- ------------
    Total debt......................................    389,181    1,406,859
Stockholders' equity................................    418,394      669,823
                                                     ---------- ------------
Total capitalization................................ $  807,575   $2,076,682
                                                     ========== ============

- --------
(1) As of September 8, 1998, the outstanding indebtedness under the Credit
    Facility was $97.0 million. See "Management's Discussion and Analysis of
    Financial Condition and Results of Operations--Liquidity and Capital
    Resources."
 
                                      34

 
                       SELECTED HISTORICAL AND PRO FORMA
                      CONSOLIDATED FINANCIAL INFORMATION
 
  The following tables present selected historical and pro forma income
statement, balance sheet and other financial data for the Company. The
historical income statement data for the Company for the period from August
14, 1997 (inception) to December 31, 1997 are derived from the audited
Consolidated Financial Statements of the Company included elsewhere in this
Prospectus. The historical income statement data for the six months ended June
30, 1998 and the balance sheet data as of June 30, 1998 for the Company are
derived from the unaudited consolidated financial statements of the Company
included elsewhere in this Prospectus.
 
  The following unaudited pro forma income statement data and other financial
data with respect to the year ended December 31, 1997 and the six months ended
June 30, 1998 gives effect to (i) each acquisition of an Acquired Company
completed by the Company after the beginning of the period and the financing
thereof and (ii) completion of the Merger with U.S. Rentals using the "pooling
of interests" method of accounting, as if all such transactions had occurred
at the beginning of the period. The following unaudited pro forma income
statement data with respect to the years ended December 31, 1995 and 1996
gives effect to (i) the acquisition of Rental Tools and Equipment Co.
International, Inc. (which was completed in August 1998 and accounted for as a
"pooling of interests") and (ii) completion of the Merger with U.S. Rentals
using the "pooling of interests" method of accounting, as if all such
transactions had occurred at the beginning of the period.
 
  The following unaudited pro forma balance sheet data as of June 30, 1998
gives effect to (i) each acquisition of an Acquired Company completed by the
Company subsequent to such date and the financing thereof and (ii) completion
of the Merger with U.S. Rentals using the "pooling of interests" method of
accounting, as if all such transactions had occurred on such date.
 
  The following data should be read in conjunction with (i) the information
set forth under "Use of Proceeds," "Capitalization" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
(ii) the Consolidated Financial Statements and the related notes thereto and
Pro Forma Consolidated Financial Statements and the related notes thereto of
the Company included elsewhere in this Prospectus and (iii) the financial
statements of certain of the Acquired Companies and U.S. Rentals included
elsewhere in this Prospectus. The pro forma data set forth below is provided
for informational purposes only and does not purport to be indicative of the
results that would have actually been obtained had the acquisition of each of
the Acquired Companies and the Merger been completed at the beginning of the
period presented or of the results that may be expected to occur in the
future.
 
                                      35

 


                           PERIOD  FROM
                          AUGUST 14, 1997
                            (INCEPTION)
                              THROUGH      SIX MONTHS      YEAR ENDED DECEMBER 31,       SIX MONTHS
                           DECEMBER 31,       ENDED     ------------------------------      ENDED
                                1997      JUNE 30, 1998   1995      1996       1997     JUNE 30, 1998
                          --------------- ------------- --------- --------- ----------  -------------
                            HISTORICAL     HISTORICAL   PRO FORMA PRO FORMA PRO FORMA     PRO FORMA
                          --------------- ------------- --------- --------- ----------  -------------
                                        (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
                                                                      
INCOME STATEMENT DATA:
Total revenues..........      $10,633       $127,351    $282,887  $353,196  $1,193,622    $650,019
Total cost of
 operations.............        6,822         80,112     193,641   248,618     783,984     436,234
                              -------       --------    --------  --------  ----------    --------
Gross profit............        3,811         47,239      89,246   104,578     409,638     213,785
Selling, general and
 administrative expense.        3,311         25,102      40,147    45,913     197,120     109,734
Non-rental depreciation
 and amortization.......          262          3,815       6,916     9,383      37,971      21,228
Termination cost of
 deferred compensation
 agreements.............                                                        20,290
                              -------       --------    --------  --------  ----------    --------
Operating income........          238         18,322      42,183    49,282     154,257      82,823
Interest expense........          454          4,937       7,471    10,936      74,339      32,982
Other (income) expense,
 net....................         (270)          (528)        947       247      (6,570)     (5,652)
                              -------       --------    --------  --------  ----------    --------
Income before income
 taxes..................           54         13,913      33,765    38,099      86,488      55,493
Income taxes............           20          5,693         468       374      50,209      22,531
                              -------       --------    --------  --------  ----------    --------
Net income..............      $    34       $  8,220    $ 33,297  $ 37,725  $   36,279    $ 32,962
                              =======       ========    ========  ========  ==========    ========
Basic earnings per
 share..................      $  0.00       $   0.27    $   1.47  $   1.66  $     0.55    $   0.49
                              =======       ========    ========  ========  ==========    ========
Diluted earnings per
 share..................      $  0.00       $   0.23    $   1.47  $   1.66  $     0.53    $   0.45
                              =======       ========    ========  ========  ==========    ========

 


                            PERIOD FROM
                          AUGUST 14, 1997
                            (INCEPTION)     SIX MONTHS                      SIX MONTHS
                              THROUGH          ENDED        YEAR ENDED         ENDED
                         DECEMBER 31, 1997 JUNE 30, 1998 DECEMBER 31, 1997 JUNE 30, 1998
                         ----------------- ------------- ----------------- -------------
                            HISTORICAL      HISTORICAL       PRO FORMA       PRO FORMA
                         ----------------- ------------- ----------------- -------------
                                             (DOLLARS IN THOUSANDS)
                                                               
OTHER FINANCIAL DATA:
EBITDA(1)...............      $1,539          $36,702        $379,857        $200,524
EBITDA margin(2)........        14.5%            28.8%           31.8%           30.8%
Interest expense(3).....      $  454          $ 4,937        $ 74,339        $ 32,982
Depreciation and
 amortization...........      $1,301          $18,380        $205,310        $117,701
Ratio of EBITDA to
 interest expense.......         3.4x             7.4x            5.1x            6.1x

 


                                   AS OF JUNE 30, 1998
                                  ---------------------
                                  HISTORICAL PRO FORMA
                                  ---------- ----------
                                             (DOLLARS IN THOUSANDS)
                                                    
BALANCE SHEET DATA:
Cash and cash equivalents........  $  5,486  $   26,510
Rental equipment, net............   298,956   1,081,380
Total assets.....................   889,164   2,374,226
Total debt.......................   389,181   1,406,859
Stockholders' equity.............   418,394     669,823

- --------
(1) EBITDA is defined as net income (calculated excluding non-operating income
    and expense and excluding the $20.3 million Non-Recurring U.S. Rentals
    Charge) plus interest expense, income taxes and depreciation and
    amortization. EBITDA is presented to provide additional information
    concerning the Company's ability to meet its future debt service
    obligations and capital expenditure and working capital requirements.
    EBITDA is not a measure of financial performance under generally accepted
    accounting principles and should not be considered as an alternative to
    either net income as an indicator of the Company's operating performance
    or cash flows as an indicator of the Company's liquidity.
(2) EBITDA margin is defined as EBITDA as a percentage of revenues.
(3) Interest expense excludes the amortization of deferred financing fees.
 
                                      36

 
                    MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                 FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
  The following discussion should be read in conjunction with the Consolidated
Financial Statements and related notes thereto, the unaudited Pro Forma
Consolidated Financial Statements and related notes thereto and the "Selected
Historical and Pro Forma Consolidated Financial Information" of the Company
included elsewhere in this Prospectus.
 
GENERAL
 
  The Company was organized in August 1997 and commenced equipment rental
operations in October 1997 by acquiring six established rental companies. The
Company acquired 66 additional companies in the first nine months of 1998
(through September 14, 1998).
 
  The Company primarily derives revenues from the following sources: (i)
equipment rental (including additional fees that may be charged for equipment
delivery, fuel, repair of rental equipment, and damage waivers), (ii) the sale
of used rental equipment, (iii) the sale of new equipment and (iv) the sale of
related merchandise and parts.
 
  Cost of operations consists primarily of depreciation costs associated with
rental equipment, the cost of repairing and maintaining rental equipment, the
cost of used and new equipment sold, personnel costs, occupancy costs,
supplies, and expenses related to information systems. The Company records
rental equipment expenditures at cost and depreciates equipment using the
straight-line method over the estimated useful life (which ranges from 2 to 10
years), after giving effect to an estimated salvage value of 0% to 10% of
cost.
 
  Selling, general and administrative expense includes advertising and
marketing expenses, management salaries, and clerical and administrative
overhead.
 
  Non-rental depreciation and amortization includes (i) depreciation expense
associated with equipment that is not offered for rent (such as vehicles,
computers and office equipment) and depreciation expense associated with
leasehold improvements and (ii) the amortization of intangible assets. The
Company's intangible assets include goodwill, which represents the excess of
the purchase price of acquired companies over the estimated fair market value
of the assets acquired.
 
  The Company's acquisition of the Acquired Companies changed the cost
structures of these companies due to changes relating to depreciation and
amortization, interest expense, compensation to former owners and lease
expense for real estate. In view of these changes, the Company believes that
the pre-acquisition historical results of the Acquired Companies are not
indicative of future results. Therefore, the discussion below focuses on the
historical and pro forma results of the Company rather than on pre-acquisition
historical results of the Acquired Companies.
 
CONSIDERATION PAID FOR THE ACQUIRED COMPANIES
 
  The aggregate consideration paid by the Company for the Acquired Companies
was $1,015.2 million and consisted of approximately $872.7 million in cash,
5,105,380 shares of Common Stock, a convertible note in the principal amount
of $300,000, and warrants to purchase an aggregate of 30,000 shares of Common
Stock. In addition, the Company repaid or assumed outstanding indebtedness of
the Acquired Companies in the aggregate amount of $498.8 million. The Company
also agreed in connection with 12 of the acquisitions to pay additional
amounts to the former owners based upon specified future revenues (such
amounts being limited to (i) $10,000,000, $2,800,000, $2,000,000, $1,400,000,
$1,000,000, $800,000, $500,000, $500,000, $500,000, $350,000 and
Cdn$4,000,000, respectively, with respect to 11 of such acquisitions and (ii)
an amount based on the revenues of a single store with respect to the other
acquisition).
 
 
                                      37

 
HISTORICAL RESULTS OF OPERATIONS
 
  The Company believes that its historical results for each of the periods
discussed below do not fully reflect its current operations in view of the
fact that (i) acquisitions completed after the commencement of the period are
reflected in the Company's results for only a portion of the period and (ii)
acquisitions completed subsequent to the end of the period are not reflected
in the Company's results for such period.
 
 SIX MONTHS ENDED JUNE 30, 1998
 
  Revenues. Total revenues were $127.4 million for the six months ended June
30, 1998. Equipment rental revenues accounted for 67.6% of such revenues.
 
  Gross Profits. For the six months ended June 30, 1998, the gross profit
margin was (i) 41.7% from equipment rentals, (ii) 44.3% from sales of rental
equipment and (iii) 21.7% from sales of new equipment, merchandise and other
revenues.
 
  Selling, General and Administrative Expense. For the six months ended June
30, 1998, selling, general and administrative expense ("SG&A") was $25.1
million or 19.7% of total revenues.
 
  Non-rental Depreciation and Amortization. For the six months ended June 30,
1998, non-rental depreciation and amortization was $3.8 million or 3.0% of
total revenues.
 
  Interest Expense. For the six months ended June 30, 1998, interest expense
was $4.9 million.
 
  Income Taxes. The Company's effective income tax rate for the six months
ended June 30, 1998 was 41.0%.
 
 PERIOD FROM AUGUST 14, 1997 (INCEPTION) THROUGH DECEMBER 31, 1997
 
  Revenues. Total revenues were $10.6 million for the period from August 14,
1997 through December 31, 1997. Equipment rental revenues accounted for 66.0%
of such revenues.
 
  Gross Profit. For the period from August 14, 1997 through December 31, 1997,
the gross profit margin was (i) 39.6% from equipment rentals, (ii) 47.8% from
sales of rental equipment and (iii) 21.2% from sales of new equipment,
merchandise and other revenues.
 
  Selling, General and Administrative Expense. For the period from August 14,
1997 through December 31, 1997, SG&A was $3.3 million or 31.1% of total
revenues.
 
  Non-rental Depreciation and Amortization. For the period from August 14,
1997 through December 31, 1997, non-rental depreciation and amortization was
$262,000 or 2.5% of total revenues.
 
  Interest Expense. For the period from August 14, 1997 through December 31,
1997, interest expense was $454,000.
 
  Income Taxes. The Company's effective income tax rate for the period from
August 14, 1997 through December 31, 1997 was 37.9%.
 
PRO FORMA RESULTS OF OPERATIONS
 
  The pro forma income statement data with respect to each period discussed
below gives effect to (i) each acquisition completed by the Company after the
beginning of such period (through September 14, 1998) and the financing of
each such acquisition and (ii) completion of the Merger with U.S. Rentals
using the "pooling of interest" method of accounting, as if all such
transactions had occurred at the beginning of the period. Such pro forma
income statement data, however, does not reflect (i) potential cost savings,
synergies and efficiencies that may be achieved through the integration of the
businesses and operations of the businesses acquired, (ii) the
 
                                      38

 
expenses that the Company may incur as it seeks to increase internal growth at
the businesses acquired including expenditures required in order to expand and
modernize rental equipment, increase sales and marketing efforts and expand
and diversify the customer segments served and (iii) the costs incurred
subsequent to the end of the period in connection with installing the
Company's integrated information technology system. In addition, the pro forma
income statement data for 1997 does not reflect the additional compensation
expense relating to the Company's senior management which would have been
incurred had such compensation accrued commencing at the beginning of the year
(rather than in September 1997). The pro forma income statement data discussed
below does not purport to be indicative of the results that would have
actually been obtained had the acquisition of each of the businesses acquired
and the financing of each such acquisition been completed at the beginning of
the period discussed or of the results that may be expected to occur in the
future.
 
 SIX MONTHS ENDED JUNE 30, 1998
 
  Revenues. Total revenues were $650.0 million for the six months ended June
30, 1998. Equipment rental revenues accounted for 70.7% of such revenues.
 
  Gross Profits. For the six months ended June 30, 1998, the gross profit
margin was (i) 32.8% from equipment rentals and (ii) 33.1% from sales of
equipment and merchandise and other revenues.
 
  Selling, General and Administrative Expense. For the six months ended June
30, 1998, SG&A was $109.7 million or 16.9% of total revenues.
 
  Non-rental Depreciation and Amortization. For the six months ended June 30,
1998, non-rental depreciation and amortization was $21.2 million or 3.3% of
total revenues.
 
  Interest Expense. For the six months ended June 30, 1998, interest expense
was $33.0 million.
 
  Income Taxes. The Company's effective income tax rate for the six months
ended June 30, 1998 was 41.0%.
 
 YEAR ENDED DECEMBER 31, 1997
 
  Revenues. Total revenues were $1,193.6 million for the year ended
December 31, 1997. Equipment rental revenues accounted for 72.1% of such
revenues.
 
  Gross Profit. For the year ended December 31, 1997, the gross profit margin
was (i) 36.1% from equipment rentals and (ii) 29.7% from sales of equipment
and merchandise and other revenues.
 
  Selling, General and Administrative Expense. For the year ended December 31,
1997, SG&A was $197.1 million or 16.5% of total revenues.
 
  Non-rental Depreciation and Amortization. For the year ended December 31,
1997, non-rental depreciation and amortization was $38.0 million or 3.2% of
total revenues.
 
  Interest Expense. Interest expense was $74.3 million for the year ended
December 31, 1997.
 
  Income Taxes. The pro forma effective income tax rate for the year ended
December 31, 1997 was 58.1%. Such pro forma effective tax rate was impacted by
(i) the recognition in 1997 of a $7,520,000 deferred tax liability in
connection with a recapitalization of U.S. Rentals which was effected prior to
the initial public offering of U.S. Rentals and (ii) the incurrence in
connection with such initial public offering of a $20.3 million non-recurring
charge (arising from the termination of deferred compensation agreements with
certain executives) which was not tax deductible.
 
                                      39

 
LIQUIDITY AND CAPITAL RESOURCES
 
 GENERAL
 
  The Company has funded its cash requirements to date from (i) the sale of
Common Stock and warrants in private placements to the officers and directors
of the Company for aggregate consideration of $46.8 million, (ii) other sales
of Common Stock in private placements for aggregate consideration of $7.9
million, (iii) the sale of Common Stock in the Company's initial public
offering in December 1997 and in an additional public offering in March 1998
for aggregate consideration of $307 million (after deducting the underwriting
discounts and estimated offering expenses), (iv) borrowings under the
Company's $300 million revolving credit facility (the "Credit Facility"), (v)
the sale of $200 million aggregate principal amount of Original Notes in May
1998 for aggregate consideration of $194.5 million (after deducting the
initial purchasers' discount), (vi) the proceeds of a $250 million term loan
that the Company received in July 1998, (vii) the Preferred Securities
Offering (described below under "--Certain Information Concerning Preferred
Securities") which resulted in URI receiving net proceeds of $290 million,
(viii) the sale of $205 million aggregate principal amount of 8.80% senior
subordinated notes (the "8.80% Notes") in August 1998 for aggregate
consideration of $197.5 million (after deducting the initial purchaser's
discount) and (ix) cash generated from operations and from the sale of
equipment. The Company generated cash from operations of $1.1 million and
$28.8 million during the period from August 14, 1997 (inception) through
December 31, 1997, and the first six months of 1998, respectively. For
additional information concerning certain of the financings described above,
see "--Certain Information Concerning Preferred Securities" and "--Certain
Information Concerning the Credit Facility and Other Indebtedness."
 
  The Company's principal existing sources of cash are borrowings available
under the Credit Facility and cash generated from operations. The Company will
require additional financing in connection with the Merger as described below
under "--Cash Requirements Relating to the Merger."
 
 CASH REQUIREMENTS RELATING TO THE MERGER
 
  The Company has obtained commitments from a group of lenders to provide the
Company with a new $750 million revolving credit facility which would replace
the Company's existing Credit Facility. The Company expects that it will (i)
use a portion of this new facility to refinance approximately $382 million of
U.S. Rentals' outstanding indebtedness and pay approximately $60 million of
expenses in connection with the Merger (as described below) and (ii) use the
balance for general corporate purposes, including acquisitions. If for any
reason the Company were unable to obtain the expected new credit facility,
consummation of the Merger could be delayed or prevented.
 
  The principal cash outlays that the Company expects will be required in
connection with the Merger are discussed below.
 
  Repayment of U.S. Rentals' Credit Facility. Upon completion of the Merger,
U.S. Rentals will be required to immediately repay all outstanding
indebtedness under its revolving credit facility. As of September 4, 1998,
there was $130.0 million of indebtedness outstanding under such credit
facility.
 
  Prepayment of U.S. Rentals' Senior Notes. The Company and U.S. Rentals are
engaged in discussions with the holders of $252 million aggregate principal
amount of U.S. Rentals' senior unsecured notes with respect to obtaining the
agreement of such holders to certain amendments to the terms of such notes
that would enable URI to assume such notes in connection with the Merger. Any
such amendment would likely provide, among other things, for an increase in
the interest rate on the notes following the Merger. There can be no assurance
that the holders of the notes will agree to such an amendment. If agreement to
such amendment is not obtained, the Company will prepay the notes pursuant to
the terms thereof concurrently with the closing of the Merger. The Company
intends to fund such repayment with the new credit facility that the Company
expects to obtain as described above.
 
                                      40

 
  Other Cash Expenditures. The Company estimates that other cash expenditures
in connection with the Merger will be in the range of $50 million to $60
million (excluding non-cash charges of approximately $10 million). These
include expenditures for (i) accelerated deferred compensation for certain
employees of U.S. Rentals, (ii) severance for certain employees of U.S.
Rentals, and (iii) professional fees and investment banking fees.
 
 GENERAL CASH REQUIREMENTS RELATED TO OPERATIONS
 
  The Company expects to obtain a new credit facility (as described above).
The Company estimates that borrowings under such credit facility and cash
generated from operations will be sufficient for at least two years following
completion of the Merger to fund the cash required for (i) the existing
operations of the Company and (ii) the existing operations of U.S. Rentals to
be acquired in the Merger. The Company expects that following the Merger its
principal uses of cash relating to its operations will be to fund (i)
operating activities and working capital, (ii) the purchase of rental
equipment and inventory of items offered for sale and (iii) debt service. The
Company estimates that equipment expenditures over the next 12 months will be
in the range of $350 million to $400 million for (a) the existing operations
of the Company and (b) the existing operations of U.S. Rentals to be acquired
in the Merger. The Company expects to fund the foregoing expenditures from its
existing cash sources described above. The Company cannot quantify at this
time the amount of additional equipment expenditures that will be required in
connection with new acquisitions, but expects that generally such expenditures
will be funded from the cash flow generated by such acquisitions.
 
  Principal elements of the Company's strategy include continued expansion
through a disciplined acquisition program and the opening of new rental
locations. The Company expects to pay for future acquisitions using cash,
capital stock, notes and/or assumption of indebtedness. The Company expects
that it will require additional financing for future acquisitions and,
consequently, the Company's indebtedness may increase as the Company
implements its growth strategy. There can be no assurance that any such future
debt or equity financings will be available or, if available, will be on terms
satisfactory to the Company.
 
  The Company is in the process of developing three start-up locations. See
"Business--Start-up Locations." In addition, U.S. Rentals is in the process of
developing two start-up locations. The Company estimates that the aggregate
costs associated with such start-up locations will be in the range of $3
million to $5 million (including expenditures of approximately $700,000
incurred to date).
 
  The Company has recently installed a new integrated information technology
system as described under "Business--Information Technology System." The cost
of installing such system was approximately $7.4 million. The Company
estimates that the cost of extending the system to the locations to be
acquired through the Merger will be approximately $3.3 million.
 
  The Company has been informed by its software vendors that the Company's new
information technology system is year 2000 compliant. The Company has,
therefore, not developed any contingency plans relating to year 2000 issues
and has not budgeted any funds for year 2000 issues. Although the Company
believes that its system is year 2000 compliant, there can be no assurance
that unanticipated year 2000 problems will not arise
which, depending on the nature and magnitude of the problem, could have a
material adverse effect on the Company's business and financial condition.
Furthermore, year 2000 problems involving third parties may have a negative
impact on the general economy or on the ability of businesses generally to
receive essential services (such as telecommunications, banking services,
etc.). Any such occurrence could have a material adverse effect on the
Company's business and financial condition.
 
  Based upon the terms of the Company's currently outstanding indebtedness
(including currently outstanding indebtedness of U.S. Rentals that will be
assumed in the Merger), the Company is scheduled to repay approximately $1.2
million of indebtedness during the balance of 1998 and $3.7 million during
1999. In addition, U.S. Rentals' outstanding indebtedness includes a $21
million demand note. The Company expects that demand for the repayment of such
note may be made prior to or concurrently with completion of the Merger. The
debt repayment obligations described in this paragraph are in addition to
those relating to the Merger described under "--Cash requirements relating to
the Merger."
 
                                      41

 
 CERTAIN INFORMATION CONCERNING PREFERRED SECURITIES
 
  On August 5, 1998, a subsidiary trust (the "Trust") of the Holding Company
sold in a private offering (the "Preferred Securities Offering") $300 million
of 6 1/2% Convertible Quarterly Income Preferred Securities (the "Preferred
Securities"). The net proceeds from the Preferred Securities Offering were
approximately $290 million. The Trust used the proceeds from the Preferred
Securities Offering to purchase convertible subordinated debentures from the
Holding Company which resulted in the Holding Company receiving all of the
proceeds of the Preferred Securities Offering. The Holding Company in turn
contributed the net proceeds of the Preferred Securities Offering to URI, its
wholly owned subsidiary. URI has used approximately $281 million of such net
proceeds to repay outstanding indebtedness under the Credit Facility and has
used the balance of such net proceeds for acquisitions.
 
  The Preferred Securities are convertible into Common Stock of the Holding
Company at a conversion price equivalent to $43.63 per share.
 
 CERTAIN INFORMATION CONCERNING THE CREDIT FACILITY AND OTHER INDEBTEDNESS
 
  Set forth below is certain information concerning the Company's existing
Credit Facility and certain other indebtedness of the Company.
 
  Existing Credit Facility. The Company's existing Credit Facility is with a
group of financial institutions, for which Bank of America National Trust and
Savings Association acts as U.S. agent and Bank of America Canada acts as
Canadian agent. Set forth below is certain information concerning the terms of
the Credit Facility. As described above, the Company expects to obtain a new
credit facility that will increase the Company's borrowing capacity. The terms
of such new credit facility may be different than the terms of the existing
Credit Facility.
 
  The Credit Facility enables URI to borrow up to $300 million on a revolving
basis and permits a Canadian subsidiary of URI (the "Canadian Subsidiary") to
directly borrow up to $40 million under the Credit Facility (provided that the
aggregate borrowings of URI and the Canadian Subsidiary do not exceed $300
million). Up to $10 million of the Credit Facility is available in the form of
letters of credit. The Credit Facility terminates on March 30, 2001, at which
time all outstanding indebtedness is due. As of September 8, 1998, there was
$97.0 million outstanding indebtedness under the Credit Facility (not
including undrawn outstanding letters of credit in the amount of $1.4
million). As described above, the Company expects to obtain a new $750 million
revolving credit facility which would replace the existing Credit Facility.
 
  Borrowings by URI under the Credit Facility accrue interest, at URI's
option, at either (a) the Base Rate (which is equal to the greater of (i) the
Federal Funds Rate plus 0.5% and (ii) Bank of America's reference rate) or (b)
the Eurodollar Rate (which for borrowings by URI is equal to Bank of America's
reserve adjusted eurodollar rate) plus a margin ranging from 0.950% to 1.625%
per annum. Borrowings by the Canadian Subsidiary under the Credit Facility
accrue interest, at such subsidiary's option, at either (x) the Prime Rate
(which is equal to Bank of America Canada's prime rate), (y) the BA Rate
(which is equal to Bank of America Canada's BA Rate) plus a margin ranging
from 0.950% to 1.625% per annum or (z) the Eurodollar Rate (which for
borrowing by the Canadian Subsidiary is equal to Bank of America Canada's
reserve adjusted eurodollar rate) plus a margin ranging from 0.950% to 1.625%
per annum. If at any time an event of default (as defined in the agreement
governing the Credit Facility) exists, the interest rate applicable to each
loan will increase by 2% per annum. URI is also required to pay the banks an
annual facility fee equal to 0.375% of the banks' $300 million aggregate
lending commitment under the Credit Facility (which fee may be reduced to
0.300% for periods during which the Company maintains a specified funded debt
to cash flow ratio).
 
  The agreement governing the Credit Facility contains certain covenants that
require the Company to, among other things, satisfy certain financial tests
relating to: (a) maintenance of minimum net worth, (b) the ratio of funded
debt to net worth, (c) interest coverage ratio, (d) funded debt to cash flow,
(e) the ratio of funded debt to cash flow, and (f) the ratio of senior debt to
tangible assets. The agreement governing the Credit Facility also
 
                                      42

 
contains certain covenants that restrict URI's ability to, among other things,
(i) incur additional indebtedness, (ii) permit liens to attach to its assets,
(iii) pay dividends or make other restricted payments on its common stock and
certain other securities, (iv) make acquisitions unless certain financial
conditions are satisfied, (v) engage in transactions with affiliates or (vi)
consolidate, merge or sell all or substantially all of its assets. In
addition, the agreement governing the Credit Facility provides that failure by
any two of Messrs. Jacobs, Milne, Nolan and Miner to continue to hold
executive positions with URI for a period of 30 consecutive days constitutes
an event of default unless replacement officers satisfactory to the lenders
are appointed.
 
  The obligations of URI under the Credit Facility are (i) secured by
substantially all of its assets, the stock of its United States subsidiaries
and a portion of the stock of a Canadian subsidiary and (ii) guaranteed by the
Holding Company and secured by the stock of URI. The obligations of the
Canadian Subsidiary under the Credit Facility are guaranteed by URI and
secured by substantially all of the assets of the Canadian Subsidiary and the
stock of the subsidiaries of the Canadian Subsidiary.
 
  Term Loan. In July 1998, URI obtained a $250 million term loan from a group
of financial institutions. The term loan matures on June 30, 2005. Prior to
maturity, quarterly installments of principal in the amount of $625,000 are
due on the last day of each calendar quarter, commencing September 30, 1999.
The amount due at maturity is $235,625,000. The term loan accrues interest, at
the Company's option, at either (a) the Base Rate (as defined above with
respect to the Credit Facility) plus a margin ranging from 0% to 0.5% per
annum, or (b) the Eurodollar Rate (as defined above with respect to the Credit
Facility for borrowings by the Company) plus a margin ranging from 1.875% to
2.375% per annum. The term loan is secured pari passu with the Credit
Facility. The agreement governing the term loan contains restrictive covenants
substantially similar to those provided by the Credit Facility.
 
  9 1/2% Senior Subordinated Notes. For information concerning the Notes, see
"Description of the Notes."
 
  8.80% Senior Subordinated Notes. In August 1998, URI issued $205 million
aggregate principal amount of 8.80% Notes which are due August 15, 2008. The
8.80% Notes are unsecured. URI may, at its option, redeem the 8.80% Notes on
or after August 15, 2003 at specified redemption prices which range from
104.40% in 2003 to 100.00% in 2006 and thereafter. In addition, on or prior to
August 15, 2001, URI may, at its option, use the proceeds of a public equity
offering to redeem up to 35% of the outstanding 8.80% Notes, at a redemption
price of 108.8%. The indenture governing the 8.80% Notes contains restrictions
substantially similar to those applicable to the Notes.
 
FLUCTUATIONS IN OPERATING RESULTS
 
  The Company expects that its revenues and operating results may fluctuate
from quarter to quarter due to a number of factors, including: seasonal rental
patterns of the Company's customers (with rental activity tending to be lower
in the winter); changes in general economic conditions in the Company's
markets; the timing of acquisitions and the opening of start-up locations and
related costs; the effect of the integration of acquired businesses and start-
up locations; the timing of expenditures for new equipment and the disposition
of used equipment; and price changes in response to competitive factors.
 
  The Company is continually involved in the investigation and evaluation of
potential acquisitions. In accordance with generally accepted accounting
principles, the Company capitalizes certain direct out-of-pocket expenditures
(such as legal and accounting fees) relating to potential or pending
acquisitions. Indirect acquisition costs, such as executive salaries, general
corporate overhead, public affairs and other corporate services, are expensed
as incurred. The Company's policy is to charge against earnings any
capitalized expenditures relating to any potential or pending acquisition that
the Company determines will not be consummated. There can be no assurance that
the Company in future periods will not be required to incur a charge against
earnings in accordance with such policy, which charge, depending upon the
magnitude thereof, could adversely affect the Company's results of operations.
 
                                      43

 
  The Company will be required to incur significant start-up expenses in
connection with establishing each start-up location. Such expenses may
include, among others, pre-opening expenses related to setting up the
facility, training employees, installing information systems and marketing.
The Company expects that in general start-up locations will initially operate
at a loss or at less than normalized profit levels. Consequently, the opening
of a start-up location may negatively impact the Company's margins until the
location achieves normalized profitability.
 
  There may be a lag between the time that the Company purchases new equipment
and begins to incur the related depreciation and interest expenses and the
time that the equipment begins to generate revenues at normalized rates. As a
result, the purchase of new equipment, particularly equipment purchased in
connection with expanding and diversifying the Company's rental equipment, may
periodically reduce margins.
 
GENERAL ECONOMIC CONDITIONS AND INFLATION
 
   The Company's operating results may be adversely affected by (i) changes in
general economic conditions, including changes in construction and industrial
activity, or increases in interest rates, or (ii) adverse weather conditions
that may temporarily decrease construction and industrial activity in a
particular geographic area. Although the Company cannot accurately anticipate
the effect of inflation on its operations, the Company believes that inflation
has not had, and is not likely in the foreseeable future to have, a material
impact on its results of operations.
 
RECENTLY ISSUED ACCOUNTING STANDARDS
 
  In June 1997, the Financial Accounting Standards Board Issued Statement of
Financial Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive
Income," and SFAS No. 131, "Disclosures about Segments of an Enterprise and
Related Information." SFAS No. 130 establishes standards for reporting and
display of comprehensive income and its components in a primary financial
statement. The Company adopted SFAS No. 130 during the period ended March 31,
1998. The adoption of SFAS No. 130 did not have a material effect on the
consolidated financial position results of operations or cash flows of the
Company. SFAS No. 131 establishes a new method by which companies will report
operating segment information. This method is based on the manner in which
management organizes the segments within a company for making operating
decisions and assessing performance. The Company continues to evaluate the
provisions of SFAS No. 131 and, upon adoption, the Company may report
operating segments. The Company is required to adopt SFAS No. 131 by December
31, 1998.
 
  In February 1998, the Financial Accounting Standards Board issued SFAS No.
132, "Employers' Disclosures about Pensions and Other Post Retirement
Benefits." SFAS No. 132 revises employers' disclosures about pension and other
post retirement benefit plans but does not change the measurement or
recognition of those plans. The Company is required to adopt SFAS No. 132 by
December 31, 1998. The adoption of SFAS No. 132 is not expected to have any
effect on the Company's consolidated financial position or results of
operations or significantly change disclosures presently made by the Company
with respect to employee benefit plans.
 
  In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133
establishes a new model for accounting for derivatives and hedging activities.
The Company will adopt SFAS No. 133 beginning January 1, 2000. The adoption of
SFAS No. 133 is not expected to have a material effect on the Company's
consolidated financial position or results of operations.
 
                                      44

 
                                   BUSINESS
 
  The Company is a large, geographically diversified equipment rental company
with 269 rental locations in 31 states and Canada. The Company rents a broad
array of equipment to a diverse customer base that includes construction
industry participants, industrial companies, homeowners and other individuals.
The Company also sells used rental equipment, acts as a distributor for
certain new equipment, and sells related merchandise and parts. The Company
commenced equipment rental operations in October 1997 by acquiring six
established companies and acquired 66 additional companies in the first nine
months of 1998 (through September 14, 1998). During the year ended December
31, 1997, the Company on a pro forma basis rented equipment to approximately
395,000 customers (with the top ten customers representing less than 1% of
total revenues) and had pro forma revenues of $768.9 million.
 
  The types of rental equipment offered by the Company include a broad range
of light to heavy construction and industrial equipment (such as backhoes,
forklifts, aerial lifts, skid-steer loaders, compressors, pumps and
generators), general tools and equipment (such as hand tools and garden and
landscaping equipment) and, to a lesser extent, special event equipment (such
as tents, tables and chairs). The equipment mix varies at each of the
Company's locations, with some locations offering a general mix and some
specializing in specific equipment categories. As of September 14, 1998, the
Company's rental equipment included approximately 153,000 units (not including
special event equipment), had an original purchase price of approximately $849
million and had a weighted average age (based on original purchase price) of
approximately 32 months.
 
BACKGROUND
 
  The Company was founded by eight of the Company's officers, who contributed
an aggregate of $44.4 million in cash to the capital of the Company. Each of
the founders was formerly a senior executive of United Waste Systems, Inc.
("United Waste"), a solid waste management company that was sold in August
1997, or a senior member of United Waste's acquisition team. United Waste
executed a growth strategy that combined a disciplined acquisition program
(including over 200 acquisitions completed from January 1995 through August
1997), the integration and optimization of acquired facilities, and internal
growth. Since the founding of the Company, the Company has recruited
additional operating, acquisition, finance and other personnel from the
equipment rental industry and other industries, including regional managers,
store managers and acquisition professionals with extensive experience in the
equipment rental industry. See "Management."
 
  URI was incorporated in August 1997, initially capitalized in September 1997
and commenced equipment rental operations in October 1997. The Holding Company
was incorporated in July 1998 and became the parent company of URI on August
5, 1998, pursuant to the reorganization (the "Reorganization") described
below. Prior to the Reorganization, the name of United Rentals (North
America), Inc. was United Rentals, Inc.
 
  On August 5, 1998, the Reorganization of URI's legal structure was effected
pursuant to Section 251(g) of the Delaware General Corporation law. In the
Reorganization, (i) URI became a wholly owned subsidiary of the Holding
Company, (ii) the name of the Holding Company became United Rentals, Inc. (and
the name of URI was changed from United Rentals, Inc. to United Rentals (North
America), Inc.), (iii) the outstanding common stock of URI was automatically
converted, on a share-for-share basis, into common stock of the Holding
Company and (iv) the common stock of the Holding Company commenced trading on
the New York Stock Exchange under the symbol "URI" instead of the common stock
of URI. The purpose of the Reorganization was to facilitate certain
financings.
 
  The executive offices of the Company are located at Four Greenwich Office
Park, Greenwich, Connecticut 06830, and its telephone number is (203) 622-
3131.
 
INDUSTRY OVERVIEW
 
  The Company estimates that the U.S. equipment rental industry (including
used and new equipment sales by rental companies) generates annual revenues in
excess of $20 billion. The combined equipment rental revenues of the 100
largest equipment rental companies have increased at an estimated compound
annual rate of
 
                                      45

 
approximately 23% from 1992 through 1997 (based upon 1992 revenues and 1997
pro forma revenues, giving effect to certain acquisitions completed after the
beginning of 1997, reported by the Rental Equipment Register, an industry
trade publication). The Company believes growth in the equipment rental
industry primarily reflects the following trends:
 
  Recognition of Advantages of Renting. There is increasing recognition of the
many advantages that equipment rental may offer compared with ownership,
including the ability to: (i) avoid the large capital investment required for
equipment purchases, (ii) reduce storage and maintenance costs, (iii)
supplement owned equipment thereby increasing the range and number of jobs
that can be worked on, (iv) access a broad selection of equipment and select
the equipment best suited for each particular job, (v) obtain equipment as
needed and minimize the costs associated with idle equipment, and (vi) access
the latest technology without investing in new equipment.
 
  Increase in Contractor Rentals. There has been a fundamental shift in the
way contractors meet their equipment needs. While contractors have
historically used rental equipment on a temporary basis--to provide for peak
period capacity, meet specific job requirements or replace broken equipment--
many contractors are now also using rental equipment on an ongoing basis to
meet their long-term equipment requirements.
 
  Outsourcing Trend. The general trend toward the corporate outsourcing of
non-core competencies is leading large industrial companies increasingly to
rent, rather than purchase, equipment that they require for repairing,
maintaining and upgrading their facilities.
 
  The equipment rental industry is highly fragmented, consisting of a small
number of multi-location regional or national operators and a large number of
relatively small, independent businesses serving discrete local markets. Based
upon rental revenues reported by the Rental Equipment Register for 1997: (i)
there were only 10 equipment rental companies that had 1997 equipment rental
revenues in excess of $100 million (with the largest company having had 1997
equipment rental revenues of approximately $460 million), (ii) the largest 100
equipment rental companies combined had less than a 22% share of the market
based on 1997 equipment rental revenues and the Company's estimate of the size
of the market (with the largest company having had a market share of less than
3%), and (iii) there were approximately 100 equipment rental companies that
had 1997 equipment rental revenues between $5 million and $100 million. In
addition, the Company estimates that there are more than 20,000 companies with
annual equipment rental revenues of less than $5 million. The Company believes
that the fragmented nature of the industry presents substantial consolidation
and growth opportunities for companies with access to capital and the ability
to implement a disciplined acquisition program. The Company also believes that
the extensive experience of its management team in acquiring and effectively
integrating acquisition targets should enable the Company to capitalize on
these opportunities.
 
STRATEGY
 
  The Company's objective is to continue to expand its operations in North
America. The Company believes that it has competitive advantages relative to
many smaller operators, including greater purchasing power, a lower cost of
capital, the ability to provide customers with a broader range of equipment
and services and with newer and better maintained equipment, greater
flexibility to transfer equipment among locations in response to customer
demand, and greater ability to efficiently dispose of used equipment through
direct sales to customers. The Company's plan for achieving this objective
includes the following key elements:
 
  Increase Internal Growth. The Company believes that a lack of capital has
constrained expansion and modernization at many small and mid-sized equipment
rental companies and that as a result there is significant potential to
increase internal growth at many acquired companies through capital
investment. The Company seeks to increase internal growth by investing in
additional and more modern equipment, using advanced information technology
systems to improve asset utilization and tracking, increasing sales and
marketing efforts, cross-marketing between locations that offer different
equipment categories, expanding and diversifying the customer segments served,
expanding the geographic areas served, and opening complementary locations.
 
                                      46

 
  Improve Operating Margins. The Company focuses significant efforts on
improving operating margins at acquired companies through the efficient
integration of new and existing operations, the elimination of duplicative
costs, reduction in overhead, and centralization of functions such as
purchasing and information technology.
 
  Execute Disciplined Acquisition Program. The Company intends to continue to
expand through a disciplined acquisition program. The Company is seeking to
make acquisitions of varying size, including acquisitions of smaller companies
to complement existing or anticipated locations and combinations with
relatively large companies that have an established presence in one or more
regions. In evaluating potential acquisition targets, the Company considers a
number of factors, including the quality of the target's rental equipment and
management, the opportunities to improve operating margins and increase
internal growth at the target, the economic prospects of the region in which
the target is located, the potential for additional acquisitions in the
region, and the competitive landscape in the target's markets.
 
  Open New Rental Locations. The Company also intends to grow by selectively
opening new rental locations in attractive markets where there are no suitable
acquisition targets available or where the cost of a start-up location would
be less than the cost of acquiring an existing business.
 
  Diversify Locations, Equipment Categories and Customers. The Company plans
to continue to diversify geographically and to focus on a broad range of
equipment categories and customer markets within the equipment rental
industry. The Company believes that this will allow it to participate in the
overall growth of the equipment rental industry and reduce the Company's
sensitivity to fluctuations in regional economic conditions, adverse weather
impacting a particular region or changes that affect particular market
segments. In order to achieve this diversification, the Company will continue
to seek expansion opportunities in North America and will pursue acquisition
candidates with varying equipment mixes and customer specializations.
 
ACQUISITIONS
 
  The Company believes that there will continue to be a large number of
attractive acquisition opportunities in the equipment rental industry due to
the highly fragmented nature of the industry, the inability of many small and
mid-sized equipment rental companies to expand and modernize due to capital
constraints, and the desire of many long-time owners for liquidity. The
Company has an experienced acquisition team, comprised of senior level
executives with extensive acquisition, operating and financial experience,
that is engaged in identifying and evaluating acquisition candidates and
executing the Company's acquisition program.
 
 COMPLETED ACQUISITIONS
 
  The table below provides certain information concerning the 72 acquisitions
completed by the Company through September 14, 1998:
 


                                          NUMBER OF   YEARS IN         1997
COMPANY                     LOCATIONS    RENTAL SITES BUSINESS       REVENUES
- -------                   -------------- ------------ -------- ---------------------
1997 ACQUISITIONS:                                             (DOLLARS IN MILLIONS)
                                                   
Mercer Equipment Company  North Carolina       3          9           $ 18.5
A&A Tool Rentals and
 Sales, Inc.              California           2         35             13.8
Coran Enterprises, Inc.   California           4         33              9.5
 (dba A-1 Rents) and
 affiliate
J&J Rental Services,
 Inc.                     Texas                1         19              8.7
Bronco Hi-Lift, Inc.      Colorado             1         16              6.5
Rent-It Center, Inc.      Utah                 1         45              2.9

 
                                      47

 


                                                                                     NUMBER OF   YEARS IN    1997
COMPANY                                           LOCATIONS                         RENTAL SITES BUSINESS  REVENUES
- -------                   --------------------------------------------------------- ------------ -------- -----------
                                                                                                          (DOLLARS IN
                                                                                                           MILLIONS)
1998 ACQUISITIONS:
                                                                                              
Equipment Supply          Alabama; Delaware;                                             22         21       101.1
 Company, Inc. and        Georgia; Indiana;
 affiliates               Kentucky; Maryland; Michigan;
                          New Jersey; North Carolina;
                          Ohio; Pennsylvania; Virginia
Access Rentals, Inc. and
 affiliates               Connecticut; Florida;                                          19         23        52.3
                          Indiana; Minnesota;
                          New Jersey; New
                          York; Pennsylvania;
                          South Carolina;
                          Tennessee; Washington;
                          Ontario, Canada
Rental Tools & Equipment
 Co. International, Inc.  Georgia; Maryland; Pennsylvania; Virginia; North Carolina      22         47        47.1
McClinch Equipment
 Services, Inc. and       Connecticut; Delaware; Maryland; Virginia; New Jersey;
 affiliates               New York; Virginia                                              9         44        42.8
Power Rental Co., Inc.    Idaho; Oregon; Washington                                      18         28        40.5
BNR Equipment Limited
 and affiliates           New York; Ontario, Canada                                       8         23        24.0
ADCO Equipment, Inc. and
 affiliate                California                                                      2         43        23.3
Industrial Lift, Inc.     Maryland; New Jersey; Virginia                                  4         15        21.5
Rental Equipment, Inc.
 and affiliates           California                                                      6         38        19.3
Grand Valley Equipment
 and affiliate            Michigan                                                        2         24        18.3
Valley Rentals, Inc.      Washington                                                      3         37        15.6
Lift Systems, Inc.        Illinois                                                        2         12        14.5
Independent Scissor Lift
 and affiliate            Arizona; California                                             4         26        14.3
Gaedcke Equipment
 Company                  Texas                                                           4         38        14.0
Perco Limited             Quebec, Canada                                                 10         61        13.6
Bear Associates, Inc.     Delaware; Maryland                                              4         13        13.2
Reitzel Rentals Ltd.      Ontario, Canada                                                10         52        12.1
High Reach, Inc. and
 affiliate                Oregon; Washington                                              3         16        11.0
Channel Equipment
 Holding, Inc. and
 affiliates               Texas                                                           4(a)      20        10.8
Paul E. Carlson, Inc.
 (dba Carlson Equipment)  Minnesota                                                       3         42        10.7
West Main Rentals &
 Sales, Inc.              California; Oregon                                              6         18         9.8
Select Equipment Ltd.     Ontario, Canada                                                 2         20         9.3
Mission Valley Rentals,
 Inc.                     California                                                      4         22         8.6
Ross Equipment
 Corporation              Ohio                                                            1         51         8.6
Ray Gordon Equipment LLC  Ontario                                                         3          3         8.0
Arrow Equipment Company   Illinois                                                        3         27         7.6
Western Rental & Sales,                                                                   4         21         7.6
 Inc. and affiliate       Utah
Dealers Service Company   New Jersey                                                      2         27         7.2

 
 
                                       48

 


                                                       NUMBER OF   YEARS IN         1997
COMPANY                            LOCATIONS          RENTAL SITES BUSINESS       REVENUES
- -------                   --------------------------- ------------ -------- ---------------------
                                                                            (DOLLARS IN MILLIONS)
                                                                
Yankee Equipment Corpo-
 ration                   Connecticut                       2(a)      22            $6.9
Mid-Mountain Machinery
 Inc.                     Washington                        1         40             6.4
Ace Rental & Sales Com-
 pany, Inc.               Kentucky                          3         18             6.3
Pro Rentals, Inc.         Washington                        6         12             5.9
Anderson Oregon Rental,
 Inc. and affiliates      Oregon                            6         13             5.7
ASC Equipment Company,
 Inc.                     North Carolina                    3         21             5.5
B&H Equipment, Inc.       Texas                             2          6             5.5
Equipment Rental and
 Sales of Monroe, Inc.    North Carolina                    1         24             5.2
Sky-King Holdings
 Equipment Ltd.           Ontario, Canada                   3         13             5.0
Equipment Capital
 Corporation (dba Owens
 Equipment Company)       Colorado                          1         10             4.6
Nevada High Reach
 Equipment, Inc. and
 affiliate                Nevada                            3         13             4.5
Windham Construction
 Corp. (dba Windham
 Equipment Company)       New York                          2         13             4.3
C.T.R. Rental Center,
 Inc.                     Texas                             3         27             4.3
Action Rentals LLC        Colorado                          3          6             3.9
Palmer Equipment
 Company, Inc.            Michigan                          1         21             3.7
Gene's Village Rental &
 Sales, Inc.              South Carolina                    2         24             3.6
Manchester Equipment
 Rental & Sales, Inc.     Connecticut                       1         11             3.3
San Leandro Equipment
 Rental Service, Inc.     California                        1         36             3.2
Quarry & Drill Supply,    Connecticut; Massachusetts;
 Inc. (dba Premier Tool)  New York                          3          8             3.2
Madison Equipment
 Rentals and Sales, Inc.  Alabama                           3         11             3.2
MISCO Rents, Inc.         Indiana                           2          8             3.1
Power Rentals and Sales,
 Inc.                     California                        1         33             2.5
Santa Fe Supply &
 Rental, Inc.             Colorado                          1         11             2.3
Archer Construction
 Equipment, Inc.
 (dba Ace Equipment)      North Carolina                    1         30             2.2
Dirt & Rock Rentals &
 Equipment LLC            Kentucky                          2         15             2.1
Contractors Supply and
 Equipment                Kentucky                          1          9             1.9
Rentals Unlimited, Inc.   Rhode Island                      2         30             1.7
Darien Rental Services
 Company                  Connecticut                       1         31             1.7
Phoenix Rental
 Corporation and
 affiliate                Wisconsin                         1          9             1.7
Pearson Equipment
 Rentals, Limited         Ontario, Canada                   1         33             1.4
Rents Et. Al., Inc.       California                        1         10             1.4
Salisbury Rental Center,
 Inc.                     North Carolina                    1         10             1.3
Carson Tahoe Rents, Inc.  California; Nevada                3         33             1.1
CC Rentals, Inc.          Nevada                            1          2             1.1
Anchor Rental, Inc.       Connecticut                       1         15             1.0
Georgian Sales and
 Construction             Ontario, Canada                   1         30             0.7
A-1 Rents of Galveston,
 Inc.                     Texas                             1         16             0.6
M&S Sales, Inc.           Rhode Island                      1(b)      12             0.3

- --------
(a) One of these locations was shut down and the operations formerly conducted
    at such location were consolidated with another location.
(b) This location was shut down and the operations formerly conducted at this
    location were consolidated with another location.
 
                                       49

 
  The aggregate consideration paid by the Company for the Acquired Companies
was $1,015.2 million and consisted of approximately $872.7 million in cash,
5,105,380 shares of Common Stock, a convertible note in the principal amount
of $300,000, and warrants to purchase an aggregate of 30,000 shares of Common
Stock. In addition, the Company repaid or assumed outstanding indebtedness of
the Acquired Companies in the aggregate amount of approximately $498.8
million. The Company agreed in connection with 12 acquisitions to pay former
owners additional amounts based upon specified future revenues and/or new
store openings (such amounts being limited to (i) $10,000,000, $2,800,000,
$2,000,000, $1,400,000, $1,000,000, $800,000, $500,000, $500,000, $500,000,
$350,000, and Cdn$4,000,000, respectively, with respect to 11 of such
acquisitions, and, (ii) an amount based on a single store with respect to one
acquisition).
 
 POTENTIAL ACQUISITIONS
 
  The Company, as of September 14, 1998, was a party to 36 non-binding letters
of intent relating to the possible acquisition by the Company of 36 additional
companies having an aggregate of 104 rental locations. Based upon information
provided to the Company in connection with its preliminary investigation of
these companies, the Company estimates that the aggregate 1997 revenues of
these companies were approximately $231.9 million. However, in view of the
preliminary nature of this estimate, there can be no assurance that actual
revenues did not differ.
 
  Based upon the terms contained in the letters of intent, the Company
estimates that the aggregate purchase price for the 36 companies under letter
of intent would be approximately $241.8 million plus the assumption of
approximately $79.3 million of indebtedness. A portion of the purchase price
may be paid in the form of Common Stock.
 
  In view of the fact that the letters of intent are non-binding and that the
Company has not completed its due diligence investigations with respect to the
companies under letter of intent, the Company cannot predict whether these
letters of intent will lead to definitive agreements, whether the terms of any
such definitive agreements will be the same as the terms contemplated by the
letters of intent or whether any transaction contemplated by such letters of
intent will be consummated.
 
  The Company is continuously involved in discussions relating to potential
acquisitions of varying size and in due diligence investigations of potential
acquisition candidates. In addition to the potential acquisitions that are
currently under letter of intent, there are additional potential acquisitions
with respect to which the Company is currently engaged in discussions or due
diligence investigations. These potential acquisitions include the acquisition
of smaller companies to complement existing or anticipated locations and
combinations with large companies that have an established presence in one or
more regions.
 
START-UP LOCATIONS
 
  The Company has to date developed three start-up locations (1 in Florida, 1
in Texas and 1 in Quebec) and is in the process of developing three additional
start-up locations (1 in Maryland, 1 in Texas, and 1 in Washington). These
projects were commenced by certain of the Acquired Companies, prior to their
having been acquired by the Company, and are being continued by the Company.
The Company expects that one of these locations will open in the third quarter
of 1998, one in the fourth quarter of 1998 and one in the first quarter of
1999.
 
OPERATIONS
 
  The Company operates (as of September 14, 1998) 269 rental locations in 31
states and Canada. The Company offers for rent a broad array of equipment
including light to heavy construction and industrial equipment, general tools
and equipment and, to a lesser extent, special event equipment. The Company
also engages in related activities such as selling used rental equipment,
acting as a distributor for certain new equipment, and selling related
merchandise and parts. The Company's customer base is diverse and includes
construction industry participants, industrial companies, and homeowners and
other individuals.
 
                                      50

 
 EQUIPMENT RENTAL
 
  The Company offers for rent a broad array of equipment on a daily, weekly,
monthly and multi-month basis. The following are examples of the types of
equipment that the Company offers for rent:
 
    Construction and Industrial: aerial lifts (such as boom and scissor
    lifts), air compressors, backhoes, ditching equipment, forklifts,
    generators, pumps, and skid-steer loaders.
 
    General Tools and Equipment: garden and landscaping equipment, hand
    tools, high-pressure washers, paint sprayers, power tools, roto
    tillers.
 
    Special Event: lighting, staging and dance floors, tables and chairs,
    tents and canopies.
 
  As of September 14, 1998, the Company's rental equipment included
approximately 153,000 units (excluding special event equipment) and had an
original purchase price of approximately $849 million and a weighted average
age (based on original purchase price) of approximately 32 months. The Company
estimates that (based on original purchase price) construction and industrial
equipment represents approximately 94% of the Company's rental equipment,
general tools and equipment represents approximately 6%, and special event
equipment represents less than 1%. The Company also estimates that aerial lift
equipment represents approximately 51% of the Company's rental equipment and
accounted for approximately 33% of the Company's pro forma revenues in 1997.
 
  The equipment mix varies at each of the Company's locations, with some
locations offering a general mix and some specializing in specific equipment
categories. The Company expects that as it integrates the Acquired Companies
it will further expand and modernize its rental equipment and expand and
diversify the customer markets served by certain locations.
 
 RELATED OPERATIONS
 
  In addition to renting equipment, the Company is engaged in a variety of
related or complementary activities.
 
  Sales of Used Equipment. The Company routinely sells used rental equipment
to adjust the age and composition of its rental fleet. The Company sells such
equipment through a variety of means including sales to the Company's existing
rental customers and local customer base, sales to used equipment dealers, and
sales through public auctions. The Company also participates in trade-in
programs in connection with purchasing new equipment.
 
  Sales of New Equipment. The Company, at most locations, is a distributor for
various tool and equipment manufacturers, including American Honda Motor Co.
Inc. (generators and pumps), Edco Manufacturing (surfacing equipment), Genie
Industries, Inc. (aerial lifts), Grove Worldwide (aerial platforms), Kubota
(earthmoving equipment), Multiquip, Inc. (compaction equipment and
compressors), Milwaukee Electric Tool Corporation (power tools), Trak
International (loaders and forklifts), Stihl, Inc. (surface preparation
equipment) and Wacker (compaction equipment). In general, such manufacturers
may terminate the Company's distribution rights at any time.
 
  Sales of Related Merchandise and Parts. The Company, at most locations,
sells a variety of merchandise that may be used in conjunction with rental
equipment (such as saw blades, fasteners, drill bits, hard hats, gloves and
other safety equipment) and also sells parts.
 
  Other. The Company at certain locations offers equipment maintenance
services to customers for equipment that is owned by the customer. This
service is primarily provided with respect to equipment purchased from the
Company.
 
                                      51

 
 CUSTOMERS AND SALES AND MARKETING
 
  The Company on a pro forma basis rented equipment to approximately 395,000
customers in 1997. No single customer accounted for more than 0.5% of the
Company's pro forma revenues in 1997, and the Company's top 10 customers
accounted for less than 1% of the Company's pro forma revenues in 1997.
 
  The composition of the Company's customer base varies widely by location and
is determined by several factors, including the equipment mix and marketing
focus of the particular location and the business composition of the local
economy. The Company's customer base consists of the following general
categories: (i) construction industry participants (such as construction
companies, contractors and subcontractors), (ii) industrial companies (such as
manufacturers, chemical companies, paper mills and utilities), and (iii)
homeowners and other individuals. The Company estimates that in 1997 (a)
revenues attributable to construction industry participants accounted for
approximately 68% of the Company's pro forma revenues, (b) revenues
attributable to industrial companies accounted for approximately 26% of the
Company's pro forma revenues, and (c) revenues attributable to homeowners and
others accounted for approximately 6% of the Company's pro forma revenues.
 
  The Company markets its products and services through a sales force which,
as of September 14, 1998, consisted of approximately 445 store-based
salespeople and 428 field-based salespeople. The Company supplements the
activities of its sales force through participation in industry trade shows
and conferences, direct mailings, and advertising in local industry
publications and the yellow pages in the markets it serves.
 
 PURCHASING
 
  The Company is in the process of centralizing the purchasing of certain
equipment items, particularly large items with a significant cost and items
that are purchased in volume. The Company believes that such centralization
will give it greater purchasing power with its suppliers and enable it to
obtain discounts.
 
 INFORMATION TECHNOLOGY SYSTEM
 
  The Company has recently installed a new integrated information technology
system. The Company believes that this system should enable the Company to
more effectively monitor and manage operations, improve equipment utilization,
and facilitate the redeployment of under-utilized equipment to other
locations. The new system replaces the separate systems heretofore used by the
Acquired Companies.
 
  The Company's information technology system is currently operational at all
of the Company's locations, except for certain locations that were acquired in
the past 45 days. In general, it takes the Company three to five weeks to
install the system at newly acquired locations. However, in view of the
significant number of new locations that will be acquired in the Merger with
U.S. Rentals, the Company expects that the system will not be installed at
such locations until January 1999.
 
  Each of the Company's locations is equipped with a workstation that is
electronically linked to each of the Company's other locations and to the
Company's centralized databases. All rental transactions are entered at these
workstations and processed on a real-time basis through a centralized AS400
system located at corporate headquarters. Authorized personnel at each
location are able to access the system 24 hours a day in order to determine
equipment availability, monitor business activity on a real-time basis, and
obtain a wide range of operating and financial data. The data available
through the system includes: (i) inventory reports, (ii) accounts receivable
information, (iii) customer and vendor information, (iv) price and sales
trends by store, region, salesperson, equipment category, or customer, (v)
fleet utilization by individual asset or asset class and (vi) financial
results by store or region. The system also allows an employee at any location
to locate a specific item of equipment throughout a region, determine when it
will be available for rental, reserve it for a specific customer, and schedule
delivery to the customer's job site or one of the Company's locations.
 
                                      52

 
COMPETITION
 
  The equipment rental industry is highly fragmented and competitive. The
Company's competitors include: public companies or divisions of public
companies (such as Hertz Equipment Rental Corporation, Prime Service, Inc.,
Rental Service Corporation and, prior to the Merger, U.S. Rentals); regional
competitors which operate in one or more states; small, independent businesses
with one or two rental locations; and equipment vendors and dealers who both
sell and rent equipment directly to customers. The Company believes that, in
general, large companies enjoy significant competitive advantages compared to
smaller operators, including greater purchasing power, a lower cost of
capital, the ability to provide customers with a broader range of equipment
and services and with newer and better maintained equipment, and greater
flexibility to transfer equipment among locations in response to customer
demand. Certain of the Company's competitors are larger and have greater
financial resources than the Company.
 
PROPERTIES
 
  The Company operates (as of September 14, 1998) 269 rental locations (230 in
the United States and 39 in Canada). The rental locations in the United States
are in the following 31 states: Alabama (4), Arizona (1), California (26),
Colorado (6), Connecticut (8), Delaware (5), Florida (3), Georgia (2), Idaho
(1), Illinois (5), Indiana (5), Kentucky (8), Maryland (17), Massachusetts
(1), Michigan (4), Minnesota (5), Nevada (7), New Jersey (8), New York (11),
North Carolina (14), Ohio (2), Oregon (25), Pennsylvania (7), Rhode Island
(2), South Carolina (3), Tennessee (2), Texas (15), Utah (5), Virginia (11),
Washington (16) and Wisconsin (1). The rental locations in Canada are in
Ontario (28) and Quebec (11). The Company's rental locations generally include
facilities for displaying equipment and, depending on the location, may
include separate equipment service areas and storage areas.
 
  The Company owns 33 of its rental locations and leases the other locations.
The leases for the Company's rental locations provide for various terms,
including (i) 112 leases that provide for a remaining term of more than five
years (of which 35 provide for a renewal option), (ii) 71 leases that provide
for a remaining term of between one and five years (of which 28 provide for a
renewal option), (iii) 38 leases that provide for a remaining term of less
than one year (six of which provide for a renewal option) and (iv) 15 leases
that are on a month-to-month basis. The Company is currently negotiating
renewals for those leases that provide for a remaining term of less than one
year and do not provide for renewal options. These leases were entered into
(or assumed) in connection with the acquisitions of the Acquired Companies and
most of the lessors are the former owners of these companies. The Company
believes that its leases generally reflect market terms.
 
  The Company maintains a fleet of vehicles that is used for delivery,
maintenance and sales functions. A portion of this fleet is owned and a
portion leased and, as of September 14, 1998, this fleet included
approximately 8,892 vehicles.
 
  The Company's corporate headquarters are located in Greenwich, Connecticut,
where it leases approximately 15,000 square feet under a lease that extends
until 2001 (subject to extension rights).
 
ENVIRONMENTAL REGULATION
 
  The Company uses hazardous materials, such as solvents, to clean and
maintain its rental equipment and generates and disposes of wastes such as
used motor oil, radiator fluid, solvents and batteries. In addition, the
Company currently dispenses, or may in the future dispense, petroleum products
from underground and above-ground storage tanks located at certain rental
locations. These and other activities of the Company are subject to various
federal, state and local laws and regulations governing the generation,
handling, storage, transportation, treatment and disposal of hazardous
substances and wastes. Under such laws, an owner or lessee of real estate may
be liable for, among other things, (i) the costs of removal or remediation of
certain hazardous or toxic substances located on, in, or emanating from, such
property, as well as related costs of investigation and property damage and
substantial penalties for violations of such laws, and (ii) environmental
contamination at facilities where its waste is or has been disposed. Such laws
often impose such liability without regard to whether the
 
                                      53

 
owner or lessee knew of, or was responsible for, the presence of such
hazardous or toxic substances. Although the Company investigates each business
or property that it acquires or leases and believes there are no existing
material liabilities relating to non-compliance with environmental laws and
regulations, there can be no assurance that there are no undiscovered
potential liabilities relating to non-compliance with environmental laws and
regulations, that historic or current operations have not resulted in
undiscovered conditions that will require investigation and/or remediation
under environmental laws, or that future uses or conditions will not result in
the imposition of environmental liability upon the Company or expose the
Company to third-party actions such as tort suits. Furthermore, there can be
no assurance that changes in environmental regulations in the future will not
require the Company to make significant capital expenditures to change methods
of disposal of hazardous materials or otherwise alter aspects of its
operations.
 
EMPLOYEES
 
  At September 14, 1998, the Company employed 4,387 persons, including 52
corporate and regional management employees, 3,462 operational employees and
873 sales people. Of these employees, 1,207 are salaried personnel and 3,180
are hourly personnel. Collective bargaining agreements relating to 22 separate
locations cover approximately 216 of the Company's employees. The Company
considers its labor relations to be good.
 
LEGAL PROCEEDINGS
 
  The Company and its subsidiaries are parties to various litigation matters,
in most cases involving ordinary and routine claims incidental to the business
of the Company. The ultimate legal and financial liability of the Company with
respect to such pending litigation cannot be estimated with certainty but the
Company believes, based on its examination of such matters, that such ultimate
liability will not have a material adverse effect on the business or financial
condition of the Company.
 
 
                                      54

 
                 CERTAIN INFORMATION CONCERNING PENDING MERGER
 
GENERAL
 
  The Merger Agreement provides, subject to the terms and conditions set forth
therein, for a subsidiary of United Rentals to be merged with and into U.S.
Rentals. Following the Merger, U.S. Rentals will become a wholly owned
subsidiary of URI. At the effective time of the Merger, (i) each outstanding
share of U.S. Rentals common stock would be converted into 0.9625 shares of
Common Stock of United Rentals and (ii) all outstanding options to purchase
shares of U.S. Rentals common stock will be assumed by United Rentals and
converted into options to purchase Common Stock of United Rentals, subject to
adjustment for the Exchange Ratio.
 
  U.S. Rentals is the second largest equipment rental company in the United
States and the largest in the Western United States based on 1997 rental
revenues. U.S. Rentals currently operates 131 equipment rental locations in 23
states and Mexico and generates an average of approximately 145,000 rental
contracts per month from a diverse base of customers including commercial and
residential construction, industrial and homeowner customers. U.S. Rentals
management estimates that more than 280,000 customers did business with U.S.
Rentals in 1997. U.S. Rentals owns more than 100,000 pieces of rental
equipment comprised of approximately 600 equipment categories including aerial
work platforms, forklifts, paving and concrete equipment, compaction
equipment, air compressors, hand tools, plumbing, landscaping and gardening
equipment. U.S. Rentals management believes that U.S. Rentals' fleet, which
had a weighted average age of approximately 23 months and an original
equipment cost of approximately $725 million at June 30, 1998, is one of the
most comprehensive and well-maintained equipment rental fleets in the
industry. U.S. Rentals also sells new equipment manufactured by nationally
known companies, used equipment from its rental fleet and rental-related
merchandise, parts and supplies.
 
CERTAIN ADDITIONAL INFORMATION CONCERNING THE MERGER
 
  Set forth below is certain additional information concerning the terms of
the Merger. Such information does not purport to be complete and is subject
to, and is qualified in its entirety by reference to, the Merger Agreement.
 
 SHARES TO BE ISSUED IN THE MERGER
 
  Based upon the number of shares of U.S. Rentals common stock outstanding as
of August 28, 1998, United Rentals will issue approximately 29.6 million
shares of Common Stock to U.S. Rentals stockholders in the Merger and such
shares will constitute approximately 44.2% of the outstanding shares of United
Rentals common stock after the Merger.
 
 CONDITIONS TO THE MERGER
 
  The Merger is subject to the satisfaction or waiver of a number of
conditions. These include, but are not limited to, (i) the adoption of the
Merger Agreement by the stockholders of U.S. Rentals; (ii) the approval by the
stockholders of United Rentals of (a) the issuance of Common Stock of United
Rentals contemplated by the Merger Agreement and (b) an amendment to United
Rentals' certificate of incorporation to increase the authorized shares of
United Rental's common stock to 500,000,000 shares; (iii) the absence of any
law, regulation or order making the Merger illegal or prohibiting the Merger;
(iv) termination or expiration of the applicable waiting period under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended; and (v) the
receipt of letters from the companies' independent accountants regarding such
accountants' concurrence with the conclusions of management of the respective
companies as to the appropriateness of "pooling of interests" accounting for
the Merger if consummated in accordance with the Merger Agreement.
 
 GOVERNMENTAL APPROVALS
 
  On June 26, 1998, the Company and U.S. Rentals each filed under the Hart-
Scott-Rodino Antitrust Improvements Act of 1976, as amended, a premerger
notification with the Department of Justice and the Federal
 
                                      55

 
Trade Commission in respect of the Merger. On July 9, 1998, the Company and
U.S. Rentals were advised that early termination of the waiting period under
such Act had been granted.
 
 TERMINATION
 
  The Company and U.S. Rentals mutually can agree to terminate the Merger
Agreement at any time, whether before or after the receipt of stockholder
approval, without completing the Merger. In addition, either company can
terminate the Merger Agreement if: (i) the Merger is not completed before
December 31, 1998; (ii) a governmental authority prohibits the Merger; (iii)
the stockholders of U.S. Rentals do not adopt the Merger Agreement; (iv) the
stockholders of United Rentals do not approve the matters required as a
condition to the Merger as described above; (v) the other party materially
breaches or fails to comply with any of its representations, warranties,
covenants or agreements set forth in the Merger Agreement; (vi) after October
14, 1998 and before a special meeting of its stockholders is held relating to
the Merger, under certain circumstances, the Board of Directors of either
party withdraws or modifies its recommendations to its stockholders in
accordance with the Merger Agreement or accepts a superior offer from a third
party.
 
 TERMINATION FEES
 
  The Merger Agreement requires the Company or U.S. Rentals to pay the other
certain fees if the Merger Agreement is terminated under the following
circumstances: (i) $15 million if the Merger Agreement is terminated because
of a non-willful breach of the Merger Agreement; (ii) $30 million if the
Merger Agreement is terminated because of a willful breach of the Merger
Agreement; or (iii) $30 million if the Merger Agreement is terminated upon the
occurrence of certain other events specified in the Merger Agreement.
 
CERTAIN INFORMATION CONCERNING THE COMBINED OPERATIONS OF THE COMPANY AND U.S.
RENTALS
 
  Set forth below is certain information concerning the operations of the
Company and U.S. Rentals on a combined basis (the "Combined Company"). All
financial and operating data set forth below with respect to the year ended
December 31, 1997 is on a pro forma basis giving effect to the Merger and all
acquisitions completed by either company subsequent to January 1, 1997
(through September 14, 1998).
 
 LOCATIONS
 
  The Combined Company currently operates 400 rental locations (360 in the
United States, 39 in Canada and one in Mexico). The number of locations in
each state (or province) is shown below:
 
    United States. Alabama (10), Arizona (3), Arkansas (3), California (76),
  Colorado (8), Connecticut (8), Delaware (5), Florida (20), Georgia (3),
  Idaho (2), Indiana (5), Kansas (1), Kentucky (8), Louisiana (3), Illinois
  (5), Maryland (17), Massachusetts (1), Michigan (5), Minnesota (5),
  Missouri (2), Nebraska (1), Nevada (12), New Jersey (8), New Mexico (2),
  New York (11), North Carolina (16), Ohio (2), Oklahoma (2), Oregon (27),
  Pennsylvania (7), Rhode Island (2), South Carolina (8), Tennessee (2),
  Texas (31), Utah (6), Virginia (15), Washington (17) and Wisconsin (1).
 
    Canada: Ontario (28), Quebec (11)
 
    Mexico: Nuevo Leon (1)
 
 EQUIPMENT
 
  As of September 14, 1998, the Combined Company's rental equipment included
approximately 254,000 units (excluding special event equipment) and had an
original purchase price of approximately $1,574.0 million and a weighted
average age (based on original purchase price) of approximately 26 months.
 
 CUSTOMERS AND SALES AND MARKETING
 
  The Combined Company rented equipment to over 675,000 customers in 1997. No
single customer accounted for more than 0.4% of the Combined Company's
revenues in 1997, and the Combined Company's
 
                                      56

 
top 10 customers accounted for less than 2% of the Combined Company's revenues
in 1997. The Company estimates that in 1997 (a) revenues attributable to
construction industry participants accounted for approximately
64% of the Combined Company's revenues, (b) revenues attributable to
industrial companies accounted for approximately 27% of the Combined Company's
revenues, and (c) revenues attributable to homeowners and others accounted for
approximately 9% of the Combined Company's revenues.
 
  The Combined Company markets its products and services through a sales force
which, as of September 14, 1998, consisted of approximately 2,035 store-based
salespeople and 763 field-based salespeople.
 
 EMPLOYEES
 
  At September 14, 1998, the Combined Company employed 7,566 persons,
including 71 corporate and regional management employees, 4,697 operational
employees and 2,798 sales people. Of these employees, 1,824 are salaried
personnel and 5,742 are hourly personnel. Collective bargaining agreements
relating to 23 separate locations cover approximately 227 of the Combined
Company's employees.
 
                                      57

 
                                  MANAGEMENT
 
BACKGROUND
 
  The Company was founded in September 1997 by the following officers of the
Company: Bradley Jacobs, John Milne, Michael Nolan, Robert Miner, Sandra
Welwood, Joseph Kondrup, Jr., Kai Nyby and Richard Volonino. Each of these
officers was formerly a senior executive of United Waste Systems, Inc.
("United Waste") or a senior member of United Waste's acquisition team. United
Waste, a solid waste management company, was formed in 1989 and sold in August
1997 to USA Waste Services, Inc. for stock consideration valued at over $2.2
billion. United Waste executed a growth strategy that combined a disciplined
acquisition program (including over 200 acquisitions completed from January
1995 through August 1997), the integration and optimization of acquired
facilities, and internal growth. At the time it was sold, United Waste was the
sixth largest provider of integrated, non-hazardous solid waste management
services in the United States, as measured by 1996 revenues.
 
CURRENT OFFICERS AND DIRECTORS
 
  The table below identifies, and provides certain information concerning, the
current officers and directors of URI. The officers and directors as of the
Holding Company are the same as the officers and directors of URI. Upon
completion of the pending Merger which U.S. Rentals, certain changes relating
to URI's and the Holding Company's Board of Directors and officers will be
made as described under "--Changes to Officers and Directors Upon Completion
Of Pending Merger."
 


    NAME                 AGE                    POSITIONS(1)
    ----                 ---                    ------------
                       
Bradley S. Jacobs.......  42 Chairman, Chief Executive Officer and Director(2)
Wayland R. Hicks........  55 President, Chief Operating Officer and Director(3)
John N. Milne...........  39 Vice Chairman, Chief Acquisition Officer,
                              Secretary and Director(2)
Michael J. Nolan........  37 Chief Financial Officer(2)
Robert P. Miner.........  48 Vice President, Strategic Planning(4)
Sandra E. Welwood.......  42 Vice President, Corporate Controller(2)
Kurtis T. Barker........  37 Regional Vice President, Operations(5)
Daniel E. Imig..........  52 Regional Vice President, Operations(5)
Robert P. Krause........  38 Regional Vice President, Operations(6)
Joseph J. Kondrup,
 Jr. ...................  39 Vice President, Acquisitions(2)
Kai E. Nyby.............  45 Vice President, Acquisitions(2)
Richard A. Volonino.....  55 Vice President, Acquisitions(2)
Ronald M. DeFeo.........  46 Director(5)
Richard J. Heckmann.....  54 Director(5)
Gerald Tsai, Jr. .......  69 Director(7)

- --------
(1) For information concerning the term served by directors, see "--
    Classification of Board of Directors."
(2) The indicated person has held such position(s) since September 1997.
(3) Mr. Hicks has served as President and Chief Operating Officer since
    November 1997 and as a director since June 1998.
(4) Mr. Miner was appointed Vice President, Strategic Planning in July 1998.
    From September 1997 until July 1998, he served as Vice President, Finance.
(5) The indicated person has held such position since October 1997.
(6) Mr. Krause has served as Regional Vice President, Operations since May
    1998.
(7) Mr. Tsai has served as a director since December 1997.
 
                                      58

 
  Bradley S. Jacobs founded United Waste Systems, Inc. in 1989 and served as
its Chairman and Chief Executive Officer from inception until the sale of the
company in August 1997. From 1984 to July 1989, Mr. Jacobs was Chairman and
Chief Operating Officer of Hamilton Resources Ltd., an international trading
company, and from 1979 to 1983, he was Chief Executive Officer of Amerex Oil
Associates, Inc., an oil brokerage firm that he co-founded.
 
  Wayland R. Hicks served in various senior executive positions at Xerox
Corporation where he worked for 28 years (1966-1994). His positions at Xerox
Corporation included Executive Vice President, Corporate Operations (1993-
1994), Executive Vice President, Corporate Marketing and Customer Support
Operations (1989-1993) and Executive Vice President, Engineering and
Manufacturing--Xerox Business Products and Systems Group (1987-1989). Mr.
Hicks served as Vice Chairman and Chief Executive Officer of Nextel
Communications Corp. (1994-1995) and as Chief Executive Officer and President
of Indigo N.V. (1996-1997). He is also a director of Maytag Corporation.
 
  John N. Milne was Vice Chairman and Chief Acquisition Officer of United
Waste Systems, Inc. from 1993 until August 1997 and held other senior
executive positions at United Waste from 1990 until 1993. Mr. Milne had
primary responsibility for implementing United Waste's acquisition program.
From September 1987 to March 1990, Mr. Milne was employed in the Corporate
Finance Department of Drexel Burnham Lambert Incorporated.
 
  Michael J. Nolan served as the Chief Financial Officer of United Waste
Systems, Inc. from February 1994 until August 1997. He served in other finance
positions at United Waste from November 1991 until February 1994, including
Vice President, Finance, from October 1992 to February 1994. From 1985 until
November 1991, Mr. Nolan held various positions at the accounting firm of
Ernst & Young, including senior audit manager, and is a Certified Public
Accountant.
 
  Robert P. Miner was an executive officer of United Waste Systems, Inc. from
November 1994 until August 1997, serving first as Vice President, Finance and
then Vice President, Acquisitions. Prior to joining United Waste, he was a
research analyst with PaineWebber Incorporated (November 1988 to October 1994)
and Needham & Co. (January 1987 to October 1988) and held various executive
positions at General Electric Environmental Services, Inc., Stauffer Chemical
Company, and OHM Corporation.
 
  Sandra E. Welwood served as Vice President, Controller of United Waste
Systems, Inc. from March 1996 until August 1997. From October 1994 to February
1996, she was Assistant Controller of OSi Specialty, Inc., and from October
1993 to September 1994, was Director of Internal Audit of the Gartner Group,
Inc. Prior to this, Ms. Welwood was a senior audit manager at Ernst & Young
from September 1987 to September 1993, and held various positions (including
senior audit manager) at KPMG Peat Marwick from January 1980 to August 1987,
and is a Certified Public Accountant.
 
  Kurtis T. Barker served as Vice President-Operations-Great Lakes Region of
United Waste Systems, Inc. from 1993 until August 1997. From 1991 to 1993, he
was an operations manager at Chambers Development Company, Inc. From 1990 to
1991, Mr. Barker was a project engineer at South Dakota Disposal Systems. From
1986 to 1990, he was a project engineer and then a general manager at Silver
King Mines, Inc.
 
  Daniel E. Imig served as President-Mid-Central Region of Waste Management,
Inc. from 1996 to August 1997. From 1978 to 1996, Mr. Imig served in a number
of operating positions at Waste Management, Inc., including District Manager
and Division President.
 
  Robert P. Krause held various management positions with Hertz Equipment
Rental Corporation prior to joining the Company in 1998, including Regional
Operations Manager of Hertz's Western Region from 1995 until 1998 and Branch
Manager from 1990 until 1995.
 
                                      59

 
  Joseph J. Kondrup, Jr. was a senior member of United Waste's acquisition
team from March 1996 until August 1997, with responsibility for the company's
entry into and subsequent development of its Rocky Mountain Region. From July
1987 until March 1996, he was Division President of a subsidiary of Waste
Management, Inc.
 
  Kai E. Nyby was a senior member of United Waste's acquisition team from 1995
until August 1997, with responsibility for acquisitions and business
development in the company's Midwest Region. From 1981 to 1995, Mr. Nyby was
the Regional Manager, Midwest Group for Waste Management, Inc. From 1973 to
1980, Mr. Nyby was General Manager, Operations for a subsidiary of Waste
Management, Inc.
 
  Richard A. Volonino was a senior executive officer of United Waste from
November 1991 until August 1997, serving as Chief Operating Officer from 1991
to 1992 and thereafter as Executive Vice President--Acquisitions. From May
1988 to October 1991, Mr. Volonino held various positions, including Vice
President, Operations, with Chambers Development Company, Inc., and from 1986
to December 1987, was District Manager at Laidlaw, Inc.
 
  Ronald M. DeFeo is the Chief Executive Officer, President, Chief Operating
Officer and a director of Terex Corporation, a leading global provider of
equipment for the manufacturing, mining and construction industries. Mr. DeFeo
joined Terex in 1992 as President of the Terex heavy equipment group and was
appointed President and Chief Operating Officer in 1993 and Chief Executive
Officer in 1995. From 1984 to 1992, Mr. DeFeo held various management
positions at Tenneco, Inc., including Senior Vice President and Managing
Director.
 
  Richard J. Heckmann has served since 1990 as Chairman, President and Chief
Executive Officer of United States Filter Corporation, a leading global
provider of industrial and commercial water and wastewater treatment systems
and services. Mr. Heckmann is also a director of USA Waste Services, Inc. and
K2 Inc.
 
  Gerald Tsai, Jr. served as Chairman, Chief Executive Officer and President
of Delta Life Corporation, an insurance company, from 1993 until the sale of
the company in October 1997. Mr. Tsai was Chairman of the Executive Committee
of the Board of Directors of Primerica Corporation, a diversified financial
services company, from December 1988 until April 1991, and served as Chief
Executive Officer of Primerica Corporation from April 1986 until December
1988. Mr. Tsai is currently a private investor and serves as a director of
Meditrust Corporation, Proffitt's, Inc., Rite Aid Corporation, Sequa
Corporation, Triarc Companies, Inc. and Zenith National Insurance Corp. He
also serves as a trustee of Boston University and New York University Medical
Center.
 
CHANGES TO OFFICERS AND DIRECTORS UPON COMPLETION OF PENDING MERGER
 
  Pursuant to the Merger Agreement, it is expected that the changes described
below relating to the Holding Company's Board of Directors and officers of the
Company and the Holding Company will be made upon consummation of the Merger.
 
  The Board of Directors of the Holding Company will consist of the six
current members plus four new members. Two of the new members are expected to
be Richard D. Colburn (who will become Chairman Emeritus of the Company and
will be a member of the class of directors whose term expires in 2001) and
William F. Berry (who will be a member of the class of directors whose term
expires in 2000). The other new members have not yet been identified.
 
  The officers of the Company (and of the Holding Company) will change as
follows: (i) Wayland R. Hicks will become Vice Chairman of the Company (and of
the Holding Company) while continuing as Chief Operating Officer of the
Company (and of the Holding Company), (ii) William F. Berry, President and
Chief Executive Officer of U.S. Rentals, will become President of the Company
(and of the Holding Company), and (iii) John S. McKinney, Chief Financial
Officer of U.S. Rentals, will become Vice President, Finance of the Company
(and of the Holding Company).
 
                                      60

 
  Set forth below is certain information concerning the persons named above
that are expected to become officers and/or directors upon completion of the
Merger.
 
  Richard D. Colburn, 87, purchased U.S. Rentals (under its previous name of
Leasing Enterprises, Inc.) on December 31, 1975, and has been Chairman of the
Board of U.S. Rentals since that date. Mr. Colburn is a private investor.
 
  William F. Berry, 45, has been an employee of U.S. Rentals and one of its
predecessors since 1966, became U.S. Rentals' President and Chief Executive
Officer in January 1987 and became a director in 1996. In his more than 30
years with U.S. Rentals and its predecessor, Mr. Berry has held numerous
operational and managerial positions, including Profit Center Manager,
Division Manager and Regional Vice President.
 
  John S. McKinney, 43, has been the Vice President-Finance and Chief
Financial Officer of U.S. Rentals since 1990 and became a director of U.S.
Rentals in 1996. Mr. McKinney joined U.S. Rentals in 1988 as Controller, and
held that position until being promoted to his current positions. Prior to
joining U.S. Rentals, Mr. McKinney served as the controller of an electrical
wholesale company, held various financial positions at Iomega Corporation,
including Assistant Controller, and held various positions at the accounting
firm of Arthur Andersen & Co.
 
CAPITAL CONTRIBUTIONS BY OFFICERS AND DIRECTORS
 
  The officers and directors of the Company listed below have made capital
contributions to the Company in the aggregate amount of $46.8 million
(excluding amounts paid by certain officers and directors in respect of shares
of Common Stock purchased by them in the Company's initial public offering in
December 1997). Such capital contributions were made in connection with the
sale to such officers and directors in private placements of an aggregate of
13,150,714 shares of Common Stock and 6,342,858 warrants ("Warrants"). Each
such Warrant entitles the holder to purchase one share of Common Stock at an
exercise price of $10.00 per share at any time prior to September 12, 2007.
Such shares and Warrants were sold at a price of $3.50 per unit consisting of
one share of Common Stock and one-half of a Warrant (except that Messrs.
Barker and Tsai purchased only Common Stock at a price of $3.50 per share and
Messrs. Hicks, Imig and Heckmann purchased only Common Stock at a price of
$10.00 per share). The table below indicates (i) the number of shares of
Common Stock and the number of Warrants purchased by such officers and
directors (excluding shares purchased in the Company's initial public
offering) and (ii) the aggregate amount paid by such officers and directors
for such securities:
 


                                           SECURITIES PURCHASED(1)
                                           -------------------------
                                              COMMON
             NAME                             STOCK      WARRANTS   PURCHASE PRICE
             ----                          ------------ --------------------------
                                                           
      Bradley S. Jacobs..................    10,000,000   5,000,000  $35,000,000
      Wayland R. Hicks...................       100,000         --     1,000,000
      John N. Milne......................     1,428,571     714,286    5,000,000
      Michael J. Nolan...................       571,429     285,715    2,000,000
      Robert P. Miner....................       285,714     142,857    1,000,000
      Sandra E. Welwood..................       100,000      50,000      350,000
      Kurtis T. Barker...................       100,000         --       350,000
      Daniel E. Imig.....................         5,000         --        50,000
      Joseph J. Kondrup, Jr. ............       100,000      50,000      350,000
      Kai E. Nyby........................       100,000      50,000      350,000
      Richard A. Volonino................       100,000      50,000      350,000
      Richard J. Heckmann................        20,000         --       200,000
      Gerald Tsai, Jr. ..................       240,000         --       840,000

- --------
(1) In certain cases includes securities owned by one or more entities
    controlled by the named holder.
 
CLASSIFICATION OF BOARD OF DIRECTORS
 
  The Board of Directors is divided into three classes. The term of office of
the first class (currently comprised of Mr. Hicks and Mr. Tsai) will expire at
the annual meeting of stockholders following January 1, 1998, the term of
office of the second class (currently comprised of Mr. DeFeo and Mr. Heckmann)
will expire at the
 
                                      61

 
second annual meeting of stockholders following January 1, 1998, and the term
of office of the third class (currently comprised of Mr. Jacobs and Mr. Milne)
will expire at the third annual meeting of stockholders following January 1,
1998. At each annual meeting of stockholders, successors to directors of the
class whose term expires at such meeting will be elected to serve for three-
year terms and until their successors are elected and qualified.
 
COMMITTEES OF THE BOARD
 
  The Board of Directors has three standing committees: the Audit Committee,
the Compensation/Stock Option Committee, and the Special Stock Option
Committee.
 
  The responsibilities of the Audit Committee include selecting the firm of
independent accountants to be appointed to audit the Company's financial
statements and reviewing the scope and results of the audit with the
independent accountants. The members of this committee are Messrs. DeFeo,
Heckmann and Tsai.
 
  The responsibilities of the Compensation/Stock Option Committee include
making recommendations with respect to the compensation to be paid to officers
and directors, administering any stock option plan in which officers or
directors are eligible to participate and approving the grant of options
pursuant to any such plan. The members of this committee are Messrs. DeFeo,
Heckmann and Tsai.
 
  The responsibilities of the Special Stock Option Committee include
administering any stock option plan in which officers and directors are not
eligible to participate and approving the grant of options pursuant to any
such plan to persons who are not officers or directors. The members of this
committee are Messrs. Jacobs and Milne.
 
COMPENSATION OF DIRECTORS
 
  Each director of the Company is paid up to $2,500 per day for each Board of
Directors' meeting such director attends, together with an expense
reimbursement. During 1997, Messrs. DeFeo, Heckmann and Tsai were each granted
options to purchase an aggregate of 20,000 shares of Common Stock at an
exercise price of $15.00 per share.
 
COMPENSATION OF CERTAIN OFFICERS
 
  The following table sets forth information concerning the compensation of
the Chief Executive Officer of the Company and each of the other executive
officers of the Company during the period August 14, 1997 (inception) through
December 31, 1997.
 
                          SUMMARY COMPENSATION TABLE
 


                                                                     LONG TERM
                                                                    COMPENSATION
                                                                       AWARDS
                                                                    ------------
                                                                     SECURITIES
                                                                     UNDERLYING
NAME AND PRINCIPAL POSITION                             SALARY($)    OPTIONS(#)
- ---------------------------                             ---------   ------------
                                                              
Bradley S. Jacobs......................................  $97,039          --
Chief Executive Officer
Wayland R. Hicks.......................................   47,692(1)   450,000
President and Chief Operating Officer
John N. Milne..........................................   63,577          --
Chief Acquisition Officer
Michael J. Nolan.......................................   58,558          --
Chief Financial Officer
Robert P. Miner........................................   50,192          --
Vice President, Finance

- --------
(1)Mr. Hicks's employment with the Company commenced on November 14, 1997.
 
                                      62

 
  The following tables summarize the options granted in 1997 to Mr. Hicks, the
potential value of these options at the end of the option term (assuming
certain levels of appreciation of the Common Stock), and the total number of
options held by such executive officer as of December 31, 1997. None of the
other executive officers of the Company named in the Summary Compensation
Table above were granted options in 1997.
 
                             OPTION GRANTS IN 1997
 


                                                   INDIVIDUAL GRANTS
                         -----------------------------------------------------------------------
                                                                     POTENTIAL REALIZABLE VALUE
                         NUMBER OF    % OF TOTAL                      AT ASSUMED RATE OF STOCK
                         SECURITIES    OPTIONS   EXERCISE              APPRECIATION FOR OPTION
                         UNDERLYING   GRANTED TO  PRICE                        TERM(1)
                          OPTIONS     EMPLOYEES    PER    EXPIRATION ---------------------------
NAME                      GRANTED      IN 1997    SHARE      DATE         5%            10%
- ----                     ----------   ---------- -------- ---------- ------------- -------------
                                                                 
Wayland R. Hicks........  350,000(2)     38.7%    $10.00   11/13/07  $   2,201,131 $   5,578,099
                           50,000(2)      5.5%    $15.00   11/13/07         64,447       546,871
                           50,000(2)      5.5%    $20.00   11/13/07            --        296,871

- --------
(1) These amounts are based on calculations at hypothetical 5% and 10%
    compound annual appreciation rates prescribed by the Securities and
    Exchange Commission and, therefore, are not intended to forecast possible
    future appreciation, if any, of the Common Stock price.
(2) These options are not currently vested. These options will vest one-third
    in November 1998, one-third in November 1999 and one-third in November
    2000. These options were granted pursuant to the Company's 1997 Stock
    Option Plan.
 
                     VALUE OF OPTIONS AT DECEMBER 31, 1997
 


                         NUMBER OF SECURITIES UNDERLYING          VALUE OF UNEXERCISED
                             UNEXERCISED OPTIONS AT              IN-THE-MONEY OPTIONS AT
NAME                            DECEMBER 31, 1997                   DECEMBER 31, 1997
- ----                     -------------------------------        -------------------------
                          EXERCISABLE       UNEXERCISABLE       EXERCISABLE UNEXERCISABLE
                         --------------    -----------------    ----------- -------------
                                                                
Wayland R. Hicks........               --               450,000     --       $3,475,000

 
EMPLOYMENT AGREEMENTS
 
 AGREEMENTS CURRENTLY IN EFFECT
 
  The Company has entered into employment agreements with each of the
executive officers of the Company. Certain information with regard to these
agreements is set forth below.
 
  The agreements provide for base salary to be paid at a rate per annum as
follows: Mr. Jacobs ($290,000), Mr. Hicks ($400,000), Mr. Milne ($190,000),
Mr. Nolan ($175,000), and Mr. Miner ($150,000). The base salary payable to Mr.
Hicks is payable 50% in cash and 50% in Common Stock (valued at the average
closing sales price of the Common Stock during all trading days in the
calendar quarter preceding the quarter in which the payment is made). Shares
of Common Stock issued to Mr. Hicks are subject to certain restrictions on
transfer as described under "Principal Stockholders--Certain Agreements
Relating to Securities Held by Officers." The base salary payable to Messrs.
Jacobs and Milne is subject to possible upward annual adjustments based upon
changes in a designated cost of living index. The agreements do not provide
for mandatory bonuses. However, the agreements provide that in addition to the
compensation specifically provided for, the Company may pay such salary
increases, bonuses or incentive compensation as may be authorized by the Board
of Directors. The agreements with Messrs. Jacobs and Milne provide for each
such executive to receive an automobile allowance of at least $700 per month.
The agreement with Mr. Hicks provides for the Company to reimburse him for
certain relocation expenses up to a maximum of $100,000.
 
  The employment agreements with the following executives provide that the
term shall automatically renew so that at all times the balance of the terms
will not be less than the period hereinafter specified with respect to such
executive: Mr. Jacobs (five years), Mr. Milne (five years), Mr. Nolan (three
years) and Mr. Miner (three years). The employment agreement with Mr. Hicks
provides for a term extending until November 2000. Under
 
                                      63

 
each of the agreements, the Company or the employee may at any time terminate
the agreement, with or without cause, provided that if the Company terminates
the agreement, the Company is required to make severance payments to the
extent described in the following paragraph.
 
  The employment agreements with Messrs. Jacobs and Milne provide that the
executive is entitled to severance benefits in the event that (i) his
employment agreement is terminated by the Company without Cause (as defined in
the employment agreement), (ii) the executive terminates his employment
agreement for Good Reason (as defined in the employment agreement) or because
of a breach by the Company of its obligations thereunder, (iii) his employment
is terminated as a result of death or (iv) the Company or the executive
terminates the employment agreement due to the disability of the executive.
The severance benefits include (i) a lump sum payment equal to five times the
sum of the executive's annual base salary at the time of termination plus the
highest annual bonus paid to the executive in the preceding three years and
(ii) the continuation of the executive's benefits for such specified period.
The employment agreement with Mr. Hicks provides that the executive is
entitled to a severance payment in the amount of $1 million in the event that
his employment agreement is terminated by the Company without Cause (as
defined in the employment agreement) or he terminates his employment for Good
Reason (as defined in the employment agreement). The employment agreements
with the other officers provide that the executive is entitled to severance
benefits of up to three months' base salary in the event that the executive's
employment agreement is terminated without Cause (as defined in the employment
agreement). The employment agreements with Messrs. Jacobs and Milne provide
that if any portion of the required severance payment to the executive
constitutes an "excess parachute payment" (as defined in Section 280G of the
Internal Revenue Code of 1986, as amended (the "Code")), the executive is
entitled to receive a payment sufficient on an after-tax basis to offset any
excise tax payable by the executive pursuant to Section 4999 of the Code. Any
payment constituting an "excess parachute payment" would not be deductible by
the Company.
 
  Each of the agreements provides that all options at any time to be granted
to the executive will automatically vest upon a change of control of the
Company (as defined in the agreement).
 
  Pursuant to the employment agreement with Mr. Hicks, Mr. Hicks has been
granted options to purchase an aggregate of 450,000 shares of Common Stock.
For information concerning these options, see "--Compensation of Certain
Officers."
 
  The agreement with Mr. Hicks provides that, after Mr. Hicks becomes a
director, at each annual meeting of the stockholders of the Company which
occurs during the term of the agreement and at which Mr. Hicks' term as
director would be scheduled to expire, the Company will nominate Mr. Hicks for
re-election as a director.
 
 AGREEMENTS TO BE ENTERED INTO UPON CLOSING OF PENDING MERGER
 
  Pursuant to the Merger Agreement, the Company will enter into employment
agreements with each of Messrs. Berry and McKinney. Such agreements will be
entered into concurrently with the closing of the Merger. Certain information
with regard to these agreements is set forth below.
 
  The agreements provide for Mr. Berry to serve as President and Mr. McKinney
to serve as Vice President-Finance of the Company. The agreements provide for
an annual base salary of $225,000 for Mr. Berry and $175,000 for Mr. McKinney,
subject to possible annual upward adjustments based upon changes in a
designated cost of living index. The agreements do not provide for mandatory
bonuses. However, the agreements provide that, in addition to the compensation
specifically provided for, the Company may pay such salary increases, bonuses
or incentive compensation as may be authorized by the Board of Directors. The
agreement with Mr. Berry provides for the Company to reimburse him for certain
relocation expenses up to a maximum of $100,000.
 
  The term of each agreement will commence upon the closing of the Merger and
continue for three years (unless terminated earlier as provided therein),
provided that the term thereunder will automatically renew so that at no time
will the balance of the term of the agreement be less than two years. Under
each of the agreements, the Company or the employee may at any time terminate
the agreement, with or without cause,
 
                                      64

 
provided that if the Company terminates the agreement without cause (as
defined in the agreement), the employee will be entitled to receive from the
Company his then current monthly base salary and benefits over the remaining
term of the employment agreement.
 
  The agreements provide for the grant (i) to Mr. Berry of options to purchase
200,000 shares and Mr. McKinney of options to purchase 100,000 shares of
Common Stock, in each case, at a price per share equal to the closing price
per share of Common Stock as reported on the NYSE on the closing date of the
Merger (the "Specified Price") and (ii) to Mr. Berry of options to purchase
75,000 shares and Mr. McKinney of options to purchase 37,500 shares of Common
Stock, in each case, at a price per share equal to the greater of (x) 125% of
the Specified Price and (y) $45. All of such options shall vest over a three
year term. The agreements provide that all stock options at any time granted
to the employee will automatically vest upon a change of control of the
Company (as defined in the agreement).
 
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
 
  At the time the employment agreements with Messrs. Jacobs and Milne were
approved by the Board of Directors, the sole members of the Board were Messrs.
Jacobs and Milne. No compensation committee interlocks with other companies
have existed.
 
STOCK OPTION PLANS
 
  As of September 8, 1998, options to purchase an aggregate of 4,974,875
shares of Common Stock had been granted pursuant to the 1997 Stock Option Plan
of the Company (and the Holding Company). These options have a weighted
average exercise price of $22.97 per share.
 
  The Board of Directors of the Holding Company will submit for stockholder
approval at a special meeting that has been called for September 29, 1998, a
new 1998 Stock Option Plan. The 1998 Stock Option Plan provides for the
granting of options to purchase not more than an aggregate of 4,000,000 shares
of Common Stock. Some or all of the options issued under the 1998 Stock Option
Plan may be "incentive stock options" within the meaning of the Code. All
officers and directors of the Holding Company and its subsidiaries are
eligible to participate in the 1998 Stock Option Plan. Each option granted
pursuant to the 1998 Stock Option Plan must provide for an exercise price per
share that is at least equal to the fair market value per share of Common
Stock on the date of grant. No options may be granted under the Stock Option
Plan after August 20, 2008.
 
  The Company expects that, in addition to the 1998 Stock Option Plan, the
Holding Company will adopt a new stock option plan pursuant to which options,
for up to an aggregate of 750,000 shares of Common Stock, may be granted to
employees who are not officers or directors and to consultants and independent
contractors who perform services for the Holding Company or its subsidiaries.
 
                             CERTAIN TRANSACTIONS
 
  The Company has from time to time purchased equipment from Terex Corporation
("Terex") and may do so in the future. Ronald M. DeFeo, a director of the
Company, is the chief executive officer, and a director, of Terex. During
1997, the Company purchased approximately $1.1 million of equipment from
Terex.
 
                                      65

 
                            PRINCIPAL STOCKHOLDERS
 
GENERAL
 
  The table below and the notes thereto set forth as of August 28, 1998
certain information concerning the beneficial ownership (as defined in Rule
13d-3 under the Exchange Act) of the Common Stock by (i) each director and
executive officer of the Company and (ii) all executive officers and
directors of the Company as a group. Except as indicated in the table, the
Company does not know of any stockholder that is the beneficial owner of more
than 5% of the outstanding Common Stock. For purposes of the table, each
executive officer is deemed to be the beneficial owner of all shares of Common
Stock that may be acquired upon the exercise of the Warrants held by such
officer. The Warrants are currently exercisable at an exercise price of $10.00
per share (representing an aggregate exercise price of $61.4 million, assuming
the exercise of all Warrants held by executive officers).
 


                                        NUMBER OF SHARES OF
                                            COMMON STOCK       PERCENT OF COMMON
NAME                                  BENEFICIALLY OWNED(1)(2)  STOCK OWNED(2)
- ----                                  ------------------------ -----------------
                                                         
Bradley S. Jacobs...................         15,000,100(3)(4)        35.4%
Wayland R. Hicks....................            103,591(5)             *
John N. Milne.......................          2,142,857(6)            5.6%
Michael J. Nolan....................            857,244(7)            2.3%
Robert P. Miner.....................            428,571(8)            1.1%
Ronald M. DeFeo.....................             63,000(9)             *
Richard J. Heckmann.................             80,000(10)            *
Gerald Tsai, Jr.....................            360,000(11)            *
All executive officers and directors
 as a group
 (8 persons)........................         19,035,363(12)          43.6%

- --------
 *Less than 1%.
 (1) Unless otherwise indicated, each person has sole investment and voting
     power with respect to the shares indicated. For purposes of this table, a
     person or group of persons is deemed to have "beneficial ownership" of
     any shares as of a given date which such person has the right to acquire
     within 60 days after such date. For purposes of computing the percentage
     of outstanding shares held by each person or group of persons named above
     on a given date, any security which such person or persons has the right
     to acquire within 60 days after such date is deemed to be outstanding for
     the purpose of computing the percentage ownership of such person or
     persons, but is not deemed to be outstanding for the purpose of computing
     the percentage ownership of any other person.
 (2) In certain cases, includes securities owned by one or more entities
     controlled by the named holder.
 (3) Consists of 10,000,100 outstanding shares and 5,000,000 shares issuable
     upon the exercise of currently exercisable Warrants. Does not include
     1,200,000 shares issuable upon exercise of options which are not
     currently exercisable.
 (4) Mr. Jacobs has certain rights relating to the disposition of the shares
     and Warrants owned by certain of the other officers of the Company. By
     virtue of such rights, Mr. Jacobs is deemed to share beneficial ownership
     (within the meaning of Rule 13d-3 under the Exchange Act) of the shares
     owned by such other officers of the Company as described under "--Certain
     Agreements Relating to Securities Held by Officers." The shares that the
     table indicates are owned by Mr. Jacobs do not include the shares with
     respect to which Mr. Jacobs is deemed to share beneficial ownership as
     aforesaid. Including such shares, Mr. Jacobs is deemed the beneficial
     owner of an aggregate of 19,133,672 shares of Common Stock (comprised of
     12,790,814 outstanding shares and 6,342,858 shares issuable upon the
     exercise of outstanding Warrants.)
 (5) Consists of 103,591 outstanding shares. Does not include unissued shares
     that the Company is required to pay Mr. Hicks as part of his base salary
     as described under "Management--Employment Agreements." Does not include
     675,000 shares issuable upon exercise of options which are not currently
     exercisable.
 (6) Consists of 1,428,571 outstanding shares and 714,286 shares issuable upon
     the exercise of currently exercisable Warrants. Does not include 300,000
     shares issuable upon exercise of options which are not currently
     exercisable.
 
                                      66

 
 (7) Consists of 571,529 outstanding shares and 285,715 shares issuable upon
     the exercise of currently exercisable Warrants. Does not include 225,000
     shares issuable upon exercise of options which are not currently
     exercisable.
 (8) Consists of 285,714 outstanding shares and 142,857 shares issuable upon
     the exercise of currently exercisable Warrants. Does not include 40,000
     shares issuable upon exercise of options which are not currently
     exercisable.
 (9) Consists of 3,000 outstanding shares and 60,000 shares issuable upon the
     exercise of currently exercisable options.
(10) Consists of 20,000 outstanding shares and 60,000 shares issuable upon
     exercise of currently exercisable options.
(11) Consists of 300,000 outstanding shares and 60,000 shares issuable upon
     exercise of currently exercisable options.
(12) Consists of 12,712,505 outstanding shares, 6,142,858 shares issuable upon
     the exercise of currently exercisable Warrants and 180,000 shares
     issuable upon the exercise of currently exercisable options. Does not
     include 2,440,000 shares issuable upon exercise of options which are not
     currently exercisable.
 
CERTAIN AGREEMENTS RELATING TO SECURITIES HELD BY OFFICERS
 
  Prior to the Company's initial public offering, the officers of the Company
purchased Common Stock (and in certain cases Warrants) from the Company in
private placements, as described under "Management--Capital Contributions by
Officers of Directors." All shares of Common Stock and Warrants purchased by
the officers of the Company prior to the Company's initial public offering
(and any shares of Common Stock acquired upon exercise of such Warrants) are
referred to as the "Private Placement Securities."
 
  Each officer of the Company (other than Mr. Jacobs and Mr. Hicks) has
entered into an agreement with the Company and Mr. Jacobs that provides that
(i) if Mr. Jacobs sells any Private Placement Securities that he beneficially
owns in a commercial, non-charitable transaction, then Mr. Jacobs is required
to use his best efforts to sell (and has the right to sell subject to certain
exceptions) on behalf of such officer a pro rata portion of such officer's
Private Placement Securities at then prevailing prices, and (ii) except for
sales that may be required to be made as aforesaid, the officer shall not
(without the prior written consent of the Company) sell or otherwise dispose
of the Private Placement Securities owned by such officer (subject to certain
exceptions for charitable gifts). The foregoing provisions of the agreements
terminate in September or October 2002.
 
  Each officer of the Company (other than Mr. Jacobs and Mr. Hicks) has also
agreed pursuant to such agreements that the Company, in its sole discretion,
may (i) prior to September 1, 2005, repurchase the Private Placement
Securities owned by such officer in the event that such officer breaches any
agreement with the Company or acts adversely to the interest of the Company
and (ii) repurchase such Private Placement Securities without any cause
(provided that such repurchase right without cause will lapse with respect to
one-third of the securities on the first, second and third anniversaries of
the date of such agreements). The amount to be paid by the Company in the
event of a repurchase will be equal to (i) in the case of Messrs. Milne, Nolan
and Miner, $9.125 per share of Common Stock and $0.625 per Warrant plus an
amount representing a 4% annual return on such amounts from the date on which
such securities were purchased and (ii) in the case of the other officers, the
amount originally paid by such officer for such securities plus an amount
representing a 10% annual return on such amount. See "Management--Capital
Contributions by Officers and Directors" for information concerning the
amounts paid by the officers of the Company for the Private Placement
Securities owned by them.
 
  Mr. Hicks has agreed that (i) he will not transfer any Private Placement
Securities purchased by him until November 1998 and (ii) he will not transfer
any shares of Common Stock that are hereafter issued to him as compensation
pursuant to his employment agreement for a one-year period following the date
of issuance. See "Management--Employment Agreements."
 
                                      67

 
                           DESCRIPTION OF THE NOTES
 
  The Exchange Notes offered hereby will be issued, and the Original Notes
were issued, under an Indenture dated as of May 22, 1998 (the "Indenture"),
among the Company, the Guarantors and State Street Bank & Trust Company, as
trustee (the "Trustee"). References to the Notes include both the Original
Notes and the Exchange Notes. Upon the effectiveness of the Registration
Statement of which this Prospectus is a part, the Indenture will be subject to
and governed by the Trust Indenture Act of 1939, as amended (the "Trust
Indenture Act").
 
  The following summary of the material provisions of the Indenture and the
Notes does not purport to be complete and is subject to, and qualified in its
entirety by, reference to the provisions of the Indenture and the Notes
(copies of which are filed as an exhibit to the Registration Statement of
which this Prospectus forms a part), including the definitions of certain
terms contained therein and those terms made part of the Indenture by
reference to the Trust Indenture Act. The definition of certain capitalized
terms used in the following summary are set forth below under "--Certain
Definitions." All references to the Company in the following summary refer
exclusively to the Issuer, and not to any of its subsidiaries.
 
ORIGINAL NOTES AND EXCHANGE NOTES WILL REPRESENT SAME DEBT
 
  The Exchange Notes will be issued solely in exchange for an equal principal
amount of Original Notes pursuant to the Exchange Offer. The Exchange Notes
will evidence the same debt as the Original Notes and both series of Notes
will be entitled to the benefits of the Indenture and treated as a single
class of debt securities. The terms of the Exchange Notes will be the same in
all material respects as the Original Notes except that (i) the Exchange Notes
will be registered under the Securities Act, and therefore, will not bear
legends restricting the transfer thereof and (ii) certain of the registration
rights, under the Registration Rights Agreement, relating to the Exchange
Notes are different than those relating to the Original Notes and, therefore,
the defaults under the Registration Rights Agreement that may require the
Company to pay additional interest will be different for the Exchange Notes
and the Original Notes. See "Registration Rights Agreement--Certain Provisions
Relating to Additional Interest" and "--Additional Interest."
 
  If the Exchange Offer is consummated, holders of Original Notes who do not
exchange their Original Notes for Exchange Notes will vote together with
holders of the Exchange Notes for all relevant purposes under the Indenture.
Accordingly, all references herein to specified percentages in aggregate
principal amount of the outstanding Notes shall be deemed to mean, at any time
after the Exchange Offer is consummated, such percentages in aggregate
principal amount of the Original Notes and the Exchange Notes then
outstanding.
 
GENERAL
 
  The Notes are unsecured senior subordinated obligations of the Company
limited to $200 million aggregate principal amount, and are guaranteed by each
of the Guarantors on a senior subordinated basis as described below. The Notes
may be issued only in registered form without coupons, in denominations of
$1,000 and integral multiples thereof. Principal of, premium, if any, and
interest on the Notes is payable, and the Notes are transferable, at the
corporate trust office or agency of the Trustee in the City of New York
maintained for such purposes. In addition, interest may be paid at the option
of the Company by check mailed to the person entitled thereto as shown on the
security register. No service charge will be made for any transfer, exchange
or redemption of Notes, except in certain circumstances for any tax or other
governmental charge that may be imposed in connection therewith.
 
MATURITY, INTEREST AND PRINCIPAL
 
  The Notes will mature on June 1, 2008. Interest on the Notes accrues at the
rate of 9 1/2% per annum and is payable semi-annually in arrears on each June
1 and December 1, commencing December 1, 1998, to the holders of record of
Notes at the close of business on the May 15 and November 15, respectively,
immediately preceding such interest payment date. Interest on the Exchange
Notes will accrue from the most recent date on which interest has been paid on
the Exchange Notes or, if no interest has been paid on the Exchange Notes,
from the most recent date on which interest was paid on the Original Notes
(or, if no interest has been paid on the Original Notes, from the Issue Date
of the Original Notes). Interest will be computed on the basis of a 360-day
year comprised of twelve 30-day months.
 
                                      68

 
ADDITIONAL INTEREST
 
  As discussed under "Registration Rights Agreement," the interest rate on the
Notes is subject to increase under certain circumstances if the Company is not
in compliance with its obligations under the Registration Rights Agreement.
See "Registration Rights Agreement."
 
OPTIONAL REDEMPTION
 
  Optional Redemption. The Notes are redeemable at the option of the Company,
in whole or in part, at any time on or after June 1, 2003, at the redemption
prices (expressed as percentages of principal amount) set forth below, plus
accrued and unpaid interest, if any, to the redemption date, if redeemed
during the 12-month period beginning June 1 of the years indicated below:
 


                                                   REDEMPTION
           YEAR                                      PRICE
           ----                                    ----------
                                                
           2003...................................  104.750%
           2004...................................  103.167%
           2005...................................  101.583%
           2006 and thereafter....................  100.000%

 
  In addition, at any time, or from time to time, on or prior to June 1, 2001,
the Company may, at its option, use the net cash proceeds of one or more
Public Equity Offerings (as defined below) to redeem Notes, at a redemption
price equal to 109.5% of the principal amount thereof plus accrued and unpaid
interest, if any, thereon to the redemption date; provided that not less than
$130 million principal amount of Notes remains outstanding immediately after
the occurrence of such redemption. In order to effect the foregoing redemption
with the proceeds of any Public Equity Offering the Company shall send a
redemption notice to the Trustee not later than 90 days after the consummation
of any such Public Equity Offering.
 
  As used in the preceding paragraph, "Public Equity Offering" means an
underwritten public offering of Common Stock of the Company pursuant to a
registration statement filed with the Commission in accordance with the
Securities Act.
 
  Selection and Notice. In the event that less than all of the Notes are to be
redeemed at any time, selection of such Notes for redemption will be made by
the Trustee in compliance with the requirements of the principal national
securities exchange, if any, on which the Notes are listed or, if the Notes
are not then listed on a national securities exchange, on a pro rata basis, by
lot or by such method as the Trustee shall deem fair and appropriate (subject
to the rules of DTC); provided, however, that Notes shall only be redeemable
in principal amounts of $1,000 or an integral multiple of $1,000. Notice of
redemption shall be mailed by first-class mail at least 30 but not more than
60 days before the redemption date to each holder of Notes to be redeemed at
its registered address. If any Note is to be redeemed in part only, the notice
of redemption that relates to such Note shall state the portion of the
principal amount thereof to be redeemed. A new Note in a principal amount
equal to the unredeemed portion thereof will be issued in the name of the
holder thereof upon surrender for cancellation of the original Note. On and
after the redemption date, interest will cease to accrue on Notes or portions
thereof called for redemption, unless the Company defaults in the payment of
the redemption price.
 
SINKING FUND
 
  The Notes are entitled to the benefit of any mandatory sinking fund.
 
CHANGE OF CONTROL
 
  Upon the occurrence of a Change of Control, the Company shall be obligated
to make an offer to purchase (a "Change of Control Offer"), on a business day
(the "Change of Control Purchase Date") not more than 60 nor less than 30 days
following the occurrence of the Change of Control, all of the then outstanding
Notes tendered at a purchase price in cash (the "Change of Control Purchase
Price") equal to 101% of the principal amount thereof plus accrued and unpaid
interest, if any, thereon to the Change of Control Purchase Date. The Company
shall be required to purchase all Notes tendered into the Change of Control
Offer and not withdrawn. The Change of Control Offer is required to remain
open for at least 20 business days.
 
                                      69

 
  In order to effect such Change of Control Offer, the Company shall, not
later than the 30th day after the Change of Control, mail to each holder of
Notes notice of the Change of Control Offer, which notice shall govern the
terms of the Change of Control Offer and shall state, among other things, the
procedures that holders of Notes must follow to accept the Change of Control
Offer.
 
  If a Change of Control Offer is made, there can be no assurance that the
Company will have available funds sufficient to pay the Change of Control
Purchase Price for all of the Notes that might be delivered by holders of
Notes seeking to accept the Change of Control Offer. In addition, there can be
no assurance that the Company's debt instruments will permit such offer to be
made. The agreements governing the Company's senior indebtedness do not permit
the Company to make a Change of Control Offer and, in order to make such
offer, the Company would be required to pay off such indebtedness in full or
seek a waiver from the lenders thereunder to allow the Company to make the
Change of Control Offer. The occurrence of a Change of Control is also an
event of default under the agreement governing the Company's senior
indebtedness and would entitle the lenders thereunder to accelerate all
amounts owing under such indebtedness. Failure to make a Change of Control
Offer, even if prohibited by the Company's debt instruments, would constitute
a default under the Indenture. See "Risk Factors--Possible Inability to
Repurchase Notes upon Change of Control." The Company shall not be required to
make a Change of Control Offer upon a Change of Control if a third party makes
the Change of Control Offer in the manner, at the times and otherwise in
compliance with the requirements applicable to a Change of Control Offer made
by the Company and purchases all Notes validly tendered and not withdrawn
under such Change of Control Offer.
 
  The definition of "Change of Control" excludes certain transactions by
Permitted Holders, including a direct or indirect sale, lease, exchange or
other transfer of all or substantially all of the assets of the Company to
Permitted Holders. The provisions of the Indenture may not afford Noteholders
protection in the event of a highly leveraged transaction, reorganization,
restructuring, merger or similar transaction involving the Company if such
transaction is not a transaction defined as a "Change of Control."
 
  The use of the term "all or substantially all" in provisions of the
Indenture such as clause (b) of the definition of "Change of Control" and
under "--Consolidation, Merger, Sale of Assets, Etc." has no clearly
established meaning under New York law (which governs the Indenture) and has
been the subject of limited judicial interpretation in only a few
jurisdictions. Accordingly, there may be a degree of uncertainty in
ascertaining whether any particular transaction would involve a disposition of
"all or substantially all" of the assets of a person.
 
  The Company will comply with Rule 14e-1 under the Exchange Act and any other
securities laws and regulations thereunder, to the extent such laws or
regulations are applicable, in the event that a Change of Control occurs and
the Company is required to purchase Notes as described above.
 
SUBORDINATION
 
  The indebtedness evidenced by the Notes is subordinated in right of payment
to the prior payment in full in cash of all Senior Indebtedness. The Notes are
senior subordinated indebtedness of the Company ranking senior to all existing
and future Subordinated Indebtedness of the Company.
 
  The Indenture provides that in the event of any insolvency or bankruptcy
case or proceeding, or any receivership, liquidation, reorganization or other
similar case or proceeding in connection therewith, relating to the Company or
its assets, or any liquidation, dissolution or other winding-up of the
Company, whether voluntary or involuntary, or any assignment for the benefit
of creditors or other marshalling of assets or liabilities of the Company, all
Senior Indebtedness (including, in the case of Designated Senior Indebtedness,
any interest accruing subsequent to the filing of a petition for bankruptcy
regardless of whether such interest is an allowed claim in the bankruptcy
proceeding) must be paid in full in cash before any payment is made on account
of the principal of, premium, if any, or interest on the Notes.
 
  During the continuance of any default in the payment of principal, premium,
if any, or interest on any Senior Indebtedness, when the same becomes due, and
after receipt by the Trustee and the Company from representatives of holders
of such Senior Indebtedness of written notice of such default, no direct or
indirect
 
                                      70

 
payment (other than payments from trusts previously created pursuant to the
provisions described under "--Defeasance or Covenant Defeasance of Indenture")
by or on behalf of the Company of any kind of character (excluding certain
permitted equity or subordinated securities) may be made on account of the
principal of, premium, if any, or interest on, or the purchase, redemption or
other acquisition of, the Notes unless and until such default has been cured
or waived or has ceased to exist or such Senior Indebtedness shall have been
discharged or paid in full in cash, after which the Company shall resume
making any and all required payments in respect of the Notes, including any
missed payments.
 
  In addition, during the continuance of any other default with respect to any
Designated Senior Indebtedness that permits, or would permit with the passage
of time or the giving of notice or both, the maturity thereof to be
accelerated (a "Non-payment Default") and upon the earlier to occur of (a)
receipt by the Trustee and the Company from the representatives of holders of
such Designated Senior Indebtedness of a written notice of such Non-payment
Default or (b) if such Non-payment Default results from the acceleration of
the maturity of the Notes, the date of such acceleration, no payment (other
than payments from trusts previously created pursuant to the provisions
described under "--Defeasance or Covenant Defeasance of Indenture") of any
kind or character (excluding certain permitted equity or subordinated
securities) may be made by the Company on account of the principal of,
premium, if any, or interest on, or the purchase, redemption, or other
acquisition of, the Notes for the period specified below (the "Payment
Blockage Period").
 
  The Payment Blockage Period shall commence upon the receipt of notice of a
Non-payment Default by the Trustee and the Company from the representatives of
holders of Designated Senior Indebtedness or the date of the acceleration
referred to in clause (b) of the preceding paragraph, as the case may be, and
shall end on the earliest to occur of the following events: (i) 179 days have
elapsed since the receipt of such notice or the date of the acceleration
referred to in clause (b) of the preceding paragraph (provided the maturity of
such Designated Senior Indebtedness shall not theretofore have been
accelerated), (ii) such default is cured or waived or ceases to exist or such
Designated Senior Indebtedness is discharged or paid in full in cash, or (iii)
such Payment Blockage Period shall have been terminated by written notice to
the Company or the Trustee from the representatives of holders of Designated
Senior Indebtedness initiating such Payment Blockage Period, after which the
Company shall promptly resume making any and all required payments in respect
of the Notes, including any missed payments. Only one Payment Blockage Period
with respect to the Notes may be commenced within any 360 consecutive day
period. No Non-payment Default with respect to Designated Senior Indebtedness
that existed or was continuing on the date of the commencement of any Payment
Blockage Period will be, or can be, made the basis for the commencement of a
second Payment Blockage Period, whether or not within a period of 360
consecutive days, unless such default has been cured or waived for a period of
not less than 90 consecutive days. In no event will a Payment Blockage Period
extend beyond 179 days from the date of the receipt by the Trustee of the
notice or the date of the acceleration initiating such Payment Blockage Period
and there must be a 180 consecutive day period in any 360 day period during
which no Payment Blockage Period is in effect.
 
  If the Company fails to make any payment on the Notes when due on account of
the payment blockage provisions referred to above, such failure would
constitute an Event of Default under the Indenture and would enable the
holders of the Notes to accelerate the maturity thereof. See "--Events of
Default."
 
  By reason of such subordination, in the event of liquidation or insolvency,
creditors of the Company who are holders of Senior Indebtedness may recover
more, ratably, than the holders of the Notes, and funds which would be
otherwise payable to the holders of the Notes will be paid to the holders of
Senior Indebtedness to the extent necessary to pay the Senior Indebtedness in
full, and the Company may be unable to meet its obligations fully with respect
to the Notes.
 
  At June 30, 1998, on a pro forma basis (after giving effect to all
acquisitions completed by the Company subsequent to such date and the
financing thereof), there was outstanding $608.5 million of Senior
Indebtedness. The Indenture limits, but not prohibit, the incurrence by the
Company of additional Indebtedness which is senior to the Notes and prohibits
the incurrence by the Company of Indebtedness which is subordinated in right
of payment to any other Indebtedness of the Company and senior in right of
payment to the Notes. The Company at September 8, 1998, had $201.6 million of
borrowing capacity available under the Credit Facility.
 
                                      71

 
  "Designated Senior Indebtedness" means (i) all Indebtedness under the Credit
Facility and (ii) any other issue of Senior Indebtedness which (a) at the time
of the determination is equal to or greater than $25 million in aggregate
principal amount and (b) is specifically designated by the Company in the
instrument evidencing such Senior Indebtedness as "Designated Senior
Indebtedness."
 
  "Senior Indebtedness" means the principal of, premium, if any, and interest
on any Indebtedness of the Company, whether outstanding on the Issue Date or
thereafter created, incurred or assumed, unless, in the case of any particular
Indebtedness, the instrument creating or evidencing the same or pursuant to
which the same is outstanding expressly provides that such Indebtedness shall
not be senior in right of payment to the Notes. Without limiting the
generality of the foregoing, (x) "Senior Indebtedness" shall include the
principal of, premium, if any, and interest on all obligations of every nature
of the Company from time to time owed to the lenders under the Credit
Facility, including, without limitation, principal of and interest on, and all
fees, indemnities and expenses payable under the Credit Facility, and (y) in
the case of Designated Senior Indebtedness, "Senior Indebtedness" shall
include interest accruing thereon subsequent to the occurrence of any Event of
Default specified in clause (vii) or (viii) under "--Events of Default"
relating to the Company, whether or not the claim for such interest is allowed
under any applicable Bankruptcy Code. Notwithstanding the foregoing, "Senior
Indebtedness" shall not include (a) Indebtedness evidenced by the Notes, (b)
Indebtedness that is expressly subordinate or junior in right of payment to
any Indebtedness of the Company, (c) Indebtedness which, when incurred and
without respect to any election under Section 1111(b) of Title 11, United
States Code, is without recourse to the Company, (d) Indebtedness which is
represented by Redeemable Capital Stock, (e) Indebtedness for goods, materials
or services purchased in the ordinary course of business or Indebtedness
consisting of trade payables or other current liabilities (other than any
current liabilities owing under the Credit Facility, or the current portion of
any long-term Indebtedness which would constitute Senior Indebtedness but for
the operation of this clause (e)), (f) Indebtedness of or amounts owed by the
Company for compensation to employees or for services rendered to the Company,
(g) any liability for federal, state, local or other taxes owed or owing by
the Company, (h) Indebtedness of the Company to a Subsidiary of the Company or
any other Affiliate of the Company or any of such Affiliate's Subsidiaries,
(i) that portion of any Indebtedness which is incurred by the Company in
violation of the Indenture and (j) amounts owing under leases.
 
GUARANTEES
 
  Each Guarantor has fully and unconditionally guaranteed, on a senior
subordinated basis, jointly and severally, to each holder and the Trustee, the
full and prompt performance of the Company's obligations under the Indenture
and the Notes, including the payment of principal of and interest on the
Notes. The Guarantees are subordinated to Guarantor Senior Indebtedness on the
same basis as the Notes are subordinated to Senior Indebtedness.
 
  The obligations of each Guarantor are limited to the maximum amount which,
after giving effect to all other contingent and fixed liabilities of such
Guarantor and after giving effect to any collections from or payments made by
or on behalf of any other Guarantor in respect of the obligations of such
other Guarantor under its Guarantee or pursuant to its contribution
obligations under the Indenture, will result in the obligations of such
Guarantor under the Guarantee not constituting a fraudulent conveyance or
fraudulent transfer under federal or state law. See "Risk Factors--Fraudulent
Transfer Considerations."
 
  Each Guarantor that makes a payment or distribution under a Guarantee shall
be entitled to a contribution from each other Guarantor in an amount pro rata,
based on the net assets of each Guarantor, determined in accordance with GAAP.
 
  Each Guarantor may consolidate with or merge into or sell its assets to the
Company or another Guarantor without limitation, or with other persons upon
the terms and conditions set forth in the Indenture. See "--Consolidation,
Merger, Sale of Assets, Etc." In the event all or substantially all of the
assets or the capital stock of a Guarantor is sold and the sale complies with
the provisions set forth in "--Certain Covenants--Limitation on Asset Sales,"
the Guarantor's Guarantee will be automatically discharged and released.
 
                                      72

 
  "Guarantor Senior Indebtedness" of a Guarantor means the principal of,
premium, if any, and interest on any Indebtedness of such Guarantor, whether
outstanding on the Issue Date or thereafter created, incurred or assumed,
unless, in the case of any particular Indebtedness, the instrument creating or
evidencing the same or pursuant to which the same is outstanding expressly
provides that such Indebtedness shall not be senior in right of payment to the
Notes or such Guarantor's Guarantee. Without limiting the generality of the
foregoing, (x) "Guarantor Senior Indebtedness" shall include the principal of,
premium, if any, and interest on all obligations of every nature of such
Guarantor from time to time owed to the lenders under the Credit Facility,
including, without limitation, principal of and interest on, and all fees,
indemnities and expenses payable under the Credit Facility, and (y) in the
case of amounts owing under the Credit Facility and guarantees of Designated
Senior Indebtedness, "Guarantor Senior Indebtedness" shall include interest
accruing thereon subsequent to the occurrence of any Event of Default
specified in clause (vii) or (viii) under "--Events of Default" relating to
such Guarantor, whether or not the claim for such interest is allowed under
any applicable Bankruptcy Code. Notwithstanding the foregoing, "Guarantor
Senior Indebtedness" shall not include (a) Indebtedness evidenced by the Notes
or the Guarantees, (b) Indebtedness that is expressly subordinate or junior in
right of payment to any Indebtedness of such Guarantor, (c) Indebtedness
which, when incurred and without respect to any election under Section 1111(b)
of Title 11, United States Code, is without recourse to such Guarantor, (d)
Indebtedness which is represented by Redeemable Capital Stock, (e)
Indebtedness for goods, materials or services purchased in the ordinary course
of business or Indebtedness consisting of trade payables or other current
liabilities (other than any current liabilities owing under the Credit
Facility, or the current portion of any long-term Indebtedness which would
constitute Guarantor Senior Indebtedness but for the operation of this clause
(e)), (f) Indebtedness of or amounts owed by such Guarantor for compensation
to employees or for services rendered to such Guarantor, (g) any liability for
federal, state, local or other taxes owed or owing by such Guarantor,
(h) Indebtedness of such Guarantor to the Company or a Subsidiary of the
Company or any other Affiliate of the Company or any of such Affiliate's
Subsidiaries, (i) that portion of any Indebtedness which is incurred by such
Guarantor in violation of the Indenture and (j) amounts owing under leases.
 
CERTAIN COVENANTS
 
  The Indenture contains the following covenants, among others:
 
  Limitation on Indebtedness. The Company will not, and will not permit any of
its Restricted Subsidiaries to, directly or indirectly, create, incur, issue,
assume, guarantee or in any manner become directly or indirectly liable,
contingently or otherwise (in each case, to "incur"), for the payment of any
Indebtedness (including any Acquired Indebtedness) other than Permitted
Indebtedness; provided, however, that (i) the Company and any Guarantor will
be permitted to incur Indebtedness (including Acquired Indebtedness), and (ii)
a Restricted Subsidiary will be permitted to incur Acquired Indebtedness, if
in each case, after giving pro forma effect to (1) the incurrence of such
Indebtedness and (if applicable) the application of the net proceeds
therefrom, including to refinance other Indebtedness, as if such Indebtedness
were incurred at the beginning of the four full fiscal quarters immediately
preceding such incurrence, taken as one period; (2) the incurrence, repayment
or retirement of any other Indebtedness by the Company and its Restricted
Subsidiaries since the first day of such four-quarter period as if such
Indebtedness was incurred, repaid or retired at the beginning of such four-
quarter period (except that, in making such computation, the amount of
Indebtedness under any revolving credit facility shall be computed based upon
the average daily balance of such Indebtedness during such four-quarter
period); and (3) any Asset Sale or Asset Acquisition occurring since the first
day of such four-quarter period (including to the date of calculation) as if
such acquisition or disposition occurred at the beginning of such four-quarter
period, the Consolidated Fixed Charge Coverage Ratio of the Company is at
least 2:1.
 
  Limitation on Restricted Payments. The Company will not, and will not permit
any of its Restricted Subsidiaries to, directly or indirectly:
 
    (a) declare or pay any dividend or make any other distribution or payment
  on or in respect of Capital Stock of the Company or any of its Restricted
  Subsidiaries or make any payment to the direct or indirect
 
                                      73

 
  holders (in their capacities as such) of Capital Stock of the Company or
  any of its Restricted Subsidiaries (other than dividends or distributions
  payable solely in Capital Stock of the Company (other than Redeemable
  Capital Stock) or in options, warrants or other rights to purchase Capital
  Stock of the Company (other than Redeemable Capital Stock)) (other than the
  declaration or payment of dividends or other distributions to the extent
  declared or paid to the Company or any Restricted Subsidiary),
 
    (b) purchase, redeem, defease or otherwise acquire or retire for value
  any Capital Stock of the Company or any of its Restricted Subsidiaries or
  any options, warrants, or other rights to purchase any such Capital Stock
  (other than any such securities owned by the Company or a Restricted
  Subsidiary),
 
    (c) make any principal payment on, or purchase, defease, repurchase,
  redeem or otherwise acquire or retire for value, prior to any scheduled
  maturity, scheduled repayment, scheduled sinking fund payment or other
  Stated Maturity, any Subordinated Indebtedness (other than any such
  Subordinated Indebtedness owned by the Company or a Restricted Subsidiary),
  or
 
    (d) make any Investment (other than any Permitted Investment) in any
  person
 
  (such payments or Investments described in the preceding clauses (a), (b),
  (c) and (d) are collectively referred to as "Restricted Payments"), unless,
  after giving effect to the proposed Restricted Payment (the amount of any
  such Restricted Payment, if other than cash, shall be the Fair Market Value
  of the asset(s) proposed to be transferred by the Company or such
  Restricted Subsidiary, as the case may be, pursuant to such Restricted
  Payment), (A) no Default or Event of Default shall have occurred and be
  continuing, (B) immediately after giving effect to such Restricted Payment,
  the Company would be able to incur $1.00 of additional Indebtedness (other
  than Permitted Indebtedness) (assuming a market rate of interest with
  respect to such additional Indebtedness) and (C) the aggregate amount of
  all Restricted Payments declared or made from and after the Issue Date
  would not exceed the sum of:
 
    (1) 50% of the aggregate Consolidated Net Income of the Company accrued
  on a cumulative basis during the period beginning on the Issue Date and
  ending on the last day of the fiscal quarter of the Company immediately
  preceding the date of such proposed Restricted Payment (or, if such
  aggregate cumulative Consolidated Net Income of the Company for such period
  shall be a deficit, minus 100% of such deficit);
 
    (2) the aggregate net cash proceeds received by the Company as capital
  contributions to the Company after the Issue Date and which constitute
  shareholders' equity of the Company in accordance with GAAP;
 
    (3) the aggregate net cash proceeds received by the Company from the
  issuance or sale of Capital Stock (excluding Redeemable Capital Stock) of
  the Company to any person (other than to a Subsidiary of the Company) after
  the Issue Date;
 
    (4) the aggregate net cash proceeds received by the Company from any
  person (other than a Subsidiary of the Company) upon the exercise of any
  options, warrants or rights to purchase shares of Capital Stock (other than
  Redeemable Capital Stock) of the Company after the Issue Date;
 
    (5) the aggregate net cash proceeds received after the Issue Date by the
  Company from any person (other than a Subsidiary of the Company) for debt
  securities that have been converted or exchanged into or for Capital Stock
  of the Company (other than Redeemable Capital Stock) (to the extent such
  debt securities were originally sold for cash) plus the aggregate amount of
  cash received by the Company (other than from a Subsidiary of the Company)
  in connection with such conversion or exchange;
 
    (6) in the case of the disposition or repayment of any Investment
  constituting a Restricted Payment after the Issue Date, an amount equal to
  the lesser of the return of capital with respect to such Investment and the
  initial amount of such Investment, in either case, less the cost of the
  disposition of such Investment; and
 
                                      74

 
    (7) so long as the Designation thereof was treated as a Restricted
  Payment made after the Issue Date, with respect to any Unrestricted
  Subsidiary that has been redesignated as a Restricted Subsidiary after the
  Issue Date in accordance with "--Limitation on Designations of Unrestricted
  Subsidiaries" below, the Fair Market Value of the Company's interest in
  such Subsidiary, provided that such amount shall not in any case exceed the
  Designation Amount with respect to such Restricted Subsidiary upon its
  Designation,
 
  minus:
 
  the Designation Amount (measured as of the date of Designation) with
  respect to any Restricted Subsidiary of the Company which has been
  designated as an Unrestricted Subsidiary after the Issue Date in accordance
  with "--Limitations on Designations of Unrestricted Subsidiaries" below.
 
  For purposes of the preceding clause (C)(4), the value of the aggregate net
proceeds received by the Company upon the issuance of Capital Stock upon the
exercise of options, warrants or rights will be the net cash proceeds received
upon the issuance of such options, warrants or rights plus the incremental
amount received by the Company upon the exercise thereof.
 
  None of the foregoing provisions will prohibit, so long, in the case of
clauses (ii), (iii), (v) and (vi) below, as there is no Default or Event of
Default continuing, (i) the payment of any dividend or distribution within 60
days after the date of its declaration, if at the date of declaration such
payment would be permitted by the first paragraph of this covenant; (ii) the
redemption, repurchase or other acquisition or retirement of any shares of any
class of Capital Stock of the Company in exchange for, or out of the net cash
proceeds of, a substantially concurrent issue and sale of other shares of
Capital Stock of the Company (other than Redeemable Capital Stock) to any
person (other than to a Subsidiary of the Company); provided, however, that
such net cash proceeds are excluded from clause (C) of the first paragraph of
this covenant; (iii) any redemption, repurchase or other acquisition or
retirement of Subordinated Indebtedness by exchange for, or out of the net
cash proceeds of, a substantially concurrent issue and sale of (1) Capital
Stock (other than Redeemable Capital Stock) of the Company to any person
(other than to a Subsidiary of the Company); provided, however, that any such
net cash proceeds are excluded from clause (C) of the first paragraph of this
covenant; or (2) Indebtedness of the Company so long as such Indebtedness is
Subordinated Indebtedness which (w) has no scheduled principal payment prior
to the 91st day after the Maturity Date, (x) has an Average Life to Stated
Maturity greater than the remaining Average Life to Stated Maturity of the
Notes and (y) is subordinated to the Notes in the same manner and to the same
extent as the Subordinated Indebtedness so purchased, exchanged, redeemed,
acquired or retired; (iv) Investments constituting Restricted Payments made as
a result of the receipt of non-cash consideration from any Asset Sale or other
sale of assets or property made pursuant to and in compliance with the
Indenture; (v) payments to purchase Capital Stock of the Company from officers
of the Company, pursuant to agreements in effect as of the Issue Date, in an
amount not to exceed $15 million in the aggregate, (vi) payments (other than
those covered by clause (v)) to purchase Capital Stock of the Company from
management or employees of the Company or any of its Subsidiaries, or their
authorized representatives, upon the death, disability or termination of
employment of such employees, in aggregate amounts under this clause (vi) not
to exceed $1 million in any fiscal year of the Company, and (vii) the payment
of any dividend or distribution by a Restricted Subsidiary to the holders of
its Capital Stock on a pro rata basis. Any payments made pursuant to clauses
(i), (v) or (vi) of this paragraph shall be taken into account in calculating
the amount of Restricted Payments made from and after the Issue Date.
 
  Limitation on Liens. The Company will not, and will not permit any of its
Restricted Subsidiaries to, create, incur, assume or suffer to exist any Liens
of any kind against or upon any of its property or assets, or any proceeds
therefrom, unless the Notes are equally and ratably secured (except that Liens
securing Subordinated Indebtedness shall be expressly subordinate to Liens
securing the Notes to the same extent such Subordinated Indebtedness is
subordinate to the Notes), except for (a) Liens securing Senior Indebtedness;
(b) Liens securing the Notes; (c) Liens in favor of the Company on assets of
any Subsidiary of the Company; (d) Liens securing Indebtedness which is
incurred to refinance Indebtedness which has been secured by a Lien permitted
under the Indenture and which has been incurred in accordance with the
provisions of the Indenture; provided, however,
 
                                      75

 
that such Liens do not extend to or cover any property or assets of the
Company or any its Restricted Subsidiaries not securing the Indebtedness so
refinanced; and (e) Permitted Liens.
 
  Disposition of Proceeds of Asset Sales. The Company will not, and will not
permit any of its Restricted Subsidiaries to, make any Asset Sale unless (a)
the Company or such Restricted Subsidiary, as the case may be, receives
consideration at the time of such Asset Sale at least equal to the Fair Market
Value of the shares or assets sold or otherwise disposed of and (b) at least
75% of such consideration consists of cash or Cash Equivalents or Replacement
Assets; provided, however, that the amount of any liabilities (as shown on the
most recent balance sheet of the Company or such Restricted Subsidiary) of the
Company or such Restricted Subsidiary that are assumed by the transferee of
such assets and any securities, notes or other obligations received by the
Company or such Restricted Subsidiary from such transferee that are converted
within 30 days into cash or Cash Equivalents (to the extent of the cash or
Cash Equivalents received) shall be deemed to be cash for the purposes of this
provision; provided further, that the 75% limitation referred to in clause (b)
will not apply to any Asset Sale in which the cash or Cash Equivalent portion
of the consideration received therefrom, determined in accordance with the
foregoing provision, is equal to or greater than what the after-tax proceeds
would have been had such Asset Sale complied with the aforementioned 75%
limitation. To the extent that the Net Cash Proceeds of any Asset Sale are not
required to be applied to repay, and permanently reduce the commitments under,
the Credit Facility, or are not so applied, the Company or such Restricted
Subsidiary, as the case may be, may apply the Net Cash Proceeds from such
Asset Sale, within 360 days of such Asset Sale, to an investment in properties
and assets that replace the properties and assets that were the subject of
such Asset Sale or in properties and assets that are used or useful in the
business of the Company and its Restricted Subsidiaries conducted at such time
or in businesses reasonably related thereto or in Capital Stock of a person,
the principal portion of whose assets consist of such property or assets
("Replacement Assets"). Any Net Cash Proceeds from any Asset Sale that are
neither used to repay, and permanently reduce the commitments under, the
Credit Facility nor invested in Replacement Assets within such 360-day period
constitute "Excess Proceeds" subject to disposition as provided below.
 
  When the aggregate amount of Excess Proceeds equals or exceeds $10 million,
the Company shall make an offer to purchase (an "Asset Sale Offer"), from all
holders of the Notes, an aggregate principal amount of Notes equal to such
Excess Proceeds, at a price in cash equal to 100% of the outstanding principal
amount
thereof plus accrued and unpaid interest, if any, to the purchase date (the
"Asset Sale Offer Price"). To the extent that the aggregate principal amount
of Notes tendered pursuant to an Asset Sale Offer is less than the Excess
Proceeds, the Company may use such deficiency for general corporate purposes.
The Notes shall be purchased by the Company, at the option of the holder
thereof, in whole or in part in integral multiples of $1,000, on a date that
is not earlier than 30 days and not later than 60 days from the date the
notice is given to holders, or such later date as may be necessary for the
Company to comply with the requirements under the Exchange Act. If the
aggregate principal amount of Notes validly tendered and not withdrawn by
holders thereof exceeds the Excess Proceeds, Notes to be purchased will be
selected on a pro rata basis. Upon completion of such Asset Sale Offer, the
amount of Excess Proceeds shall be reset to zero.
 
  The Company will comply with Rule 14e-1 under the Exchange Act and any other
securities laws and regulations thereunder, to the extent such laws and
regulations are applicable, in the event that an Asset Sale occurs and the
Company is required to purchase Notes as described above.
 
  Limitation on Preferred Stock of Restricted Subsidiaries. The Company will
not permit any Restricted Subsidiary to issue any Preferred Stock other than
Preferred Stock issued to the Company or a Wholly-Owned Restricted Subsidiary.
The Company will not sell, transfer or otherwise dispose of Preferred Stock
issued by a Restricted Subsidiary of the Company or permit a Restricted
Subsidiary to sell, transfer or otherwise dispose of Preferred Stock issued by
a Restricted Subsidiary, other than to the Company or a Wholly-Owned
Restricted Subsidiary. Notwithstanding the foregoing, nothing in such covenant
will prohibit Preferred Stock (other than Redeemable Capital Stock) issued by
a person prior to the time (A) such person becomes a Restricted Subsidiary of
the Company, (B) such person merges with or into a Restricted Subsidiary of
the Company or (C) a Restricted
 
                                      76

 
Subsidiary of the Company merges with or into such person; provided that such
Preferred Stock was not issued or incurred by such person in anticipation of a
transaction contemplated by subclause (A), (B), or (C) above.
 
  Limitation on Transactions with Affiliates. The Company will not, and will
not permit any of its Restricted Subsidiaries to, directly or indirectly,
enter into any transaction or series of related transactions (including,
without limitation, the sale, transfer, disposition, purchase, exchange or
lease of assets, property or services) with, or for the benefit of, any of its
Affiliates (other than Restricted Subsidiaries), except (a) on terms that are
no less favorable to the Company or such Subsidiary, as the case may be, than
those which could have been obtained in a comparable transaction at such time
from persons who are not Affiliates of the Company, (b) with respect to a
transaction or series of related transactions involving aggregate payments or
value equal to or greater than $2 million, the Company shall have delivered an
officer's certificate to the Trustee certifying that such transaction or
transactions comply with the preceding clause (a), and (c) with respect to a
transaction or series of related transactions involving aggregate payments or
value equal to or greater than $5 million, such transaction or transactions
shall have been approved by a majority of the Disinterested Members of the
Board of Directors of the Company.
 
  Notwithstanding the foregoing, the restrictions set forth in this covenant
shall not apply to (i) transactions with or among the Company and the
Restricted Subsidiaries, (ii) customary directors' fees, indemnification and
similar arrangements, consulting fees, employee salaries, bonuses or
employment agreements, compensation or employee benefit arrangements and
incentive arrangements with any officer, director or employee of the Company
or any Restricted Subsidiary entered into in the ordinary course of business,
(iii) any dividends made in compliance with "--Limitation on Restricted
Payments" above, (iv) loans and advances to officers, directors and employees
of the Company or any Restricted Subsidiary for travel, entertainment, moving
and other relocation expenses, in each case made in the ordinary course of
business, (v) the incurrence of intercompany Indebtedness which constitutes
Permitted Indebtedness, (vi) transactions pursuant to agreements in effect on
the Issue Date, and (vii) the purchase of equipment for its Fair Market Value
from Terex Corporation or its Affiliates in the ordinary course of business of
each of Terex Corporation and the Company.
 
  Limitation on Dividends and other Payment Restrictions Affecting Restricted
Subsidiaries. The Company will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, create or otherwise cause
or suffer to exist or become effective any consensual encumbrance or
restriction on the ability of any Restricted Subsidiary of the Company to (a)
pay dividends, in cash or otherwise, or make any other distributions on or in
respect of its Capital Stock or any other interest or participation in, or
measured by, its profits, (b) pay any Indebtedness owed to the Company or any
other Restricted Subsidiary of the Company, (c) make loans or advances to the
Company or any other Restricted Subsidiary of the Company, (d) transfer any of
its properties or assets to the Company or any other Restricted Subsidiary of
the Company or (e) guarantee any Indebtedness of the Company or any other
Restricted Subsidiary of the Company, except for such encumbrances or
restrictions existing under or by reason of (i) applicable law or any
applicable rule, regulation or order, (ii) customary non-assignment provisions
of any contract or any lease governing a leasehold interest of the Company or
any Restricted Subsidiary of the Company, (iii) customary restrictions on
transfers of property subject to a Lien permitted under the Indenture, (iv)
the Credit Facility as in effect on the Issue Date, (v) any agreement or other
instrument of a person acquired by the Company or any Restricted Subsidiary of
the Company in existence at the time of such acquisition (but not created in
contemplation thereof), which encumbrance or restriction is not applicable to
any person, or the properties or assets of any person, other than the person,
or the property or assets of the person, so acquired, (vi) an agreement
entered into for the sale or disposition of Capital Stock or assets of a
Restricted Subsidiary or an agreement entered into for the sale of specified
assets (in either case, so long as such encumbrance or restriction, by its
terms, terminates on the earlier of the termination of such agreement or the
consummation of such agreement and so long as such restriction applies only to
the Capital Stock or assets to be sold), (vii) any agreement in effect on the
Issue Date, (viii) the Indenture and the Guarantees, and (ix) any agreement
that amends, extends, refinances, renews or replaces any agreement described
in the foregoing clauses, provided that the terms and conditions of any such
agreement are not materially less favorable to the holders of the Notes with
respect to such dividend and payment restrictions than those under or pursuant
to the agreement amended, extended, refinanced, renewed or replaced.
 
 
                                      77

 
  Limitation on Designations of Unrestricted Subsidiaries. The Company may
designate after the Issue Date any Restricted Subsidiary as an "Unrestricted
Subsidiary" under the Indenture (a "Designation") only if:
 
    (i) no Default shall have occurred and be continuing at the time of or
  after giving effect to such Designation;
 
    (ii) the Company would be permitted to make an Investment (other than a
  Permitted Investment, except a Permitted Investment covered by clause (x)
  of the definition thereof) at the time of Designation (assuming the
  effectiveness of such Designation) pursuant to the first paragraph of "--
  Limitation on Restricted Payments" above in an amount (the "Designation
  Amount") equal to the Fair Market Value of the Company's interest in such
  Subsidiary on such date calculated in accordance with GAAP; and
 
    (iii) the Company would be permitted under the Indenture to incur $1.00
  of additional Indebtedness (other than Permitted Indebtedness) pursuant to
  the covenant described under "--Limitation on Indebtedness" at the time of
  such Designation (assuming the effectiveness of such Designation).
 
  In the event of any such Designation, the Company shall be deemed to have
made an Investment constituting a Restricted Payment pursuant to the covenant
"--Limitation on Restricted Payments" for all purposes of the Indenture in the
Designation Amount.
 
  The Company shall not, and shall not cause or permit any Restricted
Subsidiary to, at any time (x) provide credit support for or subject any of
its property or assets (other than the Capital Stock of any Unrestricted
Subsidiary) to the satisfaction of, any Indebtedness of any Unrestricted
Subsidiary (including any undertaking, agreement or instrument evidencing such
Indebtedness), (y) be directly or indirectly liable for any Indebtedness of
any Unrestricted Subsidiary or (z) be directly or indirectly liable for any
Indebtedness which provides that the holder thereof may (upon notice, lapse of
time or both) declare a default thereon or cause the payment thereof to be
accelerated or payable prior to its final scheduled maturity upon the
occurrence of a default with respect to any Indebtedness of any Unrestricted
Subsidiary (including any right to take enforcement action against such
Unrestricted Subsidiary), except any non-recourse guarantee given solely to
support the pledge by the Company or any Restricted Subsidiary of the Capital
Stock of an Unrestricted Subsidiary. All Subsidiaries of Unrestricted
Subsidiaries shall automatically be deemed to be Unrestricted Subsidiaries.
 
  The Company may revoke any Designation of a Subsidiary as an Unrestricted
Subsidiary (a "Revocation") if:
 
    (i) no Default shall have occurred and be continuing at the time of and
  after giving effect to such Revocation; and
 
    (ii) all Liens and Indebtedness of such Unrestricted Subsidiary
  outstanding immediately following such Revocation would, if incurred at
  such time, have been permitted to be incurred for all purposes of the
  Indenture.
 
  In the event the Company or a Restricted Subsidiary makes any Investment in
any person which was not previously a Subsidiary and such person thereby
becomes a Subsidiary, such person shall automatically be an Unrestricted
Subsidiary and the Company may designate such Subsidiary as a Restricted
Subsidiary only if it meets the foregoing requirements.
 
  All Designations and Revocations must be evidenced by Board Resolutions of
the Company delivered to the Trustee certifying compliance with the foregoing
provisions.
 
  Limitation on the Issuance of Subordinated Indebtedness. The Company will
not, directly or indirectly, incur any Indebtedness (including Acquired
Indebtedness) that is subordinate in right of payment to any Indebtedness of
the Company and senior in right of payment to the Notes.
 
                                      78

 
  Additional Subsidiary Guarantees. If the Company or any of its Restricted
Subsidiaries acquires, creates or designates another domestic Restricted
Subsidiary, then such newly acquired, created or designated Restricted
Subsidiary shall, within 30 days after the date of its acquisition, creation
or designation, whichever is later, execute and deliver to the Trustee a
supplemental indenture in form reasonably satisfactory to the Trustee pursuant
to which such Subsidiary shall unconditionally guarantee all of the Company's
obligations under the Notes and the Indenture on the terms set forth in the
Indenture. Thereafter, such Subsidiary shall be a Guarantor for all purposes
of the Indenture.
 
  Reporting Requirements. For so long as the Notes are outstanding, whether or
not the Company is subject to Section 13(a) or 15(d) of the Exchange Act, or
any successor provision thereto, the Company shall file with the Commission
(if permitted by Commission practice and applicable law and regulations) the
annual reports, quarterly reports and other documents which the Company would
have been required to file with the Commission pursuant to such Section 13(a)
or 15(d) or any successor provision thereto if the Company were so subject,
such documents to be filed with the Commission on or prior to the respective
dates (the "Required Filing Dates") by which the Company would have been
required so to file such documents if the Company were so subject. The Company
shall also in any event (a) within 15 days after each Required Filing Date
(whether or not permitted or required to be filed with the Commission) (i)
transmit (or cause to be transmitted) by mail to all holders of Notes, as
their names and addresses appear in the Note register, without cost to such
holders, and (ii) file with the Trustee, copies of the annual reports,
quarterly reports and other documents which the Company would be required to
file with the Commission if the Notes were then registered under the Exchange
Act. In addition, for so long as any Notes remain outstanding, the Company
will furnish to the holders of Notes and to securities analysts and
prospective investors, upon their request, the information required to be
delivered pursuant to Rule 144A(d)(4) under the Securities Act, and, to any
beneficial holder of Notes, if not obtainable from the Commission, information
of the type that would be filed with the Commission pursuant to the foregoing
provisions upon the request of any such holder.
 
CONSOLIDATION, MERGER, SALE OF ASSETS, ETC.
 
  The Company will not, in any transaction or series of transactions, merge or
consolidate with or into, or sell, assign, convey, transfer, lease or
otherwise dispose of all or substantially all of its properties and assets as
an entirety to, any person or persons, and the Company will not permit any of
its Restricted Subsidiaries to enter into any such transaction or series of
transactions if such transaction or series of transactions, in the aggregate,
would result in a sale, assignment, conveyance, transfer, lease or other
disposition of all or substantially all of the properties and assets of the
Company or the Company and its Restricted Subsidiaries, taken as a whole, to
any other person or persons, unless at the time and after giving effect
thereto (a) either (i) if the transaction or transactions is a merger or
consolidation, the Company or such Restricted Subsidiary, as the case may be,
shall be the surviving person of such merger or consolidation, or (ii) the
person formed by such consolidation or into which the Company, or such
Restricted Subsidiary, as the case may be, is merged or to which the
properties and assets of the Company or such Restricted Subsidiary, as the
case may be, substantially as an entirety, are transferred (any such surviving
person or transferee person being the "Surviving Entity") shall be a
corporation organized and existing under the laws of the United States of
America, any state thereof or the District of Columbia and shall expressly
assume by a supplemental indenture executed and delivered to the Trustee, in
form satisfactory to the Trustee, all the obligations of the Company under the
Notes, the Indenture and the Registration Rights Agreement, and in each case,
the Indenture shall remain in full force and effect; (b) immediately after
giving effect to such transaction or series of transactions on a pro forma
basis (including, without limitation, any Indebtedness incurred or anticipated
to be incurred in connection with or in respect of such transaction or series
of transactions), no Default or Event of Default shall have occurred and be
continuing; and (c) except in the case of any merger of the Company with any
wholly-owned Subsidiary of the Company or any merger of Guarantors (and, in
each case, no other persons), the Company or the Surviving Entity, as the case
may be, after giving effect to such transaction or series of transactions on a
pro forma basis (including, without limitation, any Indebtedness incurred or
anticipated to be incurred in connection with or in respect of such
transaction or series of transactions), could incur $1.00 of additional
Indebtedness (other than Permitted Indebtedness) (assuming a market rate of
interest with respect to such additional Indebtedness).
 
                                      79

 
  In connection with any consolidation, merger, transfer, lease, assignment or
other disposition contemplated hereby, the Company shall deliver, or cause to
be delivered, to the Trustee, in form and substance reasonably satisfactory to
the Trustee, an officers' certificate and an opinion of counsel, each stating
that such consolidation, merger, transfer, lease, assignment or other
disposition and the supplemental indenture in respect thereof comply with the
requirements under the Indenture.
 
  Upon any consolidation or merger, or any sale, assignment, conveyance,
transfer, lease or disposition of all or substantially all of the properties
and asset of the Company in accordance with the immediately preceding
paragraphs, the successor person formed by such consolidation or into which
the Company or a Restricted Subsidiary, as the case may be, is merged or the
successor person to which such sale, assignment, conveyance, transfer, lease
or disposition is made shall succeed to, and be substituted for, and may
exercise every right and power of the Company under the Notes, the Indenture
and/or the Registration Rights Agreement, as the case may be, with the same
effect as if such successor had been named as the Company in the Notes, the
Indenture and/or in the Registration Rights Agreement, as the case may be and,
except in the case of a lease, the Company or such Restricted Subsidiary shall
be released and discharged from its obligations thereunder.
 
  The Indenture will provide that for all purposes of the Indenture and the
Notes (including the provision of this covenant and the covenants described in
"--Certain Covenants--Limitation on Indebtedness," "--Limitation on Restricted
Payments" and "--Certain Covenants--Limitation on Liens"), Subsidiaries of any
surviving person shall, upon such transaction or series of related
transactions, become Restricted Subsidiaries unless and until designated
Unrestricted Subsidiaries pursuant to and in accordance with "--Limitation on
Designations of Unrestricted Subsidiaries" and all Indebtedness, and all Liens
on property or assets, of the Company and the Restricted Subsidiaries in
existence immediately after such transaction or series of related transactions
will be deemed to have been incurred upon such transaction or series of
related transactions.
 
EVENTS OF DEFAULT
 
  The following will be "Events of Default" under the Indenture:
 
    (i) default in the payment of the principal of or premium, if any, when
  due and payable, on any of the Notes (at Stated Maturity, upon optional
  redemption, required purchase or otherwise); or
 
    (ii) default in the payment of an installment of interest on any of the
  Notes, when due and payable, for 30 days; or
 
    (iii) (a) default in the performance, or breach, of any covenant or
  agreement of the Company under the Indenture (other than a default in the
  performance or breach of a covenant or agreement which is specifically
  dealt with in clauses (i), (ii) or (iv)) and such default or breach shall
  continue for a period of 30 days after written notice has been given, by
  certified mail, (x) to the Company by the Trustee or (y) to the Company and
  the Trustee by the holders of at least 25% in aggregate principal amount of
  the outstanding Notes; or
 
    (iv) (a) there shall be a default in the performance or breach of the
  provisions of "--Consolidation, Merger, Sale of Assets, Etc."; (b) the
  Company shall have failed to make or consummate an Offer in accordance with
  the provisions of the Indenture described under "--Certain Covenants--
  Dispositions of Proceeds of Asset Sales"; or (c) the Company shall have
  failed to make or consummate a Change of Control Offer in accordance with
  the provisions of the Indenture described under "--Change of Control"; or
 
    (v) default or defaults under one or more agreements, instruments,
  mortgages, bonds, debentures or other evidences of Indebtedness under which
  the Company or any Restricted Subsidiary of the Company then has
  outstanding Indebtedness in excess of $15 million, individually or in the
  aggregate, and either (a) such Indebtedness is already due and payable in
  full or (b) such default or defaults have resulted in the acceleration of
  the maturity of such Indebtedness; or
 
    (vi) one or more judgments, orders or decrees of any court or regulatory
  or administrative agency of competent jurisdiction for the payment of money
  in excess of $15 million, either individually or in the
 
                                      80

 
  aggregate, shall be entered against the Company or any Restricted
  Subsidiary of the Company or any of their respective properties and shall
  not be discharged and there shall have been a period of 60 days after the
  date on which any period for appeal has expired and during which a stay of
  enforcement of such judgment, order or decree, shall not be in effect; or
 
    (vii) the entry of a decree or order by a court having jurisdiction in
  the premises (A) for relief in respect of the Company or any Significant
  Subsidiary in an involuntary case or proceeding under the Federal
  Bankruptcy Code or any other federal, state or foreign bankruptcy,
  insolvency, reorganization or similar law or (B) adjudging the Company or
  any Significant Subsidiary bankrupt or insolvent, or seeking
  reorganization, arrangement, adjustment or composition of or in respect of
  the Company or any Significant Subsidiary under the Federal Bankruptcy Code
  or any other similar federal, state or foreign law, or appointing a
  custodian, receiver, liquidator, assignee, trustee, sequestrator (or other
  similar official) of the Company or any Significant Subsidiary or of any
  substantial part of any of their properties, or ordering the winding up or
  liquidation of any of their affairs, and the continuance of any such decree
  or order unstayed and in effect for a period of 60 consecutive days; or
 
    (viii) the institution by the Company or any Significant Subsidiary of a
  voluntary case or proceeding under the Federal Bankruptcy Code or any other
  similar federal, state or foreign law or any other case or proceedings to
  be adjudicated a bankrupt or insolvent, or the consent by the Company or
  any Significant Subsidiary to the entry of a decree or order for relief in
  respect of the Company or any Significant Subsidiary in any involuntary
  case or proceeding under the Federal Bankruptcy Code or any other similar
  federal, state or foreign law or to the institution of bankruptcy or
  insolvency proceedings against the Company or any Significant Subsidiary,
  or the filing by the Company or any Significant Subsidiary of a petition or
  answer or consent seeking reorganization or relief under the Federal
  Bankruptcy Code or any other similar federal, state or foreign law, or the
  consent by it to the filing of any such petition or to the appointment of
  or taking possession by a custodian, receiver, liquidator, assignee,
  trustee or sequestrator (or other similar official) of any of the Company
  or any Significant Subsidiary or of any substantial part of its property,
  or the making by it of an assignment for the benefit of creditors, or the
  admission by it in writing of its inability to pay its debts generally as
  they become due or the taking of corporate action by the Company or any
  Significant Subsidiary in furtherance of any such action; or
 
    (ix) any of the Guarantees ceases to be in full force and effect or any
  of the Guarantees is declared to be null and void and unenforceable or any
  of the Guarantees is found to be invalid or any of the Guarantors denies
  its liability under its Guarantee (other than by reason of release of a
  Guarantor in accordance with the terms of the Indenture).
 
  If an Event of Default (other than those covered by clause (vii) or (viii)
above with respect to the Company) shall occur and be continuing, the Trustee,
by notice to the Company and the representative of the banks under the Credit
Facility, or the holders of at least 25% in aggregate principal amount of the
Notes then outstanding, by notice to the Trustee, the Company and the
representative of the banks under the Credit Facility, may declare the
principal of, premium, if any, and accrued and unpaid interest, if any, on all
of the outstanding Notes due and payable immediately, upon which declaration,
all amounts payable in respect of the Notes shall be due and payable as of the
date which is five business days after the giving of such notice to the
representative of the banks under the Credit Facility. If an Event of Default
specified in clause (vii) or (viii) above with respect to the Company occurs
and is continuing, then the principal of, premium, if any, and accrued and
unpaid interest, if any, on all the outstanding Notes shall ipso facto become
and be immediately due and payable without any declaration or other act on the
part of the Trustee or any holder of Notes.
 
  After a declaration of acceleration under the Indenture, but before a
judgment or decree for payment of the money due has been obtained by the
Trustee, the holders of a majority in aggregate principal amount of the
outstanding Notes, by written notice to the Company and the Trustee, may
rescind such declaration if (a) the Company has paid or deposited with the
Trustee a sum sufficient to pay (i) all sums paid or advanced by the Trustee
under the Indenture and the reasonable compensation, expenses, disbursements
and advances of the Trustee, its agents and counsel, (ii) all overdue interest
on all Notes, (iii) the principal of and premium, if any,
 
                                      81

 
on any Notes which have become due otherwise than by such declaration of
acceleration and interest thereon at the rate borne by the Notes, and (iv) to
the extent that payment of such interest is lawful, interest upon overdue
interest and overdue principal at the rate provided in the Notes which has
become due otherwise than by such declaration of acceleration; (b) the
rescission would not conflict with any judgment or decree of a court of
competent jurisdiction; and (c) all Events of Default, other than the non-
payment of principal of, premium, if any, and interest on the Notes that has
become due solely by such declaration of acceleration, have been cured or
waived.
 
  The holders of not less than a majority in aggregate principal amount of the
outstanding Notes may on behalf of the holders of all the Notes waive any past
defaults under the Indenture, except a default in the payment of the principal
of, premium, if any, or interest on any Note, or in respect of a covenant or
provision which under the Indenture cannot be modified or amended without the
consent of the holder of each Note outstanding.
 
  No holder of any of the Notes has any right to institute any proceeding with
respect to the Indenture or any remedy thereunder, unless the holders of at
least 25% in aggregate principal amount of the outstanding Notes have made
written request, and offered reasonable indemnity, to the Trustee to institute
such proceeding as Trustee under the Notes and the Indenture, the Trustee has
failed to institute such proceeding within 45 days after receipt of such
notice and the Trustee, within such 45-day period, has not received directions
inconsistent with such written request by holders of a majority in aggregate
principal amount of the outstanding Notes. Such limitations do not apply,
however, to a suit instituted by a holder of a Note for the enforcement of the
payment of the principal of, premium, if any, or interest on such Note on or
after the respective due dates expressed in such Note.
 
  During the existence of an Event of Default, the Trustee is required to
exercise such rights and powers vested in it under the Indenture and use the
same degree of care and skill in its exercise thereof as a prudent person
would exercise under the circumstances in the conduct of such person's own
affairs. Subject to the provisions of the Indenture relating to the duties of
the Trustee, whether or not an Event of Default shall occur and be continuing,
the Trustee under the Indenture is not under any obligation to exercise any of
its rights or powers under the Indenture at the request or direction of any of
the holders unless such holders shall have offered to the Trustee reasonable
security or indemnity. Subject to certain provisions concerning the rights of
the Trustee, the holders of a majority in aggregate principal amount of the
outstanding Notes have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Trustee, or
exercising any trust or power conferred on the Trustee under the Indenture.
 
  If a Default or an Event of Default occurs and is continuing and is known to
the Trustee, the Trustee shall mail to each holder of the Notes notice of the
Default or Event of Default within 30 days after obtaining
knowledge thereof. Except in the case of a Default or an Event of Default in
payment of principal of, premium, if any, or interest on any Notes, the
Trustee may withhold the notice to the holders of such Notes if a committee of
its trust officers in good faith determines that withholding the notice is in
the interest of the Noteholders.
 
  The Company is required to furnish to the Trustee annual and quarterly
statements as to the performance by the Company of its obligations under the
Indenture and as to any default in such performance. The Company is also
required to notify the Trustee within five days of any event which is, or
after notice or lapse of time or both would become, an Event of Default.
 
NO LIABILITY FOR CERTAIN PERSONS
 
  No director, officer, employee or stockholder of the Company, nor any
director, officer or employee of any Guarantor, as such, will have any
liability for any obligations of the Company or any Guarantor under the Notes,
the Guarantees or the Indenture based on or by reason of such obligations or
their creation. Each holder by accepting a Note waives and releases all such
liability. The foregoing waiver and release are an integral part of the
consideration for the issuance of the Notes. Such waiver may not be effective
to waive liabilities under the federal securities laws.
 
                                      82

 
DEFEASANCE OR COVENANT DEFEASANCE OF INDENTURE
 
  The Company may, at its option and at any time, terminate the obligations of
the Company with respect to the outstanding Notes ("defeasance") to the extent
set forth below. Such defeasance means that the Company shall be deemed to
have paid and discharged the entire Indebtedness represented by the
outstanding Notes, except for (i) the rights of holders of outstanding Notes
to receive payment in respect of the principal of, premium, if any, and
interest on such Notes when such payments are due, (ii) the Company's
obligations to issue temporary Notes, register the transfer or exchange of any
Notes, replace mutilated, destroyed, lost or stolen Notes and maintain an
office or agency for payments in respect of the Notes, (iii) the rights,
powers, trusts, duties and immunities of the Trustee, and (iv) the defeasance
provisions of the Indenture. In addition, the Company may, at its option and
at any time, elect to terminate the obligations of the Company with respect to
certain covenants that are set forth in the Indenture, some of which are
described under "--Certain Covenants" above, and any subsequent failure to
comply with such obligations shall not constitute a Default or an Event of
Default with respect to the Notes ("covenant defeasance").
 
  In order to exercise either defeasance or covenant defeasance, (i) the
Company must irrevocably deposit with the Trustee, in trust, for the benefit
of the holders of the Notes, cash in United States dollars, U.S. Government
Obligations (as defined in the Indenture), or a combination thereof, in such
amounts as will be sufficient, in the opinion of a nationally recognized firm
of independent public accountants, to pay the principal of, premium, if any,
and interest on the outstanding Notes to redemption or maturity (except lost,
stolen or destroyed Notes which have been replaced or paid); (ii) the Company
shall have delivered to the Trustee an opinion of counsel to the effect that
the holders of the outstanding Notes will not recognize income, gain or loss
for federal income tax purposes as a result of such defeasance or covenant
defeasance and will be subject to federal income tax on the same amounts, in
the same manner and at the same times as would have been the case if such
defeasance or covenant defeasance had not occurred (in the case of defeasance,
such opinion must refer to and be based upon a ruling of the Internal Revenue
Service or a change in applicable federal income tax laws); (iii) no Default
or Event of Default shall have occurred and be continuing on the date of such
deposit; (iv) such defeasance or covenant defeasance shall not cause the
Trustee to have a conflicting interest with respect to any securities of the
Company; (v) such defeasance or covenant defeasance shall not result in a
breach or violation of, or constitute a default under, any agreement or
instrument to which the Company is a party or by which it is bound; (vi) the
Company shall have delivered to the Trustee an opinion of counsel to the
effect that after the 91st day following the deposit, the trust funds will not
be subject to the effect of any applicable bankruptcy, insolvency,
reorganization or similar laws affecting creditors' rights generally; (vii)
the Company shall have delivered to the Trustee an officers' certificate
stating that the deposit was not made by the Company with the intent of
preferring the holders of the Notes over the other creditors of the Company
with the intent of hindering, delaying or defrauding creditors of the Company
or others; (viii) no event or condition shall exist that would prevent the
Company from making payments of the principal of, premium, if any, and
interest on the Notes on the date of such deposit or at any time ending on the
91st day after the date of such deposit; and (ix) the Company shall have
delivered to the Trustee an officers' certificate and an opinion of counsel,
each stating that all conditions precedent under the Indenture to either
defeasance or covenant defeasance, as the case may be, have been complied
with.
 
SATISFACTION AND DISCHARGE
 
  The Indenture will be discharged and will cease to be of further effect
(except as to surviving rights or registration of transfer or exchange of the
Notes, as expressly provided for in the Indenture) as to all outstanding Notes
when (i) either (a) all the Notes theretofore authenticated and delivered
(except lost, stolen or destroyed Notes which have been replaced or repaid and
Notes for whose payment money has theretofore been deposited in trust or
segregated and held in trust by the Company and thereafter repaid to the
Company or discharged from such trust) have been delivered to the Trustee for
cancellation or (b) all Notes not theretofore delivered to the Trustee for
cancellation (except lost, stolen or destroyed Notes which have been replaced
or paid) have become due and payable and the Company has irrevocably deposited
or caused to be deposited with the Trustee funds in an amount sufficient to
pay and discharge the entire Indebtedness on the Notes not theretofore
delivered to the
 
                                      83

 
Trustee for cancellation, for principal of, premium, if any, and interest on
the Notes to the date of deposit together with irrevocable instructions from
the Company directing the Trustee to apply such funds to the payment thereof
at maturity or redemption, as the case may be; (ii) the Company has paid all
other sums payable under the Indenture by the Company; and (iii) the Company
has delivered to the Trustee an officers' certificate and an opinion of
counsel stating that all conditions precedent under the Indenture relating to
the satisfaction and discharge of the Indenture have been complied with.
 
AMENDMENTS AND WAIVERS
 
  From time to time, the Company, when authorized by a resolution of its Board
of Directors, and the Trustee may, without the consent of the holders of any
outstanding Notes, amend, waive or supplement the Indenture or the Notes for
certain specified purposes, including, among other things, curing ambiguities,
defects or inconsistencies, qualifying, or maintaining the qualification of,
the Indenture under the Trust Indenture Act, or making any change that does
not adversely affect the rights of any holder of Notes. Other amendments and
modifications of the Indenture or the Notes may be made by the Company and the
Trustee with the consent of the holders of not less than a majority of the
aggregate principal amount of the outstanding Notes; provided, however, that
no such modification or amendment may, without the consent of the holder of
each outstanding Note affected thereby, (i) reduce the principal amount of,
extend the fixed maturity of or alter the redemption provisions of, the Notes,
(ii) change the currency in which any Notes or any premium or the interest
thereon is payable, (iii) reduce the percentage in principal amount of
outstanding Notes that must consent to an amendment, supplement or waiver or
consent to take any action under the Indenture or the Notes, (iv) impair the
right to institute suit for the enforcement of any payment on or with respect
to the Notes, (v) waive a default in payment with respect to the Notes, (vi)
amend, change or modify the obligation of the Company to make and consummate a
Change of Control Offer in the event of a Change of Control or make and
consummate the offer with respect to any Asset Sale or modify any of the
provisions or definitions with respect thereto, (vii) reduce or change the
rate or time for payment of interest on the Notes or (viii) to modify or
change any provision of the Indenture affecting the ranking of the Notes in a
manner adverse to the holders of the Notes.
 
THE TRUSTEE
 
  The Indenture provides that, except during the continuance of an Event of
Default, the Trustee thereunder will perform only such duties as are
specifically set forth in the Indenture. If an Event of Default has occurred
and is continuing, the Trustee will exercise such rights and powers vested in
it under the Indenture and use the same degree of care and skill in its
exercise as a prudent person would exercise under the circumstances in the
conduct of such person's own affairs.
 
  The Indenture and provisions of the Trust Indenture Act incorporated by
reference therein contain limitations on the rights of the Trustee thereunder,
should it become a creditor of the Company, to obtain payment of claims in
certain cases or to realize on certain property received by it in respect of
any such claims, as security or otherwise. The Trustee is permitted to engage
in other transactions; provided, however, that if it acquires any conflicting
interest (as defined in such Act) it must eliminate such conflict or resign.
 
GOVERNING LAW
 
  The Indenture and the Notes are governed by the laws of the State of New
York, without regard to the principles of conflicts of law.
 
CERTAIN DEFINITIONS
 
  "Acquired Indebtedness" means Indebtedness of a person (a) assumed in
connection with an Asset Acquisition from such person or (b) existing at the
time such person becomes a Subsidiary of any other person and not incurred in
connection with, or in contemplation of, such Asset Acquisition or such person
becoming a Subsidiary.
 
                                      84

 
  "Affiliate" means, with respect to any specified person, (i) any other
person directly or indirectly controlling or controlled by or under direct or
indirect common control with such specified person, (ii) any other person that
owns, directly or indirectly, 10% or more of such specified person's Capital
Stock, or (iii) any officer or director of (A) any such specified person, (B)
any Subsidiary of such specified person or (C) any person described in clauses
(i) or (ii) above.
 
  "Asset Acquisition" means (a) an Investment by the Company or any Restricted
Subsidiary of the Company in any other person pursuant to which such person
shall become a Restricted Subsidiary of the Company or any Restricted
Subsidiary of the Company, or shall be merged with or into the Company or any
Restricted Subsidiary of the Company, or (b) the acquisition by the Company or
any Restricted Subsidiary of the Company of the assets of any person which
constitute all or substantially all of the assets of such person, any division
or line of business of such person or any other properties or assets of such
person other than in the ordinary course of business.
 
  "Asset Sale" means any sale, issuance, conveyance, transfer, lease or other
disposition by the Company or any Restricted Subsidiary of the Company to any
person other than the Company or a Restricted Subsidiary of the Company, of
(a) any Capital Stock of any Restricted Subsidiary of the Company; (b) all or
substantially all of the properties and assets of any division or line of
business of the Company or any Restricted Subsidiary of the Company; or (c)
any other properties or assets of the Company or any Restricted Subsidiary of
the Company, other than (i) sales of obsolete, damaged or used equipment or
other equipment or inventory sales in the ordinary course of business, (ii)
sales of assets in one or a series of related transactions for an aggregate
consideration of less than $1 million, (iii) sales of Permitted Investments,
and (iv) sales of accounts receivable for financing purposes. For the purposes
of this definition, the term "Asset Sale" shall not include any sale,
issuance, conveyance, transfer, lease or other disposition of properties or
assets that is governed by the provisions described under "--Consolidation,
Merger, Sale of Assets, Etc."
 
  "Average Life to Stated Maturity" means, with respect to any Indebtedness,
as at any date of determination, the quotient obtained by dividing (i) the sum
of the products of (a) the number of years from such date to the date or dates
of each successive scheduled principal payment (including, without limitation,
any sinking fund requirements) of such Indebtedness and (b) the amount of each
such principal payment by (ii) the sum of all such principal payments.
 
  "Board of Directors" means the board of directors of a company or its
equivalent, including managers of a limited liability company, general
partners of a partnership or trustees of a business trust, or any duly
authorized committee thereof.
 
  "Capital Stock" means, with respect to any person, any and all shares,
interests, participations, rights in or other equivalents (however designated)
of such person's capital stock or equity participations, and any rights (other
than debt securities convertible into capital stock), warrants or options
exchangeable for or convertible into such capital stock and, including,
without limitation, with respect to partnerships, limited liability companies
or business trusts, ownership interests (whether general or limited) and any
other interest or participation that confers on a person the right to receive
a share of the profits and losses of, or distributions of assets of, such
partnerships, limited liability companies or business trusts.
 
  "Capitalized Lease Obligation" means any obligation under a lease of (or
other agreement conveying the right to use) any property (whether real,
personal or mixed) that is required to be classified and accounted for as a
capital lease obligation under GAAP, and, for the purpose of the Indenture,
the amount of such obligation at any date shall be the capitalized amount
thereof at such date, determined in accordance with GAAP.
 
  "Cash Equivalents" means, at any time, (i) any evidence of Indebtedness,
maturing not more than one year after such time, issued or guaranteed by the
United States Government or any agency thereof, (b) commercial paper, maturing
not more than one year from the date of issue, or corporate demand notes, in
each case rated at least A-1 by Standard & Poor's Ratings Group or P-1 by
Moody's Investors Service, Inc., (c) any certificate of
 
                                      85

 
deposit (or time deposits represented by such certificates of deposit) or
bankers' acceptance, maturing not more than one year after such time, or
overnight Federal Funds transactions that are issued or sold by a commercial
banking institution that is a member of the Federal Reserve System and has a
combined capital and surplus and undivided profits of not less than $500
million, (d) any repurchase agreement entered into with any commercial banking
institution of the stature referred to in clause (c) which (i) is secured by a
fully perfected security interest in any obligation of the type described in
any of clauses (a) through (c) and (ii) has a market value at the time such
repurchase agreement is entered into of not less than 100% of the repurchase
obligation of such commercial banking institution thereunder, (e) investments
in short term asset management accounts managed by any bank party to the
Credit Facility which are invested in indebtedness of any state or
municipality of the United States or of the District of Columbia and which are
rated under one of the two highest ratings then obtainable from Standard &
Poor's Ratings Group or by Moody's Investors Service, Inc. or investments of
the types described in clauses (a) through (d) above, and (f) investments in
funds investing primarily in investments of the types described in clauses (a)
through (e) above.
 
  "Change of Control" means the occurrence of any of the following events: (a)
any "person" or "group" (as such terms are used in Sections 13(d) and 14(d) of
the Exchange Act), excluding Permitted Holders, is or becomes the "beneficial
owner" (as defined in Rules 13d-3 and 13d-5 under the Exchange Act, except
that a person shall be deemed to have "beneficial ownership" of all securities
that such person has the right to acquire, whether such right is exercisable
immediately or only after the passage of time), directly or indirectly, of
more than 50% of the total Voting Stock of the Company; provided, however,
that a "Change of Control" shall not be deemed to have occurred under this
subclause (a) unless the Permitted Holders do not have the right or ability by
voting power, contract or otherwise to elect or designate for election a
majority of the Board of Directors of the Company; (b) the Company
consolidates with, or merges with or into, another person or sells, assigns,
conveys, transfers, leases or otherwise disposes of all or substantially all
of its assets to any person, or any person consolidates with, or merges with
or into, the Company, in any such event pursuant to a transaction in which the
outstanding Voting Stock of the Company is converted into or exchanged for
cash, securities or other property, other than any such transaction where (i)
the outstanding Voting Stock of the Company is converted into or exchanged for
Voting Stock (other than Redeemable Capital Stock) of the surviving or
transferee corporation and (ii) immediately after such transaction no "person"
or "group" (as such terms are used in Section 13(d) and 14(d) of the Exchange
Act), excluding Permitted Holders, is the "beneficial owner" (as defined in
Rules 13d-3 and 13d-5 under the Exchange Act, except that a person shall be
deemed to have "beneficial ownership" of all securities that such person has
the right to acquire, whether such right is exercisable immediately or only
after the passage of time), directly or indirectly, of more than 50% of the
total Voting Stock of the surviving or transferee corporation; (c) during any
consecutive two-year period, individuals who at the beginning of such period
constituted the Board of Directors of the Company (together with any new
directors whose election by such Board of Directors or whose nomination for
election by the stockholders of the Company was approved by a vote of 66-2/3%
of the directors then still in office who were either directors at the
beginning of such period or whose election or nomination for election was
previously so approved) cease for any reason to constitute a majority of the
Board of Directors of the Company then in office; or (d) the Company is
liquidated or dissolved or adopts a plan of liquidation; provided, however,
that a transaction effected to create a holding company of the Company,
pursuant to which the Company becomes a wholly-owned Subsidiary of such
holding company, and as a result of which the holders of Voting Stock of such
holding company upon consummation of such transaction are substantially the
same as the holders of the Voting Stock of the Company immediately prior to
such transaction, shall not be deemed to involve a "Change of Control."
 
  "Common Stock" means the common stock of the Company, par value $.01 per
share.
 
  "Consolidated Cash Flow Available for Fixed Charges" means, with respect to
any person for any period, (i) the sum of, without duplication, the amounts
for such period, taken as a single accounting period, of (a) Consolidated Net
Income, (b) Consolidated Non-cash Charges, (c) Consolidated Interest Expense,
(d) Consolidated Income Tax Expense (other than income tax expense (either
positive or negative) attributable to extraordinary gains or losses), (e) one-
third of Consolidated Rental Payments and (f) if any Asset Sale or Asset
 
                                      86

 
Acquisition shall have occurred since the first day of any four quarter period
for which "Consolidated Cash Flow Available for Fixed Charges" is being
calculated (including to the date of calculation) (A) the cost of any
compensation, remuneration or other benefit paid or provided to any employee,
consultant, Affiliate or equity owner of the entity involved in any such Asset
Acquisition to the extent such costs are eliminated or reduced (or public
announcement has been made of the intent to eliminate or reduce such costs)
prior to the date of such
calculation and not replaced and (B) the amount of any reduction in general,
administrative or overhead costs of the entity involved in any such Asset
Acquisition, to the extent such amounts under clauses (A) and (B) would be
permitted to be eliminated in a pro forma income statement prepared in
accordance with Rule 11-02 of Regulation S-X, less (ii)(x) non-cash items
increasing Consolidated Net Income and (y) all cash payments during such
period relating to non-cash charges that were added back in determining
Consolidated Cash Flow Available for Fixed Charges in the most recent Four
Quarter Period.
 
  "Consolidated Fixed Charge Coverage Ratio" means, with respect to any
person, the ratio of the aggregate amount of Consolidated Cash Flow Available
for Fixed Charges of such person for the four full fiscal quarters, treated as
one period, for which financial information in respect thereof is available
immediately preceding the date of the transaction (the "Transaction Date")
giving rise to the need to calculate the Consolidated Fixed Charge Coverage
Ratio (such four full fiscal quarter period being referred to herein as the
"Four Quarter Period") to the aggregate amount of Consolidated Fixed Charges
of such person for the Four Quarter Period. In calculating "Consolidated Fixed
Charges" for purposes of determining the denominator (but not the numerator)
of this "Consolidated Fixed Charge Coverage Ratio," (i) interest on
outstanding Indebtedness determined on a fluctuating basis as of the
Transaction Date and which will continue to be so determined thereafter shall
be deemed to have accrued at a fixed rate per annum equal to the rate of
interest on such Indebtedness in effect on the Transaction Date; and (ii) if
interest on any Indebtedness actually incurred on the Transaction Date may
optionally be determined at an interest rate based upon a factor of a prime or
similar rate, a eurocurrency interbank offered rate, or other rates, then the
interest rate in effect on the Transaction Date will be deemed to have been in
effect during the Four Quarter Period. If such person or any of its Restricted
Subsidiaries directly or indirectly guarantees Indebtedness of a third person,
the above clause shall give effect to the incurrence of such guaranteed
Indebtedness as if such person or such Subsidiary had directly incurred or
otherwise assumed such guaranteed Indebtedness.
 
  "Consolidated Fixed Charges" means, with respect to any person for any
period, the sum of, without duplication, the amounts for such period of (i)
Consolidated Interest Expense, (ii) the aggregate amount of dividends and
other distributions paid or accrued during such period in respect of
Redeemable Capital Stock of such person and its Restricted Subsidiaries on a
consolidated basis and (iii) one-third of Consolidated Rental Payments.
 
  "Consolidated Income Tax Expense" means, with respect to any person for any
period, the provision for federal, state, local and foreign income taxes of
such person and its Restricted Subsidiaries for such period as determined on a
consolidated basis in accordance with GAAP.
 
  "Consolidated Interest Expense" means, with respect to any person for any
period, without duplication, the sum of (i) the interest expense of such
person and its Restricted Subsidiaries for such period as determined on a
consolidated basis in accordance with GAAP, including, without limitation, (a)
any amortization of debt discount, (b) the net cost under Interest Rate
Protection Obligations (including any amortization of discounts), (c) the
interest portion of any deferred payment obligation, (d) all commissions,
discounts and other fees and charges owed with respect to letters of credit,
bankers' acceptance financing or similar facilities and (e) all accrued
interest and (ii) the interest component of Capitalized Lease Obligations
paid, accrued and/or scheduled to be paid or accrued by such person and its
Restricted Subsidiaries during such period as determined on a consolidated
basis in accordance with GAAP.
 
  "Consolidated Net Income" means, with respect to any person, for any period,
the consolidated net income (or loss) of such person and its Restricted
Subsidiaries for such period as determined in accordance with GAAP, adjusted,
to the extent included in calculating such net income, by excluding, without
duplication, (i) all
 
                                      87

 
extraordinary gains or losses (net of fees and expenses relating to the
transaction giving rise thereto), (ii) the portion of net income of such
person and its Restricted Subsidiaries allocable to minority interests in
unconsolidated persons or to Investments in Unrestricted Subsidiaries to the
extent that cash dividends or distributions have not actually been received by
such person or one of its Restricted Subsidiaries, (iii) net income (or loss)
of any person combined with such person or one of its Restricted Subsidiaries
on a "pooling of interests" basis attributable to any period prior to the date
of combination, (iv) gains or losses in respect of any Asset Sales by such
person or one of its Restricted Subsidiaries (net of fees and expenses
relating to the transaction giving rise thereto), on an after-tax basis, (v)
the net income of any Restricted Subsidiary of such person to the extent that
the declaration of dividends or similar distributions by that Restricted
Subsidiary of that income is not at the time permitted, directly or
indirectly, by operation of the terms of its charter or any agreement,
instrument, judgment, decree, order, statute, rule or governmental regulations
applicable to that Restricted Subsidiary or its stockholders and (vi) any gain
or loss realized as a result of the cumulative effect of a change in
accounting principles.
 
  "Consolidated Non-cash Charges" means, with respect to any person for any
period, the aggregate depreciation, amortization (including amortization of
goodwill and other intangibles) and other non-cash expenses of such person and
its Restricted Subsidiaries reducing Consolidated Net Income of such person
and its Restricted Subsidiaries for such period, determined on a consolidated
basis in accordance with GAAP (excluding any such charges constituting an
extraordinary item or loss).
 
  "Consolidated Rental Payments" of any person means, for any period, the
aggregate rental obligations of such person and its Restricted Subsidiaries
(not including taxes, insurance, maintenance and similar expenses that the
lessee is obligated to pay under the terms of the relevant leases), determined
on a consolidated basis in accordance with GAAP, payable in respect of such
period (net of income from subleases thereof, not including taxes, insurance,
maintenance and similar expenses that the sublessee is obligated to pay under
the terms of such sublease), whether or not such obligations are reflected as
liabilities or commitments on a consolidated balance sheet of such person and
its Restricted Subsidiaries or in the notes thereto, excluding, however, in
any event, (i) that portion of Consolidated Interest Expense of such person
representing payments by such person or any of its Restricted Subsidiaries in
respect of Capitalized Lease Obligations (net of payments to such person or
any of its Restricted Subsidiaries under subleases qualifying as capitalized
lease subleases to the extent that such payments would be deducted in
determining Consolidated Interest Expense) and (ii) the aggregate amount of
amortization of obligations of such person and its Restricted Subsidiaries in
respect of such Capitalized Lease Obligations for such period (net of payments
to such person or any of its Restricted Subsidiaries and subleases qualifying
as capitalized lease subleases to the extent that such payments could be
deducted in determining such amortization amount).
 
  "control" when used with respect to any specified person means the power to
direct the management and policies of such person, directly or indirectly,
whether through ownership of voting securities, by contract or otherwise; and
the terms "controlling" and "controlled" have meanings correlative to the
foregoing.
 
  "Credit Facility" means the Third Amended and Restated Credit Agreement
dated as of May 12, 1998 among the Company, United Rentals of Canada, Inc.,
various financial institutions, BankBoston, N.A., Comerica Bank, Credit
Lyonnais New York Branch, Deutsche Bank AG and Fleet Bank N.A., as Co-Agents,
Bank of America Canada, as Canadian Agent, and Bank of America National Trust
and Savings Association, as U.S. Agent, including any notes, guarantees,
collateral documents, instruments and agreements executed in connection
therewith, and in each case as amended (including any amendment and
restatement thereof), modified, renewed, refunded, replaced or refinanced from
time to time, including any agreement extending the maturity of, refinancing,
replacing or otherwise restructuring (including increasing the amount of
available borrowings thereunder or adding Subsidiaries of the Company as
additional borrowers or guarantors thereunder) all or any portion of the
Indebtedness under such agreement or any successor or replacement agreement
and whether by the same or any other agents, lender or group of lenders.
 
  "Default" means any event that is, or after notice or passage of time or
both would be, an Event of Default.
 
                                      88

 
  "Disinterested Member of the Board of Directors of the Company" means, with
respect to any transaction or series of transactions, a member of the Board of
Directors of the Company other than a member who has any material direct or
indirect financial interest in or with respect to such transaction or series
of transactions or is an Affiliate, or an officer, director or an employee of
any person (other than the Company) who has any direct or indirect financial
interest in or with respect to such transaction or series of transactions.
 
  "Event of Default" has the meaning set forth under "--Events of Default"
herein.
 
  "Exchange Act" means the Securities Exchange Act of 1934, as amended.
 
  "Fair Market Value" means, with respect to any asset, the price which could
be negotiated in an arm's- length free market transaction, for cash, between a
willing seller and a willing buyer, neither of which is under pressure or
compulsion to complete the transaction. Fair Market Value shall be determined
by the Board of Directors of the Company in good faith.
 
  "GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as may be approved by a significant segment of the accounting
profession of the United States of America, which are applicable at the date
of the Indenture.
 
  "guarantee" means, as applied to any obligation, (i) a guarantee (other than
by endorsement of negotiable instruments for collection in the ordinary course
of business), direct or indirect, in any manner, of any part or all of such
obligation and (ii) an agreement, direct or indirect, contingent or otherwise,
the practical effect of which is to assure in any way the payment or
performance (or payment of damages in the event of nonperformance) of all or
any part of such obligation, including, without limiting the foregoing, the
payment of amounts available to be drawn down under letters of credit of
another person.
 
  "Indebtedness" means, with respect to any person, without duplication, (a)
all liabilities of such person for borrowed money or for the deferred purchase
price of property or services, excluding any trade payables and other accrued
current liabilities incurred in the ordinary course of business, but
including, without limitation, all obligations, contingent or otherwise, of
such person in connection with any letters of credit, banker's acceptance or
other similar credit transaction, (b) all obligations of such person evidenced
by bonds, notes, debentures or other similar instruments, (c) all indebtedness
created or arising under any conditional sale or other title retention
agreement with respect to property acquired by such person (even if the rights
and remedies of the seller or lender under such agreement in the event of
default are limited to repossession or sale of such property), but excluding
trade accounts payable arising in the ordinary course of business, (d) all
Capitalized Lease Obligations of such person, (e) all Indebtedness referred to
in the preceding clauses of other persons and all dividends of other persons,
the payment of which is secured by (or for which the holder of such
Indebtedness has an existing right, contingent or otherwise, to be secured by)
any Lien upon property (including, without limitation, accounts and contract
rights) owned by such person, even though such person has not assumed or
become liable for the payment of such Indebtedness (the amount of such
obligation being deemed to be the lesser of the value of such property or
asset or the amount of the obligation so secured), (f) all guarantees of
Indebtedness referred to in this definition by such person, (g) all Redeemable
Capital Stock of such person valued at the greater of its voluntary or
involuntary maximum fixed repurchase price plus accrued dividends, (h) all
obligations under or in respect of Interest Rate Protection Obligations of
such person, and (i) any amendment, supplement, modification, deferral,
renewal, extension, refinancing or refunding of any liability of the types
referred to in clauses (a) through (h) above; provided, however, that
Indebtedness shall not include (i) any holdback or escrow of the purchase
price of property, services, businesses or assets or (ii) any contingent
payment obligations incurred in connection with the acquisition of assets or
businesses, which are contingent on the performance of the assets or
businesses so acquired. For purposes hereof, the "maximum fixed repurchase
price" of any Redeemable Capital Stock which does not have a fixed repurchase
price shall be calculated in accordance with the terms of such Redeemable
Capital Stock as if such Redeemable Capital Stock were purchased on any date
on which Indebtedness shall be
 
                                      89

 
required to be determined pursuant to the Indenture, and if such price is
based upon, or measured by, the fair market value of such Redeemable Capital
Stock, such fair market value shall be approved in good faith by the board of
directors of the issuer of such Redeemable Capital Stock. In the case of
Indebtedness of other persons, the payment of which is secured by a Lien on
property owned by a person as referred to in clause (e) above, the amount of
the Indebtedness of such person attributable to such Lien at any date shall be
the lesser of the Fair Market Value at such date of any asset subject to such
Lien and the amount of the Indebtedness secured.
 
  "Interest Rate Protection Agreement" means, with respect to any person, any
arrangement with any other person whereby, directly or indirectly, such person
is entitled to receive from time to time periodic payments calculated by
applying either a floating or a fixed rate of interest on a stated notional
amount in exchange for periodic payments made by such person calculated by
applying a fixed or a floating rate of interest on the same notional amount
and shall include without limitation, interest rate swaps, caps, floors,
collars and similar agreements.
 
  "Interest Rate Protection Obligations" means the obligations of any person
pursuant to any Interest Rate Protection Agreements.
 
  "Investment" means, with respect to any person, any direct or indirect loan
or other extension of credit (including, without limitation, a guarantee) or
capital contribution to (by means of any transfer of cash or other property to
others or any payment for property or services for the account or use of
others), or any purchase or acquisition by such person of any Capital Stock,
bonds, notes, debentures or other securities or evidences of Indebtedness
issued by, any other person.
 
  "Lien" means any mortgage, charge, pledge, lien (statutory or other),
security interest, hypothecation, assignment for security, claim, or
preference or priority or other encumbrance upon or with respect to any
property of any kind. A person shall be deemed to own subject to a Lien any
property which such person has acquired or holds subject to the interest of a
vendor or lessor under any conditional sale agreement, capital lease or other
title retention agreement.
 
  "Maturity Date" means June 1, 2008.
 
  "Net Cash Proceeds" means, with respect to any Asset Sale, the proceeds
thereof in the form of cash or Cash Equivalents including payments in respect
of deferred payment obligations when received in the form of cash or Cash
Equivalents (except to the extent that such obligations are financed or sold
with recourse to the Company or any Restricted Subsidiary of the Company) net
of (i) brokerage commissions and other fees and expenses (including, without
limitation, fees and expenses of legal counsel and investment bankers,
recording fees, transfer fees and appraisers' fees) related to such Asset
Sale, (ii) provisions for all taxes payable as a result of such Asset Sale,
(iii) amounts required to be paid to any person (other than the Company or any
Restricted Subsidiary of the Company) owning a beneficial interest in the
assets subject to the Asset Sale (iv) payments made to retire Indebtedness
where payment of such Indebtedness is secured by the assets or properties the
subject of such Asset Sale, and (v) appropriate amounts to be provided by the
Company or any Restricted Subsidiary of the Company, as the case may be, as a
reserve required in accordance with GAAP against any liabilities associated
with such Asset Sale and retained by the Company or any Restricted Subsidiary
of the Company, as the case may be, after such Asset Sale, including, without
limitation, pension and other post-employment benefit liabilities, liabilities
related to environmental matters and liabilities under any indemnification
obligations associated with such Asset Sale, all as reflected in an officers'
certificate delivered to the Trustee.
 
  "Permitted Holder" means Bradley S. Jacobs, John N. Milne, Michael J. Nolan
and their respective Affiliates, and trusts established for the benefit of a
Permitted Holder or members of his immediate family.
 
  "Permitted Indebtedness" means, without duplication:
 
    (a) Indebtedness of the Company and the Guarantors evidenced by up to
  $200 million principal amount of the Notes and the Guarantees;
 
                                      90

 
    (b) Indebtedness of the Company and Restricted Subsidiaries under the
  Credit Facility in an aggregate principal amount at any one time
  outstanding not to exceed the greater of (i) $450 million or (ii) 100% of
  Tangible Assets, less, in either case, any amounts permanently repaid in
  accordance with the covenant described under "--Certain Covenants--
  Disposition of Proceeds of Asset Sales";
 
    (c) Indebtedness of the Company or any Restricted Subsidiary outstanding
  on the Issue Date;
 
    (d) Indebtedness of the Company or any Restricted Subsidiary of the
  Company incurred in respect of performance bonds, bankers' acceptances and
  letters of credit in the ordinary course of business, including
  Indebtedness evidenced by letters of credit issued in the ordinary course
  of business consistent with past practice to support the insurance or self-
  insurance obligations of the Company or any of its Restricted Subsidiaries
  (including to secure workers' compensation and other similar insurance
  coverages), in the aggregate amount not to exceed $10 million at any time;
  but excluding letters of credit issued in respect of or to secure money
  borrowed;
 
    (e) (i) Interest Rate Protection Obligations of the Company covering
  Indebtedness of the Company and (ii) Interest Rate Protection Obligations
  of any Restricted Subsidiary covering Permitted Indebtedness of such
  Restricted Subsidiary provided that, in the case of either clause (i) or
  (ii), (x) any Indebtedness to which any such Interest Rate Protection
  Obligations correspond bears interest at fluctuating interest rates and is
  otherwise permitted to be incurred under the "Limitation on Indebtedness"
  covenant and (y) the notional principal amount of any such Interest Rate
  Protection Obligations that exceeds the principal amount of the
  Indebtedness to which such Interest Rate Protection Obligations relate
  shall not constitute Permitted Indebtedness;
 
    (f) Indebtedness of a Restricted Subsidiary owed to and held by the
  Company or another Restricted Subsidiary, except that (i) any transfer of
  such Indebtedness by the Company or a Restricted Subsidiary (other than to
  the Company or another Restricted Subsidiary) and (ii) the sale, transfer
  or other disposition by the Company or any Restricted Subsidiary of the
  Company of Capital Stock of a Restricted Subsidiary (other than to the
  Company or a Restricted Subsidiary) which is owed Indebtedness of another
  Restricted Subsidiary shall, in each case, be an incurrence of Indebtedness
  by such Restricted Subsidiary subject to the other provisions of the
  Indenture;
 
    (g) Indebtedness of the Company owed to and held by a Restricted
  Subsidiary which is unsecured and subordinated in right of payment to the
  payment and performance of the obligations of the Company under the
  Indenture and the Notes, except that (i) any transfer of such Indebtedness
  by the Company or a Restricted Subsidiary (other than to another Restricted
  Subsidiary) and (ii) the sale, transfer or other disposition by the Company
  or any Restricted Subsidiary of the Company (other than to the Company or a
  Restricted Subsidiary) of Capital Stock of a Restricted Subsidiary which is
  owed Indebtedness of the Company shall, in each case, be an incurrence of
  Indebtedness by the Company, subject to the other provisions of the
  Indenture;
 
    (h) Indebtedness arising from the honoring by a bank or other financial
  institution of a check, draft or similar instrument inadvertently (except
  in the case of daylight overdrafts) drawn against insufficient funds in the
  ordinary course of business; provided, however, that such Indebtedness is
  extinguished within five business days of incurrence;
 
    (i) Indebtedness of the Company or any Restricted Subsidiary under
  equipment purchase or lines of credit or for Capitalized Lease Obligations
  not to exceed $25 million in aggregate principal amount outstanding at any
  time;
 
    (j) Indebtedness of the Company or any Restricted Subsidiary, in addition
  to that described in clauses (a) through (i) of this definition, in an
  aggregate principal amount outstanding at any time not to exceed $15
  million;
 
    (k) (i) Indebtedness of the Company the proceeds of which are used solely
  to refinance (whether by amendment, renewal, extension or refunding)
  Indebtedness of the Company or any of its Restricted Subsidiaries and (ii)
  Indebtedness of any Restricted Subsidiary of the Company the proceeds of
  which are
 
                                      91

 
  used solely to refinance (whether by amendment, renewal, extension or
  refunding) Indebtedness of such Restricted Subsidiary, provided, however,
  that (x) the principal amount of Indebtedness incurred pursuant to this
  clause (k) (or, if such Indebtedness provides for an amount less than the
  principal amount thereof to be due and payable upon a declaration of
  acceleration of the maturity thereof, the original issue price of such
  Indebtedness) shall not exceed the sum of principal amount of Indebtedness
  so refinanced, plus the amount of any premium required to be paid in
  connection with such refinancing pursuant to the terms of such Indebtedness
  or the amount of any premium reasonably determined by the Company as
  necessary to accomplish such refinancing by means of a tender offer or
  privately negotiated purchase, plus the amount of expenses in connection
  therewith, and (y) in the case of Indebtedness incurred by the Company
  pursuant to this clause (k) to refinance Subordinated Indebtedness, such
  Indebtedness (A) has no scheduled principal payment prior to the 91st day
  after the Maturity Date, (B) has an Average Life to Stated Maturity greater
  than the remaining Average Life to Stated Maturity of the Notes and (C) is
  subordinated to the Notes in the same manner and to the same extent that
  the Subordinated Indebtedness being refinanced is subordinated to the
  Notes;
 
    (l) Indebtedness arising from agreements of the Company or any Restricted
  Subsidiary providing for indemnification, adjustment or holdback of
  purchase price or similar obligations, in each case, incurred or assumed in
  connection with the acquisition or disposition of any business, assets or a
  Subsidiary, other than guarantees of Indebtedness incurred by any person
  acquiring all or any portion of such business, assets or Subsidiary for the
  purpose of financing such acquisition; and
 
    (m) Guarantees by the Company or a Restricted Subsidiary of Indebtedness
  that was permitted to be incurred under the Indenture.
 
  "Permitted Investments" means any of the following: (i) Investments in the
Company or in a Restricted Subsidiary; (ii) Investments in another person, if
as a result of such Investment (A) such other person becomes a Restricted
Subsidiary or (B) such other person is merged or consolidated with or into, or
transfers or conveys all or substantially all of its assets to the Company or
a Restricted Subsidiary; (iii) Investments representing Capital Stock or
obligations issued to the Company or any of its Restricted Subsidiaries in
settlement of claims against any other person by reason of a composition or
readjustment of debt or a reorganization of any debtor of the Company or such
Restricted Subsidiary; (iv) Investments in Interest Rate Protection Agreements
on commercially reasonable terms entered into by the Company or any of its
Subsidiaries in the ordinary course of business in connection with the
operations of the business of the Company or its Restricted Subsidiaries to
hedge against fluctuations in interest rates on its outstanding Indebtedness;
(v) Investments in the Notes; (vi) Investments in Cash Equivalents; (vii)
Investments acquired by the Company or any Restricted Subsidiary in connection
with an Asset Sale permitted under "--Certain Covenants--Disposition of
Proceeds of Asset Sales" to the extent such Investments are non-cash proceeds
as permitted under such covenant; (viii) advances to employees or officers of
the Company in the ordinary course of business; (ix) any Investment to the
extent that the consideration therefor is Capital Stock (other than Redeemable
Capital Stock) of the Company and (x) other Investments not to exceed $5
million at any time outstanding.
 
  "Permitted Liens" means the following types of Liens:
 
    (a) any Lien existing as of the date of the Indenture;
 
    (b) Liens securing Indebtedness under the Credit Facility in accordance
  with the provisions thereof in effect on the date of the Indenture;
 
    (c) any Lien securing Acquired Indebtedness created prior to (and not
  created in connection with, or in contemplation of) the incurrence of such
  Indebtedness by the Company or any Restricted Subsidiary, if such Lien does
  not attach to any property or assets of the Company or any Restricted
  Subsidiary other than the property or assets subject to the Lien prior to
  such incurrence;
 
    (d) Liens in favor of the Company or a Restricted Subsidiary;
 
    (e) Liens on and pledges of the Capital Stock of any Unrestricted
  Subsidiary securing any Indebtedness of such Unrestricted Subsidiary;
 
                                      92

 
    (f) Liens for taxes, assessments or governmental charges or claims either
  (i) not delinquent or (ii) contested in good faith by appropriate
  proceedings and as to which the Company or its Restricted Subsidiaries
  shall have set aside on its books such reserves as may be required pursuant
  to GAAP;
 
    (g) statutory Liens of landlords and Liens of carriers, warehousemen,
  mechanics, suppliers, materialmen, repairmen and other Liens imposed by law
  incurred in the ordinary course of business for sums not yet delinquent or
  being contested in good faith, if such reserve or other appropriate
  provision, if any, as shall be required by GAAP shall have been made in
  respect thereof;
 
    (h) Liens incurred or deposits made in the ordinary course of business in
  connection with workers' compensation, unemployment insurance and other
  types of social security, or to secure the performance of tenders,
  statutory obligations, surety and appeal bonds, bids, leases, government
  contracts, performance and return-of-money bonds and other similar
  obligations (exclusive of obligations for the payment of borrowed money);
 
    (i) judgment Liens not giving rise to an Event of Default so long as such
  Lien is adequately bonded and any appropriate legal proceedings which may
  have been duly initiated for the review of such judgment shall not have
  been finally terminated or the period within which such proceedings may be
  initiated shall not have expired;
 
    (j) easements, rights-of-way, zoning restrictions and other similar
  charges or encumbrances in respect of real property not interfering in any
  material respect with the ordinary conduct of the business of the Company
  or any of its Restricted Subsidiaries;
 
    (k) any interest or title of a lessor under any Capitalized Lease
  Obligation or operating lease;
 
    (l) purchase money Liens to finance property or assets of the Company or
  any Restricted Subsidiary of the Company acquired in the ordinary course of
  business; provided, however, that (i) the related purchase money
  Indebtedness shall not be secured by any property or assets of the Company
  or any Subsidiary of the Company other than the property and assets so
  acquired and (ii) the Lien securing such Indebtedness shall be created
  within 90 days of such acquisition;
 
    (m) Liens securing reimbursement obligations with respect to commercial
  letters of credit which encumber documents and other property relating to
  such letters of credit and products and proceeds thereof;
 
    (n) Liens securing refinancing Indebtedness permitted under clause (k) of
  the definition of "Permitted Indebtedness," provided such Liens do not
  exceed the Liens replaced in connection with such refinanced Indebtedness;
 
    (o) Liens incurred in the ordinary course of business by the Company or
  any Restricted Subsidiary with respect to obligations that do not exceed $5
  million at any time outstanding;
 
    (p) Liens encumbering deposits made to secure obligations arising from
  statutory, regulatory, contractual, or warranty requirements of the Company
  or any of its Restricted Subsidiaries, including rights of offset and set-
  off; and
 
    (q) Liens securing Interest Rate Protection Obligations which Interest
  Rate Protection Obligations relate to Indebtedness that is secured by Liens
  otherwise permitted under this Indenture.
 
  "person" means any individual, corporation, partnership, limited liability
company, joint venture, association, joint-stock company, trust,
unincorporated organization or government or any agency or political
subdivision thereof.
 
  "Preferred Stock," as applied to any person, means Capital Stock of any
class or classes (however designated) which is preferred as to the payment of
dividends or distributions, or as to the distribution of assets upon any
voluntary or involuntary liquidation or dissolution of such person, over
shares of Capital Stock of any other class of such person.
 
                                      93

 
  "Redeemable Capital Stock" means any class or series of Capital Stock that,
either by its terms, by the terms of any security into which it is convertible
or exchangeable or by contract or otherwise, is or upon the happening of an
event or passage of time would be, required to be redeemed prior to the
Maturity Date or is redeemable at the option of the holder thereof at any time
prior to the Maturity Date, or is convertible into or exchangeable for debt
securities at any time prior to the Maturity Date; provided that Capital Stock
will not constitute Redeemable Capital Stock solely because the holders
thereof have the right to require the Company to repurchase or redeem such
Capital Stock upon the occurrence of a Change of Control or an Asset Sale.
 
  "Restricted Subsidiary" means any Subsidiary of the Company that is not an
Unrestricted Subsidiary.
 
  "Significant Subsidiary" of any person, as of any date of determination,
means a Restricted Subsidiary of such person which would be a significant
subsidiary of such person as determined in accordance with the definition in
Rule 1-02(w) of Article 1 of Regulation S-X promulgated by the Commission and
as in effect on the date of the Indenture.
 
  "Stated Maturity" means, when used with respect to any Note or any
installment of interest thereon, the date specified in such Note as the fixed
date on which the principal of such Note or such installment of interest is
due and payable, and when used with respect to any other Indebtedness, means
the date specified in the instrument governing such Indebtedness as the fixed
date on which the principal of such Indebtedness, or any installment of
interest thereon, is due and payable.
 
  "Subordinated Indebtedness" means, with respect to the Company, Indebtedness
of the Company which is expressly subordinated in right of payment to the
Notes.
 
  "Subsidiary" means, with respect to any person, (i) a corporation a majority
of whose Voting Stock is at the time, directly or indirectly, owned by such
person, by one or more Subsidiaries of such person or by such person and one
or more Subsidiaries thereof and (ii) any other person (other than a
corporation), including, without limitation, a partnership, limited liability
company, business trust or joint venture, in which such person, one or more
Subsidiaries thereof or such person and one or more Subsidiaries thereof,
directly or indirectly, at the date of determination thereof, has at least
majority ownership interest entitled to vote in the election of directors,
managers or trustees thereof (or other person performing similar functions).
For purposes of this definition, any directors' qualifying shares or
investments by foreign nationals mandated by applicable law shall be
disregarded in determining the ownership of a Subsidiary.
 
  "Tangible Assets" means all assets of the Company and its Subsidiaries,
excluding all Intangible Assets. For purposes of the foregoing, "Intangible
Assets" means goodwill, patents, trade names, trade marks, copyrights,
franchises, organization expenses and any other assets properly classified as
intangible assets in accordance with GAAP.
 
  "Unrestricted Subsidiary" means each Subsidiary of the Company designated as
such pursuant to and in compliance with the covenant described under "--
Certain Covenants--Limitation on Designations of Unrestricted Subsidiaries."
 
  "Voting Stock" means any class or classes of Capital Stock pursuant to which
the holders thereof have the general voting power under ordinary circumstances
to elect at least a majority of the board of directors, managers or trustees
of any person (irrespective of whether or not, at the time, stock of any other
class or classes shall have, or might have, voting power by reason of the
happening of any contingency).
 
  "Wholly-Owned Restricted Subsidiary" means any Restricted Subsidiary of the
Company of which 100% of the outstanding Capital Stock is owned by the Company
or another Wholly-Owned Restricted Subsidiary of the Company. For purposes of
this definition, any directors' qualifying shares or investments by foreign
nationals mandated by applicable law shall be disregarded in determining the
ownership of a Subsidiary.
 
 
                                      94

 
BOOK-ENTRY; DELIVERY AND FORM
 
  The Original Notes are represented by two permanent, global notes (the
"Original Global Securities"), in definitive, fully registered book-entry
form, and the Exchange Notes will be represented by a single, permanent global
note (the "Exchange Global Security"), in definitive, fully registered book-
entry form. The Original Global Securities are, and the Exchange Global
Security will be, registered in the name of a nominee of DTC. Pursuant to
procedures established by DTC, interests in the Original Global Securities and
the Exchange Global Security (collectively, the "Global Securities") will be
shown on, and the transfer of such interest will be effected only through,
records maintained by DTC or its nominee (with respect to interest of
Participants) and the records of Participants (with respect to interests of
persons other than Participants).
 
  So long as DTC or its nominee is the registered owner or holder of the
Global Securities, DTC or such nominee will be considered the sole owner or
holder of the Notes represented by the Global Securities for all purposes
under the Indenture and under the Notes represented thereby. No beneficial
owner of an interest in the Global Securities will be able to transfer such
interest except in accordance with the applicable procedures of DTC in
addition to those provided for under the Indenture. The laws of some states
require that certain persons take physical delivery in definitive form of
securities that they own. Consequently, the ability to transfer beneficial
interests in a Global Security to such persons will be limited to that extent.
Because DTC can act only on behalf of Participants, which in turn act on
behalf of Indirect Participants (as defined herein), the ability of a person
having beneficial interests in a Global Security to pledge such interests to
persons or entities that do not participate in the DTC system, or otherwise
take actions in respect of such interests, may be affected by the lack of a
physical certificate evidencing such interests.
 
  Payments of the principal of, premium, if any, and interest on the Notes
represented by the Global Securities will be made to DTC or its nominee, as
the case may be, as the registered owner thereof. None of the Company, the
Trustee or any paying agent under the Indenture will have any responsibility
or liability for any aspect of the records relating to or payments made on
account of beneficial ownership interests in the Global Securities or for
maintaining, supervising or reviewing any records relating to such beneficial
ownership interest.
 
  The Company expects that DTC or its nominee, upon receipt of any payment of
the principal of, premium, if any, and interest on the Notes represented by
the Global Securities, will credit Participants' accounts with payments in
amounts proportionate to their respective beneficial interests in the Global
Securities as shown in the records of DTC or its nominee. The Company also
expects that payments by Participants to owners of beneficial interests in the
Global Securities held through such Participants will be governed by standing
instructions and customary practice as is now the case with securities held
for the accounts of customers registered in the names of nominees for such
customers. Such payment will be the responsibility of such Participants.
 
  DTC has advised the Company that DTC will take any action permitted to be
taken by a Holder of Notes (including the presentation of Notes for exchange
as described below) only at the direction of one or more Participants to whose
account the interests in the Global Securities are credited and only in
respect of the aggregate principal amount as to which such Participant or
Participants has or have given such direction.
 
  DTC has advised the Company as follows: DTC is a limited purpose trust
company organized under the laws of the State of New York, a member of the
Federal Reserve System, a "clearing corporation" within the meaning of the
Uniform Commercial Code and a "clearing agency" registered pursuant to the
provisions of Section 17A of the Exchange Act. DTC was created to hold
securities for its Participants and facilitate the clearance and settlement of
securities transactions between Participants through electronic book-entry
changes in accounts of its Participants, thereby eliminating the need for
physical movement of certificates. Participants include securities brokers and
dealers, banks, trust companies and clearing corporations and certain other
organizations. Indirect access to the DTC system is available to others such
as banks, brokers, dealers and trust companies that clear through or maintain
a custodial relationship with a Participant, either directly or indirectly
("Indirect Participants").
 
 
                                      95

 
  Although DTC is expected to follow the foregoing procedures in order to
facilitate transfers of interests in the Global Securities among Participants
of DTC, it is under no obligation to perform such procedures, and such
procedures may be discontinued at any time. Neither the Company nor the
Trustee will have any responsibility for the performance by DTC or its direct
or indirect Participants of their respective obligations under the rules and
procedures governing their operations.
 
  Interests in the Global Securities will be exchanged for certificated
securities if (i) DTC notifies the Company that it is unwilling or unable to
continue as depositary for the Global Securities, or DTC ceases to be a
"Clearing Agency" registered under the Exchange Act, and a successor
depositary is not appointed by the Company within 90 days, or (ii) an Event of
Default has occurred and is continuing with respect to the Notes. Upon the
occurrence of any of the events described in the preceding sentence, the
Company will cause the appropriate certificated securities to be delivered.
 
                                      96

 
                             PLAN OF DISTRIBUTION
 
  Any broker-dealer (a "Participating Broker-Dealer") that, pursuant to the
Exchange Offer, receives Exchange Notes in exchange for Original Notes that
were acquired by it for its own account as a result of market-making
activities or other trading activities, will be required to deliver a
prospectus meeting the requirements of the Securities Act in connection with
any resales by it of any such Exchange Notes. Each Participating Broker-Dealer
will be required to acknowledge in the Letter of Transmittal that it will
comply with such prospectus delivery requirement in connection with any resale
of Exchange Notes. The Letter of Transmittal states that by making such
acknowledgment a Participating Dealer will not be deemed to admit that it is
an "underwriter" within the meaning of the Securities Act.
 
  Based on interpretations by the Staff of the Commission set forth in no-
action letters issued to third parties, the Company believes that this
Prospectus, as it may be amended or supplemented from time to time, may, if
permitted by the Company, be used by Participating Broker-Dealers in order to
satisfy the prospectus delivery requirements applicable to Participating
Broker-Dealers in connection with the resale of Exchange Notes as described
above. The Company has agreed in the Registration Rights Agreement that it
will use its best efforts to make this Prospectus available to each
Participating Broker-Dealer for use in connection with any resales of such
Exchange Notes (subject to the right of the Company to restrict the use of
this Prospectus under certain circumstances specified in the Registration
Rights Agreement). The obligation of the Company to make this Prospectus
available as aforesaid will commence on the day that the Exchange Offer is
consummated and continue in effect for a 30-day period (the "Broker Prospectus
Period"); provided, however, that, if for any day during such period the
Company restricts the use of such prospectus, the Broker Prospectus Period
shall be extended on a day-for-day basis. See "Description of Registration
Rights Agreement."
 
  Any sale of Exchange Notes by Participating Broker-Dealers will be for their
own account, and the Company will not receive any proceeds of such sales.
 
  Participating Broker-Dealers may from time to time sell Exchange Notes that
were received by them in the Exchange Offer in one or more transactions in the
over-the-counter market, in privately negotiated transactions, through the
writing of options on the Exchange Notes or otherwise, and such sales may be
made at the market price prevailing at the time of sale, a price related to
such prevailing market price or a negotiated price. Such sales of Exchange
Notes may be made directly to purchasers or, alternatively, may be offered
from time to time through agents, brokers, dealers or underwriters, who may
receive compensation in the form of concessions or commissions from the
Participating Broker-Dealers or purchasers of the Exchange Notes (which
compensation may be in excess of customary commissions). Any agents, brokers
or dealers that participate in the distribution of the Exchange Notes may be
deemed to be underwriters and any commissions received by them and any profit
on the resale of such Exchange Notes sold by them might be deemed to be
underwriting discounts and commissions under the Securities Act.
 
  During the Broker Prospectus Period, the Company will promptly send
additional copies of this Prospectus and any amendment or supplement to this
Prospectus to any Participating Broker-Dealer that requests such documents
(subject to the right of the Company to restrict the use of this Prospectus
under certain circumstances specified in the Registration Rights Agreement).
Any such requests should be directed to United Rentals (North America), Inc.,
Attention: Corporate Secretary, Four Greenwich Office Park, Greenwich,
Connecticut 06830, telephone: (203) 622-3131.
 
  The Company has agreed in the Registration Rights Agreement to indemnify
each Participating Broker-Dealer that resells Exchange Notes pursuant to this
Prospectus, and their officers, directors and controlling persons, against
certain liabilities in connection with the offer and sale of the Exchange
Notes, including liabilities under the Securities Act, or to contribute to
payments that such Participating Broker-Dealers may be required to make in
respect thereof.
 
 
                                      97

 
                                 LEGAL MATTERS
 
  Certain legal matters in connection with the issue and sale of the Exchange
Notes will be passed upon for the Company by Weil, Gotshal & Manges LLP, New
York, New York, and Ehrenreich Eilenberg Krause & Zivian LLP, New York, New
York.
 
                                    EXPERTS
 
  The consolidated financial statements of United Rentals, Inc. at December
31, 1997 and for the period from August 14, 1997 (Inception) to December 31,
1997, the financial statements of J&J Rental Services, Inc., at December 31,
1996 and October 22, 1997 and for each of the two years in the period ended
December 31, 1996, the six months ended June 30, 1997 and for the period from
July 1, 1997 to October 22, 1997, the financial statements of Bronco Hi-Lift,
Inc. at December 31, 1996 and October 24, 1997 and for each of the two years
in the period ended December 31, 1996 and for the period from January 1, 1997
to October 24, 1997, the financial statements of Mission Valley Rentals, Inc.
at June 30, 1996 and 1997 and for the years then ended, the combined financial
statements of Valley Rentals, Inc. at December 31, 1997 and for the year then
ended, the financial statements of Pro Rentals, Inc. at December 31, 1997 and
for the year then ended, the combined financial statements of Able Equipment
Rental, Inc. at December 31, 1997 and for the year then ended, the combined
financial statements of Channel Equipment Holding, Inc. at December 31, 1997
and for the year then ended, the financial statements of ASC Equipment Company
at December 31, 1997 and for the year then ended, the financial statements of
Power Rental Co., Inc. at July 31, 1997 and for the year then ended and the
combined financial statements of Adco Equipment, Inc. at December 31, 1997 and
for the year then ended, appearing in this Registration Statement and
Prospectus, have been audited by Ernst & Young LLP, independent auditors, as
set forth in their reports thereon appearing elsewhere herein, and are
included in reliance upon such reports given upon the authority of such firm
as experts in accounting and auditing.
 
  The consolidated financial statements of A&A Tool Rentals & Sales, Inc. and
subsidiary as of October 19, 1997 and October 31, 1996, and for the period
from November 1, 1996 to October 19, 1997 and for the years ended October 31,
1996 and 1995, have been included herein in reliance upon the report of KPMG
Peat Marwick LLP, independent certified public accountants, appearing
elsewhere herein.
 
  The financial statements of MERCER Equipment Company appearing in this
Prospectus have been audited by Webster Duke & Co., independent auditors, as
set forth in their reports thereon included elsewhere herein.
 
  The combined financial statements of Coran Enterprises, Inc. (dba A-1 Rents)
and Monterey Bay Equipment Rental, Inc., appearing in this Prospectus, have
been audited by Grant Thornton LLP, independent auditors, as set forth in
their report thereon appearing elsewhere herein.
 
  The combined financial statements of BNR Group of Companies as of March 31,
1996 and 1997 and for the years ended March 31, 1996 and 1997 and the
consolidated financial statements of Perco Group Ltd. as of December 31, 1997
and for the year ended December 31, 1997, have been included herein in
reliance upon the reports of KPMG, independent chartered accountants,
appearing elsewhere herein.
 
  The audited financial statements of Access Rentals, Inc. and Subsidiary and
Affiliate included in this Prospectus have been included herein in reliance on
the report of Battaglia, Andrews & Moag, P.C., independent certified public
accountants, 210 East Main Street, Batavia, New York 14020, for the periods
indicated.
 
  The financial statements of West Main Rentals & Sales, Incorporated as of
December 31, 1997, and the year then ended have been included herein in
reliance upon the report of Moss Adams LLP, independent certified public
accountants, appearing elsewhere herein.
 
                                      98

 
  The financial statements of U.S. Rentals, Inc. at December 31, 1997 and 1996
and for each of the three years in the period ended December 31, 1997 included
herein have been so included in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.
 
  The combined financial statements of Equipment Supply Co., Inc. and
Affiliates included herein have been audited by BDO Seidman, LLP, independent
certified public accountants, to the extent and for the periods set forth in
their reports appearing elsewhere herein, and are included in reliance upon
such reports given upon the authority of said firm as experts in auditing and
accounting.
 
  The consolidated financial statements of McClinch Inc. and subsidiaries as
of January 31, 1998, and the year then ended and the financial statements of
McClinch Equipment Services, Inc. as of December 31, 1997 and the year then
ended included herein have been audited by Coopers & Lybrand L.L.P.,
independent accountants, as set forth in their report thereon included herein.
 
  The financial statements of Lift Systems, Inc. as of December 31, 1997 and
the year then ended have been included in reliance upon the report of
Altschuler, Melvoin and Glasser LLP, independent accountants, appearing
elsewhere herein.
 
  The financial statements of Reitzel Rentals Ltd. as of February 28, 1998 and
for the year ended February 28, 1998, included herein have been audited by
PricewaterhouseCoopers LLP, independent chartered accountants, as set forth in
their report thereon included herein.
 
  The combined financial statements of Grand Valley Equipment Co., Inc. and
Kubota of Grand Rapids, Inc. as of December 31, 1997, and the year then ended
have been included herein in reliance upon the report of Beene Garter LLP,
independent auditors, appearing elsewhere herein.
 
  The financial statements of Paul E. Carlson, Inc. (d/b/a Carlson Equipment
Company) as of February 28, 1998, and for the year then ended, included
herein, have been audited by McGladrey & Pullen, LLP, independent accountants,
as stated in their report appearing herein.
 
  The financial statements of Industrial Lift, Inc. as of December 31, 1997
and 1996 and the years then ended included herein in reliance upon the report
of Schalleur & Surgent, LLC, independent auditors, appearing elsewhere herein.
 
  The financial statements of Rental Tools & Equipment Co. International, Inc.
as of June 30, 1997 and 1998, and for each of the three years in the period
ended June 30, 1998, included in this Prospectus have been so included in
reliance on the report of PricewaterhouseCoopers LLP, independent accountants,
given on the authority of said firm as experts in auditing and accounting.
 
                                      99

 
                         INDEX TO FINANCIAL STATEMENTS
 


                                                                             PAGE
                                                                             ----
                                                                       
   I.  Pro Forma Consolidated Financial Statements of United Rentals, Inc.
       Introduction.......................................................    F-7
       Pro Forma Consolidated Balance Sheet--June 30, 1998 (unaudited)....    F-8
       Pro Forma Consolidated Statement of Operations for the Six Months
        Ended June 30, 1998 (unaudited)...................................    F-9
       Pro Forma Consolidated Statement of Operations for the Year Ended
        December 31, 1997 (unaudited).....................................   F-10
       Pro Forma Consolidated Statement of Operations for the Year Ended
        December 31, 1996 (unaudited).....................................   F-11
       Pro Forma Consolidated Statement of Operations for the Year Ended
        December 31, 1995 (unaudited).....................................   F-12
       Notes to Pro Forma Consolidated Financial Statements...............   F-13
  II.  Consolidated Financial Statements of United Rentals, Inc.
       Report of Independent Auditors.....................................   F-15
       Consolidated Balance Sheet--December 31, 1997......................   F-16
       Consolidated Statement of Operations for the period from August 14,
        1997 (Inception) to December 31, 1997.............................   F-17
       Consolidated Statement of Stockholders' Equity for the period from
        August 14, 1997 (Inception) to December 31, 1997..................   F-18
       Consolidated Statement of Cash Flows for the period from August 14,
        1997 (Inception) to December 31, 1997.............................   F-19
       Notes to Consolidated Financial Statements.........................   F-20
 III.  Unaudited Consolidated Financial Statements of United Rentals, Inc.
       Consolidated Balance Sheet--June 30, 1998 (unaudited) and December
        31, 1997..........................................................   F-28
       Consolidated Statement of Operations for the Six and Three Months
        Ended June 30, 1998 (unaudited)...................................   F-29
       Consolidated Statement of Stockholders' Equity for the Six Months
        Ended June 30, 1998 (unaudited)...................................   F-30
       Consolidated Statement of Cash Flows for the Six Months Ended June
        30, 1998 (unaudited)..............................................   F-31
       Notes to Unaudited Consolidated Financial Statements...............   F-32
  IV.  Financial Statements of U.S. Rentals, Inc.
       Report of Independent Accountants..................................   F-40
       Balance Sheets--December 31, 1996 and 1997.........................   F-41
       Statements of Operations for the Years Ended December 31, 1995,
        1996 and 1997.....................................................   F-42
       Statements of Stockholders' Equity for the Years Ended December 31,
        1994, 1995, 1996
        and 1997..........................................................   F-43
       Statements of Cash Flows for the Years Ended December 31, 1995,
        1996 and 1997.....................................................   F-44
       Notes to Financial Statements......................................   F-45
   V.  Unaudited Financial Statements of U.S. Rentals, Inc.
       Balance Sheets--June 30, 1998 (unaudited) and December 31, 1997....   F-55
       Statements of Operations for the Six and Three Months Ended June
        30, 1998 and 1997 (unaudited).....................................   F-56
       Statements of Cash Flows for the Six and Three Months Ended June
        30, 1998 and 1997 (unaudited).....................................   F-57
       Statement of Changes in Stockholders' Equity for the Six Months
        Ended June 30, 1998 (unaudited)...................................   F-58
       Notes to Financial Statements......................................   F-59

 
 
                                      F-1

 


                                                                           PAGE
                                                                           -----
                                                                     
       Combined Financial Statements of Equipment Supply Co., Inc. and
   VI. Affiliates
       Report of Independent Certified Public Accountants...............    F-61
       Combined Balance Sheets--December 31, 1997 and 1996 and June 30,
        1998 (unaudited)................................................    F-62
       Combined Statements of Income for the Years Ended December 31,
        1997, 1996 and 1995 and for the Six Months Ended June 30, 1998
        and 1997 (unaudited)............................................    F-63
       Combined Statements of Stockholders' Equity for the Years Ended
        December 31, 1995, 1996 and 1997 and for the Six Months Ended
        June 30, 1998 (unaudited).......................................    F-64
       Combined Statements of Cash Flows for the Years Ended December
        31, 1997, 1996 and 1995 and for the Six Months Ended June 30,
        1998 and 1997 (unaudited).......................................    F-65
       Notes to Combined Financial Statements...........................    F-66
  VII. Consolidated and Combined Financial Statements of Access Rentals,
        Inc. and subsidiary and affiliate
       Report of Independent Accountants................................    F-78
       Consolidated and Combined Balance Sheets--March 31, 1996 and 1997
        and December 31, 1997 (unaudited)...............................    F-79
       Consolidated and Combined Statements of Income for the Years
        Ended September 30, 1994 and 1995, for the Six Months Ended
        March 31, 1996, for the Year Ended March 31, 1997 and for the
        Nine Months Ended December 31, 1996 and 1997 (unaudited)........    F-80
       Consolidated and Combined Statement of Stockholders' Equity for
        the Years Ended September 30, 1994 and 1995, for the Six Months
        Ended March 31, 1996, for the Year Ended March 31, 1997 and for
        the Nine Months Ended December 31, 1997 (unaudited).............    F-81
       Consolidated and Combined Statements of Cash Flows for the Years
        Ended September 30, 1994 and 1995, for the Six Months Ended
        March 31, 1996, for the Year Ended March 31, 1997 and for the
        Nine Months Ended December 31, 1996 and 1997 (unaudited)........    F-82
       Notes to Financial Statements....................................    F-83
       Financial Statements of Rental Tools & Equipment Co. Internation-
 VIII. al, Inc.
       Report of Independent Accountants................................    F-93
       Balance Sheets--June 30, 1997 and 1998...........................    F-94
       Statements of Operations For the Years Ended June 30, 1996, 1997
        and 1998........................................................    F-95
       Statements of Changes in Stockholders' Equity For the Years Ended
        June 30, 1996, 1997 and 1998....................................    F-96
       Statements of Cash Flows For the Years Ended June 30, 1996, 1997
        and 1998........................................................    F-97
       Notes to Financial Statements....................................    F-98
   IX. Financial Statements of Power Rental Co., Inc.
       Report of Independent Auditors...................................   F-104
       Balance Sheets--July 31, 1997 and May 31, 1998 (unaudited).......   F-105
       Statements of Operations for the Year Ended July 31, 1997 and for
        the Ten Months Ended May 31, 1997 and 1998 (unaudited)..........   F-106
       Statements of Stockholders' Equity for the Year Ended July 31,
        1997 and for the Ten Months Ended May 31, 1998 (unaudited)......   F-107
       Statements of Cash Flows for the Year Ended July 31, 1997 and for
        the Ten Months Ended May 31, 1997 and 1998 (unaudited)..........   F-108
       Notes to Financial Statements....................................   F-109
    X. Combined Financial Statements of BNR Group of Companies
       Report of Independent Auditors...................................   F-115
       Combined Balance Sheets--March 31, 1996 and 1997 and December 31,
        1997 (unaudited)................................................   F-116
       Combined Statements of Earnings for the Years Ended March 31,
        1996 and 1997 and for the Nine Months Ended December 31, 1996
        and 1997 (unaudited)............................................   F-117
       Combined Statements of Stockholders' Equity for the Years Ended
        March 31, 1996 and 1997 and for the Nine Months Ended December
        31, 1997 (unaudited)............................................   F-118

 
                                      F-2

 


                                                                          PAGE
                                                                          -----
                                                                    
       Combined Statements of Cash Flows for the Years Ended March 31,
        1996 and 1997 and for the Nine Months Ended December 31, 1996
        and 1997 (unaudited)...........................................   F-119
       Notes to Combined Financial Statements..........................   F-120
   XI. Combined Financial Statements of Adco Equipment, Inc.
       Report of Independent Auditors..................................   F-129
       Combined Balance Sheets--December 31, 1997 and June 30, 1998
        (unaudited)....................................................   F-130
       Combined Statements of Operations For the Year Ended December
        31, 1997 and For the Six Months Ended June 30, 1997 and 1998
        (unaudited)....................................................   F-131
       Combined Statements of Stockholders' Equity For the Year Ended
        December 31, 1997 and For the Six Months Ended June 30, 1998
        (unaudited)....................................................   F-132
       Combined Statements of Cash Flows For the Year Ended December
        31, 1997 and For the Six Months Ended June 30, 1997 and 1998
        (unaudited)....................................................   F-133
       Notes to Combined Financial Statements..........................   F-134
       Consolidated Financial Statements of McClinch Inc. and Subsidi-
  XII.  aries
       Report of Independent Accountants...............................   F-138
       Consolidated Balance Sheets--January 31, 1998 and July 31, 1998
        (unaudited)....................................................   F-139
       Consolidated Statements of Income and Retained Earnings For the
        Year Ended January 31, 1998 and For the Six Months Ended July
        31, 1997 and 1998 (unaudited)..................................   F-140
       Consolidated Statements of Cash Flows For the Year Ended January
        31, 1998 and For the Six Months Ended July 31, 1997 and 1998
        (unaudited)....................................................   F-141
       Notes to Consolidated Financial Statements......................   F-142
 XIII. Financial Statements of Industrial Lift, Inc.
       Report of Independent Auditors..................................   F-149
       Balance Sheets--December 31, 1996 and 1997 and as of May 12,
        1998 (unaudited)...............................................   F-150
       Statements of Income and Retained Earnings for the Years Ended
        December 31, 1996 and 1997 and for the Period Ended May 12,
        1997 and 1998 (unaudited)......................................   F-151
       Statements of Cash Flows for the Years Ended December 31, 1996
        and 1997 and for the Period Ended May 12, 1997 and 1998
        (unaudited)....................................................   F-152
       Notes to Financial Statements...................................   F-153
  XIV. Combined Financial Statements of Able Equipment Rental, Inc.
       Report of Independent Auditors..................................   F-158
       Combined Balance Sheets--December 31, 1997 and February 28, 1998
        (unaudited)....................................................   F-159
       Combined Statements of Income for the Year Ended December 31,
        1997 and for the Two Months Ended February 28, 1997 and 1998
        (unaudited)....................................................   F-160
       Combined Statements of Stockholders' Equity and Partners'
        Capital for the Year Ended December 31, 1997 and for the Two
        Months Ended February 28, 1998 (unaudited).....................   F-161
       Combined Statements of Cash Flows for the Year Ended December
        31, 1997 and for the Two Months Ended February 28, 1997 and
        1998 (unaudited)...............................................   F-162
       Notes to Combined Financial Statements..........................   F-163
   XV. Combined Financial Statements of Grand Valley Equipment Co.,
        Inc. and Kubota of Grand Rapids, Inc.
       Independent Auditors' Report on Combined Financial Statements ..   F-168
       Combined Balance Sheets--December 31, 1997 and May 31, 1998
        (unaudited)....................................................   F-169
       Combined Statements of Income and Retained Earnings for the year
        ended December 31, 1997 and for the five months ended May 31,
        1997 and 1998 (unaudited)......................................   F-170
       Combined Statements of Cash Flows for the year ended December
        31, 1997 and for the five months ended May 31, 1997 and 1998
        (unaudited)....................................................   F-171
       Notes to Financial Statements...................................   F-172
  XVI. Financial Statements of McClinch Equipment Services, Inc.
       Report of Independent Accountants...............................   F-176
       Balance Sheets--December 31, 1997 and June 30, 1998
        (unaudited)....................................................   F-177

 
                                      F-3

 


                                                                          PAGE
                                                                          -----
                                                                    
        Statements of Income and Retained Earnings for the year ended
         December 31, 1997 and for the six months ended June 30, 1997
         and 1998 (unaudited)..........................................   F-178
        Statements of Cash Flows for the year ended December 31, 1997
         and for the six months ended June 30, 1997 and 1998
         (unaudited)...................................................   F-179
        Notes to Financial Statements..................................   F-180
  XVII. Combined Financial Statements of Valley Rentals, Inc.
        Report of Independent Auditors.................................   F-185
        Combined Balance Sheets--December 31, 1997 and March 31, 1998
         (unaudited)...................................................   F-186
        Combined Statements of Income for the Year Ended December 31,
         1997 and for the Three Months Ended March 31, 1997 and 1998
         (unaudited)...................................................   F-187
        Combined Statements of Stockholders' Equity and Partners'
         Capital for the Year Ended December 31, 1997 and for the Three
         Months Ended March 31, 1998 (unaudited).......................   F-188
        Combined Statements of Cash Flows for the Year Ended December
         31, 1997 and for the Three Months Ended March 31, 1997 and
         1998 (unaudited)..............................................   F-189
        Notes to Combined Financial Statements.........................   F-190
 XVIII. Financial Statements of Lift Systems, Inc.
        Independent Accountants' Report................................   F-194
        Balance Sheets--December 31, 1997 and June 30, 1998
         (unaudited)...................................................   F-195
        Statement of Income for the year ended December 31, 1997 and
         for the six-month periods ended June 30, 1998 and 1997
         (unaudited)...................................................   F-196
        Statement of Changes in Stockholder's Equity for the year ended
         December 31, 1997 and for the six-month period ended June 30,
         1998 (unaudited)..............................................   F-197
        Statement of Cash Flows for the year ended December 31, 1997
         and for the six-month periods ended June 30, 1997 and 1998
         (unaudited)...................................................   F-198
        Notes to Financial Statements..................................   F-200
   XIX. Consolidated Financial Statements of Perco Group Ltd.
        Report of Independent Auditors.................................   F-205
        Consolidated Balance Sheet--December 31, 1997 and May 19, 1998
         (unaudited)...................................................   F-206
        Consolidated Statement of Earnings for the year ended December
         31, 1997 and for the 139 days ended May 19, 1997 and 1998
         (unaudited)...................................................   F-207
        Consolidated Statement of Retained Earnings for the year ended
         December 31, 1997 and for the 139 days ended May 19, 1998
         (unaudited)...................................................   F-208
        Consolidated Statement of Changes in Financial Position for the
         year ended December 31, 1997 and for the 139 days ended May
         19, 1997 and 1998 (unaudited).................................   F-209
        Notes to Consolidated Financial Statements.....................   F-210
    XX. Financial Statements of Reitzel Rentals Ltd.
        Auditors' Report...............................................   F-218
        Balance Sheets--February 28, 1998 and May 31, 1998
         (unaudited)...................................................   F-219
        Statements of Operations for the year ended February 28, 1998
         and for the three months ended May 31, 1997 and 1998
         (unaudited)...................................................   F-220
        Statements of Shareholders' Equity for the year ended February
         28, 1998 and for the three months ended May 31, 1998
         (unaudited)...................................................   F-221
        Statements of Cash Flows for the year ended February 28, 1998
         and for the three months ended May 31, 1997 and 1998
         (unaudited)...................................................   F-222
        Notes to Financial Statements..................................   F-223
        Combined Financial Statements of Channel Equipment Holding,
   XXI. Inc.
        Report of Independent Auditors.................................   F-229
        Combined Balance Sheet--December 31, 1997......................   F-230
        Combined Statement of Operations for the Year Ended December
         31, 1997......................................................   F-231

 
                                      F-4

 


                                                                           PAGE
                                                                           -----
                                                                     
        Combined Statement of Stockholders' Equity (Deficit) for the
         Year Ended December 31, 1997...................................   F-232
        Combined Statements of Cash Flows for the Year Ended December
         31, 1997.......................................................   F-233
        Notes to Combined Financial Statements..........................   F-234
        Financial Statements of Paul E. Carlson, Inc. dba Carlson
  XXII. Equipment Company
        Independent Auditor's Report....................................   F-238
        Balance Sheets--February 28, 1998 and May 31, 1998 (unaudited)..   F-239
        Statements of Operations for the year ended February 28, 1998
         and for the three months ended May 31,1997 and 1998
         (unaudited)....................................................   F-241
        Statements of Stockholders' Equity for the year ended February
         28, 1998 and for the three months ended May 31, 1998
         (unaudited)....................................................   F-242
        Statements of Cash Flows for the year ended February 28, 1998
         and for the three months ended May 31, 1997 and 1998
         (unaudited)....................................................   F-243
        Notes to Financial Statements...................................   F-244
        Financial Statements of West Main Rentals and Sales,
 XXIII. Incorporated
        Independent Auditor's Report....................................   F-252
        Balance Sheet--December 31, 1997 and March 31, 1998
         (unaudited)....................................................   F-253
        Statement of Income for the Year Ended December 31, 1997 and for
         the Three Months Ended March 31, 1998 and 1997 (unaudited).....   F-254
        Statement of Stockholders' Equity for the Year Ended December
         31, 1996, 1997 and for the Three Months Ended March 31, 1998
         (unaudited)....................................................   F-255
        Statement of Cash Flows for the Year Ended December 31, 1997 and
         for the Three Months Ended March 31, 1998 and 1997
         (unaudited)....................................................   F-256
        Notes to Financial Statements...................................   F-257
  XXIV. Financial Statements of Mission Valley Rentals, Inc.
        Report of Independent Auditors..................................   F-263
        Balance Sheets--June 30, 1996 and 1997 and December 31, 1997
         (unaudited)....................................................   F-264
        Statements of Operations for the Years Ended June 30, 1996 and
         1997 and for the Six Months Ended December 31, 1996 and 1997
         (unaudited)....................................................   F-265
        Statements of Stockholders' Equity for the Years Ended July 1,
         1995, June 30, 1996 and 1997 and for the Six Months Ended
         December 31, 1997 (unaudited)..................................   F-266
        Statements of Cash Flows for the Years Ended June 30, 1996 and
         1997 and the Six Months Ended December 31, 1996 and 1997
         (unaudited)....................................................   F-267
        Notes to Financial Statements...................................   F-268
   XXV. Financial Statements of Pro Rentals, Inc.
        Report of Independent Auditors..................................   F-274
        Balance Sheet--December 31, 1997................................   F-275
        Statement of Income for the Year Ended December 31, 1997........   F-276
        Statement of Stockholders' Equity for the Year Ended December
         31, 1997.......................................................   F-277
        Statement of Cash Flows for the Year Ended December 31, 1997....   F-278
        Notes to Financial Statements...................................   F-279
  XXVI. Financial Statements of ASC Equipment Company
        Report of Independent Auditors..................................   F-282
        Balance Sheet--December 31, 1997................................   F-283
        Statement of Income for the Year Ended December 31, 1997........   F-284
        Statement of Stockholders' Equity for the Year Ended December
         31, 1997.......................................................   F-285
        Statement of Cash Flows for the Year Ended December 31, 1997....   F-286
        Notes to Financial Statements...................................   F-287
 XXVII. Financial Statements of MERCER Equipment Company
        Independent Auditor's Report....................................   F-290
        Balance Sheets--December 31, 1996 and October 24, 1997..........   F-291

 
                                      F-5

 


                                                                          PAGE
                                                                          -----
                                                                    
         Statements of Income and Retained Earnings for the Years Ended
          December 31, 1995 and 1996 and for the period from January 1,
          1997 to October 24, 1997.....................................   F-292
         Statements of Cash Flows for the Years Ended December 31, 1995
          and 1996 and for the period from January 1, 1997 to October
          24, 1997.....................................................   F-293
         Notes to Financial Statements.................................   F-294
         Consolidated Financial Statements of A&A Tool Rentals & Sales,
 XXVIII.  Inc. and subsidiary
         Report of Independent Auditors................................   F-299
         Consolidated Balance Sheets--October 31, 1996 and October 19,
          1997 and July 31, 1997 (unaudited)...........................   F-300
         Consolidated Statements of Operations for the Years Ended
          October 31, 1995 and 1996 and for the period from November 1,
          1996 to October 19, 1997 and for the Nine Months Ended July
          31, 1996 and 1997 (unaudited)................................   F-301
         Consolidated Statements of Stockholders' Equity for the Years
          Ended October 31, 1994, 1995 and 1996 and for the period from
          November 1, 1996 to October 19, 1997 ........................   F-302
         Consolidated Statements of Cash Flows for the Years Ended
          October 31, 1995 and 1996 and for the period from November 1,
          1996 to October 19, 1997 and for the Nine Months Ended July
          31, 1996 and 1997 (unaudited)................................   F-303
         Notes to Consolidated Financial Statements....................   F-304
   XXIX. Financial Statements of J&J Rental Services, Inc.
         Report of Independent Auditors................................   F-311
         Balance Sheets--December 31, 1996 and October 22, 1997 .......   F-312
         Statements of Income for the Years Ended December 31, 1995 and
          1996, for the Six Months Ended June 30, 1997 and for the
          period from July 1, 1997 to October 22, 1997.................   F-313
         Statements of Stockholders' Equity and Partners' Capital for
          the Years Ended December 31, 1995 and 1996 and for the Six
          Months Ended June 30, 1997 and for the period from July 1,
          1997 to October 22, 1997.....................................   F-314
         Statements of Cash Flows for the Years Ended December 31, 1995
          and 1996, for the Six Months Ended June 30, 1997 and for the
          period from July 1, 1997 to October 22, 1997.................   F-315
         Notes to Financial Statements.................................   F-316
    XXX. Combined Financial Statements of Coran Enterprises, Inc. dba
          A-1 Rents and
          Monterey Bay Equipment Rental, Inc.
         Report of Independent Certified Public Accountants............   F-323
         Combined Statements of Earnings for the Years Ended December
          31, 1995 and 1996 and for the period from January 1, 1997 to
          October 24, 1997 ............................................   F-324
         Combined Statements of Stockholders' Equity for the Years
          Ended December 31, 1995 and 1996 and for the period from
          January 1, 1997 to October 24, 1997 .........................   F-325
         Combined Statements of Cash Flows for the Years Ended December
          31, 1995 and 1996 and for the period from January 1, 1997 to
          October 24, 1997 ............................................   F-326
         Notes to Combined Financial Statements........................   F-327
   XXXI. Financial Statements of Bronco Hi-Lift, Inc.
         Report of Independent Auditors................................   F-329
         Balance Sheets--December 31, 1996 and October 24, 1997 .......   F-330
         Statements of Income for the Years Ended December 31, 1995 and
          1996 and for the period from January 1, 1997 to October 24,
          1997.........................................................   F-331
         Statements of Stockholders' Equity for the Years Ended
          December 31, 1995 and 1996 and for the period from January 1,
          1997 to October 24, 1997.....................................   F-332
         Statements of Cash Flows for the Years Ended December 31, 1995
          and 1996 and for the period from January 1, 1997 to October
          24, 1997.....................................................   F-333
         Notes to Financial Statements.................................   F-334

 
                                      F-6

 
                                UNITED RENTALS
 
                  PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
                                  (UNAUDITED)
 
  The following pro forma unaudited consolidated balance sheet of the Company
gives effect to (i) the acquisitions completed by the Company subsequent to
June 30, 1998 (through September 14, 1998) and the financing thereof, and (ii)
completion of the Merger with U.S. Rentals using the "pooling of interests"
method of accounting (as described in the notes to the Pro Forma Consolidated
Financial Statements), as if all such transactions had occurred on June 30,
1998.
 
  The following pro forma unaudited consolidated statements of operations with
respect to the six months ended June 30, 1998 and the year ended December 31,
1997, give effect to (i) each acquisition completed by the Company after the
beginning of the period and the financing thereof and (ii) completion of the
Merger with U.S. Rentals using the "pooling of interests" method of accounting
(as described in the notes to the Pro Forma Consolidated Financial
Statements), as if all such transactions had occurred at the beginning of the
period.
 
  The following pro forma unaudited consolidated statements of operations with
respect to the year ended December 31, 1996 and the year ended December 31,
1995 gives effect to completion of the Merger with U.S. Rentals and the
acquisition of Rental Tools and Equipment Co. International, Inc., in each
case using the "pooling of interests" method of accounting (as described in
the notes to the Pro Forma Consolidated Financial Statements). The Company was
not in existence during these periods and, accordingly, no historical data of
the Company is presented for these periods.
 
  The pro forma consolidated financial statements are based upon certain
assumptions and estimates which are subject to change. These statements are
not necessarily indicative of the actual results of operations that might have
occurred, nor are they necessarily indicative of expected results in the
future.
 
  The pro forma consolidated financial statements should be read in
conjunction with (i) the Company's historical Consolidated Financial
Statements and related Notes included elsewhere in this Registration
Statement, (ii) U.S. Rentals' Consolidated Financial Statements and related
Notes included elsewhere in this Registration Statement, (iii) Rental Tools
and Equipment Co. International, Inc. Financial Statements and related Notes
included elsewhere in this Registration Statement, (iv) McClinch, Inc. and
Subsidiaries Consolidated Financial Statements and related Notes included
elsewhere in this Registration Statement, and (v) McClinch Equipment Services,
Inc. Financial Statements and related Notes included elsewhere in this
Registration Statement.
 
                                      F-7

 
                                 UNITED RENTALS
 
                 PRO FORMA UNAUDITED CONSOLIDATED BALANCE SHEET
                                 JUNE 30, 1998
 


                                     EQUIPMENT   MCCLINCH INC.
                                      SUPPLY      AND MCCLINCH
                           UNITED  CO., INC. AND   EQUIPMENT       OTHER       U.S.
                          RENTALS   AFFILIATES   SERVICES, INC. ACQUISITIONS RENTALS  ADJUSTMENTS         PRO FORMA
                          -------- ------------- -------------- ------------ -------- -----------         ----------
                                          (IN THOUSANDS, EXCEPT SHARE AND PAR VALUE AMOUNTS)
                                                                                     
ASSETS:
Cash and cash
 equivalents............  $  5,486   $  1,784       $ 1,136       $ 11,895   $ 22,510  $ (16,301)(a)      $   26,510
Accounts receivable,
 net....................    67,203     16,528         7,536         27,210     74,124                        192,601
Inventory...............    33,255      4,508         1,735         12,703     19,040                         71,241
Rental equipment, net...   298,956    111,618        38,172        100,154    521,696     10,784 (b)       1,081,380
Property and equipment,
 net....................    32,349      5,267         5,850         26,813     93,130     (2,448)(c)         160,961
Intangible assets, net..   429,028      3,639                                  26,398    331,868 (d)         790,933
Prepaid expenses and
 other assets...........    22,887      7,022         1,158          7,366     12,167                         50,600
                          --------   --------       -------       --------   --------  ---------          ----------
                          $889,164   $150,366       $55,587       $186,141   $769,065  $ 323,903          $2,374,226
                          ========   ========       =======       ========   ========  =========          ==========
LIABILITIES AND
 STOCKHOLDERS' EQUITY:
Liabilities:
Accounts payable,
 accrued expenses and
 other liabilities......  $ 79,213   $ 16,587       $ 6,873       $ 23,559   $ 78,264  $  60,000 (e)      $  264,496
Debt....................   389,181     94,819        32,052         96,139    378,600   (185,113)(f)       1,406,859
                                                                                         601,181 (g)
Deferred income taxes...     2,376        940                                  29,732                         33,048
                          --------   --------       -------       --------   --------  ---------          ----------
 Total liabilities......   470,770    112,346        38,925        119,698    486,596    476,068           1,704,403
Commitments and
 contingencies
Stockholders' equity:
United Rentals preferred
 stock--$.01 par value,
 5,000,000 shares
 authorized, no shares
 outstanding............
Common stock:
United Rentals--$.01 par
 value, 75,000,000
 shares authorized,
 historical 34,192,085
 shares (66,951,284 pro
 forma shares) issued
 and outstanding........       342          1            26          2,676        308     (2,715)(h)             669
                                                                                              31 (i)
Additional paid-in
 capital................   409,817        364          (608)        (1,199)   244,830      1,075 (h)         666,932
                                                                                          12,653 (i)
Retained earnings.......     8,235     37,655        17,244         64,966     37,331   (163,209)(e), (h)      2,222
                          --------   --------       -------       --------   --------  ---------          ----------
 Total stockholders'
  equity................   418,394     38,020        16,662         66,443    282,469   (152,165)            669,823
                          --------   --------       -------       --------   --------  ---------          ----------
                          $889,164   $150,366       $55,587       $186,141   $769,065  $ 323,903          $2,374,226
                          ========   ========       =======       ========   ========  =========          ==========

 
      See notes to pro forma unaudited Consolidated Financial Statements.
 
                                      F-8

 
                                 UNITED RENTALS
 
            PRO FORMA UNAUDITED CONSOLIDATED STATEMENT OF OPERATIONS
                     FOR THE SIX MONTHS ENDED JUNE 30, 1998
 


                                                    EQUIPMENT
                                                      SUPPLY   MCCLINCH INC.
                                  ACCESS    POWER   CO., INC.  AND MCCLINCH
                        UNITED   RENTALS,  RENTAL      AND       EQUIPMENT      OTHER       U.S.
                        RENTALS    INC.   CO., INC. AFFILIATES SERVICE, INC. ACQUISITIONS RENTALS  ADJUSTMENTS    PRO FORMA
                        -------  -------- --------- ---------- ------------- ------------ -------- -----------    ---------
                                              (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
                                                                                       
Revenues
 Equipment rentals....  $86,105   $2,313   $ 6,295   $34,382      $16,515      $106,696   $207,447                $459,753
 Sales of equipment,
  merchandise and
  other revenue.......   41,246      841     1,555     8,958        5,601        68,152     63,913                 190,266
                        -------   ------   -------   -------      -------      --------   --------  --------      --------
Total revenues........  127,351    3,154     7,850    43,340       22,116       174,848    271,360                 650,019
Cost of revenues
 Cost of equipment
  rentals, excluding
  depreciation........   35,608    1,131     3,416    12,529        6,770        42,073    110,910                 212,437
 Depreciation of
  rental equipment....   14,562      402     2,987    10,368        3,316        27,926     45,979  $ (9,070)(a)    96,473
 Cost of sales and
  other operating
  costs...............   29,939      741       638     7,267        3,795        46,115     38,829                 127,324
                        -------   ------   -------   -------      -------      --------   --------  --------      --------
Total cost of reve-
 nues.................   80,112    2,274     7,041    30,164       13,881       116,114    195,718    (9,070)      436,234
                        -------   ------   -------   -------      -------      --------   --------  --------      --------
Gross profit..........   47,239      880       809    13,176        8,235        58,734     75,642     9,070       213,785
Selling, general and
 administrative
 expenses.............   25,102      774     3,200     9,672        3,535        46,463     31,550   (10,381)(c)   109,734
                                                                                                        (181)(d)
Non-rental
 depreciation and
 amortization.........    3,815       23       304       359          382         2,570      7,675     6,100 (e)    21,228
                        -------   ------   -------   -------      -------      --------   --------  --------      --------
Operating income
 (loss)...............   18,322       83    (2,695)    3,145        4,318         9,701     36,417    13,532        82,823
Interest expense......    4,937      147       631     4,220          763         7,693      8,887   (11,203)(f)    32,982
                                                                                                      16,907 (g)
Other (income) ex-
 pense, net...........     (528)     (52)      (95)     (198)         (51)       (4,728)                            (5,652)
                        -------   ------   -------   -------      -------      --------   --------  --------      --------
Income (loss) before
 provision for income
 taxes................   13,913      (12)   (3,231)     (877)       3,606         6,736     27,530     7,828        55,493
Provision for income
 taxes................    5,693                       (2,638)         896           841     11,067     6,672 (h)    22,531
                        -------   ------   -------   -------      -------      --------   --------  --------      --------
Net income (loss).....  $ 8,220   $  (12)  $(3,231)  $ 1,761      $ 2,710      $  5,895   $ 16,463  $  1,156      $ 32,962
                        =======   ======   =======   =======      =======      ========   ========  ========      ========
Basic earnings per
 share................  $  0.27                                                                                   $   0.49
                        =======                                                                                   ========
Diluted earnings per
 share................  $  0.23                                                                                   $   0.45
                        =======                                                                                   ========
Basic weighted average
 equivalent shares
 outstanding..........   29,970                                                                                     66,951
                        =======                                                                                   ========
Diluted weighted
 average equivalent
 shares outstanding...   35,092                                                                                     73,190
                        =======                                                                                   ========

 
 
      See notes to pro forma unaudited Consolidated Financial Statements.
 
                                      F-9

 
                                 UNITED RENTALS
 
  PRO FORMA UNAUDITED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE YEAR ENDED
                               DECEMBER 31, 1997
 


                     UNITED
                     RENTALS
                   PERIOD FROM
                   AUGUST 14,                                                    MCCLINCH
                      1997                                            EQUIPMENT  INC. AND
                   (INCEPTION)                     MISSION              SUPPLY   MCCLINCH
                     THROUGH    ACCESS   BNR GROUP  VALLEY    POWER   CO., INC.  EQUIPMENT
                    DECEMBER   RENTALS,     OF     RENTALS,  RENTAL      AND     SERVICES,    OTHER       U.S.
                    31, 1997     INC.    COMPANIES   INC.   CO., INC. AFFILIATES   INC.    ACQUISITIONS RENTALS  ADJUSTMENTS
                   ----------- --------  --------- -------- --------- ---------- --------- ------------ -------- -----------
                                                   (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
                                                                                   
Revenues
 Equipment rent-
  als............    $ 7,019   $42,316    $ 9,403   $7,853   $35,382   $78,142    $30,615    $308,813   $340,507
 Sales of
  equipment,
  merchandise and
  other
  revenues.......      3,614     9,943     14,612      765     5,154    16,416      9,418     189,464     84,186
                     -------   -------    -------   ------   -------   -------    -------    --------   --------  --------
Total revenues...     10,633    52,259     24,015    8,618    40,536    94,558     40,033     498,277    424,693
Cost of revenues
 Cost of
  equipment
  rentals,
  excluding
  depreciation...      3,203    12,415      4,662    3,437    12,678    23,510     11,590     125,429    185,277
 Depreciation of
  rental
  equipment......      1,039     8,480      1,589    1,746     9,706    20,397      5,888      65,115     69,231  $(15,852)(a)
 Cost of sales
  and other
  operating
  costs..........      2,580     8,862     10,361      518     3,648    11,362      6,485     138,215     52,485       (72)(b)
                     -------   -------    -------   ------   -------   -------    -------    --------   --------  --------
Total cost of
 revenues........      6,822    29,757     16,612    5,701    26,032    55,269     23,963     328,759    306,993   (15,924)
                     -------   -------    -------   ------   -------   -------    -------    --------   --------  --------
Gross profit.....      3,811    22,502      7,403    2,917    14,504    39,289     16,070     169,518    117,700    15,924
Selling, general
 and
 administrative
 expenses........      3,311    10,440      5,402    3,062    12,147    17,875      8,605     117,195     42,597   (23,337)(c)
                                                                                                                      (177)(d)
Non-rental
 depreciation and
 amortization....        262     1,355        104       32     1,226       878        714       6,683     11,222    15,495 (e)
Termination cost
 of deferred
 compensation
 agreements......                                                                                         20,290
                     -------   -------    -------   ------   -------   -------    -------    --------   --------  --------
Operating
 income..........        238    10,707      1,897     (177)    1,131    20,536      6,751      45,640     43,571    23,943
Interest
 expense.........        454     3,700        501      434     2,344    11,186      2,195      19,008      7,370   (38,817)(f)
                                                                                                                    65,964 (g)
Other (income)
 expense, net           (270)     (809)                (61)     (370)   (2,859)      (715)     (1,959)       473
                     -------   -------    -------   ------   -------   -------    -------    --------   --------  --------
Income before
 provision for
 income taxes and
 extraordinary
 item............         54     7,816      1,396     (550)     (843)   12,209      5,271      28,591     35,748    (3,204)
Provision for
 income taxes....         20     2,745        459      (73)              1,242      1,189       3,215     29,407    12,005 (h)
                     -------   -------    -------   ------   -------   -------    -------    --------   --------  --------
Income before
 extraordinary
 item............    $    34   $ 5,071    $   937   $ (477)  $  (843)  $10,967    $ 4,082    $ 25,376   $  6,341  $(15,209)
                     =======   =======    =======   ======   =======   =======    =======    ========   ========  ========
Basic earnings
 per share before
 extraordinary
 item............    $  0.00
                     =======
Diluted earnings
 per share before
 extraordinary
 item............    $  0.00
                     =======
Basic weighted
 average
 equivalent
 shares
 outstanding.....     16,319
                     =======
Diluted weighted
 average
 equivalent
 shares
 outstanding.....     18,172
                     =======

                   PRO FORMA
                   -----------
                
Revenues
 Equipment rent-
  als............  $  860,050
 Sales of
  equipment,
  merchandise and
  other
  revenues.......     333,572
                   -----------
Total revenues...   1,193,622
Cost of revenues
 Cost of
  equipment
  rentals,
  excluding
  depreciation...     382,201
 Depreciation of
  rental
  equipment......     167,339
 Cost of sales
  and other
  operating
  costs..........     234,444
                   -----------
Total cost of
 revenues........     783,984
                   -----------
Gross profit.....     409,638
Selling, general
 and
 administrative
 expenses........     197,120
Non-rental
 depreciation and
 amortization....      37,971
Termination cost
 of deferred
 compensation
 agreements......      20,290
                   -----------
Operating
 income..........     154,257
Interest
 expense.........      74,339
Other (income)
 expense, net          (6,570)
                   -----------
Income before
 provision for
 income taxes and
 extraordinary
 item............      86,488
Provision for
 income taxes....      50,209
                   -----------
Income before
 extraordinary
 item............  $   36,279
                   ===========
Basic earnings
 per share before
 extraordinary
 item............  $     0.55
                   ===========
Diluted earnings
 per share before
 extraordinary
 item............  $     0.53
                   ===========
Basic weighted
 average
 equivalent
 shares
 outstanding.....      65,595
                   ===========
Diluted weighted
 average
 equivalent
 shares
 outstanding.....      67,862
                   ===========

 
      See notes to pro forma unaudited Consolidated Financial Statements.
 
                                      F-10

 
                                 UNITED RENTALS
 
            PRO FORMA UNAUDITED CONSOLIDATED STATEMENT OF OPERATIONS
                      FOR THE YEAR ENDED DECEMBER 31, 1996
 


                            U.S.      OTHER
                          RENTALS  ACQUISITION ADJUSTMENTS PRO FORMA
                          -------- ----------- ----------- ---------
                                   (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
                                                         
Revenues
  Equipment rentals.....  $257,486   $46,640               $304,126
  Sales of equipment,
   merchandise and other
   revenue..............    48,351       719                 49,070
                          --------   -------      ----     --------
Total revenues..........   305,837    47,359                353,196
  Cost of revenues
  Cost of equipment
   rentals, excluding
   depreciation.........   136,584    19,209                155,793
  Depreciation of rental
   equipment............    56,105     9,188                 65,293
  Cost of sales and
   other operating
   costs................    27,532                           27,532
                          --------   -------      ----     --------
Total cost of revenues..   220,221    28,397                248,618
                          --------   -------      ----     --------
Gross profit............    85,616    18,962                104,578
Selling, general and
 administrative
 expenses...............    35,934     9,979                 45,913
Non-rental depreciation
 and amortization.......     7,528     1,855                  9,383
                          --------   -------      ----     --------
Operating income........    42,154     7,128                 49,282
Interest expense........     8,373     2,563                 10,936
Other (income) expense,
 net....................       323       (76)                   247
                          --------   -------      ----     --------
Income before provision
 for income taxes.......    33,458     4,641                 38,099
Provision for income
 taxes..................       374                              374
                          --------   -------      ----     --------
Net income..............  $ 33,084   $ 4,641               $ 37,725
                          ========   =======      ====     ========
Basic and diluted earn-
 ings per share.........                                   $   1.66
                                                           ========
Basic and diluted
 weighted average
 equivalent shares
 outstanding............                                     22,715
                                                           ========

 
 
       See notes to pro forma unaudited Consolidated Financial Statements
 
                                      F-11

 
                                 UNITED RENTALS
 
            PRO FORMA UNAUDITED CONSOLIDATED STATEMENT OF OPERATIONS
                      FOR THE YEAR ENDED DECEMBER 31, 1995
 


                            U.S.      OTHER
                          RENTALS  ACQUISITION ADJUSTMENTS PRO FORMA
                          -------- ----------- ----------- ---------
                                   (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
                                                         
Revenues
 Equipment rentals......  $214,849   $40,040               $254,889
 Sales of equipment,
  merchandise and other
  revenue...............    27,998                           27,998
                          --------   -------    --------   --------
Total revenues..........   242,847    40,040                282,887
Cost of revenues
 Cost of equipment
  rentals, excluding
  depreciation..........   107,876    17,707                125,583
 Depreciation of rental
  equipment.............    43,885     8,062                 51,947
 Cost of sales and other
  operating costs.......    16,111                           16,111
                          --------   -------    --------   --------
Total cost of revenues..   167,872    25,769                193,641
                          --------   -------    --------   --------
Gross profit............    74,975    14,271                 89,246
Selling, general and
 administrative
 expenses...............    31,440     8,707                 40,147
Non-rental depreciation
 and amortization.......     5,513     1,403                  6,916
                          --------   -------    --------   --------
Operating income........    38,022     4,161                 42,183
Interest expense........     5,310     2,161                  7,471
Other (income) expense,
 net....................     1,620      (673)                   947
                          --------   -------    --------   --------
Income before provision
 for income taxes.......    31,092     2,673                 33,765
Provision for income
 taxes..................       468                              468
                          --------   -------    --------   --------
Net income..............  $ 30,624   $ 2,673               $ 33,297
                          ========   =======    ========   ========
Basic and diluted earn-
 ings per share.........                                   $   1.47
                                                           ========
Basic and diluted
 weighted average
 equivalent shares
 outstanding............                                     22,715
                                                           ========

 
 
      See notes to pro forma unaudited consolidated financial statements.
 
                                      F-12

 
                                UNITED RENTALS
 
        NOTES TO PRO FORMA UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 
1. BASIS OF PRESENTATION
 
  The Company is a large geographically diversified equipment rental company
in the United States and Canada. The Company rents a broad array of equipment
to a diverse customer base that includes construction industry participants,
industrial companies, homeowners and other individuals. The Company also sells
rental equipment, acts as a distributor for certain new equipment, and sells
related merchandise and parts.
 
  The financial data for United Rentals, Inc., U.S. Rentals, Inc. and Rental
Tools and Equipment Co. International Inc. is derived from the respective
historical financial statements of each company. The financial data for each
of the acquisitions is derived from the respective historical financial
statements of such companies. The results of operations for each acquisition
acquired during a period presented includes the results of operations from the
beginning of such period through the date of acquisition.
 
2. ACQUISITIONS
 
  Since its formation, the Company has completed a total of 72 acquisitions.
These include the acquisition of the six Initial Acquired Companies in October
1997 and the acquisition of 66 additional companies in the elapsed portion of
1998.
 
  Based upon management's preliminary estimates, it is estimated that the
carrying value of the assets and liabilities of the 21 companies acquired by
the Company subsequent to June 30, 1998 approximates fair value, with the
exception of rental equipment and other property and equipment, which required
adjustments to reflect fair market value. The following table presents the
allocation of purchase price of each of the 21 companies acquired by the
Company subsequent to June 30, 1998:
 


                                      EQUIPMENT              OTHER
                                       SUPPLY   MCCLINCH  ACQUISITIONS  TOTAL
                                      --------- --------  ------------ --------
                                                           
Purchase price....................... $133,692  $97,175     $230,462   $461,329
Net assets acquired..................   38,020   16,662       66,443    121,125
Fair value adjustments:
  Rental equipment...................    2,561    2,117        6,106     10,784
  Property and equipment.............      233      (13)      (2,668)    (2,448)
                                      --------  -------     --------   --------
Intangible assets recorded........... $ 92,878  $78,409     $160,581   $331,868
                                      ========  =======     ========   ========

 
3. PRO FORMA ADJUSTMENTS
 
  Balance sheet adjustments:
 
  a. Records the portion of the acquisition consideration and debt repayment
     paid from available cash on hand.
 
  b. Adjusts the carrying value of rental equipment to fair market value.
 
  c. Adjusts the carrying value of property and equipment to fair market
     value.
 
  d. Records the excess of the acquisition consideration over the estimated
     fair value of net assets acquired.
 
  e. Records a charge to stockholders' equity and an increase in accrued
     liabilities for the estimated U.S. Rentals Merger costs of $60 million.
 
  f. Records the repayment of certain indebtedness of the acquisitions.
 
  g. Records the portion of the acquisition consideration and debt repayment
     funded by borrowing under United Rentals' credit facility, senior
     subordinated notes and term loan.
 
  h. Records the elimination of the stockholders' equity of the acquisitions.
 
 
                                     F-13

 
  i. Records the portion of the acquisition consideration paid in the form of
     common stock.
 
  Statement of operations adjustments:
 
  a. Adjusts the depreciation of rental equipment and other property and
     equipment based upon adjusted carrying values utilizing the following
     lives (subject to a salvage value ranging from 0 to 10%):
 
                                                            
       Rental equipment.............................................. 2-10 years
       Other property and equipment.................................. 2-15 years

       
 
  b. Adjusts the method of accounting for inventory at one of the
     acquisitions from the LIFO method to the FIFO method.
 
  c. Adjusts the compensation to former owners and executives of the
     acquisitions to current levels of compensation.
 
  d. Adjusts the lease expense for real estate utilized by the acquisitions
     to current lease agreements.
 
  e. Records the amortization of the excess of cost over net assets acquired
     attributable to the acquisitions using an estimated life of 40 years.
 
  f. Eliminates interest expense related to the outstanding indebtedness of
     the acquisitions which was repaid by United Rentals.
 
  g. Records interest expense relating to the portion of the acquisitions
     funded through borrowing under United Rentals' credit facility using a
     rate per annum of 7%, senior subordinated notes using a rate per annum
     of 9 1/2% and term loan using a rate per annum of 7.6%.
 
  h. Records a provision for income taxes at an estimated rate of 41%.
 
4. EARNINGS PER SHARE
 
  Pro forma earnings per share is calculated by dividing the net income by the
weighted average shares outstanding during the period. the weighted average
outstanding shares during the period is calculated as follows:
 


                                                 YEARS ENDED DECEMBER 31,
                                             ----------------------------------
                                 SIX MONTHS
                                   ENDED
                                  JUNE 30,
                                    1998        1997        1996        1995
                                 ----------  ----------  ----------  ----------
                                                         
Basic:
United Rentals Shares
 Outstanding at June 30, 1998..  34,192,085  34,192,085
Shares issued for acquisitions
 subsequent to June 30, 1998...   3,152,409   3,152,409   2,744,368   2,744,368
U.S. Rentals weighted average
 shares........................  30,760,301  29,351,715  20,784,975  20,748,975
Reduction of U.S. Rentals
 shares for exchange ratio.....  (1,153,511) (1,100,689)   (778,087)   (778,087)
                                 ----------  ----------  ----------  ----------
                                 66,951,284  65,595,520  22,751,256  22,751,256
                                 ==========  ==========  ==========  ==========
Diluted:
United Rentals Shares
 outstanding at June 30, 1998    34,192,085  34,192,085
Shares issued for acquisitions
 subsequent to June 30, 1998...   3,152,409   3,152,409   2,744,368   2,744,368
U.S. Rentals weighted average
 equivalent shares.............  31,920,944  29,843,752  20,748,975  20,748,975
Reduction of U.S. Rentals
 shares for exchange ratio.....  (1,197,035) (1,119,141)   (778,087)   (778,087)
Common Stock equivalents (based
 on the initial public offering
 price of $13.50 per share for
 1997).........................   5,122,060   1,792,942
                                 ----------  ----------  ----------  ----------
                                 73,190,463  67,862,047  22,751,256  22,751,256
                                 ==========  ==========  ==========  ==========

 
                                     F-14

 
                        REPORT OF INDEPENDENT AUDITORS
 
Board of Directors
United Rentals, Inc.
 
  We have audited the accompanying consolidated balance sheet of United
Rentals, Inc. as of December 31, 1997 and the related consolidated statements
of operations, stockholders' equity and cash flows from August 14, 1997
(Inception) to December 31, 1997. These financial statements are the
responsibility of the management of United Rentals, Inc. Our responsibility is
to express an opinion on these financial statements based on our audit.
 
  We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
 
  In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of United Rentals, Inc. at December 31, 1997, and the results of its
operations and its cash flows from August 14, 1997 (Inception) to December 31,
1997, in conformity with generally accepted accounting principles.
 
                                          /s/ Ernst & Young LLP
 
MetroPark, New Jersey
January 30, 1998, except for
 Note 11, as to which the date
 is September 14, 1998
 
                                     F-15

 
                              UNITED RENTALS, INC.
 
                           CONSOLIDATED BALANCE SHEET
 
                               DECEMBER 31, 1997
 
                                                                
                              ASSETS
Cash and cash equivalents......................................... $ 68,607,528
Accounts receivable, net of allowance for doubtful accounts of
 $1,161,000.......................................................    7,494,636
Inventory.........................................................    3,827,446
Prepaid expenses and other assets.................................    2,966,822
Rental equipment, net.............................................   33,407,561
Property and equipment, net.......................................    2,272,683
Intangible assets, net of accumulated amortization of $241,000....   50,533,736
                                                                   ------------
                                                                   $169,110,412
                                                                   ============
               LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
  Accounts payable................................................ $  5,697,830
  Debt............................................................    1,074,474
  Deferred taxes..................................................      198,249
  Accrued expenses and other liabilities..........................    4,409,828
                                                                   ------------
    Total liabilities.............................................   11,380,381
Commitments and contingencies
Stockholders' equity:
  Preferred stock--$.01 par value, 5,000,000 shares authorized, no
   shares issued and outstanding..................................          --
  Common stock--$.01 par value, 75,000,000 shares authorized,
   23,899,119 shares issued and outstanding.......................      238,991
  Additional paid-in capital......................................  157,457,418
  Retained earnings...............................................       33,622
                                                                   ------------
    Total stockholders' equity....................................  157,730,031
                                                                   ------------
                                                                   $169,110,412
                                                                   ============


 
 
                            See accompanying notes.
 
                                      F-16

 
                              UNITED RENTALS, INC.
 
                      CONSOLIDATED STATEMENT OF OPERATIONS
 
                AUGUST 14, 1997 (INCEPTION) TO DECEMBER 31, 1997
 
                                                                
Revenues:
  Equipment rentals............................................... $ 7,018,564
  Sales of rental equipment.......................................   1,011,071
  Sales of new equipment, merchandise and other revenues..........   2,603,763
                                                                   -----------
Total revenues....................................................  10,633,398
Cost of revenues:
  Cost of equipment rentals, excluding depreciation...............   3,203,209
  Depreciation of rental equipment................................   1,038,747
  Cost of rental equipment sales..................................     527,523
  Cost of new equipment and merchandise sales and other operating
   costs..........................................................   2,052,639
                                                                   -----------
Total cost of revenues............................................   6,822,118
                                                                   -----------
Gross profit......................................................   3,811,280
Selling, general and administrative expenses......................   3,311,669
Non-rental depreciation and amortization..........................     262,102
                                                                   -----------
Operating income..................................................     237,509
Interest expense..................................................     454,072
Other (income) expense............................................    (270,701)
                                                                   -----------
Income before provision for income taxes..........................      54,138
Provision for income taxes........................................      20,516
                                                                   -----------
Net income........................................................ $    33,622
                                                                   ===========
Basic earnings per share.......................................... $      0.00
                                                                   ===========
Diluted earnings per share........................................ $      0.00
                                                                   ===========


 
 
                            See accompanying notes.
 
                                      F-17

 
                              UNITED RENTALS, INC.
 
                 CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
 
               AUGUST 14, 1997 (INCEPTION) TO DECEMBER 31 , 1997
 


                                         COMMON STOCK
                                      -------------------  ADDITIONAL
                                        NUMBER              PAID-IN    RETAINED
                                      OF SHARES   AMOUNT    CAPITAL    EARNINGS
                                      ---------- -------- ------------ --------
                                                           
Balance, August 14, 1997 (Incep-
 tion)...............................        --  $    --  $        --  $   --
  Issuance of common stock and war-
   rants............................. 23,899,119  238,991  157,457,418
  Net income.........................                                   33,622
                                      ---------- -------- ------------ -------
Balance, December 31, 1997........... 23,899,119 $238,991 $157,457,418 $33,622
                                      ========== ======== ============ =======

 
 
 
                            See accompanying notes.
 
 
                                      F-18

 
                              UNITED RENTALS, INC.
 
                      CONSOLIDATED STATEMENT OF CASH FLOWS
 
                AUGUST 14, 1997 (INCEPTION) TO DECEMBER 31, 1997
 
                                                                
CASH FLOWS FROM OPERATING ACTIVITIES
Net income.......................................................  $     33,622
Adjustments to reconcile net income to net cash provided by oper-
 ating activities:
  Depreciation and amortization..................................     1,300,849
  Gain on sale of rental equipment...............................      (483,548)
  Deferred taxes.................................................        (2,204)
  Changes in operating assets and liabilities:
    Accounts receivable..........................................       609,529
    Inventory....................................................       631,484
    Prepaid expenses and other assets............................      (755,545)
    Accounts payable.............................................       281,056
    Accrued expenses and other liabilities.......................      (512,507)
                                                                   ------------
      Net cash provided by operating activities..................     1,102,736
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of rental equipment....................................    (1,886,533)
Purchases of property and equipment..............................      (819,557)
Proceeds from sales of rental equipment..........................     1,011,071
In-process acquisition costs.....................................      (128,523)
Purchase of other companies......................................   (51,451,634)
                                                                   ------------
      Net cash used in investing activities......................   (53,275,176)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of common stock and warrants, net of
 issuance costs..................................................   154,788,110
Proceeds from debt...............................................    35,000,000
Repayment of debt................................................   (68,222,252)
Payment of debt financing costs..................................      (785,890)
                                                                   ------------
      Net cash provided by financing activities..................   120,779,968
                                                                   ------------
Net increase in cash and cash equivalents........................    68,607,528
Cash and cash equivalents at beginning of period.................           --
                                                                   ------------
      Cash and cash equivalents at end of period.................  $ 68,607,528
                                                                   ============
Supplemental disclosure of cash flow information:
  Cash paid for interest.........................................  $    446,559
                                                                   ============
Supplemental schedule of non cash investing and financing
 activities:
  The Company acquired the net assets and assumed certain
   liabilities of other companies as follows:
    Assets, net of cash acquired.................................  $ 98,876,932
    Liabilities assumed..........................................   (43,300,749)
    Less:
      Amounts paid in common stock...............................    (3,824,549)
      Amount paid through issuance of convertible note...........      (300,000)
                                                                   ------------
  Net cash paid..................................................  $ 51,451,634
                                                                   ============


 
                            See accompanying notes.
 
                                      F-19

 
                             UNITED RENTALS, INC.
 
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
                               DECEMBER 31, 1997
 
1. ORGANIZATION AND BASIS OF PRESENTATION
 
  United Rentals, Inc. (together with its subsidiaries the "Company") was
incorporated in August 1997 for the purpose of creating a large,
geographically diversified equipment rental company in the United States and
Canada. (see Note 11) The Company rents a broad array of equipment to a
diverse customer base that includes construction industry participants,
industrial companies, homeowners and others. The Company also engages in
related activities such as selling used rental equipment, acting as a
distributor for certain new equipment and selling related merchandise and
parts. The nature of the Company's business is such that short-term
obligations are typically met by cash flow generated from long-term assets.
Consequently, consistent with industry practice, the accompanying balance
sheet is presented on an unclassified basis.
 
  The accompanying consolidated financial statements include the accounts of
the Company and its wholly-owned subsidiaries. All significant intercompany
accounts and transactions have been eliminated.
 
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
 Cash Equivalents
 
  The Company considers all highly liquid instruments with a maturity of three
months or less when purchased to be cash equivalents.
 
 Inventory
 
  Inventory consists of equipment, tools, parts, fuel and related supply
items. Inventory is stated at the lower of average weighted cost or market.
 
 Rental Equipment
 
  Rental equipment is recorded at cost and depreciated over the estimated
useful lives of the equipment using the straight-line method. The range of
useful lives estimated by management for rental equipment is two to ten years.
Rental equipment is depreciated to a salvage value of zero to ten percent of
cost. Rental equipment having a cost of $500 or less is expensed at the time
of purchase. Ordinary maintenance and repair costs are charged to operations
as incurred.
 
 Revenue Recognition
 
  Revenue related to the sale of equipment is recognized at the point of sale.
Revenue related to rental equipment is recognized over the contract term.
 
 Property and Equipment
 
  Property and equipment are recorded at cost and depreciated over their
estimated useful lives using the straight-line method. The range of useful
lives estimated by management for property and equipment is two to ten years.
Ordinary maintenance and repair costs are charged to operations as incurred.
 
 Intangible Assets
 
  Intangible assets consist of the excess of cost over the value of
identifiable net assets of businesses acquired and are being amortized on a
straight line basis over their estimated useful lives of forty years.
 
                                     F-20

 
                             UNITED RENTALS, INC.
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
 
 Fair Value of Financial Instruments
 
  The carrying amounts reported in the balance sheet for accounts receivable,
accounts payable, accrued expenses and other liabilities approximate fair
value due to the immediate to short-term maturity of these financial
instruments. The fair value of notes payable is determined using current
interest rates for similar instruments as of December 31, 1997 and
approximates the carrying value of these notes due to the fact that the
underlying instruments include provisions to adjust note balances and interest
rates to approximate fair market value.
 
 Advertising Expense
 
  The Company expenses the cost of advertising as incurred. The Company
incurred $146,000 in advertising costs for the period August 14, 1997
(Inception) to December 31, 1997.
 
 Income Taxes
 
  The Company uses the liability method of accounting for income taxes. Under
this method, deferred tax assets and liabilities are determined based on the
differences between financial statement and tax bases of assets and
liabilities and are measured using the enacted tax rates and laws that are
expected to be in effect when the differences are expected to reverse.
Recognition of deferred tax assets is limited to amounts considered by
management to be more likely than not of realization in future periods.
 
 Use of Estimates
 
  The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
 
 Concentrations of Credit Risk
 
  Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist principally of cash investments and
accounts receivable. The Company maintains cash and cash equivalents with high
quality financial institutions. Concentrations of credit risk with respect to
accounts receivable are limited because a large number of geographically
diverse customers make up the Company's customer base. No single customer
represents greater than 10% of total accounts receivable. The Company controls
credit risk through credit approvals, credit limits, and monitoring
procedures.
 
 Stock-Based Compensation
 
  The Company accounts for its stock based compensation arrangements under the
provisions of APB Opinion No. 25, "Accounting for Stock Issued to Employees."
Since stock options will be granted by the Company with exercise prices at or
greater than the fair value of the shares at the date of grant, no
compensation expense will be recognized.
 
 Computation of Earnings Per Share
 
  Earnings per share is calculated under the provisions of recently issued
Statement 128, Earnings Per Share. Common Stock issued for consideration below
the initial public offering price ("IPO price") of $13.50 per share at which
shares were sold in the Company's initial public offering (the "IPO"), and
stock options and warrants granted with exercise prices below the IPO price
per share during the twelve months preceding the date of the
 
                                     F-21

 
                             UNITED RENTALS, INC.
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
initial filing of the registration statement for the IPO are included in the
calculation of common equivalent shares at the IPO price per share.
 
 Impact of Recently Issued Accounting Standards
 
  In June 1997, the Financial Accounting Standards Board issued SFAS No. 130,
"Reporting Comprehensive Income," and SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information." The Company is required to
adopt the provisions of these Statements in fiscal year 1998. SFAS No. 130
establishes standards for reporting and display of comprehensive income and
its components in a primary financial statement. The Company is currently
evaluating the reporting formats recommended under this Statement. SFAS No.
131 establishes a new method by which companies will report operating segment
information. This method is based on the manner in which management organizes
the segments within a company for making operating decisions and assessing
performance. The Company continues to evaluate the provisions of SFAS No. 131
and, upon adoption, the Company may report operating segments.
 
3. ACQUISITIONS
 
  During October 1997, the Company purchased all of the outstanding stock of
the following six equipment rental companies for the indicated consideration:
 


      COMPANY                                                      CONSIDERATION
      -------                                                      -------------
                                                                
      A & A Tool Rentals and Sales, Inc...........................  $ 8,593,520
      Bronco High-Lift, Inc.......................................    7,949,568
      Coran Enterprises, Inc......................................   15,264,337
      J & J Rental Services, Inc..................................    3,824,549
      Mercer Equipment Company....................................   14,933,242
      Rent-It Center, Inc.........................................    6,400,000

 
  All of the consideration paid for the acquisitions was in cash, with the
exception of Rent-It Center, Inc. which included a $300,000 convertible note
and J & J Rental Services, Inc. where all of the consideration was paid
through the issuance of 318,712 shares of the Company's Common Stock. These
shares are subject to adjustment so that their value will equal $3.8 million
based upon the average daily closing price of the Company's Common Stock
during the 60 day period beginning December 18, 1997. Contingent consideration
is due on the J & J Rental Services, Inc. acquisition based upon a percentage
of revenues up to a maximum of $2.8 million.
 
  These acquisitions have been accounted for as purchases and, accordingly,
the results of their operations have been included in the Company's results of
operations from their respective acquisition dates. The purchase prices have
been allocated to the assets acquired and liabilities assumed based on their
respective fair values at their respective acquisition dates. Contingent
purchase price is capitalized when earned and amortized over the remaining
life of the related asset.
 
  The Company has not completed its valuation of the 1997 purchases and the
purchase price allocations are subject to change when additional information
concerning asset and liability valuations are completed.
 
                                     F-22

 
                             UNITED RENTALS, INC.
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
 
  The following table summarizes, on an unaudited pro forma basis, the
combined results of operations of the Company for the years ended December 31,
1997 and 1996 as though each acquisition described above was made on January
1, for each of the periods.
 


                                                           1997        1996
                                                        ----------- -----------
                                                              
   Revenues............................................ $59,832,952 $51,889,258
   Net income..........................................   2,607,127   3,462,371
   Basic earnings per share............................ $      0.16 $      0.22
   Diluted earnings per share.......................... $      0.14 $      0.20

 
  The unaudited pro forma results are based upon certain assumptions and
estimates which are subject to change. These results are not necessarily
indicative of the actual results of operations that might have occurred, nor
are they necessarily indicative of expected results in the future.
 
4. RENTAL EQUIPMENT
 
  Rental equipment and related accumulated depreciation consists of the
following:
 
                                                             
   Rental equipment............................................... $34,444,129
   Less accumulated depreciation..................................  (1,036,568)
                                                                   -----------
   Rental equipment, net.......................................... $33,407,561
                                                                   ===========
 
5. PROPERTY AND EQUIPMENT
 
  A summary of property and equipment is as follows:
 
   Furniture, fixtures and office equipment....................... $ 2,294,277
   Less accumulated depreciation..................................     (21,594)
                                                                   -----------
   Property and equipment, net.................................... $ 2,272,683
                                                                   ===========
 
6. DEBT
 
  Debt consists of the following:
 
   Subordinated convertible notes................................. $   500,000
   Equipment notes, interest at 7.0% to 10.6%, payable in various
    monthly installments through 2001, secured by equipment.......     574,474
                                                                   -----------
   Total debt..................................................... $ 1,074,474
                                                                   ===========

   
 
  The Company's credit facility with a group of financial institutions, for
which Bank of America National Trust and Savings Association acts as agent,
enables the Company to borrow up to $155 million on a revolving basis (the
"Credit Facility"). The facility terminates on October 8, 2000, at which time
all outstanding indebtedness is due. Up to $10 million of the Credit Facility
is available in the form of letters of credit. Borrowings under the Credit
Facility accrue interest, at the Company's option, at either (a) the Floating
Rate (which is equal to the greater of (i) the Federal Funds Rate plus 0.5%
and (ii) Bank of America's reference rate, in each case, plus a margin ranging
from 0% to 0.25% per annum) or (b) the Eurodollar Rate (which is equal to Bank
of America's reserve adjusted eurodollar rate plus a margin ranging from 1.5%
to 2.5% per annum). As of December 31, 1997, there was no outstanding
indebtedness under the Credit Facility. The Credit Facility contains
 
                                     F-23

 
                             UNITED RENTALS, INC.
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
certain covenants that require the Company to, among other things, satisfy
certain financial tests relating to: (a) maintenance of minimum net worth, (b)
the ratio of debt to net worth, (c) interest coverage ratio, (d) the ratio of
funded debt to cash flow, and (e) the ratio of senior debt to tangible assets.
The Credit Facility also contains certain covenants that restrict the
Company's ability to, among other things, (i) incur additional indebtedness,
(ii) permit liens to attach to its assets, (iii) enter into operating leases
requiring payments in excess of specified amounts, (iv) declare or pay
dividends or make other restricted payments with respect to its equity
securities (including the Common Stock) or subordinated debt, (v) sell assets,
(vi) make acquisitions unless certain financial conditions are satisfied, and
(vii) engage in any line of business other than the equipment rental industry.
The Credit Facility provides that the failure by any two of certain of the
Company's executive officers to continue to hold executive positions with the
Company for a period of 30 consecutive days constitutes an event of default
under the Credit Facility unless replacement officers satisfactory to the
lenders are appointed. The Credit Facility is also subject to other customary
events of default. The Credit Facility is secured by substantially all of the
assets of United Rentals, Inc. and by the stock and assets of its
subsidiaries.
 
  The subordinated convertible notes consists of two notes; $300,000 in
principal bearing interest at 7% per annum and $200,000 in principal bearing
interest at 7 1/2% per annum. The $200,000 note was converted into 14,814
shares of Common Stock during January 1998. The $300,000 note is repayable in
equal quarterly installments of principal and interest through October, 2002,
is convertible into the Company's Common Stock at a conversion rate of $16.20
per share and is subordinated to the Company's Credit Facility.
 
  Maturities of the Company's debt for each of the next five years at December
31, 1997 are as follows:
 
                                                                
   1998.............................................................. $  244,260
   1999..............................................................    340,916
   2000..............................................................    239,020
   2001..............................................................    181,676
   2002..............................................................     68,602
                                                                      ----------
                                                                      $1,074,474
                                                                      ==========

   
 
7. INCOME TAXES
 
  The provision for federal and state income taxes is as follows:
 
                                                                  
   Current State....................................................... $22,720
   Deferred State......................................................   3,041
   Deferred Federal....................................................  (5,245)
                                                                        -------
                                                                        $20,516
                                                                        =======

   
 
  A reconciliation of the provision for income taxes and the amount computed
by applying the statutory federal income tax rate of 34% to income before
provision for income taxes is as follows:
 
                                                                  
   Computed tax benefit at statutory tax rate.......................... $18,407
   Increase in tax benefit:
     Tax-exempt interest income........................................ (91,971)
     Non-deductible expense............................................  77,078
     State income taxes, net of Federal benefit........................  17,002
                                                                        -------
                                                                        $20,516
                                                                        =======

   
 
                                     F-24

 
                             UNITED RENTALS, INC.
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
 
  The components of deferred income tax assets are as follows:
 
                                                               
   Accrual liabilities.............................................. $  957,619
   Net operating loss carryforward..................................    313,719
   Property & equipment.............................................     43,908
                                                                     ----------
                                                                     $1,315,246
                                                                     ==========

   
 
  The components of deferred income tax liabilities are as follows:
 
                                                                 
   Intangibles and other.............................................. $633,132
                                                                       ========

   
 
  The Company has net short-term deferred tax assets in the amount of
$880,363, which are reported in the balance sheet in prepaid expenses and
other assets.
 
  The Company has net operating loss carryforwards ("NOLs") of $845,681 for
income tax purposes that expire in 2012.
 
8. CAPITAL STOCK
 
  Preferred Stock: The Company's board of directors has the authority to
designate 5,000,000 shares of $.01 par value preferred stock in series, to
establish as to each series the designation and number of shares to be issued
and the rights, preferences, privileges and restrictions of the shares of each
series, and to determine the voting powers, if any, of such shares. At
December 31, 1997, the Company's Board of Directors had not designated any
shares.
 
  As of December 31, 1997 there are outstanding warrants to purchase an
aggregate of 6,344,058 shares of Common Stock. Each warrant provides for an
exercise price of $10.00 per share, is currently exercisable and may be
exercised at any time until September 12, 2007.
 
  The Board of Directors has adopted the Company's 1997 Stock Option Plan (the
"Stock Option Plan") which provides for the granting of options to purchase
not more than an aggregate of 5,000,000 shares of Common Stock. All officers,
employees and others who render services to the Company are eligible to
participate in the Stock Option Plan. Each option granted pursuant to the
Stock Option Plan must provide for an exercise price per share that is at
least equal to the fair market value per share of Common Stock on the date of
grant. No options may be granted under the Stock Option Plan after August 21,
2007. The exercise price of each option, the period during which each option
may be exercised and the other terms and conditions of each option are
determined by the Board of Directors (or by a committee appointed by the
Board).
 
  During 1997, 904,583 options to purchase shares of the Company's Common
Stock were granted and remain outstanding at December 31, 1997. The weighted
average exercise price per share of such options was $12.76. Such options had
exercise prices ranging from $10 to $30 per share. Of such options, 818,583
provided for an exercise price per share in the range of $10.00 to $19.99 (the
weighted average exercise price and weighted average remaining life of the
options in this range being $11.84 and 9.9 years, respectively) and 86,000
provided for an exercise price per share in the range of $20.01 to $30.00 (the
weighted average exercise price and weighted average remaining life of the
options in this range being $21.51 and 9.9 years, respectively). At December
31, 1997, 60,000 options to purchase Common Stock at $15.00 per share were
exercisable.
 
                                     F-25

 
                             UNITED RENTALS, INC.
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
 
  The Company applies Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees" in accounting for stock-based employee
compensation arrangements whereby no compensation cost related to stock
options is deducted in determining net income. Had compensation cost for the
Company's stock option plans been determined pursuant to Financial Accounting
Standards Board Statement No. 123 ("SFAS No. 123"), "Accounting for Stock-
Based Compensation," the Company's net income and earnings per share would
have differed. The Black-Scholes option pricing model estimates fair value of
options using subjective assumptions which can materially affect fair value
estimates and, therefore, do not necessarily provide a single measure of fair
value of options. Using the Black-Scholes option pricing model and a risk-free
interest rate of 5.8%, a volatility factor for the market price of the
Company's Common Stock of .315 and a weighted-average expected life of options
of approximately three years, the Company's net loss, basic earnings per share
and diluted earnings per share would have been $(43,731), $0.00 and $0.00,
respectively. For purposes of these pro forma disclosures, the estimated fair
value of options is amortized over the options' vesting period. Since the
number of options granted and their fair value may vary significantly from
year to year, the pro forma compensation expense in future years may be
materially different.
 
  At December 31, 1997 there are 6,344,058 shares of Common Stock reserved for
the exercise of warrants, 5,000,000 shares of Common Stock reserved for
issuance pursuant to options granted, and that may be granted in the future,
under the Company's 1997 Stock Option Plan and 33,332 shares of Common Stock
reserved for the future conversion of convertible debt.
 
9. EARNINGS PER SHARE
 
  The following table sets forth the computation of basic and diluted earnings
per share:
 
                                                                 
Numerator:
  Net income....................................................... $    33,622
                                                                    ===========
Denominator:
  Denominator for basic earnings per share--weighted-average
   shares..........................................................  16,319,193
  Effect of dilutive securities:
   Employee stock options..........................................     116,061
   Warrants........................................................   1,736,899
                                                                    -----------
  Dilutive potential common shares
   Denominator for diluted earnings per share--adjusted weighted-
    average shares.................................................  18,172,153
                                                                    ===========
Basic earnings per share........................................... $      0.00
                                                                    ===========
Diluted earnings per share......................................... $      0.00
                                                                    ===========


 
10. COMMITMENTS AND CONTINGENCIES
 
 Operating Leases
 
  The Company leases rental equipment, real estate and certain office
equipment under operating leases. Certain real estate leases require the
Company to pay maintenance, insurance, taxes and certain other expenses in
addition to the stated rentals. Future minimum lease payments, by year and in
the aggregate, for
 
                                     F-26

 
                                UNITED RENTALS
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
noncancellable operating leases with initial or remaining terms of one year or
more are as follows at December 31, 1997:
 
                                                                
   1998.............................................................. $2,676,494
   1999..............................................................  1,860,615
   2000..............................................................  1,213,003
   2001..............................................................  1,155,995
   2002..............................................................    816,400
   Thereafter........................................................  1,929,430
                                                                      ----------
                                                                      $9,651,937
                                                                      ==========

   
 
  Rent expense under non-cancellable operating leases for the period August
14, 1997 (Inception) to December 31, 1997 was $524,752.
 
11. SUBSEQUENT EVENTS
 
  Subsequent to December 31, 1997 and through September 14, 1998, the Company
completed the acquisition of 66 equipment rental companies (the
"Acquisitions") and the aggregate consideration paid by the Company for the
Acquisitions was $957.5 million and consisted of approximately $819.1 million
in cash, 4,786,668 shares of Common Stock and warrants to purchase 30,000
shares of Common Stock. The Company funded a portion of the cash consideration
for these acquisitions with cash on hand and the balance with borrowings under
the Credit Facility and proceeds from the public offering noted below.
 
  On March 11, 1998, the Company completed a public offering of 8,625,000
shares of its Common Stock. Net proceeds of the offering were approximately
$207.4 million.
 
  The purchase agreement relating to one of the 1997 acquisitions provides
that the stock consideration paid by the Company in connection with such
acquisition is subject to adjustment based upon the trading price of the
Common Stock during the 60-day period commencing December 18, 1997. In
accordance with such provision, the Company expects that 137,600 shares of
Common Stock issued by the Company in connection with such acquisition will be
cancelled.
 
  On May 19, 1998, the Company completed an offering of $200,000,000 of 9 1/2%
Senior Subordinated Notes due 2008. Net proceeds of the offering were
approximately $193.0 million.
 
  On June 15, 1998, the Company entered into an Agreement and Plan of Merger
with U.S. Rentals, Inc. The Agreement calls for an exchange ratio of 0.9625
shares of the Company's Common Stock for each share of U.S. Rentals Common
Stock. The pending Merger is subject to the satisfaction or waiver of a number
of conditions, including, but not limited to, the adoption of the Merger
Agreement by the stockholders of U.S. Rentals, Inc. and the Company's
stockholders. The Company expects the Merger to be completed in the fall of
1998.
 
  In August 1998, the Company completed a reorganization pursuant to which
existing United Rentals, Inc. became a wholly owned subsidiary of United
Rentals Holdings, Inc. (Holdings), a newly formed holding company. The name of
existing United Rentals, Inc. changed to United Rentals (North America), Inc.
and the name of United Rentals Holdings, Inc. became United Rentals, Inc. The
accompanying financial statements of United Rentals, Inc. became the financial
statements of United Rentals (North America), Inc. On August 5, United Rentals
Trust I, a subsidiary of Holdings, completed a $300 million offering of
Convertible Quarterly Income Preferred Securities. Net proceeds of the
offering of $290 million were contributed by Holdings to United Rentals (North
America), Inc.
 
  On August 12, 1998, United Rentals (North America), Inc. completed an
offering of $205,000,000 of 8.80% Senior Subordinated Notes due 2008. Net
proceeds of the offering were approximately $197.5 million.
 
                                     F-27

 
                              UNITED RENTALS, INC.
 
                          CONSOLIDATED BALANCE SHEETS
                                  (UNAUDITED)
 


                                                      JUNE 30     DECEMBER 31
                                                        1998          1997
                                                    ------------  ------------
                                                            
                      ASSETS
Cash and cash equivalents.......................... $  5,486,092  $ 68,607,528
Accounts receivable, net of allowance for doubtful
 accounts of $7,778,000 in 1998 and $1,161,000 in
 1997..............................................   67,202,625     7,494,636
Inventory..........................................   33,255,606     3,827,446
Prepaid expenses and other assets..................   22,887,178     2,966,822
Rental equipment, net..............................  298,956,195    33,407,561
Property and equipment, net........................   32,349,116     2,272,683
Intangible assets, net of accumulated amortization
 of $3,198,000 in 1998 and $241,000 in 1997........  429,027,657    50,533,736
                                                    ------------  ------------
                                                    $889,164,469  $169,110,412
                                                    ============  ============
       LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
  Accounts payable................................. $ 55,855,965  $  5,697,830
  Debt.............................................  389,181,344     1,074,474
  Deferred income taxes............................    2,375,648       198,249
  Accrued expenses and other liabilities...........   23,357,346     4,409,828
                                                    ------------  ------------
    Total liabilities..............................  470,770,303    11,380,381
Commitments and contingencies
Stockholders' equity:
  Preferred stock--$.01 par value, 5,000,000 shares
   authorized, no shares issued and outstanding....          --            --
  Common stock--$.01 par value, 75,000,000 shares
   authorized in 1998 and 1997, 34,192,085 in 1998
   and 23,899,119 in 1997 shares issued and
   outstanding.....................................      341,921       238,991
  Additional paid-in capital.......................  409,817,333   157,457,418
  Retained earnings................................    8,253,698        33,622
  Cumulative translation adjustments...............      (18,786)          --
                                                    ------------  ------------
    Total stockholders' equity.....................  418,394,166   157,730,031
                                                    ------------  ------------
                                                    $889,164,469  $169,110,412
                                                    ============  ============

 
  The accompanying notes are an integral part of these consolidated financial
                                  statements.
 
 
                                      F-28

 
                              UNITED RENTALS, INC.
 
                     CONSOLIDATED STATEMENTS OF OPERATIONS
                                  (UNAUDITED)
 


                                                     SIX MONTHS    THREE MONTHS
                                                        ENDED          ENDED
                                                    JUNE 30, 1998  JUNE 30, 1998
                                                    -------------  -------------
                                                             
Revenues:
  Equipment rentals................................ $ 86,104,719    $59,324,869
  Sales of rental equipment........................   10,464,642      7,481,451
  Sales of new equipment, merchandise and other
   revenues........................................   30,781,919     21,354,794
                                                    ------------    -----------
Total revenues.....................................  127,351,280     88,161,114
Cost of revenues:
  Cost of equipment rentals, excluding
   depreciation....................................   35,608,405     24,386,901
  Depreciation of rental equipment.................   14,565,250      9,981,418
  Cost of rental equipment sales...................    5,828,280      4,188,849
  Cost of new equipment and merchandise sales and
   other operating costs...........................   24,110,542     16,518,651
                                                    ------------    -----------
Total cost of revenues.............................   80,112,477     55,075,819
                                                    ------------    -----------
Gross profit.......................................   47,238,803     33,085,295
Selling, general and administrative expenses.......   25,101,187     17,294,256
Non-rental depreciation and amortization...........    3,815,236      2,728,812
                                                    ------------    -----------
Operating income...................................   18,322,380     13,062,227
Interest expense...................................    4,936,708      3,763,990
Other (income) expense.............................     (527,547)      (146,844)
                                                    ------------    -----------
Income before provision for income taxes...........   13,913,219      9,445,081
Provision for income taxes.........................    5,693,143      3,863,356
                                                    ------------    -----------
  Net income....................................... $  8,220,076    $ 5,581,725
                                                    ============    ===========
Basic earnings per share........................... $       0.27    $      0.17
                                                    ============    ===========
Diluted earnings per share......................... $       0.23    $      0.14
                                                    ============    ===========

 
 
  The accompanying notes are an integral part of these consolidated financial
                                  statements.
 
                                      F-29

 
                              UNITED RENTALS, INC.
 
                 CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
                                  (UNAUDITED)
 


                             COMMON STOCK
                          --------------------
                            NUMBER               ADDITIONAL             CUMULATIVE
                              OF                  PAID-IN     RETAINED  TRANSLATION
                            SHARES     AMOUNT     CAPITAL     EARNINGS  ADJUSTMENTS
                          ----------  --------  ------------ ---------- -----------
                                                         
Balance, December 31,
 1997...................  23,899,119  $238,991  $157,457,418 $   33,622       --
Issuance of common
 stock..................  10,415,752   104,158   252,158,687
Translation
 adjustments............                                                 $(18,786)
Conversion of
 convertible note.......      14,814       148       199,852
Cancellation of common
 stock..................    (137,600)   (1,376)        1,376
Net income..............                                      8,220,076
                          ----------  --------  ------------ ----------  --------
Balance, June 30, 1998..  34,192,085  $341,921  $409,817,333 $8,253,698  $(18,786)
                          ==========  ========  ============ ==========  ========

 
 
 
 
  The accompanying notes are an integral part of these consolidated financial
                                  statements.
 
                                      F-30

 
                              UNITED RENTALS, INC.
 
                      CONSOLIDATED STATEMENT OF CASH FLOWS
 
                         SIX MONTHS ENDED JUNE 30, 1998
                                  (UNAUDITED)
 
                                                               
Cash Flows From Operating Activities:
 Net income...................................................... $  8,220,076
 Adjustments to reconcile net income to net cash provided by
  operating activities:
 Depreciation and amortization...................................   18,380,486
 Gain on sale of rental equipment................................   (4,636,362)
 Deferred taxes..................................................    3,623,614
Changes in operating assets and liabilities:
  Accounts receivable............................................   (7,175,089)
  Inventory......................................................   (1,842,775)
  Prepaid expenses and other assets..............................   (6,694,037)
  Accounts payable...............................................   21,489,836
  Accrued expenses and other liabilities.........................   (2,543,195)
                                                                  ------------
   Net cash provided by operating activities.....................   28,822,554
Cash Flows From Investing Activities:
 Purchases of rental equipment...................................  (62,722,443)
 Purchases of property and equipment.............................  (11,519,846)
 Proceeds from sales of rental equipment.........................   10,464,642
 In-process acquisition costs....................................   (3,495,002)
 Payment of contingent purchase price............................   (2,255,433)
 Purchases of other companies.................................... (369,534,206)
                                                                  ------------
   Net cash used in investing activities......................... (439,062,288)
Cash Flows From Financing Activities:
 Proceeds from issuance of common stock, net of issuance costs...  206,456,306
 Proceeds from debt..............................................  623,776,408
 Repayments of debt.............................................. (474,999,342)
 Payment of debt financing costs.................................   (8,115,074)
                                                                  ------------
   Net cash provided by financing activities.....................  347,118,298
                                                                  ------------
Net decrease in cash and cash equivalents........................  (63,121,436)
Cash and cash equivalents at beginning of period.................   68,607,528
                                                                  ------------
   Cash and cash equivalents at end of period.................... $  5,486,092
                                                                  ============
Supplemental disclosure of cash flow information:
 Cash paid during the period:
 Interest........................................................ $  2,290,550
                                                                  ------------
 Income taxes.................................................... $  2,946,000
                                                                  ------------
Supplemental disclosure of non cash investing and financing
 activities:
 During the six month period ended June 30, 1998 a convertible
  note in the principal amount of $200,000 was converted into
  14,814 shares of common stock.
 The Company acquired the net assets and assumed certain
  liabilities of other companies as follows:
 Assets, net of cash acquired....................................  681,724,845
 Liabilities assumed............................................. (264,655,908)
 Less:
 Amounts paid in common stock and warrants.......................  (47,534,731)
                                                                  ------------
   Net cash paid................................................. $369,534,206
                                                                  ============


 
  The accompanying notes are an integral part of these consolidated financial
                                  statements.
 
                                      F-31

 
                             UNITED RENTALS, INC.
 
             NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 
                                 JUNE 30, 1998
 
1. BASIS OF PRESENTATION
 
  United Rentals, Inc. is principally a holding company ("Holdings") and
conducts its operations principally through its wholly owned subsidiary United
Rentals (North America), Inc. ("URI") and subsidiaries of URI. URI was
incorporated in August 1997, initially capitalized in September 1997 and
commenced equipment rental operations in October 1997. Holdings was
incorporated in July 1998 and became the parent of URI on August 5, 1998,
pursuant to the reorganization of the legal structure of URI described in Note
7. Prior to such reorganization, the name of URI was United Rentals, Inc.
References herein to the "Company" refer to Holdings and its subsidiaries,
with respect to periods following the reorganization, and to URI and its
subsidiaries, with respect to periods prior to the reorganization. Separate
consolidated financial statements of URI and its subsidiaries have not been
presented as they are the same as those of the Company as of June 30, 1998 and
for period then ended.
 
  The Consolidated Financial Statements of the Company included herein are
unaudited and, in the opinion of management, such financial statements reflect
all adjustments, consisting only of normal recurring adjustments, necessary to
a fair statement of the results of the interim periods presented. Interim
financial statements do not require all disclosures normally presented in
year-end financial statements, and, accordingly, certain disclosures have been
omitted. Results of operations for the six and three month periods ended June
30, 1998 are not necessarily indicative of the results that may be expected
for the year ending December 31, 1998. The Consolidated Financial Statements
included herein should be read in conjunction with the Company's Consolidated
Financial Statements and related Notes thereto included elsewhere herein for
the period from August 14, 1997 (inception) to December 31, 1997.
 
 Impact of Recently Issued Accounting Standards
 
  In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive
Income," and SFAS No. 131, "Disclosures About Segments of an Enterprise and
Related Information." SFAS No. 130 establishes standards for reporting and
display of comprehensive income and its components in a primary financial
statement. The Company adopted SFAS No. 130 during the period ended March 31,
1998. The adoption of SFAS No. 130 did not have a material effect on the
consolidated financial position, results of operations or cash flows of the
Company. SFAS No. 131 establishes a new method by which companies will report
operating segment information. This method is based on the manner in which
management organizes the segments within a company for making operating
decisions and assessing performance. The Company continues to evaluate the
provisions of SFAS No. 131 and, upon adoption, the Company may report
operating segments. The Company is required to adopt SFAS No. 131 by December
31, 1998.
 
  In February 1998, the Financial Accounting Standards Board issued SFAS No.
132, "Employers' Disclosures about Pensions and Other Post Retirement
Benefits." SFAS No. 132 revises employers' disclosures about pension and other
post retirement benefit plans but does not change the measurement or
recognition of those plans. The Company is required to adopt SFAS No. 132 by
December 31, 1998. The adoption of SFAS No. 132 is not expected to have a
material effect on the Company's consolidated financial position or results of
operations.
 
  In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133
establishes a new model for accounting for derivatives and hedging activities.
The Company will adopt SFAS No. 133 beginning January 1, 2000. The adoption of
SFAS No. 133 is not expected to have a material effect on the Company's
consolidated financial position or results of operations.
 
                                     F-32

 
                             UNITED RENTALS, INC.
 
       NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
 
2. COMMON STOCK
 
  On March 11, 1998, the Company completed a public offering of 8,625,000
shares of Common Stock (the "Offering"). The net proceeds to the Company from
the Offering were approximately $207.4 million (after deducting the
underwriting discounts and offering expenses). The Company used $132.7 million
of the net proceeds from the Offering to repay all of the then outstanding
indebtedness under the Company's credit facility and used the balance of such
net proceeds for acquisitions.
 
  The purchase agreement relating to the acquisition of one company acquired
provides that the stock consideration paid by the Company in connection with
such acquisition is subject to adjustment based upon the trading prices of the
common stock during the 60-day period which commenced December 18, 1997. In
accordance with such provisions, the Company canceled 137,600 shares of common
stock issued by the Company in connection with such acquisition.
 
3. 9 1/2% SENIOR SUBORDINATED NOTES
 
  In May 1998, the Company issued $200 million aggregate principal amount of 9
1/2% Senior Subordinated Notes which are due June 1, 2008. The Company used
$102.8 million of the net proceeds from the sale of such notes to repay all of
the then outstanding indebtedness under the Company's credit facility and used
the balance of such net proceeds from this offering for acquisitions, capital
expenditures and general corporate purposes.
 
4. ACQUISITIONS
 
  During the six months ended June 30, 1998, the Company completed the
acquisition of 45 equipment rental companies having an aggregate of 160 rental
locations in 24 states and Canada.
 
  The aggregate consideration paid by the Company for the acquisitions
completed during the six months ended June 30, 1998 was $429.7 million and
consisted of approximately $382.2 million in cash, 1,779,351 shares of Common
Stock and warrants to purchase an aggregate of 30,000 shares of Common Stock.
In addition, the Company repaid or assumed outstanding indebtedness of the
companies acquired during the six months ended June 30, 1998 in the aggregate
amount of $216.4 million. The Company also agreed in connection with eight of
the acquisitions completed during the six months ended June 30, 1998, to pay
additional amounts to the former owners based upon specified future revenues
(such amounts being limited to (i) $10.0 million, $2.0 million, $0.8 million,
$0.5 million, $0.5 million, $0.4 million and Cdn. $4.0 million, respectively,
with respect to seven of such acquisitions and (ii) an amount based on the
revenues of a single store with respect to the other acquisition).
 
  These acquisitions have been accounted for as purchases and, accordingly,
the results of their operations have been included in the Company's results of
operations from their respective acquisition dates. The purchase prices have
been allocated to the assets acquired and liabilities assumed based on their
respective fair values at their respective acquisition dates.
 
  The Company has not completed its valuation on all of its purchases and the
purchase price allocations are subject to change when additional information
concerning asset and liability valuations are completed.
 
  The following table summarizes, on an unaudited pro forma basis, the
combined results of operations of the Company for the six months ended June
30, 1998 as though each acquisition described above was made on January 1,
1998.


                                                                SIX MONTHS ENDED
                                                                 JUNE 30, 1998
                                                                ----------------
                                                             
   Revenues....................................................   $160,026,542
   Net income..................................................      9,493,852
   Basic earnings per share....................................           0.32
   Diluted earnings per share..................................           0.27

 
 
                                     F-33

 
                             UNITED RENTALS, INC.
 
       NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
  The unaudited pro forma results are based upon certain assumptions and
estimates which are subject to change. These results are not necessarily
indicative of the actual results of operations that might have occurred, nor
are they necessarily indicative of expected results in the future.
 
5. EARNINGS PER SHARE
 
  The following table sets forth the computation of basic and diluted earnings
per share:
 


                                                     SIX MONTHS   THREE MONTHS
                                                        ENDED         ENDED
                                                    JUNE 30, 1998 JUNE 30, 1998
                                                    ------------- -------------
                                                            
Numerator:
  Net income.......................................  $ 8,220,076   $ 5,581,725
                                                     ===========   ===========
Denominator:
  Denominator for basic earnings per share
   weighted-average shares.........................   29,970,357    33,702,126
  Effect of dilutive securities:
    Employee stock options.........................      903,311     1,705,898
    Warrants.......................................    4,218,749     4,554,411
                                                     -----------   -----------
  Dilutive potential common shares
    Denominator for diluted earnings per share--
     adjusted weighted-average shares..............   35,092,417    39,962,435
                                                     ===========   ===========
Basic earnings per share...........................  $      0.27   $      0.17
                                                     ===========   ===========
Diluted earnings per share.........................  $      0.23   $      0.14
                                                     ===========   ===========

 
6. AGREEMENT AND PLAN OF MERGER
 
  On June 15, 1998, the Company entered into an Agreement and Plan of Merger
(the "Merger Agreement") with U.S. Rentals, Inc., a Delaware corporation
("U.S. Rentals"). The Merger Agreement provides, subject to the terms and
conditions set forth therein, for a subsidiary of the Company to be merged
with and into U.S. Rentals (the "Merger"). Following the Merger, U.S. Rentals
will become a wholly owned subsidiary of URI. At the effective time of the
Merger, (i) each outstanding share of U.S. Rentals common stock will be
converted into 0.9625 shares of Common Stock of the Company (the "Exchange
Ratio") and (ii) all outstanding options to purchase shares of U.S. Rentals
common stock will be assumed by the Company and converted into options to
purchase Common Stock of United Rentals, Inc. subject to adjustment for the
Exchange Ratio. The Merger is expected to be accounted for as a "pooling of
interests" for financial accounting purposes. The Merger, which is subject to
shareholder approvals and other customary conditions, is expected to close
before the end of September 1998.
 
7. SUBSEQUENT EVENTS
 
 Completed Acquisitions
 
  Subsequent to June 30, 1998, the Company completed the acquisition of 19
equipment rental companies consisting of 66 rental sites. The aggregate
consideration paid by the Company for these acquisitions was $344.1 million
and consisted of approximately $331.4 million in cash, and 390,549 shares of
Common Stock. The Company also agreed in connection with two of the
acquisitions to pay additional amounts to the former owners based upon
specified future revenues not to exceed $0.5 million in each case. The Company
funded a portion of the cash consideration for these acquisitions with cash on
hand (including cash proceeds from debt and equity offerings) and the balance
with borrowings under the Company's revolving credit facility.
 
                                     F-34

 
                             UNITED RENTALS, INC.
 
       NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
 
 Potential Acquisitions
 
  The Company has entered into definitive agreements with respect to the
acquisition (the "Pending Acquisitions") of the following companies (the
"Pending Acquisition Companies"): Rental Tools and Equipment Co. International
Inc.; and McClinch, Inc., McClinch Equipment Services, Inc. and Grey Fox
Equipment, Inc. The Pending Acquisition Companies have an aggregate of 32
rental locations in nine states. Completion of the Pending Acquisitions is
subject to various conditions, and no assurance can be given that the Pending
Acquisitions will be consummated or that the Pending Acquisitions will be
consummated on the terms contemplated by the definitive agreements.
 
  The Company expects that the aggregate consideration for the Pending
Acquisition Companies will consist of (i) up to 2,090,240 shares of Common
Stock (subject to adjustment), (ii) cash of $103.2 million (subject to
adjustment) and (iii) warrants to purchase an aggregate of $0.6 million worth
of Common Stock at an exercise price per share based on the price of the
Common Stock at the time the acquisition is completed. In addition, the
Company will assume approximately $77.8 million of indebtedness. The
consideration for the Pending Acquisition Companies includes reimbursement to
the shareholders of the Pending Acquisition Companies for certain expenditures
to acquire equipment and businesses and payment for certain real estate used
in the business.
 
 Term Loan
 
  In July 1998, URI obtained a $250 million term loan from a group of
financial institutions (the "Term Loan"). The Term Loan matures on June 30,
2005. URI used the net proceeds from the loan for acquisitions.
 
 Holding Company Reorganization
 
  URI was formerly named United Rentals, Inc. On August 5, 1998 a
reorganization was effected pursuant to which (i) URI became a wholly owned
subsidiary of Holdings, a newly formed holding company, (ii) the name of URI
was changed from United Rentals, Inc. to United Rentals (North America), Inc.,
(iii) the name of Holdings became United Rentals, Inc., (iv) the outstanding
common stock of URI was automatically converted, on a share-for-share basis,
into Common Stock of Holdings and (v) the Common Stock of Holdings commenced
trading on the New York Stock Exchange under the symbol "URI" instead of the
common stock of URI. The purpose of the reorganization was to facilitate
certain financings. The business operations of the Company will not change as
a result of the new legal structure.
 
  The stockholders of Holdings have the same rights, privileges and interests
with respect to Holdings as they had with respect to URI immediately prior to
the reorganization. Holdings has the same board of directors as URI and the
certificate of incorporation and by-laws of Holdings is the same in all
material respects as the certificate of incorporation and by-laws of URI in
effect immediately prior to the reorganization.
 
 Issuance of 6 1/2% Convertible Quarterly Income Preferred Securities
 
  On August 5, 1998, a subsidiary trust (the "Trust") of Holdings issued and
sold in a private offering (the "Preferred Securities Offering") $300 million
of 6 1/2% Convertible Quarterly Income Preferred Securities (the "Preferred
Securities"). In addition, the Trust may sell up to an additional $50 million
of Preferred Securities pursuant to an over-allotment option granted to the
initial purchasers of the Preferred Securities. The Preferred Securities have
not been registered under the Securities Act of 1933 (the "Act") and,
accordingly, may not be offered or sold in the United States absent
registration or an applicable exemption from the registration requirements
under the Act.
 
  The net proceeds from the Preferred Securities Offering were approximately
$290.0 million. The Trust used the proceeds from the Preferred Securities
Offering to purchase convertible subordinated debentures from
 
                                     F-35

 
                             UNITED RENTALS, INC.
 
       NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
Holdings which resulted in Holdings receiving all of the net proceeds of the
Preferred Securities Offering. Holdings in turn contributed the net proceeds
of the Preferred Securities Offering to URI. URI used approximately $281
million of such net proceeds to repay the then outstanding indebtedness under
the Company's credit facility and used the balance of such net proceeds for
acquisitions.
 
 8.80% Senior Subordinated Notes
 
  In August 1998, URI issued $205 million aggregate principal amount of 8.80%
Senior Subordinated Notes which are due August 15, 2008. URI used $90.3
million of the net proceeds from the sale of such notes to repay outstanding
indebtedness under the Company's credit facility and expects to use the
balance of such net proceeds to repay borrowings under the credit facility and
expects to use the remaining net proceeds for future acquisitions, capital
expenditures and general corporate purposes.
 
8. CONDENSED CONSOLIDATING FINANCIAL INFORMATION OF GUARANTOR SUBSIDIARIES
 
  Certain indebtedness of URI is guaranteed by URI's United States
subsidiaries (the "guarantor subsidiaries") but is not guaranteed by URI's
foreign subsidiaries (the "non guarantor subsidiaries"). The guarantor
subsidiaries are all wholly-owned and the guarantees are made on a joint and
several basis and are full and unconditional (subject to subordination
provisions and subject to a standard limitation which provides that the
maximum amount guaranteed by each guarantor will not exceed the maximum amount
that can be guaranteed without making the guarantee void under fraudulent
conveyance laws). Separate consolidated financial statements of the guarantor
subsidiaries have not been presented because management has determined that
such information would not be material to investors. However, condensed
consolidating financial information as of June 30, 1998 and for the three and
six months ended June 30, 1998, are presented. The condensed consolidating
financial information as of and for the period ended December 31, 1997 and
prior have been omitted since the non-guarantors subsidiaries came into
existence during 1998. The condensed consolidating financial information of
URI and its subsidiaries are as follows:
 
                     CONDENSED CONSOLIDATING BALANCE SHEET
 


                                                   JUNE 30, 1998
                         ---------------------------------------------------------------------
                                                         NON-
                                        GUARANTOR     GUARANTOR                   CONSOLIDATED
                             URI       SUBSIDIARIES  SUBSIDIARIES  ELIMINATIONS      TOTAL
                         ------------  ------------  ------------  -------------  ------------
                                                                   
ASSETS
Cash and cash
 equivalents............               $  3,848,441  $ 1,637,651                  $  5,486,092
Accounts receivable,
 net....................                 54,759,191   12,443,434                    67,202,625
Intercompany
 receivable(payable).... $117,111,518   (87,178,362) (29,933,156)
Inventory...............                 27,650,390    5,605,216                    33,255,606
Prepaid expenses and
 other assets...........   17,093,847     4,408,920    1,384,411                    22,887,178
Rental equipment, net...                267,387,088   31,569,107                   298,956,195
Property and equipment,
 net....................   11,690,414    16,369,013    4,289,689                    32,349,116
Investment in
 subsidiaries...........  636,524,774                              $(636,524,774)
Intangible assets, net..                378,041,251   50,986,406                   429,027,657
                         ------------  ------------  -----------   -------------  ------------
                         $782,420,553  $665,285,932  $77,982,758   $(636,524,774) $889,164,469
                         ============  ============  ===========   =============  ============
LIABILITIES AND
 STOCKHOLDERS' EQUITY
Liabilities:
 Accounts payable....... $  4,389,229  $ 45,965,934  $ 5,500,802                  $ 55,855,965
 Debt...................  373,274,464     9,572,933    6,333,947                   389,181,344
 Deferred income taxes..    2,375,648                                                2,375,648
 Accrued expenses and
  other liabilities.....   12,202,795     9,420,580    1,733,971                    23,357,346
                         ------------  ------------  -----------   -------------  ------------
   Total liabilities....  392,242,136    64,959,447   13,568,720                   470,770,303
Commitments and
 contingencies
Stockholders' equity:
 Preferred stock........
 Common stock...........      334,022         3,142        4,757                       341,921
 Additional paid-in
  capital...............  409,843,690   573,113,322   62,265,384   $(635,405,063)  409,817,333
 Retained earnings......  (19,999,295)   27,210,021    2,162,683      (1,119,711)    8,253,698
 Cumulative translation
  adjustments...........                                 (18,786)                     (18,786)
                         ------------  ------------  -----------   -------------  ------------
   Total stockholders'
    equity .............  390,178,417   600,326,485   64,414,038    (636,524,774)  418,394,166
                         ------------  ------------  -----------   -------------  ------------
                         $782,420,553  $665,285,932  $77,982,758   $(636,524,774) $889,164,469
                         ============  ============  ===========   =============  ============

 
                                     F-36

 
                              UNITED RENTALS, INC.
 
       NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
                CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
 


                                       FOR THE SIX MONTHS ENDED JUNE 30, 1998
                          -------------------------------------------------------------------
                                        GUARANTOR    NON-GUARANTOR               CONSOLIDATED
                              URI      SUBSIDIARIES  SUBSIDIARIES  ELIMINATIONS     TOTAL
                          -----------  ------------  ------------- ------------  ------------
                                                                  
Revenues:
 Equipment rentals......               $78,386,351    $7,718,368                 $86,104,719
 Sales of rental
  equipment.............                 8,844,185     1,620,457                  10,464,642
 Sales of new
  equipment,
  merchandise and other
  revenues..............                25,559,849     5,222,070                  30,781,919
                          -----------  -----------    ----------   ------------  -----------
   Total revenues.......               112,790,385    14,560,895                 127,351,280
Cost of revenues:
 Cost of equipment
  rentals, excluding
  depreciation..........                32,369,249     3,239,156                  35,608,405
 Depreciation of rental
  equipment.............                13,315,071     1,250,179                  14,565,250
 Cost of rental
  equipment sales.......                 4,789,636     1,038,644                   5,828,280
 Cost of new equipment
  and merchandise sales
  and other operating
  costs.................                19,544,732     4,565,810                  24,110,542
                          -----------  -----------    ----------   ------------  -----------
   Total cost of
    revenues............                70,018,688    10,093,789                  80,112,477
                          -----------  -----------    ----------   ------------  -----------
Gross profit............                42,771,697     4,467,106                  47,238,803
Selling, general and
 administrative
 expenses...............   $7,627,110   15,495,410     1,978,667                  25,101,187
Non-rental depreciation
 and amortization.......      316,889    3,247,290       251,057                   3,815,236
                          -----------  -----------    ----------   ------------  -----------
Operating income (loss).   (7,943,999)  24,028,997     2,237,382                  18,322,380
Interest expense........    4,585,300      255,559        95,849                   4,936,708
Other (income) expense..      (49,728)    (456,554)      (21,265)                   (527,547)
                          -----------  -----------    ----------   ------------  -----------
Income (loss) before
 provision for income
 tax....................  (12,479,571)  24,229,992     2,162,798                  13,913,219
Provision (benefit) for
 income taxes...........   (5,106,509)   9,914,658       884,994                   5,693,143
                          -----------  -----------    ----------   ------------  -----------
Income (loss) before
 equity in net earnings
 of subsidiaries........   (7,373,062)  14,315,334     1,277,804                   8,220,076
Equity in net earnings
 of subsidiaries........   15,593,138                              $(15,593,138)
                          -----------  -----------    ----------   ------------  -----------
Net income..............  $ 8,220,076  $14,315,334    $1,277,804   $(15,593,138) $ 8,220,076
                          ===========  ===========    ==========   ============  ===========

 
                                      F-37

 
                              UNITED RENTALS, INC.
 
       NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
                CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
 


                                      FOR THE THREE MONTHS ENDED JUNE 30, 1998
                          -------------------------------------------------------------------
                                        GUARANTOR    NON-GUARANTOR               CONSOLIDATED
                              URI      SUBSIDIARIES  SUBSIDIARIES  ELIMINATIONS     TOTAL
                          -----------  ------------  ------------- ------------  ------------
                                                                  
Revenues:
 Equipment rentals......               $53,872,857    $ 5,452,012                $59,324,869
 Sales of rental
  equipment.............                 6,374,757      1,106,694                  7,481,451
 Sales of new
  equipment,
  merchandise and other
  revenues..............                17,661,928      3,692,866                 21,354,794
                          -----------  -----------    -----------  ------------  -----------
   Total revenues.......                77,909,542     10,251,572                 88,161,114
Cost of revenues:
 Cost of equipment
  rentals, excluding
  depreciation..........                22,523,524      1,863,377                 24,386,901
 Depreciation of rental
  equipment.............                 9,310,380        671,038                  9,981,418
 Cost of rental
  equipment sales.......                 3,558,649        630,200                  4,188,849
 Cost of new equipment
  and merchandise sales
  and other operating
  costs.................                13,280,705      3,237,946                 16,518,651
                          -----------  -----------    -----------  ------------  -----------
   Total cost of
    revenues............                48,673,258      6,402,561                 55,075,819
                          -----------  -----------    -----------  ------------  -----------
Gross profit............                29,236,284      3,849,011                 33,085,295
Selling, general and
 administrative
 expenses...............   $5,552,970   10,448,532      1,292,754                 17,294,256
Non-rental depreciation
 and amortization.......      289,341    2,265,353        174,118                  2,728,812
                          -----------  -----------    -----------  ------------  -----------
Operating income (loss).   (5,842,311)  16,522,399      2,382,139                 13,062,227
Interest expense........    3,489,001      224,673         50,316                  3,763,990
Other (income) expense..       90,602     (217,192)       (20,254)                  (146,844)
                          -----------  -----------    -----------  ------------  -----------
Income (loss) before
 provision for income
 tax....................   (9,421,914)  16,514,918      2,352,077                  9,445,081
Provision (benefit) for
 income taxes...........   (3,853,880)   6,755,157        962,079                  3,863,356
                          -----------  -----------    -----------  ------------  -----------
Income (loss) before
 equity in net earnings
 of subsidiaries........   (5,568,034)   9,759,761      1,389,998                  5,581,725
Equity in net earnings
 of subsidiaries........   11,149,759                              $(11,149,759)
                          -----------  -----------    -----------  ------------  -----------
Net income..............  $ 5,581,725  $ 9,759,761    $ 1,389,998  $(11,149,759) $ 5,581,725
                          ===========  ===========    ===========  ============  ===========

 
 
                                      F-38

 
                              UNITED RENTALS, INC.
 
       NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
                 CONDENSED CONSOLIDATING CASH FLOW INFORMATION
 


                                        FOR THE SIX MONTHS ENDED JUNE 30, 1998
                          ---------------------------------------------------------------------
                                          GUARANTOR    NON-GUARANTOR              CONSOLIDATED
                               URI       SUBSIDIARIES  SUBSIDIARIES  ELIMINATIONS     TOTAL
                          -------------  ------------  ------------- ------------ -------------
                                                                   
Net cash provided by
 (used in) operating
 activities.............  $ (29,768,647) $ 57,504,920   $1,086,281                $  28,822,554
CASH FLOWS FROM
 INVESTING ACTIVITIES:
 Purchase of rental
  equipment.............                  (61,797,639)    (924,804)                 (62,722,443)
 Purchase of property
  and equipment.........    (11,519,846)                                            (11,519,846)
 Proceeds from sales of
  rental equipment......                    8,844,185    1,620,457                   10,464,642
 In-process acquisition
  costs.................     (3,495,002)                                             (3,495,002)
 Payment of contingent
  purchase price........                   (2,111,150)    (144,283)                  (2,255,433)
 Purchase of other
  companies.............   (369,534,206)                                           (369,534,206)
                          -------------  ------------   ----------    ----------  -------------
   Net cash provided by
    (used in) investing
    activities..........   (384,549,054)  (55,064,604)     551,370                 (439,062,288)
CASH FLOWS FROM
 FINANCING ACTIVITIES:
 Proceeds from issuance
  of common stock, net
  of issuance costs.....    206,456,306                                             206,456,306
 Proceeds of debt.......    623,776,408                                             623,776,408
 Repayments from debt...   (474,999,342)                                           (474,999,342)
 Payment of debt
  financing costs.......     (8,115,074)                                             (8,115,074)
                          -------------  ------------   ----------    ----------  -------------
   Net cash provided by
    financing
    activities..........    347,118,298                                             347,118,298
                          -------------  ------------   ----------    ----------  -------------
 Net increase
  (decrease) in cash
  and cash equivalents..    (67,199,403)    2,440,316    1,637,651                  (63,121,436)
 Cash and cash
  equivalents at
  beginning of period ..  $  67,199,403     1,408,125                                68,607,528
                          -------------  ------------   ----------    ----------  -------------
   Cash and cash
    equivalents at end
    of period...........                 $  3,848,441   $1,637,651                $   5,486,092
                          =============  ============   ==========    ==========  =============
Supplemental disclosure
 of cash flow
 information:
 Cash paid during the
  period:
   Interest.............  $   1,984,438  $    239,524   $   66,588                $   2,290,550
                          =============  ============   ==========    ==========  =============
   Income taxes.........                 $  2,946,000                             $   2,946,000
                          =============  ============   ==========    ==========  =============
Supplemental disclosure
 of non-cash investing
 and financing
 activities:
During the six month
 period ended June 30,
 1998, a convertible
 note in the principal
 amount of $200,000 was
 converted into 14,814
 shares of common stock
The Company acquired the
 net assets and assumed
 certain liabilities of
 other companies as
 follows:
 Assets, net of cash
  acquired..............    681,724,845                                             681,724,845
 Liabilities assumed....   (264,655,908)                                           (264,655,908)
 Less:
 Amounts paid in common
  stock and warrants....    (47,534,731)                                            (47,534,731)
                          -------------  ------------   ----------    ----------  -------------
 Net cash paid..........  $ 369,534,206                                           $ 369,534,206
                          =============  ============   ==========    ==========  =============

 
                                      F-39

 
                       REPORT OF INDEPENDENT ACCOUNTANTS
 
To the Board of Directors and Stockholders of U.S. Rentals, Inc.
 
  In our opinion, the accompanying balance sheets and the related statements
of operations, of stockholders' equity and of cash flows present fairly, in
all material respects, the financial position of U.S. Rentals, Inc. at
December 31, 1996 and 1997, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1997, in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of management of U.S. Rentals, Inc.; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for the
opinion expressed above.
 
PricewaterhouseCoopers LLP
 
Sacramento, California
January 28, 1998
 
                                     F-40

 
                               U.S. RENTALS, INC.
 
                                 BALANCE SHEETS
 


                                                                DECEMBER 31,
                                                              -----------------
                                                                1996     1997
                                                              -------- --------
                                                               (IN THOUSANDS,
                                                                EXCEPT SHARE
                                                                    DATA)
                                                                 
                           ASSETS
Cash and cash equivalents.................................... $  2,906 $  3,104
Accounts receivable, net.....................................   35,653   60,906
Notes receivable from affiliate..............................   25,365      --
Notes receivable, other......................................      563      501
Inventories..................................................    5,841   17,379
Rental equipment, net........................................  205,982  390,598
Property and equipment, net..................................   42,345   78,014
Goodwill, net................................................    1,035   23,114
Prepaid expenses and other assets............................    4,758   12,195
                                                              -------- --------
Total assets................................................. $324,448 $585,811
                                                              ======== ========
            LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and other liabilities....................... $ 57,008 $ 75,048
Notes payable to related parties.............................   23,943   17,000
Notes payable, other.........................................  162,767  203,300
Deferred taxes...............................................      --    25,077
                                                              -------- --------
Total liabilities............................................  243,718  320,425
                                                              -------- --------
Commitments and contingencies (Note 8)
Stockholders' equity:
  Common stock, $.01 par value;
    100,000,000 shares authorized,
    30,748,975 shares issued and outstanding.................      --       307
  Common stock at stated value;
    2,500 shares authorized,
    900 shares issued and outstanding........................      699      --
  Paid-in capital............................................   13,186  244,211
  Retained earnaings.........................................   66,845   20,868
                                                              -------- --------
Total stockholders' equity...................................   80,730  265,386
                                                              -------- --------
Total liabilities and stockholders' equity................... $324,448 $585,811
                                                              ======== ========

 
             Please see accompanying notes to financial statements.
 
                                      F-41

 
                               U.S. RENTALS, INC.
 
                            STATEMENTS OF OPERATIONS
 


                                                YEARS ENDED DECEMBER 31,
                                            ----------------------------------
                                               1995        1996        1997
                                            ----------  ----------  ----------
                                            (IN THOUSANDS, EXCEPT SHARE AND
                                                   PER SHARE AMOUNTS)
                                                           
REVENUES:
 Rental revenue............................ $  214,849  $  257,486  $  340,507
 Rental equipment sales....................     10,832      24,629      38,839
 Merchandise and new equipment sales.......     17,166      23,722      45,347
                                            ----------  ----------  ----------
   Total revenues..........................    242,847     305,837     424,693
                                            ----------  ----------  ----------
COST OF REVENUES:
 Rental equipment expense..................     51,370      65,102      87,209
 Rental equipment depreciation.............     43,885      56,105      69,231
 Cost of rental equipment sales............      4,693      10,109      19,065
 Cost of merchandise and new equipment
  sales....................................     11,418      17,423      33,420
 Direct operating expense..................     56,506      71,482      98,068
                                            ----------  ----------  ----------
   Total cost of revenues..................    167,872     220,221     306,993
                                            ----------  ----------  ----------
   Gross profit............................     74,975      85,616     117,700
 Selling, general and administrative
  expense..................................     31,440      35,934      42,597
 Non-rental depreciation and
  amortization.............................      5,513       7,528      11,222
 Termination cost of deferred compensation
  agreements...............................         --          --      20,290
                                            ----------  ----------  ----------
   Operating income........................     38,022      42,154      43,591
 Interest expense..........................     (4,575)     (8,373)     (6,680)
 Related party interest (expense) income,
  net......................................       (735)        342        (690)
 Other expense, net........................     (1,620)       (665)       (473)
                                            ----------  ----------  ----------
   Income before income taxes and
    extraordinary item.....................     31,092      33,458      35,748
   Income tax expense......................        468         374      29,407
                                            ----------  ----------  ----------
   Net income before extraordinary item....     30,624      33,084       6,341
 Extraordinary item, net of tax benefit of
  $995.....................................         --          --       1,511
                                            ----------  ----------  ----------
 Net income................................ $   30,624  $   33,084  $    4,830
                                            ==========  ==========  ==========
 Basic net income before extraordinary
  item per share........................... $     1.48  $     1.59  $      .22
                                            ==========  ==========  ==========
 Diluted net income before extraordinary
  item per share........................... $     1.48  $     1.59  $      .21
                                            ==========  ==========  ==========
 Basic net income per share................ $     1.48  $     1.59  $      .17
                                            ==========  ==========  ==========
 Diluted net income per share.............. $     1.48  $     1.59  $      .16
                                            ==========  ==========  ==========
 Basic weighted average shares
  outstanding.............................. 20,748,975  20,748,975  29,351,715
                                            ==========  ==========  ==========
 Diluted weighted average shares
  outstanding.............................. 20,748,975  20,748,975  29,843,752
                                            ==========  ==========  ==========
UNAUDITED PRO FORMA DATA (NOTE 7):
 Historical income before income taxes and
  extraordinary item....................... $   31,092  $   33,458  $   35,748
 Pro forma income tax expense..............     12,780      13,456      14,371
                                            ----------  ----------  ----------
   Pro forma net income before
    extraordinary item..................... $   18,312  $   20,002  $   21,377
                                            ==========  ==========  ==========
 Pro forma basic net income before
  extraordinary item per share............. $      .88  $      .96  $      .73
                                            ==========  ==========  ==========
 Pro forma diluted net income before
  extraordinary item per share............. $      .88  $      .96  $      .72
                                            ==========  ==========  ==========

 
             Please see accompanying notes to financial statements.
 
                                      F-42

 
                               U.S. RENTALS, INC.
 
                       STATEMENTS OF STOCKHOLDERS' EQUITY
 


                                                                               TOTAL
                                                       PAID-IN   RETAINED  STOCKHOLDERS'
                            SHARES    STATED/PAR VALUE CAPITAL   EARNINGS     EQUITY
                          ----------  ---------------- --------  --------  -------------
                                                (IN THOUSANDS)
                                                            
Balance at December 31,
 1994...................         900       $ 699       $ 13,186  $ 44,066    $ 57,951
  Net income............         --          --             --     30,624      30,624
  Dividends.............         --          --             --     (5,498)     (5,498)
                          ----------       -----       --------  --------    --------
Balance at December 31,
 1995...................         900         699         13,186    69,192      83,077
  Net income............         --          --             --     33,084      33,084
  Dividends.............         --          --             --    (35,431)    (35,431)
                          ----------       -----       --------  --------    --------
Balance at December 31,
 1996...................         900         699         13,186    66,845      80,730
  Net income............         --          --             --      4,830       4,830
  Recapitalization......        (900)       (699)           699       --          --
Distribution of non-op-
 erating assets, net....         --          --          (4,219)      --       (4,219)
Dividends paid prior to
 initial public
 offering...............         --          --             --     (1,905)     (1,905)
Contribution of earnings
 to paid-in capital.....         --          --          48,902   (48,902)        --
Recapitalization due to
 initial public
 offering...............  20,748,975         207           (207)      --          --
Initial public offering
 proceeds, net of
 issuance cost of
 $1,550.................  10,000,000         100        185,850       --      185,950
                          ----------       -----       --------  --------    --------
Balance at December 31,
 1997...................  30,748,975       $ 307       $244,211  $ 20,868    $265,386
                          ==========       =====       ========  ========    ========

 
 
 
             Please see accompanying notes to financial statements.
 
                                      F-43

 
                               U.S. RENTALS, INC.
 
                            STATEMENTS OF CASH FLOWS
 


                                                   YEARS ENDED DECEMBER 31,
                                                 ------------------------------
                                                   1995      1996       1997
                                                 --------  ---------  ---------
                                                        (IN THOUSANDS)
                                                             
OPERATING ACTIVITIES:
Net income.....................................  $ 30,624  $  33,084  $   4,830
Adjustments to reconcile net income to net cash
 provided
 by operating activities:
  Depreciation and amortization................    49,398     63,633     80,453
  Gain on sale of equipment....................    (6,342)   (14,955)   (20,692)
  Principal adjustment on notes receivable.....      (220)      (572)      (146)
  Provision for doubtful accounts..............     3,441      4,075      7,773
  Deferred income taxes........................       --         --      25,077
  Interest income not collected................       --         --        (294)
  Interest expense not paid....................       --         --         495
  Loss on early extinguishment of debt.........       --         --       2,506
CHANGES IN OPERATING ASSETS AND LIABILITIES:
  Accounts receivable..........................   (10,526)    (9,799)   (26,505)
  Inventories..................................    (1,413)    (1,665)    (4,989)
  Prepaid expenses and other assets............    (1,515)    (1,466)    (8,247)
  Accounts payable and other liabilities.......    11,588        597     19,518
                                                 --------  ---------  ---------
Net cash provided by operating activities......    75,035     72,932     79,779
                                                 --------  ---------  ---------
INVESTING ACTIVITIES:
Acquisitions of rental operations..............       --     (15,033)   (64,076)
Purchases of rental equipment..................   (88,861)  (106,501)  (246,631)
Proceeds from sale of rental equipment.........    10,832     24,629     38,839
Purchases of property and equipment, net.......   (10,764)   (23,068)   (45,971)
(Funding) collection of notes receivable, net..    (1,061)     2,537        122
                                                 --------  ---------  ---------
Net cash used in investing activities..........   (89,854)  (117,436)  (317,717)
                                                 --------  ---------  ---------
FINANCING ACTIVITIES:
(Payments on) proceeds from line of credit,
 net...........................................   (28,200)    39,553    130,733
Proceeds from (payments on) senior notes.......    50,000     40,000    (92,506)
Payments on other obligations, net.............      (718)      (191)      (138)
Proceeds from related party note payable.......       --         --      17,000
Proceeds from issuance of common stock, net of
 issuance costs................................       --         --     185,950
Cash retained by the Predecessor in connection
 with Recapitalization.........................       --         --        (998)
Dividends paid.................................    (5,498)   (35,431)    (1,905)
                                                 --------  ---------  ---------
Net cash provided by financing activities......    15,584     43,931    238,136
                                                 --------  ---------  ---------
Net increase (decrease) in cash and cash
 equivalents...................................       765       (573)       198
Cash and cash equivalents at beginning of
 year..........................................     2,714      3,479      2,906
                                                 --------  ---------  ---------
Cash and cash equivalents at end of year.......  $  3,479  $   2,906  $   3,104
                                                 ========  =========  =========
SUPPLEMENTAL NON-CASH FLOW INFORMATION:
Net assets retained by the Predecessor in
 connection
 with Recapitalization.........................                       $   3,221
                                                                      =========

 
             Please see accompanying notes to financial statements.
 
                                      F-44

 
                              U.S. RENTALS, INC.
 
                         NOTES TO FINANCIAL STATEMENTS
 
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
 Organization
 
  U.S. Rentals, Inc. (the "Company") is a Delaware corporation primarily
involved in the short-term rental of general purpose construction equipment,
and to a lesser extent, selling complementary parts, merchandise, new and used
equipment to commercial and residential construction, industrial and homeowner
customers. At December 31, 1997, the Company operated 123 equipment rental
yards located in 21 states across the United States.
 
 Initial public offering
 
  The Company's initial public offering ("IPO") was declared effective on
February 20, 1997. Prior to the IPO, the equipment rental business was
operated by Ayr, Inc. (formerly known as USR Holdings, Inc.), a California
corporation (the "Predecessor"). The Company did not have any operations prior
to the IPO. Prior to closing of the IPO, the Predecessor transferred
substantially all of its operating assets and associated liabilities to the
Company for 20,748,975 shares of common stock of the Company, representing all
of the outstanding capital stock prior to the IPO. The Predecessor retained
only non-operating assets and liabilities, including approximately $25.7
million of notes receivable from an affiliate and $24.4 million of notes
payable to related parties. These transactions are referred to as the
"Recapitalization" in these financial statements. In conjunction with the
Recapitalization, the Predecessor entered into an agreement to terminate
deferred compensation agreements with certain executives. The Predecessor
borrowed approximately $20.3 million under its bank line of credit to fund the
cost of termination. The Company assumed the liability for the indebtedness
under the bank line of credit as part of the Recapitalization. The non-
recurring cost of the termination was expensed in 1997. Unless otherwise
indicated, the Company also refers to the Predecessor prior to the IPO.
 
 Related party transactions
 
  As disclosed in these financial statements, the Company has participated in
certain transactions with related parties during the current and previous
years. In the opinion of management, all transactions with related parties
have been conducted on terms which are fair and equitable; however, the
transactions are not necessarily on the same terms as those which would have
been made between wholly unrelated parties.
 
 Financial statement presentation
 
  The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the
reporting period. Actual results could differ from those estimates.
 
 Rental revenue
 
  Rental revenue is recognized upon the earliest occurrence of either the
return of the equipment or the end of one month's rental term.
 
 Rental equipment
 
  Rental equipment is recorded at cost. Depreciation for rental equipment
acquired prior to January 1, 1996, is computed using the straight-line method
over an estimated five-year useful life with no salvage value. Rental
equipment acquired subsequent to January 1, 1996, is depreciated using the
straight-line method over an estimated seven-year useful life, after giving
effect to an estimated salvage value of 10%. Included in purchases of rental
equipment are the costs of minor equipment which are fully depreciated in the
month of acquisition. Accumulated depreciation on rental equipment was
$161,765,000 and $190,213,000 at December 31, 1996 and 1997, respectively.
 
                                     F-45

 
                              U.S. RENTALS, INC.
 
                  NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
 
 
  Ordinary maintenance and repair costs are charged to operations as incurred.
When rental equipment is disposed of, the related cost and accumulated
depreciation are removed from the respective accounts. Proceeds from the
disposal and the related net book value of the equipment are recognized in the
period of disposal and reported as revenue from rental equipment sales and
cost of rental equipment sales in the statement of operations.
 
 Property and equipment
 
  Property and equipment are recorded at cost. Depreciation is computed using
the straight-line method over the estimated useful lives of the assets.
 
  The estimated useful lives for property and equipment range from 10 to 39
years for buildings; 1 to 8 years for vehicles, delivery and yard equipment;
and 5 to 10 years for fixtures and leasehold improvements.
 
  Ordinary maintenance and repairs costs are charged to operations as
incurred. When property and equipment are disposed of, the related cost and
accumulated depreciation are removed from the respective accounts, and any
gains or losses are included in results of operations.
 
 Inventories
 
  The Company's inventories primarily consist of items such as hand tools and
accessories held for resale. Inventories are stated at the lower of cost,
determined by the first-in, first-out method, or market.
 
 Self-insurance
 
  The Company is self-insured for general liability, workers' compensation,
and group medical claims up to specified per claim and aggregate amounts.
Self-insurance costs are accrued based upon the aggregate liability for
reported claims incurred and an estimated liability for claims incurred but
not reported. These liabilities are not discounted.
 
 Earnings per share
 
  Historical earnings per share is presented based on the weighted average
number of outstanding common shares, after giving effect to the
Recapitalization retroactively for all periods. Pro forma earnings per share
is based on the weighted average number of outstanding common shares, after
giving effect to the Recapitalization and the pro forma income tax expense as
if the Company were a C corporation for all periods presented. Diluted
weighted average shares outstanding were calculated using the treasury stock
method and exceed basic weighted average shares outstanding by 492,037 due to
3,907,887 dilutive options outstanding at December 31, 1997. Basic and diluted
earnings per share attributable to the extraordinary item totaled $.05 for the
year ended December 31, 1997.
 
 Cash and cash equivalents
 
  The Company considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents.
 
 Fair value of financial instruments
 
  The carrying amounts reported in the balance sheets for cash and cash
equivalents, trade accounts receivable, and accounts payable and other
liabilities approximated fair value due to the immediate to short-term
maturity of these financial instruments. The fair value of notes receivable
and notes payable is determined using current interest rates for similar
instruments as of December 31, 1997, and approximates the carrying value of
these notes due to the fact that the underlying instruments include provisions
to adjust note balances and interest rates to approximate fair market value.
 
                                     F-46

 
                              U.S. RENTALS, INC.
 
                  NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
 
 
 Concentrations of credit risk
 
  Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist primarily of trade accounts receivable
from construction and industrial customers. Concentrations of credit risk with
respect to trade accounts receivable are limited due to the large number of
customers and the Company's geographic dispersion. The Company performs credit
evaluations of its customers' financial condition and generally does not
require collateral on accounts receivable. The Company maintains an allowance
for doubtful accounts on its receivables based upon expected collectability.
The allowance for doubtful accounts was $6,991,000 and $9,495,000 at December
31, 1996 and 1997, respectively.
 
 Advertising costs
 
  The Company advertises primarily through trade journals and the media.
Advertising costs are expensed as incurred and totaled $3,094,000, $4,200,000,
and $6,453,000 for each of the three years in the period ended December 31,
1997.
 
 Goodwill
 
  Amortization of goodwill is provided on a straight-line basis over forty
years. Goodwill is presented net of accumulated amortization of $207,000 and
$371,000 at December 31, 1996 and 1997.
 
 Long-lived assets
 
  Long-lived assets are recorded at the lower of amortized cost or fair value.
As part of an ongoing review of the valuation of long-lived assets, management
assesses the carrying value of such assets if facts and circumstances suggest
they may be impaired. If this review indicates that the carrying value of
these assets may not be recoverable, as determined by a nondiscounted cash
flow analysis over the remaining useful life, the carrying value would be
reduced to its estimated fair value. There have been no material impairments
recognized in these financial statements.
 
 Income taxes
 
  Subsequent to the IPO and Recapitalization, the Company is assessed
corporate income taxes for federal and state purposes. Income taxes are
recorded under the liability approach; a current or deferred liability or
asset is recognized for the current or deferred income tax consequences of all
events that have been recorded in the financial statements.
 
  Prior to the IPO, the Predecessor had elected S corporation status under the
U.S. Internal Revenue Code. Pursuant to this election (and similar elections
in California and certain other states), the Predecessor's income, deductions,
and credits are reported on the income tax return of the Predecessor's
stockholder for federal purposes and, accordingly, no provision for federal
income taxes has been made.
 
  California assesses a corporate level income tax on S corporations, and
certain states in which the Predecessor does business do not recognize S
corporation status. Therefore, the Predecessor remains subject to, and has
made provision for, taxes in those states.
 
  Because of the Recapitalization, historical results of operations, including
income taxes, are not, in all cases, indicative of future results. The
unaudited pro forma income tax provision is computed using the liability
approach as if the Company had been a C corporation for all periods presented.
Pro forma income tax expense is lower than actual income tax expense in 1997
due to the recognition of a $7,520,000 deferred tax liability upon the
Recapitalization and the pro forma benefit from the inclusion in pro forma
taxable income of the net loss from January 1, 1997, to the closing date of
the IPO attributable to the nonrecurring cost to terminate deferred
compensation agreements.
 
                                     F-47

 
                              U.S. RENTALS, INC.
 
                  NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
 
 
 Stock Options
 
  The Company accounts for its stock option plan in accordance with the
intrinsic value method, under which no compensation expense is recognized in
the financial statements except where the fair market value of the stock
exceeds the exercise price of the options granted on the date of grant. The
Company has presented the pro forma disclosures of the compensation expense
under the fair value method of Statement of Financial Accounting Standards
Number 123 ("SFAS 123") in Note 9.
 
 Adoption of new accounting pronouncements
 
  In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards Number 128, Earnings per Share ("SFAS 128"),
which changed the basis upon which earnings (or loss) per share is calculated.
As required by this statement, the Company adopted the provisions of SFAS 128
for the year ended December 31, 1997, and retroactively for each of the
preceding years presented in the financial statements.
 
 Reclassifications
 
  Certain prior year balances have been reclassified to conform to the 1997
presentation.
 
2. ACQUISITIONS
 
  During 1997, the Company acquired the assets of 9 businesses operating 33
rental locations throughout the United States. The acquisitions were financed
through borrowings under the Company's line of credit and have been recorded
using the purchase method of accounting. The results of operations for each
location acquired have been included in the Company's results of operations
from their respective acquisition dates. A summary of the purchase price and
assets acquired is as follows (in thousands):
 
                                                                  
   Rental equipment.................................................... $ 26,877
   Inventories.........................................................    6,549
   Accounts receivable.................................................    6,521
   Other assets........................................................    2,704
   Goodwill............................................................   21,425
                                                                        --------
                                                                        $ 64,076
                                                                        ========

   
 
  The following unaudited pro forma data (in thousands) summarizes the results
of operations of the periods indicated as if the acquisitions had been
completed on January 1, 1996. The pro forma data gives effect to the actual
operating results prior to acquisition and adjustments to goodwill. The pro
forma results do not purport to be indicative of the results that would have
actually been achieved if the acquisitions had occurred on January 1, 1996, or
that may be achieved in the future.
 


                                                                 1996     1997
                                                               -------- --------
                                                                  (UNAUDITED)
                                                                  
   Total revenues............................................. $363,848 $459,649
   Net income................................................. $ 22,288 $ 23,073

 
3. NOTES RECEIVABLE FROM AFFILIATE
 
  Prior to the Recapitalization, the Predecessor had notes receivable from an
affiliate. As discussed in Note l, these notes were retained by the
Predecessor. The Company earned interest income from the affiliate of
$3,343,000, $3,420,000, and $555,000 for each of the three years in the period
ended December 31, 1997, respectively. The notes provide for positive or
negative annual adjustments of principal based on the change in the Consumer
Price Index, limited to certain percentages of the affiliated entity's
cumulative net income from
 
                                     F-48

 
                               U.S. RENTALS, INC.
 
                   NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
 
December 31, 1984. The accompanying financial statements include principal
adjustments in notes receivable and other income in the amounts of $220,000,
$572,000, and $146,000 for each of the three years in the period ended December
31, 1997, respectively.
 
4. PROPERTY AND EQUIPMENT
 
  Property and equipment, net, consists of the following (in thousands):
 


                                                               DECEMBER 31,
                                                             ------------------
                                                               1996      1997
                                                             --------  --------
                                                                 
   Land..................................................... $ 14,099  $ 21,543
   Buildings................................................   12,806    21,600
   Vehicles and delivery equipment..........................   28,000    45,234
   Yard equipment...........................................    3,000     3,674
   Furniture and fixtures...................................    4,626     7,227
   Leaseholds...............................................    8,942    15,666
                                                             --------  --------
                                                               71,473   114,944
   Less accumulated depreciation............................  (29,128)  (36,930)
                                                             --------  --------
                                                             $ 42,345  $ 78,014
                                                             ========  ========

 
5. ACCOUNTS PAYABLE AND OTHER LIABILITIES
 
  Accounts payable and other liabilities consist of the following (in
thousands):
 


                                                                 DECEMBER 31,
                                                                ---------------
                                                                 1996    1997
                                                                ------- -------
                                                                  
   Trade payables and other accruals........................... $34,264 $50,716
   Profit sharing accrual......................................   8,742  12,667
   Self-insurance reserve......................................  14,002  11,665
                                                                ------- -------
                                                                $57,008 $75,048
                                                                ======= =======

 
                                      F-49

 
                              U.S. RENTALS, INC.
 
                  NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
 
 
6. NOTES PAYABLE
 
  Notes payable consist of the following (in thousands):
 


                                                                DECEMBER 31,
                                                              -----------------
                                                                1996     1997
                                                              -------- --------
                                                                 
Notes payable to related parties:
  Subordinated note payable to The Colburn School of
   Performing Arts, interest payable quarterly at prime rate
   plus 5%................................................... $ 20,000 $    --
  Demand notes payable to related parties, interest at
   various rates tied to the Predecessor's average bank
   borrowing rate............................................    3,943      --
  Demand note to majority stockholder, interest payable
   monthly at a rate tied to the Company's revolving line of
   credit (5.90% at December 31, 1997).......................      --    17,000
                                                              -------- --------
                                                                23,943   17,000
                                                              -------- --------
Notes payable, other:
  Senior notes payable to various parties, interest payable
   semiannually ranging from 6.82% to 7.76%..................   90,000      --
  Revolving line of credit, interest payable monthly at
   reference rate plus .125% (8.25% at December 31, 1996)....   26,300      --
  Revolving line of credit, interest payable monthly at money
   market rate (ranging from 6.03% to 6.34% at December 31,
   1997).....................................................   43,000  203,000
  Notes payable to a bank, interest and principal payable
   monthly at rates ranging from 5.74% to 9.51%..............    2,967      --
  Notes payable related to the purchase of certain
   businesses, imputed interest averaging 7%, due through
   1999......................................................      500      300
                                                              -------- --------
                                                               162,767  203,300
                                                              -------- --------
                                                              $186,710 $220,300
                                                              ======== ========

 
  The Company's agreement with the banks provides for an unsecured line of
credit of $300,000,000 maturing no later than 2002. The revolving line of
credit is unsecured and includes restrictions as to limitations upon certain
ratios of liabilities to net worth and upon the minimum net worth of the
Company. The Company is in compliance with covenants in all agreements. The
Company pays a commitment fee ranging from .175% to .25% on the unused portion
of the outstanding line of credit balance less outstanding letters of credit
calculated quarterly based on the average daily balance. The senior and bank
note agreements existing at December 31, 1996, were paid down with the
proceeds from the IPO.
 
  Cash paid for interest was $7,545,000, $11,185,000, and $9,608,000 for each
of the three years in the period ended December 31, 1997, respectively.
 
  Maturities of notes payable are as follows at December 31, 1997 (in
thousands):
 
                                  
            1998................................ $220,000
            1999................................      300
                                                 --------
                                                 $220,300
                                                 ========

            
 
7. INCOME TAXES
 
  As discussed in Note 1, the Company was taxed as an S corporation prior to
the Recapitalization. As such, the income tax provision was comprised of
current state income tax expense of $468,000 and $374,000 for 1995 and 1996,
respectively. Deferred taxes for such periods were immaterial. Cash payments
for state income taxes made by the Company were $597,000 and $353,000 for 1995
and 1996, respectively. Cash payments for federal and state income taxes made
by the Company were $11,407,000 in 1997.
 
                                     F-50

 
                              U.S. RENTALS, INC.
 
                  NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
 
 
  The following provision for income taxes for 1997 includes all state taxes
recognized by the Predecessor as an S corporation prior to the
Recapitalization and federal and state taxes recognized by the Company
subsequent to the Recapitalization (in thousands).
 


                                                                         1997
                                                                        -------
                                                                     
   Federal:
     Current........................................................... $ 3,765
     Deferred..........................................................  14,281
     Deferred tax recorded upon Recapitalization.......................   6,141
                                                                        -------
                                                                         24,187
                                                                        -------
   State:
     Current...........................................................     565
     Deferred..........................................................   3,276
     Deferred tax recorded upon Recapitalization.......................   1,379
                                                                        -------
                                                                          5,220
                                                                        -------
                                                                        $29,407
                                                                        =======

 
  The 1997 provision for income taxes differs from the amount as determined by
applying the U.S. statutory federal tax rate of 35% to income before income
taxes as a result of the following:
 
                                                                     
   Federal income taxes................................................... 35.0%
   State income taxes, net of federal benefit.............................  4.8%
   Cumulative deferred taxes recorded upon Recapitalization............... 21.0%
   Loss prior to Recapitalization excluded from taxable income............ 21.1%
   Other..................................................................  0.4%
                                                                           ----
                                                                           82.3%
                                                                           ====

   
 
  The unaudited pro forma provision for income taxes differs from the amount
of income tax determined by applying the U.S. statutory federal income tax
rate of 35% to income before income taxes as a result of the following:
 


                                                                YEARS ENDED
                                                                DECEMBER 31,
                                                               ----------------
                                                               1995  1996  1997
                                                               ----  ----  ----
                                                                  
   Federal income taxes....................................... 35.0% 35.0% 35.0%
   State income taxes, net of federal benefit.................  5.3%  4.9%  4.8%
   Other......................................................  0.8%  0.3%  0.4%
                                                               ----  ----  ----
                                                               41.1% 40.2% 40.2%
                                                               ====  ====  ====

 
  Deferred income tax assets and liabilities are computed based on temporary
differences between the financial statement and income tax bases of assets and
liabilities using the enacted marginal income tax rate in effect for the year
in which the differences are expected to reverse. Deferred income tax expenses
or credits are based on the changes in the deferred income tax assets or
liabilities from period to period.
 
                                     F-51

 
                              U.S. RENTALS, INC.
 
                  NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
 
 
  Deferred tax assets (liabilities) are as follows (in thousands):
 


                                                                    DECEMBER 31,
                                                                        1997
                                                                    ------------
                                                                 
   Self-insurance reserves.........................................   $  4,944
   Compensation related accruals...................................      1,674
   Allowances for doubtful accounts................................      2,079
   State income taxes..............................................      1,636
   Others, net.....................................................        924
                                                                      --------
                                                                        11,257
   Depreciation....................................................    (36,334)
                                                                      --------
                                                                      $(25,077)
                                                                      ========

 
8. COMMITMENTS AND CONTINGENCIES
 
  Operating leases
 
  The Company leases certain facilities under operating leases which contain
renewal options and provide for periodic cost of living adjustments. Rental
expense was $3,365,000, $3,681,000, and $5,374,000 for each of the three years
in the period ended December 31, 1997, respectively.
 
  Future minimum rental commitments as of December 31, 1997, under
noncancelable operating leases are (in thousands):
 
                                                                   
   1998................................................................. $ 6,445
   1999.................................................................   5,353
   2000.................................................................   4,439
   2001.................................................................   3,678
   2002.................................................................   2,545
   Thereafter...........................................................   8,237
                                                                         -------
                                                                         $30,697
                                                                         =======

   
 
 Legal matters
 
  The Company is party to legal proceedings and potential claims arising in
the ordinary course of its business. In the opinion of management, the Company
has adequate legal defense, reserves, or insurance coverage with respect to
these matters so that the ultimate resolution will not have a material adverse
effect on the Company's financial position, results of operations, or cash
flows. The Company has accrued $12,011,000 and $9,563,000 at December 31, 1996
and 1997, respectively, to cover the uninsured portion of possible costs
arising from these pending claims and other potential unasserted claims.
 
 Environmental matters
 
  The Company and its operations are subject to various laws and related
regulations governing environmental matters. Under such laws, an owner or
lessee of real estate may be liable for the costs of removal or remediation of
certain hazardous or toxic substances located on or in, or emanating from,
such property, as well as investigation of property damage. The Company incurs
ongoing expenses associated with the removal of underground storage tanks and
the performance of appropriate remediation at certain of its locations. The
Company believes that such removal and remediation will not have a material
adverse effect on the Company's financial position, results of operations, or
cash flows.
 
                                     F-52

 
                              U.S. RENTALS, INC.
 
                  NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
 
 
9. STOCK OPTION PLAN
 
  Effective February 20, 1997, the Board of Directors of the Company adopted
the 1997 Performance Award Plan under which stock options and other awards can
be granted to key employees and directors at prices and terms established by
the Board of Directors at the date of grant. The exercise price of all options
issued during 1997 equaled the fair value of the stock on the grant date which
ranged from $17.88 to $26.88. Accordingly, no compensation expense has been
recognized. Options outstanding at December 31, 1997, vest ratably over
periods ranging from five to ten years and expire in 2007.
 
  The following table summarizes the activity under the stock option plan:
 


                                                                     WEIGHTED
                                                         NUMBER      AVERAGE
                                                        OF SHARES EXERCISE PRICE
                                                        --------- --------------
                                                            
   Shares under option:
     Outstanding at December 31, 1996..................       --      $  --
      Granted: ($17.88-$20.00)......................... 3,867,387     $19.99
      ($23.44-$26.88)..................................   206,500     $25.78
                                                        ---------
   Outstanding at December 31, 1997.................... 4,073,887     $20.29
                                                        =========

 
  There were no vested options outstanding and 526,113 shares were available
for future grants under the stock option plan at December 31, 1997.
 
  For purposes of the pro forma disclosures required by SAFS 123, the
estimated fair value of options is amortized to expense over the options'
vesting period. The fair value of each option grant is estimated on the date
of grant using the Black-Scholes option pricing model. The Black-Scholes model
was developed for use in estimating the fair value of traded options that have
no vesting restrictions and are fully transferable. In addition, option
valuation models require the input of highly sensitive assumptions, including
the expected stock price volatility, which are subject to change from time to
time. For this reason, the resulting pro forma compensation costs are not
necessarily indicative of costs to be expected in future years.
 
  Pro forma unaudited net income, pro forma basic unaudited net income per
share, and pro forma diluted unaudited net income per share in 1997, after
giving effect to the Recapitalization would be $18,065,000, $.62, and $.60,
respectively, if the Company had accounted for its stock options using the
fair value based method of accounting established by SFAS 123. The following
weighted average assumptions were used in the option pricing model to
determine the fair value of the options: dividend yield of 0%, expected
volatility of 32%, risk-free interest rate ranging from 5.84% to 6.61%, and
expected lives ranging from 3 to 5.25 years.
 
10. EMPLOYEE BENEFIT PLANS
 
  The Company sponsors a defined contribution 401(k) retirement plan (the
Plan) which is subject to the provisions of ERISA. Under the Plan, which was
implemented in 1994, the Company matches a minimum of 50% of the participants'
contributions up to a specified amount as determined by the Board of
Directors. Company contributions to the Plan were $246,000, $122,000, and
$136,000 for each of the three years in the period ended December 31, 1997,
respectively.
 
                                     F-53

 
                              U.S. RENTALS, INC.
 
                  NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
 
 
11. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
 
 Selected financial data
 
  The following table of quarterly financial information has been prepared
from unaudited financial statements of the Company, and reflects adjustments
which are, in the opinion of management, necessary for a fair presentation of
the interim periods presented. The Company has determined that the one-time
charge to establish the cumulative deferred tax liability as of the date of
the Company's IPO associated with becoming subject to C corporation taxes
should have been $7.5 million instead of $9.3 million as previously reported
in Form 10-Q for the third quarter of 1997. The loss before extraordinary item
and net loss presented below reflect this change.
 


                                               FIRST   SECOND   THIRD    FOURTH
                                              QUARTER  QUARTER QUARTER  QUARTER
                                              -------  ------- -------- --------
                                                            
Year ended December 31, 1997
  Total revenues............................. $80,981  $96,434 $114,026 $133,252
  Gross profit...............................  18,108   27,277   34,915   37,400
  Income (loss) before extraordinary item.... (22,750)   8,015   10,857   10,219
  Extraordinary item.........................   1,511       --       --       --
  Net income (loss).......................... (24,261)   8,015   10,857   10,219
Year ended December 31, 1996
  Total revenues............................. $58,643  $71,172 $ 86,647 $ 89,375
  Gross profit...............................  14,262   18,292   25,244   27,818
  Net income.................................   4,205    6,835   11,596   10,448

 
 Price range of common stock
 
  The Company's common stock is traded on the New York Stock Exchange (NYSE)
under the symbol USR. The following table provides the high and low closing
sales prices of the common stock as reported by the NYSE for each quarter of
1997.
 


                                                  FIRST  SECOND   THIRD  FOURTH
                                                 QUARTER QUARTER QUARTER QUARTER
                                                 ------- ------- ------- -------
                                                             
   High......................................... $20.13  $27.50  $29.31  $27.38
   Low.......................................... $17.00  $15.38  $24.25  $23.13

 
                                     F-54

 
                               U.S. RENTALS, INC.
 
                                 BALANCE SHEETS
                       (IN THOUSANDS, EXCEPT SHARE DATA)
 


                                                        JUNE 30,   DECEMBER 31,
                                                          1998         1997
                                                       ----------- ------------
                                                       (UNAUDITED)
                                                             
                        ASSETS
                        ------
Cash and cash equivalents.............................  $ 22,510     $  3,104
Accounts receivable, net..............................    74,124       60,906
Inventories...........................................    19,040       17,379
Rental equipment, net.................................   521,696      390,598
Property and equipment, net...........................    93,130       78,014
Goodwill, net.........................................    26,398       23,114
Prepaid expenses and other assets.....................    12,167       12,696
                                                        --------     --------
    Total assets......................................  $769,065     $585,811
                                                        ========     ========
         LIABILITIES AND STOCKHOLDERS' EQUITY
         ------------------------------------
Accounts payable and other liabilities................  $ 78,264     $ 75,048
Note payable to related party.........................    21,500       17,000
Notes payable, other..................................   357,100      203,300
Deferred taxes........................................    29,732       25,077
                                                        --------     --------
    Total liabilities.................................   486,596      320,425
                                                        --------     --------
Stockholders' equity:
  Common stock, $.01 par value--authorized 100,000,000
   shares; issued and
   outstanding 30,774,975 shares as of June 30, 1998
   and 30,748,975 as of
   December 31, 1997..................................       308          307
  Paid-in capital.....................................   244,830      244,211
  Retained earnings...................................    37,331       20,868
                                                        --------     --------
    Total stockholders' equity........................   282,469      265,386
                                                        --------     --------
    Total liabilities and stockholders' equity........  $769,065     $585,811
                                                        ========     ========

 
                                      F-55

 
                               U.S. RENTALS, INC.
 
                            STATEMENTS OF OPERATIONS
                (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
                                  (UNAUDITED)
 


                                  THREE MONTHS ENDED       SIX MONTHS ENDED
                                       JUNE 30,                JUNE 30,
                                 ----------------------  ----------------------
                                    1998        1997        1998        1997
                                 ----------  ----------  ----------  ----------
                                                         
Revenues:
  Rental revenue...............  $  114,806  $   77,109  $  207,447  $  142,439
  Rental equipment sales.......      18,489       9,274      31,555      16,475
  Merchandise and new equipment
   sales.......................      17,547      10,051      32,358      18,501
                                 ----------  ----------  ----------  ----------
    Total revenues.............     150,842      96,434     271,360     177,415
                                 ----------  ----------  ----------  ----------
Cost of revenues:
  Rental equipment expense.....      24,016      18,678      46,016      36,176
  Rental equipment
   depreciation................      24,534      15,708      45,979      30,021
  Cost of rental equipment
   sales.......................       9,610       4,631      15,898       8,016
  Cost of merchandise and new
   equipment sales.............      12,080       7,442      22,931      13,936
  Direct operating expense.....      31,517      22,698      64,894      43,881
                                 ----------  ----------  ----------  ----------
    Total cost of revenues.....     101,757      69,157     195,718     132,030
                                 ----------  ----------  ----------  ----------
    Gross profit...............      49,085      27,277      75,642      45,385
Selling, general and
 administrative expense........      20,124      10,427      31,550      17,977
Non-rental depreciation........       3,766       2,724       7,491       4,654
Amortization of goodwill.......         109          41         184          44
Termination cost of deferred
 compensation agreements.......         --          --          --       20,290
                                 ----------  ----------  ----------  ----------
    Operating income...........      25,086      14,085      36,417       2,420
Other expense, net.............         --          --          --         (473)
Related party interest expense,
 net...........................        (310)       (223)       (594)       (171)
Interest expense, net..........      (4,891)       (504)     (8,293)     (2,057)
                                 ----------  ----------  ----------  ----------
    Income (loss) before income
     taxes and
     extraordinary item........      19,885      13,358      27,530        (281)
Income tax expense.............       7,994       5,343      11,067      14,455
                                 ----------  ----------  ----------  ----------
    Income (loss) before
     extraordinary item........      11,891       8,015      16,463     (14,736)
Extraordinary item, net of tax
 benefit of $995...............         --          --          --        1,511
                                 ----------  ----------  ----------  ----------
    Net income (loss)..........  $   11,891  $    8,015  $   16,463  $  (16,247)
                                 ==========  ==========  ==========  ==========
Basic net income (loss) before
 extraordinary item per share..  $     0.39  $     0.26  $     0.54  $    (0.53)
                                 ----------  ----------  ----------  ----------
Diluted net income (loss)
 before extraordinary item per
 share.........................  $     0.37  $     0.26  $     0.52  $    (0.52)
                                 ----------  ----------  ----------  ----------
Basic and diluted extraordinary
 item per share................  $      --   $      --   $      --   $    (0.05)
                                 ----------  ----------  ----------  ----------
Basic net income (loss) per
 share.........................  $     0.39  $     0.26  $     0.54  $    (0.58)
                                 ----------  ----------  ----------  ----------
Diluted net income (loss) per
 share.........................  $     0.37  $     0.26  $     0.52  $    (0.57)
                                 ----------  ----------  ----------  ----------
Basic weighted average shares
 outstanding...................  30,768,502  30,748,975  30,760,301  27,946,777
                                 ==========  ==========  ==========  ==========
Diluted weighted average shares
 outstanding...................  32,245,254  30,975,435  31,920,944  28,537,859
                                 ==========  ==========  ==========  ==========

 
                                      F-56

 
                               U.S. RENTALS, INC.
 
                            STATEMENTS OF CASH FLOW
                                 (IN THOUSANDS)
                                  (UNAUDITED)
 


                                     THREE MONTHS ENDED    SIX MONTHS ENDED
                                          JUNE 30,             JUNE 30,
                                     -------------------  --------------------
                                       1998       1997      1998       1997
                                     ---------  --------  ---------  ---------
                                                         
Operating activities:
  Net income (loss)................. $  11,891  $  8,015  $  16,463  $ (16,247)
  Adjustments to reconcile net
   income (loss) to net cash
   provided by operating activities:
    Depreciation and amortization...    28,409    18,082     53,654     34,547
    Gain on sale of equipment.......    (9,249)   (5,104)   (16,281)    (9,006)
    Principal adjustment on notes
     receivable.....................       --        --         --        (146)
    Provision for doubtful
     accounts.......................     3,015     1,764      5,142      3,236
    Deferred taxes..................     4,963     1,742      4,655      9,380
    Interest income not collected...       --        --         --        (294)
    Interest expense not paid.......       --        --         --         495
    Loss on early extinguishment of
     debt...........................       --        --         --       2,506
  Changes in operating assets and
   liabilities accounts
   receivable.......................   (15,561)   (9,117)   (17,970)   (14,812)
    Inventories.....................    (1,782)   (1,546)    (1,197)    (1,399)
    Prepaid expenses and other
     assets.........................     3,027     1,068      3,102        552
    Accounts payable and other
     liabilities....................     1,446     9,286      1,142      9,127
                                     ---------  --------  ---------  ---------
Net cash provided by operating
 activities.........................    26,159    24,190     48,710     17,939
                                     ---------  --------  ---------  ---------
Investing activities:
  Acquisition of rental operations..    (1,274)  (20,919)    (9,344)   (22,676)
  Purchases of rental equipment.....  (114,387)  (64,258)  (189,813)   (92,511)
  Proceeds from sale of rental
   equipment........................    18,489     9,274     31,555     16,475
  Purchases of property and
   equipment, net...................   (11,590)  (11,127)   (20,622)   (17,173)
  Funding of notes receivable, net..       --         32        --         253
                                     ---------  --------  ---------  ---------
  Net cash used in investing activi-
   ties.............................  (108,762)  (86,998)  (188,224)  (115,632)
                                     ---------  --------  ---------  ---------
Financing activities:
  Proceeds from (payments on) line
   of credit, net...................  (154,000)   45,000    (98,000)   (13,267)
  Proceeds from (payments) on senior
   notes............................   252,000       --     252,000    (92,506)
  Payments on other obligations.....      (100)     (100)      (200)      (200)
  Proceeds from related party note..       500    18,000      4,500     18,000
  Proceeds from issuance of common
   stock, net of issuance costs.....       369       --         620    185,950
  Cash retained by the predecessor
   in connection with
   Recapitalization.................       --        --         --        (998)
  Dividends paid....................       --        --         --      (1,905)
                                     ---------  --------  ---------  ---------
Net cash provided by financing
 activities.........................    98,769    62,900    158,920     95,074
                                     ---------  --------  ---------  ---------
Net increase (decrease) in cash.....    16,166        92     19,406     (2,619)
Cash at beginning of period.........     6,344       195      3,104      2,906
                                     ---------  --------  ---------  ---------
Cash at end of period............... $  22,510  $    287  $  22,510  $     287
                                     =========  ========  =========  =========
Supplemental non-cash flow
 information:
  Distribution of net assets to
   stockholder in connection with
   the IPO..........................                                 $   3,221
                                                                     =========

 
                                      F-57

 
                               U.S. RENTALS, INC.
 
                  STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
                       (IN THOUSANDS, EXCEPT SHARE DATA)
                                  (UNAUDITED)
 


                                              ADDITIONAL              TOTAL
                                       COMMON  PAID-IN   RETAINED STOCKHOLDERS'
                              SHARES   STOCK   CAPITAL   EARNINGS    EQUITY
                            ---------- ------ ---------- -------- -------------
                                                   
Balance at December 31,
 1997...................... 30,748,975  $307   $244,211  $20,868    $265,386
Net income.................        --    --         --    16,463      16,463
Stock options exercised....     26,000     1        520      --          521
Income tax benefit from
 stock options exercised...        --    --          99      --           99
                            ----------  ----   --------  -------    --------
Balance at June 30, 1998... 30,774,975  $308   $244,830  $37,331    $282,469
                            ==========  ====   ========  =======    ========

 
 
                                      F-58

 
                              U.S. RENTALS, INC.
 
                         NOTES TO FINANCIAL STATEMENTS
                             (TABLES IN THOUSANDS)
                                  (UNAUDITED)
 
1. INTRODUCTION
 
  The Registrant's initial public offering ("IPO") was declared effective on
February 20, 1997. Prior to the IPO, the equipment rental business was
operated by Ayr, Inc., a California corporation (the "Predecessor") that was
treated as an S corporation under the Internal Revenue Code. The Registrant
did not have any operations prior to its IPO. Prior to the closing of the IPO,
the Predecessor transferred substantially all of its operating assets and
associated liabilities to the Registrant in exchange for 20,748,975 shares of
Common Stock of the Registrant, representing all of the Registrant's
outstanding capital stock prior to the IPO. The Predecessor retained only non-
operating assets and liabilities, including approximately $25.7 million of
notes receivable from related parties and approximately $24.4 million of notes
payable to related parties. These transactions are referred to as the
"Recapitalization" in this report.
 
  Unless otherwise indicated, the "Company" means the Predecessor prior to the
IPO and the Registrant on or after the IPO.
 
2. BASIS OF PRESENTATION
 
  The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation have been included. Results of operations for the interim periods
are not necessarily indicative of the results that may be expected for a full
year.
 
3. BANK DEBT AND LONG-TERM OBLIGATIONS
 
  Bank debt and long-term obligations consist of the following:
 


                                                          JUNE 30, DECEMBER 31,
                                                            1998       1997
                                                          -------- ------------
                                                             
Notes payable:
  Senior notes payable to various parties, interest
   payable semi-annually ranging from 6.71% to 6.93%, due
   2006 to 2010.......................................... $252,000   $    --
  Revolving line of credit, interest payable monthly at
   money market rates (6.08% to 6.14% at June 30, 1998
   and 6.03% to 6.34% at December 31, 1997)..............  105,000    203,000
  Notes payable related to the purchase of certain
   businesses, imputed interest
   averaging 7%, due through 1999........................      100        300
                                                          --------   --------
                                                           357,100    203,300
Note payable to related party:
  Demand note payable to majority stockholder of
   Predecessor interest at a
   variable rate, payable monthly, 5.9% at June 30, 1998
   and December 31,
   1997..................................................   21,500     17,000
                                                          --------   --------
                                                          $378,600   $220,300
                                                          ========   ========

 
  On February 26, 1997, the Company repaid the bank notes, the old revolving
line of credit and senior notes utilizing proceeds from its IPO. The early
extinguishment of debt generated an extraordinary loss of $1.5 million (net of
income tax benefit of $995,000).
 
 
                                     F-59

 
                              U.S. RENTALS, INC.
 
                  NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
 
  On February 26, 1997, the Company entered into a $300.0 million unsecured
line of credit with a bank maturing no later than February 25, 2002. The
Company believes it is in compliance with all covenants in the credit
agreement.
 
  On April 28, 1998, the Company completed a $252.0 million private placement
of senior unsecured notes. The Company believes it is in compliance with all
covenants in the senior note agreement.
 
4. INCOME TAXES
 
  Income tax expense consists of the following:
 


                                                                   SIX MONTHS
                                                                 ENDED JUNE 30,
                                                                 ---------------
                                                                  1998    1997
                                                                 ------- -------
                                                                   
One-time charge for cumulative deferred taxes as of the date of
 the IPO as if the Company had always been subject to taxes as
 a C corporation...............................................  $   --  $ 7,520
Income tax provision for the period subsequent to the IPO......   11,067   6,935
                                                                 ------- -------
                                                                 $11,067 $14,455
                                                                 ======= =======

 
                                     F-60

 
              REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
 
To the Board of Directors and Stockholders of
Equipment Supply Co., Inc. and Affiliates
Burlington, New Jersey
 
  We have audited the accompanying combined balance sheets of Equipment Supply
Co., Inc. and Affiliates (see Note 1) as of December 31, 1997 and 1996, and
the related combined statements of income, stockholders' equity, and cash
flows for each of the three years in the period ended December 31, 1997. These
combined financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these combined
financial statements based on our audits.
 
  We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
 
  In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the financial position of Equipment Supply
Co., Inc. and Affiliates as of December 31, 1997 and 1996, and the results of
their operations and their cash flows for each of the three years in the
period ended December 31, 1997 in conformity with generally accepted
accounting principles.
 
                                          BDO Seidman, LLP
 
Philadelphia, Pennsylvania
June 19, 1998,
 except for Notes 9 and 15 which
 are as of July 10, 1998
 
                                     F-61

 
                   EQUIPMENT SUPPLY CO., INC. AND AFFILIATES
 
                            COMBINED BALANCE SHEETS
 


                                               DECEMBER 31,
                                         -------------------------   JUNE 30,
                                             1997         1996         1998
                                         ------------ ------------ ------------
                                                                   (UNAUDITED)
                                                          
ASSETS
Cash and cash equivalents............... $  1,038,086 $  4,015,527 $  1,784,124
Marketable securities...................          --     1,103,354          --
Accounts receivable, net of allowance
 for
 possible losses of $2,241,339,
 $1,202,790
 and $2,241,339.........................   16,087,730   14,592,845   16,528,382
Inventories.............................    3,234,402    3,249,010    4,507,505
Prepaid expenses and other assets.......    2,365,177      389,234    1,837,531
Due from stockholder....................    4,310,190    1,637,628    5,184,698
Rental equipment, net...................  122,154,888  127,343,198  111,617,692
Property and equipment, net.............    6,548,778    5,401,275    5,267,210
Goodwill and other intangible assets,
 net....................................    3,887,945    4,436,997    3,639,033
                                         ------------ ------------ ------------
    Total assets........................ $159,627,196 $162,169,068 $150,366,175
                                         ============ ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
  Debt.................................. $ 94,870,512 $107,460,779 $ 87,577,703
  Capital lease obligations.............    8,841,236   11,923,889    7,241,127
  Accounts payable......................    4,909,578    4,116,967    3,648,493
  Income taxes payable..................    1,209,251    1,393,548    1,442,884
  Deferred income taxes.................    3,884,669    3,996,763      939,847
  Deferred leasing costs................    4,379,594          --     5,626,989
  Deferred rental income................    2,404,500    2,016,607    2,653,308
  Other liabilities.....................    1,599,427    2,335,963    3,215,431
                                         ------------ ------------ ------------
    Total liabilities...................  122,098,767  133,244,516  112,345,782
                                         ------------ ------------ ------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
  Common stock, no par value
   Authorized 2,500 shares;
   Issued and outstanding 581 shares....        1,500        1,500        1,500
  Additional paid-in capital............      363,808      326,294      363,808
  Retained earnings.....................   37,163,121   28,596,758   37,655,085
                                         ------------ ------------ ------------
    Total stockholders' equity..........   37,528,429   28,924,552   38,020,393
                                         ------------ ------------ ------------
    Total liabilities and stockholders'
     equity............................. $159,627,196 $162,169,068 $150,366,175
                                         ============ ============ ============

 
            See accompanying notes to combined financial statements.
 
                                      F-62

 
                   EQUIPMENT SUPPLY CO., INC. AND AFFILIATES
 
                         COMBINED STATEMENTS OF INCOME
 


                                                                    SIX MONTHS ENDED
                                YEAR ENDED DECEMBER 31,                 JUNE 30,
                          -------------------------------------  ------------------------
                             1997         1996         1995         1998         1997
                          -----------  -----------  -----------  -----------  -----------
                                                                       (UNAUDITED)
                                                               
REVENUES
  Equipment rentals.....  $78,141,502  $65,226,201  $40,905,725  $34,381,555  $38,110,803
  Sales of rental
   equipment............    8,102,210   11,935,375    7,968,205    3,280,299    3,150,044
  Sales of new
   equipment,
   merchandise and other
   revenues.............    8,314,451   10,129,016    5,246,285    5,678,060    4,111,176
                          -----------  -----------  -----------  -----------  -----------
    TOTAL REVENUES......   94,558,163   87,290,592   54,120,215   43,339,914   45,372,023
                          -----------  -----------  -----------  -----------  -----------
COST OF REVENUES
  Cost of equipment
   rentals, excluding
   depreciation.........   23,509,529   19,225,581   14,222,651   12,528,730    7,675,660
  Depreciation of rental
   equipment............   20,397,030   15,383,114    7,844,434   10,368,052   10,774,115
  Cost of rental
   equipment sold.......    5,049,876    9,834,128    3,291,409    2,131,867    1,975,139
  Cost of new equipment
   and merchandise......    6,312,172    6,263,969    2,250,037    5,135,293    3,721,652
                          -----------  -----------  -----------  -----------  -----------
    TOTAL COST OF
     REVENUES...........   55,268,607   50,706,792   27,608,531   30,163,942   24,146,566
                          -----------  -----------  -----------  -----------  -----------
GROSS PROFIT............   39,289,556   36,583,800   26,511,684   13,175,972   21,225,457
                          -----------  -----------  -----------  -----------  -----------
OPERATING EXPENSES
  General and
   administrative
   expenses.............   17,874,879   15,195,802   10,852,925    9,672,514    9,455,819
  Nonrental depreciation
   and amortization.....      878,342      627,534      237,427      358,520      421,916
                          -----------  -----------  -----------  -----------  -----------
    TOTAL OPERATING
     EXPENSES...........   18,753,221   15,823,336   11,090,352   10,031,034    9,877,735
                          -----------  -----------  -----------  -----------  -----------
INCOME FROM OPERATIONS..   20,536,335   20,760,464   15,421,332    3,144,938   11,347,722
INTEREST EXPENSE........  (11,185,934)  (7,508,226)  (3,691,638)  (4,220,244)  (6,434,136)
OTHER INCOME (EXPENSE)..    2,858,438      854,658      (28,356)     198,381      793,290
                          -----------  -----------  -----------  -----------  -----------
INCOME (LOSS) BEFORE
 PROVISION FOR INCOME
 TAXES..................   12,208,839   14,106,896   11,701,338     (876,925)   5,706,876
PROVISION FOR INCOME TAX
 EXPENSE (BENEFIT)......    1,242,142    2,073,617    1,517,539   (2,637,684)     575,365
                          -----------  -----------  -----------  -----------  -----------
NET INCOME..............  $10,966,697  $12,033,279  $10,183,799  $ 1,760,759  $ 5,131,511
                          ===========  ===========  ===========  ===========  ===========

 
            See accompanying notes to combined financial statements.
 
                                      F-63

 
                   EQUIPMENT SUPPLY CO., INC. AND AFFILIATES
 
                  COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY
 


                              COMMON STOCK  ADDITIONAL
                              -------------  PAID-IN    RETAINED
                              SHARES AMOUNT  CAPITAL    EARNINGS       TOTAL
                              ------ ------ ---------- -----------  -----------
                                                     
BALANCE, January 1, 1995....   581   $1,500  $    --   $14,408,232  $14,409,732
Net income..................   --       --        --    10,183,799   10,183,799
Stockholders' distribu-
 tions......................   --       --        --    (3,861,677)  (3,861,677)
Capital contributions.......   --       --    170,406          --       170,406
                               ---   ------  --------  -----------  -----------
BALANCE, December 31, 1995..   581    1,500   170,406   20,730,354   20,902,260
Net income..................   --       --        --    12,033,279   12,033,279
Stockholders' distribu-
 tions......................   --       --        --    (4,166,875)  (4,166,875)
Capital contributions.......   --       --    155,888          --       155,888
                               ---   ------  --------  -----------  -----------
BALANCE, December 31, 1996..   581    1,500   326,294   28,596,758   28,924,552
Net income..................   --       --        --    10,966,697   10,966,697
Stockholders' distribu-
 tions......................   --       --        --    (2,937,557)  (2,937,557)
Capital contributions.......   --       --     37,514          --        37,514
Adjustment related to
 affiliate with
 different fiscal year......   --       --        --       537,223      537,223
                               ---   ------  --------  -----------  -----------
BALANCE, December 31, 1997..   581    1,500   363,808   37,163,121   37,528,429
Net income (unaudited)......   --       --        --     1,760,759    1,760,759
Stockholders' distributions
 (unaudited)................   --       --        --    (1,268,795)  (1,268,795)
                               ---   ------  --------  -----------  -----------
BALANCE, June 30, 1998 (un-
 audited)...................   581   $1,500  $363,808  $37,655,085  $38,020,393
                               ===   ======  ========  ===========  ===========

 
 
 
            See accompanying notes to combined financial statements.
 
                                      F-64

 
                   EQUIPMENT SUPPLY CO., INC. AND AFFILIATES
 
                       COMBINED STATEMENTS OF CASH FLOWS
 


                                                                       SIX MONTHS ENDED
                                 YEAR ENDED DECEMBER 31,                   JUNE 30,
                          ----------------------------------------  ------------------------
                              1997          1996          1995         1998         1997
                          ------------  ------------  ------------  -----------  -----------
                                                                          (UNAUDITED)
                                                                  
CASH FLOWS FROM
 OPERATING ACTIVITIES
 Net income.............  $ 10,966,697  $ 12,033,279  $ 10,183,799  $ 1,760,759  $ 5,131,511
 Adjustments to
  reconcile net income
  to net cash flows
  provided by operating
  activities
   Depreciation and
    amortization........    21,275,372    16,010,648     8,081,861   10,775,137   11,196,031
   Provision for bad
    debts...............     1,038,549       374,056       828,734          --           --
   Loss (Gain) on sale
    of equipment........    (3,052,334)   (2,101,247)   (4,555,863)  (1,148,432)  (1,174,905)
   Gain on sale of
    marketable
    securities..........      (390,410)     (126,747)      (37,345)         --      (413,631)
   Deferred income
    taxes...............      (112,094)      743,691       961,861   (2,944,822)    (127,771)
   Adjustment related to
    affiliate with
    different fiscal
    year................       537,223           --            --           --       537,223
 Changes in operating
  assets and
  liabilities:
   (Increase) decrease
    in accounts
    receivable..........    (2,533,434)   (4,603,457)   (4,789,132)    (440,653)  (1,275,848)
   (Increase) decrease
    in inventories......        14,608      (945,385)     (824,220)  (1,273,103)    (384,360)
   (Increase) decrease
    in prepaid expenses
    and other assets....    (1,975,943)      122,694       587,072      527,646     (233,087)
   Increase (decrease)
    in accounts
    payable.............       792,611     1,436,552     1,560,529   (1,261,085)   3,933,297
   Increase (decrease)
    in income taxes
    payable.............      (184,297)    1,076,242       689,302      233,633     (474,120)
   Increase in deferred
    leasing costs.......     4,379,594           --            --     1,247,395          --
   Increase (decrease)
    in deferred rental
    income..............       387,893       627,699       499,251      248,808      175,016
   Increase (decrease)
    in other
    liabilities.........      (736,536)      914,657     1,015,997    1,616,004     (527,352)
                          ------------  ------------  ------------  -----------  -----------
NET CASH PROVIDED BY
 OPERATING ACTIVITIES...    30,407,499    25,562,682    14,201,846    9,341,287   16,362,004
                          ------------  ------------  ------------  -----------  -----------
CASH FLOWS FROM
 INVESTING ACTIVITIES
 Purchases of
  equipment.............   (21,445,901)  (73,822,654)  (32,957,168)    (664,200) (12,537,761)
 Acquisitions of
  affiliated
  companies.............           --    (11,807,987)   (7,829,319)         --           --
 Proceeds from sale of
  equipment.............     8,102,210    11,935,375     7,741,552    3,280,299    3,150,044
 Sales (purchases) of
  marketable
  securities............     1,493,764      (414,665)      397,153          --      (347,750)
                          ------------  ------------  ------------  -----------  -----------
NET CASH (USED IN)
 PROVIDED BY INVESTING
 ACTIVITIES.............   (11,849,927)  (74,109,931)  (32,647,782)   2,616,099   (9,735,467)
                          ------------  ------------  ------------  -----------  -----------
CASH FLOWS FROM
 FINANCING ACTIVITIES
 Proceeds from debt.....  $ 12,869,925  $ 79,950,621  $ 28,777,004  $ 2,634,890  $11,729,779
 Repayment of capital
  lease obligations.....    (3,341,413)   (4,419,085)   (2,177,919)  (1,774,650)  (2,004,361)
 Repayment of debt......   (25,460,192)  (18,525,872)   (4,207,118)  (9,927,699) (14,536,422)
 Payment of loan
  acquisition fees......       (28,728)     (299,978)      (88,493)        (586)     (26,183)
 (Increase) decrease in
  due to/from
  stockholders..........    (2,672,562)   (1,673,052)       35,425     (874,508)  (2,555,699)
 Capital
  contributions.........        37,514       155,887       170,406          --           --
 Stockholders'
  distributions.........    (2,937,557)   (4,166,875)   (3,861,677)  (1,268,795)  (1,809,911)
                          ------------  ------------  ------------  -----------  -----------
NET CASH PROVIDED BY
 (USED IN) FINANCING
 ACTIVITIES.............   (21,535,013)   51,021,646    18,647,627  (11,211,348)  (9,202,797)
                          ------------  ------------  ------------  -----------  -----------
NET (DECREASE) INCREASE
 IN CASH AND CASH
 EQUIVALENTS............    (2,977,441)    2,474,397       201,691      746,038   (2,576,260)
CASH AND CASH
 EQUIVALENTS, beginning
 of year................  $  4,015,527  $  1,541,130  $  1,339,439  $ 1,038,086  $ 4,015,527
                          ------------  ------------  ------------  -----------  -----------
CASH AND CASH
 EQUIVALENTS, end of
 year...................  $  1,038,086  $  4,015,527  $  1,541,130  $ 1,784,124  $ 1,439,267
                          ============  ============  ============  ===========  ===========
SUPPLEMENTAL SCHEDULE OF
 NONCASH INVESTING AND
 FINANCIAL ACTIVITIES
 Acquisition of
  equipment in exchange
  for capital lease
  obligations...........  $    260,760  $  7,121,669  $  6,997,926  $   174,541  $   228,467
 Goodwill related to
  acquisitions..........  $        --   $        --   $  1,897,761  $       --   $       --
 Assets acquired from
  purchase of
  companies.............  $        --   $ 13,165,000  $  9,524,479  $       --   $       --
 Liabilities assumed
  from purchase of
  companies.............  $        --   $  3,357,013  $  3,151,101  $       --   $       --
                          ============  ============  ============  ===========  ===========
OTHER SUPPLEMENTAL
 DISCLOSURES
 Taxes paid.............  $  2,226,828  $    315,814  $    276,960  $    73,505  $ 1,280,867
 Interest paid..........  $ 11,116,164  $  7,250,310  $  3,568,958  $ 4,401,870  $ 6,572,411
                          ============  ============  ============  ===========  ===========

 
            See accompanying notes to combined financial statements.
 
                                      F-65

 
                   EQUIPMENT SUPPLY CO., INC. AND AFFILIATES
 
                    NOTES TO COMBINED FINANCIAL STATEMENTS
         (INFORMATION AS OF JUNE 30, 1998 AND FOR THE SIX MONTHS ENDED
                     JUNE 30, 1998 AND 1997 IS UNAUDITED)
 
1.  ORGANIZATION AND BASIS OF PRESENTATION
 
  The combined financial statements include the accounts of Equipment Supply
Co., Inc. ("Equipment Supply") and its affiliated companies: High Reach Co.,
Inc. ("High Reach") and Rylan, Inc. ("Rylan") (collectively the "Company")
which have common ownership and activities. For financial reporting purposes,
Equipment Supply has been treated as the parent company and the purchaser of
both High Reach and Rylan during 1995. The 1995 acquisitions of the stock of
these companies were made by the stockholders of Equipment Supply.
 
  The Company rents, sells and services aerial platform equipment throughout
the mid-Atlantic region of the United States. The nature of the Company's
business is such that short-term obligations are typically met by cash flow
generated from long-term assets. Consequently, consistent with industry
practice, the accompanying balance sheets are presented on an unclassified
basis.
 
   All significant intercompany balances and transactions have been eliminated
in combination.
 
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
 Interim Financial Statements
 
  The combined balance sheet as of June 30, 1998 and the combined statements
of income, stockholders' equity and cash flows for the three months ended June
30, 1998 and 1997 are unaudited and have been prepared on the same basis as
the audited financial statements included herein. In the opinion of
management, such unaudited financial statements include all adjustments
necessary to present fairly the information set forth therein, which consists
solely of normal recurring adjustments. The results of operations for the
interim periods are not necessarily indicative of results for the full year.
 
CASH EQUIVALENTS
 
  The Company considers all highly liquid instruments with a maturity of three
months or less when purchased to be cash equivalents.
 
MARKETABLE SECURITIES
 
  Statement of Financial Accounting Standards No. 115, "Accounting for Certain
Debt and Equity Securities" requires investments in debt and equity securities
to be classified into one of three categories based on the Company's intent.
The Company has classified its investments in marketable securities as
available for sale which requires the Company to record these investments at
fair market value and record the unrealized gain or loss on the original
investment as a separate component of stockholders' equity. Such unrealized
gains or losses were not material in any period presented.
 
INVENTORIES
 
  Inventories consisting of equipment and parts are stated at the lower of
average weighted cost or market.
 
DEPRECIATION AND AMORTIZATION
 
  All equipment and property is stated at cost. Depreciation of rental
equipment is computed, using an estimated 5% residual value, by the straight-
line method at rates adequate to allocate the cost of rental equipment over
their estimated useful lives, ranging from five to ten years.
 
                                     F-66

 
                   EQUIPMENT SUPPLY CO., INC. AND AFFILIATES
 
              NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
         (INFORMATION AS OF JUNE 30, 1998 AND FOR THE SIX MONTHS ENDED
                     JUNE 30, 1998 AND 1997 IS UNAUDITED)
 
  Depreciation of property and equipment and amortization of leasehold
improvements are computed by the straight-line method at rates adequate to
allocate the cost of applicable assets over their estimated useful lives.
 
  Ordinary maintenance and repair costs are charged to operations as incurred.
 
DEFERRED FINANCING COSTS
 
  Deferred financing costs, which are incurred by the Company in connection
with debt, are charged to operations over the life of the underlying
indebtedness and are included in goodwill and other intangible assets. The net
book value of deferred financing costs at December 31, 1997 and 1996 and June
30, 1998 is $369,421, $340,693 and $321,445, respectively.
 
INCOME TAXES
 
  The Company adopted in 1995 the provisions of Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS 109"). SFAS
No. 109 requires a company to recognize deferred income tax liabilities and
assets for the expected future tax consequences of events that have been
recognized in a company's financial statements or tax returns. Under this
method, deferred income tax liabilities and assets are determined based on the
difference between the financial statement carrying amounts and tax bases of
assets and liabilities using enacted tax rates in effect in the years in which
the differences are expected to reverse.
 
  For all periods presented, Equipment Supply has elected, with the consent of
its stockholders, to be taxed as an S Corporation for federal and certain
state reporting purposes. In lieu of federal and certain state corporation
income taxes, the stockholders are taxed on their proportionate share of the
Company's taxable income. Provision has been made for state income taxes for
those states not recognizing S Corporation status.
 
  During 1998, Rylan elected, with the consent of its stockholders, to be
taxed as an S Corporation for federal and state income tax reporting purposes.
Consequently, all applicable federal and state deferred income taxes have been
reversed during the six months ended June 30, 1998. As a result, the effect on
the 1998 combined statement of income was to increase net income by
approximately $2.9 million.
 
  During 1997, High Reach elected, with the consent of its stockholders, to be
taxed as an S Corporation for federal and state income tax reporting purposes.
Provision has been made for state income taxes for those states not
recognizing S Corporation status. A provision for federal and state income
taxes has been recorded for all periods through September 30, 1997. As of
October 1, 1997, all applicable federal and state deferred income taxes
approximating $81,000 have been reversed in accordance with SFAS 109 and have
been recorded in the statement of income.
 
ACQUISITIONS
 
 High Reach
 
  On April 1, 1995, the stockholders of Equipment Supply purchased all of the
capital stock of High Reach for an aggregate purchase price of approximately
$3.1 million, of which approximately $2.5 million was paid in cash with the
balance in the form of a note maturing no later than March 31, 1997, bearing
interest at 7% per annum.
 
                                     F-67

 
                   EQUIPMENT SUPPLY CO., INC. AND AFFILIATES
 
              NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
         (INFORMATION AS OF JUNE 30, 1998 AND FOR THE SIX MONTHS ENDED
                     JUNE 30, 1998 AND 1997 IS UNAUDITED)
 
  The High Reach acquisition was accounted for using the purchase method of
accounting. Accordingly, the purchase price was allocated to the net assets
acquired based on their estimated fair values. In accordance with SFAS 109,
the Company recorded an additional increase to goodwill of approximately
$737,000 and a corresponding increase to a deferred income tax liability,
representing the difference between the financial and tax bases of certain
assets acquired. The goodwill is being amortized over fifteen years on a
straight-line basis.
 
  The results of operations of High Reach have been included in the Company's
combined financials since the effective date of the acquisition. The
stockholders borrowed approximately $2.5 million from the Company and such
amounts have been recorded as part of the purchase price. Additionally, other
amounts paid by the stockholders in connection with the acquisition have been
treated as additional capital contributions and as part of the purchase price.
 
  During 1995 and 1996, High Reach was combined using its fiscal year end of
September 30. In 1997, the Company reported the results of operations for High
Reach on a calendar year basis. Net income for High Reach's three month period
ended December 31, 1996 has been reflected as an adjustment to stockholders'
equity. No unusual trends or transactions were noted in this three month
period.
 
 Rylan
 
  On April 27, 1995, the stockholders of Equipment Supply purchased all of the
capital stock of Rylan for an aggregate cash purchase price of $4.8 million.
 
  The Rylan acquisition was accounted for using the purchase method of
accounting. Accordingly, the purchase price was allocated to the net assets
acquired based on their estimated fair values. In accordance with SFAS 109,
the Company recorded an additional increase to goodwill of approximately $1.2
million and a corresponding increase to a deferred income tax liability,
representing the difference between the financial and tax bases of certain
assets acquired.
 
  The results of operations of Rylan have been included in the Company's
combined financial statement since the effective date of the acquisition.
Total goodwill arising from the acquisition, in the amount of approximately
$1.9 million, is being amortized over fifteen years on a straight-line basis.
 
  The stockholders financed the Rylan acquisition in the amount of $4.8
million by obtaining a term loan from a financial institution. Such debt has
been recorded on the Company's financial statements, as the Company has been
making the required principal and interest payments on behalf of the
stockholders and have guaranteed this debt (see Note 9).
 
 Freestate
 
  Effective May 1, 1996, Rylan acquired substantially all of the assets and
assumed certain liabilities of Freestate Industries, Inc. for approximately
$11.8 million in cash. Such amount included payments specified for covenants
not to compete for three key employees. The acquisition was accounted for
using the purchase method of accounting. Accordingly, the purchase price was
allocated to the net assets acquired based on their estimated fair values.
Total goodwill and other intangible assets, amounting to approximately
$2,000,000, are being amortized over a period ranging from five to fifteen
years on a straight-line basis. The results of operations of Freestate have
been included in the Company's combined financial statements since the
effective date of the acquisition.
 
                                     F-68

 
                   EQUIPMENT SUPPLY CO., INC. AND AFFILIATES
 
              NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
         (INFORMATION AS OF JUNE 30, 1998 AND FOR THE SIX MONTHS ENDED
                     JUNE 30, 1998 AND 1997 IS UNAUDITED)
 
  The Company borrowed approximately $10.8 million to finance a portion of the
purchase price (see Note 9).
 
REVENUE RECOGNITION
 
  The Company rents equipment to its customers under agreements not exceeding
one month, consequently the rental agreements are classified as operating
leases.
 
  Revenues from rental leases are recognized over the term of the respective
agreements. Revenues from product sales are recognized when the product is
shipped. Revenue from equipment repairs is recognized at the time of service.
Revenues from maintenance contracts are recognized over the term of the
respective contracts as service is provided.
 
  Amounts billed in advance are recorded as prebilled rentals which is
classified as deferred rental income on the combined balance sheet.
 
DEFERRED LEASING COSTS
 
  The Company receives volume rebates for leasing and purchasing certain
equipment. The rebates related to operating leases are recognized as a
reduction in lease expense over the terms of the respective leases, generally
five years. Rebates related to purchased equipment are treated as a reduction
in the cost of equipment. The Company amortizes the costs of its leases on a
straight-line basis over the respective lease terms.
 
USE OF ESTIMATES
 
  The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
 
LONG-LIVED ASSETS
 
  The Company follows the provisions of Statement of Financial Accounting
Standards No. 121 ("SFAS 121") "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of." SFAS 121 establishes
accounting standards for the impairment of long-lived assets, certain
identifiable intangibles and goodwill related to those assets to be held and
used and for long-lived assets and certain identifiable intangibles to be
disposed of. The Company reviews the carrying values of its long-lived and
identifiable intangible assets for possible impairment whenever events or
changes in circumstances indicate that the carrying amount of the assets may
not be recoverable based on undiscounted estimated future operating cash
flows. As of December 31, 1997, the Company has determined that no impairment
has occurred.
 
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
 
  In June 1997, the Financial Accounting Standards Board issued two new
disclosure standards which are effective for financial statements for periods
beginning after December 15, 1997.
 
                                     F-69

 
                   EQUIPMENT SUPPLY CO., INC. AND AFFILIATES
 
              NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
         (INFORMATION AS OF JUNE 30, 1998 AND FOR THE SIX MONTHS ENDED
                     JUNE 30, 1998 AND 1997 IS UNAUDITED)
 
  Statement of Financial Accounting Standards (SFAS) No. 130, "Reporting
Comprehensive Income," establishes standards for reporting and display of
comprehensive income, its components and accumulated balances. Comprehensive
income is defined to include all changes in equity except those resulting from
investments by owners and distributions to owners. Among other disclosures,
SFAS No. 130 requires that all items that are required to be recognized under
current accounting standards as components of comprehensive income be reported
in a financial statement that is displayed with the same prominence as other
financial statements.
 
  SFAS No. 131, "Disclosure about Segments of a Business Enterprise and
Related Information," which supersedes SFAS No. 14, "Financial Reporting for
Segments of a Business Enterprise," establishes standards for the way that
public enterprises report information about operating segments in annual
financial statements and requires reporting of selected information about
operating segments in interim financial statements issued to the public. It
also establishes standards for disclosures regarding products and services,
geographic areas and major customers. SFAS No. 131 defines operating segments
as components of an enterprise about which separate financial information is
available that is evaluated regularly by the chief operating decision maker in
deciding how to allocate resources and in assessing performance.
 
  The Company believes that its operations compose a single segment and there
are no components of comprehensive income.
 
3. FINANCIAL INVESTMENTS AND CONCENTRATIONS OF CREDIT RISK
 
  Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of periodic temporary
investments of excess cash and trade receivables. The Company places its
temporary excess cash investments in high quality short-term money market
instruments and the carrying value approximates market value. A significant
portion of the Company's rental sales and equipment sales are to customers in
the construction industry and, as such, the Company is directly affected by
the well-being of that industry. However, the credit risk associated with
trade receivables is minimal due to the Company's large customer base,
geographical dispersion and ongoing control procedures which monitor the
credit worthiness of its customers.
 
4. DUE FROM STOCKHOLDERS
 
  From time to time, the Company makes advances to its stockholders.
Generally, there are no formal repayment terms and the amounts are
noninterest-bearing.
 
5. RENTAL EQUIPMENT
 
  Rental equipment consists of the following:
 


                                                DECEMBER 31,
                                          -------------------------   JUNE 30,
                                              1997         1996         1998
                                          ------------ ------------ ------------
                                                           
     Rental equipment.................... $168,047,372 $156,891,144 $163,566,080
     Less accumulated depreciation.......   45,892,484   29,547,946   51,948,388
                                          ------------ ------------ ------------
                                          $122,154,888 $127,343,198 $111,617,692
                                          ============ ============ ============

 
 
                                     F-70

 
                   EQUIPMENT SUPPLY CO., INC. AND AFFILIATES
 
              NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
         (INFORMATION AS OF JUNE 30, 1998 AND FOR THE SIX MONTHS ENDED
                     JUNE 30, 1998 AND 1997 IS UNAUDITED)
  Depreciation expense amounted to $18,948,184, $14,385,916, $7,332,808,
$9,686,871 and $10,130,648 for the years ended December 31, 1997, 1996 and
1995 and the six months ended June 30, 1998 and 1997, respectively.
 
6. PROPERTY AND EQUIPMENT
 
  Property and equipment consists of the following:
 


                                       DECEMBER 31,
                                  ----------------------  JUNE 30,
                                     1997        1996       1998        LIVES
                                  ----------- ---------- ----------- -----------
                                                         
Shop equipment..................  $   834,355 $  760,669 $   525,492   5-7 years
Transportation equipment........    9,134,757  6,887,232   8,008,297     5 years
Furniture and fixtures..........    1,288,479    962,474   1,071,448    5-7 year
Building and lease hold improve-
 ments..........................      635,895    590,132     701,146 15-39 years
                                  ----------- ---------- -----------
  Total.........................   11,893,486  9,200,507  10,306,383
Less accumulated depreciation
 and amortization...............    5,344,708  3,799,232   5,039,173
                                  ----------- ---------- -----------
                                  $ 6,548,778 $5,401,275 $ 5,267,210
                                  =========== ========== ===========

 
  Depreciation and amortization amounted to $1,749,408, $1,180,285, $625,324,
$838,767 and $774,830 for the years ended December 31, 1997, 1996 and 1995 and
the six months ended June 30, 1998 and 1997, respectively.
 
7. CAPITAL LEASE OBLIGATIONS
 
  Capitalized leased assets include machinery and transportation equipment.
Interest on the respective capital lease obligations range from 7.3% to 11.4%
at December 31, 1997 and 1996 and June 30, 1998.
 
  Capital lease obligations, all of which are collateralized by the leased
equipment, consist of the following:
 


                                                   DECEMBER 31,
                                              ----------------------  JUNE 30,
                                                 1997       1996        1998
                                              ---------- ----------- ----------
                                                            
Various equipment capital lease obligations,
 lease terms of 60 months with monthly lease
 payments of $512 to $52,463 ending April
 1999 to June 2001..........................  $6,451,715  $8,807,391 $5,290,680
Various vehicle capital lease obligations,
 lease terms of 60 months with monthly lease
 payments of $590 to $10,751 ending August
 1998 to April 2002.........................   2,204,559   2,826,490  1,825,700
Various vehicle capital lease obligations
 lease terms of 48 months with monthly lease
 payments of $578 to $4,049 ending January
 1999 to June 2000..........................     184,962     290,008    124,747
                                              ---------- ----------- ----------
                                              $8,841,236 $11,923,889 $7,241,127
                                              ========== =========== ==========

 
                                     F-71

 
                   EQUIPMENT SUPPLY CO., INC. AND AFFILIATES
 
              NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
         (INFORMATION AS OF JUNE 30, 1998 AND FOR THE SIX MONTHS ENDED
                     JUNE 30, 1998 AND 1997 IS UNAUDITED)
 
  The future minimum lease payments under capital leases, together with the
present value of the net minimum lease payments as of December 31, 1997 is as
follows:
 


         YEAR
        ENDING
       DECEMBER
         31,                                                           AMOUNT
       --------                                                      -----------
                                                                  
       1998........................................................  $ 3,628,913
       1999........................................................    3,416,347
       2000........................................................    2,478,665
       2001........................................................      845,860
       2002........................................................        9,965
                                                                     -----------
      Total minimum lease payments.................................   10,379,750
      Less amount representing interest............................    1,538,514
                                                                     -----------
      Capital lease obligations....................................  $ 8,841,236
                                                                     ===========

 
  The net book value of equipment under capital leases at December 31, 1997
and 1996 and June 30, 1998 amounted to $11,165,421, $13,800,349 and
$9,990,153, respectively.
 
8. NOTES PAYABLE, BANK
 
  At December 31, 1997 and June 30, 1998, the Company had a line of credit
with a bank for $2,500,000. Borrowings under the lines bear interest at a rate
of 1/2% above the bank's prime rate (9%, at December 31, 1997 and June 30,
1998) and are secured by certain Company assets. At December 31, 1997 and June
30, 1998, $-0- and $1,993,000, respectively, was outstanding under this line.
 
                                     F-72

 
                   EQUIPMENT SUPPLY CO., INC. AND AFFILIATES
 
              NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
         (INFORMATION AS OF JUNE 30, 1998 AND FOR THE SIX MONTHS ENDED
                      JUNE 30, 1998 AND 1997 IS UNAUDITED)
 
9. DEBT
 
  Debt consists of the following:
 


                                                 DECEMBER 31,
                                           ------------------------  JUNE 30,
                                              1997         1996        1998
                                           ----------- ------------ -----------
                                                           
Notes payable to banks and finance compa-
nies with fixed interest rates ranging
from prime plus .5% to prime plus 2% (9%
and 10.5% at December 31, 1997) due in
monthly installments ranging from $546 to
$211,242 ending in September 1999 to De-
cember 2001 including interest. Collater-
alized either by a specific security in-
terest in equipment, a general lien on
equipment or by all assets owned or here-
after acquired by the Company............  $51,164,326 $ 64,098,599 $46,140,944
Term note payable to a finance company
with interest of 9.93% due in monthly in-
stallments of $221,314, including inter-
est, through April 2002. Collateralized
by a specific security interest in equip-
ment and guaranteed by the President of
the Company. (During 1998, the balance of
the loan was converted to and is included
in the note payable to a finance company
noted below.)............................    9,310,102          --          --
Note payable, bank, in connection with
Rylan acquisition, due in monthly in-
stallments of $99,519, including interest
at 9.25%: collateralized by certain as-
sets of Rylan and guaranteed by the
stockholders and the Company; final pay-
ment due July 2000.......................      391,362    2,041,928         --
Note payable, sellers in connection with
the High Reach acquisition, due in
monthly installments of $10,213 plus in-
terest at 7% with final payment of
$377,844 made during March 1997..........          --       408,523         --
Note payable, bank (see Note 8)..........          --           --    1,993,000
Note payable to a finance company with an
interest rate of LIBOR plus 3.25% (9.41%
at December 31, 1997) due in varying
monthly installments. Collateralized by a
specific security interest in equipment
and guaranteed by the President of the
Company..................................   34,004,722   40,911,729  39,443,759
                                           ----------- ------------ -----------
                                           $94,870,512 $107,460,779 $87,577,703
                                           =========== ============ ===========

 
                                      F-73

 
                   EQUIPMENT SUPPLY CO., INC. AND AFFILIATES
 
              NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
         (INFORMATION AS OF JUNE 30, 1998 AND FOR THE SIX MONTHS ENDED
                     JUNE 30, 1998 AND 1997 IS UNAUDITED)
 
  At December 31, 1997, the aggregate maturities of debt are as follows:
 


     YEARS ENDING
     DECEMBER 31,                                                      AMOUNT
     ------------                                                   ------------
                                                                 
     1998.......................................................... $ 26,007,808
     1999..........................................................   25,586,393
     2000..........................................................   23,492,367
     2001..........................................................   18,116,590
     2002..........................................................    1,208,650
     Thereafter....................................................      458,704
                                                                    ------------
                                                                    $ 94,870,512
                                                                    ============

 
  Certain agreements require the Company to maintain specified minimum net
worth and working capital and certain financial ratios. At December 31, 1997,
the Company was in violation of certain covenants, including obtaining a
specified level of minimum tangible net worth and a debt service coverage
ratio.
 
  From the proceeds of the sale, more fully described in Note 15, the Company
repaid substantially all of its debt.
 
10. INCOME TAXES
 
  Deferred income taxes reflect the net tax effect of differences between the
carrying amounts of assets and liabilities for financial reporting purposes
and the amounts used for income tax purposes.
 
  Deferred income taxes relate primarily to depreciation and amortization,
differences in the accounting treatment of capital leases and bases of certain
assets of acquired businesses.
 
   The components of income tax expense are summarized as follows:
 


                             YEAR ENDED DECEMBER 31,             JUNE 30,
                         --------------------------------- ---------------------
                            1997        1996       1995       1998        1997
                         ----------  ---------- ---------- -----------  --------
                                                         
CURRENT INCOME TAXES
  Federal............... $  482,568  $  928,915 $  277,900 $       --   $232,612
  State.................    871,648     401,011    277,778     307,138   470,532
                         ----------  ---------- ---------- -----------  --------
    TOTAL CURRENT INCOME
     TAX EXPENSE........  1,354,216   1,329,926    555,678     307,138   703,144
                         ----------  ---------- ---------- -----------  --------
DEFERRED INCOME TAXES
 (BENEFIT)
  Federal...............    393,018     133,507    452,061         --    311,611
  State.................   (424,092)    610,184    509,800     (20,000) (439,382)
  Reversal of deferred
   income taxes relating
   to sub S elections...    (81,000)        --        --    (2,924,822)      --
                         ----------  ---------- ---------- -----------  --------
    TOTAL DEFERRED
     INCOME TAX EXPENSE
     (BENEFIT)..........   (112,074)    743,691    961,861  (2,944,822) (127,771)
                         ----------  ---------- ---------- -----------  --------
    TOTAL INCOME TAX
     EXPENSE (BENEFIT).. $1,242,142  $2,073,617 $1,517,539 $(2,637,684) $575,373
                         ==========  ========== ========== ===========  ========

 
                                     F-74

 
                   EQUIPMENT SUPPLY CO., INC. AND AFFILIATES
 
              NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
         (INFORMATION AS OF JUNE 30, 1998 AND FOR THE SIX MONTHS ENDED
                     JUNE 30, 1998 AND 1997 IS UNAUDITED)
 
  Differences which give rise to a significant portion of deferred income
taxes are as follows:
 


                                                 DECEMBER 31,        JUNE 30,
                                            ----------------------- -----------
                                               1997        1996        1998
                                            ----------- ----------- -----------
                                                           
     DEFERRED INCOME TAX (ASSETS)
      LIABILITIES
       Depreciation and amortization....... $ 2,256,399 $ 2,393,302 $ 1,072,381
       Reserves and allowances.............   (269,491)   (294,300)   (132,534)
       Difference in basis of certain
        acquired assets....................   1,897,761   1,897,761         --
                                            ----------- ----------- -----------
                                            $ 3,884,669 $ 3,996,763 $   939,847
                                            =========== =========== ===========

 
  The differences between the income tax provision and the tax that would have
resulted from applying federal statutory rates on income before taxes is
primarily due to Equipment Supply being taxed as an S Corporation and High
Reach being taxed as an S Corporation for the three months ended December 31,
1997.
 
  The effect of Rylan's conversion to an S Corporation in 1998 was for the
Company to recognize a deferred income tax benefit of approximately $2.9
million.
 
11. RETIREMENT PLANS
 
  The Company participates in several defined contribution plans covering
substantially all nonunion employees. The Plans allow matching contributions
based on a percentage of the employees' contributions. The Company
contributions for the years ended December 31, 1997, 1996 and 1995 and the six
months ended June 30, 1998 and 1997 amounted to $139,572, $96,931, $30,821,
$91,351 and $70,393, respectively.
 
  Additionally, the Company participates in a multi-employer plan that
provides defined contributions to the Company's union employees. For
collectively bargained, multi-employer pension plans, contributions are made
in accordance with negotiated labor contracts and generally are based on the
number of hours worked. With the passage of the Multi-Employer Pension Plan
Amendments Act of 1980 (the "Act"), the Company may, under certain
circumstances, become subject to liabilities in excess of contributions made
under collective bargaining agreements. Generally, these liabilities are
contingent upon the termination, withdrawal or partial withdrawal from the
plans. Company contributions for the years ended December 31, 1997, 1996 and
1995 and the six months ended June 30, 1998 and 1997 amounted to $96,737,
$75,930, $62,372, $57,991 and $43,609, respectively.
 
  On January 1, 1998, the Company terminated its defined contribution plans
for Equipment Supply, High Reach and Rylan and established a combined defined
contribution plan covering substantially all nonunion employees. The plan
allows employees to make voluntary contributions processed through payroll
deductions.
 
12. COMMITMENTS AND CONTINGENCIES AND RELATED PARTY TRANSACTIONS
 
  The Company leases various facilities under lease agreements, including
those with related parties. Some of these leases require the Company to pay
property taxes and other related costs.
 
                                     F-75

 
                   EQUIPMENT SUPPLY CO., INC. AND AFFILIATES
 
              NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
         (INFORMATION AS OF JUNE 30, 1998 AND FOR THE SIX MONTHS ENDED
                     JUNE 30, 1998 AND 1997 IS UNAUDITED)
 
  Future minimum lease payments, by year, and in the aggregate for
noncancelable operating leases, including those with related parties, with
initial or remaining terms of one year or more are as follows at December 31,
1997:
 


                                   FACILITIES LEASES
     YEAR ENDED                  (SUBSTANTIALLY WITH   EQUIPMENT TOTAL OPERATING
     DECEMBER 31,                   RELATED PARTIES)      LEASES          LEASES
     ------------                ------------------- ----------- ---------------
                                                        
     1998.......................     $ 2,120,949     $11,035,372   $13,156,321
     1999.......................       1,938,559      10,001,175    11,939,734
     2000.......................       1,921,804       7,768,161     9,689,965
     2001.......................       1,917,196       6,567,617     8,484,813
     2002.......................       1,912,170       4,870,393     6,782,563
     Thereafter.................         876,000             --        876,000
                                     -----------     -----------   -----------
                                     $10,686,678     $40,242,718   $50,929,396
                                     -----------     -----------   -----------

 
 
  Rent expense under noncancelable operating leases for the years ended
December 31, 1997, 1996 and 1995 and the six months ended June 30, 1998 and
1997 amounted to $10,210,657, $6,674,413, $1,179,277, $7,886,107 and
$2,405,348, respectively.
 
  The following related party transactions including rent expense is
summarized as follows:
 


                                            YEAR ENDED         SIX MONTHS ENDED
                                           DECEMBER 31,            JUNE 30,
                                     ------------------------- -----------------
                                       1997     1996    1995     1998     1997
                                     -------- -------- ------- -------- --------
                                                         
     Rent expense................... $963,600 $756,000 $18,168 $748,200 $515,500
     Other expense..................   79,190  109,173  58,689   80,100   59,300

 
  The Company has guaranteed a personal loan of the stockholders, which is
included as a liability in the financial statements. The loan proceeds were
used to purchase Rylan (see Note 9).
 
  From time to time, the Company is a defendant in various lawsuits incident
to the ordinary course of business. It is not possible to determine with any
precision the probable outcome or the amount of liability, if any, under these
lawsuits; however, in the opinion of the Company and its counsel, the
disposition of these lawsuits will not have a material adverse effect on the
Company's financial position, results of operations, or cash flows.
 
13. FINANCIAL INSTRUMENTS
 
  The carrying amounts reported in the balance sheet for accounts receivable,
accounts payable and other liabilities approximate fair value due to the
immediate to short-term maturity of these financial instruments. The fair
value of debt approximates cost as interest rates approximate market.
 
14. SUPPLIER CONCENTRATION
 
  During 1997, two suppliers accounted for approximately 73% of total
purchases and leased equipment costs. During 1996, three suppliers (of which
two were the same in 1997) accounted for approximately 84% of total purchases
and lease costs. During 1995, three suppliers (of which two were the same in
1996 and 1997) accounted for approximately 68% of total purchases and lease
costs.
 
                                     F-76

 
                   EQUIPMENT SUPPLY CO., INC. AND AFFILIATES
 
              NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
         (INFORMATION AS OF JUNE 30, 1998 AND FOR THE SIX MONTHS ENDED
                     JUNE 30, 1998 AND 1997 IS UNAUDITED)
 
 
  During 1997, volume activities with one vendor generated approximately $2
million in marketing rebates. Such amount has been recorded as other income.
 
15. SUBSEQUENT EVENT
 
 Sale of Business Operations
 
  Subsequent to December 31, 1997, the Company sold its principal business
operations, a substantial portion of its net assets and certain stock for
approximately $225 million.
 
  Additionally, the Company anticipates paying approximately $1.5 million in
bonuses to certain of its employees.
 
                                     F-77

 
                       REPORT OF INDEPENDENT ACCOUNTANTS
 
To the Board of Directors and
Stockholder of Access Rentals, Inc.
 
  We have audited the accompanying consolidated balance sheet of Access
Rentals, Inc., and subsidiary as of March 31, 1996, and the related
consolidated statements of income, stockholders' equity and cash flows for the
years ended September 30, 1994 and 1995, and the six months ended March 31,
1996. We have also audited the combined balance sheet of Access Rentals, Inc.,
and subsidiary and affiliate as of March 31, 1997, and the related combined
statements of income, stockholders' equity and cash flows for the year then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
 
  We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
 
  In our opinion, the consolidated and combined financial statements referred
to above present fairly, in all material respects, the financial position of
Access Rentals, Inc., and subsidiary and affiliate as of March 31, 1996 and
1997, and results of their operations and cash flows for the years ended
September 30, 1994 and 1995, the six months ended March 31, 1996 and the year
ended March 31, 1997 in conformity with generally accepted accounting
principles.
 
                                          /s/ Battaglia, Andrews & Moag, P.C.
Batavia, New York
January 22, 1998
 
                                     F-78

 
               ACCESS RENTALS, INC. AND SUBSIDIARY AND AFFILIATE
 
                    CONSOLIDATED AND COMBINED BALANCE SHEETS
 


                                          MARCH 31,    MARCH 31,    DECEMBER
                                            1996         1997       31, 1997
                                         -----------  -----------  -----------
                                                                   (UNAUDITED)
                                                          
                 ASSETS
                 ------
Cash.................................... $   284,228  $   399,196  $   362,817
Accounts receivable, net................   3,319,859    5,173,046    9,482,265
Unbilled receivables....................          --           --    1,075,209
Inventory...............................   2,013,125    1,835,687    2,511,326
Rental equipment, net...................  30,865,058   49,551,170   63,636,491
Property and equipment, net.............   2,625,564    4,599,576    5,386,167
Due from related party..................   1,121,814    1,860,102    2,071,971
Prepaid expenses and other assets.......   1,221,482    1,896,518    1,286,100
Deferred tax asset......................     458,908      937,585      576,730
Intangibles.............................          --    1,375,005    2,212,368
                                         -----------  -----------  -----------
    Total assets........................ $41,910,038  $67,627,885  $88,601,444
                                         ===========  ===========  ===========
  LIABILITIES AND STOCKHOLDERS' EQUITY
  ------------------------------------
Liabilities:
  Accounts payable, accrued expenses and
   other liabilities.................... $ 3,128,407  $ 3,601,707  $ 7,160,756
  Deferred tax liability................   4,675,199    6,350,541    7,821,732
  Debt..................................  19,109,094   39,782,237   51,505,595
                                         -----------  -----------  -----------
    Total liabilities...................  26,912,700   49,734,485   66,488,083
Commitments and contingencies
Stockholders' equity:
  Common stock, $1 par value; 10,000
   shares authorized, 300, 300 and
   10,000 shares issued and outstanding
   for each respective year.............         300          300       10,000
  Additional paid-in capital............       4,500        4,500        4,500
  Note receivable from stockholder......    (420,040)    (515,606)  (1,105,994)
  Retained earnings.....................  15,426,922   18,411,049   23,278,389
  Equity adjustment for foreign currency
   translation..........................     (14,344)      (6,843)     (73,534)
                                         -----------  -----------  -----------
    Total stockholders' equity..........  14,997,338   17,893,400   22,113,361
                                         -----------  -----------  -----------
    Total liabilities and stockholders'
     equity............................. $41,910,038  $67,627,885  $88,601,444
                                         ===========  ===========  ===========

 
                            See accompanying notes.
 
                                      F-79

 
               ACCESS RENTALS, INC. AND SUBSIDIARY AND AFFILIATE
 
                 CONSOLIDATED AND COMBINED STATEMENTS OF INCOME
 


                                YEAR ENDED          SIX MONTHS                   NINE MONTHS ENDED
                               SEPTEMBER 30,           ENDED     YEAR ENDED        DECEMBER 31,
                          ------------------------   MARCH 31,    MARCH 31,   ------------------------
                             1994         1995         1996         1997         1996         1997
                          -----------  -----------  -----------  -----------  -----------  -----------
                                                                              (UNAUDITED)  (UNAUDITED)
                                                                         
Revenues:
 Equipment rentals......  $15,804,754  $18,382,243  $10,405,814  $30,615,602  $21,391,478  $33,092,299
 Sales of equipment and
  parts.................    4,731,889    9,426,936    3,629,373    8,963,128    9,279,272   10,258,882
                          -----------  -----------  -----------  -----------  -----------  -----------
 Total revenues.........   20,536,643   27,809,179   14,035,187   39,578,730   30,670,750   43,351,181
Cost of revenues:
 Cost of rentals
  excluding
  depreciation..........    4,867,059    6,129,103    3,870,961    9,937,663    7,341,151    9,819,143
 Depreciation, equipment
  rentals...............    2,825,381    3,405,797    2,139,726    6,509,012    4,701,737    6,672,741
 Cost of equipment and
  parts.................    3,468,073    7,115,826    2,703,494    6,494,156    5,200,774    7,568,450
                          -----------  -----------  -----------  -----------  -----------  -----------
 Total cost of
  revenues..............   11,160,513   16,650,726    8,714,181   22,940,831   17,243,662   24,060,334
                          -----------  -----------  -----------  -----------  -----------  -----------
Gross profit............    9,376,130   11,158,453    5,321,006   16,637,899   13,427,088   19,290,847
Selling, general and
 administrative
 expenses...............    4,414,362    5,394,286    2,329,997    8,747,215    6,261,115    7,953,627
Non-rental
 depreciation...........      489,084      532,659      283,206      946,382      658,899    1,067,156
                          -----------  -----------  -----------  -----------  -----------  -----------
 Operating income.......    4,472,684    5,231,508    2,707,803    6,944,302    6,507,074   10,270,064
Interest expense........      673,532    1,147,616      682,394    2,604,066    1,821,607    2,918,100
Other (income), net.....     (220,289)    (250,421)    (295,443)    (605,215)    (363,828)    (567,759)
                          -----------  -----------  -----------  -----------  -----------  -----------
 Income before provision
  for income taxes and
  cumulative effect of
  change in accounting
  principle.............    4,019,441    4,334,313    2,320,852    4,945,451    5,049,295    7,919,723
Provision for income
 taxes..................    1,661,994    1,819,455    1,122,851    1,786,724    2,016,066    2,974,033
                          -----------  -----------  -----------  -----------  -----------  -----------
 Income before
  cumulative effect of
  change in accounting
  principle.............    2,357,447    2,514,858    1,198,001    3,158,727    3,033,229    4,945,690
Cumulative effect of
 change in method of
 accounting for taxes...       46,325           --           --           --           --           --
                          -----------  -----------  -----------  -----------  -----------  -----------
 Net income.............  $ 2,403,772  $ 2,514,858  $ 1,198,001  $ 3,158,727  $ 3,033,229  $ 4,945,690
                          ===========  ===========  ===========  ===========  ===========  ===========

 
 
                            See accompanying notes.
 
                                      F-80

 
               ACCESS RENTALS, INC. AND SUBSIDIARY AND AFFILIATE
 
          CONSOLIDATED AND COMBINED STATEMENT OF STOCKHOLDERS' EQUITY
 


                                                        NOTE
                           COMMON STOCK   ADDITIONAL RECEIVABLE                             FOREIGN
                          --------------   PAID-IN      FROM      TREASURY    RETAINED     CURRENCY
                          SHARES AMOUNT    CAPITAL   STOCKHOLDER    STOCK     EARNINGS    TRANSLATION
                          ------ -------  ---------- -----------  ---------  -----------  -----------
                                                                     
Balance at October 1,
 1993...................       6 $ 4,800    $   --   $  (128,069) $(200,000) $ 9,775,310   $     --
 Prior period
  adjustment............                                                        (265,019)
                          ------ -------    ------   -----------  ---------  -----------   --------
Balance, October 1, as
 restated...............       6   4,800        --      (128,069)  (200,000)   9,510,291         --
 Retroactive retirement
  of treasury stock.....                                            200,000     (200,000)
 Retroactive effect of
  stock split...........     294  (4,500)    4,500
 Advances on note
  receivable from
  stockholder, net......                                (199,179)
 Net income.............                                                       2,403,772
                          ------ -------    ------   -----------  ---------  -----------   --------
Balance at September 30,
 1994...................     300     300     4,500      (327,248)        --   11,714,063         --
 Advances on note
  receivable from
  stockholder, net......                                 (44,180)
 Net income.............                                                       2,514,858     (5,557)
                          ------ -------    ------   -----------  ---------  -----------   --------
Balance at September 30,
 1995...................     300     300     4,500      (371,428)        --   14,228,921     (5,557)
 Advances on note
  receivable from
  stockholder, net......                                 (48,612)
 Net income.............                                                       1,198,001     (8,787)
                          ------ -------    ------   -----------  ---------  -----------   --------
Balance at March 31,
 1996...................     300     300     4,500      (420,040)        --   15,426,922    (14,344)
 Advances on note
  receivable from
  stockholder, net......                                (105,566)
 Affiliate owner
  contributions.........                                  10,000
 Affiliate owner
  distributions.........                                                        (174,600)
 Net income.............                                                       3,158,727      7,501
                          ------ -------    ------   -----------  ---------  -----------   --------
Balance at March 31,
 1997...................     300     300     4,500      (515,606)        --   18,411,049     (6,843)
 Issuance of common
  stock (unaudited).....   9,700   9,700                                          (9,700)
 Advances on note
  receivable from
  stockholder, net
  (unaudited)...........                                (590,388)
 Affiliate owner
  distributions
  (unaudited)...........                                                         (68,650)
 Net income
  (unaudited)...........                                                       4,945,690    (66,691)
                          ------ -------    ------   -----------  ---------  -----------   --------
Balance at December 31,
 1997 (unaudited).......  10,000 $10,000    $4,500   $(1,105,994) $      --  $23,278,389   $(73,534)
                          ====== =======    ======   ===========  =========  ===========   ========

 
 
                            See accompanying notes.
 
                                      F-81

 
               ACCESS RENTALS, INC. AND SUBSIDIARY AND AFFILIATE
 
               CONSOLIDATED AND COMBINED STATEMENTS OF CASH FLOWS
 


                               YEAR ENDED                                         NINE MONTHS ENDED
                              SEPTEMBER 30,        SIX MONTHS    YEAR ENDED         DECEMBER 31,
                         ------------------------  ENDED MARCH   MARCH 31,    --------------------------
                            1994         1995       31, 1996        1997          1996          1997
                         -----------  -----------  -----------  ------------  ------------  ------------
                                                                              (UNAUDITED)   (UNAUDITED)
                                                                          
CASH FLOWS FROM
 OPERATING ACTIVITIES:
 Net income............. $ 2,403,772  $ 2,514,858  $ 1,198,001  $  3,158,727  $  3,033,229  $  4,945,690
 Adjustments to
  reconcile net income
  to net cash provided
  by operating
  activities:
 Depreciation and
  amortization..........   3,314,465    3,938,456    2,422,932     7,583,689     5,446,164     7,898,802
 Deferred income
  taxes.................     672,080      676,782      667,412     1,151,456     1,048,873     1,835,040
 Gain on sales of
  equipment.............    (778,327)  (1,274,170)    (533,974)   (1,543,192)   (1,064,927)   (1,767,358)
 Cumulative effect of
  change in method of
  accounting for income
  taxes.................     (46,325)          --           --            --            --            --
 Change in assets and
  liabilities:
  Increase (decrease)
   in:
   Accounts receivable,
    net.................  (1,163,341)     (43,024)     670,789    (1,853,187)   (3,004,185)   (4,309,219)
   Unbilled
    receivables.........          --           --           --            --            --    (1,075,209)
   Inventory............     (91,367)    (357,333)    (741,329)      177,438      (393,457)     (675,639)
   Prepaid expenses and
    other assets........    (740,966)     (92,290)     179,547      (584,753)      111,402       560,606
  Increase (decrease)
   in:
   Accounts payable,
    accrued expenses and
    other liabilities...     213,105      949,842      402,186       473,300       129,992     3,559,049
                         -----------  -----------  -----------  ------------  ------------  ------------
    Total adjustments...   1,379,324    3,798,263    3,067,563     5,404,751     2,273,862     6,026,072
    Net cash provided by
     operating
     activities.........   3,783,096    6,313,121    4,265,564     8,563,478     5,307,091    10,971,762
CASH FLOWS FROM
 INVESTING ACTIVITIES:
 Proceeds from the sale
  of property and
  equipment.............   2,715,240    4,498,860    3,511,441     5,223,214     3,662,918     6,076,640
 Purchase of property
  and equipment.........  (2,497,803)  (4,978,090)  (3,789,714)   (3,146,679)     (333,516)   (5,572,825)
 Advances on loan
  receivable--
  stockholder...........    (304,436)    (248,462)     (99,555)     (389,594)     (293,310)     (697,153)
 Repayments on loan
  receivable--
  stockholder...........     105,257      204,282       50,943       284,028       158,829       106,765
 Advances on loan
  receivable--related
  party.................     (13,000)          --     (531,466)     (759,690)     (358,798)     (246,543)
 Repayments on loan
  receivable--related
  party.................      10,174        7,128        3,673        21,402        15,401        34,674
 Advances on note
  receivable............          --      (48,322)          --       (77,851)           --            --
 Repayments on note
  receivable............    (126,668)       3,283        2,554         6,255         4,632        31,128
 Acquisition of
  subsidiary............          --     (866,700)          --            --            --            --
 Payments for
  intangibles...........          --           --           --    (1,521,984)   (1,521,984)     (977,583)
                         -----------  -----------  -----------  ------------  ------------  ------------
   Net cash provided by
    (used by) investing
    activities..........    (111,236)  (1,428,021)    (852,124)     (360,899)    1,334,172    (1,244,897)
CASH FLOWS FROM
 FINANCING ACTIVITIES:
 Affiliate owner
  distributions.........          --           --           --      (174,600)           --       (68,650)
 Affiliate owner
  contributions.........          --           --           --        10,000        10,000            --
 Borrowings on debt
  obligations...........     161,297      736,330    2,083,097    23,048,203    16,018,625    22,959,059
 Principal payments on
  debt obligations......  (3,932,202)  (5,601,158)  (5,234,451)  (30,978,715)  (22,599,866)  (32,586,962)
                         -----------  -----------  -----------  ------------  ------------  ------------
   Net cash used by
    financing
    activities..........  (3,770,905)  (4,864,828)  (3,151,354)   (8,095,112)   (6,571,241)   (9,696,553)
Equity translation......          --       (5,557)      (8,787)        7,501         7,569       (66,691)
                         -----------  -----------  -----------  ------------  ------------  ------------
Net increase (decrease)
 in cash................     (99,045)      14,715      253,299       114,968        77,591       (36,379)
CASH--BEGINNING OF
 PERIOD.................     115,259       16,214       30,929       284,228       284,228       399,196
                         -----------  -----------  -----------  ------------  ------------  ------------
CASH--END OF PERIOD..... $    16,214  $    30,929  $   284,228  $    399,196  $    361,819  $    362,817
                         ===========  ===========  ===========  ============  ============  ============

 
                            See accompanying notes.
 
                                      F-82

 
               ACCESS RENTALS, INC. AND SUBSIDIARY AND AFFILIATE
 
                         NOTES TO FINANCIAL STATEMENTS
 
  FOR THE YEARS ENDED SEPTEMBER 30, 1994 AND 1995, AND AS OF AND FOR THE SIX
                                 MONTHS ENDED
        MARCH 31, 1996 AND AS OF AND FOR THE YEAR ENDED MARCH 31, 1997
    (THE INFORMATION AS OF DECEMBER 31, 1997 AND FOR THE NINE MONTHS ENDED
                   DECEMBER 31, 1996 AND 1997 IS UNAUDITED)
 
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
PRINCIPLES OF CONSOLIDATION AND COMBINATION
 
  The accompanying financial statements include the financial statements of
Access Rentals, Inc. (the "Parent"), Access Lift Equipment, Inc. (the
"Subsidiary") which was acquired in February 1995 and Reinhart Leasing LLC
(the "Affiliate"). The Affiliate, which has common ownership to the Parent,
was formed on June 26, 1996.
 
  The accompanying financial statements include the financial statements of
the Parent for the years ended September 30, 1994 and 1995, as of and for the
six months ended March 31, 1996, as of and for the year ended March 31, 1997
and as of December 31, 1997 and for the nine months ended December 31, 1996
and 1997 and the financial statements of the Subsidiary for the seven months
ended September 30, 1995, as of and for the three months ended December 31,
1995 (included in the financial statements for the six months ended March 31,
1996), as of and for the year ended December 31, 1996 (included in the
financial statements for the year ended March 31, 1997) and the nine months
ended December 31, 1996 and 1997. The consolidated financial statements have
been combined with the financial statements of the Affiliate for the six
months ended December 31, 1996 (included in the financial statements for the
nine months ended December 31, 1996) as of and for the nine months ended March
31, 1997 and as of and for the nine months ended December 31, 1997. All
material intercompany transactions and balances have been eliminated in
consolidation and combination.
 
BUSINESS
 
  Access Rentals, Inc. and Subsidiary (the Company) rents, sells and repairs
aerial personnel lift equipment primarily to companies in the manufacturing
and construction industries. Sales and rentals primarily occur in areas where
the Company maintains offices, such as the states of New York, Minnesota,
Tennessee, Indiana, New Jersey, Pennsylvania, Connecticut, South Carolina,
Florida, Washington and in and around Toronto, Canada. The nature of the
Company's business is such that short-term obligations are typically met by
cash flow generated from long-term assets. Consequently, consistent with
industry practice, the balance sheet is presented on an unclassified basis.
 
  Reinhart Leasing, LLC rents and sells aerial personnel lift equipment solely
to Access Rentals, Inc.
 
INTERIM FINANCIAL STATEMENTS
 
  The accompanying balance sheet at December 31, 1997, and the statements of
income, stockholders' equity and cash flows for the nine month periods ended
December 31, 1996 and 1997 are unaudited and have been prepared on the same
basis as the audited financial statements included herein. In the opinion of
management, such unaudited financial statements include all adjustments
necessary to present fairly the information set forth therein, which consists
solely of normal recurring adjustments. The results of operations for such
interim periods are not necessarily indicative of results for the full year.
 
                                     F-83

 
               ACCESS RENTALS, INC. AND SUBSIDIARY AND AFFILIATE
 
                  NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
 
 
ACCOUNTS RECEIVABLE
 
  It is the Company's policy to present accounts receivable net of an
allowance for uncollectible accounts. At March 31, 1996 and 1997 and December
31, 1997, the balance of the allowance for uncollectible accounts amounted to
$103,028, $228,885 and $380,000, respectively.
 
INVENTORY
 
  Inventory consists of equipment and vehicles purchased for resale and
equipment parts purchased for repairs and resale. Equipment is valued at the
lower of cost or market, based on specific identification, and parts are
valued using the average cost method.
 
  Inventory amounted to:
 


                                                    MARCH 31,
                                             -----------------------  DECEMBER
                                                1996        1997      31, 1997
                                             ----------- ----------- -----------
                                                                     (UNAUDITED)
                                                            
      Equipment for resale.................. $ 1,371,741 $   368,723 $   842,295
      Parts.................................     641,384   1,466,964   1,669,031
                                             ----------- ----------- -----------
        Total............................... $ 2,013,125 $ 1,835,687 $ 2,511,326
                                             =========== =========== ===========

 
RENTAL EQUIPMENT
 
  Rental equipment is recorded at cost. Depreciation for rental equipment is
computed using the straight-line method over an estimated six-year useful life
with a 10% salvage value.
 
PROPERTY AND EQUIPMENT
 
  Property and equipment is stated at cost and is being depreciated using the
straight-line and declining balance methods over the estimated useful lives of
the respective assets.
 
  The cost of normal maintenance and repairs is charged to expense as
incurred, whereas expenditures which materially extend property lives are
capitalized. When depreciable property is retired or otherwise disposed of,
the related cost and accumulated depreciation are removed from the accounts
and any gain or loss is reflected in income.
 
RENTAL REVENUE
 
  Rental revenue is recorded as earned under the operating method.
 
ADVERTISING COSTS
 
  The Company advertises primarily through trade journals, trade associations
and phone directories. All advertising costs are expensed as incurred.
Advertising expenses amounted to approximately $7,706, $11,349, $6,717,
$10,395, $6,454 and $26,982, for the years ended September 30, 1994 and 1995,
six months ended March 31, 1996, year ended March 31, 1997, and nine months
ended December 31, 1996 and 1997, respectively.
 
                                     F-84

 
               ACCESS RENTALS, INC. AND SUBSIDIARY AND AFFILIATE
 
                  NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
 
 
OTHER ASSETS/AMORTIZATION
 
  During the year ended March 31, 1997 and the nine months ended December 31,
1997, the Company acquired assets of two companies. The acquisitions resulted
in goodwill and covenants not-to-compete amounting to approximately $1,777,500
and $700,000, respectively, which are being amortized using the straight-line
method over 15 years and 5 years, respectively. Total amortization expense
amounted to $128,295, $85,528 and $158,905 for the year ended March 31, 1997
and the nine months ended December 31, 1996 and 1997, respectively.
 
INCOME TAXES
 
  The provision for income tax is based on earnings reported for financial
statement purposes, adjusted for transactions that do not enter into the
computation of income taxes payable. The Parent, Subsidiary and Affiliate file
separate tax returns. The Parent files tax returns in the United States and
the Subsidiary files tax returns in Canada. The Affiliate is a limited
liability company taxed as a partnership; therefore the members are taxed
individually on the income of the Affiliate and a provision for taxes has not
been made in the financial statements.
 
CONCENTRATION OF CREDIT RISK
 
  Credit is granted to substantially all of the Parent's customers throughout
the United States and the Subsidiary's customers throughout Canada. Management
feels that adequate reserves for potential credit losses are maintained.
 
FOREIGN CURRENCY TRANSLATION
 
  The Company conducts business through a subsidiary located in Canada. The
Company regards the local currency of the subsidiary to be its functional
currency; consequently, translation gains and losses of the foreign subsidiary
are accumulated and reported as a separate component of stockholders' equity.
Transaction gains and losses that arise from exchange rate fluctuations on the
transactions denominated in a currency other than the local functional
currency are included in the results of operations.
 
USE OF ESTIMATES IN PREPARATION OF FINANCIAL STATEMENTS
 
  The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions. This affects the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements, as well as the reported amounts of revenues and expenses during
the reporting periods. Actual results could differ from those estimates.
 
NOTE 2--RENTAL EQUIPMENT
 
RENTAL EQUIPMENT
 
  Rental equipment and related accumulated depreciation consisted of the
following:
 


                                                   MARCH 31,
                                            -----------------------  DECEMBER
                                               1996        1997      31, 1997
                                            ----------- ----------- -----------
                                                                    (UNAUDITED)
                                                           
Rental equipment........................... $43,896,291 $66,007,890 $84,098,558
Less accumulated depreciation..............  13,031,233  16,456,720  20,462,067
                                            ----------- ----------- -----------
Rental equipment, net...................... $30,865,058 $49,551,170 $63,636,491
                                            =========== =========== ===========

 
                                     F-85

 
               ACCESS RENTALS, INC. AND SUBSIDIARY AND AFFILIATE
 
                  NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
 
 
PROPERTY AND EQUIPMENT
 
  Property and equipment and related accumulated depreciation consisted of the
following:
 


                                                    MARCH 31,
                                              --------------------- DECEMBER 31,
                                                 1996       1997        1997
                                              ---------- ---------- ------------
                                                                    (UNAUDITED)
                                                           
Land......................................... $  182,969 $  182,969  $  182,969
Buildings and improvements...................    949,741  1,346,619   1,779,975
Office and shop equipment....................    833,209  1,341,605   1,387,020
Transportation equipment.....................  2,573,492  4,425,156   5,393,695
Less accumulated depreciation................  1,913,847  2,696,773   3,357,492
                                              ---------- ----------  ----------
Property and equipment, net.................. $2,625,564 $4,599,576  $5,386,167
                                              ========== ==========  ==========

 
NOTE 3--NET INVESTMENT IN SALES-TYPE LEASES
 
  The Company leases some of its rental equipment to customers under sales-
type leases. The following summarizes the net investment in sales-type leases
which are included in prepaid and other assets on the balance sheet:
 


                                                     MARCH 31,
                                                ------------------- DECEMBER 31,
                                                  1996      1997        1997
                                                --------- --------- ------------
                                                                    (UNAUDITED)
                                                           
Total minimum lease payments to be received.... $ 418,679 $ 573,127  $ 716,961
Less unearned interest income..................    26,950    38,773     39,627
                                                --------- ---------  ---------
Net investment in sales-type leases............ $ 391,729 $ 534,354  $ 677,334
                                                ========= =========  =========

 
                                     F-86

 
               ACCESS RENTALS, INC. AND SUBSIDIARY AND AFFILIATE
 
                  NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
 
 
NOTE 4--DEBT
 
  Debt consists of the following:
 


                                                  MARCH 31,
                                           ----------------------- DECEMBER 31,
                                              1996        1997         1997
                                           ----------- ----------- ------------
                                                                   (UNAUDITED)
                                                          
Lines-of-credit..........................  $ 2,130,195 $ 3,788,341 $ 3,828,370
Present value of capital lease
 obligations.............................    3,436,191   8,465,249  16,104,886
Various installment obligations
 collateralized by rental and
 transportation equipment. These notes
 bear interest ranging from 6%-9.8%, with
 repayment periods ranging from two to
 five years..............................   12,030,127  18,913,002  23,965,117
Term loan payable to a bank, monthly
 payments of $50,500 including interest
 at 7.84%, maturing July, 2006.
 Collateralized by rental equipment......      270,413   2,217,572   1,887,211
Term loan payable to a bank, requiring
 monthly principle payments of $79,511,
 plus interest at the prime rate plus
 1.75%, or the sum of the LIBOR on the
 request day plus 1.75% (7.3125% at
 March 31, 1997), maturing July 2002. The
 loan is collateralized by rental
 equipment of the Affiliate..............           --   5,088,735   4,325,469
Term loan payable to a bank, quarterly
 principal payments of $46,021, plus
 interest at 6%, maturing July 1999.
 Collateralized by rental equipment of
 the Parent..............................      598,268     414,186     276,124
Subsidiary revolving term loan payable to
 a bank, monthly principal payments
 totaling Canadian $39,455, plus interest
 at Canadian prime rate plus 0.5%, (5.25%
 at March 31, 1997), maturing June 2000.
 Collateralized by equipment of
 Subsidiary and guaranteed by the
 Parent..................................      608,502     878,339   1,116,680
Mortgage payable to third-party lender,
 monthly payments of $1,750 including
 interest at 9%, maturing January 1998.
 Collateralized by real property at 45
 Center Street, Batavia, New York........       35,398      16,813       1,738
                                           ----------- ----------- -----------
    Total debt...........................  $19,109,094 $39,782,237 $51,505,595
                                           =========== =========== ===========

 
BANK LINES-OF-CREDIT
 
  The Parent has revolving bank lines-of-credit amounting to $5,000,000
(increased to $6,000,000 on September 1, 1997), which are payable on demand,
with interest due monthly at rates varying from 7.50% to 8.00% as of March 31,
1997. The agreements are collateralized by equipment and receivables of the
Parent. The outstanding balance on these lines-of-credit agreements amounted
to $3,788,341 at March 31, 1997.
 
  The Parent also has revolving term lines-of-credit available from various
lending institutions which aggregate $63,700,000 as of March 31, 1997. The
Company pays interest on the outstanding balances of these agreements at rates
which ranged from 6.65% to 9.8% at March 31, 1997.
 
  The Subsidiary has a $500,000 (Canadian denomination) revolving line-of-
credit available for operating cash requirements and a $2,400,000 (Canadian
denomination) term line-of-credit available to finance up to 75% of the cost
of equipment acquisitions. The operating line-of-credit is payable on demand,
with interest due
 
                                     F-87

 
               ACCESS RENTALS, INC. AND SUBSIDIARY AND AFFILIATE
 
                  NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
 
monthly at the Canadian prime rate of interest plus 0.25%, (5.00% at March 31,
1997). There was not an outstanding balance on the operating line-of-credit
agreement as of March 31, 1997. Advances on the equipment line-of-credit are
payable over 36 or 48 months, with interest due monthly at Canadian prime plus
0.50%, (5.25% at March 31, 1997). The outstanding balance on the equipment
line-of-credit agreement was $878,339 (United States denomination) as of March
31, 1997. The line-of-credit agreements are collateralized by accounts
receivable and personal property of the Subsidiary and are guaranteed by the
Parent.
 
  Current maturities of long-term debt for each of the five years subsequent
to March 31, 1997 are as follows:
 


                                                           CAPITAL
                                                DEBT        LEASE
                                             OBLIGATIONS OBLIGATIONS TOTAL DEBT
                                             ----------- ----------- -----------
                                                            
      1998.................................. $12,274,967 $2,283,984  $14,558,951
      1999..................................   7,097,078  2,168,855    9,265,933
      2000..................................   5,099,954  1,869,131    6,969,085
      2001..................................   3,002,236  1,379,399    4,381,635
      2002..................................   1,811,547    896,077    2,707,624
      Thereafter............................   2,031,206  1,492,772    3,523,978
                                             ----------- ----------  -----------
      Total payments........................  31,316,988 10,090,218   41,407,206
      Less interest amount..................          --  1,624,969    1,624,969
                                             ----------- ----------  -----------
        Total debt.......................... $31,316,988 $8,465,249  $39,782,237
                                             =========== ==========  ===========

 
CAPITAL LEASE OBLIGATIONS
 
  The Company and Affiliate lease rental equipment under various agreements
classified as capital leases based on the provisions of Statement of Financial
Accounting Standards No. 13. The economic substance of the leases is that the
Company is financing the acquisition of the equipment through the leases and,
accordingly, they are recorded in the Company's assets and liabilities. These
assets are stated on the balance sheet at their capitalized cost, less
accumulated depreciation, of $4,115,887, $9,091,782 and $16,275,311 as of
March 31, 1996 and 1997 and December 31, 1997, respectively.
 
NOTE 5--OPERATING LEASES
 
  The Company leases building, shop and office space, and rental equipment
under various long-term and short-term operating lease agreements. Rent
expense under the agreements for the years ended September 30, 1994 and 1995,
six months ended March 31, 1996, year ended March 31, 1997, and nine months
ended December 31, 1996 and 1997 amounted to $328,892, $334,504, $174,189,
$825,229, $758,883 and $1,086,219, respectively.
 
  The total future minimum rental payments required for noncancellable
operating leases as of March 31, 1997 are as follows:
 
                                                             
      1998........................................................... $  513,782
      1999...........................................................    342,859
      2000...........................................................    363,925
      2001...........................................................    267,697
      2002...........................................................    410,846
      Thereafter.....................................................     80,785
                                                                      ----------
          Total...................................................... $1,979,894
                                                                      ==========

      
 
                                     F-88

 
               ACCESS RENTALS, INC. AND SUBSIDIARY AND AFFILIATE
 
                  NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
 
 
NOTE 6--PROVISIONS FOR INCOME TAXES
 
  The Company has provided for income tax based on consolidated net income.
Income tax expense is allocated to the Parent and Subsidiary based on the tax
liability and expense relating to the respective taxing authorities.
 
  The provision for income taxes, calculated according to SFAS No. 109,
"Accounting for Income Taxes", amounted to:
 


                              YEAR ENDED       SIX MONTHS                 NINE MONTHS ENDED
                             SEPTEMBER 30,        ENDED    YEAR ENDED       DECEMBER 31,
                         ---------------------  MARCH 31,   MARCH 31,  -----------------------
                            1994       1995       1996        1997        1996        1997
                         ---------- ---------- ----------- ----------- ----------- -----------
                                                                       (UNAUDITED) (UNAUDITED)
                                                                 
Current:
  Federal income tax.... $  651,914 $  844,075 $   336,022 $   495,887 $  699,193  $   835,885
  State income tax......    338,000    296,054     114,774      93,415    268,000      301,000
Canadian business tax...        --       2,544       4,643      45,966        --         2,108
                         ---------- ---------- ----------- ----------- ----------  -----------
    Total current.......    989,914  1,142,673     455,439     635,268    967,193    1,138,993
Deferred:
  Federal income tax....    577,859    455,576     336,121     866,666    849,733    1,320,725
  State income tax......     94,221     89,206     268,291     194,174     64,000      378,575
Canadian business tax...        --     132,000      63,000      90,616    135,140      135,740
                         ---------- ---------- ----------- ----------- ----------  -----------
    Total deferred......    672,080    676,782     667,412   1,151,456  1,048,873    1,835,040
                         ---------- ---------- ----------- ----------- ----------  -----------
    Total provision for
     income taxes....... $1,661,994 $1,819,455 $ 1,122,851 $ 1,786,724 $2,016,066  $ 2,974,033
                         ========== ========== =========== =========== ==========  ===========

 
  Deferred taxes are recorded based on differences between the financial
statement and tax basis of assets and liabilities. Temporary differences which
give rise to a significant portion of deferred tax assets and liabilities were
the result of book and tax depreciation and revenue recognition timing
differences, allowance for uncollectible accounts, net operating loss
carryforwards of the Subsidiary and certain tax credits.
 
  The Subsidiary has remaining Canadian net operating loss (NOL) carryforwards
of approximately $415,000 as of March 31, 1997 and December 31, 1997. The NOL
carryforwards begin to expire in 1998 and will be completely expired in 2001.
 
  Application of statutory tax rates to combined pretax income will not be
representative of the provision for income taxes. As previously disclosed, the
income of the Affiliate is taxed individually at the member level.
 
NOTE 7--RELATED PARTY TRANSACTIONS
 
  Officer Loan--The chief executive officer and a stockholder maintains a
floating loan with the Company. This loan is charged when personal
expenditures are paid by the Company on behalf of the officer. A loan
agreement exists between the parties, in which the Company charges interest of
8.5% on the average outstanding balance. The terms provide for the officer to
make regular, periodic payments to reduce the outstanding balance. The balance
outstanding at March 31, 1996 and 1997 and December 31, 1997 amounted to
$420,040, $515,606 and $1,105,994, respectively. The amounts at March 31, 1997
and December 31, 1997 have been reduced in combination by the Affiliate's
capital account.
 
                                     F-89

 
               ACCESS RENTALS, INC. AND SUBSIDIARY AND AFFILIATE
 
                  NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
 
 
  Loan Receivable--The Company has a loan receivable which represents cash
advances made to companies owned by an employee and the stockholders. The
Company charges interest on these loans at an annual rate of 8%. The balance
outstanding at March 31, 1996 and 1997 and December 31, 1997 amounted to
$1,121,814, $1,860,102 and $2,071,971, respectively.
 
  Operating Lease Agreement--The Company leases shop, warehouse space and
aircraft from companies owned by an employee and the stockholders. The Company
also leases rental equipment from the Affiliate, the effect of which has been
eliminated in the combination of the financial statements. The leases are on a
month to month basis and require monthly payments of $41,000 for the shop and
warehouse space and $250,000 ($325,000 as of September 1, 1997) for rental
equipment. The terms of the equipment lease with the Affiliate were modified
during the nine months ended December 1997.
 
  Sale/Leaseback of Property--On March 31, 1996, the Company sold four
buildings to a company owned by the stockholders for $1,725,000. Management
estimated that the market value of the property approximated the net book
value. The property is provided for in the operating lease, as disclosed
above.
 
NOTE 8--CASH FLOW DISCLOSURE INFORMATION
 
  For the years ended September 30, 1994 and 1995, six months ended March 31,
1996, year ended March 31, 1997, and nine months ended December 31, 1996 and
1997, total interest paid amounted to $660,902, $1,132,222, $676,546,
$2,005,464, $1,447,752 and $2,120,907, respectively.
 
  For the years ended September 30, 1994 and 1995, six months ended March 31,
1996, year ended March 31, 1997, and nine months ended December 31, 1996 and
1997, total taxes paid amounted to $887,760, $1,516,861, $584,371, $1,045,652,
$791,179 and $298,321, respectively.
 
  During the years ended September 30, 1994 and 1995, six months ended March
31, 1996, year ended March 31, 1997, and nine months ended December 31, 1996
and 1997, the Company and Affiliate purchased $7,368,661, $7,127,810,
$7,968,504, $28,603,655, $27,336,255 and $21,237,266, respectively, of
equipment which was financed.
 
NOTE 9--RETIREMENT PLANS
 
  The Parent maintains a defined contribution retirement plan for non-union
employees. The plan qualifies as a deferred compensation plan under Section
401(k) of the Internal Revenue Code. Company contributions are based on a 100%
match of the employees' elective deferral up to 4%.
 
  The Parent also contributes to defined benefit pension plans for employees
covered under six union contracts, Locals #15C, #103, #138, #542C, #825 and
#832 of the International Union of Operating Engineers. A full description of
the membership, benefits and employer and employee obligations to contribute
to these plans are described in the Summary Plan Description and Annual
Reports of the plans.
 
  The actuarial information needed to determine the liabilities and provide
the current disclosure information necessary under FASB No. 87 was
unavailable. Consequently, the financial statements for the years ended
September 30, 1994 and 1995, six months ended March 31, 1996, year ended March
31, 1997 and nine months ended December 1996 and 1997, do not reflect the
financial position, results of operations and expanded disclosures in
accordance with FASB No. 87.
 
  The Subsidiary maintains a non-contributory pension plan, whereby the
Subsidiary contributes 4% of employee compensation to the plan. In addition,
the Subsidiary will contribute a 100% match of the employees' elective
deferral up to a maximum of 2%.
 
                                     F-90

 
               ACCESS RENTALS, INC. AND SUBSIDIARY AND AFFILIATE
 
                  NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
 
 
  The cost of the plans for the years ended September 30, 1994 and 1995, six
months ended March 31, 1996, the year ended March 31, 1997, and the nine
months ended December 31, 1996 and 1997, amounted to approximately $151,669,
$192,541, $110,857, $329,712, $149,568 and $162,150, respectively.
 
NOTE 10--COMMITMENTS AND CONTINGENCIES
 
  Access Rentals, Inc. (Parent) guarantees debt obligations of the Subsidiary,
Access Lift Equipment, Inc., the Affiliate, Reinhart Leasing, LLC, and another
related company owned by the stockholders.
 
  At December 31, 1997, the Company had outstanding purchase orders for
equipment in the amount of $4,240,564.
 
NOTE 11--CHANGE IN METHOD OF ACCOUNTING AND PRIOR YEAR ADJUSTMENT
 
  The accompanying consolidated financial statements for the fiscal year ended
September 30, 1994 have been retroactively restated as a result of
management's change in method of accounting for rental income. In years prior
to the change, the Company recorded revenue for the entire rental period of a
contract upon billing. The change in accounting policy removes the portion of
rental billings pertaining to periods subsequent to the reporting period. The
effect of the restatement resulted in a $265,019 decrease to retained earnings
at September 30, 1993.
 
  A restatement of the September 30, 1994 consolidated statement of income is
summarized as follows:
 


                                                             AS
                                                         PREVIOUSLY
                                                          REPORTED   AS RESTATED
                                                         ----------- -----------
                                                               
Rental income..........................................  $14,730,347 $15,804,754
Income before taxes and cumulative effect of change in
 accounting principle..................................    4,127,869   4,019,441
Provision for income taxes.............................    1,715,048   1,661,994
Income before cumulative effect of change in accounting
 principle.............................................    2,412,821   2,357,447
Cumulative effect of change in method of accounting for
 income taxes..........................................       46,325      46,325
Net income.............................................  $ 2,459,146 $ 2,403,772

 
NOTE 12--ACQUISITION OF SUBSIDIARY
 
  Effective February 26, 1995, the Company acquired 100% of the outstanding
common stock of Access Lift Equipment, Inc., formerly Upright of Canada, Inc.,
for approximately $920,000.
 
  The acquisition, accounted for in accordance with Accounting Principles
Board (APB) Opinion No. 16--Business Combinations, using the purchase method
of accounting, has resulted in the inclusion of the operating results of the
Subsidiary, from the date of acquisition, in the financial statements of the
Company.
 
NOTE 13--STOCKHOLDERS' EQUITY
 
  On December 30, 1997, Access Rentals, Inc. (Parent) retired 6 shares of
treasury stock then issued its remaining 194 common shares with no par value.
 
  Also, on December 30, 1997, Access Rentals, Inc. (Parent) amended its
certificate of incorporation to increase the number of authorized shares from
200 common with no par value to 100 Class A Voting common shares with a par
value of $1 and 9,900 Class B Non-voting common shares with a par value of $1,
effecting a stock split of 50 shares of new stock for each share of stock.
 
                                     F-91

 
               ACCESS RENTALS, INC. AND SUBSIDIARY AND AFFILIATE
 
                  NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
 
 
  The retirement of treasury stock and the stock split were given retroactive
effect in the accompanying financial statements.
 
  At December 31, 1997 the following common stock shares were authorized,
issued and outstanding:
 
                                                                 
      Class A Voting, $1 par value.......................................    100
      Class B Non-voting, $1 par value...................................  9,900
                                                                          ------
          Total shares................................................... 10,000
                                                                          ======

      
 
NOTE 14--SUBSEQUENT EVENTS
 
  On September 1, 1997, the Company and Affiliate acquired certain assets of a
company engaged in primarily the same business as Access Rentals, Inc., with
operations in Florida. The purchase price, including the covenant not-to-
compete, amounted to approximately $4,988,850, for which the same amount of
debt was incurred.
 
  During January 1998, the Company sold all real estate owned by the Company
to a related party company. The sales price was determined based upon
appraisals and approximated $605,000.
 
  On January 21, 1998, the Company, Affiliate and stockholders entered into a
stock purchase agreement with United Rentals, Inc. (URI). Under the terms of
the stock purchase agreement, URI purchased all of the issued and outstanding
capital stock of the Company and substantially all of the assets of the
Affiliate. Also, as part of the transaction all of the stock of Access Lift
Equipment, Inc. (Subsidiary) was sold by Access Rentals, Inc., to United
Rentals of Canada, Inc., a wholly-owned subsidiary of URI.
 
NOTE 15--RECLASSIFICATIONS
 
  Certain reclassifications have been made to previously issued financial
statements in order to conform them to current classifications.
 
                                     F-92

 
                       REPORT OF INDEPENDENT ACCOUNTANTS
 
To the Stockholders and Directors of
Rental Tools & Equipment Co.
International, Inc.
 
  In our opinion, the accompanying balance sheets and the related statements
of operations, of changes in stockholders' equity and of cash flows present
fairly, in all material respects, the financial position of Rental Tools &
Equipment Co. International, Inc. at June 30, 1997 and 1998, and the results
of its operations and its cash flows for each of the three years in the period
ended June 30, 1998 in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards which require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.
 
PricewaterhouseCoopers LLP
 
Falls Church, Virginia
August 12, 1998
 
                                     F-93

 
                RENTAL TOOLS & EQUIPMENT CO. INTERNATIONAL, INC.
 
                                 BALANCE SHEETS
 


                                                       JUNE 30,     JUNE 30,
                                                         1997         1998
                                                      -----------  -----------
                                                             
                       ASSETS
CURRENT ASSETS
  Cash............................................... $   332,380  $   572,929
  Accounts receivable, net...........................   6,054,243    8,239,177
  Prepaid expenses and other.........................     597,483      667,111
                                                      -----------  -----------
    Total current assets.............................   6,984,106    9,479,217
                                                      -----------  -----------
RENTAL EQUIPMENT, at cost............................  97,349,866  104,851,657
  Less accumulated depreciation...................... (61,574,737) (64,361,003)
                                                      -----------  -----------
  Rental equipment, net..............................  35,775,129   40,490,654
                                                      -----------  -----------
PROPERTY, PLANT AND EQUIPMENT, net...................  15,069,797   20,405,786
                                                      -----------  -----------
OTHER NON-CURRENT ASSETS.............................     605,482    1,337,026
                                                      -----------  -----------
TOTAL ASSETS......................................... $58,434,514  $71,712,683
                                                      ===========  ===========
        LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
  Accounts payable................................... $ 3,228,502  $ 8,206,466
  Notes and mortgages payable........................  12,771,181      506,206
  Short-term borrowings..............................     565,162
  Unearned revenue...................................     586,930      634,584
                                                      -----------  -----------
    Total current liabilities........................  17,151,775    9,347,256
                                                      -----------  -----------
LONG-TERM LIABILITIES
  Notes and mortgages payable........................  24,560,157   42,494,588
  Other non-current liabilities......................     445,902      387,226
                                                      -----------  -----------
    Total long-term liabilities......................  25,006,059   42,881,814
                                                      -----------  -----------
    Total liabilities................................  42,157,834   52,229,070
                                                      -----------  -----------
STOCKHOLDERS' EQUITY
  Common stock; no par value; 1,500 shares
   authorized; 1,139 shares issued at June 30, 1997,
   1,167 shares issued at June 30, 1998, 951 shares
   outstanding at June 30, 1997, 979 shares
   outstanding at June 30, 1998......................     821,287    1,306,490
  Common stock; no par value; non-voting; 30,000
   shares authorized; no shares issued or outstanding
   at June 30, 1997 and June 30, 1998................
  Less treasury stock; at cost; 188 shares at June
   30, 1997 and 1998.................................  (1,201,063)  (1,201,063)
  Retained earnings..................................  16,656,456   19,378,186
                                                      -----------  -----------
    Total stockholders' equity.......................  16,276,680   19,483,613
                                                      -----------  -----------
COMMITMENTS AND CONTINGENCIES (Note 9)
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY........... $58,434,514  $71,712,683
                                                      ===========  ===========

 
   The accompanying notes are an integral part of these financial statements.
 
                                      F-94

 
                RENTAL TOOLS & EQUIPMENT CO. INTERNATIONAL, INC.
 
                            STATEMENTS OF OPERATIONS
 


                                                     YEAR ENDED JUNE 30,
                                             -----------------------------------
                                                1996        1997        1998
                                             ----------- ----------- -----------
                                                            
Revenues:
  Equipment rentals........................  $42,689,093 $46,395,441 $49,040,192
  Other, net...............................      399,681     632,270   1,876,539
                                             ----------- ----------- -----------
    Total revenues.........................   43,088,774  47,027,711  50,916,731
Cost of revenues:
  Cost of equipment rentals................   18,891,454  19,761,457  19,993,727
  Rental equipment depreciation............    8,785,129  10,240,691  13,028,771
                                             ----------- ----------- -----------
    Total cost of revenues.................   27,676,583  30,002,148  33,022,498
Gross Profit...............................   15,412,191  17,025,563  17,894,233
Selling, general & administrative expense..    9,187,120  10,759,245  11,969,787
Depreciation and amortization..............    1,618,250   1,961,995   2,132,221
                                             ----------- ----------- -----------
Operating income...........................    4,606,821   4,304,323   3,792,225
Gain on sale of division...................                            3,643,921
Interest expense, net......................    2,416,111   2,573,450   3,284,181
                                             ----------- ----------- -----------
Net income.................................  $ 2,190,710 $ 1,730,873 $ 4,151,965
                                             =========== =========== ===========

 
 
 
   The accompanying notes are an integral part of these financial statements
 
                                      F-95

 
                RENTAL TOOLS & EQUIPMENT CO. INTERNATIONAL, INC.
 
                 STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
 


                               COMMON                                 TOTAL
                             STOCK, NO   TREASURY     RETAINED    STOCKHOLDERS'
                             PAR VALUE     STOCK      EARNINGS       EQUITY
                             ---------- -----------  -----------  -------------
                                                      
Balance, June 30, 1995...... $  804,287 $(1,096,039) $14,874,508   $14,582,756
  Net Income................                           2,190,710     2,190,710
  Issuance of Common Stock..     17,000                                 17,000
  Distributions to Stock-
   holders..................                          (1,131,269)   (1,131,269)
  Treasury Stock Purchase...               (105,024)                  (105,024)
                             ---------- -----------  -----------   -----------
Balance, June 30, 1996          821,287  (1,201,063)  15,933,949    15,554,173
  Net Income................                           1,730,873     1,730,873
  Distributions to
   Stockholders.............                          (1,008,366)   (1,008,366)
                             ---------- -----------  -----------   -----------
Balance, June 30, 1997......    821,287  (1,201,063)  16,656,456    16,276,680
  Net Income................                           4,151,965     4,151,965
  Issuance of Common Stock..    485,203                                485,203
  Distributions to Stock-
   holders..................                          (1,430,235)   (1,430,235)
                             ---------- -----------  -----------   -----------
Balance, June 30, 1998...... $1,306,490 $(1,201,063) $19,378,186   $19,483,613
                             ========== ===========  ===========   ===========

 
 
 
 
   The accompanying notes are an integral part of these financial statements
 
                                      F-96

 
                RENTAL TOOLS & EQUIPMENT CO. INTERNATIONAL, INC.
 
                            STATEMENTS OF CASH FLOWS
 


                                                YEAR ENDED JUNE 30,
                                       ----------------------------------------
                                           1996          1997          1998
                                       ------------  ------------  ------------
                                                          
Cash flows from operating activities:
 Net income..........................  $  2,190,710  $  1,730,873  $  4,151,965
 Adjustments to reconcile net income
  to net cash provided by operating
  activities:
 Depreciation and amortization.......    10,403,379    12,202,686    15,160,993
 Provision for doubtful accounts.....       692,725     1,086,412       846,859
 Gain on sale of division............           --            --     (3,643,921)
 Stock compensation awarded..........           --            --        250,000
 Gain on sale of equipment...........       (64,050)     (369,931)   (1,458,521)
 (Increase) in accounts receivable...    (1,668,051)     (839,959)   (3,031,793)
 Decrease (increase) in prepaid
  expenses and other.................        93,180        26,706       (69,628)
 (Increase) decrease in other non-
  current assets.....................       (24,846)      180,427      (831,732)
 Increase (decrease) in accounts
  payable............................     1,912,949    (1,732,003)    1,610,613
 Increase (decrease) in unearned
  revenue............................       769,409      (351,736)       47,654
 (Decrease) increase in other non-
  current liabilities................      (827,962)      111,849       176,527
                                       ------------  ------------  ------------
  Net cash provided by operating
   activities........................    13,477,443    12,045,324    13,209,016
Cash flows from investing activities:
 Purchases of rental equipment.......   (12,859,754)  (16,709,101)  (17,089,562)
 Purchases of property, plant and
  equipment..........................    (4,132,214)   (3,554,693)   (7,205,057)
 Proceeds from disposition of rental
  equipment and property, plant and
  equipment..........................       494,518     1,135,663     8,871,293
                                       ------------  ------------  ------------
  Net cash used in investing
   activities........................   (16,497,450)  (19,128,131)  (15,423,326)
Cash flows from financing activities:
 Repayment of notes and mortgages
  payable............................    (7,857,161)   (9,582,887)  (14,918,262)
 Decrease in short-term borrowings,
  net                                      (180,404)       (3,525)     (565,162)
 Proceeds from issuance of notes and
  mortgages payable..................    12,836,742    17,354,604    19,368,518
 Issuance of common stock............        17,000           --            --
 Purchase of treasury stock..........      (105,024)          --            --
 Distributions to stockholders.......    (1,131,269)   (1,008,366)   (1,430,235)
                                       ------------  ------------  ------------
  Net cash provided by financing
   activities........................     3,579,884     6,759,826     2,454,859
Increase (decrease) in cash..........       559,877      (322,981)      240,549
Cash at beginning of year............        95,484       655,361       332,380
                                       ------------  ------------  ------------
Cash at end of year..................  $    655,361  $    332,380  $    572,929
                                       ============  ============  ============
Non-cash investing and financing ac-
 tivities:...........................
 Assets aquired through issuance of
  notes payable......................           --            --   $  1,219,200
 Refinancing of notes and mortgages
  payable............................           --            --   $ 35,977,502
 Deferred compensation payments
  through issuance of common stock...           --            --   $    235,203
 Rental equipment acquired through
  accounts payable...................           --            --   $  3,367,351

 
   The accompanying notes are an integral part of these financial statements
 
                                      F-97

 
               RENTAL TOOLS & EQUIPMENT CO. INTERNATIONAL, INC.
 
                         NOTES TO FINANCIAL STATEMENTS
 
                         JUNE 30, 1996, 1997 AND 1998
 
NOTE 1--THE COMPANY
 
  Rental Tools & Equipment Co. International, Inc. (the Company) engages in
the rental of industrial, construction and specialized tools and equipment.
The Company operates its business in the form of divisions at the following
locations:
 
  Silver Spring, MD                  Baltimore, MD
  Bladensburg, MD                    Philadelphia, PA
  Norfolk, VA                        York, PA
  Hampton, VA                        Greensboro, NC
  Merrifield, VA                     Charlotte, NC
  Richmond, VA                       Durham, NC
  Upper Marlboro, MD                 La Porte, TX (sold in June 1998)
  Atlanta, GA                        Prince Frederick, MD
  Hopewell, VA                       Gaithersburg, MD
 
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
  The significant accounting policies followed by the Company are described
below.
 
 Method of accounting
 
  The accompanying financial statements are prepared on the accrual basis of
accounting.
 
 Revenue recognition
 
  Short-term rentals (less than 30 days) are recorded as revenue in the period
in which equipment is returned by the customer. Long-term rentals are billed
and recorded as revenue on a monthly basis.
 
 Concentration of credit risk
 
  Concentrations of credit risk with respect to trade accounts receivable are
limited due to the large number of entities comprising the Company's customer
base and their geographic dispersion. The Company generally does not require
collateral on accounts receivable. At June 30, 1997 and 1998, the Company had
an allowance for doubtful accounts of approximately $233,000 and $353,000,
respectively.
 
 Rental equipment, property, plant and equipment and related depreciation and
amortization
 
  Rental equipment is not included in current assets in accordance with
current industry accounting practices. Included in rental equipment are assets
under construction of $1,131,329 and $602,971 at June 30, 1997 and 1998,
respectively.
 
  Property, plant and equipment are stated at cost less accumulated
depreciation. Expenditures for maintenance and repairs which do not
significantly prolong the useful lives of the assets are charged to expense as
incurred.
 
  Rental equipment and automotive equipment are depreciated using accelerated
depreciation methods over six years. Office and maintenance equipment,
leasehold improvements and buildings are depreciated on the straight-line
method over periods ranging from five to twenty-five years.
 
 
                                     F-98

 
               RENTAL TOOLS & EQUIPMENT CO. INTERNATIONAL, INC.
 
                  NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
 
 Impairment of long-lived assets and long-lived assets to be disposed of
 
  The Company reviews long-lived assets and certain identifiable intangibles
for impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Recoverability of assets
to be held and used is measured by a comparison of the carrying amount of an
asset to future net cash flows expected to be generated by the asset. If such
assets are considered to be impaired, the impairment to be recognized is
measured by the amount by which the carrying amount of the assets exceed the
fair value of the assets. Assets to be disposed of are reported at the lower
of the carrying amount or fair value less costs to sell.
 
 Cost of equipment rentals
 
  Cost of equipment rentals represents direct and indirect costs related to
equipment rentals, including; salaries and wages of division personnel,
maintenance costs, delivery costs and the costs of rental supplies.
 
 Income taxes
 
  The Company is an S Corporation for income tax purposes and payment of
income taxes is generally the responsibility of the stockholders of the
Company.
 
 Estimates
 
  The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
 
 Reclassifications
 
  Certain amounts in fiscal year 1996 and 1997 financial statements have been
reclassified to conform with the 1998 financial statements.
 
 Gain on sale of division
 
  On June 3, 1998, the Company sold all of its assets in LaPorte, Texas,
including property, plant, rental equipment and receivables, for net proceeds
of $7,625,000 resulting in a gain of approximately $3,644,000. Sales at this
division were $3,399,000, $2,626,000 and $2,574,000 for the years ended June
30, 1996, 1997 and 1998, respectively.
 
NOTE 3--PROPERTY, PLANT AND EQUIPMENT, NET
 
  Property, plant and equipment, net consists of the following:
 


                                                            JUNE 30,
                                                    --------------------------
                                                        1997          1998
                                                    ------------  ------------
                                                            
   Buildings....................................... $  9,640,451  $ 14,114,658
   Automotive equipment............................    6,788,288     7,297,351
   Office and maintenance equipment................    4,072,484     4,305,358
   Leasehold improvements..........................    2,126,065     2,190,399
                                                    ------------  ------------
     Total.........................................   22,627,288    27,907,766
   Less: Accumulated depreciation and
    amortization...................................  (10,040,972)  (11,040,769)
                                                    ------------  ------------
   Plant and equipment, net........................   12,586,316    16,866,997
   Land............................................    2,483,481     3,528,789
                                                    ------------  ------------
     Property, plant and equipment, net............ $ 15,069,797  $ 20,405,786
                                                    ============  ============

 
                                     F-99

 
                RENTAL TOOLS & EQUIPMENT CO. INTERNATIONAL, INC.
 
                   NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
 
 
NOTE 4--ACCOUNTS PAYABLE
 
  Accounts payable consists of the following:
 


                                                                JUNE 30,
                                                          ---------------------
                                                             1997       1998
                                                          ---------- ----------
                                                               
   Accounts payable, trade and accrued expenses.......... $2,591,633 $2,938,741
   Accounts payable, equipment purchases.................             3,367,351
   Bonuses payable.......................................    460,172    703,762
   Accrued profit sharing contributions..................     36,939    645,038
   Accrued vacation......................................               397,320
   Miscellaneous taxes payable...........................    139,758    154,254
                                                          ---------- ----------
     Total............................................... $3,228,502 $8,206,466
                                                          ========== ==========

 
NOTE 5 -- DEBT OBLIGATIONS
 
  Debt Obligations consist of the following:
 


        DESCRIPTION                                  JUNE 30, 1997 JUNE 30, 1998
        -----------                                  ------------- -------------
                                                             
   NOTES PAYABLE, EFFECTIVE RATE
   First Union
   (Due 2003, Various rates)(1).....................                $35,463,740
   First National Bank of Maryland
   (Various rates)..................................   $2,607,351
   Caterpillar Financial
   (Due 1999--7.25%)................................      142,891
   Digital Financial Services
   (Due 2000--9.1%).................................       73,554        48,335
   First Union National
   (Various rates)..................................   17,795,787
   Signet Bank of Maryland
   (Various rates)..................................   14,521,803
   Wayne Stenabaugh
   (Due 1998--6%)...................................       30,161
                                                      -----------   -----------
     Subtotal Notes Payable.........................   35,171,547    35,512,075
                                                      -----------   -----------
   MORTGAGES PAYABLE, EFFECTIVE RATE
   Central Carolina Bank
   (Due 1998--9.08%)................................      339,087
   Central Carolina Bank
   (Due 2003--8.5%).................................                    295,068
   First National Bank of Maryland
   (Due 2003--7.58%)................................                  3,800,000
   First Union
   (Due 2001--8.19%)................................    1,820,704     1,689,984
   First Union
   (Due 2002--7.64%)................................                    484,467
   First Union
   (Due 2003--7.41%)(2).............................                  1,219,200
                                                      -----------   -----------
     Subtotal Mortgages Payable.....................    2,159,791     7,488,719
                                                      -----------   -----------
       Total Debt Obligations.......................  $37,331,338   $43,000,794
                                                      ===========   ===========

 
                                     F-100

 
               RENTAL TOOLS & EQUIPMENT CO. INTERNATIONAL, INC.
 
                  NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
 
- --------
(1) On October 22, 1997, the Company entered into a $60 million revolving bank
    line of credit. The line of credit is subject to a defined borrowing base
    composed of rental equipment and accounts receivable. The proceeds were
    initially used to finance existing indebtedness. The remaining available
    balance will be used to meet working capital requirements. The bank line
    of credit bears interest at variable rates and payment of all amounts
    outstanding is due five years from the date of closing. Among other
    restrictions, the Company must comply with certain financial and non-
    financial covenants. At June 30, 1998, the Company is in compliance with
    all of the associated financial covenants. The lenders have a continuing
    security interest in any and all rights to "collateral", (e.g. all
    accounts receivable, equipment, intangibles, instruments, inventory,
    etc.). As of year end, the Company had $24,536,260 available to use under
    the credit agreement.
(2) On March 25, 1998, the Company entered into a $5 million line of credit
    for real estate transactions. The line renews in twelve month intervals.
    Upon execution of a transaction, the amount borrowed under the line is
    converted to a term loan which is amortized over 15 years with a balloon
    payment for all amounts outstanding due at the end of five years. Amounts
    borrowed are secured by liens on the property acquired. At June 30, 1998
    the balance outstanding amounted to $1,219,200.
 
  Change of control or ownership is an event of default under the $60 million
credit agreement, $5 million real estate agreement and certain other
mortgages, unless approved in advance by the lenders.
 
  The aggregate maturities of all long-term debt obligations over the next
five years are as follows: 1999--$506,206; 2000--$512,403; 2001--$494,190;
2002--$499,195; 2003, and thereafter--$40,988,800.
 
  For the fiscal years 1996, 1997 and 1998, cash paid for interest under notes
and mortgages payable was $2,432,380, $2,600,823 and $3,222,888, respectively.
 
NOTE 6--RELATED PARTY TRANSACTIONS
 
  Several of the Company's operating facilities are controlled and owned by
the Chairman of the Board (the majority stockholder) or his affiliated
entities. Pursuant to lease agreements which were amended in 1986, the Company
has annual rental expenses of approximately $357,000 on these facilities. The
lease payments are subject to annual adjustment based on the Consumer Price
Index. In addition, the Company must pay real estate taxes and insurance
related to the facilities. The leases are on a month by month basis.
 
  At June 30, 1997, the Chairman of the Board had loans to the Company
totaling $565,162. All outstanding amounts were repaid by the Company during
fiscal year 1998.
 
  The Company makes advances to and receives advances from certain officers.
Advances are unsecured and reported on a net basis in other current assets.
Officers owed the Company $6,686 as of June 30, 1997 and 1998, respectively.
 
  The Rental Tools & Equipment Co. International, Inc. Profit Sharing & 401(k)
Savings Plan (the Plan) owns land in two locations: Charlotte and Durham,
North Carolina. At each of these locations the Company has built a rental
facility and operates its business. The Company makes ground rent lease
payments to the plan on a monthly basis under long term lease agreements. The
Charlotte lease ends in March 2007 and the Durham lease
 
                                     F-101

 
               RENTAL TOOLS & EQUIPMENT CO. INTERNATIONAL, INC.
 
                  NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
 
ends in December 1998. These payments are adjusted annually to reflect the
appraised fair rental values of the land. The Company made ground lease
payments to the Plan as follows:


                                                         YEAR ENDED JUNE 30,
                                                      --------------------------
                                                        1996     1997     1998
                                                      -------- -------- --------
                                                               
     Charlotte, NC................................... $ 57,739 $ 56,755 $ 56,755
     Durham, NC......................................    6,616    6,749    6,749
     LaPorte, TX.....................................   49,078   48,242   44,222
                                                      -------- -------- --------
                                                      $113,433 $111,746 $107,726
                                                      ======== ======== ========

 
  In June 1998, the Plan sold the land at Laporte, Texas to the Company to
facilitate the Company's sale of the LaPorte division. Concurrently, the
company ceased making payments for the LaPorte ground lease to the Plan.
 
NOTE 7--MANAGEMENT INCENTIVES AND RETIREMENT PLAN
 
  In October 1991, the Company instituted a 401(k) Savings Plan as an added
feature to the existing Profit Sharing Plan. Under the 401(k) Savings feature,
the Company is required to match 50% of the employee's contribution, with a
cap at 6% of compensation. Company matching contributions were $171,526,
$215,343 and $228,291 for the years ended June 30, 1996, 1997 and 1998,
respectively. Additionally, the Board of Directors, at their discretion,
approved contributions made to or accrued on behalf of the Profit Sharing
feature in amounts of $372,455, $88,410 and $713,658 for the years ended June
30, 1996, 1997 and 1998, respectively. During fiscal years 1996, 1997, and
1998, the Company applied existing accumulated forfeitures already in the Plan
of $12,003, $51,471, and $68,620 respectively, to reduce its accrued
obligation to the Plan, at June 30, 1996, 1997, and 1998 to $360,452, $36,939
and $645,038, respectively.
 
  Divisional managers are entitled to receive annual bonuses based upon the
financial performance and profitability of their respective division. A
portion of these bonuses are required to be deferred and paid upon a change in
employment status. The Company has recorded a liability of $355,902 and
242,226 at June 30, 1997 and 1998, respectively, in connection with this
deferred compensation arrangement.
 
NOTE 8--INCOME TAXES
 
  The Company has elected to be treated as an S Corporation as permitted under
the Internal Revenue Code. Accordingly, in lieu of corporate income taxes, the
stockholders are taxed on their proportionate share of the Company's taxable
income. Therefore, the Company had no Federal income tax liability at June 30,
1997 and 1998 and no federal income tax expense for each of the three years in
the period ended June 30, 1998.
 
  The Board of Directors has adopted a policy that authorizes distributions to
stockholders necessary for the stockholders to pay the associated income
taxes. Distributions in fiscal years 1996, 1997 and 1998 totaled $1,131,269,
$1,008,366 and $1,430,235, respectively.
 
NOTE 9--COMMITMENTS AND CONTINGENCIES
 
  At June 30, 1998, the Company was a defendant in several lawsuits relating
to injuries sustained by third parties. The Company has accrued approximately
$141,000 to cover any unfavorable settlements or findings.
 
  The Company has entered into an agreement to acquire property and establish
a new rental location in Maryland. This new facility is expected to be open
for business in September 1998. The acquisition of property, plant and rental
equipment will be financed with the Company's existing credit facility.
 
  At June 30, 1998, the Company has outstanding purchase commitments for
capital expenditures of approximately $2,000,000, primarily for rental
equipment.
 
                                     F-102

 
               RENTAL TOOLS & EQUIPMENT CO. INTERNATIONAL, INC.
 
                  NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
 
 
NOTE 10--SUBSEQUENT EVENTS
 
  In July 1998, the Company acquired for cash all of the outstanding stock in
an existing rental company with four locations in Maryland for $6,800,000. The
acquisition will be accounted for as a purchase. The excess of the purchase
price over the estimated fair value of the acquired net assets, which
approximates $3,800,000 will be recorded as goodwill. The acquisition was
financed through the Company's existing credit facility.
 
  The Company purchased property in Raleigh, North Carolina in July 1998 for
approximately $889,000. The purchase was funded through the Company's existing
real estate credit facility. The Company expects the division to begin
operations in August 1998.
 
  In July 1998, the stockholders and the Company finalized an agreement to
merge with United Rentals, Inc. in which the company will be merged with and
into United Rentals, Inc. and will become a wholly owned subsidiary.
 
                                     F-103

 
                        REPORT OF INDEPENDENT AUDITORS
 
Board of Directors and Stockholders
Power Rental Co., Inc.
 
  We have audited the balance sheet of Power Rental Co., Inc. as of July 31,
1997 and the related statements of operations, stockholders' equity and cash
flows for the year then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
 
  We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
 
  In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Power Rental Co., Inc. at
July 31, 1997, and the results of its operations and its cash flows for the
year then ended in conformity with generally accepted accounting principles.
 
                                          /s/ Ernst & Young LLP
 
MetroPark, New Jersey
June 24, 1998
 
                                     F-104

 
                             POWER RENTAL CO., INC.
 
                                 BALANCE SHEETS
 


                                                         JULY 31,     MAY 31,
                                                           1997        1998
                                                        ----------- -----------
                                                                    (UNAUDITED)
                                                              
ASSETS
Cash................................................... $    53,462 $       --
Accounts receivable, net of allowance for doubtful
 accounts of
 $200,000 and $170,000 at 1997 and 1998, respectively..   4,193,529   4,136,551
Due from related parties...............................     612,717   1,173,050
Inventory..............................................      51,476      63,576
Rental equipment, net..................................  35,575,067  38,139,754
Property and equipment, net............................   7,301,836   8,269,235
Prepaid expenses and other assets......................   1,413,651   1,762,667
Intangible assets, net.................................     378,269     335,289
                                                        ----------- -----------
    Total assets....................................... $49,580,007 $53,880,122
                                                        =========== ===========
 
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
  Accounts payable, accrued expenses and other liabili-
   ties................................................ $ 4,831,620 $ 4,674,375
  Debt.................................................  30,841,647  38,067,418
  Deferred rent........................................      72,200      84,800
  Deferred income taxes................................   2,921,231   1,983,119
                                                        ----------- -----------
    Total liabilities..................................  38,666,698  44,809,712
 
Commitments and contingencies
 
Stockholders' equity:
  Common stock--Class A voting, $1.00 par value, 10,000
   shares authorized, 10 issued and outstanding........          10          10
  Common stock--Class B non-voting, $1.00 par value,
   90,000 shares authorized, 20,000 issued and
   outstanding.........................................      20,000      20,000
  Additional paid in capital...........................     522,550     522,550
  Retained earnings....................................  10,370,749   8,527,850
                                                        ----------- -----------
    Total stockholders' equity.........................  10,913,309   9,070,410
                                                        ----------- -----------
    Total liabilities and stockholders' equity......... $49,580,007 $53,880,122
                                                        =========== ===========

 
                            See accompanying notes.
 
                                     F-105

 
                             POWER RENTAL CO., INC.
 
                            STATEMENTS OF OPERATIONS
 


                                                          TEN MONTHS ENDED
                                          YEAR ENDED           MAY 31,
                                           JULY 31,    ------------------------
                                             1997         1997         1998
                                          -----------  -----------  -----------
                                                             (UNAUDITED)
                                                           
Revenues:
  Equipment rentals.....................  $34,943,308  $28,469,107  $27,578,967
  Sales of rental equipment.............    4,484,056    3,428,774    4,020,158
  Sales of parts and supplies...........    1,462,391    1,226,682    1,140,346
                                          -----------  -----------  -----------
    Total revenues......................   40,889,755   33,124,563   32,739,471
Cost of revenues:
  Cost of equipment rentals, excluding
   equipment rental depreciation........   11,392,273    8,867,084   10,726,582
  Depreciation, equipment rentals.......    9,753,507    8,150,000    8,967,724
  Cost of sales of rental equipment.....    2,915,751    2,402,610    1,898,704
  Cost of sales of parts and supplies...    1,316,267    1,032,410      902,963
                                          -----------  -----------  -----------
    Total cost of revenues..............   25,377,798   20,452,104   22,495,973
                                          -----------  -----------  -----------
Gross profit............................   15,511,957   12,672,459   10,243,498
Selling, general and administrative
 expenses...............................   11,865,623    9,781,625   10,320,661
Non-rental depreciation.................    1,214,796      913,500    1,242,846
                                          -----------  -----------  -----------
Operating income (loss).................    2,431,538    1,977,334   (1,320,009)
Interest expense........................    2,171,959    1,593,657    2,389,562
Interest income.........................     (176,612)     (97,471)    (137,826)
Other (income), net.....................     (398,159)    (334,337)    (182,304)
                                          -----------  -----------  -----------
Income (loss) before provision (benefit)
 for income taxes.......................      834,350      815,485   (3,389,441)
Provision (benefit) for income taxes....      317,053      282,070   (1,546,542)
                                          -----------  -----------  -----------
Net income (loss).......................  $   517,297  $   533,415  $(1,842,899)
                                          ===========  ===========  ===========

 
 
                            See accompanying notes.
 
                                     F-106

 
                             POWER RENTAL CO., INC.
 
                       STATEMENTS OF STOCKHOLDERS' EQUITY
 


                               CLASS A       CLASS B     ADDITIONAL
                            ------------- --------------  PAID IN    RETAINED
                            SHARES AMOUNT SHARES AMOUNT   CAPITAL    EARNINGS
                            ------ ------ ------ ------- ---------- -----------
                                                  
Balance at August 1,
 1996.....................    10    $10   20,000 $20,000  $522,550  $ 9,853,452
  Net income..............                                              517,297
                             ---    ---   ------ -------  --------  -----------
Balance at July 31, 1997..    10     10   20,000  20,000   522,550   10,370,749
  Net loss (unaudited)....                                           (1,842,899)
                             ---    ---   ------ -------  --------  -----------
Balance at May 31, 1998
 (unaudited)..............    10    $10   20,000 $20,000  $522,550  $ 8,527,850
                             ===    ===   ====== =======  ========  ===========

 
 
 
                            See accompanying notes.
 
                                     F-107

 
                             POWER RENTAL CO., INC.
 
                            STATEMENTS OF CASH FLOWS
 


                                                        TEN MONTHS ENDED
                                       YEAR ENDED            MAY 31,
                                        JULY 31,    --------------------------
                                          1997          1997          1998
                                      ------------  ------------  ------------
                                                           (UNAUDITED)
                                                         
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)...................  $    517,297  $    533,414  $ (1,842,899)
Adjustments to reconcile net income
 (loss) to net cash provided by
 operating activities:
  Depreciation and amortization.....    11,018,848     9,097,833    10,253,550
  Gain on equipment sales...........    (1,294,474)     (815,756)   (1,603,959)
  Gain on property and equipment
   sales............................       (29,468)      (47,940)      (27,709)
  Deferred income taxes.............        87,846        86,530      (938,112)
  Changes in assets and liabilities:
    (Increase) decrease in accounts
     receivable.....................      (135,231)      392,008        56,978
    Decrease (increase) in
     inventory......................         8,973       (21,226)      (12,100)
    Increase in prepaid expenses and
     other assets...................      (648,001)     (486,370)     (349,016)
    Increase (decrease) in accounts
     payable, accrued expenses and
     other liabilities                     622,048       381,560      (157,244)
    Increase in deferred rent.......        40,800        29,000        12,600
                                      ------------  ------------  ------------
      Total adjustments.............     9,671,341     8,615,639     7,234,988
                                      ------------  ------------  ------------
Cash provided by operating
 activities.........................    10,188,638     9,149,053     5,392,089
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of rental equipment........    (1,769,523)   (3,339,078)     (684,337)
Purchase of property and equipment..    (2,757,539)   (2,237,093)     (903,864)
Intangibles associated with purchase
 of certain assets..................      (110,000)     (110,000)
Proceeds from sale of rental
 equipment..........................     3,882,235     2,956,554     3,243,356
Proceeds from sale of property and
 equipment..........................       139,723        65,562       204,980
                                      ------------  ------------  ------------
Cash provided by (used in) investing
 activities.........................      (615,104)   (2,664,055)    1,860,135
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments on debt..........    (9,810,236)   (7,567,820)  (10,800,353)
Principal payments on credit
 facility...........................   (26,748,605)  (19,096,555)  (17,990,000)
Borrowings on debt..................       207,000       207,000       220,000
Borrowings under credit facility....    26,726,605    20,089,955    21,825,000
Repayments from related parties.....       681,553       352,200       824,504
Advances to related parties.........      (599,788)     (491,933)   (1,384,837)
                                      ------------  ------------  ------------
Cash used in financing activities...    (9,543,471)   (6,507,153)   (7,305,686)
                                      ------------  ------------  ------------
Increase (decrease) in cash.........        30,063       (22,155)      (53,462)
Cash balance at beginning of
 period.............................        23,399        23,399        53,462
                                      ------------  ------------  ------------
Cash balance at end of period.......  $     53,462  $      1,244  $        --
                                      ============  ============  ============

 
                            See accompanying notes.
 
                                     F-108

 
                            POWER RENTAL CO., INC.
 
                         NOTES TO FINANCIAL STATEMENTS
 
                                 JULY 31, 1997
          (THE INFORMATION AS OF MAY 31, 1998 AND FOR THE TEN MONTHS
                   ENDED MAY 31, 1997 AND 1998 IS UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
 Business Activity
 
  Power Rental Co., Inc. (the "Company") rents, sells and repairs construction
equipment for use by contractor, industrial and homeowner markets. The rentals
are on a daily, weekly or monthly basis. The Company has eighteen locations
and their principal market area is the Pacific Northwest of the United States.
The nature of the Company's business is such that short-term obligations are
typically met by cash flow generated from long-term assets. Consequently,
consistent with industry practice, the balance sheets are presented on an
unclassified basis.
 
  These financial statements are prepared on a historical cost basis and do
not include any adjustments that may result from the acquisition of the
Company by United Rentals, Inc. ("United") as more fully described in Note 10.
 
 Interim Financial Statements
 
  The accompanying balance sheet at May 31, 1998 and the statements of
operations, stockholders' equity and cash flows for the ten-month periods
ended May 31, 1997 and 1998 are unaudited and have been prepared on the same
basis as the audited financial statements included herein. In the opinion of
management, such unaudited financial statements include all adjustments
necessary to present fairly the information set forth therein, which consist
solely of normal recurring adjustments. The results of operations for such
interim period are not necessarily indicative of results for the full year.
 
 Inventory
 
  Inventories consist primarily of general replacement parts and are stated at
the lower of cost, determined under the first-in, first-out method, or market.
 
 Rental Equipment
 
  Rental equipment is recorded at cost. Depreciation for rental equipment is
computed using the straight-line method over an estimated five-year useful
life with no salvage value.
 
  Ordinary maintenance and repair costs are charged to operations as incurred.
Proceeds from the disposal and the related net book value of the equipment are
recognized in the period of disposal and reported as revenue from sales of
equipment and cost of sales of equipment, respectively, in the statement of
operations.
 
 Property and Equipment
 
  Property and equipment is stated at cost. Depreciation of property and
equipment is computed on the straight-line method over estimated useful lives
ranging from three to seven years. Leasehold improvements are amortized using
the straight-line method over the estimated lives of the improvements or the
remaining life of the lease, whichever is shorter.
 
 
                                     F-109

 
                            POWER RENTAL CO., INC.
 
                  NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
 
                                 JULY 31, 1997
          (THE INFORMATION AS OF MAY 31, 1998 AND FOR THE TEN MONTHS
                   ENDED MAY 31, 1997 AND 1998 IS UNAUDITED)
  Ordinary maintenance and repair costs are charged to operations as incurred.
The cost of assets sold, retired, or otherwise disposed of, and the related
accumulated depreciation is eliminated from the accounts and any resulting
gain or loss is included in operations.
 
 Intangible Assets
 
  Intangible assets are recorded at cost and consist of goodwill of $372,480
and covenants not to compete of $207,000. Accumulated amortization at July 31,
1997 and May 31, 1998 is $201,211 and $244,191, respectively. Goodwill is
being amortized by the straight-line method over its estimated useful life of
forty years. The covenants not to compete reflect agreements made regarding
confidentiality and restricting competitive activity and are being amortized
by the straight-line method over the period of the agreements, which is 5
years. Amortization expense was $50,545, $34,333 and $42,980 for the year
ended July 31, 1997 and for the ten months ended May 31, 1997 and 1998,
respectively.
 
 Rental Revenue
 
  Rental revenue is recorded as earned under the operating method.
 
 Advertising Costs
 
  The Companies advertise primarily through sponsorships, trade journals,
trade associations and phone directories. All advertising costs are expensed
as incurred. Advertising expense amounted to approximately $714,680, $609,100
and $653,300 in the year ended July 31, 1997 and for the ten months ended May
31, 1997 and 1998, respectively.
 
 Income Taxes
 
  The Company uses the "liability method" of accounting for income taxes.
Accordingly, deferred tax liabilities and assets are determined based on the
difference between the financial statement and tax bases of assets and
liabilities, using enacted tax rates in effect for the year in which
differences are expected to reverse.
 
 Accounting Estimates
 
  The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
 
2. CONCENTRATIONS OF CREDIT RISK
 
  The Company maintains cash balances with a quality financial institution
and, consequently, management believes funds maintained there are secure.
Concentrations of credit risk with respect to customer receivables are limited
due to the large number of customers comprising the Company's customer base
and its credit policy.
 
                                     F-110

 
                             POWER RENTAL CO., INC.
 
                   NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
 
                                 JULY 31, 1997
           (THE INFORMATION AS OF MAY 31, 1998 AND FOR THE TEN MONTHS
                   ENDED MAY 31, 1997 AND 1998 IS UNAUDITED)
 
3. RENTAL EQUIPMENT
 
  Rental equipment and related accumulated depreciation consisted of the
following:
 


                                                         JULY 31,     MAY 31,
                                                           1997        1998
                                                        ----------- -----------
                                                                    (UNAUDITED)
                                                              
     Rental equipment.................................. $61,168,264 $69,016,929
     Less accumulated depreciation.....................  25,593,197  30,877,175
                                                        ----------- -----------
     Rental equipment, net............................. $35,575,067 $38,139,754
                                                        =========== ===========

 
4. PROPERTY AND EQUIPMENT
 
  Property and equipment consists of the following:


                                                          JULY 31,     MAY 31,
                                                            1997        1998
                                                         ----------- -----------
                                                                     (UNAUDITED)
                                                               
     Transportation equipment........................... $ 5,143,693 $ 5,984,589
     Office and shop equipment..........................   2,236,792   2,683,017
     Leasehold improvements.............................   3,573,110   4,419,965
                                                         ----------- -----------
                                                          10,953,595  13,087,571
     Less accumulated depreciation and amortization.....   3,651,759   4,818,336
                                                         ----------- -----------
     Property and equipment, net........................ $ 7,301,836 $ 8,269,235
                                                         =========== ===========

 
5. DEBT
 
  Debt consists of the following:


                                                          JULY 31,    MAY 31,
                                                            1997       1998
                                                          --------- -----------
                                                                    (UNAUDITED)
                                                              
Caterpillar Credit-Note with a monthly payment of $1,668
 including interest of 5.6%.............................  $  24,020  $   9,758
Ingersoll Rand--Various non-interest bearing notes with
 combined monthly payments of $100,064 and $2,850 in
 1997 and 1998, respectively............................    289,690     26,308
Allegro Escrow--Two notes with combined monthly payments
 of $4,297 including interest of 9.0%...................    175,653    144,831
Associates Commercial--Various notes with combined
 monthly payments of $24,451 including interest from
 7.6% to 8.9%...........................................    905,505  4,149,252
Case Credit--Various notes with combined monthly
 payments of $211,021 including interest from 4.9% to
 8.9%...................................................  3,823,564  3,079,867
J.D. Fulwiler--Note with monthly payment of $3,134
 including interest of 8.0%.............................     27,285        --
Concord Commercial--Various notes with combined monthly
 payments of $143,858 including interest from 8.1% to
 8.9%...................................................  4,019,259  3,365,279
John Deere Credit--Various notes with combined monthly
 payments of $133,615 including interest from 6.9% to
 9.7%...................................................  2,399,434  1,571,762
Ford Motor Credit--Various notes with combined monthly
 payments of $121,192 including interest from 8.2% to
 9.2%...................................................  1,918,226  1,756,489

 
                                     F-111

 
                             POWER RENTAL CO., INC.
 
                   NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
 
                                 JULY 31, 1997
           (THE INFORMATION AS OF MAY 31, 1998 AND FOR THE TEN MONTHS
                   ENDED MAY 31, 1997 AND 1998 IS UNAUDITED)


                                                          JULY 31,     MAY 31,
                                                            1997        1998
                                                         ----------- -----------
                                                                     (UNAUDITED)
                                                               
AT&T Credit--Note with monthly payment of $2,599
 including interest of 10.6%...........................  $   101,393 $    77,829
Navistar Financial--Various notes with combined monthly
 payments of $53,762 including interest from 7.3% to
 9.0%..................................................    1,271,686     922,509
Seafirst Bank--Various notes with combined monthly
 payments of $523,962 including interest from 7.3% to
 8.5%..................................................   12,075,932  13,420,418
Seafirst Bank--Line of credit up to $19,000,000,
 expiring in February 1999 with interest payable
 monthly at 8.5%.......................................    3,810,000   7,645,000
JCB Finance--Note with monthly payment of $8,529
 including interest of 8.51%...........................          --      236,637
Pacific Atlantic--Note with monthly payment of $2,610
 including interest of 10.9%...........................          --       74,107
PACCAR Financial--Note with monthly payment of $3,663
 including
 interest of 7.8%......................................          --      150,654
Deutsche Financial--Note with monthly payment of
 $28,932 including
 interest of 8.13%.....................................          --    1,436,718
                                                         ----------- -----------
                                                         $30,841,647 $38,067,418
                                                         =========== ===========

 
  Substantially all rental equipment collateralize the above notes.
 
  All debt was paid off in June 1998 in connection with the acquisition
discussed in Note 10.
 
6. INCOME TAXES
 
  The provision (benefit) for income taxes consists of the following:
 


                                                YEAR ENDED TEN MONTHS ENDED MAY
                                                 JULY 31,          31,
                                                   1997      1997      1998
                                                ---------- -------- -----------
                                                               (UNAUDITED)
                                                           
     Current:
       Federal.................................  $229,197  $195,530 $  (608,430)
       State...................................        10        10
                                                 --------  -------- -----------
                                                  229,207   195,540    (608,430)
     Deferred:
       Federal.................................    34,832    34,612    (876,200)
       State...................................    53,014    51,918     (61,912)
                                                 --------  -------- -----------
                                                   87,846    86,530    (938,112)
                                                 --------  -------- -----------
                                                 $317,053  $282,070 $(1,546,542)
                                                 ========  ======== ===========

 
 
                                     F-112

 
                            POWER RENTAL CO., INC.
 
                  NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
 
                                 JULY 31, 1997
          (THE INFORMATION AS OF MAY 31, 1998 AND FOR THE TEN MONTHS
                   ENDED MAY 31, 1997 AND 1998 IS UNAUDITED)
  Significant components of the Company's deferred tax liability at July 31,
1997 and May 31, 1998 are as follows:
 
                                                         
                                                         JULY 31,     MAY 31,
                                                           1997        1998
                                                        ----------  -----------
                                                                    (UNAUDITED)
     Net operating loss carryforward................... $ (469,000) $(1,085,000)
     Cumulative tax depreciation in excess of book.....  3,390,231    3,068,119
                                                        ----------  -----------
     Deferred tax liability, net....................... $2,921,231  $ 1,983,119
                                                        ==========  ===========

     
 
  At July 31, 1997, the Company has net operating loss carryforwards of
$1,142,326 for income tax purposes that expire in 2012.
 
7. RELATED PARTY TRANSACTIONS
 
  During the year ended July 31, 1997 and the ten months ended May 31, 1997
and 1998, the Company paid $628,533, $565,295 and $530,687 for advertising
expenses to a partnership controlled by the Company's president and principal
stockholder.
 
  The accompanying financial statements at July 30, 1997 and May 31, 1998,
reflect amounts receivable of $509,473 and $659,174, respectively, from the
president of the Company. These advances are made within the framework of a
special drawing and loan account which bears interest at 8%.
 
  In addition, the Company is owed amounts from relatives of and related
entities controlled by the president of the Company totaling $103,244 and
$454,406 at July 31, 1997 and May 31, 1998, respectively. These advances are
non-interest bearing.
 
  The Company conducts its operations primarily from various separate
facilities under noncancellable lease agreements. Three of these facilities
are owned either by the Company's president and principal stockholder or
related entities controlled by the president of the Company. Another facility
is leased to a limited partnership in which the general partner is the
Company's president and principal stockholder. These leases expire at various
dates through the year 2001. All of these agreements require the payment by
the Company of property taxes, maintenance and insurance. Total rent expense
paid to related parties and charged to current operations totaled $630,000,
$516,450 and $704,850 for the year ended July 31, 1997 and ten months ended
May 31, 1997 and 1998, respectively.
 
  In connection with the acquisition discussed in Note 10, the lease terms
with related parties have been renegotiated.
 
  The remaining lease agreements are with unrelated third parties. These
leases expire at various dates through the year 2006. Most of these agreements
contain certain renewal options and provide for first right of refusal toward
purchase. These agreements generally require the Company to pay all utilities,
insurance, taxes and maintenance. Total rent expense charged to operations on
unrelated third party leases for the year ended July 31, 1997 and ten months
ended May 31, 1997 and 1998 were $786,928, $609,674 and $644,800,
respectively.
 
                                     F-113

 
                            POWER RENTAL CO., INC.
 
                  NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
 
                                 JULY 31, 1997
          (THE INFORMATION AS OF MAY 31, 1998 AND FOR THE TEN MONTHS
                   ENDED MAY 31, 1997 AND 1998 IS UNAUDITED)
 
  Some leases include scheduled base rent increases over the term of the
leases. The total amount of the base rent payments is being charged to expense
on a straight-line method over the terms of the leases. The Company recorded a
liability for deferred rent to reflect the excess of rent expense over cash
payments which is included in the accompanying balance sheets.
 
  The future minimum lease commitments under all unrelated third party
operating leases that have noncancellable lease terms in excess of one year
are as follows:
 
                       
              Fiscal 1998.............. $  868,660
                 1999..................    667,360
                 2000..................    586,600
                 2001..................    449,440
                 2002..................    317,940
                 Thereafter............    399,030
                                        ----------
                                        $3,289,030
                                        ==========

              
 
  At July 31, 1997 and May 31, 1998 the Company was contingently liable as a
guarantor on bank loans in the amount of $1,662,098 and $1,516,740,
respectively, owed to the bank by its president and principal stockholder.
These bank loans are also secured by substantial personal and real property
assets of such stockholder.
 
8. SUPPLEMENTAL CASH FLOW INFORMATION
 
  For the year ended July 31, 1997 and the ten months ended May 31, 1997 and
1998, total interest paid was $2,019,792, $1,588,185 and $2,394,938,
respectively.
 
  For the year ended July 31, 1997 and the ten months ended May 31, 1997 and
1998, total taxes paid was $899,655, $899,655 and $0, respectively.
 
  For the year ended July 31, 1997 and the ten months ended May 31, 1997 and
1998, the Company purchased $17,555,968, $12,719,662 and $13,971,123,
respectively, of equipment which was financed.
 
9. EMPLOYEE BENEFIT PLAN
 
  The Company has a defined contribution 401(k) pension plan which covers
substantially all employees. The Company makes discretionary contributions.
Company contributions to the plan were $300,000, $300,000 and $0 for the year
ended July 31, 1997 and for the ten months ended May 31, 1997 and 1998,
respectively.
 
10. SUBSEQUENT EVENT
 
  On June 8, 1998, under the terms of the stock purchase agreement, United
purchased all of the issued and outstanding capital stock of the Company.
 
                                     F-114

 
                        REPORT OF INDEPENDENT AUDITORS
 
Board of Directors BNR Group of Companies
 
  We have audited the combined balance sheets of BNR Group of Companies as at
March 31, 1996 and 1997 and the combined statements of earnings, stockholders'
equity and cash flows for the years then ended. These combined financial
statements are the responsibility of the companies' management. Our
responsibility is to express an opinion on these combined financial statements
based on our audits.
 
  We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation.
 
  In our opinion, these combined financial statements present fairly, in all
material respects, the combined financial position of BNR Group of Companies
as at March 31, 1996 and 1997 and the results of their operations and their
cash flows for the years then ended in accordance with generally accepted
accounting principles in Canada.
 
  Generally accepted accounting principles in Canada vary in certain
significant respects from generally accepted accounting principles in the
United States. Application of generally accepted accounting principles in the
United States would have affected results of operations for the years ended
March 31, 1996 and 1997 and stockholders' equity as at March 31, 1996 and
March 31, 1997 to the extent summarized in note 14 to the combined financial
statements.
 
                                          /s/ KPMG
Chartered Accountants
 
Waterloo, Canada
February 3, 1998
 
                                     F-115

 
                             BNR GROUP OF COMPANIES
 
                            COMBINED BALANCE SHEETS
                    (AMOUNTS EXPRESSED IN CANADIAN DOLLARS)
 


                                            MARCH 31,   MARCH 31,  DECEMBER 31,
                                              1996        1997         1997
                                            ---------  ----------- ------------
                                                                   (UNAUDITED)
                                                          
ASSETS
Current assets:
  Cash.................................... $    45,817 $    62,471 $    36,157
  Trade accounts receivable (note 2)......   3,807,908   4,692,084   7,281,959
  Inventories.............................   1,744,367   1,897,021   2,276,311
  Income taxes recoverable................         --       81,808         --
  Prepaid expenses........................     116,844     128,343      85,937
                                           ----------- ----------- -----------
                                             5,714,936   6,861,727   9,680,364
Rental equipment (note 3).................   8,668,609  10,593,547  13,211,100
Fixed assets (note 4).....................     731,864     716,381   1,054,482
                                           ----------- ----------- -----------
                                           $15,115,409 $18,171,655 $23,945,946
                                           =========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Bank indebtedness (note 5).............. $   120,373 $   469,860 $ 1,469,042
  Short-term borrowings (note 5)..........   1,428,176   1,407,830   1,752,252
  Accounts payable........................   1,950,163   1,957,643   2,081,720
  Accrued liabilities.....................     946,688     686,351     433,945
  Income taxes payable....................      67,618         --      475,417
  Current portion of long-term debt (note
   6).....................................   1,618,749   2,390,758   3,233,715
                                           ----------- ----------- -----------
                                             6,131,767   6,912,442   9,446,091
Long-term debt (note 6)...................   2,250,744   3,467,720   4,369,061
Redeemable shares (note 7)................   4,534,975   4,424,975   4,424,975
Deferred income taxes.....................     681,518     975,570   1,385,392
Stockholders' equity:
  Share capital (note 8)..................      83,319      83,319      83,319
  Retained earnings.......................   1,433,086   2,307,629   4,237,108
                                           ----------- ----------- -----------
                                             1,516,405   2,390,948   4,320,427
                                           ----------- ----------- -----------
                                           $15,115,409 $18,171,655 $23,945,946
                                           =========== =========== ===========

 
 
            See accompanying notes to combined financial statements.
 
                                     F-116

 
                             BNR GROUP OF COMPANIES
 
                        COMBINED STATEMENTS OF EARNINGS
                    (AMOUNTS EXPRESSED IN CANADIAN DOLLARS)
 


                                                       NINE MONTHS  NINE MONTHS
                               YEAR ENDED  YEAR ENDED     ENDED        ENDED
                                MARCH 31,   MARCH 31,  DECEMBER 31, DECEMBER 31,
                                  1996        1997         1996         1997
                               ----------  ----------  ------------ ------------
                                                       (UNAUDITED)  (UNAUDITED)
                                                        
Revenues:
  Rental revenue.............  $ 9,286,562 $10,873,631 $ 9,333,864  $11,481,757
  Sales of equipment, parts
   and supplies..............   12,276,498  15,829,146  12,292,494   15,836,495
  Other......................      847,000     788,306     682,980      757,443
                               ----------- ----------- -----------  -----------
                                22,410,060  27,491,083  22,309,338   28,075,695
Cost of revenues:
  Cost of equipment rentals,
   excluding equipment rental
   depreciation..............    4,352,621   5,277,966   4,103,508    5,282,162
  Depreciation on rental
   equipment.................    1,609,690   1,936,254   1,451,671    1,715,542
  Cost of sales, equipment,
   parts and supplies........    8,883,214  11,818,715   9,303,777   11,832,825
                               ----------- ----------- -----------  -----------
                                14,845,525  19,032,935  14,858,956   18,830,529
                               ----------- ----------- -----------  -----------
Gross profit.................    7,564,535   8,458,148   7,450,382    9,245,166
Selling, general and adminis-
 tration.....................    5,728,380   6,386,710   4,528,911    5,623,444
Non-rental depreciation......       71,748      78,354      56,903      123,246
                               ----------- ----------- -----------  -----------
Operating earnings...........    1,764,407   1,993,084   2,864,568    3,498,476
Interest expense.............      565,106     691,559     514,503      517,347
                               ----------- ----------- -----------  -----------
Earnings before income tax-
 es..........................    1,199,301   1,301,525   2,350,065    2,981,129
Income taxes (note 9):
  Current....................      245,436     132,930     480,220      637,328
  Deferred...................      118,677     294,052     288,251      409,822
                               ----------- ----------- -----------  -----------
                                   364,113     426,982     768,471    1,047,150
                               ----------- ----------- -----------  -----------
Net earnings.................  $   835,188 $   874,543 $ 1,581,594  $ 1,933,979
                               =========== =========== ===========  ===========

 
 
            See accompanying notes to combined financial statements.
 
                                     F-117

 
                             BNR GROUP OF COMPANIES
 
                  COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY
                    (AMOUNTS EXPRESSED IN CANADIAN DOLLARS)
 


                                                  SHARE   RETAINED
                                                 CAPITAL  EARNINGS     TOTAL
                                                 ------- ----------  ----------
                                                            
Balances, at March 31, 1995..................... $83,319 $  597,898  $  681,217
Net earnings....................................     --     835,188     835,188
                                                 ------- ----------  ----------
Balances, at March 31, 1996.....................  83,319  1,433,086   1,516,405
Net earnings....................................     --     874,543     874,543
                                                 ------- ----------  ----------
Balances, at March 31, 1997.....................  83,319  2,307,629   2,390,948
Net earnings (unaudited)........................     --   1,933,979   1,933,979
Dividends (unaudited)...........................     --      (4,500)     (4,500)
                                                 ------- ----------  ----------
Balances, at December 31, 1997 (unaudited)...... $83,319 $4,237,108  $4,320,427
                                                 ======= ==========  ==========

 
 
 
 
            See accompanying notes to combined financial statements.
 
                                     F-118

 
                             BNR GROUP OF COMPANIES
 
                       COMBINED STATEMENTS OF CASH FLOWS
                    (AMOUNTS EXPRESSED IN CANADIAN DOLLARS)
 


                                                       NINE MONTHS   NINE MONTHS
                             YEAR ENDED   YEAR ENDED      ENDED         ENDED
                              MARCH 31,    MARCH 31,   DECEMBER 31,  DECEMBER 31,
                                1996         1997          1996          1997
                             ----------   ----------   ------------  ------------
                                                       (UNAUDITED)   (UNAUDITED)
                                                         
Cash flows from operating
 activities:
Net earnings...............  $   835,188  $   874,543  $ 1,581,594   $ 1,933,979
Items not involving cash:
  Depreciation and amorti-
   zation..................    1,681,438    2,014,608    1,508,574     1,838,788
  Gain on disposal of
   rental equipment........     (639,271)    (839,394)    (725,213)     (764,999)
  Gain on disposal of fixed
   assets..................      (44,016)         --           --            --
  Deferred income taxes....      118,677      294,052      288,251       409,822
Change in operating assets:
  Accounts receivable......     (894,464)    (884,176)  (2,814,394)   (2,589,875)
  Inventories..............     (613,126)    (152,654)    (186,602)     (379,290)
  Prepaid expenses.........      (63,687)     (11,499)       3,516        42,406
  Accounts payable.........      408,768        7,480     (209,735)      124,077
  Accrued liabilities......      387,747     (260,337)    (600,645)     (252,406)
  Income taxes.............        9,712     (149,426)     338,842       557,225
                             -----------  -----------  -----------   -----------
                               1,186,966      893,197     (815,812)      919,727
Cash flows from investing
 activities:
  Purchase of rental equip-
   ment....................   (5,523,247)  (7,355,356)  (6,419,981)   (7,976,473)
  Proceeds on disposal of
   rental equipment........    2,900,664    4,333,558    3,489,908     4,408,377
  Purchase of fixed as-
   sets....................      (91,794)     (62,871)     (50,489)     (461,347)
  Proceeds on disposal of
   fixed assets............       52,648          --           --            --
                             -----------  -----------  -----------   -----------
                              (2,661,729)  (3,084,669)  (2,980,562)   (4,029,443)
Cash flows from financing
 activities:
  Net advance (repayment)
   of bank indebtedness....       23,618      349,487    1,256,010       344,422
  Net borrowings
   (repayment) on short-
   term borrowings.........      188,093      (20,346)     338,414       999,182
  Borrowings on long-term
   debt....................    2,172,871    2,894,173    3,066,515     2,998,826
  Payments on long-term
   debt....................     (673,795)    (905,188)    (783,925)   (1,254,528)
  Repayment of shareholder
   loans...................      (41,180)         --           --            --
  Issuance of share capi-
   tal.....................       69,520          --           --            --
  Dividends................          --           --           --         (4,500)
  Redemption of Class B
   special shares..........     (229,725)    (110,000)    (110,000)          --
                             -----------  -----------  -----------   -----------
                               1,509,402    2,208,126    3,767,014     3,083,402
                             -----------  -----------  -----------   -----------
Increase (decrease) in
 cash......................       34,639       16,654      (29,360)      (26,314)
Cash, beginning of period..       11,178       45,817       45,817        62,471
                             -----------  -----------  -----------   -----------
Cash, end of period........  $    45,817  $    62,471  $    16,457   $    36,157
                             ===========  ===========  ===========   ===========
Supplemental Schedule of
 Cash Flow Information:
  Cash paid during the pe-
   riod for interest.......  $   565,106  $   691,559  $   514,503   $   517,347
  Cash paid during the
   period for income
   taxes...................      231,521      332,816      183,030       143,383
                             ===========  ===========  ===========   ===========

 
            See accompanying notes to combined financial statements.
 
                                     F-119

 
                            BNR GROUP OF COMPANIES
 
                    NOTES TO COMBINED FINANCIAL STATEMENTS
                    (AMOUNTS EXPRESSED IN CANADIAN DOLLARS)
 
                            MARCH 31, 1996 AND 1997
(The information as at December 31, 1997 and for the nine months ended
December 31, 1996 and 1997 is unaudited)
 
1. SIGNIFICANT ACCOUNTING POLICIES:
 
 (a)  Basis of presentation:
 
  The accompanying combined financial statements are presented in accordance
with accounting principles generally accepted in Canada (Canadian GAAP).
 
  The combined financial statements include the accounts of BNR Equipment
Limited (BNR Kitchener), 754643 Ontario Limited (BNR Ottawa), 650310 Ontario
Limited (BNR Barrie), 766903 Ontario Inc. (BNR Owen Sound) and BNR Equipment,
Inc. (BNR Amherst).
 
  As more fully described in note 15, on January 22, 1998, all of the
aforementioned companies were acquired by United Rentals, Inc. in a single
common transaction and, accordingly, these financial statements have been
prepared on a combined basis.
 
  Each of the companies rents and sells industrial supplies and power
equipment. All significant intercompany accounts and transactions have been
eliminated on combination.
 
  These financial statements are prepared on the basis of their predecessor
historical costs and do not include any adjustments that may result on the
acquisition of the BNR Group of Companies by United Rentals, Inc. as more
fully described in note 15.
 
 (b) Interim financial statements:
 
  The accompanying combined balance sheets and statements of stockholders'
equity at December 31, 1997 and the combined statements of earnings,
stockholders' equity and cash flows for the nine month periods ended December
31, 1996 and 1997 are unaudited and have been prepared on a basis that is
consistent with the audited combined financial statements included herein. In
the opinion of management, such unaudited combined financial statements
include all adjustments necessary to present fairly the information set forth
therein, which consist solely of normal recurring adjustments. The results of
operations for such interim periods are not necessarily indicative of results
for the full year.
 
 (c) Revenue recognition:
 
  Revenue related to the sale of industrial supplies and power equipment is
recognized at the point of sale. Revenue related to the rental of industrial
power equipment is recognized ratably over the contract term. The companies
generally rent equipment under short-term agreements of one month or less.
 
 (d) Inventories:
 
  Inventories consisting primarily of power tools, industrial supplies and
power equipment are valued at the lower of cost (first-in, first-out basis)
and net realizable value.
 
 (e) Foreign currency translation:
 
  Monetary assets and liabilities of the companies, which are denominated in
foreign currencies, are translated into Canadian dollars at exchange rates
prevailing at the balance sheet date. Exchange gains and losses resulting from
the translation of these amounts are reflected in the combined statement of
earnings in the period in which they occur.
 
                                     F-120

 
                            BNR GROUP OF COMPANIES
 
              NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
                    (AMOUNTS EXPRESSED IN CANADIAN DOLLARS)
 
 
 (f) Rental equipment, fixed assets and depreciation:
 
  Rental equipment and fixed assets are stated at acquisition cost.
Depreciation is provided using the following methods and annual rates:
 


       ASSET                                                    BASIS       RATE
       -----                                                    -----       ----
                                                                      
   Rental equipment...................................... Declining balance  15%
   Buildings............................................. Declining balance   5%
   Office and shop equipment............................. Declining balance  20%
   Signs................................................. Declining balance  20%
   Vehicles.............................................. Declining balance  20%
   Parking lot........................................... Declining balance   8%
   Leasehold improvements................................     Straight-line  20%

 
 (g) Deferred income taxes:
 
  The companies account for income taxes on the deferred tax allocation
method. Under this method, timing differences between reported and taxable
income result in provisions for taxes not currently payable. Such timing
differences arise principally as a result of claiming depreciation and other
amounts for tax purposes at amounts differing from those charged to income.
 
 (h) Use of estimates:
 
  The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
 
2. TRADE ACCOUNTS RECEIVABLE:
 
  Trade accounts receivable are net of allowances for doubtful accounts of
$nil at March 31, 1996, $68,966 at March 31, 1997 and $215,591 at December 31,
1997.
 
3. RENTAL EQUIPMENT:
 


                                             MARCH 31,   MARCH 31,  DECEMBER 31,
                                               1996        1997         1997
                                            ----------- ----------- ------------
                                                                    (UNAUDITED)
                                                           
   Rental equipment........................ $18,335,170 $22,133,208 $26,466,262
   Less accumulated depreciation...........   9,666,561  11,539,661  13,255,162
                                            ----------- ----------- -----------
                                            $ 8,668,609 $10,593,547 $13,211,100
                                            =========== =========== ===========

 
 
                                     F-121

 
                            BNR GROUP OF COMPANIES
 
              NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
                    (AMOUNTS EXPRESSED IN CANADIAN DOLLARS)
 
4. FIXED ASSETS:
 


                                              MARCH 31,  MARCH 31,  DECEMBER 31,
                                                 1996       1997        1997
                                              ---------- ---------- ------------
                                                                    (UNAUDITED)
                                                           
   Land.....................................  $  201,600 $  201,600  $  201,600
   Buildings................................     617,977    617,977     623,066
   Office and shop equipment................     319,208    337,252     363,774
   Signs....................................      17,426     19,163      23,884
   Vehicles.................................      53,020     53,020     388,361
   Parking lot..............................         --       7,560      26,448
   Leasehold improvements...................     145,646    181,176     251,962
                                              ---------- ----------  ----------
                                               1,354,877  1,417,748   1,879,095
   Less accumulated depreciation and amorti-
    zation..................................     623,013    701,367     824,613
                                              ---------- ----------  ----------
                                              $  731,864 $  716,381  $1,054,482
                                              ========== ==========  ==========

 
5. BANK INDEBTEDNESS AND SHORT-TERM BORROWINGS:
 
  Bank indebtedness and short-term borrowings bear interest rates between
prime plus .50% to prime plus .75% and are secured by a general assignment of
book debts, security agreement over all inventories, first collateral
mortgages and demand debenture over land and buildings, a fixed charge and a
chattel mortgage over certain equipment and an assignment of fire insurance
over buildings and equipment.
 
6. LONG-TERM DEBT:
 


                                            MARCH 31,  MARCH 31,  DECEMBER 31,
                                               1996       1997        1997
                                            ---------- ---------- ------------
                                                                  (UNAUDITED)
                                                         
   Bank loans, various term loans with
    combined monthly payments of $123,078
    (as at December 31, 1997) including
    interest ranging from prime plus 1% to
    prime plus 1.75% due from 1998 through
    2001. Collateralized by certain
    equipment and fixed assets............  $1,662,704 $2,406,572 $2,021,641
   Lien notes, various notes with combined
    monthly payments of $300,956 (as at
    December 31, 1997) including interest
    ranging from prime plus 1.25% to prime
    plus 2%, due from 1998 through 2001.
    Collateralized by specific equipment
    ......................................   2,136,540  3,288,692   5,062,094
   Other notes, various notes with
    combined monthly payments of $26,106
    (as at December 31, 1997) including
    interest ranging from 2.9% to 10%, due
    from 1998 through 2000. Collateralized
    by specific equipment and vehicles....      70,249    163,214     519,041
                                            ---------- ----------  ----------
                                             3,869,493  5,858,478   7,602,776
   Current portion of long-term debt......   1,618,749  2,390,758   3,233,715
                                            ---------- ----------  ----------
                                            $2,250,744 $3,467,720  $4,369,061
                                            ========== ==========  ==========

 
                                     F-122

 
                             BNR GROUP OF COMPANIES
 
              NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
                    (AMOUNTS EXPRESSED IN CANADIAN DOLLARS)
 
 
6. LONG-TERM DEBT (CONTINUED):
 
  Annual principal payments over each of the next four years are as follows:
 


                               MARCH 31,  DECEMBER 31,
                                 1997         1997
                              ----------- ------------
                                          (UNAUDITED)
                                    
             1998............ $ 2,390,758 $ 3,233,715
             1999............   1,878,097   2,696,223
             2000............   1,280,955   1,448,045
             2001............     308,668     224,793
                              ----------- -----------
                              $ 5,858,478 $ 7,602,776
                              =========== ===========

 
7. REDEEMABLE SHARES:
 


                           MARCH 31,         MARCH 31,       DECEMBER 31,
                             1996              1997              1997
                       ----------------- ----------------- ----------------- -------
                                                              (UNAUDITED)
                          #        $        #        $        #        $
                       ------- --------- ------- --------- ------- ---------
                                                         
BNR EQUIPMENT LIMITED (BNR
 KITCHENER)
Authorized:
 Unlimited number of
  Class A special
  shares, non-voting,
  redeemable
 Unlimited number of
  Class B special
  shares, non-voting,
  redeemable
Issued:
 Class B special
  shares.............. 875,975   875,975 765,975   765,975 765,975   765,975
754643 ONTARIO LIMITED (BNR
 OTTAWA)
Authorized:
 Unlimited number of
  special shares, non-
  voting, redeemable
Issued:
 Special shares....... 159,000   159,000 159,000   159,000 159,000   159,000
650310 ONTARIO LIMITED (BNR
 BARRIE)
Authorized:
 Unlimited number of
  Class C special
  shares, non-voting,
  redeemable
  Unlimited number of
  Class D special
  shares, non-voting,
  redeemable
Issued:
 Class C special
  shares..............   1,000 2,315,000   1,000 2,315,000   1,000 2,315,000
 Class D special
  shares.............. 185,000   185,000 185,000   185,000 185,000   185,000
766903 ONTARIO INC. (BNR OWEN
 SOUND)
 Authorized:
 Unlimited number of
  Class C special
  shares, non-voting,
  redeemable
Issued:
 Class C special
  shares..............   1,000 1,000,000   1,000 1,000,000   1,000 1,000,000
                               ---------         ---------         ---------
                               4,534,975         4,424,975         4,424,975
                               =========         =========         =========

 
 
                                     F-123

 
                            BNR GROUP OF COMPANIES
 
              NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
                    (AMOUNTS EXPRESSED IN CANADIAN DOLLARS)
 
7. REDEEMABLE SHARES (CONTINUED)
 
  (a) Certain of the BNR Group of Companies have issued special shares, Class
B special shares and Class D special shares which are redeemable at the
holders option at $1 per share. Under Canadian generally accepted accounting
principles, these shares are presented as liabilities in the combined
financial statements at their redemption amounts.
 
  (b) Certain of the BNR Group of Companies have issued Class C special shares
which are redeemable at the holders option at a fixed amount which is in
excess of their stated capital amounts. Under Canadian generally accepted
accounting principles, these Class C special shares are presented as
liabilities in the combined financial statements at their redemption amounts.
The excess of their redemption amounts over their paid-up capital amounts of
$3,314,990 has been charged to retained earnings.
 
  (c) The special shares, Class B special shares, Class C special shares and
Class D special shares have no fixed redemption date and are redeemable at the
option of the holder. Dividends on these shares are discretionary. In the
event of liquidation, dissolution, or wind up of the companies, holders of
these shares are entitled to receive, in priority to all other classes, an
amount equal to the redemption amount plus any declared and unpaid dividends.
 
  (d) Between May 8, 1995 and January 18, 1996, BNR Equipment Limited (BNR
Kitchener) redeemed 229,725 Class B special shares for $229,725.
 
  Between April 18, 1996 and July 15, 1996, BNR Equipment Limited (BNR
Kitchener) redeemed 110,000 Class B special shares for $110,000.
 
 
                                     F-124

 
                             BNR GROUP OF COMPANIES
 
              NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
                    (AMOUNTS EXPRESSED IN CANADIAN DOLLARS)
 
8. SHARE CAPITAL:
 


                                   MARCH 31,    MARCH 31,   DECEMBER 31,
                                      1996         1997         1997
                                  ------------ ------------ ------------ -------
                                                            (UNAUDITED)
                                    #     $      #     $      #     $
                                  ----- ------ ----- ------ ----- ------
                                                     
BNR EQUIPMENT LIMITED (BNR
 KITCHENER)
Authorized:
  Unlimited number of common
   shares
Issued:
  Common shares.................  6,000 13,693 6,000 13,693 6,000 13,693
754643 ONTARIO LIMITED (BNR OT-
 TAWA)
Authorized:
  Unlimited number of common
   shares
Issued:
  Common shares.................    100    100   100    100   100    100
650310 ONTARIO LIMITED (BNR
 BARRIE)
Authorized:
  Unlimited number of Class A
   common shares................
  Unlimited number of Class B
   convertible common shares....
Issued:
  Class B convertible common
   shares.......................    600      1   600      1   600      1
766903 ONTARIO INC. (BNR OWEN
 SOUND)
Authorized:
  Unlimited number of Class A
   common shares................
  Unlimited number of Class B
   convertible common shares....
Issued:
  Class B convertible common
   shares.......................  1,000      5 1,000      5 1,000      5
BNR EQUIPMENT INC. (BNR AMHERST)
Authorized:
  Unlimited number of common
   shares
Issued:
  Common shares.................    100 69,520   100 69,520   100 69,520
                                        ------       ------       ------
                                        83,319       83,319       83,319
                                        ======       ======       ======

 
  The Class B convertible common shares are convertible into an equivalent
number of Class A common shares for no additional consideration.
 
                                     F-125

 
                            BNR GROUP OF COMPANIES
 
              NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
                    (AMOUNTS EXPRESSED IN CANADIAN DOLLARS)
 
 
9. INCOME TAXES:
 
  The effective income tax rate differs from the statutory rate that would be
obtained by applying the combined basic federal, state and provincial tax rate
to earnings before income taxes. These differences result from the following
items:
 


                                  MARCH 31, MARCH 31, DECEMBER 31, DECEMBER 31,
                                    1996      1997        1996         1997
                                  --------- --------- ------------ ------------
                                                      (UNAUDITED)  (UNAUDITED)
                                                       
   Combined basic federal, state
    and provincial tax rate.....     44.6%    44.6%       44.6%        44.6%
   Increase (decrease) in income
    tax rate resulting from:
   Tax reductions to certain
    private companies...........    (12.0)    (9.9)      (11.3)       (10.0)
   Other permanent differences..     (2.2)    (1.9)        (.6)          .5
                                    -----     ----       -----        -----
   Effective income tax rate....     30.4%    32.8%       32.7%        35.1%
                                    =====     ====       =====        =====

 
10. COMMITMENTS:
 
  The companies are committed to payments under operating leases for
equipment, vehicles and buildings. Annual payments over each of the next five
years are as follows:
 


                               MARCH 31,  DECEMBER 31,
                                  1997        1997
                               ---------- ------------
                                          (UNAUDITED)
                                    
             1998............  $  789,000  $  620,000
             1999............     446,000     522,000
             2000............     275,000     361,000
             2001............     122,000     238,000
             2002............      54,000     148,000
                               ----------  ----------
                               $1,686,000  $1,889,000
                               ==========  ==========

 
11. FINANCIAL INSTRUMENTS:
 
  The carrying value of the companies' trade accounts receivable, bank
indebtedness, accounts payable, accrued liabilities, short-term borrowings and
redeemable shares approximate their fair values due to their demand nature or
relatively short periods to maturity.
 
  The fair value of the companies' long-term debt have been determined to be
equal to their carrying values, as the current financing arrangements
represent the borrowing rate presently available to the companies for loans
with similar terms and maturities.
 
                                     F-126

 
                            BNR GROUP OF COMPANIES
 
              NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
                    (AMOUNTS EXPRESSED IN CANADIAN DOLLARS)
 
 
12. RELATED PARTY TRANSACTIONS:
 
  (a) The companies rent certain premises from officers and stockholders of
the companies.
 
  The following are the amounts that have been expensed in each of the
periods:
 
                              
             March 31, 1997.................. $202,081
             December 31, 1997 (unaudited)...  164,498

             
 
  (b) Included in note 10 are operating lease commitments with a company
controlled by certain stockholders:
 
  The following are the amounts that have been expensed in each of the
periods:
 
                               
             March 31, 1997................... $57,523
             December 31, 1997 (unaudited)....  57,391

             
 
13. NATURE OF OPERATIONS AND SEGMENT INFORMATION:
 
  The companies only significant activity is the rental and sale of industrial
supplies and power equipment. Geographically segmented information is as
follows:
 


                                    CANADA             UNITED STATES                TOTAL
                                   MARCH 31,             MARCH 31,                MARCH 31,
                            ----------------------- ---------------------  -----------------------
          YEAR ENDED           1996        1997       1996        1997        1996        1997
   ------------------------ ----------- ----------- ---------  ----------  ----------- -----------
                                                                     
   Revenues................ $21,812,899 $24,746,282 $ 597,161  $2,744,801  $22,410,060 $27,491,083
   Operating earnings
    (loss).................   1,922,641   1,996,754  (158,234)     (3,670)   1,764,407   1,993,084
   Identifiable net
    assets.................   1,307,530   1,821,554   208,875     569,394    1,516,405   2,390,948

 


                                            CANADA    UNITED STATES    TOTAL
                                         DECEMBER 31, DECEMBER 31,  DECEMBER 31,
                                         ------------ ------------- ------------
             NINE MONTHS ENDED               1997         1997          1997
   ------------------------------------- ------------ ------------- ------------
                                         (UNAUDITED)   (UNAUDITED)  (UNAUDITED)
                                                           
   Revenues............................. $24,447,526   $3,628,169   $28,075,695
   Operating earnings...................   3,137,274      361,202     3,498,476
   Identifiable net assets..............   3,251,422    1,069,005     4,320,427

 
14. UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES:
 
  The companies follow Canadian generally accepted accounting principles which
are different in some respects from those applicable in the United States.
 
  (a) Since redemption of the shares described in note 7 is outside the
control of the companies, the shares are classified as liabilities under
Canadian GAAP. For U.S. GAAP purposes, such redeemable shares can be
classified outside stockholders' equity and below liabilities. This
classification difference has no impact on net income or stockholders' equity
for U.S. GAAP purposes.
 
  (b) The income tax provision is based on the deferral method and adjustments
are generally not made for changes in income tax rates. Under U.S. GAAP,
deferred tax liabilities are measured using the enacted tax rate expected to
apply to taxable income in the periods in which the deferred tax liability is
expected to be settled.
 
 
                                     F-127

 
                            BNR GROUP OF COMPANIES
 
              NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
                    (AMOUNTS EXPRESSED IN CANADIAN DOLLARS)
 
 
14. UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (CONTINUED):
 
  The deferred income tax liability under U.S. GAAP as compared to Canadian
GAAP consists of the following temporary differences:
 


                                                YEAR       YEAR    NINE MONTHS
                                               ENDED      ENDED       ENDED
                                             MARCH 31,  MARCH 31,  DECEMBER 31,
                                                1996       1997        1997
                                             ---------- ---------- ------------
                                                                   (UNAUDITED)
                                                          
   Rental Equipment and Fixed Assets--
   Tax depreciation in excess of book
    depreciation--
    For U.S. GAAP........................... $1,257,257 $1,518,790  $1,833,228
    For Canadian GAAP.......................    681,518    975,570   1,385,392

 
  (c) The following table presents a reconciliation of net earnings from
Canadian GAAP to U.S. GAAP:
 


                                     YEAR       YEAR    NINE MONTHS  NINE MONTHS
                                     ENDED      ENDED      ENDED        ENDED
                                   MARCH 31,  MARCH 31, DECEMBER 31, DECEMBER 31,
                                     1996       1997        1996         1997
                                   ---------  --------- ------------ ------------
                                                        (UNAUDITED)  (UNAUDITED)
                                                         
   Net earnings under Canadian
    GAAP.........................  $835,188   $874,543   $1,581,594   $1,933,979
   Income tax adjustment under
    the asset and liability
    method.......................   (66,853)    32,519       56,922       95,384
                                   --------   --------   ----------   ----------
   Net earnings under U.S. GAAP..  $768,335   $907,062   $1,638,516   $2,029,363
                                   ========   ========   ==========   ==========

 
  (d) The following table presents stockholders' equity under U.S. GAAP:
 


                                              YEAR        YEAR     NINE MONTHS
                                             ENDED       ENDED        ENDED
                                           MARCH 31,   MARCH 31,   DECEMBER 31,
                                              1996        1997         1997
                                           ----------  ----------  ------------
                                                                   (UNAUDITED)
                                                          
   Stockholders' equity under Canadian
    GAAP.................................. $1,516,405  $2,390,948   $4,320,427
   Income tax adjustment under the asset
    and liability method..................   (575,739)   (543,220)    (447,836)
   Stockholders' equity under U.S. GAAP...    940,666   1,847,728    3,872,591

 
15. SUBSEQUENT EVENT:
 
  On January 22, 1998, all of the outstanding capital stock was acquired by
United Rentals, Inc. All of the shares described in note 7 and all of the
shares described in note 8, except for the shares of the U.S. company BNR
Equipment, Inc. (BNR Amherst) were cancelled and these Canadian companies of
the BNR Group of Companies amalgamated with United Rentals of Canada, Inc. on
January 30, 1998. Subsequent to December 31, 1997 and prior to the acquisition
by United Rentals, Inc., land and buildings with a carrying value of
approximately $500,000 were acquired by certain of the BNR Group of Companies'
stockholders for cash of $665,000 which was used by the companies to repay the
companies' debt. At the same time, the companies entered into operating lease
agreements with the stockholders with respect to these land and buildings.
 
                                     F-128

 
                        REPORT OF INDEPENDENT AUDITORS
 
Board of Directors and Stockholders
Adco Equipment, Inc.
 
  We have audited the combined balance sheet of Adco Equipment, Inc. (see Note
1) (the "Companies") as of December 31, 1997 and the related combined
statements of operations, stockholders' equity and cash flows for the year
then ended. These financial statements are the responsibility of the
Companies' management. Our responsibility is to express an opinion on these
financial statements based on our audit.
 
  We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
 
  In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined financial position of Adco
Equipment, Inc. at December 31, 1997, and the combined results of their
operations and their cash flows for the year then ended in conformity with
generally accepted accounting principles.
 
                                          /s/ Ernst & Young LLP
 
MetroPark, New Jersey
July 17, 1998
 
                                     F-129

 
                              ADCO EQUIPMENT, INC.
 
                            COMBINED BALANCE SHEETS
 


                                                         DECEMBER
                                                            31,      JUNE 30,
                        ASSETS                             1997        1998
                        ------                          ----------- -----------
                                                                    (UNAUDITED)
                                                              
Cash................................................... $ 1,634,205 $ 2,890,453
Accounts receivable, net of allowance for doubtful
 accounts of $322,000 at 1997 and 1998.................   2,350,314   3,679,084
Inventory..............................................   1,263,667   1,372,957
Rental equipment, net..................................   8,227,480   8,597,740
Property and equipment, net............................     891,894     821,862
Prepaid expenses and other assets......................      60,172      61,127
                                                        ----------- -----------
    Total assets....................................... $14,427,732 $17,423,223
                                                        =========== ===========

         LIABILITIES AND STOCKHOLDERS' EQUITY
         ------------------------------------
                                                              
Liabilities:
  Accounts payable, accrued expenses and other
   liabilities......................................... $   849,960 $   725,516
  Debt.................................................   2,526,175   3,124,603
  Stockholder loan.....................................     200,000     200,000
                                                        ----------- -----------
    Total liabilities..................................   3,576,135   4,050,119
Commitments and contingencies
Stockholders' equity:
  Common stock, Adco Equipment, Inc., no par value,
   7,500 shares authorized, 100 issued and outstanding;
   Adco Equipment Supply, Inc., no par value, 7,500
   shares authorized, 1,000 issued and outstanding.....      20,000      20,000
  Retained earnings....................................  10,831,597  13,353,104
                                                        ----------- -----------
    Total stockholders' equity.........................  10,851,597  13,373,104
                                                        ----------- -----------
    Total liabilities and stockholders' equity......... $14,427,732 $17,423,223
                                                        =========== ===========

 
 
                            See accompanying notes.
 
                                     F-130

 
                              ADCO EQUIPMENT, INC.
 
                       COMBINED STATEMENTS OF OPERATIONS
 


                                                       SIX MONTHS ENDED JUNE
                                         YEAR ENDED             30,
                                          DECEMBER    ------------------------
                                          31, 1997       1997         1998
                                         -----------  -----------  -----------
                                                            (UNAUDITED)
                                                          
Revenues:
  Equipment rentals..................... $16,313,470  $ 8,461,446  $ 9,298,812
  Sales of parts, supplies and new
   equipment............................   6,968,972    3,619,348    4,012,727
                                         -----------  -----------  -----------
Total revenues..........................  23,282,442   12,080,794   13,311,539
Cost of revenues:
  Cost of equipment rentals, excluding
   equipment rental depreciation........   6,191,738    2,689,474    2,906,348
  Depreciation, equipment rentals.......   2,465,331    1,232,666    1,393,939
  Cost of parts, supplies and new
   equipment sales......................   5,932,862    3,111,352    3,467,749
                                         -----------  -----------  -----------
Total cost of revenues..................  14,589,931    7,033,492    7,768,036
                                         -----------  -----------  -----------
Gross profit............................   8,692,511    5,047,302    5,543,503
Selling, general and administrative
 expenses...............................   6,374,453    3,063,353    2,991,891
Non-rental depreciation.................     249,572      124,786      143,020
                                         -----------  -----------  -----------
Operating income........................   2,068,486    1,859,163    2,408,592
Interest expense........................     267,639      143,470      141,892
Other (income), net.....................    (226,501)    (116,398)    (254,807)
                                         -----------  -----------  -----------
    Net income.......................... $ 2,027,348  $ 1,832,091  $ 2,521,507
                                         ===========  ===========  ===========

 
 
                            See accompanying notes.
 
                                     F-131

 
                              ADCO EQUIPMENT, INC.
 
                  COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY
 


                                                      COMMON STOCK
                                                     --------------  RETAINED
                                                     SHARES AMOUNT   EARNINGS
                                                     ------ ------- -----------
                                                           
Balance at January 1, 1997.......................... 1,100  $20,000 $ 8,804,249
Net income..........................................                  2,027,348
                                                     -----  ------- -----------
Balance at December 31, 1997........................ 1,100   20,000  10,831,597
Net income (unaudited)..............................                  2,521,507
                                                     -----  ------- -----------
Balance at June 30, 1998 (unaudited)................ 1,100  $20,000 $13,353,104
                                                     =====  ======= ===========

 
 
 
 
 
                            See accompanying notes.
 
                                     F-132

 
                              ADCO EQUIPMENT, INC.
 
                       COMBINED STATEMENTS OF CASH FLOWS
 


                                                       SIX MONTHS ENDED JUNE
                                         YEAR ENDED             30,
                                        DECEMBER 31,  ------------------------
                                            1997         1997         1998
                                        ------------  -----------  -----------
                                                            (UNAUDITED)
                                                          
CASH FLOWS FROM OPERATING ACTIVITIES
Net income............................  $ 2,027,348   $ 1,832,091  $ 2,521,507
Adjustments to reconcile net income to
 net cash provided by operating
 activities:
  Depreciation........................    2,714,903     1,357,452    1,536,959
  Changes in assets and liabilities:
    Accounts receivable, net..........       22,910      (906,199)  (1,328,770)
    Inventory.........................      500,839       229,882     (109,290)
    Prepaid expenses and other
     assets...........................       (5,733)      (25,819)        (955)
    Accounts payable, accrued expenses
     and other liabilities............     (272,050)     (578,559)    (124,444)
                                        -----------   -----------  -----------
      Total adjustments...............    2,960,869        76,757      (26,500)
                                        -----------   -----------  -----------
      Cash provided by operating
       activities.....................    4,988,217     1,908,848    2,495,007
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of rental equipment..........   (3,451,755)   (1,797,573)  (1,764,199)
Purchase of property and equipment....     (400,350)      (61,723)     (72,988)
                                        -----------   -----------  -----------
Cash used in investing activities.....   (3,852,105)   (1,859,296)  (1,837,187)
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments on debt............   (1,712,003)     (773,727)  (1,250,521)
Borrowings on debt....................      867,886       649,784    1,848,949
                                        -----------   -----------  -----------
Cash (used in) provided by financing
 activities...........................     (844,117)     (123,943)     598,428
                                        -----------   -----------  -----------
Increase (decrease) in cash...........      291,995       (74,391)   1,256,248
Cash balance at beginning of period...    1,342,210     1,342,210    1,634,205
                                        -----------   -----------  -----------
Cash balance at end of period.........  $ 1,634,205   $ 1,267,819  $ 2,890,453
                                        ===========   ===========  ===========

 
 
                            See accompanying notes.
 
                                     F-133

 
                             ADCO EQUIPMENT, INC.
 
                    NOTES TO COMBINED FINANCIAL STATEMENTS
 
                               DECEMBER 31, 1997
          (THE INFORMATION AS OF JUNE 30, 1998 AND FOR THE SIX MONTHS
                  ENDED JUNE 30, 1997 AND 1998 IS UNAUDITED)
 
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
 Basis of Presentation
 
  The combined financial statements of Adco Equipment, Inc. include the
accounts of Adco Equipment, Inc. ("Equipment") and Adco Equipment Supply, Inc.
("Supply") (collectively the "Companies"). The Companies are affiliated
through common ownership. All significant intercompany accounts and
transactions have been eliminated in combination.
 
  These combined financial statements are prepared on a historical cost basis
and do not include any adjustments that may result from the acquisition of the
Companies by United Rentals, Inc. ("United") as more fully described in Note
9.
 
 Business Activity
 
  The Companies rent, sell and repair construction equipment for use by
construction, industrial, entertainment and municipal markets. The rentals are
on a daily, weekly or monthly basis. The Companies have two locations and
their principal market area is Southern California. The nature of the
Companies' business is such that short-term obligations are typically met by
cash flow generated from long-term assets. Consequently, consistent with
industry practice, the combined balance sheet is presented on an unclassified
basis.
 
 Interim Financial Statements
 
  The accompanying combined balance sheet at June 30, 1998 and the combined
statements of operations, stockholders' equity and cash flows for the six-
month periods ended June 30, 1997 and 1998 are unaudited and have been
prepared on the same basis as the audited combined financial statements
included herein. In the opinion of management, such unaudited combined
financial statements include all adjustments necessary to present fairly the
information set forth therein, which consist solely of normal recurring
adjustments. The combined results of operations for such interim period are
not necessarily indicative of results for the full year.
 
 Inventory
 
  Inventories consist primarily of general replacement parts and equipment
held for resale and are stated at the lower of cost, determined under the
first-in, first-out method, or market.
 
 Rental Equipment
 
  Rental equipment is recorded at cost. Depreciation for rental equipment is
computed using the straight-line method over an estimated five-year useful
life with no salvage value.
 
  Ordinary maintenance and repair costs are charged to operations as incurred.
Proceeds from the disposal and the related net book value of the equipment are
recognized in the period of disposal and reported as revenue from sales of
equipment and cost of sales of equipment, respectively, in the combined
statement of operations.
 
                                     F-134

 
                             ADCO EQUIPMENT, INC.
 
              NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
 
                               DECEMBER 31, 1997
          (THE INFORMATION AS OF JUNE 30, 1998 AND FOR THE SIX MONTHS
                  ENDED JUNE 30, 1997 AND 1998 IS UNAUDITED)
 
 Property and Equipment
 
  Property and equipment is stated at cost. Depreciation of property and
equipment is computed on the straight-line method over an estimated five-year
useful life.
 
  Ordinary maintenance and repair costs are charged to operations as incurred.
The cost of assets sold, retired, or otherwise disposed of, and the related
accumulated depreciation is eliminated from the accounts and any resulting
gain or loss is included in operations.
 
 Rental Revenue
 
  Rental revenue is recorded as earned under the operating method.
 
 Advertising Costs
 
  The Companies advertise primarily through trade journals, trade associations
and phone directories. All advertising costs are expensed as incurred.
Advertising expense amounted to approximately $50,800, $28,200 and $38,600 in
the year ended December 31, 1997 and for the six months ended June 30, 1997
and 1998, respectively .
 
 Income Taxes
 
  The Companies have elected, by unanimous consent of its shareholders, to be
taxed under the provisions of Subchapter S of the Internal Revenue Code for
federal purposes. Under those provisions, the Companies do not pay federal
income taxes; instead, the shareholders are liable for individual income taxes
on the Companies' profits.
 
 Accounting Estimates
 
  The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
 
2. CONCENTRATIONS OF CREDIT RISK
 
  The Companies maintain cash balances with a quality financial institution
and, consequently, management believes funds maintained there are secure.
Concentrations of credit risk with respect to customer receivables are limited
due to the large number of customers comprising the Companies' customer base
and its credit policy.
 
3. RENTAL EQUIPMENT
 
  Rental equipment and related accumulated depreciation consists of the
following:
 


                                                         DECEMBER    JUNE 30,
                                                         31, 1997      1998
                                                        ----------- -----------
                                                                    (UNAUDITED)
                                                              
      Rental equipment................................. $28,619,154 $30,383,353
      Less accumulated depreciation....................  20,391,674  21,785,613
                                                        ----------- -----------
      Rental equipment, net............................ $ 8,227,480 $ 8,597,740
                                                        =========== ===========

 
                                     F-135

 
                             ADCO EQUIPMENT, INC.
 
              NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
 
                               DECEMBER 31, 1997
          (THE INFORMATION AS OF JUNE 30, 1998 AND FOR THE SIX MONTHS
                  ENDED JUNE 30, 1997 AND 1998 IS UNAUDITED)
 
4. PROPERTY AND EQUIPMENT
 
  Property and equipment consists of the following:
 


                                                        DECEMBER 31,  JUNE 30,
                                                            1997        1998
                                                        ------------ -----------
                                                                     (UNAUDITED)
                                                               
      Transportation equipment.........................  $2,201,586  $2,274,574
      Furniture, fixtures and equipment................      48,820      48,820
                                                         ----------  ----------
                                                          2,250,406   2,323,394
      Less accumulated depreciation....................   1,358,512   1,501,532
                                                         ----------  ----------
      Property and equipment, net......................  $  891,894  $  821,862
                                                         ==========  ==========

 
5. DEBT AND STOCKHOLDER LOAN
 
  Debt and stockholder loan consists of the following:
 


                                                     DECEMBER 31,  JUNE 30,
                                                         1997        1998
                                                     ------------ -----------
                                                                  (UNAUDITED)
                                                            
      Bank of America--Various notes with combined
       monthly payments of $150,000 and $207,000 in
       1997 and 1998, respectively, including
       interest of 8%..............................   $2,526,175  $3,124,603
      Stockholder Loan--No set principal payments,
       nor due date. The loan accrues interest at a
       rate of 10.25% per year.....................      200,000     200,000
                                                      ----------  ----------
                                                      $2,726,175  $3,324,603
                                                      ==========  ==========

 
  Substantially all rental equipment collateralize the above Bank of America
notes which are secured by UCC Filings.
 
  All debt was paid off in July 1998 in connection with the acquisition
discussed in Note 9.
 
6. RELATED PARTY TRANSACTIONS
 
  During the year ended December 31, 1997 and the six months ended June 30,
1997 and 1998, the Companies paid $294,000, $147,000 and $147,000 for
equipment rental expenses to the principal stockholder.
 
  The Companies conduct their operations primarily from two separate
facilities which are owned by the Companies principal stockholder. These
leases expire at June 30, 1998. The Companies are required to pay the property
taxes, maintenance and insurance for these facilities. Total rent expense paid
to related parties and charged to current operations totaled $330,000,
$165,000 and $165,000 for the year ended December 31, 1997 and six months
ended June 30, 1997 and 1998, respectively.
 
  In connection with the acquisition discussed in Note 9, the lease terms with
related parties have been renegotiated.
 
                                     F-136

 
                             ADCO EQUIPMENT, INC.
 
              NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
 
                               DECEMBER 31, 1997
          (THE INFORMATION AS OF JUNE 30, 1998 AND FOR THE SIX MONTHS
                  ENDED JUNE 30, 1997 AND 1998 IS UNAUDITED)
 
7. SUPPLEMENTAL CASH FLOW INFORMATION
 
  For the year ended December 31, 1997 and the six months ended June 30, 1997
and 1998, total interest paid was approximately $267,600, $121,900 and
$106,900, respectively.
 
8. EMPLOYEE PROFIT SHARING PLAN
 
  Equipment maintains a profit-sharing plan which covers substantially all
employees. Equipment's contributions are discretionary and amounted to
$160,000, $0 and $0 for the year ended December 31, 1997 and for the six
months ended June 30, 1997 and 1998, respectively.
 
9. SUBSEQUENT EVENT
 
  On July 2, 1998, under the terms of the stock purchase agreement, United
purchased all of the issued and outstanding capital stock of the Companies.
 
                                     F-137

 
                       REPORT OF INDEPENDENT ACCOUNTANTS
 
To the Stockholders of McClinch, Inc.:
 
  We have audited the accompanying consolidated balance sheet of McClinch Inc.
and Subsidiaries as of January 31, 1998, and the related consolidated
statements of income and retained earnings and cash flows for the year then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
 
  We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
 
  In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of McClinch,
Inc. and Subsidiaries as of January 31, 1998, and the consolidated results of
their operations and their cash flows for the year then ended in conformity
with generally accepted accounting principles.
 
                                          Coopers & Lybrand L.L.P.
 
Stamford, Connecticut March 25, 1998
 
                                     F-138

 
                        MCCLINCH, INC. AND SUBSIDIARIES
 
                          CONSOLIDATED BALANCE SHEETS
 


                                                                   SIX MONTHS
                                                      YEAR ENDED      ENDED
                                                      JANUARY 31,   JULY 31,
                                                         1998         1998
                                                      -----------  -----------
                                                                   (UNAUDITED)
                                                             
                       ASSETS:
Cash and cash equivalents............................ $   754,000  $   697,000
Accounts receivable, less allowance for doubtful
 accounts of $106,000 and $128,000...................   4,168,000    4,697,000
Due from related parties (Note 6)....................     293,000      755,000
Inventories..........................................   1,181,000    1,276,000
Net investment in sales-type leases (Note 3).........      32,000       12,000
Property and rental equipment, net (Note 4)..........  17,249,000   21,163,000
Other assets.........................................     217,000      230,000
                                                      -----------  -----------
  Total assets....................................... $23,894,000  $28,830,000
                                                      ===========  ===========
                    LIABILITIES:
Notes payable (Note 5)............................... $10,388,000  $14,083,000
Accounts payable and accrued expenses................   1,759,000    1,334,000
Income taxes payable.................................       1,000       79,000
Deferred income taxes................................   2,476,000    2,836,000
                                                      -----------  -----------
  Total liabilities..................................  14,624,000   18,332,000
                                                      -----------  -----------
Commitments (Note 9)
                STOCKHOLDERS' EQUITY:
Common stock, no par value; authorized, issued and
 outstanding, 1,000 shares...........................      26,000       26,000
Retained earnings....................................   9,862,000   11,090,000
Treasury stock, at cost; 103 shares (Note 6).........    (618,000)    (618,000)
                                                      -----------  -----------
  Total stockholders' equity.........................   9,270,000   10,498,000
                                                      -----------  -----------
  Total liabilities and stockholders' equity......... $23,894,000  $28,830,000
                                                      ===========  ===========

 
 
   The accompanying notes are an integral part of the consolidated financial
                                  statements.
 
                                     F-139

 
                        MCCLINCH, INC. AND SUBSIDIARIES
 
            CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
 


                                                          SIX MONTHS ENDED
                                          YEAR ENDED         JULY 31,
                                          JANUARY 31,  -----------------------
                                             1998         1998         1997
                                          -----------  -----------  ----------
                                                            (UNAUDITED)
                                                           
Revenues:
  Equipment rentals and service (Note
   6).................................... $18,474,000  $10,571,000  $8,306,000
  Sales..................................   4,659,000    3,188,000   2,640,000
                                          -----------  -----------  ----------
                                           23,133,000   13,759,000  10,946,000
Cost of equipment rentals and service....  11,672,000    7,154,000   5,358,000
Cost of sales............................   2,843,000    1,944,000   1,694,000
                                          -----------  -----------  ----------
    Gross profit.........................   8,618,000    4,661,000   3,894,000
Selling expenses.........................   1,484,000      788,000     629,000
General and administrative expenses......   3,136,000    1,324,000   1,111,000
                                          -----------  -----------  ----------
                                            3,998,000    2,549,000   2,154,000
Other income (expenses):
  Interest income........................     134,000       21,000      61,000
  Interest expense.......................  (1,028,000)    (483,000)   (495,000)
  Rental of property, net (Note 9).......      71,000       15,000      38,000
  Other income...........................      44,000        1,000       1,000
                                          -----------  -----------  ----------
    Income before provision for income
     taxes...............................   3,219,000    2,103,000   1,759,000
Provision for income taxes (Note 7)......   1,082,000      875,000     759,000
                                          -----------  -----------  ----------
    Net income...........................   2,137,000    1,228,000   1,000,000
Retained earnings, beginning of period...   7,793,000    9,862,000   7,793,000
Dividends paid...........................     (68,000)         --          --
                                          -----------  -----------  ----------
    Retained earnings, end of period..... $ 9,862,000  $11,090,000  $8,793,000
                                          ===========  ===========  ==========

 
 
   The accompanying notes are an integral part of the consolidated financial
                                  statements.
 
                                     F-140

 
                        MCCLINCH, INC. AND SUBSIDIARIES
 
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
 


                                                         SIX MONTHS ENDED
                                         YEAR ENDED          JULY 31,
                                         JANUARY 31,  ------------------------
                                            1998         1998         1997
                                         -----------  -----------  -----------
                                                            (UNAUDITED)
                                                          
Cash flows from operating activities:
Net income                               $ 2,137,000  $ 1,228,000  $ 1,000,000
Adjustments to reconcile net income to
 net cash provided by operating
 activities:
  Depreciation.........................    3,387,000    1,977,000    1,623,000
  Gain on sale of property and rental
   equipment...........................   (1,313,000)    (925,000)    (663,000)
  Deferred income taxes................      328,000      360,000      308,000
                                         -----------  -----------  -----------
                                           4,539,000    2,640,000    2,268,000
  Changes in assets and liabilities:
    Accounts receivable................     (643,000)    (529,000)    (144,000)
    Due to related parties for operat-
     ing expenses......................      519,000     (310,000)    (174,000)
    Current income taxes receivable....       58,000          --        58,000
    Inventories........................     (201,000)     (95,000)     (62,000)
    Other assets.......................     (165,000)     (13,000)     (22,000)
    Accounts payable and accrued ex-
     penses............................      201,000     (425,000)    (123,000)
    Income taxes payable...............        1,000       78,000       40,000
                                         -----------  -----------  -----------
      Net cash provided by operating
       activities......................    4,309,000    1,346,000    1,841,000
                                         -----------  -----------  -----------
Cash flows from investing activities:
  Advances to related parties..........     (318,000)    (152,000)    (147,000)
  Acquisition of property and rental
   equipment...........................   (7,227,000)  (6,581,000)  (5,737,000)
  Proceeds from sale of property and
   rental equipment....................    2,292,000    1,615,000    1,370,000
  Net investment in sales-type leases..       88,000       20,000       76,000
                                         -----------  -----------  -----------
      Net cash used in investing activ-
       ities...........................   (5,165,000)  (5,098,000)  (4,438,000)
                                         -----------  -----------  -----------
Cash flows from financing activities:
  Repayments of notes payable..........   (8,040,000)  (3,764,000)  (4,383,000)
  Borrowings of notes payable..........    7,145,000    7,459,000    6,600,000
  Repayment of note payable to related
   party...............................      (41,000)         --       (41,000)
  Dividends paid.......................      (68,000)         --           --
                                         -----------  -----------  -----------
      Net cash (used in) provided by
       financing activities............   (1,004,000)   3,695,000    2,176,000
                                         -----------  -----------  -----------
      Net decrease in cash and cash
       equivalents.....................   (1,860,000)     (57,000)    (421,000)
Cash and cash equivalents, beginning of
 period................................    2,614,000      754,000    2,614,000
                                         -----------  -----------  -----------
      Cash and cash equivalents, end of
       period..........................  $   754,000  $   697,000  $ 2,193,000
                                         ===========  ===========  ===========
Supplemental disclosure of cash flow
 information:
  Cash paid during the period for:
    Interest...........................  $ 1,029,000  $   462,000  $   478,000
    Income taxes, net of refunds.......      695,000      422,000      353,000

 
   The accompanying notes are an integral part of the consolidated financial
                                  statements.
 
                                     F-141

 
                        MCCLINCH, INC. AND SUBSIDIARIES
 
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
 (ALL INFORMATION AS OF AND FOR THE SIX MONTHS ENDED JULY 31, 1998 AND 1997 IS
                                  UNAUDITED)
 
1. BUSINESS AND ORGANIZATION
 
  The accompanying consolidated financial statements include the accounts of
McClinch, Inc. and its wholly-owned subsidiaries McClinch Leasing Corporation,
McClinch Equipment Corporation, McClinch Crane Services, Inc. and McClinch
Aviation Corporation, (the "Company").
 
  The Company is an exclusive dealer for JLG Industries, Inc. and Genie
Industries in the State of Connecticut, metropolitan New York, Long Island,
Westchester County and other counties in New York State. The Company is also
an exclusive dealer for Lull Corporation in various counties in the States of
Connecticut and New York. In addition, the Company has distribution agreements
with other manufacturers in Connecticut and New York. The Company's revenues
are derived principally from the rental of aerialift and material handling
equipment and the sale of new and used equipment to a diversified customer
base including contractors and other users.
 
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
 Basis of Presentation:
 
  The consolidated balance sheet is presented on an unclassified basis since
it more properly reflects the Company's operations as a rental equipment
company.
 
 Basis of Consolidation:
 
  All intercompany transactions and balances have been eliminated.
 
 Interim Financial Statements:
 
  The accompanying balance sheet at July 31, 1998, and the statements of
income and retained earnings and cash flows for the six month periods ended
July 31, 1998 and 1997 are unaudited and have been prepared on the same basis
as the audited financial statements included herein. In the opinion of
management, such unaudited financial statements include all adjustments
necessary to present fairly the information set forth therein, which consists
solely of normal recurring adjustments. The results of operations for such
interim periods are not necessarily indicative of results for the full year.
 
 Revenue Recognition:
 
  Operating Leases--Rental revenue is recognized over the lease term
(generally less than one year) as earned.
 
  Sales-Type Leases--Sales are recorded at amounts equal to the present value
of the minimum lease payments at the inception of the lease. The unearned
interest income represents the difference between the minimum lease payments
and the present value of such payments. Such interest income is recognized
over the life of the lease using the interest method.
 
 Cash and Cash Equivalents:
 
  Cash and cash equivalents consist primarily of cash in banks and temporary
cash investments, which consist principally of U.S. Treasury Notes, with
original maturities of less than 90 days. Temporary cash investments of
$144,000 as of January 31, 1998, are recorded at cost plus accrued interest
which approximates market value. The Company maintains all of its cash
balances in one institution. These balances are insured by the Federal Deposit
Insurance Corporation up to $100,000.
 
 
                                     F-142

 
                        MCCLINCH, INC. AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
 (ALL INFORMATION AS OF AND FOR THE SIX MONTHS ENDED JULY 31, 1998 AND 1997 IS
                                  UNAUDITED)
 
 
 Inventories:
 
  Inventories, consisting principally of aerialift equipment and related spare
parts, are recorded at the lower of first-in, first-out cost or market.
 
 Property and Rental Equipment:
 
  Property and rental equipment, consisting principally of the Company's
rental fleet of aerialift and material handling equipment, is stated at cost
and is depreciated using the straight-line method over the following estimated
useful lives: buildings and building improvements, 30 years; rental equipment,
furniture and fixtures and computer equipment, 7 years; and vehicles, 5 years.
 
  Upon retirement or sale, the cost and related accumulated depreciation are
removed from the accounts and the resulting gains or losses are included in
income.
 
 Income Taxes:
 
  The Company recognizes deferred tax assets and liabilities for the expected
future tax consequences of events that have been recognized in a company's
financial statements or tax returns. Under this method, deferred tax assets
and liabilities are determined based on the differences between the financial
statement carrying amounts and the tax bases of assets and liabilities using
enacted tax rates in effect in the years in which the temporary differences
are expected to reverse.
 
 Estimates:
 
  The preparation of financial statements in confirmity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
 
 Reclassifications:
 
  Certain amounts have been reclassified between balance sheet accounts in the
current year to more properly reflect the nature of the item.
 
3. SALES-TYPE LEASES
 
  The net investment in sales-type leases consists of the following:
 


                                                           JANUARY 31, JULY 31,
                                                              1998       1998
                                                           ----------- --------
                                                                 
   Minimum lease payments receivable......................   $34,000   $13,000
     Lease, Unearned interest income......................    (2,000)   (1,000)
                                                             -------   -------
   Net investment in sales-type leases....................   $32,000   $12,000
                                                             =======   =======

 
  Minimum lease payments as of January 31, 1998 are receivable as follows:
 


     FISCAL YEAR
     -----------
                                                                     
         1999.......................................................... $29,000
         2000..........................................................   5,000

 
 
                                     F-143

 
                        MCCLINCH, INC. AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
 (ALL INFORMATION AS OF AND FOR THE SIX MONTHS ENDED JULY 31, 1998 AND 1997 IS
                                  UNAUDITED)
 
4. PROPERTY AND RENTAL EQUIPMENT
 
  Property and rental equipment consists of the following:
 


                                                     JANUARY 31,     JULY 31,
                                                         1998          1998
                                                     ------------  ------------
                                                             
   Rental equipment................................. $ 30,965,000  $ 34,412,000
   Land.............................................      530,000       530,000
   Buildings and improvements.......................      377,000       405,000
   Vehicles.........................................    2,381,000     2,597,000
   Furniture, fixtures and computer equipment.......      528,000       630,000
                                                     ------------  ------------
                                                       34,781,000    38,574,000
     Less, Accumulated depreciation.................  (17,532,000)  (17,411,000)
                                                     ------------  ------------
       Total........................................ $ 17,249,000  $ 21,163,000
                                                     ============  ============

 
5. NOTES PAYABLE
 
  Notes payable consists of the following:
 


                                                         JANUARY 31,  JULY 31,
                                                            1998        1998
                                                         ----------- -----------
                                                               
   Note payable to a bank syndicate bearing interest at
    LIBOR plus 1 3/4%..................................  $ 9,695,000 $13,449,000
   Note payable to Citicorp Dealer Finance bearing
    interest at 8.5%, payable in monthly installments
    of $7,839 through September 2004, including
    interest...........................................      477,000     450,000
   First mortgage to Edith Godwin on real property
    located in Bridgeport, Connecticut, bearing
    interest at 9.0%, payable in monthly installments
    of $3,066 through January 2002, including
    interest...........................................      123,000     110,000
   Notes payable to Orix Credit Alliance bearing
    interest at 8.5%, payable in monthly installments
    of $3,657 through May 2000, including interest.....       93,000      74,000
                                                         ----------- -----------
                                                         $10,388,000 $14,083,000
                                                         =========== ===========

 
  The Company has available a revolving line of credit with a bank syndicate
totaling the lesser of $22,000,000, or an amount based on eligible accounts
receivable, parts inventory, new equipment inventory, vehicles and rental
equipment. The line of credit includes cross-guarantees of amounts outstanding
with affiliates which amounted to approximately $17,935,000 and $23,691,000 at
January 31, 1998 and July 31, 1998, respectively. The unused portion of the
line of credit was $12,305,000 and $8,551,000 at January 31, 1998 and July 31,
1998, respectively. The Company pays a commitment fee of 1/4% per annum on the
unused portion of the line of credit.
 
  The outstanding balance bears interest at a fluctuating 30-day LIBOR rate
plus 1 3/4% (7.38% and 7.41% at January 31, 1998 and July 31, 1998,
respectively). The Company has the option to borrow additional funds and/or
convert all or a portion of the outstanding balance to a fluctuating interest
rate equal to the lender's prime rate plus 1/2% or a fixed LIBOR rate plus 1
3/4%, for 90, 180 or 360 days.
 
 
                                     F-144

 
                        MCCLINCH, INC. AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
 (ALL INFORMATION AS OF AND FOR THE SIX MONTHS ENDED JULY 31, 1998 AND 1997 IS
                                  UNAUDITED)
 
  The line of credit terminates on November 30, 1999 and extends automatically
every six months unless either party gives written notice to the other. Upon
termination or default, amounts outstanding under this line of credit convert
to a note which is payable in at least 48 monthly installments.
 
  Although no fixed payments are required under the revolving credit
agreement, the Company expects aggregate maturities under this agreement and
other notes payable at January 31, 1998 to approximate the following:
 


      FISCAL YEAR
      ---------------------------------------------------------------
                                                                   
      1999........................................................... $2,544,000
      2000...........................................................  2,554,000
      2001...........................................................  2,536,000
      2002...........................................................  2,530,000
      2003...........................................................     78,000
      Thereafter.....................................................    146,000

 
  The lenders require, among other terms, that the Company and its affiliate
(see Note 6) on a combined basis meet certain financial ratios and obtain
approval prior to the issuing of advances or loans to stockholders or officers
which exceed certain amounts, as defined.
 
  Substantially all of the assets of the Company have been pledged as
collateral under the debt agreement.
 
6. RELATED PARTY TRANSACTIONS
 
  Due from related parties consists of the following:
 


                                                           JANUARY 31, JULY 31,
                                                              1998       1998
                                                           ----------- --------
                                                                 
   Due (to) from affiliated companies.....................  $(72,000)  $227,000
   Loans receivable from officer/stockholder..............   365,000    528,000
                                                            --------   --------
                                                            $293,000   $755,000
                                                            ========   ========

 
  The Company rents equipment from affiliates with common ownership under
informal equipment sharing agreements for ultimate rental to customers in New
York and Connecticut. In addition, the Company rents equipment to affiliates
for ultimate rental to the affiliates' customers. The net expenses incurred
(included in cost of equipment rentals and service) by the Company under these
arrangements were $744,000 for the year ended January 31, 1998 and $598,000
and $104,000 for the six months ended July 31, 1998 and 1997, respectively. In
addition, the Company provides services to affiliates in connection with their
operations. The primary expenses incurred and paid by the Company, which are
allocated or billed to the affiliates include salaries ($2,059,000, for the
year ended January 31, 1998 and $250,000 and $416,000 for the six months ended
July 31, 1998 and 1997, respectively, deducted from general and administrative
expenses and $154,000 for the year ended January 31, 1998 and $-0- and
$104,000 for the six months ended July 31, 1998 and 1997, respectively,
deducted from selling expenses), spare parts inventory, trucking services and
insurance expenses ($699,000 for the year ended January 31, 1998 and $453,000
and $408,000 for the six months ended July 31, 1998 and 1997, respectively,
included in cost of equipment rentals and service).
 
  During fiscal year 1998, the Company purchased $243,000 ($63,000 and
$146,000 during the six months ended July 31, 1998 and 1997, respectively) of
used machinery and equipment from an affiliate for ultimate
 
                                     F-145

 
                        MCCLINCH, INC. AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
 (ALL INFORMATION AS OF AND FOR THE THREE MONTHS ENDED JULY 31, 1998 AND 1997
                                 IS UNAUDITED)
 
sale to unrelated third parties. Additionally, the Company sold used machinery
and equipment with a selling price of $980,000 ($611,000 and $776,000 during
the six months ended July 31, 1998 and 1997, respectively) to an affiliate for
ultimate sale to unrelated third parties.
 
  These transactions are settled in the normal course of business.
 
  Loans to officer/stockholder are due on demand and bear interest at the
applicable federal rate (5.66%) as published by the Internal Revenue Service.
 
  Pursuant to a stockholders agreement between the Company and certain of its
stockholders, a stockholder desiring to sell its shares of common stock must
first offer them to the Company. The repurchase price is based on a formula of
one and one-half times the Company's consolidated book value at the end of the
fiscal year preceding the date on which the sale is made.
 
  Refer to Note 9 for commitments with related parties.
 
7. INCOME TAXES
 
  The components of the provision for income taxes are as follows:
 


                                                               SIX MONTHS ENDED
                                                   YEAR ENDED      JULY 31,
                                                   JANUARY 31, -----------------
                                                      1998       1998     1997
                                                   ----------- -------- --------
                                                               
   Current:
     State and local.............................. $  232,000  $156,000 $135,000
     Federal......................................    522,000   359,000  316,000
                                                   ----------  -------- --------
                                                      754,000   515,000  451,000
   Deferred:
     State and local..............................     57,000   108,000   92,000
     Federal......................................    271,000   252,000  216,000
                                                   ----------  -------- --------
                                                      328,000   360,000  308,000
                                                   ----------  -------- --------
                                                   $1,082,000  $875,000 $759,000
                                                   ==========  ======== ========

 
  The components of deferred tax assets and liabilities are as follows:
 


                                                       JANUARY 31,   JULY 31,
                                                          1998         1998
                                                       -----------  -----------
                                                              
   Deferred tax assets:
     Accounts receivable.............................. $    37,000  $    46,000
   Deferred tax liabilities:
     Property and rental equipment and other..........  (2,513,000)  (2,882,000)
                                                       -----------  -----------
                                                       $ 2,476,000  $ 2,836,000
                                                       ===========  ===========

 
  No valuation allowance has been recognized for deferred tax assets.
 
 
                                     F-146

 
                        MCCLINCH, INC. AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
 (ALL INFORMATION AS OF AND FOR THE SIX MONTHS ENDED JULY 31, 1998 AND 1997 IS
                                  UNAUDITED)
 
  The income tax provision differs from the provision computed at the
statutory rate as follows:
 


                                                                   SIX MONTHS
                                                                      ENDED
                                                       YEAR ENDED    JULY 31
                                                       JANUARY 31, -------------
                                                          1998     1998    1997
                                                       ----------- -----   -----
                                                                  
   Federal statutory tax rate........................       34        34      34
   Tax effect of state taxes.........................        9         9       9
   Reduction for changes in enacted state tax rates..       (3)      --      --
   Cash surrender value of the insurance.............       (2)      --      --
   Certain adjustments for prior estimates...........       (4)       (1)    --
                                                           ---     -----   -----
     Provision as reported...........................       34%       42%     43%
                                                           ===     =====   =====

 
8. PROFIT-SHARING PLAN
 
  The Company participates in a profit sharing plan with its affiliates which
provides for a discretionary contribution to a trust fund based on the
Company's net income for the year, to be allocated to all eligible employees
based on their proportional compensation. Nonunion employees are eligible for
participation in the plan after the completion of one year of service,
provided they have also reached age 21. After becoming eligible, employees
vest at an annual rate of 20%. Discretionary contributions under the plan were
$150,000 for the year ended January 31, 1998. There were no discretionary
contributions for the six months ended July 31, 1998 and 1997, respectively.
 
  The plan also provides for a salary deferral plan pursuant to Section 401(k)
of the Internal Revenue Code, as amended. The plan requires the Company to
contribute 25% of employee's contributions not to exceed 6% of their annual
compensation up to $160,000. Participants vest in the Company's contribution
at the rate of 20% annually after becoming eligible. Matching contributions
under the plan by the Company were $27,000 for the year ended January 31, 1998
and $21,000 and $11,000 for the six months ended July 31, 1998 and 1997,
respectively.
 
9. COMMITMENTS
 
  The Company has a formal employment agreement with an officer of the Company
which extends through February 1999. The agreement provides for a minimum
annual salary and a bonus based upon the Company's performance.
 
  The Company owns land and buildings which it rents to a third party in the
form of an operating lease. Future minimum rental income from this
noncancelable operating lease as of January 31, 1998 amounted to approximately
$58,000 which is expected to be received as follows: 1999, $30,000; 2000,
$28,000.
 
                                     F-147

 
                        MCCLINCH, INC. AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
 (ALL INFORMATION AS OF AND FOR THE SIX MONTHS ENDED JULY 31, 1998 AND 1997 IS
                                  UNAUDITED)
 
 
  The Company leases a building from an affiliated company under the terms of
a lease expiring on July 31, 1999. The Company guarantees the debt of the
affiliated company which was $1,681,000 and $1,635,000 at January 31, 1998 and
July 31, 1998, respectively. Additionally, the Company has commitments under
an operating lease, expiring in 2002, with Fleet Capital Corporation for an
aircraft. The lease provides the Company with certain end of term rights and
early purchase options. The following is a schedule of all future minimum
lease payments:
 


      FISCAL YEAR
      -----------
                                                                     
       1999............................................................ $441,000
       2000............................................................  279,000
       2001............................................................  116,000
       2002............................................................   89,000
                                                                        --------
                                                                        $925,000
                                                                        ========

 
  Total rent expense was $329,000, $165,000 and $165,000 for the year ended
January 31, 1998 and the six months ended July 31, 1998 and 1997,
respectively.
 
10. SUBSEQUENT EVENT (UNAUDITED)
 
  On September 1, 1998, United Rentals, Inc. acquired all of the outstanding
shares of common stock of the Company.
 
                                     F-148

 
                        REPORT OF INDEPENDENT AUDITORS
 
To the Board of Directors
Industrial Lift, Inc.
Vincentown, New Jersey
 
  We have audited the accompanying balance sheets of Industrial Lift, Inc. (a
New Jersey State Corporation) as of December 31, 1996 and 1997, and the
related statements of income, retained earnings and cash flows for the years
then ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
 
  We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statements presentation. We believe that our audits provide a reasonable basis
for our opinion.
 
  In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Industrial Lift, Inc. as
of December 31, 1996 and 1997, and the results of its operations and its cash
flows for the years then ended in conformity with generally accepted
accounting principles.
 
                                          /s/ Schalleur & Surgent, LLC
 
Devon, Pennsylvania
February 26, 1998, except for
Note J which is as of
September 15, 1998
 
                                     F-149

 
                             INDUSTRIAL LIFT, INC.
 
                                 BALANCE SHEETS
 
                                     ASSETS
 


                                            DECEMBER 31,
                                      --------------------------    MAY 12,
                                          1996          1997          1998
                                      ------------  ------------  ------------
                                                                  (UNAUDITED)
                                                         
Current assets:
  Cash............................... $    186,093  $    533,499  $    297,689
  Accounts receivable--trade.........    1,853,061     2,485,668     1,823,681
  Investment in sales--type leases
   (Note D)..........................      390,009       274,181       336,827
  Inventory (Note C).................    1,468,070     2,501,870     2,854,061
  Prepaid expenses...................       45,361        39,289        35,712
                                      ------------  ------------  ------------
      Total current assets...........    3,942,594     5,834,507     5,337,980
                                      ------------  ------------  ------------
Property, plant and equipment: (Note
 A)
  Rental equipment...................   17,660,046    18,533,702    18,118,513
  Land...............................       40,393        40,393        40,393
  Building...........................      650,000       650,000       650,000
  Machinery and equipment............      739,126       748,735       666,316
                                      ------------  ------------  ------------
                                        19,089,565    19,972,830    19,475,222
  Less: accumulated depreciation.....  (11,049,573)  (11,879,828)  (11,828,604)
                                      ------------  ------------  ------------
    Net property, plant and equip-
     ment............................    8,039,992     8,093,002     7,646,618
                                      ------------  ------------  ------------
Other assets:
  Security deposits..................        4,443         8,412         8,412
  Investment in sales--type leases
   (Note D)..........................    1,823,833     1,282,955     1,529,343
  Notes receivable--officers (Note
   G)................................      455,068       438,319       573,319
                                      ------------  ------------  ------------
      Total other assets.............    2,283,344     1,729,686     2,111,074
                                      ------------  ------------  ------------
      Total assets................... $ 14,265,930  $ 15,657,195  $ 15,095,672
                                      ============  ============  ============
                      LIABILITIES AND STOCKHOLDERS' EQUITY
 
Current liabilities:
  Current portion of long-term debt
   (Note E).......................... $  3,620,426  $  5,398,778  $  3,459,388
  Accounts payable...................      590,032       352,571       155,957
  Accrued expenses (Note G)..........      136,181       182,362        77,581
  Deposits and credits...............       74,500       335,441       196,490
                                      ------------  ------------  ------------
    Total current liabilities........    4,421,139     6,269,152     3,889,416
Long-term liabilities:
  Long-term debt, net of current por-
   tion (Note E).....................    8,405,283     7,271,718     9,518,587
                                      ------------  ------------  ------------
    Total liabilities................   12,826,422    13,540,870    13,408,003
                                      ------------  ------------  ------------
Stockholders' equity:
  Capital stock, no par value, 1,000
   shares authorized, 200 shares
   issued and outstanding............      220,000       220,000       220,000
  Retained earnings..................    1,219,508     1,896,325     1,467,669
                                      ------------  ------------  ------------
    Total stockholders' equity.......    1,439,508     2,116,325     1,687,669
                                      ------------  ------------  ------------
    Total liabilities & equity....... $ 14,265,930  $ 15,657,195  $ 15,095,672
                                      ============  ============  ============

 
      See accountant's audit report and notes to the financial statements.
 
                                     F-150

 
                             INDUSTRIAL LIFT, INC.
 
                   STATEMENTS OF INCOME AND RETAINED EARNINGS
 


                                  FOR THE YEAR ENDED    FOR THE PERIOD ENDED
                                     DECEMBER 31,           MAY 12, 1998
                                ----------------------- ----------------------
                                                        
                                   1996        1997        1997        1998
                                ----------- ----------- ----------  ----------
                                                             (UNAUDITED)
Income
  Sales, rentals, services, and
   interest on leases.......... $15,873,782 $21,502,996 $8,221,446  $7,754,774
Cost of sales
  Beginning inventory..........   1,341,337   1,468,070  1,468,070   2,501,870
  Purchases....................   5,527,726  11,027,711  2,932,170   3,842,272
  Direct labor.................     826,677     710,655    470,211     545,665
  Cost of used equipment
   sales.......................     471,293     900,367    374,284     329,470
  Other costs..................   4,016,301   4,005,126  2,601,818   1,543,505
                                ----------- ----------- ----------  ----------
    Total goods available for
     sale......................  12,183,334  18,111,929  7,846,553   8,762,782
    Less: ending inventory.....   1,468,070   2,501,870  1,724,926   2,854,061
                                ----------- ----------- ----------  ----------
    Total cost of sales........  10,715,264  15,610,059  6,121,627   5,908,721
                                ----------- ----------- ----------  ----------
Gross profit...................   5,158,518   5,892,937  2,099,819   1,846,053
Operating expenses.............   5,146,620   5,264,130  1,903,993   2,314,803
                                ----------- ----------- ----------  ----------
Net income from operations.....      11,898     628,807    195,826    (468,750)
                                ----------- ----------- ----------  ----------
Other income
  Gain on disposal of non-
   rental assets...............      24,228      14,861      8,807      24,482
  Miscellaneous income.........         707       1,219     (2,814)      1,809
  Interest income..............      18,909      31,930        304      13,803
                                ----------- ----------- ----------  ----------
    Total other income.........      43,844      48,010      6,297      40,094
                                ----------- ----------- ----------  ----------
Net income ....................      55,742     676,817    202,123    (428,656)
Retained earnings--beginning...   1,163,766   1,219,508  1,219,508   1,896,325
                                ----------- ----------- ----------  ----------
Retained earnings--ending...... $ 1,219,508 $ 1,896,325 $1,421,631  $1,467,669
                                =========== =========== ==========  ==========

 
 
      See accountant's audit report and notes to the financial statements.
 
                                     F-151

 
                             INDUSTRIAL LIFT, INC.
 
                            STATEMENTS OF CASH FLOWS
 


                                  FOR THE YEAR ENDED     FOR THE PERIOD ENDED
                                     DECEMBER 31,              MAY 12,
                                 ----------------------  ---------------------
                                    1996        1997       1997        1998
                                 ----------  ----------  ---------- ----------
                                                             (UNAUDITED)
                                                        
Cash flows from operating
 activities:
  Net income...................  $   55,742  $  676,817  $ 202,123  $ (428,656)
Adjustments to reconcile net
 income to net cash provided by
 operating activities:
  Depreciation.................   1,717,389   1,639,844    616,669     655,600
  Gain on sale of assets.......    (436,420)   (477,760)  (198,633)   (171,595)
(Increase)/decrease in:
  Accounts receivable--trade...     136,810    (632,607)  (414,358)    661,987
  Inventory....................    (126,733) (1,033,800)  (256,856)   (352,191)
  Prepaid expenses.............       4,682       6,072                  3,577
  Security deposits............         --       (3,969)    (4,014)        --
Increase/(decrease) in:
  Accounts payable.............     (94,283)   (237,461)  (329,106)   (196,614)
  Accrued expenses.............      22,068      46,181     19,864    (104,781)
  Deposits and credits.........      74,500     260,941    (60,376)   (138,952)
                                 ----------  ----------  ---------  ----------
Net cash provided/(used) oper-
 ating activities..............   1,353,755     244,258   (424,687)    (71,625)
                                 ----------  ----------  ---------  ----------
Cash flows from investing ac-
 tivities:
  Capital expenditures--
   property, plant and
   equipment...................  (2,066,163) (2,153,839)  (897,450)   (346,778)
  Proceeds on sale of
   equipment...................   1,076,908   1,465,872    247,485     367,519
  Investment in sales--type
   leases......................    (966,008)   (185,545)   (91,209)   (458,764)
  Proceeds received on lease
   payments....................     352,191     315,124    103,956     101,359
                                 ----------  ----------  ---------  ----------
Net cash provided/(used) by in-
 vesting activities............  (1,603,072)   (558,388)  (637,218)   (336,664)
                                 ----------  ----------  ---------  ----------
  Cash flows from financing
   activities:
  Net borrowing/(repayments) on
   note payable................     258,175     644,787    975,812     307,479
  (Advances)/repayments on note
   receivable--officers........      (2,156)     16,749   (100,000)   (135,000)
                                 ----------  ----------  ---------  ----------
Net cash provided/(used) by fi-
 nancing activities............     256,019     661,536    875,812     172,479
                                 ----------  ----------  ---------  ----------
Net inc/(decrease) in cash and
 cash equivalents..............       6,702     347,406   (186,093)   (235,810)
Cash--Beginning of the year....     179,391     186,093    186,093     533,499
                                 ----------  ----------  ---------  ----------
Cash--End of the year..........  $  186,093  $  533,499  $       0  $  297,689
                                 ==========  ==========  =========  ==========
Supplementary disclosure of
 cash flow information:
  Interest paid................  $1,097,114  $1,179,133  $ 334,261  $  493,040
                                 ==========  ==========  =========  ==========

 
      See accountant's audit report and notes to the financial statements
 
                                     F-152

 
                             INDUSTRIAL LIFT, INC.
 
                         NOTES TO FINANCIAL STATEMENTS
 
                          DECEMBER 31, 1996 AND 1997
                    (THE INFORMATION AS OF MAY 12, 1998 AND
           FOR THE PERIOD ENDED MAY 12, 1997 AND 1998 IS UNAUDITED)
 
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
BUSINESS ACTIVITY
 
  Industrial Lift, Inc. (the Company) is engaged in selling, rental and
leasing of commercial lift equipment. The Company's headquarters are located
in Vincentown, New Jersey and also has plant locations in Odenton, Maryland,
Newport News, Virginia, and Ashland, Virginia.
 
INTERIM FINANCIAL STATEMENTS
 
  The accompanying balance sheet as of May 12, 1998 and the statements of
income and retained earnings and cash flows for the period ended May 12, 1997
and 1998 are unaudited and have been prepared on the same basis as the audited
financial statements included herein. In the opinion of management, such
unaudited financial statements include all adjustments necessary to present
fairly the information set forth therein, which consist solely of normal
recurring adjustments. The results of operations for such interim period are
not necessarily indicative of results for the full year.
 
METHOD OF ACCOUNTING
 
  The Company maintains its books and records, and files its tax returns on
the accrual basis of accounting. The financial statements have been prepared
on that basis, in which revenue and gains are recognized when earned and
expenses and losses are recognized when incurred.
 
  Preparation of the financial statements in conformity with generally
accepted accounting principles requires the use of management's estimates.
 
INCOME TAXES
 
  The Company, with the consent of its shareholders, elected to be taxed under
the provisions of Subchapter S of the Internal Revenue Code, which provides
that, in lieu of corporation income taxes, the stockholders are taxed on the
Company's taxable income. Therefore, no provision or liability for income
taxes is reflected in these financial statements.
 
PROPERTY, PLANT AND EQUIPMENT
 
  Property, plant and equipment are stated at cost. Improvements and
betterments that materially extend the life of the asset are capitalized.
Expenditures for maintenance and repairs that do not add materially to
productive capacity or extend the life of an asset are expensed as incurred.
 
  The Company computes depreciation for financial reporting purposes using the
straight line method over the estimated useful lives of the related assets.
Both the straight-line and accelerated methods are utilized for tax purposes.
 
  When non-rental assets are retired, sold or otherwise disposed of, the cost
and related accumulated depreciation are removed from the accounts, and any
gain or loss thereon is reflected in the current year as other income.
 
                                     F-153

 
                             INDUSTRIAL LIFT, INC.
 
                  NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
 
                          DECEMBER 31, 1996 AND 1997
                    (THE INFORMATION AS OF MAY 12, 1998 AND
           FOR THE PERIOD ENDED MAY 12, 1997 AND 1998 IS UNAUDITED)
 
NOTE B--CONCENTRATION OF CREDIT RISK
 
  The Company has concentrated its credit risk for cash by maintaining
deposits in banks located within the same geographic region. The maximum loss
that would have resulted from that risk totaled $196,567 and $301,682 at
December 31, 1996 and 1997, respectively, and $197,688 as of May 12, 1998 for
the excess of the deposit liabilities reported by the banks over the amounts
that would have been covered by federal insurance.
 
  The Company provides sales on credit to substantially all of their
customers, the majority of which are construction companies. As of December
31, 1996 and 1997, outstanding credit to customers is $1,853,061 and
$2,485,668, respectively, and $1,823,681 as of May 12, 1998.
 
NOTE C--INVENTORIES
 
  Inventories, which are stated at the lower of cost (first in/first out) or
market, consist of the following:
 


                                                   DECEMBER 31,
                                               ---------------------   MAY 12,
                                                  1996       1997       1998
                                               ---------- ---------- -----------
                                                                     (UNAUDITED)
                                                            
     New equipment............................ $  850,650 $1,892,561 $2,296,124
     Used equipment...........................      6,590     22,632     16,841
     Parts, accessories and labor.............    610,830    586,677    541,096
                                               ---------- ---------- ----------
       Total.................................. $1,468,070 $2,501,870 $2,854,061
                                               ========== ========== ==========

 
NOTE D--INVESTMENT IN LEASES
 
  The Company leasing operations consist of leasing commercial lift equipment
under short term and long term rental agreements. Certain of these long term
leases fall under the classification as sales-type leases, whereby the lease
gives rise to a dealers profit at the inception of the lease. The Company's
net investment in sales-type leases consist of:
 


                                                DECEMBER 31,
                                            ----------------------    MAY 12,
                                               1996        1997        1998
                                            ----------  ----------  -----------
                                                                    (UNAUDITED)
                                                           
     Minimum lease payment receivable...... $1,576,242  $1,034,885  $1,183,128
     Estimated residual value of leased
      property.............................    637,600     522,251     673,052
                                            ----------  ----------  ----------
                                             2,213,842   1,557,136   1,856,180
     Less current portion..................   (390,009)   (274,181)   (326,837)
                                            ----------  ----------  ----------
                                            $1,823,833  $1,282,955  $1,529,343
                                            ==========  ==========  ==========

 
  Future annual minimum lease payments receivable on these leases are:
 
                                                                
     1998.............................................................. $274,181
     1999..............................................................  235,026
     2000..............................................................  193,609
     2001..............................................................  152,611
     2002..............................................................   87,532

     
 
                                     F-154

 
                             INDUSTRIAL LIFT, INC.
 
                  NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
 
                          DECEMBER 31, 1996 AND 1997
                    (THE INFORMATION AS OF MAY 12, 1998 AND
           FOR THE PERIOD ENDED MAY 12, 1997 AND 1998 IS UNAUDITED)
 
  The Company retains title to the leased equipment. The lessees pay taxes,
licenses and insurance costs on the equipment.
 
SHORT-TERM RENTALS
 
  The value of future minimum rental payments under operating lease agreements
is not determinable. The Company does not maintain the accounting to summarize
this information due to the short term nature of the leases and the high
volume of which leases are entered.
 
NOTE E--NOTES PAYABLE
 
  The Company has entered into various security agreements whereby they
finance the equipment they purchased for leasing, rental and resale. The
maturity dates vary according to the purchase date of the equipment and range
between three to eight years. Equipment financing agreements consist of the
following:
 


                                             DECEMBER 31,
                                        -----------------------   MAY 12,
                                           1996        1997        1998
                                        ----------- ----------- -----------
                                                                (UNAUDITED)
                                                                
1. Security agreement with Gehl Compa-
   ny, payable in monthly installments
   of interest only payments, interest
   rate averaging between 8.0% to
   10.0%, secured by inventory and ac-
   counts receivable..................  $   451,355 $   968,098 $   989,196
2. Security agreement with Associates
   Commercial Corporation, payable in
   monthly installments, floating in-
   terest rate averaging between 7.5%
   to 9.5%, secured by inventory, ac-
   counts receivable and rights to
   equipment financed.................   10,622,836  10,006,648   9,600,997
3. Security agreement with CitiCorp,
   payable in monthly installments,
   interest averaging between 8.0% to
   10.0%, secured by new and used in-
   ventory and rights to equipment fi-
   nanced.............................      153,428          --          --
4. Mortgage payable to Associates Com-
   mercial Corporation payable in
   monthly installments of $9,544, in-
   terest at 10%, secured by property
   and plant. Effective April 1, 1998
   the payment will be $8,870 as a re-
   sult of a change in the interest
   rate to 8.4%.......................      798,089     761,728     748,475
5. Security agreement with Grove North
   America is payable within 360 days
   of original invoice date. Interest
   is calculated by Grove North
   America when the invoice is issued
   based on 360 day repayment terms.
   Interest is calculated at 8.25%,
   securedby inventory................           --     934,022   1,639,307
                                        ----------- ----------- -----------
                                         12,025,708  12,670,496  12,977,975
  Less: Current Portion...............    3,620,426   5,398,776
                                                                  3,459,388
                                        ----------- ----------- -----------
                                        $ 8,405,282 $ 7,271,720 $ 9,518,587
                                        =========== =========== ===========

 
 
                                     F-155

 
                             INDUSTRIAL LIFT, INC.
 
                  NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
 
                          DECEMBER 31, 1996 AND 1997
                    (THE INFORMATION AS OF MAY 12, 1998 AND
           FOR THE PERIOD ENDED MAY 12, 1997 AND 1998 IS UNAUDITED)
  Long-Term Maturities at December 31, 1997 are as follows:
 
                                    
           1999.................................. $ 2,311,740
           2000..................................   2,282,507
           2001..................................   1,832,837
           2002..................................     308,428
           Thereafter............................     536,208
                                                  -----------
                                                  $ 7,271,720
                                                  ===========

           
 
NOTE F--PROFIT SHARING CONTRIBUTION PAYABLE
 
  The Company has a profit sharing plan that provides coverage for all
eligible employees who have been employed by the Company for at least six
months at the end of the year. Each participant receives a proportionate share
of the contribution based on his or her compensation to total compensation.
The amount of the employer contributions is determined by the board of
directors during the course of the year. Profit sharing contributions for the
years ended December 31, 1996 and 1997 was $30,000 and $35,000, respectively,
and $13,416 and $15,133 for the period ended May 12, 1997 and 1998,
respectively.
 
NOTE G--RELATED PARTY TRANSACTIONS
 
  Included in other assets as of December 31, 1996 and 1997 and May 12, 1998
is $455,068, $438,319 and $573,319 in loans to shareholders including $34,694,
$17,946 and $18,710 of accrued interest respectively. The notes have no
repayment terms and are accruing interest at 4%. Repayment of $34,694 was made
on the loans in 1997.
 
NOTE H--OPERATING LEASES
 
  The Company, as lessee, leases certain equipment and plant facilities under
operating lease agreements.
 
  The Company entered into a three year lease agreement in April, 1997 for its
facilities located in Odenton, Maryland. This lease calls for monthly rental
payments of $4,213 and $4,424 over the next two consecutive years of the
lease.
 
  The Company also rents its facilities located in Newport News, Virginia. The
two year lease agreement was entered into in August, 1996. Monthly payments
for the next year lease is $3,800 per month.
 
  The Company has a lease agreement for their Ashland, Virginia facility which
began in June, 1997. The monthly lease payments for the 1998-1999 lease year
are $1,200 per month.
 
  Certain commercial lift equipment rented to customers under the company's
leasing operations are leased under the following operating lease agreements:
 
  . Eighty-four month lease beginning in December, 1997--First two payments
   at $3,235 per month--Eighty-two payments at $9,185 per month
  . Seventy-two month lease beginning in December, 1997--First two payments
   at $18,858 per month--Seventy payments at $28,578 per month
  . Seventy-two month lease beginning in November, 1997--First two payments
   at $5,703 per month--Seventy payments at $18,598 per month
 
 
 
                                     F-156

 
                             INDUSTRIAL LIFT, INC.
 
                  NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
 
                          DECEMBER 31, 1996 AND 1997
                    (THE INFORMATION AS OF MAY 12, 1998 AND
           FOR THE PERIOD ENDED MAY 12, 1997 AND 1998 IS UNAUDITED)
  The company has a lease agreement for their telephone and computer system
which began in December, 1997. The agreement is for sixty months at $4,667 per
month.
 
  Rent expense associated with the above leases was approximately $438,548 for
the year ending December 31, 1997.
 
  Future rental payments under these operating leases at December 31, 1997 is
as follows:
 
 
                                      
           1998...................................  $1,094,000
           1999...................................   1,002,460
           2000...................................     857,531
           2001...................................     805,448
           2002...................................     795,580
           Thereafter.............................     751,182
                                                    ----------
                                                    $5,306,201
                                                    ==========

           
 
NOTE I--LITIGATION
 
  In 1996 the Company settled a claim with the State of New Jersey and was
assessed $1,700 in sales tax, which it paid.
 
  During 1995 the Company had been in a personal injury claim based upon
theories of negligence, product liability, and willful and wanton disregard.
This claim was settled in 1996 at no cost to the Company.
 
NOTE J--SUBSEQUENT EVENT
 
  On May 12 , 1998, United Rentals, Inc. purchased all of Industrial Lift,
Inc.'s issued and outstanding common stock.
 
 
                                     F-157

 
                        REPORT OF INDEPENDENT AUDITORS
 
Board of Directors and Stockholders
Able Equipment Rental, Inc.
 
  We have audited the combined balance sheet of Able Equipment Rental, Inc.
(See Note 1) (the "Companies") as of December 31, 1997 and the related
combined statements of income, stockholders' equity and partners' capital and
cash flows for the year then ended. These financial statements are the
responsibility of the Companies' management. Our responsibility is to express
an opinion on these financial statements based on our audit.
 
  We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
 
  In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined financial position of Able
Equipment Rental, Inc. at December 31, 1997 and the combined results of their
operations and their cash flows for the year then ended in conformity with
generally accepted accounting principles.
 
                                          /s/ Ernst & Young LLP
 
MetroPark, New Jersey
April 15, 1998
 
                                     F-158

 
                          ABLE EQUIPMENT RENTAL, INC.
 
                            COMBINED BALANCE SHEETS
 


                                                        DECEMBER    FEBRUARY
                                                        31, 1997    28, 1998
                                                       ----------- -----------
                                                                   (UNAUDITED)
                                                             
                        ASSETS
Cash.................................................. $   489,330  $  273,090
Accounts receivable, net of allowance for doubtful
 accounts of $166,000 and $181,000 in 1997 and 1998,
 respectively.........................................   2,725,794   2,670,554
Unbilled receivables..................................     359,000     395,000
Inventory.............................................     583,013     413,617
Rental equipment, net.................................   9,413,628   9,518,678
Property and equipment, net...........................     696,070   1,008,900
Prepaid expenses and other assets.....................     145,742     116,589
                                                       ----------- -----------
    Total assets...................................... $14,412,577 $14,396,428
                                                       =========== ===========
  LIABILITIES AND STOCKHOLDERS' EQUITY AND PARTNERS'
                        CAPITAL
Liabilities:
  Accounts payable, accrued expenses and other
   liabilities........................................ $   989,038 $   784,412
  Debt................................................   8,120,710   8,395,970
  Stockholder loan....................................     364,600     364,600
  Deferred rent.......................................      18,247      18,247
  Deferred tax liability..............................      86,348     113,735
                                                       ----------- -----------
    Total liabilities.................................   9,578,943   9,676,964
Commitments and contingencies
Stockholders' equity and partners' capital:
 Stockholders' equity:
  Common stock........................................      17,000      17,000
  Additional paid-in capital..........................     102,978     102,978
  Retained earnings...................................   4,278,962   4,151,355
                                                       ----------- -----------
                                                         4,398,940   4,271,333
 Partners' capital....................................     434,694     448,131
                                                       ----------- -----------
    Total stockholders' equity and partners' capital..   4,833,634   4,719,464
                                                       ----------- -----------
Total liabilities and stockholders' equity and
 partners' capital.................................... $14,412,577 $14,396,428
                                                       =========== ===========

 
 
                            See accompanying notes.
 
                                     F-159

 
                          ABLE EQUIPMENT RENTAL, INC.
 
                         COMBINED STATEMENTS OF INCOME
 
 


                                                         TWO MONTHS  TWO MONTHS
                                            YEAR ENDED     ENDED       ENDED
                                             DECEMBER   FEBRUARY 28,  FEBRUARY
                                             31, 1997       1997      28, 1998
                                            ----------- ------------ ----------
                                                              (UNAUDITED)
                                                            
Revenues:
  Equipment rentals........................ $17,081,826  $1,631,226  $2,633,136
  Sales of rental equipment................     365,670         --          --
  Sales of parts, supplies and new
   equipment...............................   1,847,708     503,961     757,212
                                            -----------  ----------  ----------
Total revenues.............................  19,295,204   2,135,187   3,390,348
Cost of revenues:
  Cost of equipment rentals, excluding
   equipment rental depreciation...........   6,944,226   1,005,933   1,306,857
  Depreciation, equipment rentals..........   1,667,366     201,010     302,678
  Cost of rental equipment sales...........     293,238         --          --
  Cost of parts, supplies and new equipment
   sales...................................   1,518,807     239,576     272,657
                                            -----------  ----------  ----------
Total cost of revenues.....................  10,423,637   1,446,519   1,882,192
                                            -----------  ----------  ----------
Gross profit...............................   8,871,567     688,668   1,508,156
Selling, general and administrative
 expenses..................................   6,438,632     627,098   1,241,182
Non-rental depreciation....................     172,489      14,440      27,130
                                            -----------  ----------  ----------
Operating income...........................   2,260,446      47,130     239,844
Interest expense...........................     591,701      42,099     113,995
                                            -----------  ----------  ----------
Income before provision for income taxes...   1,668,745       5,031     125,849
Provision for income taxes.................      61,235      19,436      36,269
                                            -----------  ----------  ----------
Net income (loss).......................... $ 1,607,510  $  (14,405) $   89,580
                                            ===========  ==========  ==========

 
 
                            See accompanying notes.
 
                                     F-160

 
                          ABLE EQUIPMENT RENTAL, INC.
 
       COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY AND PARTNERS' CAPITAL
 


                                 COMMON STOCK  ADDITIONAL
                                --------------  PAID-IN    RETAINED   PARTNERS'
                                SHARES AMOUNT   CAPITAL    EARNINGS    CAPITAL
                                ------ ------- ---------- ----------  ---------
                                                       
Balance at January 1, 1997....  1,700  $17,000  $102,978  $3,290,014  $ 483,975
  Capital contributions.......                                   --       6,000
  Stockholders and capital
   distributions..............                              (322,246)  (351,597)
  Net income..................                             1,311,194    296,316
                                -----  -------  --------  ----------  ---------
Balance at December 31, 1997..  1,700  $17,000  $102,978  $4,278,962  $ 434,694
  Stockholders distributions
   (unaudited)................                              (203,750)       --
  Net income (unaudited)......                                76,143     13,437
                                -----  -------  --------  ----------  ---------
Balance at February 28, 1998
 (unaudited)..................  1,700  $17,000  $102,978  $4,151,355  $ 448,131
                                =====  =======  ========  ==========  =========

 
 
 
 
                            See accompanying notes.
 
                                     F-161

 
                          ABLE EQUIPMENT RENTAL, INC.
 
                       COMBINED STATEMENTS OF CASH FLOWS
 


                                                           TWO MONTHS ENDED
                                             YEAR ENDED      FEBRUARY 28,
                                            DECEMBER 31,  --------------------
                                                1997        1997       1998
                                            ------------  ---------  ---------
                                                              (UNAUDITED)
                                                            
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss).........................  $ 1,607,510   $ (14,405) $  89,580
Adjustments to reconcile net income (loss)
 to net cash provided by operating
 activities:
  Depreciation............................    1,839,855     215,450    329,808
  Gain on sale of property and equipment..      (72,432)     (6,556)      (559)
  Deferred tax liability..................       26,340      19,436     27,387
  Changes in assets and liabilities:
    (Increase) Decrease in accounts
     receivable...........................     (956,085)     57,264     55,240
    Increase in unbilled receivables......     (142,000)    (23,000)   (36,000)
    Increase (Decrease) in inventory......     (346,085)    102,170    169,396
    Decrease (Increase) in prepaid
     expenses and other assets............        5,467     (62,149)    29,153
    Increase (Decrease) in accounts
     payable, accrued expenses and other
     liabilities..........................      724,666     (29,375)  (204,627)
    Increase in deferred rent.............       18,247         --         --
                                            -----------   ---------  ---------
      Cash provided by operating
       activities.........................    2,705,483     258,835    459,378
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of rental equipment..............   (5,395,221)   (399,294)  (407,728)
Proceeds from sale of rental equipment....      365,670      22,249        613
Purchases of property and equipment.......     (468,927)    (54,417)  (340,014)
                                            -----------   ---------  ---------
      Cash used in investing activities...   (5,498,478)   (431,462)  (747,129)
CASH FLOWS FROM FINANCING ACTIVITIES
Capital contributions.....................        6,000         --         --
Stockholders and capital distributions....     (673,843)        --    (203,750)
Principal payments on debt................   (2,495,519)   (343,900)  (311,207)
Borrowings under credit facility..........    6,116,144     346,667    586,468
                                            -----------   ---------  ---------
      Cash provided by financing
       activities.........................    2,952,782       2,767     71,511
                                            -----------   ---------  ---------
Increase (Decrease) in cash...............      159,787    (169,860)  (216,240)
Cash balance at beginning of period.......      329,543     329,543    489,330
                                            -----------   ---------  ---------
      Cash balance at end of period.......  $   489,330   $ 159,683  $ 273,090
                                            ===========   =========  =========

 
                            See accompanying notes.
 
                                     F-162

 
                          ABLE EQUIPMENT RENTAL, INC.
 
                    NOTES TO COMBINED FINANCIAL STATEMENTS
 
                               DECEMBER 31, 1997
(THE INFORMATION AS OF FEBRUARY 28, 1998 AND FOR THE TWO MONTHS ENDED FEBRUARY
                        28, 1997 AND 1998 IS UNAUDITED)
 
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
 Basis of Presentation
 
  The combined financial statements of Able Equipment Rental, Inc. include the
accounts of the following entities: Rental Equipment, Inc.; Butler & Son,
Inc.; Butler & Derbyshire, Inc.; Butler & O'Connor; Butler & Butler; Butler,
Rollins & Butler; Butler, Schlerf & Butler; Butler, Westbrook & Butler;
Butler, Binder & Butler; Butler, Cook & Butler; Butler, Henkle & Butler;
Butler, McKenney & Butler; Butler, Breitenstein & Butler; Butler, Escalante &
Butler; and Butler, Paeper & Butler (collectively the "Companies"). The
Companies are affiliated through common ownership. All significant
intercompany accounts and transactions have been eliminated in combination.
 
  These combined financial statements are prepared on a historical cost basis
and do not include any adjustments that may result from the acquisition of the
Companies by United Rentals, Inc. ("United") as more fully described in Note
10.
 
 Business Activity
 
  The Companies rent, sell and repair construction equipment for use by
contractor, industrial and homeowners markets. The rentals are on a daily,
weekly or monthly basis. The Companies have six locations and their principal
market area is Southern California. The nature of the Companies' business is
such that short-term obligations are typically met by cash flow generated from
long-term assets. Consequently, consistent with industry practice, the balance
sheet is presented on an unclassified basis.
 
  On March 29, 1997 Rental Equipment, Inc. acquired for $1,500,000 a
substantial amount of rental equipment and fixed assets from Sam's-U-Rent,
Inc. and assumed all operations. The Company utilized the funds available
under its line of credit to finance the purchase. The acquisition has been
accounted for as a purchase and, accordingly, at such date the Company
recorded the assets acquired at their estimated fair values.
 
 Interim Financial Statements
 
  The accompanying combined balance sheet at February 28, 1998 and the
combined statements of income, stockholders' equity and partners' capital and
cash flows for the two-month periods ended February 28, 1997 and 1998 are
unaudited and have been prepared on the same basis as the audited combined
financial statements included herein. In the opinion of management, such
unaudited combined financial statements include all adjustments necessary to
present fairly the information set forth therein, which consist solely of
normal recurring adjustments. The results of operations for such interim
period are not necessarily indicative of results for the full year.
 
 Inventory
 
  Inventory consists primarily of general replacement parts, fuel and
equipment held for resale and are stated at the lower of cost, determined
under the first-in, first-out method, or market.
 
 Rental Equipment
 
  Rental equipment is recorded at cost. Depreciation for rental equipment is
computed using the straight-line method over an estimated seven-year useful
life with no salvage value.
 
                                     F-163

 
                          ABLE EQUIPMENT RENTAL, INC.
 
              NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
 
 
  Ordinary maintenance and repair costs are charged to operations as incurred.
Proceeds from the disposal and the related net book value of the equipment are
recognized in the period of disposal and reported as revenue from sales of
rental equipment and cost of sales of rental equipment, respectively, in the
combined statement of income.
 
 Property and Equipment
 
  Property and equipment is stated at cost. Depreciation of property and
equipment is computed on the straight-line method over an estimated useful
life of seven years. Leasehold improvements are amortized using the straight-
line method over the estimated lives of the leasehold improvement or the
remaining life of the lease, whichever is shorter.
 
  Ordinary maintenance and repair costs are charged to operations as incurred.
The cost of assets sold, retired, or otherwise disposed of, and the related
accumulated depreciation is eliminated from the accounts and any resulting
gain or loss is included in operations.
 
 Rental Revenue
 
  Rental revenue is recorded as earned under the operating method.
 
 Advertising Costs
 
  The Companies advertise primarily through trade journals, trade associations
and phone directories. All advertising costs are expensed as incurred.
Advertising expense amounted to approximately $144,000, $17,000 and $24,000 in
the year ended December 31, 1997 and in the two months ended February 28, 1997
and 1998, respectively.
 
 Income Taxes
 
  Rental Equipment, Inc. and Butler & Son, Inc. have elected, by unanimous
consent of their shareholders, to be taxed under the provisions of Subchapter
S of the Internal Revenue Code for both federal and state purposes. Under
those provisions, the Companies do not pay federal or state income taxes;
instead, the shareholders are liable for individual income taxes on their
profits.
 
  Butler & Derbyshire, Inc., a C Corporation for federal tax purposes, applied
an asset and liability approach to accounting for income taxes. Deferred
income tax assets and liabilities arise from differences between the tax basis
of an asset or liability and its reported amount in the combined financial
statements. Deferred tax balances are determined by using tax rates to be in
effect when the taxes will actually be paid or refunds received.
 
  All the other entities included in these combined financial statements are
partnerships. No provision has been made in the accompanying financial
statements for any federal, state, or local income taxes since they are the
liability of the individual partners.
 
 Accounting Estimates
 
  The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
 
                                     F-164

 
                          ABLE EQUIPMENT RENTAL, INC.
 
              NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
 
 
2. CONCENTRATIONS OF CREDIT RISK
 
  The Companies maintain cash balances with a quality financial institution
and consequently, management believes funds maintained there are secure.
Concentrations of credit risk with respect to customer receivables are limited
due to the large number of customers comprising the Companies' customer base
and their credit policy.
 
3. RENTAL EQUIPMENT
 
  Rental equipment and related accumulated depreciation consists of the
following:
 


                                                       DECEMBER 31, FEBRUARY 28,
                                                           1997         1998
                                                       ------------ ------------
                                                                    (UNAUDITED)
                                                              
   Rental equipment................................... $16,709,153  $17,116,881
   Less accumulated depreciation......................   7,295,525    7,598,203
                                                       -----------  -----------
   Rental equipment, net.............................. $ 9,413,628  $ 9,518,678
                                                       ===========  ===========

 
4. PROPERTY AND EQUIPMENT
 
  Property and equipment consists of the following:
 


                                                       DECEMBER 31, FEBRUARY 28,
                                                           1997         1998
                                                       ------------ ------------
                                                                    (UNAUDITED)
                                                              
   Transportation equipment...........................  $  901,400   $1,228,870
   Furniture and fixtures.............................     321,638      330,289
   Leasehold improvements.............................     259,854      259,854
                                                        ----------   ----------
                                                         1,482,892    1,819,013
   Less accumulated depreciation......................     786,822      810,113
                                                        ----------   ----------
     Total............................................  $  696,070   $1,008,900
                                                        ==========   ==========

 
5. DEBT AND STOCKHOLDER LOAN
 
  Debt and stockholder loan consists of the following:
 


                                                      DECEMBER 31, FEBRUARY 28,
                                                          1997         1998
                                                      ------------ ------------
                                                                   (UNAUDITED)
                                                             
   Sanwa Bank--Various lines of credit with combined
    monthly payments of $122,452 and $163,958, in
    1997 and 1998 respectively including interest
    from 8.1% to 9.5%...............................   $8,120,710   $8,395,970
   Stockholder Loan--No set principal payments. Loan
    is due on December 13, 1999. The loan accrues
    interest at a rate of 10% per year. ............      364,600      364,600
                                                       ----------   ----------
                                                       $8,485,310   $8,760,570
                                                       ==========   ==========

 
  Substantially all rental equipment collateralized the above bank notes. All
debt was paid off in connection with the acquisition discussed in Note 10.
 
                                     F-165

 
                          ABLE EQUIPMENT RENTAL, INC.
 
              NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
 
 
6. INCOME TAXES
 
  The provision for income taxes consists of the following:
 


                                                                   TWO MONTHS
                                                                      ENDED
                                                     YEAR ENDED   FEBRUARY 28,
                                                    DECEMBER 31, ---------------
                                                        1997      1997    1998
                                                    ------------ ------- -------
                                                                   (UNAUDITED)
                                                                
   Current:
     Federal.......................................   $20,009    $   --  $ 7,023
     State.........................................    14,886        --    1,859
                                                      -------    ------- -------
                                                       34,895        --    8,882
   Deferred:
     Federal.......................................       --         --
     State.........................................    26,340     19,436  27,387
                                                      -------    ------- -------
                                                       26,340     19,436  27,387
                                                      -------    ------- -------
                                                      $61,235    $19,436 $36,269
                                                      =======    ======= =======

 
  Significant components of the Companies deferred tax liability are as
follows:
 


                                                       DECEMBER 31, FEBRUARY 28,
                                                           1997         1998
                                                       ------------ ------------
                                                                    (UNAUDITED)
                                                              
   Difference in basis of accounting..................   $34,375      $ 54,566
   Cumulative tax depreciation in excess of book......    51,973        59,169
                                                         -------      --------
   Deferred tax liability.............................   $86,348      $113,735
                                                         =======      ========

 
7. OPERATING LEASES
 
  The Companies lease six store locations on long-term leases. The Companies
are responsible for all operating expenses of the facilities including
property taxes, assessments, insurance, repairs and maintenance. These leases
have various terms and extend through May 2007 and include scheduled base rent
increases over the term of the leases. The total amount of the base rent
payments is being charged to expense on the straight-line method over the
terms of the leases. The Companies recorded a liability for deferred rent to
reflect the excess of rent expense over cash payments which is included in the
accompanying combined balance sheet.
 
  Total rent expense for the year ended December 31, 1997 and for the two
months ended February 28, 1997 and 1998 was approximately $846,000, $66,000
and $182,000, respectively.
 
  At December 31, 1997, minimum lease commitments under all operating leases,
with initial or remaining lease terms of more than one year, are as follows:
 
                                               
        1998............................................. $  918,000
        1999.............................................    851,000
        2000.............................................    810,000
        2001.............................................    810,000
        2002.............................................    810,000
        Thereafter.......................................  3,230,000
                                                          ----------
          Total.......................................... $7,429,000
                                                          ==========

        
 
                                     F-166

 
                          ABLE EQUIPMENT RENTAL, INC.
 
              NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
 
 
8. COMMON STOCK
 
  The common stock of the Companies at December 31, 1997 and February 28, 1998
(unaudited) is summarized as follows:
 


                                                         SHARES
                                                 ----------------------
                                                            ISSUED AND
                                       PAR VALUE AUTHORIZED OUTSTANDING AMOUNT
                                       --------- ---------- ----------- -------
                                                            
   Rental Equipment, Inc. ............     $10     7,500         500    $ 5,000
   Butler & Son, Inc. ................  no par     5,000         200      2,000
   Butler & Derbyshire, Inc...........  no par     5,000       1,000     10,000
                                                               -----    -------
                                                               1,700    $17,000
                                                               =====    =======

 
9. SUPPLEMENTAL CASH FLOW INFORMATION
 
  For the year ended December 31, 1997 and for the two months ended February
28, 1997 and 1998, total interest paid was $554,701, $48,666 and $114,822,
respectively.
 
  For the year ended December 31, 1997 and for the two months ended February
28, 1997 and 1998, total income taxes paid was $9,000, $0 and $0, respectively
 
10. SUBSEQUENT EVENT
 
  On March 23, 1998, under the terms of the stock purchase agreement, United
purchased all of the issued and outstanding capital stock of Rental Equipment
Inc., Butler & Son, Inc. and Butler & Derbyshire, Inc. as well as the net
assets of the partnerships included herein.
 
                                     F-167

 
         INDEPENDENT AUDITORS' REPORT ON COMBINED FINANCIAL STATEMENTS
 
Board of Directors Grand Valley Equipment Co., Inc.  and Kubota of Grand
Rapids, Inc.
 
  We have audited the accompanying combined balance sheet of Grand Valley
Equipment Co., Inc. and Kubota of Grand Rapids, Inc. as of December 31, 1997
and the related combined statements of income and retained earnings and cash
flows for the year then ended. These combined financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these combined financial statements based on our audit.
 
  We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the combined financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
 
  In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the financial position of Grand Valley
Equipment Co., Inc. and Kubota of Grand Rapids, Inc. as of December 31, 1997
and the results of operations and cash flows for the years then ended, in
conformity with generally accepted accounting principles.
 
/s/  Beene Garter LLP
 
July 23, 1998
Grand Rapids, Michigan
 
                                     F-168

 
       GRAND VALLEY EQUIPMENT CO., INC. AND KUBOTA OF GRAND RAPIDS, INC.
 
                            COMBINED BALANCE SHEETS
 


                                                       DECEMBER 31,   MAY 31,
                                                           1997        1998
                                                       ------------ -----------
                                                                    (UNAUDITED)
                                                              
                        ASSETS
Current Assets
  Cash................................................  $  440,146  $1,304,088
  Accounts receivable.................................     911,325   1,402,058
  Refundable income taxes.............................      63,287         --
  Inventories.........................................   1,296,093   2,231,832
                                                        ----------  ----------
TOTAL CURRENT ASSETS..................................   2,710,851   4,937,978
Rental Equipment, net.................................   4,724,733   3,438,583
Property, Plant and Equipment, net....................     238,388     237,995
                                                        ----------  ----------
                                                        $7,673,972  $8,614,556
                                                        ==========  ==========
         LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
  Bank overdraft......................................  $  311,917  $      --
  Notes payable.......................................   2,070,106   1,526,658
  Accounts payable....................................     289,310     275,169
  Accrued expenses
    Federal income tax................................         --      637,560
    Other.............................................     215,915     142,869
  Customer deposits...................................     154,472       6,769
  Deferred income taxes...............................     150,000     150,000
                                                        ----------  ----------
TOTAL CURRENT LIABILITIES.............................   3,191,720   2,739,025
Stockholders' Equity
  Common stock, no par value; authorized 50,000
   shares; issued and outstanding 6,000...............       6,000       6,000
  Common stock, $1 par value; authorized 50,000
   shares; issued and outstanding 21,750..............      21,750      21,750
  Retained earnings...................................   4,454,502   5,847,781
                                                        ----------  ----------
                                                         4,482,252   5,875,531
                                                        ----------  ----------
                                                        $7,673,972  $8,614,556
                                                        ==========  ==========

 
                             See accompanying notes
 
                                     F-169

 
       GRAND VALLEY EQUIPMENT CO., INC. AND KUBOTA OF GRAND RAPIDS, INC.
 
              COMBINED STATEMENTS OF INCOME AND RETAINED EARNINGS
 


                                                         FIVE MONTHS  FIVE MONTHS
                                            YEAR  ENDED     ENDED        ENDED
                                            DECEMBER 31,   MAY 31,      MAY 31,
                                                1997        1998         1997
                                            ------------ -----------  -----------
                                                         (UNAUDITED)  (UNAUDITED)
                                                             
Revenues
  Equipment rentals.......................   $3,082,730  $1,255,473   $1,123,104
  Sales of new, used and rental equipment,
   parts and other........................   15,188,885   6,921,749    6,007,118
                                             ----------  ----------   ----------
                                             18,271,615   8,177,222    7,130,222
Cost of Sales
  Rental equipment depreciation...........    1,697,339     748,000      635,000
  Cost of sales...........................   11,509,080   4,393,854    4,783,983
                                             ----------  ----------   ----------
                                             13,206,419   5,141,854    5,418,983
                                             ----------  ----------   ----------
GROSS PROFIT..............................    5,065,196   3,035,368    1,711,239
Selling, General and Administrative
 Expenses.................................    3,420,352     902,584    1,139,258
Non-rental Depreciation and Amortization..      102,359      35,350       38,250
                                             ----------  ----------   ----------
Operating Income..........................    1,542,485   2,097,434      533,731
                                             ----------  ----------   ----------
Other Income (Expense)
  Interest income.........................       45,631      33,621        5,503
  Gain on sale of non-rental equipment....       38,471         --           --
  Other income............................       75,857      22,028       34,293
  Interest expense........................     (111,927)    (32,804)     (51,729)
                                             ----------  ----------   ----------
                                                 48,032      22,845      (11,933)
                                             ----------  ----------   ----------
INCOME BEFORE INCOME TAXES................    1,590,517   2,120,279      521,798
Provision for Income Taxes................      544,138     727,000      187,000
                                             ----------  ----------   ----------
NET INCOME................................    1,046,379   1,393,279      334,798
Beginning Retained Earnings...............    3,408,123   4,454,502    3,408,123
                                             ----------  ----------   ----------
ENDING RETAINED EARNINGS..................   $4,454,502  $5,847,781   $3,742,921
                                             ==========  ==========   ==========

 
                             See accompanying notes
 
                                     F-170

 
       GRAND VALLEY EQUIPMENT CO., INC. AND KUBOTA OF GRAND RAPIDS, INC.
 
                       COMBINED STATEMENTS OF CASH FLOWS
 


                                                        FIVE MONTHS  FIVE MONTHS
                                           YEAR ENDED      ENDED        ENDED
                                          DECEMBER 31,    MAY 31,      MAY 31,
                                              1997         1998         1997
                                          ------------  -----------  -----------
                                                        (UNAUDITED)  (UNAUDITED)
                                                            
Cash Flows from Operating Activities
  Net income............................. $ 1,046,379   $1,393,279   $   334,798
  Adjustments to reconcile net income to
   net cash provided by operating
   activities............................
    Depreciation and amortization........   1,799,698      783,350       673,250
    Gain sale of non-rental equipment....     (38,741)         --            --
    Gain on sale of rental equipment.....    (604,752)    (912,841)     (209,378)
    Deferred income taxes................     185,000          --            --
    Changes in assets and liabilities
      Accounts receivable................    (187,919)    (427,446)     (540,038)
      Inventories........................     313,739     (935,739)     (315,768)
      Accounts payable, accrued expenses
       and other liabilities.............    (575,471)     402,670        22,895
                                          -----------   ----------   -----------
NET CASH PROVIDED (USED) BY OPERATING
 ACTIVITIES..............................   1,937,933      303,273       (34,241)
Cash Flows from Investing Activities
  Purchase of rental equipment...........  (9,056,754)    (902,990)   (1,948,032)
  Purchase of non-rental equipment.......     (73,591)     (34,958)      (56,649)
  Proceeds from sale of rental
   equipment.............................   7,205,622    2,353,982     2,239,869
  Proceeds from sale of non-rental
   equipment.............................      81,873          --            --
                                          -----------   ----------   -----------
NET CASH (USED) PROVIDED BY INVESTING
 ACTIVITIES..............................  (1,842,850)   1,416,034       235,188
Cash Flows from Financing Activities
  Bank overdraft.........................    (156,626)    (311,917)     (468,543)
  Change in notes payable................     285,939     (543,448)      142,528
                                          -----------   ----------   -----------
NET CASH PROVIDED (USED) BY FINANCING
 ACTIVITIES..............................     129,313     (855,365)     (326,015)
                                          -----------   ----------   -----------
INCREASE (DECREASE) IN CASH..............     224,396      863,942      (125,068)
Cash Balance at Beginning of Period......     215,750      440,146       215,750
                                          -----------   ----------   -----------
CASH BALANCE AT END OF PERIOD............ $   440,146   $1,304,088   $    90,682
                                          ===========   ==========   ===========
Supplemental Cash Flow Information
  Cash paid for interest................. $   111,927   $   32,804   $    51,729
  Cash paid for income taxes............. $   415,280   $   26,153   $   103,820

 
                             See accompanying notes
 
                                     F-171

 
       GRAND VALLEY EQUIPMENT CO., INC. AND KUBOTA OF GRAND RAPIDS, INC.
 
                         NOTES TO FINANCIAL STATEMENTS
 
                               DECEMBER 31, 1997
         (THE INFORMATION AS OF MAY 31, 1998 AND FOR THE THREE MONTHS
                   ENDED MAY 31, 1998 AND 1997 IS UNAUDITED)
 
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
 Nature of Business and Basis of Presentation
 
  The combined financial statements include the accounts of Grand Valley
Equipment Co., Inc. and Kubota of Grand Rapids, Inc. (collectively the
"Company"). Grand Valley Equipment Co., Inc. ("GVE") and Kubota of Grand
Rapids, Inc. ("KGR") are combined due to common ownership and operations which
are complimentary. The financial statements of GVE as of October 31, 1997
(GVE's fiscal year end) are combined with the financial statements of KGR as
of December 31, 1997. The financial statements of GVE as of March 31, 1998 and
1997 are combined with the financial statements of KGR as of May 31, 1998 and
1997.
 
  The Company rents and sells heavy and light machinery and equipment
primarily in the Western Michigan area. All significant intercompany accounts
and transactions have been eliminated on combination.
 
 Interim Financial Statements
 
  The accompanying combined balance sheets at May 31, 1998, and the combined
statements of income, and retained earnings and cash flows for the five month
periods ended May 31, 1998 and 1997 are unaudited and have been prepared on
the same basis as the audited combined financial statements included herein.
In the opinion of management, such unaudited combined financial statements
include all adjustments necessary to present fairly the information set forth
therein, which consist solely of normal recurring adjustments. The results of
operations for such interim periods are not necessarily indicative of results
for the full year.
 
 Inventories
 
  Inventories, which consist of heavy and light machinery and equipment, are
valued at the lower of cost or net realizable value.
 
 Revenue Recognition
 
  Revenue related to the sale of heavy and light machinery and equipment is
recognized at the point of sale. Revenue related to the rental of heavy and
light machinery is recognized at the time of return for rentals of one month
or less, and ratably over the contract term for rentals in excess of one
month.
 
 Rental Equipment
 
  Rental equipment is recorded at cost. Depreciation for rental equipment is
computed using an accelerated method over an estimated five-year useful life
with no salvage value.
 
 Property and Equipment
 
  Property and equipment are stated at cost. Depreciation of property and
equipment is provided on accelerated methods over the estimated useful lives
of the respective assets.
 
  The cost of assets sold, retired, or otherwise disposed of, and the related
accumulated depreciation is eliminated from the accounts and any resulting
gain or loss is included in operations. Ordinary maintenance and repair costs
are charged to operations as incurred.
 
                                     F-172

 
       GRAND VALLEY EQUIPMENT CO., INC. AND KUBOTA OF GRAND RAPIDS, INC.
 
                  NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
 
 
 Income Taxes
 
  The Company uses the "liability method" of accounting for income taxes.
Accordingly, deferred tax assets and liabilities would be determined based on
the difference between the financial statement and tax basis of assets and
liabilities, primarily due to differences in the carrying value of rental
equipment, using enacted tax rates in effect for the year in which the
differences are expected to reverse.
 
 Use of Estimates
 
  The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
 
NOTE 2--CONCENTRATIONS OF CREDIT RISK
 
  The Company maintains cash balances with quality financial institutions and,
consequently, management believes funds maintained there are secure.
Concentrations of credit risk with respect to customer receivables are limited
due to the large number of customers comprising the Company's customer base
and its credit policy.
 
NOTE 3--RENTAL EQUIPMENT
 
  Rental equipment and related accumulated depreciation consists of the
following:
 


                                                      DECEMBER 31,    MAY 31,
                                                          1997         1998
                                                      ------------  -----------
                                                                    (UNAUDITED)
                                                              
   Rental equipment.................................. $ 7,694,776   $ 7,156,627
   Less: Accumulated depreciation....................  (2,970,043)   (3,718,044)
                                                      -----------   -----------
   Rental Equipment, net............................. $ 4,724,733   $ 3,438,583
                                                      ===========   ===========

 
NOTE 4--PROPERTY AND EQUIPMENT
 
  Property and equipment consists of the following:
 


                                                        DECEMBER 31,   MAY 31,
                                                            1997        1998
                                                        ------------ -----------
                                                                     (UNAUDITED)
                                                               
   Land................................................  $   5,000    $   5,000
   Buildings...........................................     60,957       60,957
   Machinery and equipment.............................    270,759      270,759
   Office furniture and equipment......................     17,066       10,434
   Vehicles............................................    368,476      410,065
                                                         ---------    ---------
                                                           722,258      757,215
   Less: Accumulated depreciation......................   (483,870)    (519,220)
                                                         ---------    ---------
                                                         $ 238,388    $ 237,995
                                                         =========    =========

 
                                     F-173

 
       GRAND VALLEY EQUIPMENT CO., INC. AND KUBOTA OF GRAND RAPIDS, INC.
 
                  NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
 
NOTE 5--NOTES PAYABLE
 
  Notes payable consist of the following:
 


                                                       DECEMBER 31,   MAY 31,
                                                           1997        1998
                                                       ------------ -----------
                                                                    (UNAUDITED)
                                                              
   $2,500,000 line-of-credit, providing for interest
    at prime rate (8.5% at December 31, 1997), due in
    March, 1999, secured by the assets of the
    Company..........................................   $1,605,000  $  480,000
   Amounts due under manufacturer floor plan
    arrangement represent amounts on which principle
    and interest are not yet due.....................      465,106   1,046,658
                                                        ----------  ----------
                                                        $2,070,106  $1,526,658
                                                        ==========  ==========

 
NOTE 6--LEASES
 
  The Company leases operating facilities under operating leases from entities
under similar ownership. Rent expense under these leases totaled $184,000 for
the year ended December 31, 1997 and $30,000 and $77,000 for five months ended
May 31, 1998 and 1997, respectively. Under the lease agreements, aggregate
rent is payable in monthly installments of $6,000. The agreements provide for
an increase in annual rent based on the Consumer Price Index of the previous
five years. Future minimum rent commitments are $72,000 each for years ended
December 31, 1998 to December 31, 2004, to be adjusted based on the increase
in the Consumer Price Index. There is no formal lease agreement for the GVE
lease, they are leasing on a month to month basis.
 
NOTE 7--INCOME TAXES
 
  The provision for income taxes consists of the following:
 


                                                                 MAY 31,
                                            DECEMBER 31, -----------------------
                                                1997        1997        1998
                                            ------------ ----------- -----------
                                                         (UNAUDITED) (UNAUDITED)
                                                            
   Currently payable.......................   $359,138    $187,000    $727,000
   Deferred................................    185,000         --          --
                                              --------    --------    --------
   Federal income tax......................   $544,138    $187,000    $727,000
                                              ========    ========    ========

 
  The effective rate for income tax expense differs from the statutory rate of
34% when applied to income from continuing operations before income taxes due
to certain nondeductible expenses of the Company.
 
NOTE 8--RETIREMENT PLAN
 
  The Company has adopted a profit-sharing plan and a 401(k) plan that covers
substantially all employees and provides for discretionary employer and
voluntary employee contributions.
 
  KGR has established a defined contribution 401(k) retirement plan which
covers substantially all full-time employees. The employees may contribute up
to $9,500 annually. Company contributions are discretionary. Company
contributions to the plan were $20,102, $6,114 and $6,057 for the year ended
December 31, 1997 and for the five month periods ended May 31, 1998 and 1997,
respectively.
 
  GVE has established a Profit-Sharing Plan under section 401 and 501 of the
Internal Revenue Code. Substantially all full-time employees are eligible for
the plan. Yearly employer contributions are discretionary.
 
                                     F-174

 
       GRAND VALLEY EQUIPMENT CO., INC. AND KUBOTA OF GRAND RAPIDS, INC.
 
                   NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
 
Employees may also elect to contribute to the plan. Company contributions to
the plan were $151,152 for the year ended December 31, 1997. Company
contributions to the plan were $63,000 and $62,500 for the five month periods
ended May 31, 1998 and 1997, respectively.
 
NOTE 9--CONTINGENCIES
 
  The Company may occasionally be subject to certain liability claims resulting
from the normal course of business.
 
NOTE 10--SUBSEQUENT EVENT
 
  On June 9, 1998, the Company entered into a stock purchase agreement with
United Rentals, Inc. ("United"). Under the terms of the stock purchase
agreement, United purchased all of the issued and outstanding capital stock of
both GVE and KGR.
 
                                     F-175

 
                       REPORT OF INDEPENDENT ACCOUNTANTS
 
To the Stockholders ofMcClinch Equipment Services, Inc:
 
  We have audited the accompanying balance sheet of McClinch Equipment
Services, Inc. as of December 31, 1997, and the related statements of income
and retained earnings and cash flows for the year then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
 
  We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
 
  In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of McClinch Equipment
Services, Inc. as of December 31, 1997, and the results of its operations and
its cash flows for the year then ended in conformity with generally accepted
accounting principles.
 
                                          Coopers & Lybrand L.L.P.
 
Stamford, Connecticut
March 6, 1998.
 
                                     F-176

 
                       MCCLINCH EQUIPMENT SERVICES, INC.
 
                                 BALANCE SHEETS
 


                                                       DECEMBER 31,  JUNE 30,
                                                           1997        1998
                                                       ------------ -----------
                                                                    (UNAUDITED)
                                                              
                       ASSETS:
Cash and cash equivalents............................. $   314,000  $   439,000
Accounts receivable, less allowance for doubtful ac-
 counts of $75,000....................................   3,611,000    2,839,000
State income taxes receivable.........................       1,000        6,000
Inventories...........................................     354,000      459,000
Net investment in sales-type leases (Note 2)..........      49,000      130,000
Fixed assets, net (Note 3)............................  18,631,000   22,859,000
Other assets..........................................      29,000       25,000
Due from related parties..............................     151,000          --
                                                       -----------  -----------
  Total assets........................................ $23,140,000  $26,757,000
                                                       ===========  ===========
                     LIABILITIES:
Notes payable (Note 4)................................ $16,200,000  $18,021,000
Accounts payable and accrued expenses.................   1,237,000    1,193,000
Due to related parties................................         --       822,000
Deferred state income taxes (Note 6)..................     500,000      556,000
                                                       -----------  -----------
  Total liabilities...................................  17,937,000   20,592,000
                                                       -----------  -----------
Commitments (Note 8)

 
                                                              
                 STOCKHOLDERS' EQUITY:
Common stock, no par value; authorized, 6,000 shares;
 issued and outstanding, 100 shares....................         --          --
Additional paid-in capital.............................      10,000      10,000
Retained earnings......................................   5,193,000   6,155,000
                                                        ----------- -----------
  Total stockholders' equity...........................   5,203,000   6,165,000
                                                        ----------- -----------
  Total liabilities and stockholders' equity........... $23,140,000 $26,757,000
                                                        =========== ===========


 
 
    The accompanying notes are an integral part of the financial statements.
 
                                     F-177

 
                       MCCLINCH EQUIPMENT SERVICES, INC.
 
                   STATEMENTS OF INCOME AND RETAINED EARNINGS
 


                                                           SIX MONTHS ENDED
                                            YEAR ENDED         JUNE 30,
                                           DECEMBER 31,  ----------------------
                                               1997         1998        1997
                                           ------------  ----------  ----------
                                                              (UNAUDITED)
                                                            
Revenues:
  Equipment rentals and service........... $12,141,000   $6,626,000  $5,036,000
  Sales...................................   4,759,000    2,415,000   2,426,000
                                           -----------   ----------  ----------
                                            16,900,000    9,041,000   7,462,000
                                           -----------   ----------  ----------
Cost of equipment rentals and service
 (Note 5).................................   6,520,000    3,911,000   2,994,000
Cost of sales.............................   3,642,000    1,852,000   1,859,000
                                           -----------   ----------  ----------
    Gross profit..........................   6,738,000    3,278,000   2,609,000
Selling expenses (Note 5).................   1,540,000      690,000     663,000
General and administrative expenses (Note
 5).......................................   2,445,000      966,000     627,000
                                           -----------   ----------  ----------
                                             2,753,000    1,622,000   1,319,000
Other income (expense):
  Other income............................     410,000       39,000     207,000
  Interest income.........................      56,000       12,000      23,000
  Interest expense........................  (1,167,000)    (651,000)   (509,000)
                                           -----------   ----------  ----------
    Income before provision for state in-
     come taxes...........................   2,052,000    1,022,000   1,040,000
Provision for state income taxes:
  Current.................................       7,000        4,000       2,000
  Deferred................................     100,000       56,000      68,000
                                           -----------   ----------  ----------
    Net income............................   1,945,000      962,000     970,000
Retained earnings, beginning of period....   3,248,000    5,193,000   3,248,000
                                           -----------   ----------  ----------
    Retained earnings, end of period...... $ 5,193,000   $6,155,000  $4,218,000
                                           ===========   ==========  ==========

 
 
    The accompanying notes are an integral part of the financial statements.
 
                                     F-178

 
                       MCCLINCH EQUIPMENT SERVICES, INC.
 
                            STATEMENTS OF CASH FLOWS
 


                                                          SIX MONTHS ENDED
                                          YEAR ENDED          JUNE 30,
                                         DECEMBER 31,  ------------------------
                                             1997         1998         1997
                                         ------------  -----------  -----------
                                                             (UNAUDITED)
                                                           
Cash flows from operating activities:
  Net income............................ $ 1,945,000   $   962,000  $   970,000
  Adjustments to reconcile net income to
   net cash provided by operating
   activities:
    Depreciation........................   3,215,000     1,987,000    1,476,000
    Gain on sale of equipment...........    (180,000)     (115,000)     (76,000)
    Deferred state income taxes.........     100,000        56,000       68,000
                                         -----------   -----------  -----------
                                           5,080,000     2,890,000    2,438,000
  Changes in assets and liabilities:
    Accounts receivable.................  (1,460,000)      772,000       30,000
    State income taxes receivable.......       1,000        (5,000)      (4,000)
    Inventories.........................      (2,000)     (105,000)      60,000
    Other assets........................      (9,000)        4,000          --
    Accounts payable and accrued ex-
     penses.............................     449,000       (44,000)      91,000
    Due to related parties..............    (243,000)      973,000      124,000
                                         -----------   -----------  -----------
      Net cash provided by operating
       activities.......................   3,816,000     4,485,000    2,739,000
                                         -----------   -----------  -----------
Cash flows from investing activities:
  Acquisition of property and rental
   equipment............................  (8,814,000)   (6,425,000)  (5,550,000)
  Net investment in sales-type leases...      26,000       (81,000)      33,000
  Proceeds from the sale of equipment...     495,000       325,000      200,000
                                         -----------   -----------  -----------
      Net cash used in investing activi-
       ties.............................  (8,293,000)   (6,181,000)  (5,317,000)
                                         -----------   -----------  -----------
Cash flows from financing activities:
  Borrowings under line of credit.......   8,750,000     5,800,000    5,500,000
  Repayments under line of credit.......  (4,050,000)   (3,979,000)  (2,000,000)
                                         -----------   -----------  -----------
      Net cash provided by financing ac-
       tivities.........................   4,700,000     1,821,000    3,500,000
                                         -----------   -----------  -----------
      Net increase in cash and cash
       equivalents......................     223,000       125,000      922,000
Cash and cash equivalents, beginning of
 period.................................      91,000       314,000       91,000
                                         -----------   -----------  -----------
      Cash and cash equivalents, end of
       period........................... $   314,000   $   439,000  $ 1,013,000
                                         ===========   ===========  ===========
Supplemental disclosures of cash flow
 information:
  Cash paid during the period for:
   Interest............................. $ 1,131,000   $   648,000  $   491,000
   State income taxes...................       6,000         9,000        6,000

 
    The accompanying notes are an integral part of the financial statements.
 
                                     F-179

 
                       MCCLINCH EQUIPMENT SERVICES, INC.
 
                         NOTES TO FINANCIAL STATEMENTS
 (ALL INFORMATION AS OF AND FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997 IS
                                  UNAUDITED)
 
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
 Company's Business:
 
  McClinch Equipment Services, Inc. (the "Company") is an exclusive dealer for
JLG Industries in New Jersey, Delaware, Maryland, Washington D.C., and
Northern Virginia. The Company also has distribution agreements with other
manufacturers in New Jersey, Delaware, Maryland, Pennsylvania, Washington,
D.C. and Virginia. Revenues are derived principally from the rental of
aerialift equipment and material handling equipment and the sale of new and
used aerialift equipment to a diversified customer base including contractors
and other users.
 
 Basis of Presentation:
 
  The balance sheet is presented on an unclassified basis since it more
properly reflects the Company's operations as an equipment rental company.
 
 Interim Financial Statements:
 
  The accompanying balance sheet at June 30, 1998, and the statements of
income and retained earnings and cash flows for the six month periods June 30,
1998 and 1997 are unaudited and have been prepared on the same basis as the
audited financial statements included herein. In the opinion of management,
such unaudited financial statements include all adjustments necessary to
present fairly the information set forth therein, which consists solely of
normal recurring adjustments. The results of operations for such interim
periods are not necessarily indicative of results for the full year.
 
 Revenue Recognition:
 
  a. Operating Leases. Rental revenue is recognized over the lease term
(generally less than one year) as earned.
 
  b. Sales-Type Leases: Sales are recorded at amounts equal to the present
value of the minimum lease payments at the inception of the lease. The
unearned interest income represents the difference between the minimum lease
payments and the present value of such payments. Such interest income is
recognized over the life of the lease using the interest method.
 
 Cash and Cash Equivalents:
 
  Cash and cash equivalents consist primarily of cash in banks and temporary
cash investments with original maturities of less than 90 days. These balances
are insured by the Federal Deposit Insurance Corporation up to $100,000.
 
 Inventories:
 
  Inventories, consisting principally of aerialift equipment and related spare
parts, are recorded at the lower of first-in, first-out cost or market.
 
 Fixed Assets:
 
  Fixed assets, consisting principally of the Company's fleet of aerialift
equipment, primarily held for rental under operating leases, is stated at cost
and is depreciated using the straight-line method over the following estimated
useful lives: rental equipment, shop equipment, furniture and fixtures and
computer equipment, 7 years; vehicles, 5 years; and leasehold improvements,
over the remaining term of the lease.
 
 
                                     F-180

 
                       MCCLINCH EQUIPMENT SERVICES, INC.
 
                  NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
 (ALL INFORMATION AS OF AND FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997 IS
                                  UNAUDITED)
 
  Upon retirement or sale, the cost and related accumulated depreciation are
removed from the accounts and the resulting gains or losses are included in
income.
 
 Income Taxes:
 
  The Company has elected to be taxed as a Small Business Corporation under
the Internal Revenue Code. Under this regulation the Company's income is
reported for federal income tax purposes by the stockholders on their
individual tax returns. Accordingly, the financial statements reflect no
provision or liability for federal income taxes.
 
  The small business corporation election can be made in some of the states in
which the Company does business and accordingly, the financial statements only
reflect state income tax provisions for the states in which the election can
not be made.
 
  The Company recognizes deferred tax assets and liabilities for the expected
future state tax consequences of events that have been recognized in the
Company's financial statements or state tax returns. Under this method,
deferred tax assets and liabilities are determined based on the differences
between the financial statement carrying amounts and the tax bases of assets
and liabilities using enacted tax rates in effect in the years in which the
temporary differences are expected to reverse. A valuation allowance is
established when it is more likely than not that deferred tax assets will not
be realized.
 
 Estimates:
 
  The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
 
 Reclassifications:
 
  Certain amounts have been reclassified between balance sheet accounts in the
current year to more properly reflect the nature of the item.
 
2. SALES-TYPE LEASES
 
  The net investment in sales-type leases consists of the following:
 


                                                          DECEMBER 31, JUNE 30,
                                                              1997       1998
                                                          ------------ --------
                                                                 
   Minimum lease payments receivable.....................   $53,000    $145,000
     Less, Unearned interest income......................    (4,000)    (15,000)
                                                            -------    --------
   Net investment in sales-type leases...................   $49,000    $130,000
                                                            =======    ========

 
  All future minimum lease payments are receivable during 1998 and 1999.
 
                                     F-181

 
                       MCCLINCH EQUIPMENT SERVICES, INC.
 
                  NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
 (ALL INFORMATION AS OF AND FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997 IS
                                  UNAUDITED)
 
 
3. FIXED ASSETS
 
  Fixed assets consist of the following:
 


                                                        DECEMBER
                                                           31,       JUNE 30,
                                                          1997         1998
                                                       -----------  -----------
                                                              
   Land and building.................................. $       --   $   242,000
   Rental equipment...................................  24,854,000   30,325,000
   Vehicles...........................................   1,043,000    1,246,000
   Shop equipment.....................................      35,000       79,000
   Office equipment...................................      28,000       31,000
   Leasehold improvements.............................         --        32,000
                                                       -----------  -----------
                                                        25,960,000   31,955,000
     Less, Accumulated depreciation...................  (7,329,000)  (9,096,000)
                                                       -----------  -----------
                                                       $18,631,000  $22,859,000
                                                       ===========  ===========

 
4. NOTES PAYABLE
 
  The Company has available a revolving line of credit with a bank syndicate
totaling the lesser of $28,000,000 or an amount based on eligible accounts
receivable, parts inventory, new equipment inventory, vehicles and rental
equipment. The unused portion of the line of credit was $11,800,000 and
$9,979,000 at December 31, 1997 and June 30, 1998, respectively.
 
  At December 31, 1997, the outstanding balance bears interest at fluctuating
30-day LIBOR rate plus 2 1/4% (8.2% at December 31, 1997). Effective in
January 1998, the outstanding balance bears interest at the fluctuating 30-day
LIBOR rate plus 1 3/4% (7.4% at June 30, 1998) and the Company pays a
commitment fee of 1/4% per annum on the unused portion of the line of credit.
The Company has the option to borrow additional funds and/or convert all or a
portion of the outstanding balance to a fluctuating interest rate equal to the
lender's prime rate plus 1/2% or a fixed LIBOR rate plus 1 3/4% for 90, 180 or
360 days.
 
  The line of credit terminates on November 30, 1999 and extends automatically
every six months unless either party gives written notice to the other. Upon
termination or default, amounts outstanding under this line of credit convert
to a note which is payable in 48 monthly installments.
 
  Although there are no fixed payments on the principal, the Company expects
the aggregate maturities of debt outstanding at December 31, 1997 to
approximate the following:
 
                                                             
      1998........................................................... $4,050,000
      1999...........................................................  4,050,000
      2000...........................................................  4,050,000
      2001...........................................................  4,050,000

      
 
  Substantially all of the assets of the Company have been pledged as
collateral under the debt agreement. In addition, an affiliate of the Company
has guaranteed this debt.
 
  The lenders require, among other terms, that the Company and its affiliate
on a combined basis meet certain financial ratios and obtain approval prior to
issuing of advances or loans to stockholders or officers which exceed certain
amounts, as defined.
 
                                     F-182

 
                       MCCLINCH EQUIPMENT SERVICES, INC.
 
                  NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
 (ALL INFORMATION AS OF AND FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997 IS
                                  UNAUDITED)
 
 
5. RELATED PARTY TRANSACTIONS
 
  An affiliate (through common ownership) provides services to the Company in
connection with its operations. The primary expenses, which are incurred and
paid by the affiliate and allocated to the Company, include salaries
($1,750,000 for the year ended December 31, 1997 and $500,000 and $330,000 for
the six months ended June 30, 1998 and 1997, respectively, included in general
and administrative expenses) and spare parts inventory, trucking services and
insurance expenses ($850,000, for the year ended December 31, 1997, and
$430,000 and $361,000 for the six months ended June 30, 1998 and June 30,
1997, respectively, included in cost of equipment rentals and service).
 
  The Company rents equipment to the affiliate under an informal equipment
sharing agreement for ultimate rental to the affiliate's customers in New York
and Connecticut. In addition, the Company rents equipment from the affiliate
for ultimate rental to customers in its operating areas. The net revenue
earned (included in equipment rentals and service revenues) by the Company
under these arrangements for the year ended December 31, 1997 was $178,000 and
$239,000 and $230,000 for the six months ended June 30, 1998 and 1997,
respectively.
 
  The Company purchased used rental equipment from an affiliate for ultimate
sale to unrelated third parties amounting to $964,000 for the year ended
December 31, 1997 and $574,000 and $739,000 for the six months ended June 30,
1998 and 1997, respectively. Additionally, the Company sold used rental
equipment to the affiliate for ultimate sale to unrelated third parties. The
selling price of such equipment amounted to $239,000 for the year ended
December 31, 1997 and $78,000 and $138,000 for the six months ended June 30,
1998 and 1997, respectively.
 
  These transactions are settled in the normal course of business.
 
6. INCOME TAXES
 
  Deferred state income taxes are recorded to reflect primarily the tax
consequences on future years of temporary differences between the tax bases of
assets and liabilities, principally fixed assets and accounts receivable, and
their financial reporting amounts at each year-end and for tax operating loss
carryforwards.
 
  The components of deferred state tax assets and liabilities are as follows:
 


                                                        DECEMBER 31, JUNE 30,
                                                            1997       1998
                                                        ------------ ---------
                                                               
   Deferred tax assets:
     Net operating loss carryforward...................  $  22,000   $  22,000
     Accounts receivable...............................      5,000       5,000
   Deferred tax liabilities:
     Fixed assets......................................   (377,000)   (433,000)
     Other.............................................   (150,000)   (150,000)
                                                         ---------   ---------
                                                         $(500,000)  $(556,000)
                                                         =========   =========

 
  No valuation allowance has been recognized for deferred tax assets. The
Company has various state net operating loss carryforwards at December 31,
1997 of approximately $357,000 which expire from 2002 through 2012.
 
                                     F-183

 
                       MCCLINCH EQUIPMENT SERVICES, INC.
 
                  NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
 (ALL INFORMATION AS OF AND FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997 IS
                                  UNAUDITED)
 
 
7. PROFIT-SHARING PLAN
 
  The Company participates in a profit sharing plan with its affiliates which
provides for a discretionary contribution to a trust fund based on the
Company's net income for the year, to be allocated to all eligible employees
based on their proportional compensation. Nonunion employees are eligible for
participation in the plan after the completion of one year of service,
provided they have also reached age 21. After becoming eligible, employees
vest at an annual rate of 20%. Discretionary contributions under the plan by
the Company were $75,000 for the year ended December 31, 1997. There were no
discretionary contributions under the plan by the Company for the six months
ended June 30, 1998 and 1997.
 
  The plan also provides for a salary deferral plan pursuant to Section 401(k)
of the Internal Revenue Code, as amended. The plan requires the Company to
contribute an amount equal to 25% of employees' contributions not to exceed 6%
of their annual compensation up to $160,000. Participants vest in the
Company's contribution at the rate of 20% annually after becoming eligible.
Matching contributions under the plan by the Company were $12,000 for the year
ended December 31, 1997 and $9,000 for the six months ended June 30, 1998 and
1997.
 
8. COMMITMENTS
 
  The Company leases buildings in Delaware, Virginia, Maryland and New Jersey
from unrelated parties in the form of operating leases which expire in 1998
and 1999. Total future minimum lease payments of $190,000 are as follows:
1998, $163,000; and 1999, $27,000. In addition, the Company leases buildings
in New Jersey and Virginia on a month-to-month basis. Total rent expense of
$243,000 was incurred for the year ended December 31, 1997 and $135,000 and
$110,000 for the six months ended June 30, 1998 and 1997, respectively.
 
9. SUBSEQUENT EVENT (UNAUDITED)
 
  On September 1, 1998, United Rentals, Inc. acquired all of the outstanding
shares of common stock of the Company.
 
                                     F-184

 
                        REPORT OF INDEPENDENT AUDITORS
 
Board of Directors and Stockholders
Valley Rentals, Inc.
 
  We have audited the combined balance sheet of Valley Rentals, Inc. (see Note
1) (the "Companies") as of December 31, 1997 and the related combined
statements of income, stockholders' equity and partners' capital and cash
flows for the year then ended. These financial statements are the
responsibility of the Companies' management. Our responsibility is to express
an opinion on these financial statements based on our audit.
 
  We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
 
  In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined financial position of Valley
Rentals, Inc. at December 31, 1997, and the combined results of their
operations and their cash flows for the year then ended in conformity with
generally accepted accounting principles.
 
                                          /s/ Ernst & Young LLP
 
MetroPark, New Jersey
April 20, 1998, except for Note 10,
as to which the date is April 22,
1998
 
                                     F-185

 
                              VALLEY RENTALS, INC.
 
                            COMBINED BALANCE SHEETS
 


                                                      DECEMBER 31,   MARCH 31,
                                                          1997         1998
                                                      ------------  -----------
                                                                    (UNAUDITED)
                                                              
                       ASSETS
Cash................................................. $   663,540   $    86,842
Accounts receivable, net of allowance for doubtful
 accounts of $117,275................................   2,116,829     1,955,545
Inventory............................................     169,514       171,114
Rental equipment, net................................   9,696,900     9,846,963
Property and equipment, net..........................   1,791,348     1,763,087
Prepaid expenses and other assets....................      94,146        50,945
                                                      -----------   -----------
    Total assets..................................... $14,532,277   $13,874,496
                                                      ===========   ===========
          LIABILITIES AND STOCKHOLDERS' EQUITY AND PARTNERS' CAPITAL
Liabilities:
  Accounts payable, accrued expenses and other
   liabilities....................................... $ 1,684,216   $ 1,436,169
  Stockholder loan...................................     137,385       103,675
  Debt...............................................   1,109,707     1,432,271
                                                      -----------   -----------
    Total liabilities................................   2,931,308     2,972,115
Commitments and contingencies
Stockholders' equity and partners' capital:
 Stockholders' equity:
  Common stock, Valley Rentals, Inc., no par value,
   10,000 shares authorized,
   3,633 shares issued and outstanding...............      58,650        58,650
  Additional paid-in capital.........................   1,854,431     1,854,431
  Retained earnings..................................   9,691,223     8,992,635
 Partners' capital (deficit)--Valley Equipment
  Leasing, LLC ......................................      (3,335)       (3,335)
                                                      -----------   -----------
    Total stockholders' equity and partners'
     capital.........................................  11,600,969    10,902,381
                                                      -----------   -----------
    Total liabilities and stockholders' equity and
     partners' capital............................... $14,532,277   $13,874,496
                                                      ===========   ===========

 
 
                            See accompanying notes.
 
                                     F-186

 
                              VALLEY RENTALS, INC.
 
                         COMBINED STATEMENTS OF INCOME
 


                                                          THREE MONTHS ENDED
                                            YEAR ENDED         MARCH 31,
                                           DECEMBER 31,  ----------------------
                                               1997         1997        1998
                                           ------------  ----------  ----------
                                                              (UNAUDITED)
                                                            
Revenues:
  Equipment rentals....................... $12,998,863   $2,984,396  $2,835,547
  Sales of rental equipment...............     663,776      201,797     351,103
  Sales of parts, supplies and new
   equipment..............................   1,965,431      203,804     226,372
                                           -----------   ----------  ----------
    Total revenues........................  15,628,070    3,389,997   3,413,022
Cost of revenues:
  Cost of equipment rentals, excluding
   equipment rental depreciation..........   3,809,895      834,400   1,051,236
  Depreciation, equipment rentals.........   3,475,710      758,568     783,393
  Cost of rental equipment sales..........     336,664      186,153     170,128
  Cost of parts, supplies and new
   equipment sales........................   1,001,695      138,994     159,831
                                           -----------   ----------  ----------
    Total cost of revenues................   8,623,964    1,918,115   2,164,588
                                           -----------   ----------  ----------
    Gross profit..........................   7,004,106    1,471,882   1,248,434
Selling, general and administrative
 expenses.................................   4,725,084    1,159,283   1,226,219
Non-rental depreciation...................     304,895       69,072      91,525
                                           -----------   ----------  ----------
    Operating income (loss)...............   1,974,127      243,527     (69,310)
Interest expense..........................     159,488       23,739      12,321
Interest (income).........................     (61,651)     (15,784)    (19,445)
Other (income), net.......................     (37,427)       7,053       9,785
                                           -----------   ----------  ----------
    Net income (loss)..................... $ 1,913,717   $  228,519  $  (71,971)
                                           ===========   ==========  ==========

 
 
                            See accompanying notes.
 
                                     F-187

 
                              VALLEY RENTALS, INC.
 
       COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY AND PARTNERS' CAPITAL
 


                                 COMMON STOCK  ADDITIONAL              PARTNERS'
                                --------------  PAID-IN    RETAINED     CAPITAL
                                SHARES AMOUNT   CAPITAL    EARNINGS    (DEFICIT)
                                ------ ------- ---------- -----------  ---------
                                                        
Balance at January 1, 1997....  3,633  $58,650 $1,854,431 $ 8,819,142  $(10,877)
  Net income..................                              1,906,175     7,542
  Stockholder distributions...                             (1,034,094)
                                -----  ------- ---------- -----------  --------
Balance at December 31, 1997..  3,633   58,650  1,854,431   9,691,223    (3,335)
  Net loss (Unaudited)........                                (71,971)
  Stockholder distributions
   (Unaudited)................                               (626,617)
                                -----  ------- ---------- -----------  --------
Balance at March 31, 1998 (Un-
 audited).....................  3,633  $58,650 $1,854,431 $ 8,992,635  $ (3,335)
                                =====  ======= ========== ===========  ========

 
 
 
 
                            See accompanying notes.
 
                                     F-188

 
                              VALLEY RENTALS, INC.
 
                       COMBINED STATEMENTS OF CASH FLOWS
 
 


                                                         THREE MONTHS ENDED
                                          YEAR ENDED         MARCH 31,
                                         DECEMBER 31,  -----------------------
                                             1997         1997        1998
                                         ------------  ----------  -----------
                                                            (UNAUDITED)
                                                          
Cash flows from operating activities
Net income (loss)......................  $ 1,913,717   $  228,519  $   (71,971)
Adjustments to reconcile net income to
 net cash provided by operating
 activities:
  Depreciation.........................    3,780,605      827,640      874,918
  Gain on rental equipment sales.......     (327,112)     (15,644)    (180,975)
  Changes in assets and liabilities:
   (Increase) decrease in accounts re-
    ceivable...........................     (245,964)     (72,829)     161,284
   Decrease (increase) in inventory....        1,557       (2,500)      (1,600)
   (Increase) decrease in prepaid ex-
    penses and other assets............      (27,197)      34,521       43,201
   Decrease in accounts payable,
    accrued expenses and other
    liabilities........................      (26,197)    (358,397)    (248,047)
                                         -----------   ----------  -----------
Cash provided by operating activities..    5,069,409      641,310      576,810
Cash flows from investing activities
Purchase of rental equipment...........   (3,479,228)    (287,751)  (1,006,687)
Proceeds from sale of rental
 equipment.............................      663,776      201,797      351,103
Purchases of property and equipment....     (364,461)    (127,632)     (63,264)
                                         -----------   ----------  -----------
Cash used in investing activities......   (3,179,913)    (213,586)    (718,848)
Cash flows from financing activities
Stockholder distribution...............   (1,034,094)  (1,471,458)    (626,617)
Principal payments on debt.............   (2,706,431)    (178,032)    (253,043)
Borrowings under credit facilities.....    2,193,000    1,000,000      445,000
                                         -----------   ----------  -----------
Cash used in financing activities......   (1,547,525)    (649,490)    (434,660)
                                         -----------   ----------  -----------
Increase (decrease) in cash............      341,971     (221,766)    (576,698)
Cash balance at beginning of period....      321,569      321,569      663,540
                                         -----------   ----------  -----------
Cash balance at end of period..........  $   663,540   $   99,803  $    86,842
                                         ===========   ==========  ===========

 
 
                            See accompanying notes.
 
                                     F-189

 
                             VALLEY RENTALS, INC.
 
                    NOTES TO COMBINED FINANCIAL STATEMENTS
 
                         YEAR ENDED DECEMBER 31, 1997
(THE INFORMATION AS OF MARCH 31, 1998 AND FOR THE THREE MONTHS ENDED MARCH 31,
                          1997 AND 1998 IS UNAUDITED)
 
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
BASIS OF PRESENTATION
 
  The combined financial statements of Valley Rentals, Inc. include the
accounts of Valley Rentals, Inc. ("Valley") and Valley Equipment Leasing, LLC
("Valley Equipment") (collectively the "Companies"). The Companies are
affiliated through common ownership. All significant intercompany accounts and
transactions have been eliminated in combination.
 
  These combined financial statements are prepared on a historical cost basis
and do not include any adjustments that may result from the acquisition of the
Companies by United Rentals, Inc. ("United") as more fully described in Note
10.
 
BUSINESS ACTIVITIES
 
  The Companies rent, sell and repair construction equipment for use by
contractor, industrial and homeowners markets. The rentals are on a daily,
weekly or monthly basis. The Companies have three locations (Longview,
Vancouver and Turnwater) and the principal market area is Washington State.
The nature of the Companies' business is such that short-term obligations are
typically met by cash flow generated from long-term assets. Consequently,
consistent with industry practice, the balance sheet is presented on an
unclassified basis.
 
INTERIM FINANCIAL STATEMENTS
 
  The accompanying combined balance sheet at March 31, 1998 and the combined
statements of income, stockholders' equity and partners' capital and cash
flows for the three-month periods ended March 31, 1997 and 1998 are unaudited
and have been prepared on the same basis as the audited combined financial
statements included herein. In the opinion of management, such unaudited
combined financial statements include all adjustments necessary to present
fairly the information set forth therein, which consist solely of normal
recurring adjustments. The results of operations for such interim period are
not necessarily indicative of results for the full year.
 
INVENTORY
 
  Inventories consists primarily of equipment, general replacement parts and
fuel for the equipment and are stated at the lower of cost, determined under
the first-in, first-out method, or market.
 
RENTAL EQUIPMENT
 
  Rental equipment is recorded at cost. Rental equipment costing less than
$1,500 is immediately expensed at the date of purchase. Depreciation for
rental equipment is computed using the straight-line method over an estimated
five to seven-year useful life with no salvage value. Ordinary maintenance and
repair costs are charged to operations as incurred. Proceeds from the disposal
and the related net book value of the equipment are recognized in the period
of disposal and reported as revenue from sales of rental equipment and cost of
sales of rental equipment, respectively, in the combined statement of income.
 
                                     F-190

 
                             VALLEY RENTALS, INC.
 
              NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
 
 
PROPERTY AND EQUIPMENT
 
  Property and equipment is stated at cost. The Company capitalizes all
property and equipment purchases greater than $1,500. Depreciation of property
and equipment is computed on the straight-line method over estimated useful
lives of 5 to 10 years with no salvage value. Leasehold improvements are
amortized using the straight-line method over the estimated lives of the
improvements or the remaining life of the lease, whichever is shorter.
 
  Ordinary maintenance and repair costs are charged to operations as incurred.
The cost of assets sold, retired, or otherwise disposed of, and the related
accumulated depreciation is eliminated from the accounts and any resulting
gain or loss is included in operations.
 
RENTAL REVENUE
 
  Rental revenue is recorded as earned under the operating method.
 
ADVERTISING COSTS
 
  The Companies advertise primarily through trade journals, trade associations
and phone directories. All advertising costs are expensed as incurred.
Advertising expense amounted to $250,984, $49,386 and $51,026 in the year
ended December 31, 1997 and for the three months ended March 31, 1997 and
1998, respectively.
 
INCOME TAXES
 
  Valley has elected, by unanimous consent of its shareholders, to be taxed
under the provisions of Subchapter S of the Internal Revenue Code for federal
purposes. Under those provisions, Valley does not pay federal income taxes;
instead, the shareholders are liable for individual income taxes on Valley's
profits. Valley Equipment, an LLC, is not a taxable entity and, therefore,
incurs no income tax liability. Any profits and losses of Valley Equipment
flow through to the individual members.
 
ACCOUNTING ESTIMATES
 
  The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
 
2. CONCENTRATIONS OF CREDIT RISK
 
  The Companies maintain cash balances with a quality financial institution
and, consequently, management believes funds maintained there are secure.
Concentrations of credit risk with respect to customer receivables are limited
due to the large number of customers comprising the Companies' customer base
and their credit policy.
 
3. RENTAL EQUIPMENT
 
  Rental equipment and related accumulated depreciation consists of the
following:
 


                                                       DECEMBER 31,  MARCH 31,
                                                           1997        1998
                                                       ------------ -----------
                                                                    (UNAUDITED)
                                                              
   Rental equipment................................... $22,504,852  $22,858,436
   Less accumulated depreciation......................  12,807,952   13,011,473
                                                       -----------  -----------
   Rental equipment, net.............................. $ 9,696,900  $ 9,846,963
                                                       ===========  ===========

 
                                     F-191

 
                             VALLEY RENTALS, INC.
 
              NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
 
 
4. PROPERTY AND EQUIPMENT
 
  Property and equipment consists of the following:
 


                                                        DECEMBER 31,  MARCH 31,
                                                            1997        1998
                                                        ------------ -----------
                                                                     (UNAUDITED)
                                                               
   Land................................................  $  463,000  $  463,000
   Building and building improvements..................     431,313     431,313
   Transportation equipment............................   1,360,766   1,424,030
   Furniture, fixtures and equipment...................     487,153     487,153
   Leasehold improvements..............................     557,781     557,781
                                                         ----------  ----------
                                                          3,300,013   3,363,277
   Less accumulated depreciation.......................   1,508,665   1,600,190
                                                         ----------  ----------
   Total...............................................  $1,791,348  $1,763,087
                                                         ==========  ==========

 
5. DEBT
 
  Debt consists of the following:
 


                                                        DECEMBER 31,  MARCH 31,
                                                            1997        1998
                                                        ------------ -----------
                                                                     (UNAUDITED)
                                                               
   Columbia State Bank--Various notes with combined
    monthly payments of $21,148 including interest of
    9%................................................   $  779,050  $  739,337
   Columbia State Bank--Revolving line of credit loan
    of $1,500,000 expiring on June 1, 1998 and bearing
    interest at 0.5% over prime.......................            0     445,000
   John Deere Credit--Various notes with combined
    monthly payments of $31,093 including interest
    from 5.5% to 5.9%.................................      262,918     206,202
   Ingersoll Rand--Various non-interest bearing notes
    with combined monthly payments of $14,253.........       67,739      41,732
                                                         ----------  ----------
                                                         $1,109,707  $1,432,271
                                                         ==========  ==========

 
  Substantially all assets collateralize the above notes.
 
  All debt was paid off in connection with the acquisition discussed in Note
10.
 
6. OPERATING LEASES
 
  The Companies lease two store locations on long term leases. The Companies
are responsible for all operating expenses of the facilities including
property taxes, assessments, insurance, repairs and maintenance. These leases
have various terms and extend through December 2001.
 
  Total rent expense for the year ended December 31, 1997 and for the three
months ended March 31, 1997 and 1998 was approximately $136,100, $33,900 and
$33,900, respectively.
 
                                     F-192

 
                             VALLEY RENTALS, INC.
 
              NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
 
 
  At December 31, 1997, minimum lease commitments under all operating leases,
with initial or remaining lease terms of more than one year, are as follows:
 
                                                                  
   1998................................................................ $225,452
   1999................................................................  218,252
   2000................................................................  204,300
   2001................................................................   58,710
   2002................................................................        0
                                                                        --------
   Total............................................................... $706,714
                                                                        ========

   
 
7. RELATED PARTY TRANSACTIONS
 
  The Companies lease two of its three operating facilities from the president
and a majority stockholder of the Companies on a five year lease basis
expiring October 31, 2000 and December 31, 2001. The Companies are responsible
for all operating expenses of the facilities including property taxes,
assessment, insurance, repairs and maintenance. Total rent expense for the
year ended December 31, 1997 and for the three months ended March 31, 1997 and
1998 was approximately $124,800, $31,200 and $31,200, respectively.
 
  In connection with the acquisition discussed in Note 10, the lease terms
have been renegotiated.
 
  The Companies paid $50,000, $0 and $0 during the year ended December 31,
1997, and the three months ended March 31, 1997 and 1998, respectively, to the
members of the board of directors, who are also shareholders.
 
  The Companies also have a note payable to its majority stockholder totaling
$137,385 and $103,675 at December 31, 1997 and March 31, 1998, respectively,
bearing interest at 8.75%. No repayment schedule has been established.
 
  In January and April 1998, the Companies made payments of $627,542 on behalf
of its Stockholders to the Internal Revenue Service.
 
8. SUPPLEMENTAL CASH FLOW INFORMATION
 
  For the year ended December 31, 1997 and for the three months ended March
31, 1997 and 1998 total interest paid was $159,517, $25,499 and $14,050,
respectively.
 
  During 1997 the Companies purchased $508,830 of equipment which was financed
and $72,993 of equipment which was traded in like-kind exchanges. During the
three months ended March 31, 1997 and 1998 the Companies purchased $187,737
and $96,897 of equipment, respectively, which was financed.
 
9. PENSION AND PROFIT-SHARING PLANS
 
  The Companies have a defined contribution 401(k) pension plan which covers
substantially all employees. The Companies match 10% up to the first six
percent of the employees contribution. Companies contributions to the plan
were $9,773, $2,762 and $3,577 for the year ended December 31, 1997 and for
the three months ended March 31, 1997 and 1998, respectively.
 
  In addition, Valley maintains a profit-sharing plan which covers
substantially all employees. Valley's contributions are discretionary and
amounted to $140,000, $30,000 and $34,500 for the year ended December 31, 1997
and for the three months ended March 31, 1997 and 1998, respectively.
 
10. SUBSEQUENT EVENT
 
  On April 22, 1998, under the terms of the stock purchase agreement, United
purchased all of the issued and outstanding capital stock of the Companies.
 
                                     F-193

 
                        INDEPENDENT ACCOUNTANTS' REPORT
 
To the Board of Directors and Stockholders of Lift Systems, Inc.
 
  We have audited the balance sheet of Lift Systems, Inc. as of December 31,
1997 and the related statements of income, changes in stockholders' equity,
and cash flows for the year then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
 
  We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
 
  In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Lift Systems, Inc. as of
December 31, 1997 and the results of its operations and cash flows for the
year then ended, in conformity with generally accepted accounting principles.
 
                                          /s/ Altschuler, Melvoin and Glasser
                                           LLP
 
Chicago, Illinois
March 12, 1998, except for Note 8 as to which the date is July 27, 1998
 
                                     F-194

 
                               LIFT SYSTEMS, INC.
 
                                 BALANCE SHEETS
 


                                                         DECEMBER    JUNE 30,
                                                         31, 1997      1998
                                                        ----------- -----------
                        ASSETS                                      (UNAUDITED)
                                                              
Rental Equipment:
  Cost................................................. $20,050,950 $21,424,239
  Less accumulated depreciation........................   8,931,693   9,661,284
                                                        ----------- -----------
                                                         11,119,257  11,762,955
                                                        ----------- -----------
Cash and Cash Equivalents..............................     176,993     255,606
Accounts Receivable, Net of Allowances of $135,000
 (1997) and $115,000 (1998)............................   3,359,585   2,995,040
Equipment Held for Resale..............................     233,152     310,236
Other Assets...........................................     619,874     649,339
                                                        ----------- -----------
                                                          4,389,604   4,210,221
                                                        ----------- -----------
Other Depreciable Equipment, At Cost:
  Vehicles.............................................   1,624,753   1,600,872
  Mobile radio equipment...............................      19,134      19,134
  Shop tools and equipment.............................     158,615     167,260
  Maintenance equipment................................     160,783     160,783
  Office furniture and equipment.......................     162,785     164,589
  Computer systems.....................................     390,873     402,674
                                                        ----------- -----------
                                                          2,516,943   2,515,312
  Less accumulated depreciation........................   1,293,400   1,424,304
                                                        ----------- -----------
                                                          1,223,543   1,091,008
                                                        ----------- -----------
Land, Building and Improvements:
  Cost.................................................   1,532,442   1,545,120
  Less accumulated depreciation........................     111,194     132,786
                                                        ----------- -----------
                                                          1,421,248   1,412,334
                                                        ----------- -----------
                                                        $18,153,652 $18,476,518
                                                        =========== ===========
         LIABILITIES AND STOCKHOLDERS' EQUITY
Long-term Debt Secured by Rental Equipment............. $ 9,267,350 $ 8,988,045
Bank Line of Credit Note Payable.......................
Trade Accounts Payable.................................     198,935     761,084
Other Accrued Liabilities..............................     543,229     368,200
Deferred State Income Taxes............................      93,475      86,948
Other Long-term Debt...................................   1,366,636   1,340,528
                                                        ----------- -----------
                                                         11,469,625  11,544,805
                                                        ----------- -----------
Stockholders' Equity:
  Common stock:
    $1.00 par value; 100,000 shares authorized; 800
     shares issued and outstanding.....................         800         800
  Additional paid-in capital...........................      79,200      79,200
  Retained earnings....................................   6,604,027   6,851,713
                                                        ----------- -----------
                                                          6,684,027   6,931,713
                                                        ----------- -----------
                                                        $18,153,652 $18,476,518
                                                        =========== ===========

         The accompanying notes are an integral part of this statement.
 
                                     F-195

 
                               LIFT SYSTEMS, INC.
 
                              STATEMENT OF INCOME
 


                                           YEAR ENDED     SIX-MONTH PERIODS
                                          DECEMBER 31,     ENDED JUNE 30,
                                              1997        1998         1997
                                          ------------ -----------  -----------
                                                       (UNAUDITED)  (UNAUDITED)
                                                           
Operating Revenue:
  Equipment sales........................  $2,812,545  $1,931,706   $ 1,322,954
  Rentals................................  10,020,489   4,887,706     4,485,354
  Transport..............................   1,030,373     548,971       468,159
  Service and parts sales................     651,546     426,477       367,754
  Other..................................      23,998      42,674         4,568
                                           ----------  ----------   -----------
                                           14,538,951   7,837,534     6,648,789
  Less cost of equipment sold............   1,734,679   1,109,815       662,150
                                           ----------  ----------   -----------
Gross Operating Profit...................  12,804,272   6,727,719     5,986,639
                                           ----------  ----------   -----------
Operating Expenses:
  Direct cost of rental revenue (except
   depreciation).........................   1,817,749     795,148       865,690
  External costs of transport revenue....      29,767      13,458           605
  Costs of service revenue and parts
   sales.................................     427,230     228,673       238,811
  Personnel costs, not charged to direct
   costs above...........................   3,093,421   1,915,085     1,403,832
  General and administrative expenses....     940,036     626,553       460,341
  Insurance based on revenue.............     113,627      67,292        65,324
  Occupancy expenses.....................     123,877      63,384        53,172
  Provision for bad debts................      73,076      34,888        30,398
                                           ----------  ----------   -----------
                                            6,618,783   3,744,481     3,118,173
                                           ----------  ----------   -----------
Income from Operations...................   6,185,489   2,983,238     2,868,466
Other Income (Expense):
  Interest expense.......................    (857,800)   (439,540)     (406,076)
  Interest income........................      28,897      14,619        11,963
  Discretionary compensation.............    (435,900)   (113,247)     (132,000)
  Profit-sharing contribution............    (212,622)     (1,098)      (68,274)
  Gain (Loss) on sale of property and
   equipment.............................       9,335      14,300        13,498
  Other..................................       6,926      22,924         3,070
                                           ----------  ----------   -----------
Income before Depreciation, Amortization
 and Income Taxes........................   4,724,325   2,481,196     2,290,647
Depreciation and Amortization............  (3,824,466) (2,128,510)   (1,806,349)
Provision for Deferred State Income Tax-
 es......................................     (15,000)     (5,000)       (8,000)
                                           ----------  ----------   -----------
Net Income...............................  $  884,859  $  347,686   $   476,298
                                           ==========  ==========   ===========

 
         The accompanying notes are an integral part of this statement.
 
                                     F-196

 
                               LIFT SYSTEMS, INC.
 
                  STATEMENT OF CHANGES IN STOCKHOLDER'S EQUITY
 


                                             ADDITIONAL
                                      COMMON  PAID-IN    RETAINED
                                      STOCK   CAPITAL    EARNINGS     TOTAL
                                      ------ ---------- ----------  ----------
                                                        
Balance, January 1, 1997.............  $800   $79,200   $5,823,929  $5,903,929
Net Income for 1997..................                      884,859     884,859
Redemption of Common Stock...........                       (4,761)     (4,761)
Dividends............................                     (100,000)   (100,000)
                                       ----   -------   ----------  ----------
Balance, December 31, 1997...........   800    79,200    6,604,027   6,684,027
Net Income for the Six-month Period
 Ended June 30, 1998 (unaudited).....                      347,686     347,686
Dividends............................                     (100,000)   (100,000)
                                       ----   -------   ----------  ----------
Balance, June 30, 1998 (unaudited)...  $800   $79,200   $6,851,713  $6,931,713
                                       ====   =======   ==========  ==========

 
 
 
         The accompanying notes are an integral part of this statement.
 
                                     F-197

 
                               LIFT SYSTEMS, INC.
 
                            STATEMENT OF CASH FLOWS
 


                                                           SIX-MONTH PERIODS
                                           YEAR ENDED       ENDED JUNE 30,
                                          DECEMBER 31,
                                              1997         1998         1997
                                          ------------  -----------  -----------
                                                        (UNAUDITED)  (UNAUDITED)
                                                            
Cash Flows from Operating Activities:
  Collections from customers............. $12,312,047   $ 7,148,389  $5,868,998
  Interest income collected..............      28,897        13,248      11,963
  Commissions collected..................      23,997        42,674       4,568
  Other income collected.................       6,926        22,924       3,070
  Cash paid to suppliers.................  (5,357,199)   (2,660,434) (1,374,588)
  Cash paid to employees.................  (3,534,083)   (1,914,664) (1,618,151)
  Interest paid..........................    (857,800)     (444,849)   (406,279)
  State income taxes paid................      (6,000)      (11,527)     (6,000)
                                          -----------   -----------  ----------
  Net cash provided by operating
   activities............................   2,616,785     2,195,761   2,483,581
                                          -----------   -----------  ----------
Cash Flows from Investing Activities:
  Proceeds from sales of rental
   equipment.............................   1,453,297     1,132,766     871,244
  Proceeds from sale of nonrental
   property..............................      45,391        29,336      43,891
  Purchases of rental equipment..........  (5,274,037)   (2,784,636) (3,114,099)
  Purchases of other depreciable
   property..............................    (309,438)      (76,523)   (207,675)
  Payments for land and building
   improvements..........................           0       (12,678)          0
                                          -----------   -----------  ----------
  Net cash used in investing activities..  (4,084,787)   (1,711,735) (2,406,639)
                                          -----------   -----------  ----------
Cash Flows from Financing Activities:
  Proceeds from bank loans for rental
   equipment.............................   4,149,000     1,406,000   1,221,000
  Proceeds from line of credit...........   1,699,000       883,000     300,000
  Payments on rental equipment loans.....  (2,989,158)   (1,685,305) (1,549,169)
  Payments on line of credit.............  (2,199,000)     (883,000)   (800,000)
  Payments on other long-term debt.......     (20,183)      (18,984)     (2,433)
  Payments on real estate mortgage loan..     (13,987)       (7,124)     (6,563)
  Payments on noncompete agreement.......     (14,000)            0           0
  Payments on stock purchase.............      (4,761)            0           0
  Payments of dividends..................    (100,000)     (100,000)   (100,000)
                                          -----------   -----------  ----------
  Net cash provided by (used in)
   financing activities..................     506,911      (405,413)   (937,165)
                                          -----------   -----------  ----------
Net (Decrease) Increase in Cash and Cash
 Equivalents.............................    (961,091)       78,613    (860,223)
Cash and Cash Equivalents, Beginning of
 Period..................................   1,138,084       176,993   1,138,084
                                          -----------   -----------  ----------
Cash and Cash Equivalents, End of
 Period.................................. $   176,993   $   255,606  $  277,861
                                          ===========   ===========  ==========

 
 
         The accompanying notes are an integral part of this statement.
 
                                     F-198

 
                               LIFT SYSTEMS, INC.
 
                            STATEMENT OF CASH FLOWS
 


                                                        SIX-MONTH PERIODS
                                                         ENDED JUNE 30,
                                        YEAR-ENDED
                                       DECEMBER 31,
                                           1997         1998         1997
                                       ------------  -----------  -----------
                                                     (UNAUDITED)  (UNAUDITED)
                                                                   
Reconciliation of Net Income to Net
 Cash Provided by Operating
 Activities:
  Net income.......................... $   884,859   $  347,686   $  476,298
                                       -----------   ----------   ----------
    Adjustments to reconcile net
     income to net cash provided by
     operating activities:
      Depreciation and amortization...   3,824,466    2,128,510    1,806,349
      Provision for bad debts.........      73,076       34,888       30,398
      Provision for profit-sharing
       contribution...................     212,622        1,098       68,274
      Loss (Gain) on sale of other
       depreciable property...........      (9,335)     (14,300)     (13,498)
      Purchases of equipment for
       resale ........................    (233,152)    (310,236)
      Proceeds from sales of rental
       equipment......................  (1,453,297)  (1,132,766)    (871,244)
      Original cost of rental
       equipment sold.................   2,037,886    1,606,185    1,255,161
      Accumulated depreciation of
       rental equipment sold..........  (1,366,834)  (1,128,111)    (914,433)
      Decrease (Increase) in accounts
       receivable.....................  (1,139,008)     328,991     (131,662)
      Decrease (Increase) in other
       assets.........................     (57,006)     (46,777)     108,243
      Increase (Decrease) in accounts
       payable........................      (6,875)     562,149      636,772
      Increase (Decrease) in deferred
       state income taxes.............       9,000       (6,527)       2,000
      Decrease in other accrued
       liabilities....................    (159,617)    (175,029)      30,923
                                       -----------   ----------   ----------
        Total adjustments.............   1,731,926    1,848,075    2,007,283
                                       -----------   ----------   ----------
Net Cash Provided by Operating
 Activities........................... $ 2,616,785   $2,195,761   $2,483,581
                                       ===========   ==========   ==========
  Supplemental Schedule of Noncash
   Financing Activities:
    During 1997, the Company did like-
    kind exchanges of rental equipment
    - one with a customer and nine
    with a manufacturer/supplier. The
    gross acquired cost and
    accumulated depreciation of the
    equipment given up in these
    exchanges were $121,965 and
    $38,326, respectively, yielding a
    capitalized cost of $83,639 for
    the items of equipment acquired.
    During 1997, the Company entered
    into financing leases totaling
    $214,255 (see Note 5).

 
         The accompanying notes are an integral part of this statement.
 
                                     F-199

 
                              LIFT SYSTEMS, INC.
 
                         NOTES TO FINANCIAL STATEMENTS
 
      DECEMBER 31, 1997 (THE INFORMATION AS OF JUNE 30, 1998 AND FOR THE
         SIX MONTH PERIODS ENDED JUNE 30, 1998 AND 1997 IS UNAUDITED)
 
 
  Lift Systems, Inc. sells, services, rents and transports aerial lift
equipment. Its primary customers are specialty construction contractors and
industrial maintenance departments in Northeast Illinois, Southeast Wisconsin
and Northwest Indiana. In management's opinion, the Company has no current
risk of significant vulnerability due to dependence on individual suppliers or
concentrations of revenue streams or receivables in a single or a limited
number of customers.
 
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
  In preparing financial statements in conformity with generally accepted
accounting principles, management makes estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosures of contingent
assets and liabilities at the date of the financial statements, as well as the
reported amounts of revenue and expenses during the reporting period. Actual
results could differ from those estimates.
 
  These financial statements are prepared on a historical cost basis and do
not include any adjustments that may result from the acquisition of the
Company by United Rentals, Inc. ("United") as more fully described in Note 8.
 
 Interim Financial Statements
 
  The accompanying balance sheet at June 30, 1998 and the statements of
income, stockholders' equity and cash flows for the six month periods ended
June 30, 1998 and 1997 are unaudited and have been prepared on the same basis
as the audited financial statements included herein. In the opinion of
management, such unaudited financial statements include all adjustments
necessary to present fairly the information set forth therein, which consist
solely of normal recurring adjustments. The results of operations for such
interim periods are not necessarily indicative of results for the full year.
 
 Rental Revenue
 
  Rental revenue is recognized on a daily basis under operating leases
covering rental equipment. Such leases typically range from one day to several
months.
 
 Depreciation and Amortization
 
  Amounts capitalized to components of the headquarters facility, other than
land, are being depreciated on a straight-line basis with lives ranging from 5
to 39 years for both financial and tax reporting purposes. For financial
reporting purposes, all other depreciation is provided on a straight-line
basis over seven years for shop tools and equipment and office furniture and
equipment, and over five years for rental equipment and most other depreciable
assets. Total depreciation expense reflected in these financial statements for
1997 and for the six month periods ended June 30, 1998 and 1997 is $3,789,843,
$2,111,198 and $1,789,037 respectively. For tax purposes, equipment
depreciation is computed over the same lives but using the maximum rates
allowed by the Internal Revenue Code.
 
  The cost of the noncompete agreement (see Note 3) is being amortized monthly
on a straight-line basis over five years, the term of the agreement. The
amount of such amortization reflected in these financial statements for 1997
and for the six month periods ended June 30, 1998 and 1997 is $34,000, $17,000
and $17,000 respectively.
 
                                     F-200

 
                              LIFT SYSTEMS, INC.
 
                  NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
 
      DECEMBER 31, 1997 (THE INFORMATION AS OF JUNE 30, 1998 AND FOR THE
         SIX MONTH PERIODS ENDED JUNE 30, 1998 AND 1997 IS UNAUDITED)
 
 
  Total mortgage acquisition costs of $15,594 (see Note 5) are being amortized
over 25 years on a straight line basis.
 
 Income Taxes
 
  Lift Systems, Inc. has elected to be taxed as a Subchapter S corporation
whereby corporate taxable income is allocated to the stockholders and reported
on their individual income tax returns. Accordingly, no provision for federal
income taxes is required in the accompanying financial statements. However,
the Company is subject to Illinois, Wisconsin and Indiana state income taxes.
 
  For income tax purposes, the Company reports income on a modified cash basis
and uses accelerated methods of depreciation as described above. Accordingly,
deferred state income taxes have been provided on the temporary differences in
reporting income for financial statement and tax reporting purposes.
 
 Cash and Cash Equivalents
 
  Cash and cash equivalents consist of unrestricted funds in checking accounts
and an interest bearing money market account.
 
NOTE 2--LAND AND BUILDING
 
  On September 13, 1994, the Company purchased eight acres of land and a
masonry building of 22,500 square feet to serve as the Company's headquarters
and primary operating facility for the foreseeable future. The primary
financing for this property was provided by a purchase money mortgage secured
by a promissory note as more fully described in Note 5 below. The closing
purchase price of this property was $1.2 million. Operations recommenced from
the new location on Monday, January 30, 1995. At June 30, 1998 the capitalized
costs consisted of the following:
 


                                                         ACCUMULATED   NET BOOK
                                                 COST    DEPRECIATION   VALUE
                                              ---------- ------------ ----------
                                                             
      Land................................... $  407,512        --    $  407,512
      Building............................... $  804,524   $ 69,452   $  735,072
      Land Improvements...................... $  333,084   $ 63,334   $  269,750
                                              ----------   --------   ----------
                                              $1,545,120   $132,786   $1,412,334
                                              ==========   ========   ==========

 
NOTE 3--NONCOMPETE AGREEMENT
 
  Included in Other Assets is the cost of a noncompete agreement, net of
accumulated amortization, which amortization method is described above. The
gross cost of this agreement was $170,000 consisting of an immediate payment
of $100,000 and annual installments of $14,000 to be paid on or about July 1
of each year for five years with the first installment due on July 1, 1994,
provided that the former shareholder is in compliance with the terms of the
agreement. The noncompete agreement arose concurrently with, as an integral
part of, and in partial consideration for, a Stock Redemption Agreement as
more fully described in Note 6 below. The liability related to the noncompete
agreement was $14,000 at December 31,1997 and at June 30, 1998. This liability
is included in Other Long-Term Debt.
 
                                     F-201

 
                              LIFT SYSTEMS, INC.
 
                  NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
 
      DECEMBER 31, 1997 (THE INFORMATION AS OF JUNE 30, 1998 AND FOR THE
         SIX MONTH PERIODS ENDED JUNE 30, 1998 AND 1997 IS UNAUDITED)
 
 
NOTE 4--SHORT-TERM LINES OF CREDIT
 
  The Company has in place an overall credit facility as further described in
Note 5 below, under which the Company has available a $500,000 revolving line
of credit for working capital purposes. Amounts borrowed under this credit
agreement bear interest at a floating rate of .25% over the bank's prime rate.
There were no amounts outstanding under this line of credit at December 31,
1997 or at June 30, 1998.
 
  Under the same bank credit facility, the Company may borrow up to $400,000
under a revolving equipment loan agreement. The purpose of this facility is to
provide short-term rental equipment financing until the total borrowed under
this facility reaches at least $350,000 or amounts have been outstanding under
this facility for six months. At such times, the total outstanding under this
revolving equipment loan will be converted to a five or seven year term note
bearing a fixed interest rate as further described below. Amounts outstanding
under this revolving agreement bear interest computed daily at a floating rate
of .25% over the bank's prime rate. There were no amounts outstanding under
this line of credit at December 31, 1997 or at June 30, 1998.
 
  These credit facilities were renewed on April 30, 1998 for 90 days at the
same terms.
 
NOTE 5--LONG TERM DEBT AND LINES OF CREDIT
 
  As of December 31, 1997, Lift Systems, Inc. had established an overall
credit facility of $12,000,000. This consists of a $500,000 revolving loan
commitment as described under Note 4 above and an $12,000,000 equipment loan
commitment. The $12,000,000 commitment amount is the maximum amount of
principal that may be outstanding under the short-term revolving equipment
loan arrangement and any long-term equipment loans owed to the bank. Long-term
equipment loans, other than "Large Equipment Term Loans", are repayable in
sixty equal monthly installments of principal and interest fixed at a rate of
2.5% or 2.25% over the five year Treasury rate at the time the loan is
established. Large Equipment Term Loans are defined as term loans up to the
aggregate maximum principal amount of $750,000, the proceeds of which are used
to finance or refinance the purchase price of booms and scissors-lifts that
are 50 feet and over in height and have a net cost exceeding $60,000. Such
Large Equipment Term Loans will be repayable over five years based on a seven
year amortization in equal monthly installments of principal and interest
fixed at a rate of 2.5% over the five year Treasury rate at the time the loan
is established.
 
  The proceeds of all amounts borrowed under the equipment loan commitment
must be used to finance or refinance the purchase price of new rental
equipment inventory at not more than 80% of the net cost of such equipment.
Any term loan may be voluntarily prepaid in whole or in part, at any time,
provided that any voluntary prepayment in full prior to maturity must be
accompanied by a voluntary prepayment penalty of 3% if paid within one year of
original funding, 2.5% if between one and two years, 2% between two and three
years and 1% between three and four years. Mandatory prepayments, with no
penalty, must be made when any item of equipment listed as specific collateral
on a term loan is sold.
 
  Among other covenants, the Company must maintain its principal accounts at
the lending bank, furnish the bank with audited annual financial statements
and unaudited quarterly financial statements and at all times maintain; a
tangible net worth of at least $4,500,000; a ratio of Unsubordinated
Liabilities to Tangible Net Worth of not more than 3 to 1; and a Debt Service
Coverage Ratio of at least 1.25 to 1.0.
 
  In addition to the equipment term loans being specifically collateralized by
various items of rental equipment any amounts borrowed under the overall
credit facility are secured by a blanket security interest in
 
                                     F-202

 
                              LIFT SYSTEMS, INC.
 
                  NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
 
      DECEMBER 31, 1997 (THE INFORMATION AS OF JUNE 30, 1998 AND FOR THE
         SIX MONTH PERIODS ENDED JUNE 30, 1998 AND 1997 IS UNAUDITED)
 
substantially all the assets of the Company and the personal guarantee of the
majority stockholder of Lift Systems, Inc.
 
  On September 13, 1994, the Company purchased property as more fully
described in Note 2 above. The funds to close this purchase were obtained
through a purchase money mortgage secured by a promissory note with a variable
rate. Installment payments of principal and interest are payable on the first
day of each calendar month beginning November 1, 1994, and all principal and
interest must be paid on or before 25 years from the date of the Note,
September 13, 1994. The variable interest rate is determined as 2% over the
prime rate as published in the Wall Street Journal. The first business day of
each calendar quarter constitutes an interest rate change date. The initial
interest rate from September 13 through October 2, 1994, was 9.25% per annum.
On December 31, 1997 and June 30, 1998, the interest rate in effect was 10.5%
per annum. Under Section 7(a) of the Small Business Act, the U.S. Small
Business Administration has guaranteed 62.5% of this loan to the lender. This
loan is also secured by the personal guarantee of each of the three
officer/employee/stockholders of Lift Systems, Inc. The remaining principal
balance of $1,162,394 and $1,155,270 at December 31, 1997 and June 30, 1998
respectively is also included under Other Long-term Debt.
 
  During 1997, Lift Systems, Inc. entered into a Term Lease Master Agreement
with IBM Credit Corporation to provide financing for many of the out-of-pocket
costs incurred in acquiring and converting to the Company's new central
computer system. The first funding under this arrangement was a principal
amount of $186,040 on June 26, 1997 to be repaid at a monthly total amount of
$3,720 over 60 months (through June 2002) which includes interest at an
effective annual rate of 7.67%. The second funding occurred on October 21,
1997 for a principal amount of $28,215 to be repaid at a monthly total amount
of $601 over 59 months (through September 2002) which includes interest at an
effective annual rate of 9.97%. Inasmuch as these leases provide for $1
purchase options on the hardware items, these transactions have been recorded
as financing leases in these financial statements with the assets acquired
capitalized under Computer Systems and the net principal balance owing
included under Other Long-Term Debt on the balance sheet.
 
  Principal amounts of all long-term debt outstanding at June 30, 1998, are
due as follows for the twelve month periods ending June 30:
 
                               
            1999............................. $ 2,812,660
            2000.............................   2,532,723
            2001.............................   2,153,742
            2002.............................   1,313,872
            2003.............................     455,894
            2004 through 2008................     161,236
            2009 through 2013................     271,942
            2014 through 2018................     458,657
            2019 through 2020................     167,847
                                              -----------
                                              $10,328,573
                                              ===========

            
 
NOTE 6--COMMITMENTS
 
 Lease Commitments
 
  Rental expenses on all facilities leased by Lift Systems, Inc. during 1997
and through June 30, 1998 were immaterial. On February 13, 1998 Lift Systems,
Inc. entered into a lease for a branch facility in Rockford, Illinois
 
                                     F-203

 
                              LIFT SYSTEMS, INC.
 
                  NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
 
      DECEMBER 31, 1997 (THE INFORMATION AS OF JUNE 30, 1998 AND FOR THE
         SIX MONTH PERIODS ENDED JUNE 30, 1998 AND 1997 IS UNAUDITED)
 
commencing April 1, 1998 for a fixed term of three years. Annual basic rents
are $48,000 for the first year payable $4,000 on the first day of each month,
$51,600 for the second year payable $4,300 on the first day of each month, and
$55,200 for the third year payable $4,600 on the first day of each month.
There is one option to extend the lease for two years at the same rental
amount as the third year stated above. The Company is responsible for all real
estate taxes, utility expenses, and all routine maintenance and operating
costs during the lease term and any extensions thereof. The lessor is
responsible for certain structural and mechanical systems repair and
maintenance costs. The Company has the option to purchase the leased property
during the first three years of the lease for $430,000 with a binding contract
for purchase and sale to be completed six months prior to the expiration of
the initial lease term. The Company has an additional option to purchase the
property on these same conditions during the option period at a purchase price
$445,000.
 
 Redemption Agreement
 
  On July 1, 1993, Lift Systems, Inc. acquired and retired all 200 shares of
stock owned by a then 20% stockholder. Concurrently with and as conditions of
the Stock Redemption Agreement, the selling stockholder entered into a
Noncompete Agreement with Lift Systems, Inc. and the Company executed a
Contingent Promissory Note for the purchase price of the stock. The potential
maximum consideration for the stock is $330,000 (all of which has been paid or
accrued as of December 31, 1997), payable in accordance with the terms and
provisions and subject to the conditions, restrictions and contingencies
provided for in the Contingent Promissory Note. The Contingent Promissory Note
provides, in general, for an annual anniversary payment to be made on or after
July 1, of each year until the total payments equal $330,000 or until July 1,
2001, at which time any amount not computed to be payable up to the Maximum
Aggregate Amount of $330,000 would be extinguished as an obligation of Lift
Systems, Inc. The amount to be paid each year is defined as the lesser of 50%
of modified net income or the Annual Amount (as defined).
 
  For each of the years ended December 31, 1993 through 1997, the Annual
Amount was due under this agreement on or after July 1 of the following year.
At December 31, 1997, the $4,761 present value of the final payment has been
recorded in Other Accrued Liabilities and as a cost of the stock redemption.
 
NOTE 7--PROFIT SHARING PLAN
 
  The Company established a qualified profit-sharing plan effective January 1,
1993, primarily to provide retirement benefits for substantially all full time
employees with a minimum of one year of service. Contributions to the plan are
made in discretionary amounts as determined by the Company's Board of
Directors, limited to the maximum amount deductible for federal income tax
purposes.
 
NOTE 8--SUBSEQUENT EVENTS
 
  The Company is defendant in certain litigation matters arising in the normal
course of business. In the opinion of management, the ultimate resolution of
such matters will not have a material effect on the financial position or
results of operations of the Company.
 
  The stockholders of Lift Systems, Inc. sold all of the outstanding stock in
the Company to United Rentals, Inc. on July 27, 1998.
 
                                     F-204

 
                        REPORT OF INDEPENDENT AUDITORS
 
To the Board of Directors of
 Perco Group Ltd.
 
  We have audited the consolidated balance sheet of Perco Group Ltd. as at
December 31, 1997 and the consolidated statements of earnings, retained
earnings and changes in financial position for the year then ended. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audit.
 
  We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation.
 
  In our opinion, these consolidated financial statements present fairly, in
all material respects, the financial position of Perco Group Ltd. as at
December 31, 1997 and the results of its operations and the changes in its
financial position for the year then ended in accordance with generally
accepted accounting principles in Canada.
 
  Generally accepted accounting principles in Canada vary in certain
significant respects from generally accepted accounting principles in the
United States. Application of generally accepted accounting principles in the
United States would have affected results of operations for the year ended
December 31, 1997 and stockholders' equity as at December 31, 1997 to the
extent summarized in note 12 to the consolidated financial statements.
 
KPMG
 
Montreal, Canada
 
February 2, 1998, except as to note 14 which
 is as of May 22, 1998
 
                                     F-205

 
                                PERCO GROUP LTD.
 
                           CONSOLIDATED BALANCE SHEET
                        (EXPRESSED IN CANADIAN DOLLARS)
 


                                                        DECEMBER 31,   MAY 19,
                                                            1997        1998
                                                        ------------ -----------
                                                                     (UNAUDITED)
                                                               
                        ASSETS
Current assets:
  Cash................................................  $   373,650  $   530,617
  Accounts receivable (note 2)........................    4,373,577    3,256,006
  Income taxes receivable.............................      183,914      693,930
  Inventories.........................................    1,588,724    1,792,572
  Prepaid expenses....................................       75,770       34,217
                                                        -----------  -----------
                                                          6,595,635    6,307,342
Fixed assets (note 3).................................   12,915,691   14,791,687
Deferred financing costs, at cost less accumulated am-
 ortization...........................................       85,807       74,307
                                                        -----------  -----------
                                                        $19,597,133  $21,173,336
                                                        ===========  ===========
         LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
  Bank indebtedness (note 4)..........................  $   771,465  $ 2,013,896
  Accounts payable....................................      993,820      861,171
  Accrued liabilities.................................      582,365      602,670
  Current portion of long-term debt (note 5)..........    2,295,000    2,453,000
  Current portion of obligation under capital leases
   (note 6)...........................................      229,678      197,678
                                                        -----------  -----------
                                                          4,872,328    6,128,415
Long-term debt (note 5)...............................    6,742,512    7,430,691
Obligation under capital leases (note 6)..............      171,042      150,579
Deferred income taxes.................................    1,753,145    1,823,983
Non-controlling interest..............................    1,004,523      916,084
Redeemable shares (note 7)............................    1,062,500    1,062,500
Shareholders' equity:
  Capital stock (note 8)..............................      312,500      862,500
  Retained earnings...................................    3,678,583    2,798,584
                                                        -----------  -----------
                                                          3,991,083    3,661,084
Commitments (note 9)..................................
Subsequent event (note 14)............................
                                                        -----------  -----------
                                                        $19,597,133  $21,173,336
                                                        ===========  ===========

 
          See accompanying notes to consolidated financial statements.
 
                                     F-206

 
                                PERCO GROUP LTD.
 
                       CONSOLIDATED STATEMENT OF EARNINGS
                        (EXPRESSED IN CANADIAN DOLLARS)
 


                                                        PERIOD FROM  PERIOD FROM
                                                        JANUARY 1,   JANUARY 1,
                                            YEAR ENDED     1998         1997
                                           DECEMBER 31, THROUGH MAY  THROUGH MAY
                                               1997      19, 1998     19, 1997
                                           ------------ -----------  -----------
                                                        (UNAUDITED)  (UNAUDITED)
                                                            
Revenues:
  Rental income........................... $14,509,900  $3,806,126   $4,190,553
  Sales...................................   4,334,959   1,950,448    1,584,392
  Gain on disposal of fixed assets........     647,352     231,616      324,940
                                           -----------  ----------   ----------
                                            19,492,211   5,988,190    6,099,885
Direct rental expenses, excluding
 equipment rental depreciation............   5,659,124   1,664,660    1,931,926
Depreciation on rental equipment..........   1,776,368     747,819      660,160
Cost of goods sold........................   3,344,842   1,484,590    1,263,506
                                           -----------  ----------   ----------
                                            10,780,334   3,897,069    3,855,592
                                           -----------  ----------   ----------
Earnings before undernoted items..........   8,711,877   2,091,121    2,244,293
Operating expenses:
  Selling and administrative expenses.....   5,516,606   2,305,247    2,097,712
  Non-rental depreciation.................     411,626     134,082      152,915
  Interest on long-term debt and
   obligation under capital leases........     837,963     348,449      279,915
  Other financial expenses................      37,907      13,683       43,915
                                           -----------  ----------   ----------
                                             6,804,102   2,801,461    2,574,457
                                           -----------  ----------   ----------
Earnings (loss) before income taxes and
 non-controlling interest.................   1,907,775    (710,340)    (330,164)
Income taxes:
  Current (notes 10 and 11)...............     767,053    (362,740)    (126,927)
  Deferred................................     103,371      70,838        5,000
                                           -----------  ----------   ----------
                                               870,424    (291,902)    (121,927)
                                           -----------  ----------   ----------
Earnings (loss) before non-controlling
 interest.................................   1,037,351    (418,438)    (208,237)
Non-controlling interest..................     131,507     (88,439)     (52,524)
                                           -----------  ----------   ----------
Net earnings (loss)....................... $   905,844  $ (329,999)  $ (155,713)
                                           ===========  ==========   ==========

 
          See accompanying notes to consolidated financial statements.
 
                                     F-207

 
                                PERCO GROUP LTD.
 
                  CONSOLIDATED STATEMENT OF RETAINED EARNINGS
                        (EXPRESSED IN CANADIAN DOLLARS)
 


                                                                     PERIOD FROM
                                                                     JANUARY 1,
                                                         YEAR ENDED     1998
                                                        DECEMBER 31, THROUGH MAY
                                                            1997      19, 1998
                                                        ------------ -----------
                                                                     (UNAUDITED)
                                                               
Retained earnings, beginning of period................   $2,772,739  $3,678,583
Net earnings (loss)...................................      905,844    (329,999)
Transfer to paid-up capital of the outstanding Class B
 shares (note 8)......................................          --     (550,000)
                                                         ----------  ----------
Retained earnings, end of period......................   $3,678,583  $2,798,584
                                                         ==========  ==========

 
 
 
          See accompanying notes to consolidated financial statements.
 
                                     F-208

 
                                PERCO GROUP LTD.
 
            CONSOLIDATED STATEMENT OF CHANGES IN FINANCIAL POSITION
                        (EXPRESSED IN CANADIAN DOLLARS)
 


                                                      PERIOD FROM  PERIOD FROM
                                                      JANUARY 1,   JANUARY 1,
                                         YEAR ENDED      1998         1997
                                          DECEMBER    THROUGH MAY  THROUGH MAY
                                          31, 1997     19, 1998     19, 1997
                                         -----------  -----------  -----------
                                                      (UNAUDITED)  (UNAUDITED)
                                                          
Cash provided by (used in):
Operations:
  Net earnings (loss)................... $   905,844  $  (329,999) $  (155,713)
  Items not involving cash:
   Gain on disposal of fixed assets.....    (647,352)    (231,616)    (324,940)
   Depreciation of fixed assets.........   2,187,994      881,901      813,074
   Amortization of deferred charges.....      27,600       11,500        9,200
   Deferred income taxes................     103,371       70,838        5,000
   Non-controlling interest.............     131,507      (88,439)     (52,524)
  Net change in non-cash operating
   working capital:
   Accounts receivable..................    (296,315)   1,117,571      702,850
   Income taxes receivable..............    (183,914)    (510,016)    (288,650)
   Inventories..........................    (168,676)    (203,848)    (308,566)
   Prepaid expenses.....................     (27,975)      41,553      (97,906)
   Accounts payable.....................      14,272     (132,649)     309,283
   Accrued liabilities..................      56,010       20,305       82,393
   Income taxes payable.................    (165,307)         --      (165,307)
                                         -----------  -----------  -----------
                                           1,937,059      647,101      528,194
Financing:
  Increase in long-term debt............   2,199,387    1,593,853    1,539,000
  Decrease in long-term debt............  (2,008,686)    (747,674)    (498,098)
  Decrease in obligation under capital
   leases...............................    (163,372)     (52,463)     (56,896)
                                         -----------  -----------  -----------
                                              27,329      793,716      984,006
Investing:
  Acquisition of fixed assets...........  (3,561,771)  (2,982,984)  (2,297,799)
  Proceeds of disposal of fixed assets..     895,007      456,703      420,142
                                         -----------  -----------  -----------
                                          (2,666,764)  (2,526,281)  (1,877,657)
                                         -----------  -----------  -----------
Decrease in cash........................    (702,376)  (1,085,464)    (365,457)
Cash (bank indebtedness net of cash),
 beginning of period....................     304,561     (397,815)     304,561
                                         -----------  -----------  -----------
Bank indebtedness net of cash, end of
 period................................. $  (397,815) $(1,483,279) $   (60,896)
                                         ===========  ===========  ===========

 
          See accompanying notes to consolidated financial statements.
 
                                     F-209

 
                               PERCO GROUP LTD.
 
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        (EXPRESSED IN CANADIAN DOLLARS)
 
                         YEAR ENDED DECEMBER 31, 1997
  (THE INFORMATION AT MAY 19, 1998 AND FOR THE PERIOD FROM JANUARY 1, THROUGH
                     MAY 19, 1998 AND 1997 IS UNAUDITED.)
 
  The Company, incorporated under Part 1A of the Quebec Companies Act, is
involved primarily in the rental of industrial and building equipment in
Canada.
 
1. SIGNIFICANT ACCOUNTING POLICIES:
 
 (a) Basis of presentation:
 
  The accompanying consolidated financial statements are presented in
accordance with accounting principles generally accepted in Canada (Canadian
GAAP).
 
  As described in note 14, the Company was acquired by United Rentals of
Canada (Quebec), Inc. These financial statements are prepared on the basis of
their predecessor historical costs and do not include any adjustments that may
result from the acquisition of the Company by United Rentals of Canada
(Quebec), Inc.
 
 (b) Basis of consolidation:
 
  The consolidated financial statements include the accounts of Perco Group
Ltd. and its subsidiary, 2633-4680 Quebec Inc.
 
 (c) Interim financial statements:
 
  The accompanying balance sheet at May 19, 1998 and the statements of
earnings, retained earnings and changes in financial position for the period
from January 1, through May 19, 1998 and 1997 are unaudited and have been
prepared on a basis that is consistent with the audited consolidated financial
statements included herein. In the opinion of management, such unaudited
financial statements include all adjustments necessary to present fairly the
information set forth therein, which consist solely of normal recurring
adjustments. The results of operation for such interim periods are not
necessarily indication of results for a full year.
 
 (d) Inventories:
 
  Goods and equipment for resale and supplies are valued at the lower of cost
and net realizable value. Spare parts and supplies are valued at the lower of
cost and replacement cost less an allowance for obsolescence. Cost is
determined using the first in, first out method.
 
 (e) Fixed assets:
 
  Fixed assets are stated at cost. Depreciation and amortization are provided
using the following methods and annual rates:
 


   ASSET                                            METHOD        RATE/PERIOD
   -----                                       ----------------- -------------
                                                           
   Buildings.................................. Declining balance             4%
   Rental equipment...........................     Straight-line 6 2/3% to 100%
   Cars and trucks............................ Declining balance            30%
   Furniture and fixtures..................... Declining balance            20%
   Leasehold improvements.....................     Straight-line         5 years
   Computer hardware and software............. Declining balance            30%
   Cars and trucks under capital leases....... Declining balance            30%

 
                                     F-210

 
                               PERCO GROUP LTD.
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
                        (EXPRESSED IN CANADIAN DOLLARS)
 
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
 
 (f) Deferred financing costs:
 
  The costs of obtaining bank and other debt financing are deferred and
amortized on a straight-line basis over the effective life of the debt to
which they relate.
 
 (g) Use of estimates:
 
  The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
 
2. ACCOUNTS RECEIVABLE:
 
  Accounts receivable are net of allowance for doubtful accounts of $380,837
at December 31, 1997 and $443,318 at May 19, 1998.
 
3. FIXED ASSETS:
 


                                                        DECEMBER 31,   MAY 19,
                                                            1997        1998
                                                        ------------ -----------
                                                               
   Land................................................ $   901,503  $   901,503
   Buildings...........................................   2,439,276    2,446,545
   Rental equipment....................................  23,225,446   25,282,753
   Cars and trucks.....................................   1,376,234    2,109,987
   Furniture and fixtures..............................     466,277      476,007
   Leasehold improvements..............................     752,424      809,584
   Computer hardware and software......................     382,148      402,221
   Cars and trucks under capital leases................   1,134,888      460,015
                                                        -----------  -----------
                                                         30,678,196   32,888,615
   Less accumulated depreciation and amortization......  17,762,505   18,096,928
                                                        -----------  -----------
                                                        $12,915,691  $14,791,687
                                                        ===========  ===========

 
4. BANK INDEBTEDNESS GUARANTEES:
 
  The bank indebtedness and the long-term debt of the Company described in
note 5 are secured by hypothecs on inventories and accounts receivable, a
movable hypothec of $10,700,000 on all corporeal and incorporeal movable
property, including a hypothec of $10,700,000 on the all-risks insurance
coverage relating to the assets pledged as security to the bank.
 
                                     F-211

 
                                PERCO GROUP LTD.
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
                        (EXPRESSED IN CANADIAN DOLLARS)
 
 
5. LONG-TERM DEBT:
 


                                                        DECEMBER 31,  MAY 19,
                                                            1997        1998
                                                        ------------ ----------
                                                               
Revolving term loan maturing in 2000, bearing interest
 at the bank's Canadian base rate plus 1.5%, payable
 in 24 monthly instalments of principal of $84,524,
 with a final payment covering the principal balance..   $2,178,437  $2,393,086
Term loan maturing in 2000, bearing interest at the
 bank's Canadian base rate plus 1%, payable in 35
 equal monthly instalments of $20,286, (principal
 only) with a final payment of $507,159...............    1,217,174   1,136,032
Loan from the Federal Business Development Bank
 maturing in 1999, bearing interest at the bank's base
 rate plus 2.5% and additional interest equal to 0.25%
 of the Company's total annual revenue, payable in
 monthly instalments of $16,700 (principal only)......      388,200     321,400
Term loan maturing in 2001, bearing interest at the
 bank's Canadian base rate plus 1%, payable in 47
 equal monthly instalments of $18,335, (principal
 only) with a final payment of $458,325...............    1,320,070   1,246,730
Term loan maturing in 2002, bearing interest at the
 bank's Canadian base rate plus 1%, payable in 59
 monthly instalments of $25,000 (principal only), with
 a final payment of $625,000 covering the principal
 balance..............................................    2,100,000   2,000,000
Credit facility for acquisition of fixed assets
 convertible in December 1998 into a term loan
 maturing in 2003, bearing interest at the bank's
 Canadian base rate plus 1%, payable in equal monthly
 instalments (principal only), with a final payment to
 be determined covering the principal balance.........          --      729,000
First mortgage loan in the amount of $1,000,000 and
 second mortgage in the amount of $450,000 secured by
 land and buildings with a net book value of
 $1,222,596 as at December 31, 1997, 8.75%, payable in
 monthly instalments of $15,137 (principal and
 interest combined), renegotiable in December 1999,
 maturing in April 2004...............................      871,903     835,826
First mortgage loan in the amount of $1,200,000
 secured by land and a building with a net book value
 of $1,113,832 as at December 31, 1997, 7.3%, payable
 in monthly instalments of $10,770 (principal and
 interest combined), renegotiable in December 1999,
 maturing in December 2005............................      784,480     753,905
Term loan maturing in 2003, bearing interest at the
 bank's Canadian base rate plus 1% in 60 monthly
 instalments of $2,893 (principal only), with a final
 payment of $69,420 covering the principal balance....          --      237,214
Conditional sale contracts maturing in 2001 and 2002,
 bearing interest at various rates from 7% to 8.70%,
 payable in monthly instalments of $4,274, including
 interest. These debts are secured by trucks and
 equipment............................................      177,248     230,498
                                                         ----------  ----------
                                                          9,037,512   9,883,691
Less current portion of long-term debt................    2,295,000   2,453,000
                                                         ----------  ----------
                                                         $6,742,512  $7,430,691
                                                         ==========  ==========

 
  The term loans and the Federal Business Development Bank loan are secured by
various assets, as described in note 4. Under the term loan agreements, the
Company is committed to maintain certain financial ratios.
 
 
                                     F-212

 
                               PERCO GROUP LTD.
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
                        (EXPRESSED IN CANADIAN DOLLARS)
 
5. LONG-TERM DEBT (CONTINUED):
 
  Repayments of the long-term debt for each of the next five years are as
follows:
 


                                                          DECEMBER 31,  MAY 19,
                                                              1997       1998
                                                          ------------ ---------
                                                                 
   1998..................................................  $2,295,000  $     --
   1999..................................................   2,210,000  2,453,000
   2000..................................................   1,573,000  2,530,000
   2001..................................................   1,240,000  1,608,000
   2002..................................................   1,165,000  1,338,000
   2003..................................................         --   1,431,000
 

 
6. OBLIGATION UNDER CAPITAL LEASES:
 
  Total future minimum payments under capital leases are as follows as at:
 


                                                          DECEMBER 31, MAY 19,
                                                              1997       1998
                                                          ------------ --------
                                                                 
   1998..................................................   $263,371   $    --
   1999..................................................    100,242    228,410
   2000..................................................     62,846     98,401
   2001..................................................     26,066     51,171
   2002..................................................        --       5,641
                                                            --------   --------
   Total minimum lease payments..........................    452,525    383,623
   Less amount representing interest at rates varying
    from 9% to 12.2%.....................................     51,805     35,366
                                                            --------   --------
   Balance of obligation.................................    400,720    348,257
   Less current portion..................................    229,678    197,678
                                                            --------   --------
   Obligation under capital leases.......................   $171,042   $150,579
                                                            ========   ========

 
7. REDEEMABLE SHARES:
 
  An unlimited number of authorized:
 
    Class C shares, voting, without par value, mandatorily redeemable by the
  Company at death of holder
 
    Class D shares, non-voting, without par value, conveying one monthly
  preferred, non-cumulative 1% dividend on the redemption value, redeemable
  at the option of the holder and issuer at the paid-up capital and in the
  case of Class A shares being converted into Class D shares equal to the
  difference between the paid-up capital and the fair market value at the
  time of exchange
 
    Class E shares, non-voting, without par value, conveying one monthly
  preferred, non-cumulative 1% dividend on the redemption value, redeemable
  at the option of the holder and issuer at the fair market value of the
  consideration received at issuance
 
    Class F shares, non-voting, without par value, conveying one yearly,
  preferred, non-cumulative dividend of $1 per share, redeemable at the
  option of the holder and issuer at the paid-up capital
 
    Class G shares, non-voting, without par value, conveying one yearly,
  preferred, non-cumulative dividend of $1 per share, redeemable at the
  option of the issuer at the paid-up capital
 
                                     F-213

 
                               PERCO GROUP LTD.
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
                        (EXPRESSED IN CANADIAN DOLLARS)
 
7. REDEEMABLE SHARES (CONTINUED):
 
  Issued and fully paid:
 


                                                         DECEMBER 31,  MAY 19,
                                                             1997        1998
                                                         ------------ ----------
                                                                
   62,500 Class D shares, redeemable at $62,500.........  $   62,500  $   62,500
   100,000 Class G shares, redeemable at $1,000,000.....   1,000,000   1,000,000
                                                          ----------  ----------
                                                          $1,062,500  $1,062,500
                                                          ==========  ==========

 
8. CAPITAL STOCK:
 
  An unlimited number of authorized:
 
    Class A shares, voting, participating, without par value, convertible
  into Class D shares only with the joint approval of the Board and positive
  vote of Class A and D holders
 
    Class B shares, voting, participating, without par value
 
  Issued and fully paid:
 


                                                         DECEMBER 31, MAY 19,
                                                             1997       1998
                                                         ------------ --------
                                                                
   312,500 Class A shares (250,000 shares on May 19,
    1998)...............................................   $312,500   $250,000
   62,500 Class B shares ...............................        --     612,500
                                                           --------   --------
                                                           $312,500   $862,500
                                                           ========   ========

 
  During the period ended May 19, 1998, 62,500 Class A shares were converted
into 62,500 Class B shares and the paid-up capital of these shares was
increased by $550,000.
 
9. COMMITMENTS:
 
  The Company is committed under lease contracts for premises expiring at
various dates from January 1, 1998 to January 31, 2001. The minimum lease
payments for each of the next four years are as follows:
 


                                                           DECEMBER 31, MAY 19,
                                                               1997       1998
                                                           ------------ --------
                                                                  
   1998...................................................   $163,000   $    --
   1999...................................................    153,000    176,000
   2000...................................................     61,000    139,000
   2001...................................................      4,000     58,000
                                                             --------   --------
                                                             $381,000   $373,000
                                                             ========   ========

 
                                     F-214

 
                               PERCO GROUP LTD.
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
                        (EXPRESSED IN CANADIAN DOLLARS)
 
 
10. INCOME TAXES:
 
  The effective income tax rate differs from the statutory rate that would be
obtained by applying the combined basic federal and provincial tax rate to
earnings before income taxes. These differences result from the following
items:
 


                                                   DECEMBER 31, MAY 19, MAY 19,
                                                       1997      1998    1997
                                                   ------------ ------- -------
                                                               
Combined basic federal and provincial tax rate....     38.7%     38.7%   38.7%
Increase (decrease) in income tax rate resulting
 from:
  Permanent differences as a result of purchase
   accounting and non-deductible expenses.........     (4.8)      2.4     3.4
  Previous years' reassessment....................     11.7       --      --
  Manufacturing and processing profits deduction..      --        --     (5.2)
                                                       ----      ----    ----
Effective income tax rate.........................     45.6%     41.1%   36.9%
                                                       ====      ====    ====

 
11. INCOME TAXES REASSESSMENT:
 
  The Company has been reassessed for the tax credits (manufacturing and
processing profits deduction) it claimed in 1996 and in respect of the years
1994 to 1996 inclusive. The reassessment amounts to $224,000 and is included
in the December 31, 1997 current income taxes.
 
12. UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES:
 
  The company follows Canadian generally accepted accounting principles
(Canadian GAAP) which are different in some respects from those applicable in
the United States (U.S. GAAP).
 
  (a) The following table presents a reconciliation of stockholder's equity
from Canadian GAAP to U.S. GAAP:
 


                                                                       PERIOD
                                                                        FROM
                                                                     JANUARY 1,
                                                                        1998
                                                         YEAR ENDED   THROUGH
                                                        DECEMBER 31,  MAY 19,
                                                            1997        1998
                                                        ------------ ----------
                                                               
   Stockholders' equity:
     Per Canadian GAAP.................................  $3,991,083  $3,661,084
     Decrease in fixed assets net (i)..................    (820,253)   (721,123)
     Decrease in deferred income taxes (ii)............     784,933     743,298
                                                         ----------  ----------
   Per U.S. GAAP.......................................  $3,955,763  $3,683,259
                                                         ==========  ==========

 
    (i) Under Canadian GAAP, as a result of negative goodwill from a business
  combination accounted for as a purchase, the Company reduced the value of
  fixed assets. Under U.S. GAAP, assets acquired in a purchase business
  combination are recorded at their gross fair values, with separate deferred
  tax assets and liabilities recognized for the tax effect of the differences
  between such fair values and the tax bases.
 
    (ii) The income tax provision in Canada is based on the deferral method
  and adjustments are generally not made for changes in income tax rates.
  Under U.S. GAAP, deferred tax liabilities are measured using the enacted
  tax rate expected to apply to taxable income in the periods in which the
  deferred tax asset on liability is expected to be settled. A U.S. GAAP
  difference arises for the Company due to timing differences resulting from
  the application of the purchase accounting adjustments described above.
 
                                     F-215

 
                               PERCO GROUP LTD.
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
                        (EXPRESSED IN CANADIAN DOLLARS)
 
12. UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (CONTINUED):
 
  (b) The following table presents a reconciliation of net earnings from
Canadian GAAP to U.S. GAAP:
 


                                                   PERIOD FROM     PERIOD FROM
                                                 JANUARY 1, 1998 JANUARY 1, 1997
                                     YEAR ENDED      THROUGH         THROUGH
                                    DECEMBER 31,     MAY 19,         MAY 19,
                                        1997          1998            1997
                                    ------------ --------------- ---------------
                                                        
   Net (loss) earnings under
    Canadian GAAP.................   $  905,844     $(329,999)      $(155,713)
   Income tax adjustment under the
    asset and liability method....     (154,252)      (41,635)        (36,540)
   Lower depreciation on fixed
    assets........................      258,546        99,130          99,389
                                     ----------     ---------       ---------
   Net earnings (loss) under U.S.
    GAAP..........................   $1,010,138     $(272,504)      $ (92,864)
                                     ==========     =========       =========

 
  (c) Statement of change in financial position:
 
  Under U.S. GAAP, a statement of cash flow is required while a statement of
changes in financial position is required under Canadian GAAP. There are no
differences in the amounts presented in the accompanying statement of changes
in financial position from a cash flow statement prepared under U.S. GAAP,
except for the presentation of bank indebtedness. Under Canadian GAAP, cash in
the statement of changes in financial position is shown net of bank
indebtedness. Under U.S. GAAP, the net change in bank indebtedness, with
original maturities of 90 days or less, is presented as a financing activity.
 


                                                 PERIOD FROM     PERIOD FROM
                                               JANUARY 1, 1998 JANUARY 1, 1997
                                   YEAR ENDED      THROUGH         THROUGH
                                  DECEMBER 31,     MAY 19,         MAY 19,
                                      1997          1998            1997
                                  ------------ --------------- ---------------
                                                      
   Financing activity under
    Canadian GAAP................   $ 27,329     $  793,716      $  984,006
   Bank indebtedness increase....    724,833      1,242,431         353,368
                                    --------     ----------      ----------
   Financing activity under U.S.
    GAAP.........................   $752,162     $2,036,147      $1,337,374
                                    ========     ==========      ==========
   The reclassification results
    in:
     Cash at end of year under
      U.S. GAAP..................   $373,650     $  530,617      $  339,104
                                    ========     ==========      ==========

 
13. FINANCIAL INSTRUMENTS:
 
 (a) Fair value:
 
  The carrying value of the Company's accounts receivable, bank indebtedness,
accounts payable and accrued liabilities approximates their fair values due to
their demand nature or relatively short periods to maturity.
 
  The fair value of the Company's long-term debt and obligation under capital
leases has been determined to be equal to their carrying values, as the
current financing arrangements represent the borrowing rate presently
available to the Company for loans with similar terms and maturities.
 
 (b) Credit risk:
 
  Financial instruments that potentially subject the Company to significant
concentration risk consist principally of trade accounts receivable. Credit
risk with respect to trade accounts receivable is generally diversified due to
the large number of entities comprising the Company's customer base. The
Company performs ongoing credit evaluations of its customers' financial
condition. The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions regarding the provision for doubtful accounts. However, actual
results could differ from those estimates.
 
                                     F-216

 
                               PERCO GROUP LTD.
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
                        (EXPRESSED IN CANADIAN DOLLARS)
 
 
14. SUBSEQUENT EVENT:
 
  On May 21, 1998, all of the outstanding Class G shares were redeemed for a
cash consideration of $1,000,000.
 
  On May 19, 1998 the Company entered into a stock purchase agreement with
United Rentals, Inc. Under the terms of the stock purchase agreement, the
transaction closed on May 22, 1998 and all of the remaining outstanding
capital stock described in notes 7 and 8 and all the shares held in 2633-4680
Quebec Inc. by the non-controlling interest were acquired by United Rentals of
Canada (Quebec), Inc. after Perco Group Ltd. amalgamated with its subsidiary,
2633-4680 Quebec Inc., and all outstanding shares were converted into shares
of the amalgamated company.
 
                                     F-217

 
                               AUDITORS' REPORT
 
 
To the Directors of
Reitzel Rentals Ltd.
 
  We have audited the balance sheet of Reitzel Rentals Ltd. as at February 28,
1998 and the statements of operations, shareholders' equity and cash flow for
the year then ended. These audited financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audit.
 
  We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation.
 
  In our opinion, these financial statements present fairly, in all material
respects, the financial position of the Company as at February 28, 1998 and
the results of its operations and cash flows for the year then ended in
accordance with generally accepted accounting principles in the United States.
 
July 27, 1998
 
PricewaterhouseCoopers Chartered Accountants
 
                                     F-218

 
                              REITZEL RENTALS LTD.
 
                                 BALANCE SHEETS
                             (IN CANADIAN DOLLARS)
 


                                                          FEBRUARY
                                                             28,       MAY 31,
                                                            1998        1998
                                                         ----------- -----------
                                                                     (UNAUDITED)
                                                               
ASSETS
Cash...................................................  $    46,301 $       --
Accounts receivable--trade, net of allowance for doubt-
 ful accounts
 of $84,980 ($93,292 as of May 31, 1998)...............    2,033,118   2,204,300
Inventory..............................................    1,175,302   1,833,371
Rental equipment, net (Note 3).........................   11,003,382  11,906,195
Property and equipment, net (Note 4)...................    2,264,061   1,552,663
Other assets...........................................    1,088,343   1,322,032
                                                         ----------- -----------
                                                         $17,610,507 $18,818,561
                                                         =========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Bank operating line (Note 5)...........................  $       --  $   891,005
Accounts payable--trade................................      860,221   1,969,854
Accrued management and staff bonuses...................    2,014,079     503,070
Other liabilities......................................      348,468   1,415,692
Long-term debt (Note 6)................................    5,423,076   5,008,469
Due to shareholders and related party (Note 7).........      707,278     280,058
Deferred income taxes (Note 9).........................    2,778,000   2,931,000
                                                         ----------- -----------
                                                          12,130,122  12,999,148
Mandatorily redeemable shares (Note 8).................      947,990     947,990
Commitments (Note 10)
Share capital (Note 8).................................       56,050      56,050
Retained earnings......................................    4,475,345   4,815,373
                                                         ----------- -----------
                                                           4,531,395   4,871,423
                                                         ----------- -----------
                                                         $17,610,507 $18,818,561
                                                         =========== ===========

 
 
                See accompanying notes to financial statements.
 
                                     F-219

 
                              REITZEL RENTALS LTD.
 
                            STATEMENTS OF OPERATIONS
                             (IN CANADIAN DOLLARS)
 


                                          YEAR ENDED  THREE MONTHS THREE MONTHS
                                           FEBRUARY      ENDED        ENDED
                                             28,        MAY 31,      MAY 31,
                                             1998         1997         1998
                                          ----------  ------------ ------------
                                                             (UNAUDITED)
                                                          
Revenues:
 Equipment rentals....................... $9,695,641   $1,832,811   $2,278,718
 Sales of rental equipment...............  1,544,982      517,409      303,742
 Sales of new equipment, merchandise and
  other revenues.........................  5,977,848    1,712,996    1,469,432
                                          ----------   ----------   ----------
   Total revenues........................ 17,218,471    4,063,216    4,051,892
Cost of revenues:
 Cost of equipment rentals, excluding de-
  preciation.............................  3,639,956      688,077      855,481
 Depreciation of rental equipment........    857,104      214,276      214,276
 Cost of rental equipment sales..........    668,717      223,951      131,469
 Cost of new equipment and merchandise
  sales and other operating costs........  4,232,725    1,212,918    1,040,458
                                          ----------   ----------   ----------
   Total cost of revenues................  9,398,502    2,339,222    2,241,684
                                          ----------   ----------   ----------
Gross profit.............................  7,819,969    1,723,994    1,810,208
Selling, general and administrative ex-
 penses..................................  3,154,852    1,031,807      732,798
Non-rental depreciation and amortiza-
 tion....................................    376,240       76,585       76,400
                                          ----------   ----------   ----------
Operating income.........................  4,288,877      615,802    1,001,010
Interest expense.........................    515,705      115,218      197,154
Management and staff bonuses.............  2,014,445           --           --
(Gain) loss on sale of property and
 equipment...............................   (363,928)    (362,784)      31,847
                                          ----------   ----------   ----------
Income before provision for income tax-
 es......................................  2,123,015      863,368      772,009
Provision for income taxes...............    918,470      385,000      344,000
                                          ----------   ----------   ----------
Net income............................... $1,204,545   $  478,368   $  428,009
                                          ==========   ==========   ==========

 
 
                See accompanying notes to financial statements.
 
                                     F-220

 
                              REITZEL RENTALS LTD.
 
                       STATEMENTS OF SHAREHOLDERS' EQUITY
                             (IN CANADIAN DOLLARS)
 


                                                 COMMON   RETAINED
                                                 SHARES   EARNINGS     TOTAL
                                                 ------- ----------  ----------
                                                            
Balance, March 1, 1997.......................... $56,050 $3,270,800  $3,326,850
Net income......................................     --   1,204,545   1,204,545
                                                 ------- ----------  ----------
Balance, February 28, 1998......................  56,050  4,475,345   4,531,395
Cash dividends..................................     --     (87,981)    (87,981)
Net income (unaudited)..........................     --     428,009     428,009
                                                 ------- ----------  ----------
Balance, May 31, 1998 (unaudited)............... $56,050 $4,815,373  $4,871,423
                                                 ======= ==========  ==========

 
 
 
                See accompanying notes to financial statements.
 
                                     F-221

 
                              REITZEL RENTALS LTD.
 
                            STATEMENTS OF CASH FLOWS
                             (IN CANADIAN DOLLARS)
 


                                         YEAR ENDED   THREE MONTHS THREE MONTHS
                                          FEBRUARY       ENDED        ENDED
                                             28,        MAY 31,      MAY 31,
                                            1998          1997         1998
                                         -----------  ------------ ------------
                                                             (UNAUDITED)
                                                          
Cash flows from operating activities:
 Net income............................. $ 1,204,545   $ 478,368   $   428,009
 Items not requiring cash
  Amortization..........................   1,233,344     290,661       290,676
  Gain on sale of rental equipment......    (876,265)   (293,458)     (172,273)
  (Gain) loss on disposal of property
   and equipment........................    (363,928)   (362,784)       31,847
  Deferred income taxes.................     842,000     211,000       153,000
 Changes in non-cash operating items
  Accounts receivable--trade............    (175,759)    114,617      (171,182)
  Inventory.............................    (122,884)   (668,672)     (658,069)
  Accounts payable--trade and other lia-
   bilities.............................     554,478    (130,275)    1,095,828
                                         -----------   ---------   -----------
                                           2,295,531    (360,543)      997,836
Cash flows from investing activities
 Purchase of property and equipment.....    (161,975)    (20,188)      (90,017)
 Proceeds of disposal of property and
  equipment.............................     309,604     299,604       189,793
 Proceeds on sale of rental equipment...   1,544,982     517,409       303,742
 Purchase of rental equipment...........  (1,863,221)   (689,756)     (502,709)
 (Increase) decrease in other assets....      20,956      40,634      (160,314)
                                         -----------   ---------   -----------
                                            (149,654)    147,703      (259,505)
Cash flows from financing activities
 Increase in bank operating line........         --      877,892       891,005
 Repayment of long-term debt............  (2,222,275)   (593,973)   (1,160,436)
 Increase (decrease) in shareholder
  loans.................................     122,699     (71,079)     (427,220)
 Cash dividend..........................         --          --        (87,981)
                                         -----------   ---------   -----------
                                          (2,099,576)    212,840      (784,632)
                                         -----------   ---------   -----------
Net cash increase (decrease) during the
 period.................................      46,301         --        (46,301)
Cash beginning of period................          --         --         46,301
                                         -----------   ---------   -----------
Cash end of period...................... $    46,301   $     --    $       --
                                         ===========   =========   ===========

 
                See accompanying notes to financial statements.
 
                                     F-222

 
                             REITZEL RENTALS LTD.
 
                         NOTES TO FINANCIAL STATEMENTS
      (UNAUDITED WITH RESPECT TO THE PERIODS ENDED MAY 31, 1997 AND 1998)
 
1.ORGANIZATION AND BASIS OF PRESENTATION
 
  Reitzel Rentals Ltd. (the "Company") was incorporated in January 1987 under
the laws of Ontario, Canada. The Company rents a broad array of equipment to a
diverse customer base that includes construction industry participants,
industrial companies, homeowners and others in Ontario. The Company also
engages in related activities such as selling used rental equipment, acting as
a distributor for certain new equipment and selling related merchandise and
parts. The nature of the Company's business is such that short-term
obligations are typically met by cash flow generated from long-term assets.
Consequently, consistent with industry practice, the accompanying balance
sheet is presented on an unclassified basis.
 
  Comparative financial statements have not been presented as these financial
statements have been prepared solely for inclusion in the offering memorandum
issued by United Rentals Holdings, Inc. and management of United Rental
Holdings, Inc. have advised that comparative information is not required.
 
  The financial statements have been prepared in accordance with United States
Generally Accepted Accounting Principles. All amounts are in Canadian dollars.
 
2.SIGNIFICANT ACCOUNTING POLICIES
 
 Inventory
 
  Inventory consists of equipment, tools, parts, fuel and related supply
items. Inventory is stated at the lower of average weighted cost or market.
 
 Rental equipment
 
  Rental equipment is recorded at cost and depreciated over the estimated
useful lives of the equipment using the straight-line method. The range of
useful lives estimated by management for rental equipment is two to ten years.
Rental equipment is depreciated to a salvage value of zero to ten percent of
cost. Rental equipment having a cost of $500 or less is expensed at the time
of purchase. Maintenance and repair costs are charged to operations as
incurred.
 
 Revenue recognition
 
  Revenue related to the sale of equipment is recognized at the time of sale
which coincides with delivery. Revenue related to rental equipment is
recognized over the contract term on a straight-line basis.
 
 Property and equipment
 
  Property and equipment are recorded at cost and depreciated over their
estimated useful lives using the straight-line method. The range of useful
lives estimated by management for property and equipment is two to ten years.
Maintenance and repair costs are charged to operations as incurred.
 
 Fair value of financial instruments
 
  The carrying amounts reported in the balance sheet for accounts receivable,
accounts payable, and other liabilities approximate fair value due to the
immediate to short-term maturity of these financial instruments. The fair
value of long-term debt and amounts due to shareholders and related party are
determined using current interest rates for similar instruments as of period
ended.
 
 
                                     F-223

 
                             REITZEL RENTALS LTD.
 
                  NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
      (UNAUDITED WITH RESPECT TO THE PERIODS ENDED MAY 31, 1997 AND 1998)
 
 Income taxes
 
  The Company uses the liability method of accounting for income taxes. Under
this method, deferred tax assets and liabilities are determined based on the
differences between financial statement and tax bases of assets and
liabilities and are measured using the enacted tax rates and laws that are
expected to be in effect when the differences are expected to reverse.
Recognition of deferred tax assets is limited to amounts considered by
management to be more likely than not of realization in future periods.
 
 Use of estimates
 
  The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
 
 Concentration of credit risk
 
  Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist principally of accounts receivable.
Concentrations of credit risk with respect to accounts receivable are limited
because a large number of customers make up the Company's customer base. The
Company controls credit risk through credit approvals, credit lines, and
monitoring procedures.
 
  Twelve customers represent ten percent of revenues in the year ended
February 28, 1998 (nine customers as of May 31, 1998 and one as of May 31,
1997) and twelve customers represented ten percent of accounts receivable--
trade as of February 28, 1998 (twelve customers as of May 31, 1998 and eleven
as of May 31, 1997).
 
 Impact of recently issued Accounting Standards
 
  In June 1997, the Financial Accounting Standards Board issued SFAS No. 130,
"Reporting Comprehensive Income," and SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information." The Company is required to
adopt the provisions of these Statements in fiscal year 1999. The Company is
currently evaluating the reporting formats recommended under both these
Statements.
 
  In June 1998, the Financial Accounting Standards Board issued SFAS No. 132,
"Employer Disclosure about Pensions and other Post Retirement Benefits" and
SFAS No. 133, "Accounting for Derivatives and Other Hedging Activities." The
Company is currently evaluating the effects of these Statements.
 
 Interim financial statements
 
  The accompanying balance sheet and statement of shareholders' equity at May
31, 1998 and the statement of operations, shareholders' equity and cash flows
for the three months ended May 31, 1997 and 1998 are unaudited and have been
prepared on a basis that is consistent with the audited financial statements
included herein. In the opinion of management, such unaudited financial
statements include all adjustments necessary to present fairly the information
set forth therein, which consist solely of normal recurring adjustments. The
results of operations for such interim periods are not necessarily indicative
of results for the full year.
 
                                     F-224

 
                             REITZEL RENTALS LTD.
 
                  NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
      (UNAUDITED WITH RESPECT TO THE PERIODS ENDED MAY 31, 1997 AND 1998)
 
 
3.RENTAL EQUIPMENT
 


                                                                      MAY 31,
                                                  FEBRUARY 28, 1998    1998
                                                  ----------------- -----------
                                                                    (UNAUDITED)
                                                              
   Rental equipment..............................    $13,186,212    $13,769,978
   Amortization..................................     (2,182,830)    (1,863,783)
                                                     -----------    -----------
     Net.........................................    $11,003,382    $11,906,195
                                                     ===========    ===========

 
4.PROPERTY AND EQUIPMENT
 


                                                     FEBRUARY 28, 1998
                                             ----------------------------------
                                                        ACCUMULATED   NET BOOK
                                                COST    AMORTIZATION   VALUE
                                             ---------- ------------ ----------
                                                            
   Land..................................... $  370,717  $      --   $  370,717
   Buildings................................  2,268,773   1,328,578     940,195
   Vehicles.................................  1,277,240     933,579     343,661
   Furniture and equipment..................  1,055,267     784,614     270,653
   Radio equipment..........................    156,124     136,902      19,222
   Pavement.................................    122,914      47,687      75,227
   Leasehold improvements...................    476,480     240,887     235,593
   Electric signs...........................     36,647      27,854       8,793
                                             ----------  ----------  ----------
                                             $5,764,162  $3,500,101  $2,264,061
                                             ==========  ==========  ==========

 


                                                        MAY 31, 1998
                                             ----------------------------------
                                                        ACCUMULATED   NET BOOK
                                                COST    AMORTIZATION   VALUE
                                             ---------- ------------ ----------
                                                        (UNAUDITED)
                                                            
   Land..................................... $   90,892  $      --   $   90,892
   Buildings................................  1,632,137   1,048,338     583,799
   Vehicles.................................  1,208,838     905,959     302,879
   Furniture and equipment..................    988,582     734,813     253,769
   Radio equipment..........................    156,124     138,103      18,021
   Pavement.................................    115,414      46,153      69,261
   Leasehold improvements...................    477,910     251,813     226,097
   Electric signs...........................     31,558      23,613       7,945
                                             ----------  ----------  ----------
                                             $4,701,455  $3,148,792  $1,552,663
                                             ==========  ==========  ==========

 
5.AVAILABLE LINE OF CREDIT
 
  The Company has available a $1,500,000 line of credit that bears interest of
prime rate plus 3/4% per annum which was 5.65% as of February 28, 1998 and is
secured, together with Bank Loans (Note 6) by a general assignment of accounts
receivable--trade, a general security agreement and a fixed charge debenture
of $4,000,000 over all property and equipment subordinated to the First
Mortgages in the amount of $299,000. No amount was outstanding under the line
of credit at February 28, 1998 and no standby fees apply.
 
                                     F-225

 
                             REITZEL RENTALS LTD.
 
                  NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
      (UNAUDITED WITH RESPECT TO THE PERIODS ENDED MAY 31, 1997 AND 1998)
 
 
6.LONG-TERM DEBT
 


                                                          FEBRUARY    MAY 31,
                                                          28, 1998     1998
                                                         ---------- -----------
                                                                    (UNAUDITED)
                                                              
   Equipment Loans, secured by the equipment financed,
    repayable in monthly instalments of principal and
    interest at floating and fixed annual rates ranging
    from 4.0% to 10.35%, maturing in 1998 to 2002......  $2,296,720 $2,149,606
   Bank Loans, secured by a fixed charge over the
    Company's land and buildings, including a general
    assignment of accounts receivable and acknowledged
    assignment of fire insurance coverage, repayable in
    monthly instalments of principal and interest at
    floating and fixed annual rates ranging from 7.45%
    demand in certain circumstances....................   1,850,245  2,105,152
   First Mortgages, secured by certain of the Company's
    real estate, repayable in monthly instalments of
    principal and interest at annual rates ranging from
    8.25% to 11.875%, maturing 1998 to 1999............     835,300    378,103
   Note Payable, repayable in monthly instalments of
    principal and interest of $8,155 per month at an-
    nual interest rate of 7.2%, maturing July 2002.....     375,185    375,608
   Promissory Note, repayable in monthly principal pay-
    ments of $4,375 plus interest, calculated monthly
    at prime plus 1%, maturing in May 1999.............      65,626        --
                                                         ---------- ----------
                                                         $5,423,076 $5,008,469
                                                         ========== ==========

 
  Cash interest paid on long-term debt during the period amounted to $447,326
($159,950 in the three months ended May 31, 1998 and $115,218 in the three
months ended May 31, 1997).
 
  Approximate principal payments as of February 28, 1998 due with the next
five years are as follows:
 
                                                                
   1999.............................................................. $1,806,860
   2000..............................................................  1,599,398
   2001..............................................................  1,090,079
   2002..............................................................    293,154
   2003..............................................................    110,325

   
 
7.DUE TO SHAREHOLDERS AND RELATED PARTY
 


                                                       FEBRUARY 28,   MAY 31,
                                                           1998        1998
                                                       ------------ -----------
                                                                    (UNAUDITED)
                                                              
   Notes payable to shareholders, no specified repay-
    ment terms, with interest calculated monthly at
    the Company's average annual cost of borrowing and
    paid annually within six months of the year-
    end...............................................   $699,278    $280,058
   Note payable to affiliated company, interest-free
    with no specified repayment terms.................      8,000         --
                                                         --------    --------
                                                         $707,278    $280,058
                                                         ========    ========

 
  In the period ended May 31, 1998, obligations to certain shareholders were
satisfied by the transfer of the other assets and certain equipment at fair
market value as determined by independent approval.
 
                                     F-226

 
                             REITZEL RENTALS LTD.
 
                  NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
      (UNAUDITED WITH RESPECT TO THE PERIODS ENDED MAY 31, 1997 AND 1998)
 
 
8.SHARE CAPITAL
 
  The Company is authorized to issue 251 non-voting, Class A shares and no
Class A shares were outstanding (none outstanding as of May 31, 1998). The
Class A shares rank in priority over Class B and common shares. Dividends are
cumulative on the Class A shares and are payable at a rate that will provide
the holder, assuming the holder is in the highest Ontario personal income tax
bracket, with the same after-tax rate of return on the Class A share dividend
as if the holder had received interest from a Canadian Chartered Bank at the
average of that Bank's prime lending rate each month for the twelve months in
the Company's fiscal year minus 20% of that average rate. The dividends paid
on Class A shares in any year may not exceed net earnings of the Company or
ten percent of the retained earnings of the Company as of the preceding fiscal
year-end.
 
  The Class A shares are redeemable and retractable at the price of $470 per
Class A share (the "Redemption Price") subject to certain restrictions. The
number of Class A shares to be redeemed is limited (the "Redemption Limit") in
any one year to one-eighteen of $117,970 or the lesser of one-third of the
After-Tax Net Profits of the Company for the fiscal year previous to the
redemption notice and the After-Tax Net Profits of the Company for the fiscal
year previous to the redemption notice less dividends paid on Class A shares
in that previous fiscal year or an amount that will not contravene any banking
covenants the Company entered into at that particular time. Where the
redemption request exceeds the Redemption Limit, the Company will only redeem
Class A shares such that the total of Class A shares redeemed and the
dividends paid on Class A shares in the year of request falls below the
Redemption Limit. Notwithstanding the foregoing, all Class A shares must be
redeemed before December 31, 2007. Class A shareholders are entitled to the
same redemption amount as Class B shareholders in any one year without regard
to the Redemption Limit. Class A shares are redeemable only at the end of the
fiscal year.
 
  The Company is authorized to issue 2,017 non-voting Class B shares of which
2,017 were outstanding at February 28, 1998 (2,017 outstanding as of May 31,
1998). The Class B shares are subordinate to Class A shares but rank in
priority to common shares. Class B shares are entitled to non-cumulative
dividends at a rate of 10% of the Redemption Amount, being $470 per Class B
share. The Aggregate Redemption Amount of Class A shares is $947,990. The
number of Class B shares redeemable in any one year is limited to an amount
that will not contravene any banking covenants the Company entered into at
that particular time. Class B shares are redeemable only at the end of the
fiscal year.
 
  The Class B shares have been disclosed as a liability of the Company at
their redemption amount of $947,990 as Mandatorily Redeemable Shares with a
corresponding charge at their date of issue.
 
  The Company is authorized to issue 37,000 common shares at no par value of
which 3,250 were outstanding at February 28, 1998 (3,250 were outstanding as
of May 31, 1998).
 
9.INCOME TAXES
 


                                                  FEBRUARY 28, MAY 31, MAY 31,
                                                      1998      1997    1998
                                                  ------------ ------- -------
                                                                 (UNAUDITED)
                                                              
   Combined federal and provincial income tax
    rate.........................................     44.6%     44.6%   44.6%
   Reduction by the small business deduction.....     (2.0)      --      --
   Other differences.............................      0.6       --      --
                                                      ----      ----    ----
   Effective income tax rate.....................     43.3%     44.6%   44.6%
                                                      ====      ====    ====

 
  The Company is taxable in one jurisdiction.
 
 
                                     F-227

 
                             REITZEL RENTALS LTD.
 
                  NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
      (UNAUDITED WITH RESPECT TO THE PERIODS ENDED MAY 31, 1997 AND 1998)
 
  The provision for income taxes consists of current tax expense of $76,470
($191,000 as of May 31, 1998 and $174,000 as of May 31, 1997) and deferred tax
expense of $842,000 ($153,000 as of May 31, 1998 and $211,000 as of May 31,
1997).
 
  The deferred tax credit balance of $2,778,000 ($2,931,000 as of May 31, 1998
and $2,147,000 as of May 31, 1997) represents amounts deducted for tax
depreciation in excess of accounting depreciation of $6,229,000 ($6,572,000 as
of May 31, 1998 and $4,814,000 as of May 31, 1997). There are no other
differences in accounting and tax basis.
 
10.LEASE COMMITMENTS
 
  Minimum rental commitments under operating leases are as follows:
 
                                                                  
   1999................................................................ $442,000
   2000................................................................  420,000
   2001................................................................  374,000
   2002................................................................  300,000
   2003................................................................  264,000

   
 
  Operating lease expense for the year ended February 28, 1998 was $356,000
($110,000 as of May 31, 1998 and $89,000 as of May 31, 1997).
 
11.SUPPLEMENTAL CASH DISCLOSURES
 


                                                        FEBRUARY 28,    MAY 31,
                                                            1998         1998
                                                        ------------  -----------
                                                                      (UNAUDITED)
                                                                
   Supplemental schedule of non-cash activities:
    Accounts payable--trade and other liabilities...... $       --     $(430,000)
    Proceeds on disposal of property and equipment.....     330,000      521,000
    Purchase of rental equipment.......................  (2,427,400)    (745,829)
    Increase in other assets...........................    (330,000)     (91,000)
    Proceeds of long-term debt.........................   2,427,400      745,829

 
12.SUBSEQUENT EVENT
 
  As of May 31, 1998, all the outstanding shares of the Company were purchased
by United Rentals Inc.
 
                                     F-228

 
                        REPORT OF INDEPENDENT AUDITORS
 
Board of Directors and Stockholders
Channel Equipment Holding, Inc.
 
  We have audited the accompanying combined balance sheet of Channel Equipment
Holding Inc. (see Note 1) (the "Companies") as of December 31, 1997 and the
related combined statements of operations, stockholders' equity (deficit) and
cash flows for the year then ended. These financial statements are the
responsibility of the Companies' management. Our responsibility is to express
an opinion on these financial statements based on our audit.
 
  We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
 
  In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined financial position of Channel
Equipment Holding Inc. at December 31, 1997, and the combined results of their
operations and their cash flows for the year then ended in conformity with
generally accepted accounting principles.
 
                                          /s/ Ernst & Young LLP
 
MetroPark, New Jersey
April 21, 1998
 
                                     F-229

 
                        CHANNEL EQUIPMENT HOLDING, INC.
 
                             COMBINED BALANCE SHEET
 
                               DECEMBER 31, 1997
 
                                                                
ASSETS
Cash ............................................................. $    63,589
Accounts receivable, net of allowance for doubtful accounts of
 $244,787.........................................................   1,274,432
Inventory.........................................................     617,793
Rental equipment, net.............................................   8,233,933
Property and equipment, net.......................................     546,798
Prepaid expenses and other assets.................................      27,567
                                                                   -----------
    Total assets.................................................. $10,764,112
                                                                   ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Liabilities:
  Accounts payable, accrued expenses and other liabilities........ $   997,055
  Due to stockholders.............................................     745,650
  Debt............................................................   9,241,162
  Deferred gain...................................................     121,980
                                                                   -----------
    Total liabilities.............................................  11,105,847
Commitments and contingencies
Stockholders' equity (deficit):
  Common stock, Channel Equipment, $1.00 par value, 1,000,000
   shares authorized, 1,000 issued and outstanding; River City,
   $1.00 par value, 100,000 shares authorized, 1,000 issued and
   outstanding; and Contractors, $1.00 par value, 1,000,000 shares
   authorized, 1,250 issued and outstanding.......................       3,250
  Additional paid-in capital......................................     238,836
  Retained earnings (deficit).....................................    (538,821)
                                                                   -----------
                                                                      (296,735)
  Treasury stock..................................................     (45,000)
                                                                   -----------
    Total stockholders' equity (deficit)..........................    (341,735)
                                                                   -----------
    Total liabilities and stockholders' equity (deficit).......... $10,764,112
                                                                   ===========


 
 
                            See accompanying notes.
 
                                     F-230

 
                        CHANNEL EQUIPMENT HOLDING, INC.
 
                        COMBINED STATEMENT OF OPERATIONS
 
                          YEAR ENDED DECEMBER 31, 1997
 
                                                                
Revenue:
  Equipment rentals............................................... $ 4,680,867
  Rental equipment sales..........................................   2,265,294
  Sales of parts, supplies and new equipment......................   3,836,954
                                                                   -----------
    Total revenues................................................  10,783,115
Cost of revenues:
  Cost of equipment rentals, excluding equipment rental
   depreciation...................................................   1,459,268
  Depreciation, equipment rentals.................................   2,092,035
  Cost of rental equipment sales..................................   2,016,654
  Cost of parts, supplies and new equipment sales.................   3,138,237
                                                                   -----------
    Total cost of revenues........................................   8,706,194
                                                                   -----------
    Gross profits.................................................   2,076,921
Selling, general and administrative expenses......................   2,085,283
Non-rental depreciation...........................................      40,067
                                                                   -----------
Operating loss....................................................     (48,429)
Interest expense..................................................     714,705
                                                                   -----------
Loss before provisions for income taxes...........................    (763,134)
Provision for income taxes........................................       3,040
                                                                   -----------
Net loss.......................................................... $  (766,174)
                                                                   ===========


 
 
                            See accompanying notes.
 
                                     F-231

 
                        CHANNEL EQUIPMENT HOLDING, INC.
 
              COMBINED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
 


                                   COMMON STOCK  ADDITIONAL RETAINED
                                  --------------  PAID IN   EARNINGS   TREASURY
                                  SHARES AMOUNTS  CAPITAL   (DEFICIT)   STOCK
                                  ------ ------- ---------- ---------  --------
                                                        
Balance at January 1, 1997....... 3,250  $3,250   $238,836  $ 227,353  $(45,000)
  Net loss.......................                            (766,174)
                                  -----  ------   --------  ---------  --------
Balance at December 31, 1997..... 3,250  $3,250   $238,836  $(538,821) $(45,000)
                                  =====  ======   ========  =========  ========

 
 
 
                            See accompanying notes.
 
                                     F-232

 
                        CHANNEL EQUIPMENT HOLDING, INC.
 
                        COMBINED STATEMENT OF CASH FLOWS
 
                          YEAR ENDED DECEMBER 31, 1997
 
                                                               
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss......................................................... $  (766,174)
Adjustments to reconcile net loss to net cash provided by
 operating activities:
  Depreciation...................................................   2,132,102
  Gain on rental equipment sales.................................    (248,640)
  Changes in assets and liabilities:
   Increase in accounts receivable...............................    (254,454)
   Increase in inventory.........................................    (176,462)
   Decrease in prepaid expenses and other assets.................      39,219
   Increase in accounts payable, accrued expenses and other lia-
    bilities.....................................................     420,460
   Increase in deferred gain.....................................     121,980
                                                                  -----------
Cash provided by operating activities............................   1,268,031
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of rental equipment.....................................    (846,817)
Proceeds from sale of rental equipment...........................   1,936,072
Purchases of property and equipment..............................     (40,712)
                                                                  -----------
Cash provided by investing activities............................   1,048,543
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments on debt.......................................  (4,525,576)
Proceeds from stockholders loans.................................     411,600
Borrowings under credit facilities...............................   1,803,455
                                                                  -----------
Cash used in financing activities................................  (2,310,521)
                                                                  -----------
Increase in cash.................................................       6,053
Cash balance at beginning of year................................      57,536
                                                                  -----------
Cash balance at end of year...................................... $    63,589
                                                                  ===========


 
 
                            See accompanying notes.
 
                                     F-233

 
                        CHANNEL EQUIPMENT HOLDING, INC.
 
                    NOTES TO COMBINED FINANCIAL STATEMENTS
 
                               DECEMBER 31, 1997
 
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
 Basis of Presentation
 
  The combined financial statements of Channel Equipment Holding, Inc. include
the accounts of Channel Equipment Holding, Inc. ("Channel"), River City
Machinery Co., Inc. ("River City") and Contractors Sales & Rentals, Inc.
("Contractors") (collectively the "Companies"). The Companies are affiliated
through common ownership. All significant intercompany accounts and
transactions have been eliminated in combination.
 
  These combined financial statements are prepared on a historical cost basis
and do not include any adjustments that may result from the acquisition of the
Companies by United Rentals, Inc. ("United") as more fully described in Note
9.
 
 Business Activity
 
  The Companies rent, sell and repair construction equipment for use by
contractor, industrial and homeowners markets. The rentals are on a daily,
weekly or monthly basis. The Companies are located in three different cities
(Houston, Austin and Georgetown) and their principal market area is the state
of Texas. The nature of the Companies business is such that short-term
obligations are typically met by cash flow generated from long-term assets.
Consequently, consistent with industry practice, the balance sheet is
presented on an unclassified basis.
 
 Inventory
 
  Inventories consist primarily of general replacement parts, hydraulic tubing
and equipment held for resale and are stated at the lower of cost, determined
under the first-in, first-out method, or market.
 
 Rental Equipment
 
  Rental equipment is recorded at cost. Depreciation for rental equipment is
computed using the straight-line method over an estimated five-year useful
life with no salvage value.
 
  Ordinary maintenance and repair costs are charged to operations as incurred.
Proceeds from the disposal and the related net book value of the equipment are
recognized in the period of disposal and reported as revenue from sales of
equipment and cost of sales of equipment, respectively, in the combined
statement of operations.
 
 Property and Equipment
 
  Property and equipment is stated at cost. Depreciation of property and
equipment is computed on the straight-line method over an estimated five-year
useful life. Leasehold improvements are amortized using the straight-line
method over the estimated lives of the improvements or the remaining life of
the lease, whichever is shorter.
 
  Ordinary maintenance and repair costs are charged to operations as incurred.
The cost of assets sold, retired, or otherwise disposed of, and the related
accumulated depreciation is eliminated from the accounts and any resulting
gain or loss is included in operations.
 
 Rental Revenue
 
  Rental revenue is recorded as earned under the operating method.
 
                                     F-234

 
                        CHANNEL EQUIPMENT HOLDING, INC.
 
              NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
 
 
 Advertising Costs
 
  The Companies advertise primarily through trade journals, trade associations
and phone directories. All advertising costs are expensed as incurred.
Advertising expense amounted to approximately $56,300 in the year ended
December 31, 1997.
 
 Income Taxes
 
  Both Channel and River City have elected, by unanimous consent of its
stockholders, to be taxed under the provisions of Subchapter S of the Internal
Revenue Code, for federal purposes. Under those provisions both Channel and
River City do not have to pay federal income taxes; instead, the stockholders
are liable for individual income taxes on both Channel and River City's
profits. Therefore, no provision for federal income taxes is included in the
accompanying combined financial statements for Channel or River City.
 
  Contractors, a C Corporation for federal tax purposes uses the "liability
method" of accounting for income taxes. Accordingly, deferred tax liabilities
and assets are determined based on the difference between the financial
statement and tax bases of assets and liabilities, using enacted tax rates in
effect for the year in which differences are expected to reverse.
 
ACCOUNTING ESTIMATES
 
  The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
 
2. CONCENTRATIONS OF CREDIT RISK
 
  The Companies maintain cash balances with a quality financial institution
and, consequently, management believes funds maintained there are secure.
Concentrations of credit risk with respect to customer receivables are limited
due to the large number of customers comprising the Companies customer base
and its credit policy.
 
3. RENTAL EQUIPMENT
 
  Rental equipment and related accumulated depreciation consisted of the
following at December 31, 1997:
 
                                                              
   Rental equipment................................................ $12,095,388
    Less accumulated depreciation..................................  (3,861,455)
                                                                    -----------
    Rental equipment, net.......................................... $ 8,233,933
                                                                    ===========

   
 
4. PROPERTY AND EQUIPMENT
 
  Property and equipment consists of the following at December 31, 1997:
 
                                                                 
   Land............................................................... $218,428
   Building...........................................................  213,736
   Transportation equipment...........................................  134,443
   Leasehold improvements.............................................    9,250
   Furniture and fixtures.............................................   28,953
                                                                       --------
                                                                        604,810
   Less accumulated depreciation......................................  (58,012)
                                                                       --------
   Total.............................................................. $546,798
                                                                       ========

   
 
                                     F-235

 
                        CHANNEL EQUIPMENT HOLDING, INC.
 
              NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
 
 
5. DEBT
 
  Debt consists of the following at December 31, 1997:
 
                                                               
   AEL Leasing Co., Inc.--Various notes dated from February 1997 to
    June 1997 with annual interest rates ranging from 8% to 10.2%
    due in monthly installments ranging from $933 to $4,616........  $  213,149
   The Associates--Two notes dated October 1997 with an annual
    interest rate due in full in June 1998.........................     768,589
   CIT Group--Various notes dated from April 1995 to August 1997
    with annual interest rates ranging from 7.5% to 10.0% due in
    monthly installments ranging from $533 to $6,007...............   1,626,743
   CAT Financial--Various notes dated from April 1995 to July 1997
    with annual interest rates ranging from 5.1% to 8.1% due in
    monthly installments ranging from $912 to $6,180...............     619,776
   Deutsche Financial--Various notes dated from April 1996 to April
    1997 with annual interest rates ranging from 9.6% to 9.9% due
    in monthly installments ranging from $930 to $2,893............     564,160
   NICE International Corporation--Various notes dated November
    1997 with annual interest rates ranging from 9.4% to 10.9% due
    in monthly installments ranging from $634 to $5,199............     665,255
   Chicago Pneumatic--Various notes dated from March 1997 to July
    1997 with annual interest rates ranging from 7.5% to 9.5% due
    in monthly installments ranging from $427 to $1,827............      39,095
   debis Financial Services, Inc.--Non-interest bearing line-of-
    credit.........................................................      89,481
   Newcourt Financial USA, Inc.--Various notes dated from June 1997
    to September 1997 with an annual interest rate of 9.3% due in
    monthly installments ranging from $1,751 to $20,107............     549,994
   First Prosperity--Various notes dated from April 1995 to
    September 1997 with annual interest rates ranging from 7.8% to
    10.0% due in monthly installments ranging from $415 to $1,178..     144,631
   Financial Federal--Various notes dated from January 1996 to
    November 1997 with an annual interest rate of 11% due in
    monthly installments ranging from $430 to $21,465..............   2,984,398
   Norwest Bank--Various notes dated November 1996 with an annual
    interest rate of 9% due in monthly installments ranging from
    $277 to $380...................................................      20,998
   Case Credit--Various notes dated from August 1995 to November
    1996 with annual interest rates ranging from 7.9% to 9.0% due
    in monthly installments ranging from $481 to $6,935............     207,007
   KDC Financial--Various notes dated from March 1995 to May 1997
    with annual interest rates ranging from 7.5% to 10.0% due in
    monthly installments ranging from $722 to $4,576...............     571,885
   JCB Financial--Various notes dated from June 1995 to October
    1997 with annual interest rates ranging from 7.0% to 9.5% due
    in monthly installments ranging from $782 to $1,554............     134,272
   PACCAR--Note dated June 1997 with an annual interest rate of
    8.0% due in monthly installments of $1,540.....................      41,729
                                                                     ----------
                                                                     $9,241,162
                                                                     ==========

   
 
  Substantially all rental equipment and fixed assets collateralize the above
notes.
 
  All debt at December 31, 1997 was paid off in connection with the acquisition
discussed in Note 9.
 
                                     F-236

 
                        CHANNEL EQUIPMENT HOLDING, INC.
 
              NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
 
 
6. RELATED PARTY TRANSACTIONS
 
  River City leases its Georgetown operating facility and Channel leases its
operating facilities from its stockholders on a month to month basis. Both
Channel and River City are responsible for all operating expenses of the
facilities including property taxes, assessments, insurance, repairs and
maintenance. Total rent expense for 1997 was approximately $160,100.
 
  In connection with the acquisition discussed in Note 9, the lease terms have
been renegotiated.
 
  The Companies also had a non-interest bearing note payable from its
stockholders totaling $745,650 at December 31, 1997. No repayment schedule has
been established.
 
7. SUPPLEMENTAL CASH FLOW INFORMATION
 
  For the year ended December 31, 1997 total interest and income taxes paid
were $705,700 and $3,040, respectively.
 
  During 1997 the Companies purchased $4,240,540 of equipment which was
financed.
 
8. EMPLOYEE BENEFIT PLAN
 
  The Companies have a defined contribution 401(k) pension plan which covers
substantially all employees. The Companies match 100% up to the first six
percent of the employees contribution. The Companies contributions to the plan
were $8,850 for the year ended December 31, 1997.
 
9. SUBSEQUENT EVENT
 
  On January 23, 1998, under the terms of the stock purchase agreement, United
purchased all of the issued and outstanding capital stock of the Channel and
River City. On January 23, 1998, under the terms of the asset purchase
agreement, United purchased certain assets of Contractors.
 
                                     F-237

 
                         LNDEPENDENT AUDITOR'S REPORT
 
To the Board of Directors
Paul E. Carlson, Inc.
 (d/b/a Carlson Equipment Company)
Roseville, Minnesota
 
  We have audited the accompanying balance sheet of Paul E. Carlson, Inc.
(d/b/a Carlson Equipment Company) as of February 28, 1998, and the related
statements of operations, stockholders' equity, and cash flow for the year
then ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
 
  We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
 
  In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Paul E. Carlson, Inc.
(d/b/a Carlson Equipment Company) as of February 28, 1998, and the results of
its operations and its cash flow for the year then ended in conformity with
generally accepted accounting principles.
 
                                          McGladrey & Pullen, LLP
 
St. Paul, Minnesota April 21, 1998
 
                                     F-238

 
                             PAUL E. CARLSON, INC.
                       (D/B/A CARLSON EQUIPMENT COMPANY)
 
                                 BALANCE SHEETS
 
                       FEBRUARY 28, 1998 AND MAY 31, 1998
 


                                                          FEBRUARY    MAY 31,
                                                          28, 1998     1998
                                                         ---------- -----------
                                                                    (UNAUDITED)
                                                              
                 ASSETS (NOTES 3 AND 4)
Current Assets
  Cash.................................................. $  168,100 $  345,293
  Receivables:
   Trade accounts, less allowance for doubtful accounts
    of $125,000 and $163,000 at February 28 and May 31,
    1998, respectively..................................    848,365  1,209,761
  Due from stockholder..................................     43,000     43,000
  Refundable income taxes...............................        --      17,139
  Inventories (Note 2)..................................  1,615,701  2,546,139
  Prepaid expenses......................................     34,330     30,214
  Deferred income taxes (Note 6)........................    146,000    146,000
                                                         ---------- ----------
      Total current assets..............................  2,855,496  4,337,546
                                                         ---------- ----------
Rental Equipment, at cost (Note 5)......................  7,137,174  7,305,466
  Less accumulated depreciation.........................  2,922,730  2,966,205
                                                         ---------- ----------
                                                          4,214,444  4,339,261
                                                         ---------- ----------
Property and Equipment, at cost (Note 5)
  Computer equipment....................................    153,373    153,373
  Transportation equipment..............................    378,472    378,472
  Furniture and equipment...............................    217,838    221,079
  Leasehold improvements................................    115,484    115,484
                                                         ---------- ----------
                                                            865,167    868,408
  Less accumulated depreciation.........................    426,798    458,298
                                                         ---------- ----------
                                                            438,369    410,110
                                                         ---------- ----------
                                                         $7,508,309 $9,086,917
                                                         ========== ==========

 
                       See Notes to Financial Statements.
 
                                     F-239

 
                             PAUL E. CARLSON, INC.
                       (D/B/A CARLSON EQUIPMENT COMPANY)
 
                                 BALANCE SHEETS
 
                       FEBRUARY 28, 1998 AND MAY 31, 1998


                                                        FEBRUARY 28,   MAY 31,
                                                            1998        1998
                                                        ------------ -----------
                                                                     (UNAUDITED)
                                                               
         LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
  Bank line of credit (Notes 3 and 10)................   $      --   $4,500,000
  Current maturities of long-term debt................      273,914     466,733
  Accounts payable....................................      257,289     799,045
  Accrued expenses:
    Compensation, vacation, and related taxes.........      160,940     102,064
    Profit sharing (Note 7)...........................      150,000         --
    Real estate taxes.................................       45,660      51,477
    Interest..........................................       32,067      33,542
    Other.............................................       30,894      18,598
  Income taxes payable................................      155,861         --
                                                         ----------  ----------
      Total current liabilities.......................    1,106,625   5,971,459
                                                         ----------  ----------
Deferred Income Taxes (Note 6)........................      380,000     380,000
                                                         ----------  ----------
Long-Term Debt, less current maturities (Notes 3, 4, 5
 and 10)
  Bank line of credit.................................    3,700,000         --
  Finance companies and capital lease obligations.....      338,925     721,508
  Subordinated note to former stockholder.............      735,448     728,577
                                                         ----------  ----------
                                                          4,774,373   1,450,085
                                                         ----------  ----------
Commitments (Notes 5, 7 and 8)
Stockholders' Equity (Notes 8 and 10)
  Common stock, par value $1 per share; authorized
   100,000 shares; issued and outstanding 2,550
   shares.............................................        2,550       2,550
  Retained earnings...................................    1,244,761   1,282,823
                                                         ----------  ----------
                                                          1,247,311   1,285,373
                                                         ----------  ----------
                                                         $7,508,309  $9,086,917
                                                         ==========  ==========

 
                       See Notes to Financial Statements.
 
                                     F-240

 
                             PAUL E. CARLSON, INC.
                       (D/B/A CARLSON EQUIPMENT COMPANY)
 
                            STATEMENTS OF OPERATIONS
 
                   YEAR ENDED FEBRUARY 28, 1998 AND THE THREE
                           MONTHS ENDED MAY 31, 1998
 


                                       YEAR ENDED   THREE MONTHS ENDED MAY 31,
                                      FEBRUARY 28,  -----------------------------
                                          1998          1997            1998
                                      ------------  -------------   -------------
                                                     (UNAUDITED)     (UNAUDITED)
                                                           
Sales and rental income.............  $10,695,366   $   2,862,744   $   2,694,561
Cost of sales.......................    6,085,129       1,858,251       1,755,730
                                      -----------   -------------   -------------
    Gross profit....................    4,610,237       1,004,493         938,831
Operating expenses..................    3,550,240         795,748         745,412
                                      -----------   -------------   -------------
    Operating income................    1,059,997         208,745         193,419
                                      -----------   -------------   -------------
Nonoperating:
  Interest expense..................     (528,266)       (127,678)       (128,357)
  Gain on sale of other equipment...       19,270             --              --
                                      -----------   -------------   -------------
                                         (508,996)       (127,678)       (128,357)
                                      -----------   -------------   -------------
    Income before income taxes......      551,001          81,067          65,062
Federal and state income taxes (Note
 6).................................      244,000          36,000          27,000
                                      -----------   -------------   -------------
    Net income                        $   307,001   $      45,067   $      38,062
                                      ===========   =============   =============

 
 
                       See Notes to Financial Statements.
 
                                     F-241

 
                             PAUL E. CARLSON, INC.
                       (D/B/A CARLSON EQUIPMENT COMPANY)
 
                       STATEMENTS OF STOCKHOLDERS' EQUITY
 
                   YEAR ENDED FEBRUARY 28, 1998 AND THE THREE
                           MONTHS ENDED MAY 31, 1998
 


                                             COMMON STOCK
                                             -------------  RETAINED
                                             SHARES AMOUNT  EARNINGS    TOTAL
                                             ------ ------ ---------- ----------
                                                          
Balance, February 28, 1997.................. 2,550  $2,550 $  937,760 $  940,310
  Net income................................   --             307,001    307,001
                                             -----  ------ ---------- ----------
Balance, February 28, 1998.................. 2,550   2,550  1,244,761  1,247,311
  Net income (unaudited)....................   --      --      38,062     38,062
                                             -----  ------ ---------- ----------
Balance, May 31, 1998 (unaudited)........... 2,550  $2,550 $1,282,823 $1,285,373
                                             =====  ====== ========== ==========

 
 
 
                       See Notes to Financial Statements.
 
                                     F-242

 
                             PAUL E. CARLSON, INC.
                       (D/B/A CARLSON EQUIPMENT COMPANY)
 
                            STATEMENTS OF CASH FLOW
 
 YEAR ENDED FEBRUARY 28, 1998 AND THE THREE MONTHS ENDED MAY 31, 1997 AND 1998
 


                                     YEAR ENDED  THREE MONTHS ENDED MAY 31,
                                    FEBRUARY 28, -----------------------------
                                        1998         1997            1998
                                    ------------ -------------   -------------
                                                  (UNAUDITED)     (UNAUDITED)
                                                        
Cash Flows From Operating Activi-
 ties
  Net Income.......................  $  307,001   $     45,067    $      38,062
  Adjustments to reconcile net in-
   come to net cash provided by op-
   erating activities:
    Depreciation...................   1,482,371        347,739          384,274
    Gross margin contribution from
     rental equipment sales........    (592,674)      (148,435)        (265,158)
    Gain on sale of other equip-
     ment..........................     (19,270)           --               --
    Net increase in deferred income
     taxes.........................      82,000            --               --
    Changes in current assets and
     liabilities:
      Trade accounts receivable....     (26,690)      (579,310)        (361,396)
      Refundable income taxes......         --             --           (17,139)
      Inventories..................    (133,318)      (426,346)        (930,438)
      Prepaid expenses.............     (8,579)        (21,010)           4,116
      Accounts payable.............     182,051        659,513          541,756
      Accrued expenses.............     194,834         13,627         (213,880)
      Income taxes payable.........      89,926        (29,935)        (155,861)
                                     ----------   ------------    -------------
       Net cash provided by (used
        in) operating
        activities.................   1,557,652       (139,090)        (975,664)
                                     ----------   ------------    -------------
Cash Flows From Investing Activi-
 ties
  Proceeds from sales of rental
   equipment.......................   1,578,609        361,480          638,694
  Purchases of rental equipment....  (2,473,274)      (764,723)        (851,127)
  Purchases of property and equip-
   ment............................    (144,253)       (27,956)          (3,241)
  Proceeds from sales of other
   equipment.......................      21,778          1,278              --
  Increase in receivable from
   stockholder.....................     (43,000)       (12,000)             --
                                     ----------   ------------    -------------
        Net cash used in investing
         activities................  (1,060,140)      (441,921)        (215,674)
                                     ----------   ------------    -------------
Cash Flows From Financing Activi-
 ties
  Proceeds from long-term borrow-
   ing.............................         --             --           659,707
  Payments of long-term debt.......  (1,576,236)      (256,946)         (91,176)
  Net increase in bank line of
   credit debt.....................   1,100,000        750,000          800,000
                                     ----------   ------------    -------------
        Net cash provided by (used
         in) financing activities..    (476,236)       493,054        1,368,531
                                     ----------   ------------    -------------
        Net increase (decrease) in
         cash......................      21,276        (87,957)         177,193
Cash
  Beginning........................     146,824        146,824          168,100
                                     ----------   ------------    -------------
  Ending...........................  $  168,100   $     58,867        $ 345,293
                                     ==========   ============    =============

 
See Notes to Financial Statements (Additional Cash Flow Information -- Note 9).
 
                                     F-243

 
                             PAUL E. CARLSON, INC.
                       (D/B/A CARLSON EQUIPMENT COMPANY)
 
                         NOTES TO FINANCIAL STATEMENTS
 
              (INFORMATION APPLICABLE TO THE THREE MONTH PERIODS
                  ENDED MAY 31, 1997 AND 1998, IS UNAUDITED)
 
NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
 
  Nature of business: Carlson Equipment Co. is engaged in the short-term
rental and sales of construction equipment to contractor, industrial, and
municipal clients in the St. Paul/Minneapolis metropolitan area, primarily on
credit terms established on an individual customer basis.
 
  Revenue recognition: The Company recognizes revenue upon delivery of the
rental equipment to customers. The Company recognizes revenue from the rental
agreements as earned and related expenses as incurred.
 
  Cash: The Company maintains cash in bank deposit accounts which, at times,
may exceed federally insured limits. The Company has not experienced any
losses in such accounts.
 
  Fair value of financial instruments: The financial instruments include the
following financial instruments and the methods and assumptions used in
estimating their fair value: for cash and cash equivalents, the carrying
amount is fair value; for trade accounts receivable and accounts payable, the
carrying amounts approximate their fair values due to the short term nature of
these instruments, and for the notes payable and long-term debt, fair value
has been estimated based on discounted cash flows using interest rates being
offered for similar borrowings. No separate comparison of fair values versus
carrying values is presented for the aforementioned financial instruments
since their fair values are not significantly different than their balance
sheet carrying amounts. In addition, the aggregate fair values of the
financial instruments would not represent the underlying value of the Company.
 
  Inventories: Inventories consisting of parts, supplies, and new machinery
and equipment are stated at the lower of cost or market. The cost of
serialized machinery and equipment is determined on a specific-identification
basis. All other inventory is valued using an average-cost method which
approximates the first-in, first-out method.
 
  Accounting for long-lived assets: Management has and will continue, on a
periodic basis, to closely evaluate its equipment to determine potential
impairment by comparing its carrying value with the estimated future net
undiscounted cash flows expected to result from the use of the assets,
including cash flows from disposition. Should the sum of the expected future
net cash flows be less than the carrying value, the Company would recognize an
impairment loss at that date. An impairment loss would be measured by
comparing the amount by which the carrying value exceeds the fair value
(estimated discounted future cash flows or appraisal of assets) of the long-
lived assets. To date, management has determined that no impairment of long-
lived assets exists.
 
  Property and equipment depreciation methods: Depreciation is provided using
the straight-line method over the following estimated useful lives:
 


                                                           YEARS
                                                           -----
                                                        
         Computer equipment...............................    5
         Transportation equipment.........................    5
         Furniture and equipment.......................... 5-10
         Leasehold improvements........................... 5-31

 
                                     F-244

 
                             PAUL E. CARLSON, INC.
                       (D/B/A CARLSON EQUIPMENT COMPANY)
 
                  NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
 
              (INFORMATION APPLICABLE TO THE THREE MONTH PERIODS
                  ENDED MAY 31, 1997 AND 1998, IS UNAUDITED)
 
NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES--CONTINUED
 
  Rental equipment and related depreciation methods: Rental units are created
by the transfer of new equipment, valued at acquisition cost, from inventories
to rental equipment. Rental equipment depreciation begins at the point of
transfer. Depreciation is provided using the straight-line method over five
years, the estimated useful life of the equipment. Sales of rental equipment
are accounted for by including the proceeds in sales and by transferring the
net book value of the equipment sold to cost of sales.
 
  Reclassification of rental equipment depreciation expense: In prior years
and in previous February 28, 1998, financial statements, the Company included
rental equipment depreciation expense in operating expenses. Rental equipment
depreciation expense of $1,359,467 has been reclassified to cost of goods sold
for the year ended February 28, 1998.
 
  The proceeds and related net book value of rental equipment sold during the
year ended February 28, 1998, and for the three months ended May 31, 1997 and
1998, were as follows:
 


                                                              THREE MONTHS
                                             YEAR ENDED       ENDED MAY 31,
                                            FEBRUARY 28, -----------------------
                                                1998        1997        1998
                                            ------------ ----------- -----------
                                                         (UNAUDITED) (UNAUDITED)
                                                            
      Proceeds of rental equipment sales..   $1,578,609   $361,480    $ 638,694
      Net book value......................      985,935    213,045      373,536
                                             ----------   --------    ---------
      Gross margin from rental equipment
       sales..............................   $  592,674   $148,435    $ 265,158
                                             ==========   ========    =========

 
  Income taxes: Deferred taxes are provided on an asset and liability method
whereby deferred tax assets are recognized for deductible temporary
differences and tax credit carryforwards and deferred tax liabilities are
recognized for taxable temporary differences. Temporary differences are the
differences between the reported amounts of assets and liabilities and their
tax basis. Deferred tax assets are reduced by a valuation allowance when, in
the opinion of management, it is more likely than not that some portion or all
of the deferred tax assets will not be realized. Deferred tax assets and
liabilities are adjusted for the effects of changes in tax laws and rates on
the date of enactment.
 
  Use of estimates: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results may differ from those estimates.
 
  New accounting pronouncements: In June 1997, SFAS No. 130, Reporting
Comprehensive income, and SFAS No. 131, Disclosures About Segments of an
Enterprise and Related Information, were issued. SFAS No. 130 establishes
standards for reporting and display of comprehensive income and its
components. SFAS No. 131 redefines how operating segments are determined and
requires disclosures of certain financial and descriptive information about
the Company's operating segments. SFAS Nos. 130 and 131 are effective for
fiscal years beginning after December 15, 1997. The Company believes that
adoption of SFAS Nos. 130 and 131 will not have any significant effect on its
financial statements.
 
                                     F-245

 
                             PAUL E. CARLSON, INC.
                       (D/B/A CARLSON EQUIPMENT COMPANY)
 
                  NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
 
              (INFORMATION APPLICABLE TO THE THREE MONTH PERIODS
                  ENDED MAY 31, 1997 AND 1998, IS UNAUDITED)
 
NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES--CONTINUED
 
  Interim financial information (unaudited): The financial statements and
notes related thereto as of May 31, 1998, and for the three months ended May
31, 1997 and 1998, are unaudited but, in the opinion of management, include
all adjustments, consisting only of normal recurring adjustments, necessary
for a fair presentation of the financial position and results of operations.
The operating results for the interim periods are not indicative of the
operating results to be expected for a full year or for other interim periods.
 
NOTE 2. INVENTORIES
 
  The composition of inventories at February 28, 1998, and May 31, 1998 is as
follows:
 


                                                        FEBRUARY 28,   MAY 31,
                                                            1998        1998
                                                        ------------ -----------
                                                                     (UNAUDITED)
                                                               
      Equipment........................................  $  937,879  $1,651,237
      Supplies.........................................     516,552     729,432
      Parts............................................     161,270     165,470
                                                         ----------  ----------
                                                         $1,615,701  $2,546,139
                                                         ==========  ==========

 
NOTE 3. REVOLVING LINE OF CREDIT AGREEMENT
 
  The Company had a revolving credit agreement with a bank which provided a
$4,500,000 line of credit. The availability of credit was determined by a
borrowing base formula consisting of eligible receivables, inventories, and
rental equipment. Advances under the line of credit accrued interest at 0.25
percent above the prime interest rate (8.5 percent as of February 28, 1998).
The line was due on March 31, 1999, and was secured by substantially all of
the Company's assets and the personal guarantees of the Company's
stockholders. Since the Company did not intend to reduce the $3,700,000
outstanding balance under this line of credit prior to February 28, 1999, nor
did it anticipate a reduction in the borrowing base during this same period,
the revolving credit agreement was reflected as long-term debt as of February
28, 1998. At May 31, 1998, the outstanding balance has been reflected as a
current liability since it was due within the subsequent 12 months. On July 9,
1998, the revolving credit agreement was paid in full and terminated (see Note
10).
 
  The agreement contained certain restrictive financial covenants relative to
maintaining a minimum amount of net worth and maintaining a certain debt to
net worth ratio.
 
                                     F-246

 
                             PAUL E. CARLSON, INC.
                       (D/B/A CARLSON EQUIPMENT COMPANY)
 
                  NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
 
              (INFORMATION APPLICABLE TO THE THREE MONTH PERIODS
                  ENDED MAY 31, 1997 AND 1998, IS UNAUDITED)
 
 
NOTE 4. LONG-TERM DEBT
 
  Capital lease obligations and long-term debt with finance companies and a
former stockholder at February 28, 1998 and May 31, 1998, consisted of the
following:
 


                                                      FEBRUARY 28,   MAY 31,
                                                          1998        1998
                                                      ------------ -----------
                                                                   (UNAUDITED)
                                                             
Capitalized lease obligations, due in monthly
 installments varying from $521 to $9,704, including
 interest at 9.2% to 12.3%, through May 2001, secured
 by related equipment, personally guaranteed by the
 Company's stockholders (Note 5).....................   $416,739    $ 377,576
Notes payable, due in monthly installments varying
 from $5,259 to $10,016, plus interest at 8.75% to
 10.75%, through March 2003, secured by related
 equipment...........................................    170,265      784,179
                                                        --------    ---------
                                                         587,004    1,161,755
Less current maturities..............................    248,079      440,247
                                                        --------    ---------
                                                        $338,925    $ 721,508
                                                        ========    =========
Note payable to former stockholder, due in monthly
 installments of $8,400 to March 2000, when monthly
 payments become $13,662 to February 2005, when the
 remaining principal balance is due, plus interest at
 1.0% over prime, secured by accounts receivable,
 inventories, equipment, and stock, personally
 guaranteed by the Company's stockholders,
 subordinated to bank line of credit (1).............   $761,283    $ 755,063
Less current maturities..............................     25,835       26,486
                                                        --------    ---------
                                                        $735,448    $ 728,577
                                                        ========    =========

- --------
(1) On July 9, 1998, the remaining debt balance was paid in full (see Note
    10).
 
  The approximate aggregate annual future maturities of all long-term debt as
of February 28, 1998, including the line of credit and capital leases, were as
follows:
 
                                
            Years ending February:
              1999............................ $  274,000
              2000............................  3,907,000
              2001............................    229,000
              2002............................    137,000
              2003............................    119,000
              Thereafter......................    382,000
                                               ----------
                                               $5,048,000
                                               ==========

            
 
                                     F-247

 
                             PAUL E. CARLSON, INC.
                       (D/B/A CARLSON EQUIPMENT COMPANY)
 
                  NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
 
              (INFORMATION APPLICABLE TO THE THREE MONTH PERIODS
                  ENDED MAY 31, 1997 AND 1998, IS UNAUDITED)
 
 
NOTE 5. LEASE COMMITMENTS
 
  Capitalized leases: The Company leases certain rental and other equipment
under capitalized leases as follows:


                                                                    FEBRUARY 28,
                                                                        1998
                                                                    ------------
                                                                 
      Rental and other equipment..................................    $641,448
      Less accumulated amortization...............................     221,066
                                                                      --------
                                                                      $420,382
                                                                      ========
 
  The following is a schedule by year of the future minimum lease payments
under capital leases together with the present value of the net minimum lease
payments as of February 28, 1998:
 
      Years ending February:
        1999......................................................    $171,094
        2000......................................................     139,677
        2001......................................................     140,473
        2002......................................................      29,113
                                                                      --------
      Total minimum payments......................................     480,357
      Less amount representing interest...........................      63,618
                                                                      --------
      Present value of net minimum payments, included in long-term
       debt.......................................................    $416,739
                                                                      ========
 
  Operating leases: The Company leases its operating facilities under
arrangements which are classified as operating leases. The New Hope facility is
leased pursuant to an agreement which expires November 1999 and requires
monthly lease payments of $6,096. The Roseville facility, which is leased on a
month-to-month basis from the Company's former majority stockholder, requires
monthly lease payments of $9,624 (see Note 10 relative to a new lease on the
Roseville facility). The Bloomington facility is leased under an agreement
which expires December 1999 and requires monthly lease payments of $4,463.
 
  Future aggregate minimum payments as of February 28, 1998 under operating
leases are as follows:
 
      Years ending February:
        1999......................................................    $133,000
        2000......................................................     102,000

 
  Total rent expense for fiscal year 1998 was approximately $233,000. During
fiscal year 1998, approximately $115,000 of total rent expense was paid to the
Company's former majority stockholder, whose shares were redeemed in 1995.
 
                                     F-248

 
                             PAUL E. CARLSON, INC.
                       (D/B/A CARLSON EQUIPMENT COMPANY)
 
                  NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
 
              (INFORMATION APPLICABLE TO THE THREE MONTH PERIODS
                  ENDED MAY 31, 1997 AND 1998, IS UNAUDITED)
 
 
NOTE 6. INCOME TAX MATTERS
 
  Net deferred tax liabilities consist of the following components as of
February 28, 1998:
 
                                                           
      Deferred tax assets:
        Inventory reserve.......................................... $   51,000
        Receivable allowance.......................................     51,000
        Accrued compensation.......................................     44,000
        AMT credit carryforward....................................     18,000
                                                                    ----------
                                                                       164,000
      Deferred tax liabilities:
        Property and equipment.....................................   (398,000)
                                                                    ----------
      Net deferred tax liabilities................................. $ (234,000)
                                                                    ==========
 
  Alternative minimum tax credits may be carried forward indefinitely to reduce
future tax liabilities.
 
  The deferred tax amounts mentioned above have been classified on the
accompanying balance sheet as of February 28, 1998, as follows:
 
      Current assets............................................... $  146,000
      Noncurrent liabilities.......................................   (380,000)
                                                                    ----------
                                                                    $ (234,000)
                                                                    ==========
 
  The provision for income taxes for the year ended February 28, 1998, is
comprised of the following:
 
      Currently payable............................................ $  162,000
      Deferred.....................................................     82,000
                                                                    ----------
      Federal and state income taxes............................... $  244,000
                                                                    ==========
 
  The Company's income tax expense for the year ended February 28, 1998,
differed from the statutory federal rate as follows:
 
      Statutory rate applied to income before income taxes......... $  187,000
      State income tax expense net of federal tax effect...........     34,000
      Nondeductible expense........................................     11,000
      Other........................................................     12,000
                                                                    ----------
                                                                    $  244,000
                                                                    ==========

      
 
                                     F-249

 
                             PAUL E. CARLSON, INC.
                       (D/B/A CARLSON EQUIPMENT COMPANY)
 
                  NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
 
              (INFORMATION APPLICABLE TO THE THREE MONTH PERIODS
                  ENDED MAY 31, 1997 AND 1998, IS UNAUDITED)
 
 
NOTE 7. PROFIT SHARING AND 401(K) PLAN
 
  The Company had a profit sharing and 401(k) plan for all employees who met
the eligibility requirements set forth in the plan. The plan incorporated the
provisions of Internal Revenue Code Section 401(k) under which the employees
could contribute up to 20 percent of their salary to the plan. The Company
matched up to 50 percent of the participant's voluntary contribution up to 5
percent of the participant's salary. In addition, the plan allowed for
additional discretionary contributions. The Company communicated its intention
and historically distributed 20 percent of pretax, preprofit sharing income as
an annual discretionary profit sharing contribution (see Note 10 relative to
the subsequent termination of the profit sharing and 401(k) plan).
 
  Company contributions for the year ended February 28, 1998, and for the
three months ended May 31, 1997 and 1998, were as follows:
 


                                                            THREE MONTHS
                                           YEAR ENDED       ENDED MAY 31,
                                          FEBRUARY 28, -----------------------
                                              1998        1997        1998
                                          ------------ ----------- -----------
                                                       (UNAUDITED) (UNAUDITED)
                                                          
      Discretionary......................   $150,000    $ 22,000    $    --
      Matching...........................     37,400       8,096       8,237
                                            --------    --------    --------
                                            $187,400    $ 30,096    $  8,237
                                            ========    ========    ========
 
NOTE 8. STOCK REDEMPTION AGREEMENT
 
  In the event of the death or disability of a stockholder prior to July 9,
1998, the Company was obligated to purchase the outstanding stock of the
affected stockholder, should the other stockholder not exercise the right of
first purchase. The purchase price of the stock was based on the value of the
Company, as defined per the shareholder agreement. The purchase price was to be
paid in 120 equal monthly installments (see Note 10 relative to the subsequent
termination of the stock redemption agreement).
 
NOTE 9. ADDITIONAL CASH FLOW INFORMATION
 

                                                            THREE MONTHS
                                           YEAR ENDED       ENDED MAY 31,
                                          FEBRUARY 28, -----------------------
                                              1998        1997        1998
                                          ------------ ----------- -----------
                                                       (UNAUDITED) (UNAUDITED)
                                                          
      Supplemental disclosures of cash
       flow information:
        Cash payments for interest.......   $519,265    $124,725    $126,882
        Cash payments for income taxes...     72,074      72,000     200,000
                                            ========    ========    ========
      Supplemental schedule of noncash
       investing and financing
       activities:
        Capital lease obligations
         incurred for use of equipment...   $ 81,124    $    --     $    --
                                            ========    ========    ========

 
                                     F-250

 
                             PAUL E. CARLSON, INC.
                       (D/B/A CARLSON EQUIPMENT COMPANY)
 
                  NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
 
              (INFORMATION APPLICABLE TO THE THREE MONTH PERIODS
                  ENDED MAY 31, 1997 AND 1998, IS UNAUDITED)
 
 
NOTE 10. EVENTS SUBSEQUENT TO MAY 31, 1998
 
  On July 9, 1998, the Company's stockholders entered into an agreement,
effective July 1, 1998, whereby United Rentals Inc. purchased all of the
Company's outstanding common stock.
 
  In conjunction with the aforementioned agreement, the note payable to former
stockholder and the outstan~ding balance on the revolving line of cre~dit were
paid in full on July 9, 1998. In addition, the revolving credit agreement was
terminated at that time. The stock redemption agreement (Note 8) a~nd the
profit sharing and 401(k) p~lan (Note 7) were also terminated effective June
30,1998.
 
  On July 9, 1998, the Company entered into a ten-year lease for its Roseville
facility with a former stockholder. The lease requires monthly lease payments
of $9,624 and has a five-year option to renew.
 
                                     F-251

 
                         INDEPENDENT AUDITOR'S REPORT
 
To the Board of Directors
West Main Rentals and Sales, Incorporated
 
  We have audited the accompanying balance sheet of West Main Rentals and
Sales, Incorporated (an S corporation) as of December 31, 1997, and the
related statements of income, stockholders' equity, and cash flows for the
year then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
 
  We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
 
  In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of West Main Rentals and
Sales, Incorporated as of December 31, 1997, and the results of its operations
and its cash flows for the year then ended in conformity with generally
accepted accounting principles.
 
                                          Moss Adams LLP
 
Eugene, Oregon
April 22, 1998
 
                                     F-252

 
                   WEST MAIN RENTALS AND SALES, INCORPORATED
 
                                 BALANCE SHEET
 
                                     ASSETS


                                                        DECEMBER 31,  MARCH 31,
                                                            1997        1998
                                                        ------------ -----------
                                                                     (UNAUDITED)
                                                               
CURRENT ASSETS
  Cash.................................................  $  134,924  $  155,238
  Accounts receivable..................................   1,014,677     936,423
  Inventory for resale.................................     634,249     630,729
  Rental fleet expected to be sold.....................     402,000     402,000
  Prepaid expenses.....................................      57,920      15,271
  Current portion of notes receivable..................       2,432       6,753
                                                         ----------  ----------
    Total current assets...............................   2,246,202   2,146,414
                                                         ----------  ----------
NOTES RECEIVABLE, less current portion.................      55,954      69,160
                                                         ----------  ----------
PROPERTY AND EQUIPMENT
  Rental fleet.........................................   6,121,168   6,246,646
  Leasehold improvements...............................     513,278     528,353
  Equipment............................................   1,246,218   1,344,013
  Equipment held under capital leases..................   1,067,217   1,067,217
                                                         ----------  ----------
                                                          8,947,881   9,186,229
  Less accumulated depreciation and amortization.......   3,554,875   3,739,962
                                                         ----------  ----------
                                                          5,393,006   5,446,267
                                                         ----------  ----------
                                                         $7,695,162  $7,661,841
                                                         ==========  ==========

 
                      LIABILITIES AND STOCKHOLDERS' EQUITY
                                                               
CURRENT LIABILITIES
  Accounts payable....................................... $  137,446 $  414,808
  Accrued liabilities....................................    198,517    198,162
  Notes payable..........................................    478,616    428,198
  Current portion:
    Long-term debt.......................................  1,145,640  1,210,636
    Obligations under capital leases.....................    206,000    214,000
                                                          ---------- ----------
      Total current liabilities..........................  2,166,219  2,465,804
                                                          ---------- ----------
LONG-TERM DEBT, less current portion.....................  3,184,201  3,539,421
                                                          ---------- ----------
OBLIGATIONS UNDER CAPITAL LEASES, less current portion...    648,146    619,353
                                                          ---------- ----------
COMMITMENTS
STOCKHOLDERS' EQUITY
  Common stock, no par value; 1,000 shares authorized,
   100 shares issued and outstanding.....................    130,841    130,841
  Retained earnings......................................  1,565,755    906,422
                                                          ---------- ----------
                                                           1,696,596  1,037,263
                                                          ---------- ----------
                                                          $7,695,162 $7,661,841
                                                          ========== ==========


 
                            See accompanying notes.
 
                                     F-253

 
                   WEST MAIN RENTALS AND SALES, INCORPORATED
 
                              STATEMENT OF INCOME
 
 


                                                         THREE MONTHS ENDED
                                            YEAR ENDED        MARCH 31,
                                           DECEMBER 31, ----------------------
                                               1997        1998        1997
                                           ------------ ----------  ----------
                                                             (UNAUDITED)
                                                           
REVENUES
  Rental..................................  $7,167,252  $1,067,808  $1,208,955
  Retail sales............................   1,286,872     366,341     303,444
  Other sales.............................   1,061,874     202,658     180,800
  Gain on sale of rental equipment........     238,793      47,209      82,399
                                            ----------  ----------  ----------
                                             9,754,791   1,684,016   1,775,598
                                            ----------  ----------  ----------
COST OF OPERATIONS
  Rental..................................   5,064,324   1,267,400     848,479
  Retail cost of sales....................     916,670     279,002     212,656
  Other cost of sales.....................     252,472      45,276      46,242
                                            ----------  ----------  ----------
                                             6,233,466   1,591,678   1,107,377
                                            ----------  ----------  ----------
GROSS PROFIT..............................   3,521,325      92,338     668,221
SELLING, GENERAL AND ADMINISTRATIVE
 EXPENSES.................................   2,515,654     564,480     589,522
                                            ----------  ----------  ----------
INCOME (LOSS) FROM OPERATIONS.............   1,005,671    (472,142)     78,699
                                            ----------  ----------  ----------
OTHER INCOME (EXPENSE)
  Interest income.........................       6,094       1,576       1,952
  Gain on sale of equipment...............       9,067         --        1,117
  Interest expense........................    (540,064)   (141,267)   (114,070)
                                            ----------  ----------  ----------
                                              (524,903)   (139,691)   (111,001)
                                            ----------  ----------  ----------
NET INCOME (LOSS).........................  $  480,768  $ (611,833) $  (32,302)
                                            ==========  ==========  ==========

 
 
                            See accompanying notes.
 
                                     F-254

 
                   WEST MAIN RENTALS AND SALES, INCORPORATED
 
                       STATEMENT OF STOCKHOLDERS' EQUITY
 


                                                 COMMON   RETAINED
                                                 STOCK    EARNINGS     TOTAL
                                                -------- ----------  ----------
                                                            
BALANCE, December 31, 1996..................... $130,841 $1,404,987  $1,535,828
Net income.....................................      --     480,768     480,768
Dividends......................................      --    (320,000)   (320,000)
                                                -------- ----------  ----------
BALANCE, December 31, 1997.....................  130,841  1,565,755   1,696,596
Net loss (unaudited)...........................      --    (611,833)   (611,833)
Dividends (unaudited)..........................      --     (47,500)    (47,500)
                                                -------- ----------  ----------
BALANCE, March 31, 1998 (unaudited)............ $130,841 $  906,422  $1,037,263
                                                ======== ==========  ==========

 
 
 
 
                            See accompanying notes.
 
                                     F-255

 
                   WEST MAIN RENTALS AND SALES, INCORPORATED
 
                            STATEMENT OF CASH FLOWS
 


                                              YEAR ENDED   THREE MONTHS ENDED
                                               DECEMBER        MARCH 31,
                                                  31,      -------------------
                                                 1997        1998       1997
                                              -----------  ---------  --------
                                                              (UNAUDITED)
                                                             
CASH FLOWS FROM OPERATING ACTIVITIES
  Net income (loss).......................... $   480,768  $(611,833) $(32,302)
  Adjustments to reconcile net income (loss)
   to net cash from operating activities:
    Depreciation and amortization............   1,129,015    307,895   244,383
    Net gain from sale of property...........    (247,860)   (47,209)  (83,516)
    Changes in:
      Accounts receivable....................    (329,061)    78,254     5,396
      Inventory for resale...................      32,228      3,520  (144,037)
      Prepaid expenses.......................     (17,756)    42,649   (12,866)
      Accounts payable.......................    (286,115)   277,362  (160,215)
      Accrued liabilities....................      27,723       (355)    7,708
                                              -----------  ---------  --------
  Net cash from operating activities.........     788,942     50,283  (175,449)
                                              -----------  ---------  --------
CASH FLOWS FROM INVESTING ACTIVITIES
  Purchase of property and equipment.........  (2,261,854)  (492,384) (608,559)
  Proceeds from sale of equipment............     625,362    178,437   620,775
  Net principal repayments (advances) on
   notes receivable..........................         480    (17,527)      325
                                              -----------  ---------  --------
  Net cash from investing activities.........  (1,636,012)  (331,474)   12,541
                                              -----------  ---------  --------
CASH FLOWS FROM FINANCING ACTIVITIES
  Net borrowings (payments) on notes
   payable...................................     478,616    (50,418)  190,000
  Proceeds from long-term borrowings and
   capital lease obligations.................   1,818,217    670,403   142,412
  Principal payments on long-term debt and
   capital lease obligations.................  (1,078,345)  (270,980)  (96,132)
  Dividends paid.............................    (320,000)   (47,500)      --
                                              -----------  ---------  --------
  Net cash from financing activities.........     898,488    301,505   236,280
                                              -----------  ---------  --------
NET INCREASE IN CASH.........................      51,418     20,314    73,372
CASH, beginning of period....................      83,506    134,924    83,506
                                              -----------  ---------  --------
CASH, end of period.......................... $   134,924  $ 155,238  $156,878
                                              ===========  =========  ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
 INFORMATION
  Cash paid during the period for interest... $   532,245  $ 135,866  $110,846
                                              ===========  =========  ========

 
                            See accompanying notes.
 
                                     F-256

 
                   WEST MAIN RENTALS AND SALES, INCORPORATED
 
                         NOTES TO FINANCIAL STATEMENTS
 
NOTE 1--DESCRIPTION OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING
        POLICIES
 
  DESCRIPTION OF OPERATIONS--The Company primarily rents heavy equipment to
contractors. The Company provides wholesale and retail rental services and
sales from four Oregon locations and two in California. The second California
location was opened in May 1997. The Company extends credit to all customer
types once a credit contract has been completed by the customer. This credit
contract includes trade references, which are consulted, and personal
guarantees, when deemed necessary. All charges are due in full 30 days from
the transaction date. Past due items are assessed a carrying charge. Cash
transactions require a deposit for a portion of the rental charge. A minimum
of one day's rent is required.
 
  RESTATEMENT OF FINANCIAL INFORMATION--The Company has restated its 1997
financial statements primarily to capitalize certain equipment leases entered
into during 1996 and 1997. In the opinion of management, all material
adjustments necessary to correct the financial statements have been recorded.
The impact of these adjustments did not have a material effect on beginning
retained earnings.
 
  INTERIM FINANCIAL STATEMENTS--The accompanying financial statements as of
March 31, 1998, and for the three months ended March 31, 1997 and 1998 are
unaudited and have been prepared on the same basis as the audited financial
statements included herein. In the opinion of management, such unaudited
financial statements include all adjustments necessary to present fairly the
information set forth therein, which consists solely of normal recurring
adjustments. The results of operations for such interim periods are not
necessarily indicative of results for the full year.
 
  REVENUE RECOGNITION--Revenues from the daily and monthly rental of equipment
are accounted for as operating leases. Credit risk associated with accounts
receivable is periodically reviewed by management and an allowance for
doubtful accounts, if required, is established. The allowance was $20,000 at
December 31, 1997 and March 31, 1998 (unaudited).
 
  INVENTORY FOR RESALE--The inventory for resale consists of equipment parts
and supplies and is stated at the lower of cost or market. Cost is determined
on the first-in, first-out (FIFO) method.
 
  RENTAL FLEET EXPECTED TO BE SOLD--An estimate of rental fleet equipment
expected to be sold in the next year is presented as a current asset.
 
  PROPERTY AND EQUIPMENT--Property and equipment is stated at cost.
Depreciation and amortization is computed using the straight-line method over
the following estimated useful lives:
 
                                                         
       Rental fleet............................................... 5 to 10 years
       Leasehold improvements..................................... 5 to 31 years
       Equipment.................................................. 3 to 10 years
       Equipment held under capital leases........................  3 to 5 years

       
 
  ADVERTISING AND PROMOTION--All costs associated with advertising and
promotion are expensed as incurred. Advertising and promotion expense totaled
$141,200 in 1997, and was $59,100 (unaudited) and $32,400 (unaudited) for the
three month periods ended March 31, 1998 and 1997, respectively.
 
  INCOME TAXES--The Company has elected to be taxed under the provisions of
Subchapter S of the Internal Revenue Code, whereby income of the Company is
taxable directly to the individual stockholders. Accordingly, no provision for
income taxes is included in these financial statements.
 
                                     F-257

 
                   WEST MAIN RENTALS AND SALES, INCORPORATED
 
                  NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
 
NOTE 1--DESCRIPTION OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING
        POLICIES (CONTINUED)
 
  FAIR VALUE OF FINANCIAL INSTRUMENTS--The fair value of financial
instruments, consisting of cash, receivables, accounts payable, and debt
instruments, is based on interest rates available to the Company and
discounted cash flow analysis. The fair value of these financial instruments
approximates carrying value.
 
  USE OF ESTIMATES--The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements
and accompanying notes. Actual results will differ from those estimates.
 
  RECENTLY ISSUED ACCOUNTING STANDARDS--In 1997, the Company implemented
Statement of Financial Accounting Standards (SFAS) No. 129, "Disclosure of
Information about Capital Structure," that continues the existing requirements
to disclose pertinent rights and privileges of all securities other than
common stock, but expands the number of companies subject to portions of its
requirements. The Company's current capital structure does not require any
additional disclosures as a result of this pronouncement.
 
  In June 1997, the Financial Accounting Standards Board (FASB) issued SFAS
No. 130 "Reporting Comprehensive Income" which the Company is required to
adopt for years beginning after December 15, 1997. This statement establishes
standards for reporting and display of comprehensive income and its components
(revenues, expenses, gains and losses) in a full set of financial statements.
This statement will require that all items that are required to be recognized
under accounting standards as components of comprehensive income be reported
in a financial statement that is displayed with the same prominence as other
financial statements.
 
  Other issued but not yet required FASB statements are not currently
applicable to the Company's operations.
 
NOTE 2--NOTES RECEIVABLE
 
  The Company has two unsecured notes receivable from stockholders. These
notes require interest only payments with the balance due in 2000. The
interest rate is fixed at 8%, requiring monthly payments of $361.
 


                                                        DECEMBER 31,  MARCH 31,
                                                            1997        1998
                                                        ------------ -----------
                                                                     (UNAUDITED)
                                                               
Stockholder notes receivable...........................   $54,255      $54,255
Other notes receivable.................................     4,131       21,658
                                                          -------      -------
                                                           58,386       75,913
Less current portion...................................     2,432        6,753
                                                          -------      -------
Long-term portion......................................   $55,954      $69,160
                                                          =======      =======

 
NOTE 3--NOTES PAYABLE
 
  The Company has a revolving credit line available totaling $600,000 at prime
plus 1% (9.5% at December 31, 1997 and March 31, 1998). Outstanding borrowings
under the line of credit are subject to the same collateral and restrictive
covenant provisions as the term notes described in Note 4, and totaled
$430,000 at December 31, 1997 and $390,000 (unaudited) at March 31, 1998.
 
  The Company also has a short term note payable to a finance company. The
outstanding balance on this note was $48,616 at December 31, 1997 and $38,198
(unaudited) at March 31, 1998.
 
                                     F-258

 
                   WEST MAIN RENTALS AND SALES, INCORPORATED
 
                  NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
 
 
NOTE 4--LONG-TERM DEBT
 


                                                       DECEMBER 31,  MARCH 31,
                                                           1997        1998
                                                       ------------ -----------
                                                                    (UNAUDITED)
                                                              
Note payable to bank, payable in monthly (excepting
 January and February) installments of $33,334 plus
 interest at prime plus 1.25% (9.75% at December 31,
 1997 and March 31, 1998), due December 1999.........   $  666,640  $  633,306
Note payable to bank, payable in monthly installments
 of $20,934 including interest at 9.36%, due March
 2001................................................      704,108     657,444
Note payable to bank, payable in monthly (excepting
 January and February) installments of $7,000 plus
 interest at prime plus 1.25% (9.75% at December 31,
 1997 and March 31, 1998), due December 1999.........      126,000     105,000
Unsecured notes payable to stockholders, payable in
 monthly interest only installments at 12%, due
 October 2000. Subordinated to the bank debt.........      591,162     591,162
Note payable to bank, payable in monthly installments
 of $5,334 plus interest at 10.7%, due November
 1999................................................      122,642     106,640
Unsecured notes payable to stockholders, all with
 interest at 10% payable annually, due October 2000.
 Subordinated to the bank debt.......................      114,545     114,545
Note payable to bank, payable in monthly installments
 of $16,667 beginning November 1997 plus interest at
 prime plus 1.25% (9.75% at December 31, 1997 and
 March 31, 1998), due October 2002...................      966,667     916,667
Note payable to bank, payable in monthly payments of
 $10,348 plus interest at 8.87%, due April 2002......      427,566     396,523
Note payable to bank, payable in monthly interest
 only payments through March 1998, then in monthly
 installments of $11,231 including interest at prime
 plus 2.00% (10.50% at March 31, 1998), due March
 2006................................................          --      600,000
Other notes payable, due in varying installments
 including interest at various rates, collateral
 provided by equipment and vehicles..................      610,511     628,770
                                                        ----------  ----------
                                                         4,329,841   4,750,057
Less current portion.................................    1,145,640   1,210,636
                                                        ----------  ----------
                                                        $3,184,201  $3,539,421
                                                        ==========  ==========

 
  Substantially all cash, accounts receivable, inventories, property and
equipment, and general intangibles are pledged as collateral for the Company's
short and long-term borrowing arrangements. The stockholders have also
personally guaranteed outstanding bank borrowings. In addition, the Company's
bank loan agreements contain provisions which, among other things, require
maintenance of certain financial ratios, restrict dividend payments and
property and equipment purchases, and provide for prepayment penalties.
 
  Annual payments of long-term debt for the years subsequent to December 31,
1997 are due as follows:
 


   DECEMBER 31,
   ------------
                                                                   
     1998............................................................ $1,145,640
     1999............................................................  1,097,900
     2000............................................................  1,326,200
     2001............................................................    552,500
     2002............................................................    202,600
     2003 and thereafter.............................................      5,001
                                                                      ----------
                                                                      $4,329,841
                                                                      ==========

 
 
                                     F-259

 
                   WEST MAIN RENTALS AND SALES, INCORPORATED
 
                  NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
 
NOTE 4--LONG-TERM DEBT (CONTINUED)
 
  Interest expense to stockholders on notes payable and long-term debt totaled
approximately $81,920 during 1997 and $20,600 (unaudited) and $20,500
(unaudited) for the three month periods ended March 31, 1998 and 1997,
respectively.
 
NOTE 5--OBLIGATIONS UNDER CAPITAL LEASES
 
  The Company leases equipment under long-term leases and has the option to
purchase the equipment at the termination of the lease. Included in property
and equipment are the following assets held under capital leases:
 


                                                        DECEMBER 31,  MARCH 31,
                                                            1997        1998
                                                        ------------ -----------
                                                                     (UNAUDITED)
                                                               
Equipment held under capital leases....................  $1,067,217  $1,067,217
Less accumulated amortization..........................     222,011     282,320
                                                         ----------  ----------
                                                         $  845,206  $  784,897
                                                         ==========  ==========

 
  Future minimum lease payments for assets under capital leases at December
31, 1997 are as follows:
 


   DECEMBER 31,
   ------------
                                                                  
     1998........................................................... $  283,500
     1999...........................................................    256,900
     2000...........................................................    205,000
     2001...........................................................    197,600
     2002...........................................................    103,016
                                                                     ----------
   Total minimum lease payments.....................................  1,046,016
   Less amount representing interest................................    191,870
                                                                     ----------
   Present value of net minimum lease payments......................    854,146
   Less current maturities..........................................    206,000
                                                                     ----------
                                                                     $  648,146
                                                                     ==========

 
NOTE 6--COMMITMENTS
 
  RELATED PARTY LEASES--The Company leases facilities under five separate
agreements from a partnership owned by the Company stockholders. These
agreements expire between 1999 and 2011. The lease agreements provide for
payment of a minimum amount plus taxes, insurance and other costs. The monthly
rental payments can be adjusted annually. Total rents paid for the year ended
December 31, 1997 were $220,350, and were $87,600 (unaudited) and $48,450
(unaudited) for the three month periods ended March 31, 1998 and 1997,
respectively.
 
  GRANTS PASS, OREGON LEASE--The Company leased facilities in Grants Pass,
Oregon under an agreement which expired in 1997. Rental expense on this lease
was $34,930 in 1997, and was $8,700 (unaudited) for the three month period
ended March 31, 1997.
 
  EUREKA, CALIFORNIA LEASE--During 1997, the Company began leasing facilities
in Eureka, California under a month-to-month agreement. Monthly rent is
$3,850. A long-term agreement at the current location is expected in 1998.
 
 
                                     F-260

 
                   WEST MAIN RENTALS AND SALES, INCORPORATED
 
                  NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
 
NOTE 6--COMMITMENTS (CONTINUED)
 
  Aggregate future minimum lease commitments for real property, substantially
all of which are with related parties, are as follows:
 


   DECEMBER 31,
   ------------
                                                                   
     1998............................................................ $  350,400
     1999............................................................    283,100
     2000............................................................    174,000
     2001............................................................     54,000
     2002............................................................     54,000
   Thereafter........................................................    459,000
                                                                      ----------
                                                                      $1,374,500
                                                                      ==========

 
  EQUIPMENT LEASES--The Company leases equipment under several operating lease
arrangements. Monthly payments on these leases total approximately $130,300,
with maturities extending to 2002. Rental expense totaled $982,500 for the
year ended December 31, 1997, and was $177,000 (unaudited) and $95,200
(unaudited) for the three months ended March 31, 1998 and 1997, respectively.
A significant portion of the leased equipment is returnable to the vendor with
thirty days notice without penalty from the lessor. Additionally, the
shareholders have guaranteed these lease commitments.
 
  Aggregate future minimum lease commitments for equipment are as follows:
 


   DECEMBER 31,
   ------------
                                                                   
     1998............................................................ $1,303,000
     1999............................................................  1,274,100
     2000............................................................  1,256,400
     2001............................................................    942,600
     2002............................................................    293,600
                                                                      ----------
                                                                      $5,069,700
                                                                      ==========

 
  STOCK REPURCHASE AGREEMENT--The Company and the stockholders have entered
into an agreement whereby the Company will purchase the shares of a deceased
stockholder at a value to be determined as set forth in the agreement.
 
NOTE 7--RETIREMENT PLAN
 
  A defined contribution plan covers all employees who meet age and service
requirements. The defined contribution plan is a 401(k) profit-sharing plan.
The plan allows employee contributions. The Company, at its discretion, may
also contribute to the plan. In 1997, the Company contributed $40,000; $24,400
was allocated to the profit-share portion of the plan and $15,600 was
allocated to match employee contributions at 50%. There were no Company
contributions for the three month periods ended March 31, 1998 and 1997.
 
NOTE 8--SUBSEQUENT EVENTS
 
  DIVIDENDS--On January 2, 1998 the Board of Directors declared a dividend of
$475 per share of outstanding common stock, payable to shareholders of record
as of January 2, 1998.
 
  Also, on April 10, 1998 an additional dividend was declared of $750 per
share, to shareholders of record on that date.
 
 
                                     F-261

 
                   WEST MAIN RENTALS AND SALES, INCORPORATED
 
                  NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
 
NOTE 8--SUBSEQUENT EVENTS (CONTINUED)
 
  NEW DEBT--On March 4, 1998 the Company obtained additional financing from
its bank. This debt is in addition to existing bank liabilities. The new
agreement provides for an aggregate commitment of $1,000,000 and expires in
2006. This note has been guaranteed by the stockholders.
 
  SALE OF COMPANY STOCK--On March 20, 1998 a Letter of Intent was received
from United Rentals, Inc. to acquire all outstanding stock of the Company.
Under the terms of the agreement, all indebtedness of the Company, including
long-term debt and notes payable, but excluding leases, is to be paid in full
at closing. The agreement also provided for real estate leases described in
Note 6 to be extended for an additional ten years. This transaction was closed
on April 22, 1998.
 
  Acquisition of the Company stock by United Rentals, Inc. resulted in the
termination of the Company's election to be taxed under Subchapter S of the
Internal Revenue Code.
 
                                     F-262

 
                        REPORT OF INDEPENDENT AUDITORS
 
Board of Directors and Stockholders
Mission Valley Rentals, Inc.
 
  We have audited the balance sheets of Mission Valley Rentals, Inc. as of
June 30, 1996 and 1997 and the related statements of operations, stockholders'
equity and cash flows for the years then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
 
  We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
 
  In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Mission Valley Rentals,
Inc. at June 30, 1996 and 1997, and the results of its operations and its cash
flows for the years then ended in conformity with generally accepted
accounting principles.
 
                                          /s/ Ernst & Young LLP
 
MetroPark, New Jersey
January 23, 1998
 
                                     F-263

 
                          MISSION VALLEY RENTALS, INC.
 
                                 BALANCE SHEETS
 


                                                    JUNE 30
                                             --------------------- DECEMBER 31,
                                                1996       1997        1997
                                             ---------- ---------- ------------
                                                                   (UNAUDITED)
                                                          
                   ASSETS
                   ------
Cash........................................ $  144,491 $  527,922  $  505,541
Accounts receivable, net....................    470,736    662,006     721,252
Inventory...................................     37,539     58,949      88,965
Rental equipment, net.......................  3,004,111  5,158,789   5,667,659
Property and equipment, net.................    124,597    155,001     138,343
Prepaid expenses and other assets...........     34,850    180,875     165,599
Intangible assets, net......................               776,003     765,841
                                             ---------- ----------  ----------
    Total assets............................ $3,816,324 $7,519,545  $8,053,200
                                             ========== ==========  ==========
    LIABILITIES AND STOCKHOLDERS' EQUITY
    ------------------------------------
Liabilities:
  Accounts payable, accrued expenses and
   other liabilities........................ $  246,536 $  404,689  $  805,462
  Income taxes payable......................     53,303                (54,283)
  Debt......................................  1,512,074  5,102,143   5,536,280
  Deferred income taxes.....................    188,774    319,869     235,744
                                             ---------- ----------  ----------
    Total liabilities.......................  2,000,687  5,826,701   6,523,203
Commitments and contingencies
Stockholders' equity:
  Common stock, no par value and $1.00
   stated value, 10,000 shares authorized,
   1,000 issued and outstanding at June 30,
   1996 and 1997, and December 31, 1997.....      1,000      1,000       1,000
  Retained earnings.........................  1,814,637  1,691,844   1,528,997
                                             ---------- ----------  ----------
    Total stockholders' equity..............  1,815,637  1,692,844   1,529,997
                                             ---------- ----------  ----------
    Total liabilities and stockholders'
     equity................................. $3,816,324 $7,519,545  $8,053,200
                                             ========== ==========  ==========

 
 
                            See accompanying notes.
 
                                     F-264

 
                          MISSION VALLEY RENTALS, INC.
 
                            STATEMENTS OF OPERATIONS
 


                                                          SIX MONTHS ENDED
                                 YEAR ENDED JUNE 30          DECEMBER 31
                                ----------------------  ----------------------
                                   1996        1997        1996        1997
                                ----------  ----------  ----------  ----------
                                                             (UNAUDITED)
                                                        
Revenues:
  Equipment rentals............ $4,851,942  $6,798,752  $3,365,276  $4,419,275
  Sales of rental equipment....     96,987     413,481     346,540      74,642
  Sales of parts and supplies..    399,156     558,034     264,193     329,496
                                ----------  ----------  ----------  ----------
    Total revenues.............  5,348,085   7,770,267   3,976,009   4,823,413
Cost of revenues:
  Cost of equipment rentals,
   excluding depreciation......  1,893,655   2,876,589   1,392,173   1,952,185
  Depreciation of rental
   equipment...................    738,229   1,599,457     586,675     733,558
  Cost of rental equipment
   sales.......................     61,810     413,481     346,540      55,168
  Cost of sales of parts and
   supplies....................    214,802     377,047     153,444     171,949
                                ----------  ----------  ----------  ----------
    Total cost of revenues.....  2,908,496   5,266,574   2,478,832   2,912,860
                                ----------  ----------  ----------  ----------
Gross profit...................  2,439,589   2,503,693   1,497,177   1,910,553
Selling, general and
 administrative expenses.......  1,640,442   2,222,524   1,086,303   1,926,386
Non-rental depreciation........     25,355      30,154      15,117      16,658
                                ----------  ----------  ----------  ----------
Operating income (loss)........    773,792     251,015     395,757     (32,491)
Interest expense...............    139,925     390,047     171,923     215,848
Other (income), net............    (58,767)    (62,016)    (31,956)    (31,209)
                                ----------  ----------  ----------  ----------
Income (loss) before provision
 (benefit) for income taxes....    692,634     (77,016)    255,790    (217,130)
Provision (benefit) for income
 taxes.........................    299,259      45,777      64,295     (54,283)
                                ----------  ----------  ----------  ----------
Net income (loss).............. $  393,375  $ (122,793) $  191,495  $ (162,847)
                                ==========  ==========  ==========  ==========

 
 
                            See accompanying notes.
 
                                     F-265

 
                          MISSION VALLEY RENTALS, INC.
 
                       STATEMENTS OF STOCKHOLDERS' EQUITY
 


                                                       COMMON STOCK
                                                      --------------  RETAINED
                                                      SHARES AMOUNTS  EARNINGS
                                                      ------ ------- ----------
                                                            
Balance at July 1, 1995.............................. 1,000  $1,000  $1,421,262
  Net income.........................................                   393,375
                                                      -----  ------  ----------
Balance at June 30, 1996............................. 1,000   1,000   1,814,637
  Net loss...........................................                  (122,793)
                                                      -----  ------  ----------
Balance at June 30, 1997............................. 1,000   1,000   1,691,844
  Net loss (unaudited)...............................                  (162,847)
                                                      -----  ------  ----------
Balance at December 31, 1997 (unaudited)............. 1,000  $1,000  $1,528,997
                                                      =====  ======  ==========

 
 
 
                            See accompanying notes.
 
                                     F-266

 
                          MISSION VALLEY RENTALS, INC.
 
                            STATEMENTS OF CASH FLOWS
 


                                                          SIX MONTHS ENDED
                                  YEAR ENDED JUNE 30         DECEMBER 31
                                -----------------------  --------------------
                                   1996        1997        1996       1997
                                ----------  -----------  ---------  ---------
                                                             (UNAUDITED)
                                                        
CASH FLOWS FROM OPERATING
 ACTIVITIES
Net income (loss).............. $  393,375  $  (122,793) $ 191,495  $(162,847)
Adjustments to reconcile net
 income (loss) to net cash
 provided by operating
 activities:
  Depreciation and
   amortization................    763,584    1,646,105    611,009    760,378
  Gain on equipment sales......    (35,177)                           (19,474)
  Deferred taxes...............     81,859      131,318     87,014    (84,125)
  Changes in assets and
   liabilities:
  Increase in accounts
   receivable..................    (81,581)    (191,270)  (206,289)   (59,246)
  Increase in inventory........    (10,437)     (21,410)   (48,417)   (30,016)
  (Decrease) increase in
   prepaid expenses and other
   assets......................     50,884     (146,248)  (104,458)    15,276
  Increase in accounts payable,
   accrued expenses and other
   liabilities.................    119,054      158,153     65,881    400,773
  (Decrease) increase in income
   taxes payable...............     53,303      (53,303)    10,992    (54,283)
                                ----------  -----------  ---------  ---------
Total adjustments..............    941,489    1,523,345    415,732    929,283
                                ----------  -----------  ---------  ---------
  Cash provided by operating
   activities..................  1,334,864    1,400,552    607,227    766,436
CASH FLOWS FROM INVESTING
 ACTIVITIES
Purchase of rental equipment...   (388,116)
Proceeds from sale of rental
 equipment.....................     96,987      413,481    346,540     74,642
                                ----------  -----------  ---------  ---------
  Cash provided by (used in)
   investing activities........   (291,129)     413,481    346,540     74,642
CASH FLOWS FROM FINANCING
 ACTIVITIES
Principal payments on debt.....   (957,424)  (4,567,552)  (741,982)  (863,459)
Principal payments on capital
 lease obligations.............                 (32,258)
Borrowings under credit
 facility......................               3,169,208
                                ----------  -----------  ---------  ---------
  Cash used in financing
   activities..................   (957,424)  (1,430,602)  (741,982)  (863,459)
                                ----------  -----------  ---------  ---------
Increase (decrease) in cash....     86,311      383,431    211,785    (22,381)
  Cash balance at beginning of
   year........................     58,180      144,491    144,491    527,922
                                ----------  -----------  ---------  ---------
  Cash balance at end of year.. $  144,491  $   527,922  $ 356,276  $ 505,541
                                ==========  ===========  =========  =========

 
                            See accompanying notes.
 
                                     F-267

 
                         MISSION VALLEY RENTALS, INC.
 
                         NOTES TO FINANCIAL STATEMENTS
 
                            JUNE 30, 1996 AND 1997
           (THE INFORMATION AS OF DECEMBER 31, 1997 AND FOR THE SIX
             MONTHS ENDED DECEMBER 31, 1996 AND 1997 IS UNAUDITED)
 
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
 Business Activity
 
  Mission Valley Rentals, Inc. (the "Company") rents, sells and repairs
construction equipment for use by contractor, industrial and homeowner
markets. The rentals are on a daily, weekly or monthly basis. The Company has
four locations in Northern California and its principal market area is the
entire Bay Area and the San Joaquin Valley. The nature of the Company's
business is such that short-term obligations are typically met by cash flow
generated from long-term assets. Consequently, consistent with industry
practice, the balance sheets are presented on an unclassified basis.
 
  On September 1, 1996, the Company acquired for $2,320,000 a substantial
amount of rental equipment and fixed assets from Rental World, Inc. and
assumed all operations. The Company utilized the funds available under its
line of credit to finance the purchase. The acquisition has been accounted for
as a purchase and, accordingly, at such date the Company recorded the assets
acquired at their estimated fair values.
 
  The acquired assets have been recorded at their estimated fair value at the
date of the acquisition of $1,527,503 with the excess purchase price of
$792,497 being recorded as goodwill.
 
 Interim Financial Statements
 
  The accompanying balance sheet at December 31, 1997 and the statements of
income, stockholders' equity and cash flows for the six-month periods ended
December 31, 1996 and 1997 are unaudited and have been prepared on the same
basis as the audited financial statements included herein. In the opinion of
management, such unaudited financial statements include all adjustments
necessary to present fairly the information set forth therein, which consist
solely of normal recurring adjustments. The results of operations for such
interim period are not necessarily indicative of results for the full year.
 
 Inventory
 
  Inventory consists primarily of general replacement parts and fuel for the
equipment and are stated at the lower of cost, determined under the first-in,
first-out method, or market.
 
 Rental Equipment
 
  Rental equipment is recorded at cost. Depreciation for rental equipment is
computed using the straight-line method over an estimated five-year useful
life with a 10% salvage value.
 
  Ordinary maintenance and repair costs are charged to operations as incurred.
Proceeds from the disposal and the related net book value of the equipment are
recognized in the period of disposal and reported as revenue from sales of
equipment and cost of sales of equipment, respectively, in the statements of
operations.
 
 Property and Equipment
 
  Property and equipment is stated at cost. Depreciation of property and
equipment is computed on the straight-line method over estimated useful lives
of 5 to 10 years.
 
                                     F-268

 
                         MISSION VALLEY RENTALS, INC.
 
                  NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
 
  Ordinary maintenance and repair costs are charged to operations as incurred.
The cost of assets sold, retired, or otherwise disposed of, and the related
accumulated depreciation is eliminated from the accounts and any resulting
gain or loss is included in operations.
 
 Intangible assets
 
  Intangible assets are recorded at cost and consist of goodwill, which is
being amortized by the straight line method over its estimated useful life of
forty years. Accumulated amortization at June 30, 1997 and December 31, 1997
is $16,494 and $26,656, respectively.
 
 Rental Revenue
 
  Rental revenue is recorded as earned under the operating method.
 
 Advertising Costs
 
  The Company advertises primarily through phone directories and the
distribution of promotional items. All advertising costs are expensed as
incurred. Advertising expenses amounted to approximately $63,800 and $104,500
in the years ended June 30, 1996 and 1997, respectively, and $52,000 and
$42,000 for the six months ended December 31, 1996 and 1997, respectively.
 
 Income Taxes
 
  The Company uses the "liability method" of accounting for income taxes.
Accordingly, deferred tax liabilities and assets are determined based on the
difference between the financial statement and tax bases of assets and
liabilities, using enacted tax rates in effect for the year in which the
differences are expected to reverse.
 
 Accounting Estimates
 
  The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
 
2. CONCENTRATIONS OF CREDIT RISK
 
  The Company maintains cash balances with a quality financial institution
and, consequently, management believes funds maintained there are secure.
Concentrations of credit risk with respect to customer receivables are limited
due to the large number of customers comprising the Company's customer base
and its credit policy.
 
3. RENTAL EQUIPMENT
 
  Rental equipment and related accumulated depreciation consisted of the
following:
 


                                                     JUNE 30
                                              --------------------- DECEMBER 31,
                                                 1996       1997        1997
                                              ---------- ---------- ------------
                                                                    (UNAUDITED)
                                                           
      Rental equipment....................... $6,384,287 $9,793,816 $10,454,616
      Less accumulated depreciation..........  3,380,176  4,635,027   4,786,957
                                              ---------- ---------- -----------
      Rental equipment, net.................. $3,004,111 $5,158,789 $ 5,667,659
                                              ========== ========== ===========

 
                                     F-269

 
                          MISSION VALLEY RENTALS, INC.
 
                   NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
 
4. PROPERTY AND EQUIPMENT
 
  Property and equipment consists of the following:
 


                                                       JUNE 30
                                                  ----------------- DECEMBER 31,
                                                    1996     1997       1997
                                                  -------- -------- ------------
                                                                    (UNAUDITED)
                                                           
      Furniture and fixtures..................... $237,744 $273,686   $273,686
      Leasehold improvements.....................  268,939  293,557    293,557
                                                  -------- --------   --------
                                                   506,683  567,243    567,243
      Less accumulated depreciation..............  382,086  412,242    428,900
                                                  -------- --------   --------
        Total.................................... $124,597 $155,001   $138,343
                                                  ======== ========   ========

 
5. DEBT AND CAPITAL LEASE OBLIGATIONS
 
  Debt and capital lease obligations consist of the following:
 


                                                    JUNE 30
                                             --------------------- DECEMBER 31,
                                                1996       1997        1997
                                             ---------- ---------- ------------
                                                                   (UNAUDITED)
                                                          
Ingersoll-Rand--Various notes with combined
 monthly payments of $3,514 including
 interest from 7.9% to 10%.................  $   53,296 $  100,980  $  167,744
Clark Equipment Credit Co.--Various notes
 with combined monthly payments of $5,217
 including interest from 7.9% to 9.9%......      35,443    194,304     156,550
Fremont Bank--Various notes with combined
 monthly payments of $52,073 including
 interest from 8.75% to 9.35%..............     784,633  2,874,127   3,017,141
Ford Motor Credit--Various notes with
 combined monthly payments of $1,908
 including interest from 8.75% to 9.25%....      64,948    333,237     374,384
Ford New Holland--Various notes with
 combined monthly payments of $3,849
 including interest 10.5%..................     123,539     79,366      55,493
Orix Credit--Various notes with combined
 monthly payments of $3,864 including
 interest from 6.3% to 9.3%................      10,264     71,764      51,293
Case Credit--Various notes with combined
 monthly payments of $20,216 including
 interest from 7.7% to 7.9%................     209,397    567,827     486,188
Caterpillar Financial Services--Various
 notes with combined monthly payments of
 $3,615 including interest of 6.6%.........         --     150,936     133,994
Country Ford--Various leases with combined
 monthly payments of $6,685 including
 interest of 8.0%..........................         --     351,683     325,197
John Deere--Three notes with combined
 monthly payments of $3,038 including
 interest of 4.9%..........................      14,073     53,471      45,788
Associates--Various notes with combined
 monthly payments of $5,314 including
 interest from 7.5% to 8.98%...............     147,925    182,165     366,594
GMAC--One note with a monthly payment of
 $886 including interest of 9.99%..........         --      20,627      16,254
AEL Lease--Two notes with a combined
 monthly payment of $2,736 including
 interest of 8.25%.........................       3,244     40,705      82,129
M.E.L. Enterprises--One note with a monthly
 payment of $2,595 including interest of
 9.0%......................................      65,312     38,984      24,909
AT&T Finance Corp.--Three notes with a
 combined monthly payment of $4,028
 including interest of 7.35%...............         --         --      194,253
Other......................................         --      41,967      38,369
                                             ---------- ----------  ----------
                                             $1,512,074 $5,102,143  $5,536,280
                                             ========== ==========  ==========

 
                                     F-270

 
                         MISSION VALLEY RENTALS, INC.
 
                  NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
 
  Substantially all rental equipment collateralize the above notes.
 
  Subsequent to June 30, 1997, the Company paid $2,766,372 on certain amounts
outstanding under the debt and capital lease agreements. The remaining balance
of $2,335,771 is scheduled for payment in fiscal year 1998.
 
6. CAPITAL LEASES
 
  The Company leases certain rental equipment under leases accounted for as
capital leases. The following is an analysis of the leased property.
 


                                                           JUNE 30  DECEMBER 31,
                                                             1997       1997
                                                           -------- ------------
                                                                    (UNAUDITED)
                                                              
      Rental equipment.................................... $383,874   $383,874
      Less accumulated amortization.......................   39,688     59,688
                                                           --------   --------
        Net............................................... $344,186   $324,186
                                                           ========   ========

 
  Total depreciation expense on assets under capital leases was $39,688 and
$20,000 in the year ended June 30, 1997 and for the six months ended December
31, 1997, respectively.
 
  The following is a schedule by years of future lease payments under capital
leases together with the present value of the net minimum lease payments as of
June 30, 1997:
 
                                                              
      Year ended June 30, 1998........................................ $ 80,223
        1999..........................................................   80,233
        2000..........................................................   80,223
        2001..........................................................   80,223
        2002..........................................................   80,223
        Thereafter....................................................   33,426
                                                                       --------
      Net minimum lease payment.......................................  434,541
      Less amount representing interest...............................   82,858
                                                                       --------
      Present value of net minimum lease payments..................... $351,683
                                                                       ========

      
 
7. OPERATING LEASES
 
  The Company leases four store locations on long term leases. The Company is
responsible for all operating expenses of the facilities including property
taxes, assessments, insurance, repairs and maintenance.
 
  Rent expense under these leases totaled $216,725 and $334,725 for the years
ended June 30, 1996 and 1997 and $166,363 and $169,963 for the six months
ended December 31, 1996 and 1997, respectively. Under the lease agreements,
aggregate rent is payable in monthly installments of approximately $28,560.
Under certain lease agreements, the rent shall be increased annually to
reflect the then current fair market rent for the premises, provided that each
annual increase shall not exceed a specific percentage, as defined in the
agreements, of the previous year's rental rate. Future minimum rent
commitments are $342,725 each for years ended June 30, 1998 to June 30, 2004
and $217,563 and $21,000 for fiscal 2005 and 2006 respectively, provided there
is no increase in fair market rent for the premises.
 
 
                                     F-271

 
                         MISSION VALLEY RENTALS, INC.
 
                  NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
8. INCOME TAXES
 
  The provision (benefit) for income taxes consists of the following:
 


                                               JUNE 30          DECEMBER 31
                                          -----------------  ------------------
                                            1996     1997      1996      1997
                                          -------- --------  --------  --------
                                                                (UNAUDITED)
                                                           
Current:
  Federal................................ $184,790 $(85,541) $(22,719) $ 29,842
  State..................................   32,610      --                  --
                                          -------- --------  --------  --------
                                           217,400  (85,541)  (22,719)   29,842
Deferred:
  Federal................................   69,580  111,620    74,407   (71,507)
  State..................................   12,279   19,698    12,607   (12,618)
                                          -------- --------  --------  --------
                                            81,859  131,318    87,014   (84,125)
                                          -------- --------  --------  --------
  Total.................................. $299,259 $ 45,777  $ 64,295  $(54,283)
                                          ======== ========  ========  ========

 
  Significant components of the Company's deferred tax liability at June 30,
1996 and 1997 and December 31, 1997 (unaudited) are as follows:
 


                                                    JUNE 30
                                               ------------------  DECEMBER 31,
                                                 1996      1997        1997
                                               --------  --------  ------------
                                                                   (UNAUDITED)
                                                          
Difference in basis of accounting............. $(33,025) $(41,185)   $    --
Cumulative tax depreciation in excess of
 book.........................................  188,774   319,869     235,744
                                               --------  --------    --------
Deferred tax liability, net................... $155,749  $278,684    $235,744
                                               ========  ========    ========

 
  Deferred tax assets at June 30, 1996 and 1997, are included in prepaid
expenses and other assets on the accompanying balance sheet.
 
9. SUPPLEMENTAL CASH FLOW INFORMATION
 
  For the years ended June 30, 1996 and 1997 and the six months ended December
31, 1996 and 1997, total interest paid was $139,925 and $367,561 and $171,923
and $238,334, respectively.
 
  For the years ended June 30, 1996 and 1997 and the six months ended December
31, 1996 and 1997, total taxes paid were $120,000 and $127,611 and $84,358 and
$ -- , respectively.
 
  For the years ended June 30, 1996 and 1997 and for the six months ended
December 31, 1996 and 1997, the Company purchased $857,779, $3,844,300,
$3,156,404 and $1,297,596, respectively, of equipment which was financed.
 
  For the year ended June 30, 1997 and the six months ended December 31, 1996,
the Company entered into capital lease agreements for rental equipment
totaling $383,874.
 
10. EMPLOYEE BENEFIT PLAN
 
  On January 1, 1996, the Company established a defined contribution 401(k)
retirement plan which covers substantially all full time employees. The
employees may contribute up to 15% of their weekly gross pay. The
 
                                     F-272

 
                         MISSION VALLEY RENTALS, INC.
 
                  NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Company matches 20% of the employees contribution. Effective September 1997,
the Company's match increased to 70%. Company contributions to the plan were
$7,674, $15,211, $7,807 and $33,159 for the years ended June 30, 1996 and 1997
and for the six month periods ended December 31, 1996 and 1997, respectively.
 
11. SUBSEQUENT EVENT
 
  On January 13, 1998, the Company entered into a stock purchase agreement
with United Rentals, Inc. ("United"). Under the terms of the stock purchase
agreement, United purchased all of the issued and outstanding capital stock of
the Company.
 
                                     F-273

 
                        REPORT OF INDEPENDENT AUDITORS
 
Board of Directors and Stockholders
Pro Rentals, Inc.
 
  We have audited the accompanying balance sheet of Pro Rentals, Inc. as of
December 31, 1997 and the related statements of income, stockholders' equity
and cash flows for the year then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
 
  We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
 
  In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Pro Rentals, Inc. at
December 31, 1997, and the results of its operations and its cash flows for
the year then ended in conformity with generally accepted accounting
principles.
 
                                          /s/ Ernst & Young LLP
 
MetroPark, New Jersey
April 22, 1998
 
                                     F-274

 
                               PRO RENTALS, INC.
 
                                 BALANCE SHEET
 
                               DECEMBER 31, 1997
 
                                                                  
ASSETS
Cash................................................................ $    2,700
Accounts receivable, net of allowance for doubtful accounts of
 $38,000............................................................    582,034
Inventory...........................................................    499,826
Rental equipment, net...............................................  4,308,589
Property and equipment, net.........................................    210,889
Prepaid expenses and other assets...................................      5,315
Due from stockholder................................................     60,643
                                                                     ----------
    Total assets.................................................... $5,669,996
                                                                     ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
  Accounts payable..................................................    334,829
  Accrued expenses and other liabilities............................    182,281
  Debt..............................................................  3,456,278
                                                                     ----------
    Total liabilities...............................................  3,973,388
Commitments and contingencies
Stockholders' equity:
  Common stock, $4.00 par value, 50,000 shares authorized,
   1,000 shares issued and outstanding..............................      4,000
  Retained earnings.................................................  1,692,608
                                                                     ----------
    Total stockholders' equity......................................  1,696,608
                                                                     ----------
    Total liabilities and stockholders' equity...................... $5,669,996
                                                                     ==========


 
 
                            See accompanying notes.
 
                                     F-275

 
                               PRO RENTALS, INC.
 
                              STATEMENT OF INCOME
 
                          YEAR ENDED DECEMBER 31, 1997
 
                                                                  
Revenues:
  Equipment rentals................................................. $3,980,013
  Sales of rental equipment.........................................    581,820
  Sales of parts, supplies and new equipment........................  1,309,778
                                                                     ----------
    Total revenues..................................................  5,871,611
Cost of revenues:
  Cost of equipment rentals, excluding equipment rental
   depreciation.....................................................    889,536
  Depreciation, equipment rentals...................................    578,897
  Cost of rental equipment sales....................................    403,475
  Cost of parts, supplies and new equipment sales...................  1,147,579
                                                                     ----------
    Total cost of revenues..........................................  3,019,487
                                                                     ----------
    Gross profit....................................................  2,852,124
Selling, general and administrative expenses........................  2,137,103
Non-rental depreciation.............................................     58,327
                                                                     ----------
Operating income....................................................    656,694
Interest expense....................................................    440,998
                                                                     ----------
    Net income...................................................... $  215,696
                                                                     ==========


 
 
 
                            See accompanying notes.
 
                                     F-276

 
                               PRO RENTALS, INC.
 
                       STATEMENT OF STOCKHOLDERS' EQUITY
 


                                                        COMMON STOCK
                                                        -------------  RETAINED
                                                        SHARES AMOUNT  EARNINGS
                                                        ------ ------ ----------
                                                             
Balance at January 1, 1997............................. 1,000  $4,000 $1,476,912
  Net income...........................................                  215,696
                                                        -----  ------ ----------
Balance at December 31, 1997........................... 1,000  $4,000 $1,692,608
                                                        =====  ====== ==========

 
 
 
                            See accompanying notes.
 
                                     F-277

 
                               PRO RENTALS, INC.
 
                            STATEMENT OF CASH FLOWS
 
                          YEAR ENDED DECEMBER 31, 1997
 
                                                               
Cash flows from operating activities
Net income....................................................... $   215,696
Adjustments to reconcile net income to net cash provided by
 operating activities:
  Depreciation...................................................     637,224
  Gain on rental equipment sales.................................    (178,345)
  Changes in assets and liabilities:
    Increase in accounts receivable..............................    (189,727)
    Decrease in inventory........................................     676,854
    Decrease in prepaid expenses and other assets................     157,506
    Decrease in accounts payable.................................      (4,745)
    Increase in accrued expenses and other liabilities...........      69,357
                                                                  -----------
Cash provided by operating activities............................   1,383,820
Cash flows from investing activities
Proceeds from sale of rental equipment...........................     581,820
Purchase of property and equipment...............................      (2,399)
                                                                  -----------
Cash provided by investing activities............................     579,421
Cash flows from financing activities
Principal payments on debt.......................................  (2,553,206)
Borrowings under credit facility.................................     589,965
                                                                  -----------
Cash used in financing activities................................  (1,963,241)
                                                                  -----------
Increase in cash.................................................         --
Cash at beginning of year........................................       2,700
                                                                  -----------
Cash at end of year.............................................. $     2,700
                                                                  ===========


 
 
                            See accompanying notes.
 
                                     F-278

 
                               PRO RENTALS, INC.
 
                         NOTES TO FINANCIAL STATEMENTS
 
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
BUSINESS ACTIVITY
 
  The Company rents, sells and repairs construction equipment for use by
contractor, industrial and homeowners markets. The rentals are on a daily,
weekly or monthly basis. The Company has six locations (East Bremerton, West
Bremerton, Port Angeles, Gig Harbor, Port Orchard and Lakewood) and the
principal market area is Northern Washington. The nature of the Company's
business is such that short-term obligations are typically met by cash flow
generated from long-term assets. Consequently, consistent with industry
practice, the balance sheet is presented on an unclassified basis.
 
  These financial statements are prepared on a historical cost basis and do
not include any adjustments that may result from the acquisition of the
Company by United Rentals, Inc. ("United") as more fully described in Note 9.
 
INVENTORY
 
  Inventories consists primarily of equipment, general replacement parts and
fuel for the equipment and are stated at the lower of cost, determined under
the first-in, first-out method, or market.
 
RENTAL EQUIPMENT
 
  Rental equipment is recorded at cost. Rental equipment costing less than
$1,000 is immediately expensed at the date of purchase. Depreciation for
rental equipment is computed using the straight-line method over an estimated
seven-year useful life with a 35% salvage value. Ordinary maintenance and
repair costs are charged to operations as incurred. Proceeds from the disposal
and the related net book value of the equipment are recognized in the period
of disposal and reported as revenue from the sales of rental equipment and
cost of sales of rental equipment, respectively, in the statement of income.
 
PROPERTY AND EQUIPMENT
 
  Property and equipment is stated at cost. The company capitalizes all
property and equipment purchases greater than $1,000. Depreciation of property
and equipment is computed on the straight-line method over estimated useful
lives of 5 to 10 years with no salvage value. Leasehold improvements are
amortized using the straight-line method over the estimated lives of the
improvements or the remaining life of the lease, whichever is shorter.
 
  Ordinary maintenance and repair costs are charged to operations as incurred.
The cost of assets sold, retired, or otherwise disposed of, and the related
accumulated depreciation is eliminated from the accounts and any resulting
gain or loss is included in operations.
 
RENTAL REVENUE
 
  Rental revenue is recorded as earned under the operating method.
 
ADVERTISING COSTS
 
  The Companies advertise primarily through trade journals, trade associations
and phone directories. All advertising costs are expensed as incurred.
Advertising expense amounted to $61,405 in the year ended December 31, 1997.
 
INCOME TAXES
 
  Pro Rentals has elected, by unanimous consent of its shareholders, to be
taxed under the provisions of Subchapter S of the Internal Revenue Code for
federal purposes. Under those provisions, the Company does not pay federal
income taxes; instead, the shareholders are liable for individual income taxes
on the Company's profits.
 
                                     F-279

 
                               PRO RENTALS, INC.
 
                  NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
 
 
ACCOUNTING ESTIMATES
 
  The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
 
2. CONCENTRATIONS OF CREDIT RISK
 
  The Companies maintain cash balances with a quality financial institution
and, consequently, management believes funds maintained there are secure.
Concentrations of credit risk with respect to customer receivables are limited
due to the large number of customers comprising the Companies' customer base
and their credit policy.
 
3. RENTAL EQUIPMENT
 
  Rental equipment and related accumulated depreciation consisted of the
following at December 31, 1997:
 
                                                               
   Rental equipment................................................. $6,326,420
   Less accumulated depreciation....................................  2,017,831
                                                                     ----------
   Rental equipment, net............................................ $4,308,589
                                                                     ==========

   
 
4. PROPERTY AND EQUIPMENT
 
  Property and equipment consists of the following at December 31, 1997:
 
                                                                 
   Furniture and fixtures............................................. $ 30,363
   Office equipment...................................................  237,868
   Vehicles...........................................................  336,457
   Leasehold improvements.............................................   11,218
                                                                       --------
                                                                        615,906
   Less accumulated depreciation .....................................  405,017
                                                                       --------
   Total.............................................................. $210,889
                                                                       ========

   
 
5. DEBT
 
  Debt consists of the following at December 31, 1997:
 
                                                               
   Deutsche Financial Services--Various notes with combined monthly
    payments of $37,489 including interest from 7.9% to 10.25%.....  $1,116,338
   John Deere--Various notes with combined monthly payments of
    $10,699 including interest from 6.9% to 10.24%.................     558,677
   American Equipment Leasing (AEL)--Various notes with combined
    monthly payments of $34,763 including interest from 8% to
    12.25%.........................................................     648,835
   Financial Federal Credit, Inc.--Various notes with combined
    monthly payments of $7,291 including interest of 10.25%........     183,757
   Associates Commercial Corporation--Various notes with combined
    monthly payments of $6,436 including interest from 8.3% to
    10.25%.........................................................     166,780
   AEL--$150,000 revolving line of credit due October 14, 1998 with
    monthly interest payments at prime plus 2.17%..................     150,000
   Kitsap Bank--$150,000 revolving line of credit due July 7, 1998
    with monthly interest payments at prime plus 2%. This line is
    personally guaranteed by the Company's shareholders............      75,000
   Other...........................................................     556,891
                                                                     ----------
       Total.......................................................  $3,456,278
                                                                     ==========

   
 
 
                                     F-280

 
                               PRO RENTALS, INC.
 
                  NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
 
  Substantially all rental equipment and inventory collateralized the above
notes. All debt at December 31, 1997 was paid off in connection with the
acquisition discussed in Note 9.
 
6. OPERATING LEASES
 
  The Company leases six store locations. Three of the locations are on long
term leases, while the other three are on a month-to-month basis. The Company
is responsible for all operating expenses of the facilities including property
taxes, assessments, insurance, repairs and maintenance. These leases have
various terms and extend through December 2007 and include scheduled base rent
increases over the term of the leases. The total amount of the base rent
payments is being charged to expense on the straight-line method over the
terms of the leases.
 
  Total rent expense for 1997 was approximately $294,893.
 
  At December 31, 1997, minimum lease commitments under all operating leases,
with initial or remaining lease terms of more than one year are as follows:
 
                                                                
   1998.............................................................. $  318,360
   1999..............................................................    299,037
   2000..............................................................    273,144
   2001..............................................................    223,364
   Thereafter........................................................  1,432,800
                                                                      ----------
   Total............................................................. $2,546,705
                                                                      ==========

   
 
7. RELATED PARTIES
 
  Three of the Company's locations are leased from the Company's shareholders.
Total rent paid to the shareholders under these leases amounted to $177,412 in
1997. At December 31, 1997 Pro Rentals has a non-interest bearing amount due
from one of the Company's shareholders of $60,643.
 
8. SUPPLEMENTAL CASH FLOW INFORMATION
 
  For the year ended December 31, 1997 total interest paid was $440,998.
 
  During 1997 the Companies purchased $607,902 of rental equipment and
$524,333 of inventory which was financed.
 
9. SUBSEQUENT EVENT
 
  On January 22, 1998, under the terms of the stock purchase agreement, United
purchased all of the issued and outstanding capital stock of the Company.
 
                                     F-281

 
                        REPORT OF INDEPENDENT AUDITORS
 
Board of Directors and Stockholders
ASC Equipment Company, Inc.
 
  We have audited the accompanying balance sheet of ASC Equipment Company,
Inc. as of December 31, 1997 and the related statements of income,
stockholders' equity and cash flows for the year then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
 
  We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
 
  In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of ASC Equipment Company,
Inc. at December 31, 1997, and the results of its operations and its cash
flows for the year then ended in conformity with generally accepted accounting
principles.
 
                                          /s/ Ernst & Young LLP
 
MetroPark, New Jersey
April 22, 1998
 
                                     F-282

 
                          ASC EQUIPMENT COMPANY, INC.
 
                                 BALANCE SHEET
 
                               DECEMBER 31, 1997
 
                                                                 
ASSETS
Cash............................................................... $   13,365
Accounts receivable, net of allowance for doubtful accounts of
 $51,217...........................................................    623,370
Inventory..........................................................    619,187
Rental equipment, net..............................................  2,721,279
Property and equipment, net........................................    313,827
Prepaid expenses and other assets..................................     33,883
                                                                    ----------
    Total assets................................................... $4,324,911
                                                                    ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
  Accounts payable, accrued expenses and other liabilities......... $  490,454
  Debt.............................................................  2,436,503
  Deferred compensation............................................     52,615
  Deferred income taxes............................................    206,109
                                                                    ----------
    Total liabilities..............................................  3,185,681
Commitments and contingencies
Stockholders' equity:
  Common stock, $1.00 par value, 100,000 shares authorized, 3,210
   shares issued and outstanding...................................      3,210
  Preferred stock, $1.00 par value, 1,000 shares authorized, 55
   shares issued and outstanding...................................         55
  Additional paid-in capital.......................................     19,595
  Retained earnings................................................  1,188,370
                                                                    ----------
                                                                     1,211,230
  Treasury stock...................................................    (72,000)
                                                                    ----------
    Total stockholders' equity.....................................  1,139,230
                                                                    ----------
    Total liabilities and stockholders' equity..................... $4,324,911
                                                                    ==========


 
 
                            See accompanying notes.
 
                                     F-283

 
                          ASC EQUIPMENT COMPANY, INC.
 
                              STATEMENT OF INCOME
 
                          YEAR ENDED DECEMBER 31, 1997
 
                                                                 
Revenues:
  Equipment rentals................................................ $3,209,936
  Rental equipment sales...........................................    291,618
  Sales of parts, supplies and new equipment.......................  1,963,901
                                                                    ----------
    Total revenues.................................................  5,465,455
Cost of revenues:
  Cost of equipment rentals, excluding equipment rental
   depreciation....................................................  1,248,757
  Depreciation, equipment rentals..................................    949,526
  Cost of rental equipment sales...................................    136,712
  Cost of parts, supplies and new equipment sales..................  1,480,339
                                                                    ----------
    Total cost of revenues.........................................  3,815,334
                                                                    ----------
    Gross profit...................................................  1,650,121
Selling, general and administrative expenses.......................  1,328,977
Non-rental depreciation............................................    105,503
                                                                    ----------
Operating income...................................................    215,641
Interest expense...................................................    214,983
Other (income).....................................................   (116,188)
                                                                    ----------
Income before provision for income taxes...........................    116,846
Provision for income taxes.........................................     87,861
                                                                    ----------
Net income......................................................... $   28,985
                                                                    ==========


 
 
                            See accompanying notes.
 
                                     F-284

 
                          ASC EQUIPMENT COMPANY, INC.
 
                       STATEMENT OF STOCKHOLDERS' EQUITY
 


                                         PREFERRED
                         COMMON STOCK      STOCK     ADDITIONAL
                         ------------- -------------  PAID IN    RETAINED  TREASURY
                         SHARES AMOUNT SHARES AMOUNT  CAPITAL    EARNINGS   STOCK
                         ------ ------ ------ ------ ---------- ---------- --------  ---
                                                             
Balance at January 1,
 1997................... 3,210  $3,210   55    $55    $19,595   $1,159,385 $(72,000)
  Net income............                                            28,985
                         -----  ------  ---    ---    -------   ---------- --------
Balance at December 31,
 1997................... 3,210  $3,210   55    $55    $19,595   $1,188,370 $(72,000)
                         =====  ======  ===    ===    =======   ========== ========

 
 
 
 
 
                            See accompanying notes.
 
                                     F-285

 
                          ASC EQUIPMENT COMPANY, INC.
 
                            STATEMENT OF CASH FLOWS
 
                          YEAR ENDED DECEMBER 31, 1997
 
                                                               
CASH FLOWS FROM OPERATING ACTIVITIES
Net income....................................................... $    28,985
Adjustments to reconcile net income to net cash provided by
 operating activities:
  Depreciation...................................................   1,055,029
  Gain on rental equipment sales.................................     (26,631)
  Deferred taxes.................................................      75,333
  Changes in assets and liabilities:
    Increase in accounts receivable..............................    (123,786)
    Increase in inventory........................................     (57,506)
    Decrease in prepaid expenses and other assets................      47,521
    Increase in accounts payable accrued expenses and other
     liabilities.................................................     141,880
    Increase in deferred compensation............................       3,895
                                                                  -----------
Cash provided by operating activities............................   1,144,720
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of rental equipment.....................................  (1,597,801)
Proceeds from sale of rental equipment...........................     262,130
Purchases of property and equipment..............................    (190,245)
                                                                  -----------
Cash used in investing activities................................  (1,525,916)
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments on debt.......................................  (2,933,065)
Borrowings under credit facilities...............................   3,325,064
                                                                  -----------
Cash provided by financing activities............................     391,999
                                                                  -----------
Increase in cash.................................................      10,803
Cash balance at beginning of year................................       2,562
                                                                  -----------
Cash balance at end of year...................................... $    13,365
                                                                  ===========


 
 
                            See accompanying notes.
 
                                     F-286

 
                          ASC EQUIPMENT COMPANY, INC.
 
                         NOTES TO FINANCIAL STATEMENTS
 
                               DECEMBER 31, 1997
 
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
BUSINESS ACTIVITY
 
  ASC Equipment Company, Inc. (the "Company") rents, sells and repairs
construction equipment for use by contractor, industrial and homeowners
markets. The rentals are on a daily, weekly or monthly basis. The Company has
three locations (Fayetteville, Goldsboro and Jacksonville) and their principal
market area is eastern North Carolina. The nature of the Company's business is
such that short-term obligations are typically met by cash flow generated from
long-term assets. Consequently, consistent with industry practice, the balance
sheet is presented on an unclassified basis.
 
  These financial statements are prepared on a historical cost basis and do
not include any adjustments that may result from the acquisition of the
Company by United Rentals, Inc. ("United") as more fully described in Note 10.
 
INVENTORY
 
  Inventories consists primarily of general replacement parts and equipment
held for resale and are stated at the lower of cost, determined under the
first-in, first-out method, or market.
 
RENTAL EQUIPMENT
 
  Rental equipment is recorded at cost. Depreciation for rental equipment is
computed using the straight-line method over an estimated five-year useful
life with no salvage value.
 
  Ordinary maintenance and repair costs are charged to operations as incurred.
Proceeds from the disposal and the related net book value of the equipment are
recognized in the period of disposal and reported as revenue from sales of
equipment and cost of sales of equipment, respectively, in the statement of
income.
 
PROPERTY AND EQUIPMENT
 
  Property and equipment is stated at cost. Depreciation of property and
equipment is computed on the straight-line method over an estimated five-year
useful life. Leasehold improvements are amortized using the straight-line
method over the estimated lives of the improvements or the remaining life of
the lease, whichever is shorter.
 
  Ordinary maintenance and repair costs are charged to operations as incurred.
The cost of assets sold, retired, or otherwise disposed of, and the related
accumulated depreciation is eliminated from the accounts and any resulting
gain or loss is included in operations.
 
RENTAL REVENUE
 
  Rental revenue is recorded as earned under the operating method.
 
ADVERTISING COSTS
 
  The Companies advertise primarily through trade journals, trade associations
and phone directories. All advertising costs are expensed as incurred.
Advertising expense amounted to approximately $34,900 in the year ended
December 31, 1997.
 
 
                                     F-287

 
                          ASC EQUIPMENT COMPANY, INC.
 
                  NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
 
INCOME TAXES
 
  The Company uses the "liability method" of accounting for income taxes.
Accordingly, deferred tax liabilities and assets are determined based on the
difference between the financial statement and tax bases of assets and
liabilities, using enacted tax rates in effect for the year in which
differences are expected to reverse.
 
ACCOUNTING ESTIMATES
 
  The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
 
2. CONCENTRATIONS OF CREDIT RISK
 
  The company maintains cash balances with a quality financial institution
and, consequently, management believes funds maintained there are secure.
Concentrations of credit risk with respect to customer receivables are limited
due to the large number of customers comprising the Company's customer base
and its credit policy.
 
3. RENTAL EQUIPMENT
 
  Rental equipment and related accumulated depreciation consisted of the
following at December 31, 1997:
 
                                                             
   Rental equipment............................................... $ 5,640,041
   Less accumulated depreciation..................................  (2,918,762)
                                                                   -----------
   Rental equipment, net.......................................... $ 2,721,279
                                                                   ===========

   
 
4. PROPERTY AND EQUIPMENT
 
  Property and equipment consists of the following at December 31, 1997:
 
                                                                
   Transportation equipment.......................................... $ 571,054
   Furniture and fixtures............................................    36,317
   Leasehold improvements............................................    32,622
                                                                      ---------
                                                                        639,993
   Less accumulated depreciation.....................................  (326,166)
                                                                      ---------
   Total............................................................. $ 313,827
                                                                      =========

   
 
5. DEBT
 
  Debt consists of the following at December 31, 1997:
 
                                                              
   First Citizens Bank; three notes; payable in monthly
    installments of $37,770 including interest at prime 8.5% at
    December 31, 1997, collateralized by equipment and real
    estate........................................................  $  936,404
   First Citizens Bank; line of credit of $1,550,000; payable in
    monthly installments of interest only at prime, collateralized
    by equipment and inventory....................................   1,446,292
   Financial Federal; payable in monthly installments of $2,230
    including interest at 6.75%; collateralized by equipment......      53,807
                                                                    ----------
                                                                    $2,436,503
                                                                    ==========

   
 
  All debt at December 31, 1997 was paid off in connection with the
acquisition discussed in Note 10.
 
                                     F-288

 
                          ASC EQUIPMENT COMPANY, INC.
 
                  NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
 
 
6. INCOME TAXES
 
  The provision for income taxes consists of the following for the year ended
December 31, 1997:
 
                                                                   
   Current:
     Federal............................................................ $10,270
     State..............................................................   2,258
                                                                         -------
                                                                          12,528
   Deferred:
     Federal............................................................  61,773
     State..............................................................  13,560
                                                                         -------
                                                                          75,333
                                                                         -------
                                                                         $87,861
                                                                         =======

   
 
  Significant components of the Company's deferred tax liability at December
31, 1997 are as follows:
 
                                                                
   Difference in basis of accounting................................. $(20,487)
   Cumulative tax depreciation in excess of book.....................  226,596
                                                                      --------
     Deferred tax liability, net..................................... $206,109
                                                                      ========

   
 
7. RELATED PARTY TRANSACTIONS
 
  The Company leases its three operating facilities from the president and a
stockholder of the Company on a month to month basis. The Company is
responsible for all operating expenses of the facilities including property
taxes, assessments, insurance, repairs and maintenance. Total rent expense for
1997 was approximately $99,100.
 
  In connection with the acquisition discussed in Note 10, the lease terms
have been renegotiated.
 
  The Company also had a non-interest bearing note receivable from its
stockholders totaling $14,971 at December 31, 1997 and is included in prepaid
expenses and other assets on the accompanying balance sheet. No repayment
schedule has been established.
 
8. SUPPLEMENTAL CASH FLOW INFORMATION
 
  For the year ended December 31, 1997 total interest and income taxes paid
were $200,457 and $29,000, respectively.
 
  During 1997, the Company purchased $72,500 of equipment which was financed.
 
9. EMPLOYEE BENEFIT PLAN
 
  The Company has a defined contribution 401(k) pension plan which covers
substantially all employees. The Company matches 100% up to the first five
percent of the employees contribution. Company contributions to the plan were
$33,980 for the year ended December 31, 1997.
 
10. SUBSEQUENT EVENT
 
  On January 27, 1998, under the terms of the stock purchase agreement, United
purchased all of the issued and outstanding capital stock of the Company.
 
                                     F-289

 
                         INDEPENDENT AUDITOR'S REPORT
 
MERCER Equipment Company:
 
  We have audited the accompanying balance sheets of MERCER Equipment Company
as of December 31, 1996 and October 24, 1997 and the related statements of
income and retained earnings and of cash flows for each of the two years in
the period ended December 31, 1996, and for the period from January 1, 1997 to
October 24, 1997. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
 
  We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
 
  In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of MERCER Equipment Company
as of December 31, 1996, and October 24, 1997 and the results of its
operations and its cash flows for each of the two years in the period ended
December 31, 1996 and for the period from January 1, 1997 to October 24, 1997
in conformity with generally accepted accounting principles.
 
                                          /s/ Webster, Duke & Co. PA
 
Charlotte, North Carolina
January 21, 1998
 
                                     F-290

 
                            MERCER EQUIPMENT COMPANY
 
                                 BALANCE SHEETS
 


                                                       DECEMBER 31, OCTOBER 24,
                                                       ------------ -----------
                                                           1996        1997
                                                       ------------ -----------
                                                              
                        ASSETS
CURRENT ASSETS:
  Cash................................................ $   276,639  $    85,384
  Accounts receivable (less allowance for doubtful
   accounts: 1996-$182,425, 1997-$254,073)............   1,819,581    2,398,926
  Inventory (Notes 2, 5 and 8)........................   2,417,425    2,299,512
  Miscellaneous receivables...........................      16,604       29,508
  Prepaid expenses....................................          -        17,965
                                                       -----------  -----------
    Total current assets..............................   4,530,249    4,831,295
                                                       -----------  -----------
RENTAL EQUIPMENT (Notes 2, 5, 8, 9, 10 and 15):
  Rental equipment....................................  14,030,584   15,392,093
  Less accumulated depreciation.......................   3,717,218    4,322,744
                                                       -----------  -----------
    Rental equipment, net.............................  10,313,366   11,069,349
                                                       -----------  -----------
OTHER PROPERTY (Notes 2, 8 and 11):
  Other property......................................   1,003,079    1,091,365
  Less accumulated depreciation.......................     395,658      498,962
                                                       -----------  -----------
    Other property, net...............................     607,421      592,403
                                                       -----------  -----------
OTHER ASSETS (Note 13):
  Deposits and other assets...........................      68,639       42,889
  Notes receivable-officers...........................      69,980       67,453
                                                       -----------  -----------
    Total other assets................................     138,619      110,342
                                                       -----------  -----------
    TOTAL............................................. $15,589,655  $16,603,389
                                                       ===========  ===========
         LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
  Line of credit (Note 4).............................         --           --
  Note payable-Bank (Note 4).......................... $   494,245  $ 5,017,953
  Short-term equipment notes (Note 5).................     189,528    3,619,830
  Notes payable-individuals (Notes 6 and 13)..........     609,000      142,000
  Current portion of long-term debt...................   2,253,562       56,411
  Current portion of capital leases...................     167,445       86,597
  Accounts payable....................................   2,161,340    3,174,282
  Accrued expenses....................................     140,361      254,444
                                                       -----------  -----------
    Total current liabilities.........................   6,015,481   12,351,517
                                                       -----------  -----------
LONG-TERM DEBT (Non-current Portion):
  Revolving credit note (Note 7)......................   2,430,000          --
  Notes payable to bank (Note 8)......................   1,513,000          --
  Notes payable on rental equipment (Note 9)..........   2,195,238          --
  Capital leases on rental equipment (Note 10)........     119,183      176,047
  Notes payable on other property.....................     138,543       82,208
                                                       -----------  -----------
    Total long-term debt..............................   6,395,964      258,255
                                                       -----------  -----------
STOCKHOLDERS' EQUITY:
  Common stock (Notes 2 and 12).......................     500,001      500,001
  Retained earnings (Note 8)..........................   2,678,209    3,493,616
                                                       -----------  -----------
    Total stockholders' equity........................   3,178,210    3,993,617
                                                       -----------  -----------
    TOTAL............................................. $15,589,655  $16,603,389
                                                       ===========  ===========

 
                       See notes to financial statements.
 
                                     F-291

 
                            MERCER EQUIPMENT COMPANY
 
                   STATEMENTS OF INCOME AND RETAINED EARNINGS
 


                                                                    PERIOD FROM
                                                                    JANUARY 1,
                                          YEAR ENDED DECEMBER 31,     1997 TO
                                          ------------------------  OCTOBER 24,
                                             1995         1996         1997
                                          -----------  -----------  -----------
                                                           
REVENUE:
  Sales of new equipment................. $ 2,479,358  $ 3,415,523  $3,709,356
  Sales of supplies and parts............   1,558,273    2,067,403   1,831,345
                                          -----------  -----------  ----------
    Total goods sold.....................   4,037,631    5,482,926   5,540,701
  Sales of rental equipment..............     872,621    1,102,621   1,876,001
  Rental revenues........................   4,950,614    7,380,137   6,891,972
  Service department revenues............     357,039      488,216     764,738
                                          -----------  -----------  ----------
    Total revenues.......................  10,217,905   14,453,900  15,073,412
                                          -----------  -----------  ----------
DIRECT COSTS OF REVENUE:
  Cost of goods sold.....................   3,171,168    4,469,790   4,677,328
  Cost of rental equipment sold, net.....     530,102      702,254   1,218,507
  Rental department expenses (including
   depreciation of $1,035,352, $1,492,131
   and $1,428,312).......................   2,226,420    3,589,936   3,728,374
  Service department expenses............     460,382      648,882     706,958
                                          -----------  -----------  ----------
    Total direct costs of revenue........   6,388,072    9,410,862  10,331,167
                                          -----------  -----------  ----------
GROSS MARGIN.............................   3,829,833    5,043,038   4,742,245
                                          -----------  -----------  ----------
OPERATING EXPENSES:
  Sales expenses.........................     752,722    1,386,812   1,345,705
  Administrative and general expenses....   1,930,124    2,247,556   2,014,205
                                          -----------  -----------  ----------
    Total operating expenses.............   2,682,846    3,634,368   3,359,910
                                          -----------  -----------  ----------
MARGIN FROM OPERATIONS...................   1,146,987    1,408,670   1,382,335
                                          -----------  -----------  ----------
OTHER INCOME (EXPENSE):
  Miscellaneous income...................      78,258      110,340     147,362
  Interest expense.......................    (486,976)    (813,339)   (686,512)
                                          -----------  -----------  ----------
    Total other income (expense).........    (408,718)    (702,999)   (539,150)
                                          -----------  -----------  ----------
NET INCOME...............................     738,269      705,671     843,185
BEGINNING RETAINED EARNINGS..............   1,450,936    2,045,871   2,678,209
                                          -----------  -----------  ----------
    Total................................   2,189,205    2,751,542   3,521,394
LESS DIVIDENDS PAID......................     143,334       73,333      27,778
                                          -----------  -----------  ----------
ENDING RETAINED EARNINGS................. $ 2,045,871  $ 2,678,209  $3,493,616
                                          ===========  ===========  ==========

 
                       See notes to financial statements.
 
                                     F-292

 
                            MERCER EQUIPMENT COMPANY
 
                            STATEMENTS OF CASH FLOWS
 


                                                                    PERIOD FROM
                                                                    JANUARY 1,
                                          YEAR ENDED DECEMBER 31,     1997 TO
                                          ------------------------  OCTOBER 24,
                                             1995         1996         1997
                                          -----------  -----------  -----------
                                                           
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net income............................. $   738,269  $   705,671  $  843,185
  Adjustments to reconcile net income to
   net cash provided by operating
   activities:
    Depreciation and amortization........   1,117,783    1,610,918   1,542,966
    Cost of rental equipment sold, net...     530,102      702,254   1,218,507
    Cost of other property sold, net.....                   14,800
    Changes in assets and liabilities:
      Accounts receivable, net...........    (418,132)    (398,900)   (579,345)
      Inventory..........................    (900,532)    (325,339)    117,913
      Miscellaneous receivables..........      (5,437)      (4,065)    (12,904)
      Prepaid expenses...................                              (17,965)
      Other assets.......................     (16,000)     (24,239)     14,400
      Accounts payable...................     651,668      558,903     944,210
      Accrued expenses...................      29,098       24,329     114,083
                                          -----------  -----------  ----------
        Net cash provided by operating
         activities......................   1,726,819    2,864,332   4,185,050
                                          -----------  -----------  ----------
CASH FLOWS (TO) INVESTING ACTIVITIES:
  Purchase of rental equipment...........  (2,466,039)  (2,001,083) (1,601,703)
  Purchase of other property.............    (131,695)    (171,319)    (81,117)
  Increase in other asset................      (1,650)
                                          -----------  -----------  ----------
        Net cash (to) investing
         activities......................  (2,599,384)  (2,172,402) (1,682,820)
                                          -----------  -----------  ----------
CASH FLOWS FROM (TO) FINANCING
 ACTIVITIES:
  Repayments of notes receivable--
   officers..............................       2,264        3,019       2,527
  Repayments by stockholders.............                  220,602
  Loans to stockholders..................    (247,729)
  Repayments under line of credit........    (125,000)                  (8,792)
  Borrowings under line of credit........                                  --
  Repayments of short-term equipment
   notes.................................    (130,301)    (618,854)   (597,500)
  Repayments of notes payable--
   individuals...........................                  (52,500)   (491,000)
  Repayments of long term debt...........  (1,051,070)  (1,950,688) (1,794,942)
  Repayments of capital leases...........     (22,009)    (150,279)
  Net borrowings under note payable--
   bank..................................     465,200       29,045         --
  Borrowings under revolving credit
   note..................................   1,000,000    1,700,000     200,000
  Proceeds from bank loans...............   1,120,588
  Proceeds from notes payable
   individuals...........................     305,000       23,000      24,000
  Dividends paid.........................   (143,334 )     (73,333)    (27,778)
                                          -----------  -----------  ----------
        Net cash from (to) financing
         activities......................   1,173,609     (869,988) (2,693,485)
                                          -----------  -----------  ----------
NET INCREASE (DECREASE) IN CASH..........     301,044     (178,058)   (191,255)
BEGINNING CASH BALANCE...................     153,653      454,697     276,639
                                          -----------  -----------  ----------
ENDING CASH BALANCE...................... $   454,697  $   276,639  $   85,384
                                          ===========  ===========  ==========

 
                       See notes to financial statements
 
                                     F-293

 
                           MERCER EQUIPMENT COMPANY
 
                         NOTES TO FINANCIAL STATEMENTS
 
                 DECEMBER 31, 1995, 1996 AND OCTOBER 24, 1997
 
1. ORGANIZATION AND BUSINESS
 
  Organization--MERCER Equipment Company (MERCER) is a North Carolina
corporation. For income tax purposes, it has elected treatment under
Subchapter S of the Internal Revenue Code of 1986.
 
  Business--MERCER sells, rents, and repairs construction equipment, primarily
to contractors, industry, utilities, and municipalities. MERCER operates two
branches in the Charlotte, North Carolina area and one branch in Greensboro,
North Carolina.
 
2. ACCOUNTING PRINCIPLES
 
  Basis of Accounting--MERCER prepares its financial statements on the accrual
basis of accounting.
 
  Use of Estimates--The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reported period. Actual results could differ from those estimates.
 
  Inventory--Inventory consists of new equipment and merchandise for resale
and of parts for resale or repair of equipment.
 
  MERCER records inventory using the last-in, first-out (LIFO) cost
assumptions. MERCER maintains separate LIFO pools for new equipment,
merchandise, and parts; and uses government indices to determine the cost of
LIFO layers.
 
  At December 31, 1996 and October 24, 1997, the difference between LIFO and
first-in, first-out cost was $310,346 and $347,936 respectively.
 
  Rental Equipment--MERCER records rental equipment at cost and depreciates
that cost using the straight-line method over 60 months (50 months for rental
equipment purchased after December 31, 1995). MERCER estimates the salvage
value on rental equipment to be 28% (50% for rental equipment purchased after
December 31, 1995). (See Note 15).
 
  Other Property--MERCER records other property at cost and depreciates that
cost using the straight-line method over lives of 5 or 7 years.
 
  Notes Receivable--Officers--At December 31, 1996, and October 24, 1997 the
notes receivable from officers are due in monthly payments of $600, including
principal and interest, for 15 years. At December 31, 1995, the notes
receivable from officers were due in quarterly installments of $1,264,
including principal and interest, for 14 years.
 
  Common Stock--MERCER has two classes of common stock: Class A common stock
which has voting rights and Class B common stock which has no voting rights.
The preferences, limitations, and relative rights of classes are the same
except the nonvoting stock has no voting rights other than in those cases in
which nonvoting stock is expressly granted voting rights under North Carolina
law.
 
                                     F-294

 
                           MERCER EQUIPMENT COMPANY
 
                  NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
 
 
  At December 31, 1996 and October 24, 1997, the number of shares authorized
and outstanding of each class of stock was as follows:
 


                                                          AUTHORIZED OUTSTANDING
                                                          ---------- -----------
                                                               
   Class A, voting.......................................   25,000      16,667
   Class B, nonvoting....................................  175,000     150,000

 
  Rental Revenue--MERCER generally rents equipment under short-term agreements
of one month or less and accounts for these agreements as operating leases.
 
  Lease Expense--MERCER leases its facilities and certain delivery vehicles
under leases classified as operating leases. MERCER leases certain rental
equipment and new equipment inventory under leases classified as capital
leases.
 
  Income Taxes--MERCER has elected taxation under Subchapter S of the Internal
Revenue Code of 1986 and its stockholders report the taxable income or loss of
the company on their individual income tax returns. For income tax purposes,
MERCER generally uses accelerated depreciation methods (without salvage value)
and deducts bad debts as they are written off.
 
  Statement of Cash Flows--MERCER considers all instruments with a maturity of
three months or less to be cash equivalents. MERCER paid interest expense and
purchase various assets through incurrence of notes payable as follows:
 


                                                                    PERIOD FROM
                                                                    JANUARY 1,
                                               YEAR ENDED DECEMBER    1997 TO
                                                       31           OCTOBER 24,
                                                 1995       1996       1997
                                              ---------- ---------- -----------
                                                           
Interest paid................................ $  464,090 $  807,169 $  683,596
Debt incurred to purchase:
  Inventory..................................    357,306     88,509
  Rental equipment...........................  2,300,291  2,530,234  1,801,029
  Fixed assets...............................    142,174    163,756      7,169

 
3. PURCHASE OF BUSINESS
 
  On September 29, 1995, MERCER acquired the branch retail operations of
Builders Equipment & Tool Co., Inc. (BETCO) in a transaction accounted for as
a purchase. The accompanying financial statements include the results of the
Greensboro operation from that date. MERCER purchased substantially all of the
resale and rental inventory and the fixed assets at the branch. The purchase
price was $600,000. There were no intangible assets purchased nor are there
any contingent payments or commitments.
 
4. NOTE PAYABLE--BANK
 
  At December 31, 1996, MERCER had a note payable to a bank that is due May
31, 1997. The note provides for monthly payment of interest at the bank's
prime rate plus 1/2%. The original amount of the note was $500,000.
 
  In connection with the purchase of MERCER's common stock (see Note 16),
substantially all of the outstanding debt at October 24, 1997 was paid off.
 
5. SHORT-TERM EQUIPMENT NOTES
 
  MERCER has purchased rental equipment and inventory with short-term (less
than 12 months) notes payable with a nominal interest charge. At December 31,
1996, rental equipment and inventory with a cost of $434,972 and $135,522,
respectively, is pledged as collateral.
 
                                     F-295

 
                           MERCER EQUIPMENT COMPANY
 
                  NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
 
 
  In connection with the purchase of MERCERs common stock (see Note 16),
substantially all of the outstanding debt at October 24, 1997 was paid off.
 
6. NOTES PAYABLE--INDIVIDUALS
 
  Notes payable--individuals provide for quarterly interest payments at the
Wall Street prime rate plus one percent and allows MERCER to delay payment of
principal for up to one year and a day after request. At December 31, 1996 and
October 24, 1997, $178,000 and $ -- , respectively, of this amount was due
stockholders.
 
7. REVOLVING CREDIT NOTES
 
  MERCER has a $3,000,000 revolving credit note with a bank. At December 31,
1996 MERCER had termed the revolver's outstanding balance and will repay the
principal over 36 months beginning in June 1997. The repayment provides for
monthly payment of $45,000 principal plus interest at the bank's prime rate
plus 1/4%. At December 31, 1995 and during 1996, only interest payments were
due on the note (see Note 9 for collateral).
 
  In connection with the purchase of MERCERs common stock (see Note 16),
substantially all of the outstanding debt at October 24, 1997 was paid off.
 
8. NOTES PAYABLE TO BANK
 
  MERCER's note payable to bank consisted of the following:
 


                                                                   DECEMBER 31,
                                                                       1996
                                                                   ------------
                                                                
  Bank note--8.25%, principal of $49,750 plus interest paid
   monthly through November 1998; balance of $635,750 due December
   1998...........................................................  $1,780,000
  Bank note--interest at prime plus 1/2%, principal of $10,000
   plus interest paid monthly through August 1998; $250,000 due
   September 30, 1998.............................................     450,000
                                                                    ----------
  Total...........................................................   2,230,000
  Less current portion............................................     717,000
                                                                    ----------
  Noncurrent portion..............................................  $1,513,000
                                                                    ==========

 
  All accounts receivable and inventory and rental equipment, unless otherwise
encumbered, are given as security for the notes payable to bank.
 
  The loan agreement with the bank provides for maintenance of certain
absolute and ratio amounts relating to working capital, net worth, cash flow
coverage, and debt/equity and limits amounts that can be paid in dividends. At
December 31, 1996, MERCER had obtained a waiver on the cash flow coverage
ratio.
 
  In connection with the purchase of MERCERs common stock (see Note 16),
substantially all of the outstanding debt at October 24, 1997 was paid off.
 
9. NOTES PAYABLE ON RENTAL EQUIPMENT
 
  MERCER finances purchases of rental equipment and inventory through various
arrangements with vendors, their related finance entities, and other lenders.
These notes provide for monthly payments of either a fixed principal plus
interest or a level payment of principal and interest.
 
  These note have terms of 36 to 60 months and generally provide for
accelerated repayment if the underlying equipment is sold. At December 31,
1995 and 1996, the weighted interest rates were 10.1%, and 8.6%, respectively.
 
                                     F-296

 
                           MERCER EQUIPMENT COMPANY
 
                  NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
 
 
  At December 31, 1996, $480,801 of floor plan notes, which have not yet begun
to require payments of principal or interest, are included in notes payable on
rental equipment. The financial statements assume their conversion upon
expiration of the floor plan period.
 
  At December 31, 1996, rental equipment and inventory of $4,637,033 and
$88,509, respectively, were collateral for all of the above notes.
 
  In connection with the purchase of MERCER's common stock (see Note 16),
substantially all of the outstanding debt at October 24, 1997 was paid off.
 
10. CAPITAL LEASES
 
  MERCER leases certain rental equipment under leases accounted for as capital
leases. The following is an analysis of the leased property:
 


                                                        DECEMBER 31, OCTOBER 24,
                                                        ------------ -----------
                                                            1996        1997
                                                        ------------ -----------
                                                               
   Rental equipment....................................   $408,081    $386,153
   Less accumulated amortization.......................     78,561     138,706
                                                          --------    --------
     Net...............................................   $329,520    $247,447
                                                          ========    ========

  The following is a schedule by years of future lease payments under capital
leases together with the present value of the net minimum lease payments as of
October 24, 1997:
                                                                 
   Year ended December 31, 1997....................................... $106,795
     1998.............................................................   98,730
     1999.............................................................   74,158
     2000.............................................................   23,177
                                                                       --------
   Net minimum lease payments.........................................  302,860
   Less amount representing interest..................................   40,216
                                                                       --------
   Present value of net minimum lease payments........................  262,644
   Less current portion...............................................   86,597
                                                                       --------
   Long-term portion.................................................. $176,047
                                                                       ========

   
 
11. NOTES PAYABLE ON OTHER PROPERTY
 
  The notes payable on other property provide for monthly payment of principal
and interest at rates from 9.0% to 10.8%. At December 31, 1996 and October 24,
1997, related assets with a cost of $287,430 and $232,599 are collateral for
the notes.
 
  The annual amounts of principal due for the next five years is as follows:
1997--$56,411; 1998--$50,318; 1999--$25,082; and 2000--$6,808.
 
12. COMMITMENTS AND CONTINGENCIES
 
  As of December 31, 1996 and October 24, 1997, MERCER's cash balance had
$100,000 of FDIC insurance and is at one bank.
 
                                     F-297

 
                           MERCER EQUIPMENT COMPANY
 
                  NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
 
 
  As of October 24, 1997, MERCER leased all of its facilities from a limited
liability company (LLC) whose members own 72% of MERCER's outstanding stock.
The leases provided for initial terms of five to seven years; two of the
leases provide for annual cost of living increases and have renewal options of
five years. MERCER is also responsible for the property taxes, insurance, and
repairs (see Note 13). In connection with the sale of MERCER's common stock
(see Note 16), the leases were rewritten to provide for an initial term of ten
years with two five-year options. The leases provide for minimum rentals of
$28,000 per month, after five years, minimum rents will be adjusted for
changes in the Consumer Price Index. MERCER has also guaranteed debt of
approximately $2,000,000 that the LLC has borrowed against the buildings.
 
  MERCER had a stock repurchase agreement with two stockholders, each owning
30,000 shares of the outstanding Class B common stock. Among other provisions,
the stock repurchase agreement allows MERCER first refusal on a sale of such
shares at no less than the book value per share of the stock. At December 31,
1996 the minimum purchase price under this plan was $1,121,950. MERCER had a
salary continuation agreement with the same two stockholders. MERCER has
agreed to pay these stockholders' beneficiaries an amount equal to twice the
prior year's wages. This amount is payable over 24 months, and at December 31,
1996, the potential obligation under the salary continuation plan was
$672,672. In connection with the Purchase of MERCER's common stock both of
these agreements were canceled. (See Note 16)
 
13. RELATED PARTIES
 
  At December 31, 1996 and October 24, 1997, other assets includes rental
deposits of $42,889 and $42,889, respectively, with the LLC described in Note
12. For the years ended December 31, 1995 and 1996 and for the period from
January 1, 1997 to October 24, 1997, MERCER paid building rentals to the LLC
of $149,500, $278,000 and $273,000, respectively.
 
  For the years ended December 31, 1995 and 1996 and for period from January
1, 1997 to October 24, 1997, MERCER paid interest of $17,808, $15,672 and
$14,576, respectively to stockholders on the notes payable--individuals.
 
14. PROFIT-SHARING PLAN
 
  MERCER has adopted a profit-sharing plan that covers substantially all
employees and provides for discretionary employer and voluntary employee
contributions. For the years ended December 31, 1995, and 1996, and for the
period from January 1, 1997 to October 24, 1997, no profit-sharing
contribution was made. For the years ended December 31, 1995, and 1996, and
for the period from January 1, 1997 to October 24, 1997, MERCER made matching
payments of $21,969, $14,777, and $24,287, respectively under Section 401(k)
of the Internal Revenue Code of 1986.
 
15. CHANGE IN ACCOUNTING ESTIMATE
 
  In 1996 MERCER changed the depreciable life and estimated salvage value of
its rental equipment purchased after December 31, 1995 from 60 months to 50
months and from 28% to 50%. The effect of these changes in estimated life and
salvage value was to decrease depreciation on rental equipment by $58,859.
 
16. SUBSEQUENT EVENT
 
  On October 24, 1997, United Rentals, Inc. purchased all of MERCER's issued
and outstanding common stock.
 
                                     F-298

 
                        REPORT OF INDEPENDENT AUDITORS
 
The Board of Directors
A&A Tool Rentals & Sales, Inc.:
 
  We have audited the accompanying consolidated balance sheets of A&A Tool
Rentals & Sales, Inc. and subsidiary as of October 31, 1996 and October 19,
1997 and the related consolidated statements of operations, stockholders'
equity, and cash flows for the years ended October 31, 1995 and 1996, and the
period from November 1, 1996 to October 19, 1997. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
 
  We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
 
  In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of A&A Tool
Rentals & Sales, Inc. and subsidiary as of October 31, 1996 and October 19,
1997 and the results of their operations and their cash flows for the years
ended October 31, 1995 and 1996, and the period from November 1, 1996 to
October 19, 1997, in conformity with generally accepted accounting principles.
 
                                          /s/ KPMG Peat Marwick LLP
 
Sacramento, California
November 20, 1997
 
                                     F-299

 
                A & A TOOL RENTALS & SALES, INC. AND SUBSIDIARY
 
                          CONSOLIDATED BALANCE SHEETS
 


                                            OCTOBER 31, OCTOBER 19,  JULY 31,
                                               1996        1997        1997
                                            ----------- ----------- -----------
                                                                    (UNAUDITED)
                                                           
                  ASSETS
Cash....................................... $  308,331  $  108,327  $  187,082
Trade accounts receivable, less allowance
 for doubtful accounts of $80,000 at Octo-
 ber 31, 1996 and at October 19, 1997, and
 $94,608 at July 31, 1997 (notes 2 and 3)..  1,416,142   1,415,775   1,324,684
Merchandise inventory......................    847,035     862,200     906,969
Rental equipment, primarily machinery, at
 cost, net of accumulated depreciation and
 amortization of $5,909,751 at October 31,
 1996, $6,822,441 at October 19, 1997, and
 $6,727,264 at July 31, 1997
 (notes 2 and 3)...........................  3,190,093   2,780,854   3,133,863
Operating property and equipment, net of
 accumulated depreciation and amortization
 of $912,230 at October 31, 1996, $955,007
 at October 19, 1997, and $975,498 at July
 31, 1997 (notes 2 and 3)..................    384,759     281,593     306,415
Due from related party (note 5)............    228,737     332,613     316,364
Prepaid expenses and other assets..........    234,976     303,553     152,251
                                            ----------  ----------  ----------
    Total assets........................... $6,610,073  $6,084,915  $6,327,628
                                            ==========  ==========  ==========
   LIABILITIES AND STOCKHOLDERS' EQUITY
Short-term debt (note 2)................... $   90,400  $  449,670  $  484,700
Accounts payable...........................    766,465   1,040,494     703,583
Accrued liabilities........................    244,938     203,709     221,763
Income tax payable.........................      6,019      12,262       2,992
Long-term debt and capital lease obliga-
 tions (note 3)............................  4,351,394   3,463,807   3,868,069
                                            ----------  ----------  ----------
    Total liabilities......................  5,459,216   5,169,942   5,281,107
                                            ----------  ----------  ----------
Commitments (notes 6 and 9)................
Stockholders' equity:
  Common stock, Class A--voting par value
   $.10. Authorized 2,000,000 shares;
   issued and outstanding 720,000 shares...     72,000      72,000      72,000
  Common stock, Class B--nonvoting. Autho-
   rized 5,000,000 shares; issued and out-
   standing 277,172 shares at October 31,
   1996, 272,491 shares at October 19,
   1997, and 275,242 shares at July 31,
   1997....................................    395,201     378,714     393,058
  Retained earnings........................    683,656     464,259     581,463
                                            ----------  ----------  ----------
    Total stockholders' equity.............  1,150,857     914,973   1,046,521
                                            ----------  ----------  ----------
    Total liabilities and stockholders'
     equity................................ $6,610,073  $6,084,915  $6,327,628
                                            ==========  ==========  ==========

 
          See accompanying notes to consolidated financial statements.
 
                                     F-300

 
                A & A TOOL RENTALS & SALES, INC. AND SUBSIDIARY
 
                     CONSOLIDATED STATEMENTS OF OPERATIONS
 


                                                   PERIOD FROM
                                                   NOVEMBER 1,       NINE MONTHS
                          YEAR ENDED OCTOBER 31,     1996 TO       ENDED JULY 31,
                          -----------------------  OCTOBER 19,  ----------------------
                             1995         1996        1997         1996        1997
                          -----------  ----------  -----------  ----------  ----------
                                                                     (UNAUDITED)
                                                             
Revenues:
  Equipment rentals.....  $ 4,800,767  $5,918,148  $6,022,196   $4,165,881  $4,501,537
  New equipment sales...    4,283,294   4,463,117   4,355,965    3,310,409   3,228,472
  Sales of parts,
   supplies and
   rental equipment.....      848,193   1,027,943     778,141      824,910     657,572
  Other.................      237,205     296,926     290,140      198,144     215,542
                          -----------  ----------  ----------   ----------  ----------
Total revenues..........   10,169,459  11,706,134  11,446,442    8,499,344   8,603,123
                          -----------  ----------  ----------   ----------  ----------
Costs of Revenues:
  Cost of equipment
   rentals, excluding
   equipment rental
   depreciation and
   amortization.........    2,049,172   2,542,965   2,583,884    1,976,183   2,097,280
  Depreciation and amor-
   tization, equipment
   rentals..............    1,040,233   1,382,048   1,465,586      902,347   1,193,986
  Cost of new equipment
   sales................    4,054,467   4,304,301   4,148,874    3,234,457   3,016,957
  Cost of sales of
   parts, supplies, and
   equipment............      598,545     622,956     595,424      330,714     296,725
  Other.................       38,358      32,582      31,339       24,337      33,115
                          -----------  ----------  ----------   ----------  ----------
Total costs of
 revenues...............    7,780,775   8,884,852   8,825,107    6,468,038   6,638,063
                          -----------  ----------  ----------   ----------  ----------
Gross Profit............    2,388,684   2,821,282   2,621,335    2,031,306   1,965,060
  Selling, general and
   administration.......    2,063,730   2,215,936   2,178,383    1,614,263   1,696,104
  Non-rental
   depreciation and
   amortization.........      107,390     120,757     124,648       88,896      95,171
                          -----------  ----------  ----------   ----------  ----------
Operating income
 (loss).................      217,564     484,589     318,304      328,147     173,785
  Other income
   (expense)............       50,090     116,539      80,080       61,119     105,777
                          -----------  ----------  ----------   ----------  ----------
Income before interest
 and taxes..............      267,654     601,128     398,384      389,266     279,562
                          -----------  ----------  ----------   ----------  ----------
  Interest income.......       56,053      54,993      39,967       51,898      34,590
  Interest expense......     (324,957)   (401,204)   (642,478)    (264,613)   (410,345)
                          -----------  ----------  ----------   ----------  ----------
    Net interest
     expense............     (268,904)   (346,211)   (602,511)    (212,715)   (375,755)
                          -----------  ----------  ----------   ----------  ----------
Income (loss) before
 income taxes...........       (1,250)    254,917    (204,127)     176,551     (96,193)
  Income tax expense
   (note 4).............       (1,600)     (7,619)    (15,270)      (1,600)     (6,000)
                          -----------  ----------  ----------   ----------  ----------
Income (loss) from
 continuing operations..       (2,850)    247,298    (219,397)     174,951    (102,193)
  Loss from operation of
   discontinued
   subsidiary (note 1)..      (55,929)        --          --           --          --
  Loss from disposal of
   discontinued
   subsidiary (note 1)..          --      (44,269)        --       (16,318)        --
                          -----------  ----------  ----------   ----------  ----------
Net income (loss).......  $   (58,779) $  203,029  $ (219,397)  $  158,633  $ (102,193)
                          ===========  ==========  ==========   ==========  ==========

 
          See accompanying notes to consolidated financial statements.
 
                                     F-301

 
                A & A TOOL RENTALS & SALES, INC. AND SUBSIDIARY
 
                CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
 


                             COMMON           COMMON
                              STOCK           STOCK
                             CLASS A         CLASS B
                         --------------- -----------------  RETAINED
                         SHARES  AMOUNT  SHARES    AMOUNT   EARNINGS    TOTAL
                         ------- ------- -------  --------  --------  ----------
                                                    
Balances at October 31,
 1994................... 720,000 $72,000 363,433  $487,609  $539,406  $1,099,015
Purchase Class B common
 stock from ESOP........     --      --  (27,847)  (29,796)      --      (29,796)
Net loss................     --      --      --        --    (58,779)    (58,779)
                         ------- ------- -------  --------  --------  ----------
Balances at October 31,
 1995................... 720,000  72,000 335,586   457,813   480,627   1,010,440
Purchase Class B common
 stock from ESOP........     --      --  (58,414)  (62,612)      --      (62,612)
Net income..............     --      --      --        --    203,029     203,029
                         ------- ------- -------  --------  --------  ----------
Balances at October 31,
 1996................... 720,000  72,000 277,172   395,201   683,656   1,150,857
Purchase Class B common
 stock from ESOP........     --      --   (4,681)  (16,487)      --      (16,487)
Net loss................     --      --      --        --   (219,397)   (219,397)
                         ------- ------- -------  --------  --------  ----------
Balances at October 19,
 1997................... 720,000 $72,000 272,491  $378,714  $464,259  $  914,973
                         ======= ======= =======  ========  ========  ==========

 
 
          See accompanying notes to consolidated financial statements.
 
                                     F-302

 
                A & A TOOL RENTALS & SALES, INC. AND SUBSIDIARY
 
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
 


                                                     PERIOD FROM
                          YEAR ENDED OCTOBER 31,   NOVEMBER 1, 1996 NINE MONTHS ENDED JULY 31,
                          -----------------------   TO OCTOBER 19,  ----------------------------
                             1995        1996            1997          1996         1997
                          ----------  -----------  ---------------- -----------  ----------
                                                                         (UNAUDITED)
                                                                           
CASH FLOWS FROM
 OPERATING ACTIVITIES:
 Net income (loss)......  $  (58,779) $   203,029     $ (219,397)   $   158,633  $ (102,193)
 Adjustments to
  reconcile net income
  (loss) to net cash
  provided by operating
  activities:
 Depreciation and
  amortization..........   1,147,623    1,502,805      1,590,234        991,243   1,289,157
 Provision for bad
  debts.................      71,600       96,216         73,894         52,515      59,985
 Provision for write-
  down of inventory.....      31,709          --          35,403            --       35,403
 Gain on sale of equip-
  ment..................    (213,049)    (364,504)      (220,017)      (196,325)   (167,944)
 Changes in operating
  assets:
  (Increase) decrease
   in trade accounts
   receivable...........    (282,115)    (151,882)       (73,527)      (190,069)     31,473
  (Increase) decrease
   in related party
   receivables..........     (54,741)         748       (103,876)       (30,385)    (87,627)
  (Increase) decrease
   in merchandise
   inventory............      38,955      (96,479)       (50,568)      (348,187)    (95,337)
  (Increase) decrease
   in prepaid expenses
   and other assets.....     (29,102)      10,934       (174,821)       (42,445)    (50,309)
  Increase (decrease)
   in accounts payable,
   trade................      18,196       61,005        274,029        114,982     (62,882)
  Increase (decrease)
   in accrued liabili-
   ties.................      52,801        9,680        (41,229)       (39,228)    (23,175)
  Decrease in deferred
   revenue..............      (4,440)         --             --             --          --
  Increase (decrease)
   in income tax pay-
   able.................         --         6,019          6,243            --       (3,027)
                          ----------  -----------     ----------    -----------  ----------
   Net cash provided by
    operating
    activities..........     718,658    1,277,571      1,096,368        470,734     823,524
                          ----------  -----------     ----------    -----------  ----------
CASH FLOWS FROM
 INVESTING ACTIVITIES:
 Proceeds from the sale
  of rental equipment
  and operating property
  and equipment.........     277,390      469,489        348,374        245,232     213,013
 Purchases of rental
  equipment and
  operating property
  and equipment.........  (1,620,011)  (2,689,358)    (1,206,186)    (2,042,083) (1,199,652)
 Proceeds from sale of
  marketable securi-
  ties..................       4,954        2,514            --           2,514         --
                          ----------  -----------     ----------    -----------  ----------
   Net cash used in
    investing
    activities..........  (1,337,667)  (2,217,355)      (857,812)    (1,794,337)   (986,639)
                          ----------  -----------     ----------    -----------  ----------
CASH FLOWS FROM
 FINANCING ACTIVITIES:
 Borrowings on long-term
  debt..................     788,967    3,062,482        855,435      3,224,342     828,345
 Payments on long-term
  debt..................    (574,595)  (1,121,435)    (1,743,022)      (572,655) (1,311,670)
 Net borrowings (pay-
  ments) on short-term
  debt..................     513,771     (901,881)       359,270     (1,553,999)    394,300
 Premiums paid for offi-
  cers' life insurance..     (60,042)     (64,743)       (93,756)       (50,799)    (66,966)
 Drawings on cash
  surrender value of
  officers' life
  insurance.............         --           --         200,000            --      200,000
 Purchase of Class B
  common stock..........     (29,796)     (62,612)       (16,487)       (59,590)     (2,143)
                          ----------  -----------     ----------    -----------  ----------
   Net cash provided by
    (used in) financing
    activities..........     638,305      911,811       (438,560)       987,299      41,866
                          ----------  -----------     ----------    -----------  ----------
   Net increase (de-
    crease) in cash.....      19,296      (27,973)      (200,004)      (336,304)   (121,249)
Cash at beginning of
 period.................     317,008      336,304        308,331        336,304     308,331
                          ----------  -----------     ----------    -----------  ----------
Cash at end of period...  $  363,304  $   308,331     $  108,327    $       --   $  187,082
                          ==========  ===========     ==========    ===========  ==========
SUPPLEMENTAL SCHEDULE OF
 CASH FLOW INFORMATION:
 Cash paid during the
  period for:
 Interest...............  $  324,957  $   401,204     $  516,307    $   264,613  $  410,345
                          ==========  ===========     ==========    ===========  ==========
 Income taxes...........  $    1,600  $     1,600     $    4,606    $     1,600  $   10,627
                          ==========  ===========     ==========    ===========  ==========
NONCASH INVESTING AND
 FINANCING ACTIVITIES:
 Sale of property and
  equipment for
  promissory note.......  $   10,000  $       --      $      --     $       --   $      --
                          ==========  ===========     ==========    ===========  ==========
 Conversion of short-
  term debt to long-term
  debt..................  $      --   $   686,963     $      --     $       --   $      --
                          ==========  ===========     ==========    ===========  ==========

 
          See accompanying notes to consolidated financial statements.
 
                                     F-303

 
                A & A TOOL RENTALS & SALES, INC. AND SUBSIDIARY
 
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
OCTOBER 31, 1995 AND 1996 AND PERIOD FROM NOVEMBER 1, 1996 TO OCTOBER 19, 1997
  (THE INFORMATION AS OF JULY 31, 1997 AND FOR THE NINE MONTHS ENDED JULY 31,
                          1997 AND 1996 IS UNAUDITED)
 
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
 (a) Organization and Principles of Consolidation
 
  The accompanying consolidated financial statements include the accounts of
the Company and its wholly owned subsidiary Operations Management Systems,
Inc. (OMS). The Company rents and sells construction and industrial supplies
and power equipment in Northern California. OMS marketed and sold computer
hardware and software to construction related businesses. All significant
intercompany accounts and transactions were eliminated in consolidation. The
nature of the Company's business is such that short-term obligations are
typically met by cash flow generated from long-term assets. Consequently,
consistent with industry practice, the accompanying consolidated balance
sheets are presented on an unclassified basis.
 
  As of October 31, 1995, the Company decided to discontinue the operations of
its subsidiary, OMS. Certain assets of OMS were sold as of October 31, 1995.
The Company disposed of the remaining assets and liabilities of OMS, which
included cash, accounts receivable, inventory, property and equipment,
accounts payable and accrued liabilities, during fiscal year 1996. The Company
recognized a loss on disposal of the remaining assets. The loss from the
disposal of OMS assets was $44,269 for the year ended October 31, 1996 and
$16,318 for the nine months ended July 31, 1996. The loss from operations of
OMS was $55,929 for the year ending October 31, 1995.
 
 (b) Interim Financial Statements
 
  The accompanying consolidated balance sheet at July 31, 1997 and the
consolidated statements of operations and cash flows for the nine month
periods ended July 31, 1996 and 1997 are unaudited and have been prepared on
the same basis as the audited consolidated financial statements included
herein. In the opinion of management, such unaudited consolidated financial
statements include all adjustments necessary to present fairly the information
set forth therein, which consist solely of normal recurring adjustments. The
results of operations for such interim periods are not necessarily indicative
of results for the full year.
 
 (c) Merchandise Inventory
 
  Merchandise inventory is stated at the lower of cost or market. Cost is
determined using the weighted-average method.
 
 (d) Revenue Recognition
 
  Revenue related to the sale of construction and industrial supplies and
power equipment is recognized at the point of sale. Revenue related to the
rental of construction and industrial power equipment is recognized at the
time of return for rentals of twenty-eight days or less, and ratably over the
contract term for rentals in excess of twenty-eight days.
 
 (e) Property and Equipment
 
  Property and equipment are stated at cost and consist of rental equipment
and operating property and equipment. Property and equipment under capital
leases are stated at the present value of minimum lease payments.
 
  Depreciation on property and equipment is calculated using an accelerated
method.
 
                                     F-304

 
                A & A TOOL RENTALS & SALES, INC. AND SUBSIDIARY
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
 
  Depreciation for property and equipment is taken over the asset's useful
life of 5 years, except for leasehold improvements which are amortized over 10
to 20 years.
 
 (f) Other Assets
 
  Other assets consist primarily of the cash surrender value of officers' life
insurance net of loans against the cash surrender value of the policies and
unbilled rental revenue. The loans outstanding were $410,000 at October 31,
1996, and $610,000 at October 19, 1997 and July 31, 1997. The Company is named
beneficiary under the life insurance policy. Unbilled rental revenue
represents the revenue recognized on contracts over twenty-eight days, but not
billed. At October 19, 1997 unbilled rental revenue was $180,178.
 
 (g) Income Taxes
 
  The Company accounts for income taxes using the asset and liability method
under which deferred tax assets and liabilities are recognized for the future
tax consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax
rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled. Under the asset
and liability method, the effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.
 
 (h) Use of Estimates
 
  The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
 
 (i) Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of
 
  The Company adopted the provisions of SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of,
on November 1, 1996. This Statement requires that long-lived assets and
certain identifiable intangibles be reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future net cash flows
expected to be generated by the asset. If such assets are considered to be
impaired, the impairment to be recognized is measured by the amount by which
the carrying amount of the assets exceed the fair value of the assets. Assets
to be disposed of are reported at the lower of the carrying amount or fair
value less costs to sell. Adoption of this statement did not have a material
impact on the Company's financial position, results of operations, or
liquidity.
 
 (j) Reclassifications
 
  Certain amounts in the 1995 and 1996 consolidated financial statements have
been reclassified to conform to the 1997 consolidated financial statement
presentation.
 
(2) SHORT-TERM DEBT
 
  As of October 31, 1996, the Company had borrowed $90,400, on a credit
facility that allows the Company to borrow up to $500,000 at the bank's prime
rate (8.25% at October 31, 1996) plus 2%. Borrowings under this facility are
collateralized by trade accounts receivable.
 
                                     F-305

 
                A & A TOOL RENTALS & SALES, INC. AND SUBSIDIARY
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
 
  In 1997, the Company had borrowed on a credit facility that allows the
Company to borrow up to $500,000 at the bank's prime rate (8.5% at October 19,
1997 and July 31, 1997) plus 2%. At October 19, 1997 and July 31, 1997, the
amounts outstanding were $449,670 and $484,700, respectively.
 
(3) LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS
 
  Long-term debt and capital lease obligations consist of the following:
 


                                            OCTOBER 31, OCTOBER 19,  JULY 31,
                                               1996        1997        1997
                                            ----------- ----------- -----------
                                                                    (UNAUDITED)
                                                           
   CURRENT PAYOR AND TERMS
   Union Safe Deposit Bank--Various notes
    with combined monthly payments of
    $54,592 including interest at prime
    plus 2%, due from 1996 through 1999.
    Collateralized by equipment and
    accounts receivable...................  $1,382,482   $ 851,741   $ 989,334
   American Equipment Leasing--Various
    leases with combined monthly payments
    of $24,149 including interest ranging
    from 11.5% to 12%, due from 1997
    through 1998. Collateralized by
    equipment.............................     510,567     377,619     381,122
   Atlas Copco, Inc.--Various notes with a
    combined monthly payment of $22,212
    including interest ranging from 8.5%
    to 12.36%, due from 1996 through 1998.
    Collateralized by equipment...........     352,446     257,875     323,727
   Clark Equipment Credit Co.--Various
    notes with a combined monthly payment
    of $3,546 including interest ranging
    from 8.7% to 12.39%, due from 1996
    through 1999. Collateralized by
    equipment.............................     105,889      39,083      45,433
   Ingersoll-Rand--One note with a monthly
    payment of $3,254 including interest
    at 9.75%, due in 1999. Collateralized
    by equipment..........................      91,121      52,069      61,832
   Prospect Leasing--Two leases with a
    combined monthly payment of $1,798
    including interest at 10%, due in
    1998. Collateralized by equipment.....      36,364      18,712      24,106
   Miller Electric Finance--Two notes with
    a combined monthly payment of $3,964
    including interest ranging from 10.25%
    to 11.3%, due in 1999. Collateralized
    by equipment..........................      72,746      89,813     101,704
   The Associates--Various notes and
    leases with a combined monthly payment
    of $35,365 including interest ranging
    from 9% to 13.5%, due from 1996
    through 2000. Collateralized by
    equipment.............................     924,064   1,002,327   1,175,627
   JI Case Credit Corporation--Three notes
    with combined monthly payments of
    $14,428 including interest ranging
    from 6.9% to 8.2%, due from 1997
    through 2000. Collateralized by
    equipment.............................     515,184     349,235     346,540
   John Deere--One note with a monthly
    payment of $885 including interest at
    8.75%, due in 1998. Collateralized by
    equipment.............................      14,159       3,540       6,195

 
 
                                     F-306

 
                A & A TOOL RENTALS & SALES, INC. AND SUBSIDIARY
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 


                                            OCTOBER 31, OCTOBER 19,  JULY 31,
                                               1996        1997        1997
                                            ----------- ----------- -----------
                                                                    (UNAUDITED)
                                                           
   CURRENT PAYOR AND TERMS--(CONTINUED)
   Caterpillar Financial Services--Various
    notes with a combined monthly payment
    of $12,279 including interest ranging
    from 9.4% to 11.3%, due from 1998
    through 2001. Collateralized by
    equipment..............................    546,420     458,438     493,833
   Colonial Pacific Leasing--One note with
    a monthly payment of $1,323 including
    interest at 10%, due in 1997.
    Collateralized by equipment............      5,293         --          --
   Newcourt Financial--Two notes with a
    combined monthly payment of $4,207
    including interest ranging from 10% to
    11%, due in 1998 and 2001.
    Collateralized by equipment............    196,194     148,508     158,329
   Other...................................     80,773      62,181     105,030
                                            ----------  ----------  ----------
   Total long-term debt....................  4,833,702   3,711,141   4,212,812
   Less amounts representing interest......    482,308     247,334     344,743
                                            ----------  ----------  ----------
   Long-term debt, net of interest......... $4,351,394  $3,463,807  $3,868,069
                                            ==========  ==========  ==========

 
  Subsequent to October 19, 1997, all amounts outstanding under the long-term
debt agreements and capital lease agreements were paid except for $18,546
which is scheduled for payment in fiscal year 1998.
 
(4) INCOME TAXES
 
  Income tax expense consists of the following:
 


                                                     PERIOD FROM
                                        YEAR ENDED   NOVEMBER 1,   NINE MONTHS
                                        OCTOBER 31,    1996 TO   ENDED JULY 31,
                                       ------------- OCTOBER 19, ---------------
                                        1995   1996     1997      1996    1997
                                       ------ ------ ----------- ------- -------
                                                                   (UNAUDITED)
                                                          
   Current............................ $1,600 $7,619   $15,270   $ 1,600 $ 6,000
   Deferred...........................    --     --        --        --      --
                                       ------ ------   -------   ------- -------
                                       $1,600 $7,619   $15,270   $ 1,600 $ 6,000
                                       ====== ======   =======   ======= =======

 
                                     F-307

 
                A & A TOOL RENTALS & SALES, INC. AND SUBSIDIARY
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
 
  Deferred tax assets and deferred tax liabilities are comprised of the
following:
 


                                            OCTOBER 31, OCTOBER 19,  JULY 31,
                                               1996        1997        1997
                                            ----------- ----------- -----------
                                                                    (UNAUDITED)
                                                           
   Current deferred tax assets:
     Allowance for bad debts...............  $  34,600   $  34,600   $  41,000
     Inventory reserve.....................        --        6,600         --
   Noncurrent deferred tax assets:
     Depreciation and amortization
      expense..............................     12,000      14,000      11,300
     Net operating loss....................    188,300     236,800     198,800
     Alternative minimum taxes.............     25,500      39,000      29,900
                                             ---------   ---------   ---------
     Total deferred tax assets.............    260,400     331,000     281,000
     Less: Valuation allowance.............   (260,400)   (331,000)   (281,000)
                                             ---------   ---------   ---------
     Total deferred tax assets.............        --          --          --
     Total deferred tax liabilities........        --          --          --
                                             ---------   ---------   ---------
       Net deferred tax asset/liability....  $     --    $     --    $     --
                                             =========   =========   =========

 
  The effective rate for income tax expense differs from the statutory tax
rate of 34% when applied to income (loss) from continuing operations before
income taxes as a result of the following:
 


                                            OCTOBER
                                              31,
                                           -----------   OCTOBER 19,  JULY 31,
                                           1995   1996      1997        1997
                                           ----   ----   ----------- -----------
                                                                     (UNAUDITED)
                                                         
   Expected U.S. Federal income tax....... (34%)   34%       (34%)       (34%)
   State franchise tax, net............... 128%     1%       --            2%
   Net operating loss carryforward........ --     (34%)      --          --
   Effect of valuation allowance..........  34%   --          34%         34%
   Alternative minimum tax................ --       2%         7%          4%
                                           ---    ---        ---         ---
       Total.............................. 128%     3%         7%          6%
                                           ===    ===        ===         ===

 
  The net change in the total valuation allowance for the year ended October
31, 1995 and 1996 and the period from November 1, 1996 to October 19, 1997 was
an increase of $8,000, a decrease of $100,600 and an increase of $70,600,
respectively.
 
(5) RELATED PARTY TRANSACTIONS
 
 Building
 
  The Company leased its Stockton, California premises from officers and
stockholders of the Company. The Company executed a new five year lease on
June 1, 1993 with monthly rent of $21,500. On October 20, 1997, this lease was
amended for an additional five years with monthly rent of $17,000. In
addition, the Company as lessee is to pay all taxes and insurance relating to
the property. At October 19, 1997, the remaining commitment under this lease,
as amended, is $1,020,000 plus property taxes and insurance.
 
                                     F-308

 
                A & A TOOL RENTALS & SALES, INC. AND SUBSIDIARY
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
 
 Due From Related Party
 
  Due from related party comprise the following:
 


                                             OCTOBER 31, OCTOBER 19,  JULY 31,
                                                1996        1997        1997
                                             ----------- ----------- -----------
                                                                     (UNAUDITED)
                                                            
   President and shareholder................  $228,737    $317,613    $316,364
   Vice president and shareholder...........       --       15,000         --
                                              --------    --------    --------
                                              $228,737    $332,613    $316,364
                                              ========    ========    ========

 
  The amounts due from related parties were paid subsequent to October 19,
1997.
 
(6) OPERATING LEASES
 
  The Company leases vehicles from various unrelated companies through 1999.
The vehicle leases, as well as the lease for the Company's business premises,
are classified as operating leases. At October 19, 1997, future minimum lease
payments under the operating leases including amounts amended as discussed in
note (5) are:
 


   YEAR ENDING OCTOBER 31
   ----------------------
                                                                   
     1998............................................................ $  442,636
     1999............................................................    305,036
     2000............................................................    204,000
     2001............................................................    204,000
     2002............................................................    204,000
                                                                      ----------
                                                                      $1,359,672
                                                                      ==========

 
  Operating lease expense aggregated $520,210, $533,619 and $501,473 in 1995,
1996 and for the period from November 1, 1996 to October 19, 1997,
respectively, and $167,032 and $359,378 for the nine months ended July 31,
1996 and 1997, respectively.
 
(7) EMPLOYEE STOCK OWNERSHIP PLAN
 
  Effective October 31, 1972, the Company established an Employee Stock
Ownership Plan (ESOP) for the benefit of its eligible employees. The ESOP is
designed to invest primarily in the stock of the Company. Contributions to the
ESOP are determined annually by the Board of Directors, however, in no case
may the contribution exceed the lesser of (a) fifteen percent (15%) of the
compensation of eligible employees, or (b) $30,000 for each participant. No
contributions were made in the years ended October 31, 1995 and 1996 or the
period from November 1, 1996 to October 19, 1997.
 
  The ESOP measures compensation for Plan purposes as the Company's
contribution to the Plan. No compensation cost was recognized by the Plan for
the years ended October 31, 1995 and 1996, or the period from November 1, 1996
to October 19, 1997.
 
  The ESOP held 277,172, 272,491 and 275,242 allocated shares at October 31,
1996, October 19, 1997, and July 31, 1997, respectively. No committed-to-be-
released or suspense shares were held by the ESOP at October 31, 1996, October
19, 1997, or at July 31, 1997.
 
  Following termination of employment, participants receive a distribution of
their vested ESOP account balance in the form of cash or Company shares in
accordance with the provisions of the ESOP. If shares are distributed to the
participant, the participant has the right to sell the shares back to the
Company, for a limited period of time, at the fair market value of the shares.
 
                                     F-309

 
                A & A TOOL RENTALS & SALES, INC. AND SUBSIDIARY
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
 
(8) PROFIT SHARING PLAN
 
  In August 1995, the Company established a Profit Sharing/401(k) Savings Plan
(Plan) under Section 401 and 501 of the Internal Revenue Code. Substantially
all employees are eligible for the Plan. Yearly employer contributions to the
Plan are discretionary. Employees may also elect to contribute to the Plan.
For the years ended October 31, 1995 and 1996, and the period from November 1,
1996 to October 19, 1997, the Company contributed, $8,245, $27,422, and
$27,064, respectively to the Plan and $19,780 and $19,779 for the nine months
ended July 31, 1996 and 1997.
 
(9) COMMITMENTS
 
  Litigation, contingent liabilities, and claims, all arising in the ordinary
course of business, are not expected to involve any amounts that could be
material to the Company's financial position or results of operations.
 
(10) SUBSEQUENT EVENT
 
  On October 17, 1997, the Company entered into a stock purchase agreement
with United Rentals, Inc. (United). The transaction closed on October 20, 1997
and under the terms of the stock purchase agreement, United purchased all of
the issued and outstanding common stock of the Company.
 
                                     F-310

 
                        REPORT OF INDEPENDENT AUDITORS
 
Board of Directors and Stockholders
J & J Rental Services, Inc.
 
  We have audited the balance sheets of the predecessor companies to J & J
Rental Services, Inc. (see Note 1) as of December 31, 1996 and for J&J Rental
Services, Inc. as of October 22, 1997 and the related statements of income,
stockholders' equity and partners' capital and cash flows for each of the two
years in the period ended December 31, 1996, the six months ended June 30,
1997 and for the period from July 1, 1997 to October 22, 1997. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
 
  We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
 
  In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of the predecessor companies
to J & J Rental Services, Inc. at December 31, 1996, and for J&J Rental
Services, Inc. as of October 22, 1997 and the results of their operations and
their cash flows for each of the two years in the period ended December 31,
1996, the six months ended June 30, 1997 and for the period from July 1, 1997
to October 22, 1997 in conformity with generally accepted accounting
principles.
 
                                                  /s/ Ernst & Young LLP
 
MetroPark, New Jersey
January 23, 1998
 
 
                                     F-311

 
                          J & J RENTAL SERVICES, INC.
 
                                 BALANCE SHEETS
                                    (NOTE 1)
 


                                                       PREDECESSORS   COMPANY
                                                       ------------ -----------
                                                       DECEMBER 31, OCTOBER 22,
                                                           1996        1997
                                                       ------------ -----------
                                                              
                       ASSETS
Cash.................................................   $  666,153  $ 1,431,287
Accounts receivable, net of allowance for doubtful
 accounts of $428,270, and $226,273 at 1996 and 1997,
 respectively........................................    1,502,119    1,470,608
Trade notes receivable, net of allowance for doubtful
 accounts of $93,337 at 1996.........................       37,081
Rental equipment, net................................    6,669,365    7,961,850
Property and equipment, net..........................      467,460      319,219
Investments in marketable equity securities..........       81,175
Due from Predecessor Stockholder.....................      120,000
Due from Related Party...............................                   354,388
Prepaid expenses and other assets....................      126,221        4,006
Intangible assets, net...............................                 3,270,614
                                                        ----------  -----------
      Total assets...................................   $9,669,574  $14,811,972
                                                        ==========  ===========
 LIABILITIES AND STOCKHOLDERS' EQUITY AND PARTNERS'
                       CAPITAL
Liabilities:
  Accounts payable...................................   $  628,252  $   936,725
  Accrued expenses...................................      336,884      360,990
  Income tax payable.................................       24,814
  Deferred tax liability.............................      430,000
  Debt...............................................    5,766,651   14,078,932
  Due to Predecessor Stockholder.....................      336,498
                                                        ----------  -----------
      Total liabilities..............................    7,523,099   15,376,647
Commitments and contingencies
Stockholders' equity and partners' capital:
  Stockholder's equity--J & J Equipment, Inc.
    Common stock, $1.00 par value, 50,000 shares
     authorized, issued and outstanding..............       50,000
    Unrealized gain on marketable equity securities..        1,165
    Retained earnings................................      981,955
                                                        ----------
                                                         1,033,120
  Partners' capital--Tri-Star Rentals, Ltd...........    1,113,355
                                                        ----------
  Stockholders' equity--J & J Rental Services, Inc.
    Common stock, no par value, 1,000,000 shares au-
     thorized, 77,500 shares issued and outstanding..                     1,000
    Accumulated deficit..............................                  (565,675)
                                                                    -----------
Total stockholders' equity (deficit) and partners'
 capital.............................................    2,146,475     (564,675)
                                                        ----------  -----------
    Total liabilities and stockholders' equity and
     partners' capital...............................   $9,669,574  $14,811,972
                                                        ==========  ===========

 
                            See accompanying notes.
 
 
                                     F-312

 
                          J & J RENTAL SERVICES, INC.
 
                              STATEMENTS OF INCOME
                                    (NOTE 1)
 


                                                                                   PREDECESSORS                     COMPANY
                                                                     ------------------------------------------ ---------------
                                                                                                                THE PERIOD FROM
                                                                     YEAR ENDED DECEMBER 31,   SIX MONTHS ENDED   JULY 1, TO
                                                                     ------------------------      JUNE 30,       OCTOBER 22,
                                                                        1995         1996            1997            1997
                                                                     -----------  -----------  ---------------- ---------------
                                                                                                    
Revenues:
  Equipment rentals.................................................  $7,573,784   $7,769,716     $3,823,790      $2,544,233
  Sales of equipment and parts......................................   1,810,400    1,243,297        573,450         129,963
                                                                     -----------  -----------     ----------      ----------
    Total revenues..................................................   9,384,184    9,013,013      4,397,240       2,674,196
Cost of revenues:
  Cost of revenues, excluding depreciation..........................   3,906,336    3,544,040      1,629,299       1,363,085
  Depreciation, equipment rentals...................................   2,048,619    2,389,929      1,171,685         359,672
  Cost of revenues of equipment and parts...........................     898,190      452,522        326,847          46,653
                                                                     -----------  -----------     ----------      ----------
    Total cost of revenues..........................................   6,853,145    6,386,491      3,127,831       1,769,410
                                                                     -----------  -----------     ----------      ----------
Gross profit........................................................   2,531,039    2,626,522      1,269,409         904,786
Selling, general and administrative expenses........................   1,840,973    1,521,562        713,488         786,907
Non-rental depreciation.............................................     125,004      123,971         78,643           7,629
                                                                     -----------  -----------     ----------      ----------
    Operating income................................................     565,062      980,989        477,278         110,250
Interest expense....................................................     411,731      478,341        180,769         378,231
Other (income), net.................................................     (45,103)     (27,523)       (11,418)        (26,306)
                                                                     -----------  -----------     ----------      ----------
    Income (loss) before provision for income taxes.................     198,434      530,171        307,927        (241,675)
Provision for income taxes..........................................      35,678       49,685         98,000             --
                                                                     -----------  -----------     ----------      ----------
    Net income (loss)............................................... $   162,756  $   480,486     $  209,927      $ (241,675)
- --------------------------------------------------
                                                                     ===========  ===========     ==========      ==========

 
 
                            See accompanying notes.
 
                                     F-313

 
                          J & J RENTAL SERVICES, INC.
 
            STATEMENTS OF STOCKHOLDERS' EQUITY AND PARTNERS' CAPITAL
                                    (NOTE 1)
 


                                           UNREALIZED
                                         (LOSS) GAIN ON
                           COMMON STOCK    MARKETABLE    RETAINED   PARTNERS'
                          SHARES AMOUNT    SECURITIES    EARNINGS    CAPITAL
                          ------ ------- -------------- ----------  ----------
                                                     
Predecessors:
  Balance at January 1,
   1995.................. 50,000 $50,000    $(6,500)    $  796,096  $  927,272
  Net income.............                                   75,762      86,994
  Distributions paid to
   partners..............                                             (169,741)
  Unrealized gain on
   marketable
   securities............                     9,250
                          ------ -------    -------     ----------  ----------
  Balance at December 31,
   1995.................. 50,000  50,000      2,750        871,858     844,525
  Net income.............                                  110,097     370,389
  Distributions paid to
   partners..............                                             (101,559)
  Unrealized loss on
   marketable
   securities............                    (1,585)
                          ------ -------    -------     ----------  ----------
  Balance at December 31,
   1996.................. 50,000  50,000      1,165        981,955   1,113,355
  Net income (loss) from
   January 1, 1997 to
   June 30, 1997.........                                  311,262    (101,335)
  Distributions paid to
   partners..............                                              (50,500)
                          ------ -------    -------     ----------  ----------
  Balance at June 30,
   1997.................. 50,000 $50,000    $ 1,165     $1,293,217  $  961,520
                          ====== =======    =======     ==========  ==========
Company:
  Issuance of common
   stock................. 77,500 $ 1,000
  Net loss from July 1,
   1997 to October 22,
   1997..................                               $ (241,675)
  Basis adjustment.......                                 (324,000)
                          ------ -------    -------     ----------  ----------
  Balance at October 22,
   1997.................. 77,500 $ 1,000                $ (565,675)
                          ====== =======    =======     ==========  ==========

 
 
                            See accompanying notes.
 
 
                                     F-314

 
                          J & J RENTAL SERVICES, INC.
 
                            STATEMENTS OF CASH FLOWS
                                    (NOTE 1)
 


                                                                                     PREDECESSORS                  COMPANY
                                                                          -------------------------------------  -----------
                                                                                                                 THE PERIOD
                                                                                                    SIX MONTHS   FROM JULY 1
                                                                          YEAR ENDED DECEMBER 31,      ENDED         TO
                                                                          ------------------------   JUNE 30,    OCTOBER 22,
                                                                             1995         1996         1997         1997
                                                                          -----------  -----------  -----------  -----------
                                                                                                     
CASH FLOWS FROM OPERATING ACTIVITIES
 Net income (loss)....................................................... $   162,756  $   480,486  $   209,927  $  (241,675)
 Adjustments to reconcile net income to net cash provided by (used in)
  operating activities:
 Depreciation and amortization...........................................   2,173,623    2,513,900    1,250,328      396,823
 Bad debt expense (recovery).............................................     128,092      (57,621)       7,214      226,273
 Gain on sale of rental equipment........................................    (396,704)    (369,379)    (210,390)     (43,878)
 Gain on sale of property and equipment..................................      (2,809)      (6,591)         --           --
 Deferred taxes..........................................................      23,000       12,000          --           --
 Changes in assets and liabilities:
  Increase in accounts receivable........................................     (64,895)     (10,430)    (512,942)  (1,696,881)
  (Increase) decrease in trade notes receivable..........................    (170,337)      39,859       37,081          --
  Increase in prepaid expenses and other assets..........................     (31,561)     (84,918)     (26,028)      (4,006)
  Increase (decrease) in accounts payable................................      46,476      (41,052)     372,230      936,725
  Increase in accrued expenses...........................................      53,632        1,919      123,765      360,990
  Increase in income tax payable.........................................       7,613       17,201       73,186          --
  Increase in Related Party receivable...................................                                           (354,388)
                                                                          -----------  -----------  -----------  -----------
   Cash provided by (used in) operating activities.......................   1,928,886    2,495,374    1,324,371     (420,017)
CASH FLOWS FROM INVESTING ACTIVITIES
 Acquisition of property and equipment...................................    (270,369)    (195,823)    (614,414)    (548,346)
 Proceeds from sale of rental equipment..................................     930,860      755,122    1,227,501      232,148
 Proceeds from sale of property and equipment............................      24,634       74,585          --           --
 Purchase of other company, net of cash acquired.........................                                         (7,238,924)
 Unrealized gain/(loss) on marketable securities.........................       9,250       (1,585)         --           --
 Purchase of marketable securities.......................................      (9,250)     (28,425)         --           --
 Payments on loans to Predecessor Stockholder............................     (21,573)     (73,724)     (79,254)         --
 Proceeds received on Predecessor Stockholder loans......................      94,857          --         6,884          --
 Loan to Predecessor Stockholder.........................................    (120,000)         --           --           --
                                                                          -----------  -----------  -----------  -----------
   Cash provided by (used in) investing activities.......................     638,409      530,150      540,717   (7,555,122)
CASH FLOWS FROM FINANCING ACTIVITIES
 Borrowing under credit facilities.......................................     871,496      351,958          --    10,000,000
 Principal payments on debt..............................................  (3,117,926)  (3,171,213)  (1,920,472)    (593,574)
 Distributions paid......................................................    (169,741)    (101,559)     (50,500)         --
                                                                          -----------  -----------  -----------  -----------
   Cash provided by (used in) financing activities.......................  (2,416,171)  (2,920,814)  (1,970,972)   9,406,426
                                                                          -----------  -----------  -----------  -----------
Increase (decrease) in cash .............................................     151,124      104,710     (105,884)   1,431,287
Cash at beginning of year................................................     410,319      561,443      666,153          --
                                                                          -----------  -----------  -----------  -----------
   Cash at end of year................................................... $   561,443  $   666,153  $   560,269  $ 1,431,287
- --------------------------------------------------
                                                                          ===========  ===========  ===========  ===========

 
                            See accompanying notes.
 
 
                                     F-315

 
                          J & J RENTAL SERVICES, INC.
 
                         NOTES TO FINANCIAL STATEMENTS
 
                          DECEMBER 31, 1995 AND 1996
                             AND OCTOBER 22, 1997
 
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
 Basis of Presentation
 
  J & J Rental Services, Inc. (the "Company") was formed in May 1997, and
pursuant to the terms of an Asset Purchase Agreement (the "Agreement"), on
June 30, 1997 acquired all of the rental equipment and property and equipment
from J & J Equipment, Inc. ("J & J"), and Tri-Star Rentals, Ltd. ("Tri-Star")
(collectively, the "Predecessors") and assumed all operations of the
Predecessors (the "Acquisition"). The purchase price of $10,700,000 consisted
of cash of $7,200,000 and a promissory note payable for $3,500,000. The sole
stockholder and partner of J & J and Tri-Star, respectively, (the "Predecessor
Stockholder") has, on a fully-diluted basis, a 9% ownership interest in the
outstanding common stock of the Company, and has continued in a management
role as chief operating officer.
 
  The accompanying financial statements as of December 31, 1996 and for the
years ended December 31, 1995 and 1996, and for the six month period ended
June 30, 1997 present the accounts and results of operations of the
Predecessors on a combined, historical cost basis. Although the financial
statements of the Predecessors have been combined, the balance sheets and
statements of income and cash flows do not represent those of a single legal
entity. All significant intercompany accounts and transactions have been
eliminated in combination.
 
  The financial statements as of October 22, 1997 and for the period from July
1 to October 22, 1997 present the accounts and results of operations of the
Company since the Acquisition.
 
  The Acquisition has been accounted for as a purchase effective July 1, 1997
and, accordingly, at such date the Company recorded the assets acquired at
their estimated fair values, adjusted for the impact of the Predecessor
Stockholder's continuing residual interest as described below. The assets
acquired have been reduced by $324,000 representing the Predecessor
Stockholder's continuing residual interest in the Company with a corresponding
charge against the Company's retained earnings.
 
  The adjusted purchase price and the preliminary allocation of the adjusted
purchase price to the historical assets of the Company as of July 1, 1997 are
as follows:
 
                                                              
   Purchase price.................................................. $10,739,000
   Adjustment necessary to value Predecessor Stockholder's
    continuing residual interest at Predecessor's basis............     324,000
                                                                    -----------
   Adjusted purchase price......................................... $10,415,000
                                                                    ===========
   Allocation of adjusted purchase price:
     Net assets acquired, at fair values........................... $ 7,115,000
     Covenant not to compete.......................................      50,000
     Goodwill......................................................   3,250,000
                                                                    -----------
       Total adjusted purchase price allocation.................... $10,415,000
                                                                    ===========

   
 
 Business Activity
 
  The Company rents and sells light weight and heavy off-road construction
equipment for use by construction and maintenance companies, and has ancillary
sales of parts and supplies. The rentals are on a daily, weekly or monthly
basis. The Company has two locations in Houston, Texas and its principal
market area is the
 
                                     F-316

 
                          J & J RENTAL SERVICES, INC.
 
                  NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
state of Texas. The nature of the Company's business is such that short-term
obligations are typically met by cash flow generated from long-term assets.
Consequently, consistent with industry practice, the balance sheets are
presented on an unclassified basis.
 
 Rental Equipment
 
  Rental equipment is recorded at cost. Depreciation for rental equipment is
computed using the straight-line method over estimated useful lives of three
to five years through June 30, 1997 and two to ten years subsequent to June
30, 1997 with no salvage value. Rental equipment costing less than $500 is
immediately expensed at the date of purchase. Equipment rental revenue is
recorded as earned under the operating method. Equipment rental revenue in the
statements of operations includes revenues earned on equipment rentals, and
related fuel sales and rental equipment delivery fees. Proceeds from the
disposal and the related net book value of the equipment are recognized in the
period of disposal and reported as revenue from rental equipment sales in the
statements of operations. Ordinary maintenance and repair costs are charged to
operations as incurred.
 
 Property and Equipment
 
  Property and equipment is stated at cost. Depreciation of property and
equipment is computed on the straight-line method over estimated useful lives
of 5 to 10 years.
 
  The cost of assets sold, retired, or otherwise disposed of, and the related
accumulated depreciation is eliminated from the accounts and any resulting
gain or loss is included in operations. Ordinary maintenance and repair costs
are charged to operations as incurred.
 
 Advertising Costs
 
  The Company advertises primarily through trade journals, phone directories
and the distribution of promotional items. All advertising costs are expensed
as incurred. Advertising expenses amounted to approximately $40,095 and
$52,483 in the years ended December 31, 1995 and 1996, respectively, $1,297 in
the six months ended June 30, 1997, and $9,433 from July 1 to October 22,
1997.
 
 Income Taxes
 
  J & J applied an asset and liability approach to accounting for income
taxes. Deferred income tax assets and liabilities arise from differences
between the tax basis of an asset or liability and its reported amount in the
financial statements. Deferred tax balances are determined by using tax rates
expected to be in effect when the taxes will actually be paid or refunds
received. Under federal and state income tax law, Tri-Star, a partnership, is
not a taxable entity and, therefore, incurs no income tax liability. Any
profits and losses of Tri-Star flow through to the individual partners.
 
 Investments
 
  The Company's investments consist of marketable equity securities and are
classified as available for sale. Any unrealized gains or losses are excluded
from income and are presented as a component of stockholders' equity.
 
 Intangible assets
 
  Intangible assets are recorded at cost and consist of goodwill of $3,250,134
and covenant not to compete of $50,000. Goodwill is being amortized by the
straight-line method over its estimated useful life of forty years. The
covenant not to compete reflects an agreement made regarding confidentiality
and restricting competitive activity and is being amortized by the straight-
line method over the period of the agreement, which is 5 years. Amortization
expense was $29,520 for the period from July 1 to October 22, 1997.
 
                                     F-317

 
                          J & J RENTAL SERVICES, INC.
 
                  NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
 
 Accounting Estimates
 
  The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
 
2. CONCENTRATIONS OF CREDIT RISK
 
  The Company maintains cash balances with a quality financial institution
and, accordingly, management believes this mitigates the amount of credit
risk. Concentrations of credit risk with respect to customer receivables are
limited due to the large number of customers comprising the Company's customer
base and its credit policy.
 
3. RENTAL EQUIPMENT
 
  Rental equipment and related accumulated depreciation consists of the
following:
 


                                                        DECEMBER 31, OCTOBER 22,
                                                            1996        1997
                                                        ------------ -----------
                                                               
   Rental equipment.................................... $12,520,482  $8,313,840
   Less accumulated depreciation.......................   5,851,117     351,990
                                                        -----------  ----------
   Rental equipment, net............................... $ 6,669,365  $7,961,850
                                                        ===========  ==========

 
4. PROPERTY AND EQUIPMENT
 
  Property and equipment consists of the following:
 


                                                        DECEMBER 31, OCTOBER 22,
                                                            1996        1997
                                                        ------------ -----------
                                                               
   Transportation equipment............................   $763,402    $166,003
   Furniture, fixtures and office equipment............     92,082      59,760
   Shop equipment......................................     39,356
   Leasehold improvements..............................     38,386
   Construction in progress............................                101,085
                                                          --------    --------
                                                           933,226     326,848
   Less accumulated depreciation.......................    465,766       7,629
                                                          --------    --------
   Total...............................................   $467,460    $319,219
                                                          ========    ========

 
                                     F-318

 
                          J & J RENTAL SERVICES, INC.
 
                   NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
 
5. DEBT
 
  Debt consists of the following:
 


                                                       DECEMBER 31, OCTOBER 22,
                                                           1996        1997
                                                       ------------ -----------
                                                              
CIT Group--Various notes dated from September 21,
 1995 through August 5, 1997, with annual interest
 rates ranging from 8% to 9.4% due in monthly
 payments ranging from $867 to $43,987. .............   $1,246,231   $637,956
The Associates--Note dated April 1, 1996, with annual
 interest of 8.8% due in monthly payments of
 $3,609. ............................................      110,450
Case Power & Equipment--Various notes dated from
 January 1, 1992 through December 30, 1996, with
 annual interest rates ranging from 5.5% to 7.9% due
 in monthly payments ranging from $408 to $7,747. ...      795,344
Sterling Bank--Various notes dated from January 26,
 1994 through December 20, 1996, with annual interest
 rates ranging from 8% to 11% due in monthly payments
 ranging from $582 to $2,084. .......................      306,708
KDC Financial--Various notes dated from June 14, 1993
 through December 31, 1996, with annual interest
 rates ranging from 4.5% to 9.5% due in monthly
 payments ranging from $840 to $4,691. ..............    1,443,971
John Deere Financial--Notes dated December 31, 1995
 and September 10, 1996, with annual interest rates
 of 7.9% and 6.9% due in monthly payments of $807 and
 $1,083. ............................................       69,247
Frost National Bank--Various notes dated from January
 25, 1995 through August 15, 1995, with annual
 interest rates ranging from 8.75% to 9.5% due in
 monthly principal payments ranging from $582 to
 $8,492. ............................................      101,771
Citicorp--Note dated June 15, 1993, with an annual
 interest rate of 5.9% due in monthly payments of
 $921. ..............................................        5,433
First Prosperity Bank--Various notes dated from
 September 8, 1994 through December 13, 1996, with
 annual interest ranging from 7.25% through 9.9% due
 in monthly payments ranging from $354 to $1,039. ...       55,139
CAT Financial--Notes dated June 2, 1995 and December
 31, 1994, with annual interest rates of 9.69% and
 9.5% due in monthly payments of $4,227 and
 $3,036. ............................................      152,293
CAT Financial--Notes dated October 11, 1996 and
 November 25, 1996, non-interest bearing, with
 monthly payments of $1,205 and $3,522. .............      161,102
Chase/Clark Credit--Various notes dated from March
 17, 1994 through September 28, 1994, with annual
 interest rates ranging from 9.75% to 12.765% due in
 monthly installments ranging from $194 to $1,430. ..       30,232
First Prosperity--Various notes dated from August 16,
 1993 through December 13, 1996, with annual interest
 rates ranging from 6.4% to 11% due in monthly
 installments ranging from $423 to $4,205............      171,518
Associates Commercial Credit Corp.--Various notes
 dated from May 16, 1994 through July 8, 1996, with
 annual interest rates ranging from 7.75% to 11.25%
 due in monthly installments ranging from $912 to
 $6,656..............................................      246,570

 
 
                                     F-319

 
                          J & J RENTAL SERVICES, INC.
 
                   NOTES TO FINANCIAL STATEMENTS--(CONTINUED)


                                                       DECEMBER 31, OCTOBER 22,
                                                           1996        1997
                                                       ------------ -----------
                                                              
Ingersoll-Rand Company--Various notes dated from June
 30, 1992 through September 8, 1996 with annual
 interest rates ranging from 7% to 9.5% due in
 monthly installments ranging from $301 to $7,794....      316,003
Wacker Corporation--Various notes dated from January
 7, 1994 through May 25, 1996, with annual interest
 rates ranging from 6.25% to 10.25% due in monthly
 installments ranging from $854 to $2,889............       99,666
AEL Leasing Co., Inc.--Various notes dated from April
 21, 1994 through May 20, 1996, with annual interest
 rates ranging from 8.72% to 12.93% due in monthly
 installments ranging from $371 to $4,883............      261,043
AEL Leasing Co., Inc.--Various non-interest bearing
 notes dated from April 21, 1994 through February 26,
 1996, due in 12 principal installments ranging from
 $8,022 to $18,249...................................       36,498
Shandee--Note dated August 31, 1995, with an annual
 interest rate of 11.25% due in monthly installments
 of $2,803...........................................       21,510
Sterling Bank--Note dated January 2, 1996, with an
 annual interest rate of 9.5% due in 24 principal
 installments of $4,118..............................       53,538
Miller Financing--Various notes dated from February
 15, 1996 through June 1, 1996, with annual interest
 rates ranging from 9.25 % to 10.25% due in monthly
 installments ranging from $375 to $2,922............       82,384
Toyota Motor Credit Corp.--Notes dated July 12 and
 August 28, 1997, with annual interest rates of 5.4%
 and 6.9%, respectively, due in monthly installments
 of $543 and $ 561, respectively.....................                    47,460
AEL Leasing Co., Inc.--Note dated October 10, 1997
 with annual interest of 9.33% due in monthly
 payments of $3,345..................................                   157,807
Case Credit--Various notes dated June 30, 1997 with
 an annual interest rate of 7.9% due in monthly
 installments ranging from $1,685 to $2,254..........                   290,260
Case Credit--Term note dated June 30, 1997, with
 interest due monthly at prime plus .75% (9.25% at
 September 30, 1997). Principal is due June 30, 2002.
 This note is secured by all of the Company's rental
 assets and property, plant and equipment, and is
 personally guaranteed by the majority owners of the
 Company.............................................                 7,445,449
J & J and Tri-Star--Promissory note dated June 30,
 1997 with an annual interest rate of 7.5%. Principal
 payments of $175,000 are due quarterly beginning
 October 1, 2000.....................................                 3,500,000
Equus II Incorporated--Senior subordinated note dated
 June 30, 1997, with interest to be paid monthly on
 the unpaid principal balance at a variable rate not
 to exceed 10% (10% at September 30, 1997). Principal
 is to be paid in four annual installments of
 $500,000 beginning June 30, 2001....................                 2,000,000
                                                        ----------  -----------
                                                        $5,766,651  $14,078,932
                                                        ==========  ===========

 
  Substantially all rental equipment collateralize the above notes.
 
                                     F-320

 
                          J & J RENTAL SERVICES, INC.
 
                  NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
 
  All debt at October 22, 1997, except for $200,000 of the J & J and Tri-Star
note, were paid off by October 31, 1997 as a result of the acquisition
discussed in Note 10.
 
6. INCOME TAXES
 
  The provision for income taxes relates to the operating results of J & J
before July 1, 1997 and consists of the following:
 


                                                        YEAR ENDED    SIX MONTHS
                                                       DECEMBER 31,   ENDED JUNE
                                                      ---------------    30,
                                                       1995    1996      1997
                                                      ------- ------- ----------
                                                             
Current:
  Federal............................................ $ 7,216 $32,054  $86,500
  State..............................................   5,462   5,631   11,500
                                                      ------- -------  -------
                                                       12,678  37,685   98,000
Deferred:
  Federal............................................  20,300  10,600      --
  State..............................................   2,700   1,400      --
                                                      ------- -------  -------
                                                       23,000  12,000      --
                                                      ------- -------  -------
    Total............................................ $35,678 $49,685  $98,000
                                                      ======= =======  =======

 
  Tri-Star is a pass-through entity and, therefore incurs no tax liability.
Significant components of J & J's deferred tax liability at December 31, 1996
is as follows:
 


                                                                  DECEMBER 31,
                                                                      1996
                                                                  ------------
                                                                     
       Difference in basis of accounting......................... $221,000
       Cumulative tax depreciation in excess of book.............  209,000
                                                                  --------
       Deferred tax liability                                     $430,000
                                                                  ========

 
  Effective July 1, 1997, the Company and its shareholders have elected to be
taxed under the provisions of Subchapter S of the Internal Revenue Code for
federal tax purposes. Under those provisions the Company does not pay federal
income taxes; instead, the shareholders are liable for individual income taxes
on the Company's profit. Therefore, no provision for federal income taxes is
included in the Company's financial statements for the period from July 1 to
October 22, 1997.
 
7. SUPPLEMENTAL CASH FLOW INFORMATION
 
  For the years ended December 31, 1995 and 1996; the six months ended June
30, 1997; and the period from July 1 to October 22, 1997, total interest paid
was $411,731 and $478,341; $180,769; and $259,705, respectively.
 
  For the years ended December 31, 1995 and 1996; the six months ended June
30, 1997; and the period from July 1 to October 22, 1997, total income taxes
paid was $ -- and $ --; $24,814; and $ --, respectively.
 
  During the years ended December 31, 1995 and 1996, and the six months ended
June 30, 1997, and for the period from July 1 to October 22, 1997 the Company
purchased $3,738,807, and $3,160,914; $1,172,917; and $1,172,506,
respectively, of equipment which was financed.
 
                                     F-321

 
                          J & J RENTAL SERVICES, INC.
 
                  NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
 
8. EMPLOYEE BENEFIT PLAN
 
  The Predecessor sponsored a defined contribution 401(k) retirement plan,
which was implemented during 1995 and covers substantially all full time
employees. The Predecessor matched a portion of the participants'
contributions. Predecessor contributions to the plan were $9,272, $6,395, $--,
and $ -- for the years ended December 31, 1995, and 1996, for the six month
period ended June 30, 1997 and for the period from July 1 to October 22, 1997,
respectively.
 
9. RELATED PARTY TRANSACTIONS
 
  On November 27, 1995, Tri-Star loaned $120,000 to the Predecessor
Stockholder. This non-interest bearing note is unsecured, and is due on
demand. The outstanding balance on this note receivable at December 31, 1996
was $120,000.
 
  On November 30, 1995, Tri-Star issued a $100,000 note payable to the
Predecessor Stockholder, which bears interest at 11.4% per annum, requires
monthly principal and interest payments of $6,097, and is unsecured. The
outstanding balance on this note at December 31, 1996 was $79,254.
 
  J & J has a note payable outstanding to the Predecessor Stockholder, which
required interest to be paid quarterly at 6.5% per annum, and is due on
January 1, 1998. The outstanding balance on this note payable at December 31,
1996 was $257,244.
 
  During the period from July 1 to October 22, 1997 the Company made payments
of $354,388 on behalf of another Company owned by the Company's Stockholder.
 
  The Company leases its operating facilities from the Predecessor
Stockholder, and paid monthly rent of $8,600 through June 30, 1997. These
leases are month-to-month and can be canceled by either party.
 
10. SUBSEQUENT EVENT
 
  On October 23, 1997, the Company entered into a stock purchase agreement
with United Rentals, Inc. ("United"). Under the terms of the stock purchase
agreement, United purchased all of the issued and outstanding capital stock of
the Company.
 
 
                                     F-322

 
              REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
 
Board of Directors
Coran Enterprises, Inc.
and
Monterey Bay Equipment Rental, Inc.
 
  We have audited the accompanying combined statements of earnings,
stockholders' equity, and cash flows of Coran Enterprises, Inc., dba A-1
Rents, and Monterey Bay Equipment Rental, Inc. for the years ended
December 31, 1995 and 1996. We have also audited the combined statements of
earnings, stockholders' equity, and cash flows for the period from January 1,
1997 through October 24, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
 
  We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
 
  In our opinion, the financial statements referred to above present fairly,
in all material respects, the combined results of operations and combined cash
flows of Coran Enterprises, Inc. dba A-1 Rents, and Monterey Bay Equipment
Rental, Inc. for the years ended December 31, 1995 and 1996, and also for the
period from January 1, 1997 through October 24, 1997, in conformity with
generally accepted accounting principles.
 
                                          /s/ Grant Thornton LLP
 
San Jose, California
January 21, 1998
 
                                     F-323

 
                            CORAN ENTERPRISES, INC.
                               DBA A-1 RENTS AND
                      MONTEREY BAY EQUIPMENT RENTAL, INC.
 
                        COMBINED STATEMENTS OF EARNINGS
 


                                                                    PERIOD FROM
                                                                    JANUARY 1,
                                                                       1997
                                            YEAR ENDED DECEMBER 31,   THROUGH
                                            ----------------------- OCTOBER 24,
                                               1995        1996        1997
                                            ----------- ----------- -----------
                                                           
Revenues:
  Equipment rentals........................ $ 6,962,130 $ 7,679,713 $6,743,497
  Sales of parts, supplies and rental
   equipment...............................     565,586     738,330    974,713
                                            ----------- ----------- ----------
    Total revenues.........................   7,527,716   8,418,043  7,718,210
Costs:
  Cost of equipment rentals................   3,835,982   4,254,243  3,764,346
  Rental equipment depreciation............     611,577   1,304,847  1,328,193
  Cost of sales of supplies................     200,746     257,500    204,248
  Other....................................      49,523     115,758     53,590
                                            ----------- ----------- ----------
    Total costs............................   4,697,828   5,932,348  5,350,377
                                            ----------- ----------- ----------
    Gross margin...........................   2,829,888   2,485,695  2,367,833
Selling, general and administrative........   1,786,650   2,062,246  1,768,439
Non-rental depreciation....................      28,435      17,202     15,370
                                            ----------- ----------- ----------
    Operating Income.......................   1,014,803     406,247    584,024
Interest expense...........................      21,120      96,464    170,183
                                            ----------- ----------- ----------
    Earnings before income taxes...........     993,683     309,783    413,841
Provision for income taxes.................      12,275       8,221    276,383
                                            ----------- ----------- ----------
  Net earnings............................. $   981,408 $   301,562 $  137,458
                                            =========== =========== ==========

 
 
 
        The accompanying notes are an integral part of these statements.
 
                                     F-324

 
                            CORAN ENTERPRISES, INC.
                               DBA A-1 RENTS AND
                      MONTEREY BAY EQUIPMENT RENTAL, INC.
 
                   COMBINED STATEMENT OF STOCKHOLDERS' EQUITY
 


                         SHARES ISSUED
                         -------------
                          CEI   MBERI
                         ------ ------            ADDITIONAL
                         $1 PAR NO PAR   COMMON    PAID-IN    RETAINED
                         VALUE  VALUE    STOCK     CAPITAL    EARNINGS     TOTAL
                         ------ ------  --------  ---------- ----------  ----------
                                                       
Balance at January 1,
 1995................... 75,000 10,000  $275,000   $37,920   $1,691,541  $2,004,461
  Net earnings..........    --     --        --        --       981,408     981,408
                         ------ ------  --------   -------   ----------  ----------
Balance at December 31,
 1995................... 75,000 10,000   275,000    37,920    2,672,949   2,985,869
  Net earnings..........    --     --        --        --       301,562     301,562
  Dividends paid to
   stockholders.........    --     --        --        --      (750,000)   (750,000)
                         ------ ------  --------   -------   ----------  ----------
Balance at December 31,
 1996................... 75,000 10,000   275,000    37,920    2,224,511   2,537,431
  Net earnings January
   1, 1997 through
   October 24, 1997.....    --     --        --        --       137,458     137,458
  Dividends paid to
   stockholders.........    --     --        --        --      (781,852)   (781,852)
  Stock redemption......    --  (2,500)  (50,000)      --      (200,000)   (250,000)
                         ------ ------  --------   -------   ----------  ----------
Balance at October 24,
 1997................... 75,000  7,500  $225,000   $37,920   $1,380,117  $1,643,037
                         ====== ======  ========   =======   ==========  ==========

 
 
         The accompanying notes are an integral part of this statement.
 
                                     F-325

 
                            CORAN ENTERPRISES, INC.
             DBA A-1 RENTS AND MONTEREY BAY EQUIPMENT RENTAL, INC.
 
                       COMBINED STATEMENTS OF CASH FLOWS
 


                                                                      PERIOD
                                                                    JANUARY 1,
                                                 YEAR ENDED            1997
                                                DECEMBER 31,          THROUGH
                                            ----------------------  OCTOBER 24,
                                              1995        1996         1997
                                            ---------  -----------  -----------
                                                           
Cash flows from operating activities:
  Net earnings............................  $ 981,408  $   301,562  $   137,458
  Adjustments to reconcile net earnings to
   net cash provided by operating activi-
   ties:
    Depreciation and amortization.........    640,012    1,322,049    1,343,563
    Gain on sale of equipment.............    (85,747)    (163,753)    (446,621)
    Change in assets and liabilities:
      Accounts receivable.................   (210,091)      60,246      (61,976)
      Other assets........................      5,220       (3,108)      59,276
      Accounts payable and accrued liabil-
       ities..............................     36,638       32,355      625,287
                                            ---------  -----------  -----------
        Net cash provided by operating ac-
         tivities.........................  1,367,440    1,549,351    1,656,987
Cash flows from investing activities:
  Purchases of rental equipment...........   (633,519)  (4,017,946)    (315,346)
  Proceeds from sale of equipment.........    110,273      205,639      492,977
                                            ---------  -----------  -----------
        Net cash provided by (used in) in-
         vesting activities...............   (523,246)  (3,812,307)     177,631
Cash flows from financing activities:
  Change in bank overdraft................    (15,760)         --           --
  Borrowings on equipment loans...........    244,235    1,096,820          --
  Payments on equipment loans.............    (46,853)    (158,893)     (42,649)
  Payment of dividends....................        --     (750,000)     (781,853)
  Stock redemption........................        --           --      (250,000)
  Borrowings on notes payable--stockhold-
   ers....................................        --     1,249,988          --
  Payments on notes payable--stockhold-
   ers....................................    (95,888)         --      (538,156)
                                            ---------  -----------  -----------
        Net cash provided by (used in) fi-
         nancing activities...............     85,734    1,437,915   (1,612,658)
                                            ---------  -----------  -----------
        NET INCREASE (DECREASE) IN CASH
         AND CASH EQUIVALENTS.............    929,928     (825,041)     221,960
Cash and cash equivalents--beginning of
 period...................................     35,259      965,187      140,146
                                            ---------  -----------  -----------
Cash and cash equivalents--end of period..  $ 965,187  $   140,146  $   362,106
                                            =========  ===========  ===========
Supplementary disclosures of cash flow in-
 formation:
  Cash paid during the period for:
    Interest..............................  $  21,120  $    95,958  $   151,792
                                            =========  ===========  ===========
    Income taxes..........................  $   1,600  $    23,047  $       800
                                            =========  ===========  ===========

 
        The accompanying notes are an integral part of these statements.
 
                                     F-326

 
                            CORAN ENTERPRISES, INC.
             DBA A-1 RENTS ANDMONTEREY BAY EQUIPMENT RENTAL, INC.
 
                    NOTES TO COMBINED FINANCIAL STATEMENTS
 
                    YEARS ENDED DECEMBER 31, 1995 AND 1996
         AND THE PERIOD FROM JANUARY 1, 1997 THROUGH OCTOBER 24, 1997
 
NOTE A--SUMMARY OF ACCOUNTING POLICIES
 
 1. Nature of Business and Basis of Presentation
 
  The combined financial statements include the accounts of Coran Enterprises,
Inc. and Monterey Bay Equipment Rental, Inc. (collectively the "Company").
Coran Enterprises, Inc. ("CEI") and Monterey Bay Equipment Rental, Inc.
("MBERI") are combined due to common ownership and operations which are
complimentary. All significant intercompany balances and transactions have
been eliminated in combination.
 
  The Company leases equipment for home and contractors' use under short-term
rental agreements principally in the Northern California area.
 
 2. Property and Equipment
 
  The Company provides for depreciation in amounts sufficient to relate the
costs of depreciable assets to operations over their estimated service lives
using the double-declining balance method. Leasehold improvements are
amortized on a straight-line basis over the lives of the improvements or the
term of the lease, whichever is shorter. Maintenance and repairs costs are
expensed as incurred. Supplies and replacement parts are expensed when
purchased.
 
 3. Cash and Cash Equivalents
 
  For purposes of the statement of cash flows, the Company considers all
highly liquid debt instruments purchased with a maturity of three months or
less to be cash equivalents.
 
 4. Use of estimates
 
  In preparing financial statements in conformity with generally accepted
accounting principles, management is required to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the financial
statements, as well as revenues and expenses during the reporting period.
Actual results could differ from those estimates.
 
NOTE B--RELATED PARTY TRANSACTIONS
 
  The Company leases facilities from its stockholders on a month-to-month
basis. Total rent expense on the facilities was $662,880 and $667,638 for the
years ended December 31, 1995 and 1996. Total rent expense for the period from
January 1, 1997 through October 24, 1997 was $545,702.
 
  The Company incurred interest expense of $17,755 and $27,627, respectively,
for the years ended December 31, 1995 and 1996, related to notes payable to
stockholders. For the period from January 1, 1997 through October 24, 1997 the
interest expense related to the stockholder notes was $80,693.
 
NOTE C--INCOME TAXES
 
  The stockholders of the Company have elected "S" Corporation status for
income tax purposes. Therefore, income or loss for federal and California
state income tax purposes is reported on the shareholders' individual income
tax returns. Although the "S" Corporation tax treatment is recognized by the
State of California, the net corporate income is subject to a 1.5% corporate
surtax. (See Note E)
 
 
                                     F-327

 
                            CORAN ENTERPRISES, INC.
                               DBA A-1 RENTS AND
                      MONTEREY BAY EQUIPMENT RENTAL, INC.
 
              NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
 
                    YEARS ENDED DECEMBER 31, 1995 AND 1996
         AND THE PERIOD FROM JANUARY 1, 1997 THROUGH OCTOBER 24, 1997
 
NOTE D -- EQUIPMENT LOANS
 
  Equipment loans consist of notes payable, collateralized by equipment, due
in monthly installments ranging from $1,095 to $5,375 with interest rates from
5.75% to 8.75%. These loans were paid in full as of October 31, 1997. Interest
expense on the equipment loans aggregated $3,365 and $68,837, respectively,
for the years ended December 31, 1995 and 1996. Interest expense on the
equipment loans was $89,455 for the period January 1, 1997 through October 24,
1997.
 
NOTE E--CHANGE IN OWNERSHIP
 
  Effective October 24, 1997, the stockholders of CEI and MBERI sold 100% of
the outstanding shares of each company to United Rentals, Inc. The Company
provided $270,000 for state income taxes resulting from the stock sale.
 
                                     F-328

 
                        REPORT OF INDEPENDENT AUDITORS
 
Board of Directors and Stockholders
Bronco Hi-Lift, Inc.
 
  We have audited the balance sheets of Bronco Hi-Lift, Inc. as of December
31, 1996 and October 24, 1997 and the related statements of income,
stockholders' equity and cash flows for the years ended December 31, 1995 and
1996, and the period from January 1, 1997 to October 24, 1997. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
 
  We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
 
  In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Bronco Hi-Lift, Inc. at
December 31, 1996 and October 24, 1997, and the results of its operations and
its cash flows for the years ended December 31, 1995 and 1996, and the period
from January 1, 1997 to October 24, 1997 in conformity with generally accepted
accounting principles.
 
                                          /s/ Ernst & Young LLP
 
MetroPark, New Jersey
January 19, 1998
 
                                     F-329

 
                              BRONCO HI-LIFT, INC.
 
                                 BALANCE SHEETS
 


                                                        DECEMBER 31,  OCTOBER
                                                            1996      24, 1997
                                                        ------------ ----------
                                                               
                        ASSETS
Cash...................................................  $  305,506  $  180,745
Accounts receivable, net...............................     826,849     998,467
Unbilled receivables...................................      40,722     283,865
Inventory..............................................      67,825     273,119
Rental equipment, net..................................   1,972,910   2,725,464
Property and equipment, net............................     234,914     423,918
Due from related party.................................         --          --
Prepaid expenses and other assets......................      13,530      44,273
                                                         ----------  ----------
    Total assets.......................................  $3,462,256  $4,929,851
                                                         ==========  ==========
         LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
  Accounts payable, accrued expenses and other
   liabilities.........................................  $   90,584  $  277,651
  Debt.................................................   3,051,711   3,473,516
                                                         ----------  ----------
    Total liabilities..................................   3,142,295   3,751,167
Commitments and contingencies
Stockholders' equity:
  Common stock, $.01 par value and $1.00 stated value,
   100,000 shares authorized, 10,000 issued and
   outstanding at December 31, 1996, and October 24,
   1997................................................      10,000      10,000
  Additional paid-in capital...........................     598,000     598,000
  Notes receivable from stockholders...................    (300,000)        --
  Retained earnings....................................      11,961     570,684
                                                         ----------  ----------
    Total stockholders' equity.........................     319,961   1,178,684
                                                         ----------  ----------
    Total liabilities and stockholders' equity.........  $3,462,256  $4,929,851
                                                         ==========  ==========

 
 
                            See accompanying notes.
 
 
                                     F-330

 
                              BRONCO HI-LIFT, INC.
 
                              STATEMENTS OF INCOME
 


                                                                      PERIOD
                                                                       FROM
                                                                    JANUARY 1,
                                          YEAR ENDED DECEMBER 31     1997 TO
                                          ------------------------   OCTOBER
                                             1995         1996       24, 1997
                                          -----------  -----------  ----------
                                                           
Revenues:
  Equipment rentals...................... $ 3,427,596  $ 4,313,855  $4,330,000
  New equipment sales....................     266,308      611,033     533,370
  Sales of parts, supplies and rental
   equipment.............................     155,331      410,957     375,451
  Other..................................     147,214      194,469     182,355
                                          -----------  -----------  ----------
    Total revenues.......................   3,996,449    5,530,314   5,421,176
Cost of revenues:
  Cost of equipment rentals, excluding
   depreciation..........................     335,028      699,455     374,845
  Depreciation, equipment rentals........     637,766      736,525     660,598
  Cost of new equipment sales............     206,268      479,920     412,592
  Cost of sales of parts, supplies and
   equipment.............................     107,989      293,987     148,464
  Other..................................      32,418      119,315     112,107
                                          -----------  -----------  ----------
    Total cost of revenues...............   1,319,469    2,329,202   1,708,606
                                          -----------  -----------  ----------
Gross profit.............................   2,676,980    3,201,112   3,712,570
Selling, general and administrative
 expenses................................   2,540,699    2,359,326   2,353,924
Non-rental depreciation..................      84,463       99,669      85,707
                                          -----------  -----------  ----------
    Operating income.....................      51,818      742,117   1,272,939
Interest expense.........................     171,305      334,035     229,154
Other (income), net......................     (26,575)     (46,175)    (29,938)
                                          -----------  -----------  ----------
    Net income (loss).................... $   (92,912) $   454,257  $1,073,723
                                          ===========  ===========  ==========

 
 
                            See accompanying notes.
 
 
                                     F-331

 
                              BRONCO HI-LIFT, INC.
 
                       STATEMENTS OF STOCKHOLDERS' EQUITY
 


                           COMMON STOCK                NOTES RECEIVABLE  RETAINED
                         -----------------   PAID-IN         FROM        EARNINGS
                         SHARES    AMOUNT    CAPITAL     STOCKHOLDERS    (DEFICIT)
                         -------  --------  ---------  ---------------- -----------
                                                         
Balance at January 1,
 1995...................  20,000  $ 20,000  $ 345,020     $     --      $   693,596
  Purchase and
   retirement of common
   stock................ (12,000)  (12,000)  (345,020)                   (1,042,980)
  Issuance of common
   stock................   2,000     2,000    598,000      (500,000)
  Net loss..............                                                    (92,912)
                         -------  --------  ---------     ---------     -----------
Balance at December 31,
 1995...................  10,000    10,000    598,000      (500,000)       (442,296)
  Payment on notes
   receivable from
   stockholders.........                                    200,000
  Net income............                                                    454,257
                         -------  --------  ---------     ---------     -----------
Balance at December 31,
 1996...................  10,000    10,000    598,000      (300,000)         11,961
  Payments on notes
   receivable from
   stockholders.........                                    300,000
  Net income............                                                  1,073,723
  Dividends paid........                                                   (515,000)
                         -------  --------  ---------     ---------     -----------
Balance at October 24,
 1997...................  10,000  $ 10,000  $ 598,000     $     --      $   570,684
                         =======  ========  =========     =========     ===========

 
 
                            See accompanying notes.
 
 
                                     F-332

 
                              BRONCO HI-LIFT, INC.
 
                            STATEMENTS OF CASH FLOWS
 


                                                                   PERIOD FROM
                                                                   JANUARY 1,
                                         YEAR ENDED DECEMBER 31      1997 TO
                                         ------------------------  OCTOBER 24,
                                            1995         1996         1997
                                         ----------- ------------  -----------
                                                          
CASH FLOWS FROM OPERATING ACTIVITIES
  Net income (loss)..................... $  (92,912) $    454,257  $ 1,073,723
  Adjustments to reconcile net income to
   net cash provided by operating
   activities:
    Depreciation........................    722,229       836,194      746,305
    Gain on equipment sales.............   (317,871)     (302,777)    (355,159)
    Interest expense not requiring
     cash...............................                   17,500
    Changes in assets and liabilities:
      Increase in accounts receivable...   (132,976)     (235,655)    (171,618)
      Decrease (increase) in unbilled
       receivables......................      5,646        27,632     (243,143)
      (Increase) decrease in inventory..   (102,542)       89,645     (205,294)
      Decrease (increase) in prepaid
       expenses and other assets........     30,774        20,171      (30,743)
      (Decrease) increase in accounts
       payable, accrued expenses and
       other liabilities................    (60,113)      (14,377)     187,067
                                         ----------  ------------  -----------
        Total adjustments...............    145,147       438,333      (72,585)
                                         ----------  ------------  -----------
        Cash provided by operating
         activities.....................     52,235       892,590    1,001,138
CASH FLOWS FROM INVESTING ACTIVITIES
  Purchase of rental equipment..........    (92,727)   (1,368,253)  (1,631,309)
  Proceeds from sale of rental
   equipment............................    350,739       745,687      573,316
  Purchases of property and equipment,
   net..................................   (101,985)      (90,932)    (304,711)
                                         ----------  ------------  -----------
        Cash provided by (used in)
         investing activities...........    156,027      (713,498)  (1,362,704)
CASH FLOWS FROM FINANCING ACTIVITIES
  Cash dividends paid...................                              (485,000)
  Issuance of stock.....................    100,000
  Re-payments on notes due from
   stockholders.........................                  200,000      300,000
  Principal payments on debt............   (742,891)     (802,358)    (278,195)
  Principal payments on capital lease
   obligations..........................    (32,711)
  Advances to related party.............   (412,113)
  Borrowings under credit facility......    900,000       500,000      700,000
                                         ----------  ------------  -----------
        Cash provided by (used) in
         financing activities...........   (187,715)     (102,358)     236,805
                                         ----------  ------------  -----------
  Increase (decrease) in cash...........     20,547        76,734     (124,761)
        Cash balance at beginning
         period.........................    208,225       228,772      305,506
                                         ----------  ------------  -----------
        Cash balance at end of period... $  228,772  $    305,506  $   180,745
                                         ==========  ============  ===========

 
                            See accompanying notes.
 
 
                                     F-333

 
                             BRONCO HI-LIFT, INC.
 
                         NOTES TO FINANCIAL STATEMENTS
 
                DECEMBER 31, 1995 AND 1996 AND OCTOBER 24, 1997
 
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
 Business Activity
 
  Bronco Hi-Lift, Inc. (the "Company") rents, sells and repairs aerial lift
equipment for use by construction companies and maintenance and media crews.
The rentals are on a daily, weekly or monthly basis. The Company is located in
Denver, Colorado and its principal market area is the state of Colorado. The
nature of the Company's business is such that short-term obligations are
typically met by cash flow generated from long-term assets. Consequently,
consistent with industry practice, the balance sheets are presented on an
unclassified basis.
 
 Inventory
 
  Inventories consists primarily of general replacement parts and fuel for the
equipment and are stated at the lower of cost, determined under the first-in,
first-out method, or market.
 
 Rental Equipment
 
  Rental equipment is recorded at cost. Depreciation for rental equipment is
computed using the straight-line method over an estimated five-year useful
life with no salvage value.
 
  Ordinary maintenance and repair costs are charged to operations as incurred.
Proceeds from the disposal and the related net book value of the equipment are
recognized in the period of disposal and reported as revenue from sales of
equipment and cost of sales of equipment, respectively, in the statements of
operations.
 
 Property and Equipment
 
  Property and equipment is stated at cost. Depreciation of property and
equipment is computed on the straight-line method over estimated useful lives
of 5 to 10 years.
 
  Ordinary maintenance and repair costs are charged to operations as incurred.
The cost of assets sold, retired, or otherwise disposed of, and the related
accumulated depreciation is eliminated from the accounts and any resulting
gain or loss is included in operations.
 
 Rental Revenue
 
  Rental revenue is recorded as earned under the operating method.
 
 Advertising Costs
 
  The Company advertises primarily through trade journals, trade associations
and phone directories. All advertising costs are expensed as incurred.
Advertising expenses amounted to approximately $74,400 and $43,000 in the
years ended December 31, 1995 and 1996, respectively, and $49,500 in the
period from January 1, 1997 to October 24, 1997.
 
 Income Taxes
 
  The Company has elected, by unanimous consent of its shareholders, to be
taxed under the provisions of Subchapter S of the Internal Revenue Code for
both federal and state purposes. Under those provisions the Company does not
pay federal or state income taxes; instead, the shareholders are liable for
individual income taxes on the Company's profits. Therefore, no provision for
federal or state income taxes is included in the accompanying financial
statements.
 
                                     F-334

 
                             BRONCO HI-LIFT, INC.
 
                  NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
 
 
 Accounting Estimates
 
  The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
 
2. CONCENTRATIONS OF CREDIT RISK
 
  The Company maintains cash balances with a quality financial institution
and, accordingly, management believes this mitigates the amount of credit
risk. Concentrations of credit risk with respect to customer receivables are
limited due to the large number of customers comprising the Company's customer
base and its credit policy.
 
3. RENTAL EQUIPMENT
 
  Rental equipment and related accumulated depreciation consisted of the
following:
 


                                                                      OCTOBER
                                                        DECEMBER 31,    24,
                                                            1996        1997
                                                        ------------ ----------
                                                               
   Rental equipment....................................  $5,176,658  $5,943,569
   Less accumulated depreciation.......................   3,203,748   3,218,105
                                                         ----------  ----------
   Rental equipment, net...............................  $1,972,910  $2,725,464
                                                         ==========  ==========

 
4. PROPERTY AND EQUIPMENT
 
  Property and equipment consists of the following:
 


                                                        DECEMBER 31, OCTOBER 24,
                                                            1996        1997
                                                        ------------ -----------
                                                               
   Furniture and fixtures..............................   $ 59,572    $172,839
   Transportation equipment............................    520,356     664,543
   Shop equipment......................................     37,591      37,591
                                                          --------    --------
                                                           617,519     874,973
   Less accumulated depreciation.......................    382,605     451,055
                                                          --------    --------
     Total.............................................   $234,914    $423,918
                                                          ========    ========

 
                                     F-335

 
                             BRONCO HI-LIFT, INC.
 
                  NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
 
 
5. DEBT
 
  Debt consists of the following:
 


                                                                      OCTOBER
                                                         DECEMBER 31    24,
                                                            1996        1997
                                                         ----------- ----------
                                                               
   Citicorp Dealer Finance Agreement.................... $1,585,000  $2,135,000
   GMAC note dated October 27, 1994 paid in full in
    August 1997.........................................     17,564          --
   Kenworth/Trial-EZE dated July 11, 1994 paid in full
    in September 1997...................................     49,147          --
   Notes payable to a former shareholder for $900,000
    and $500,000 at an annual interest rate of 9%. The
    $900,000 note requires monthly interest payments
    through January 31, 1998 at which time the note is
    due in full. The $500,000 note requires monthly
    interest payments through January 31, 1997.
    Beginning February 1, 1997, the note is payable in
    60 monthly installments of principal and interest of
    $10,379 through December 31, 2001. The above
    $500,000 note is subordinated to the Citicorp Dealer
    Finance Agreement...................................  1,400,000   1,338,516
                                                         ----------  ----------
                                                         $3,051,711  $3,473,516
                                                         ==========  ==========

 
  Substantially all of the Company's assets collateralize the debt outstanding
under the Financing Agreement. All debt at October 24, 1997 was paid off in
connection with the acquisition discussed in Note 10.
 
6. OPERATING LEASES
 
  During 1994, the Company leased 7,000 square feet of office and shop space
on a twelve month lease, renewable annually. For the period from January 1,
1995 to April 30, 1995, the Company leased approximately 7,000 square feet of
office and shop space under a new month to month lease. Effective May 1, 1995,
the Company moved to a new location and entered into a lease agreement with a
related party, Coyote Investments, LLC ("Coyote") (see Note 9). The facility
consists of 17,000 square feet of office and shop area located on 1.8 acres.
The 15 year lease expires April 30, 2010. The Company is responsible for all
operating expenses of the facility including property taxes, assessments,
insurance, repairs and maintenance.
 
  Rent expense under these leases totaled $52,000 and $78,000 for the years
ended December 31, 1995 and 1996 and $65,000 for the period from January 1,
1997 to October 24, 1997. Under the lease agreement with Coyote, rent is
payable in monthly installments of $6,500 for the first two years of the
lease. Thereafter the rent shall be increased annually to reflect the then
current fair market rent for the premises, provided that each annual increase
shall not exceed 10% of the previous year's rental rate. Future minimum rent
commitments are $78,000 each for years ended December 31, 1998 to December 31,
2009 and $26,000 for January 1, 2010 to April 30, 2010, provided there is no
increase in fair market rent for the premises.
 
7. COMMITMENTS
 
  The Company has employment agreements, which expire in 1998, with three
officers which grant certain severance pay rights to these officers provided
that certain conditions of employment are met. Under terms of the employment
agreements, the officers received approximately $253,000, $703,000, and
$521,000 for the years ended December 31, 1995 and 1996 and for the period
from January 1, 1997 to October 24, 1997, respectively. Additional
compensation to be paid to the officers, until the agreements expire, amounts
to approximately $100,000 for the two months ended December 31, 1997 and
$270,000 during 1998.
 
  The Company guarantees Coyote's debt on the building leased by the Company
(see Note 9).
 
 
                                     F-336

 
                             BRONCO HI-LIFT, INC.
 
                  NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
 
8. SUPPLEMENTAL CASH FLOW INFORMATION
 
  For the years ended December 31, 1995 and 1996 and for the period from
January 1, 1997 to October 24, 1997, total interest paid was $171,305,
$335,686 and $224,016, respectively.
 
  During 1995, the Company purchased $726,355, of equipment which was
financed. There were no purchases in 1996 or for the period from January 1,
1997 to October 24, 1997.
 
  On December 20, 1995, the Company purchased and retired 12,000 shares of its
stock for two notes totaling $1,400,000. On December 21, 1995, the Company
issued 2,000 shares of its stock to two officers of the Company in exchange
for $100,000 cash and $500,000 of notes receivable from these officers. During
1996, the officers repaid $200,000 in accordance with the note agreements. In
October of 1997, the notes were repaid in full.
 
  During 1997, the Company paid dividends of $515,000, of which $30,000
represented a non-cash transfer of a fixed asset.
 
9. RELATED PARTY TRANSACTIONS
 
  Coyote is owned by the shareholders of the Company. The Company leases its
office and shop facility from Coyote (see Note 6). All stockholders and the
Company have guaranteed Coyote's debt on the facility. The amount of debt
principal on the facility was $555,080 at December 31, 1996 and $540,200 at
October 24, 1997.
 
  Advances to Coyote were $412,113 at December 31, 1995. Coyote paid $3,434 of
interest to the Company during 1996. As part of the Citicorp Amendment No. 1
Refinancing Agreement, the Company owed Coyote $152,187, which it paid with
interest of $7,990 during August 1996. These obligations were fulfilled with a
non-cash transaction in connection with the above mentioned amended agreement.
 
  On December 21, 1995 the Company issued 2,000 shares to two officers of the
Company in exchange for $100,000 cash and two notes for $250,000 each. The
notes bear interest at 9% per annum and are payable bi-annually. Principal on
each note is payable $100,000 in 1996, $100,000 in 1997 and $50,000 in 1998.
Interest paid to the Company during 1996 by these stockholders was $42,400. In
October of 1997, the notes were repaid in full.
 
10. SUBSEQUENT EVENT
 
  On October 24, 1997, the Company entered into a stock purchase agreement
with United Rentals, Inc. ("United"). Under the terms of the stock purchase
agreement, United purchased all of the issued and outstanding capital stock of
the Company.
 
                                     F-337

 
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
 
  NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE EXCHANGE OFFER COVERED BY THIS PROSPECTUS. IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NO BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE ISSUER OR ANY OF THE INITIAL PURCHASERS. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, THE
EXCHANGE NOTES OR GUARANTEES IN ANY JURISDICTION WHERE, OR TO ANY PERSON TO
WHOM, IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY
OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES,
CREATE AN IMPLICATION THAT THERE HAS NOT BEEN ANY CHANGES IN THE FACTS SET
FORTH IN THIS PROSPECTUS OR IN THE AFFAIRS OF THE ISSUER SINCE THE DATE HEREOF.
 
                               -----------------
 
                               TABLE OF CONTENTS
 


                                                                            PAGE
                                                                            ----
                                                                         
Available Information.....................................................    1
Cautionary Notice Regarding Forward Looking Statements....................    1
Prospectus Summary........................................................    2
Risk Factors..............................................................   15
The Exchange Offer........................................................   23
Registration Rights Agreement.............................................   30
Use of Proceeds...........................................................   33
Ratio of Earnings to Fixed Charges........................................   33
Capitalization............................................................   34
Selected Historical and Pro Forma Consolidated Financial Information......   35
Management's Discussion and Analysis of Financial Condition and Results of
 Operations...............................................................   37
Business..................................................................   45
Certain Information Concerning Pending Merger.............................   55
Management................................................................   58
Certain Transactions......................................................   65
Principal Stockholders....................................................   66
Description of the Notes..................................................   68
Plan of Distribution......................................................   97
Legal Matters.............................................................   98
Experts...................................................................   98
Index to Financial Statements.............................................  F-1

 
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
 
                                  $200,000,000
 
                      UNITED RENTALS (NORTH AMERICA), INC.
 
                               OFFER TO EXCHANGE
 
                           9 1/2% SENIOR SUBORDINATED
                            NOTES DUE 2008, SERIES B
                         FOR 9 1/2% SENIOR SUBORDINATED
                            NOTES DUE 2008, SERIES A
 
                       --------------------------------
 
                                   PROSPECTUS
 
                       --------------------------------
 
                               SEPTEMBER 18, 1998
 
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------