U S RENTALS INC, 424B1, 1997-02-21

U S RENTALS INC
424B1, 1997-02-21
MISCELLANEOUS EQUIPMENT RENTAL & LEASING

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<PAGE>

FILED PURSUANT TO RULE 424(b)(1)
REGISTRATION NO. 333-17783

PROSPECTUS
FEBRUARY 21, 1997
10,000,000 SHARES

[LOGO OF U.S. RENTALS]

COMMON STOCK

All of the 10,000,000 shares of common stock, $.01 par value per share (the
"Common Stock"), offered hereby are being sold by U.S. Rentals, Inc. Of the
10,000,000 shares of Common Stock offered by the Company, 8,000,000 shares are
being offered for sale in the United States and Canada by the U.S.
Underwriters (the "U.S. Offering") and 2,000,000 shares are being offered for
sale outside the United States and Canada in a concurrent offering by the
International Managers (the "International Offering" and, together with the
U.S. Offering, the "Offerings"), subject to transfers between the U.S.
Underwriters and the International Managers. See "Underwriting."

Prior to the Offerings, there has been no public market for the Common
Stock. See "Underwriting" for a discussion of the factors considered in
determining the initial public offering price.

The Common Stock has been approved for listing on the New York Stock
Exchange upon notice of issuance under the symbol "USR."

SEE "RISK FACTORS" BEGINNING ON PAGE 8 FOR INFORMATION THAT SHOULD BE
CONSIDERED BY PROSPECTIVE INVESTORS.

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.

<TABLE>
- --------------------------------------------------------------------------------
<CAPTION>
PRICE UNDERWRITING PROCEEDS
TO THE DISCOUNTS AND TO THE
PUBLIC COMMISSIONS (1) COMPANY (2)
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share......................... $20.00 $1.25 $18.75
Total (3)......................... $200,000,000 $12,500,000 $187,500,000
- --------------------------------------------------------------------------------
</TABLE>
(1) The Company has agreed to indemnify the several U.S. Underwriters and
International Managers against certain liabilities, including liabilities
under the Securities Act of 1933, as amended. See "Underwriting."
(2) Before deducting expenses payable by the Company, estimated at $1,350,000.
(3) The Company has granted to the U.S. Underwriters a 30-day option to
purchase up to 1,500,000 additional shares of Common Stock solely to cover
over-allotments, if any. If such option is exercised in full, the total
Price to the Public, Underwriting Discounts and Commissions and Proceeds
to the Company will be $230,000,000, $14,375,000 and $215,625,000,
respectively. See "Underwriting."

The shares of Common Stock are being offered by the several Underwriters,
subject to prior sale, when, as and if delivered to and accepted by the
Underwriters, subject to various prior conditions, including their right to
reject any order in whole or in part. It is expected that delivery of share
certificates will be made in New York, New York, on or about February 26,
1997.

DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
MERRILL LYNCH & CO.
SALOMON BROTHERS INC
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Map of United States with dots indicating the locations of the Profit
Centers. The dots are located primarily in the Western and Southwestern
states. Below the map on the left side of the page is a picture of a delivery
truck transporting rental equipment. On the far right side of the page there
are two columns that list the location of each Profit Center.

IN CONNECTION WITH THE OFFERINGS, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS THAT STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
OF THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE OR
OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.

2
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A picture in the middle of the page has numerous workers standing with various
pieces of rental equipment. A picture of an overview of a Profit Center is below
the center picture.

Pictures on the left side of the first fold out page are, from top to bottom: a
crane truck at a construction site; an overview of a Profit Center; an excavator
working by a water inlet; and a construction worker using a tamper.

Pictures on the right side on the second fold out page are, from top to bottom:
a bulldozer at a work site; a Bobcat at a work site; a motor grader at a work
site; and an overview of a Profit Center.

The background of the fold out page is a ghosted picture of a motor grader.
<PAGE>

PROSPECTUS SUMMARY

The following summary information is qualified in its entirety by the more
detailed information, including "Risk Factors" and the Combined Financial
Statements and notes thereto, appearing elsewhere in this Prospectus. Unless
otherwise indicated, the information in this Prospectus (i) gives effect to the
Offering Related Transactions described below and (ii) assumes no exercise of
the over-allotment option granted to the U.S. Underwriters as described in
"Underwriting." Unless otherwise indicated, all references to the "Company" and
"U.S. Rentals" refer to U.S. Rentals, Inc. and its predecessor (the
"Predecessor"). See "Offering Related Transactions."

THE COMPANY

U.S. Rentals is the second largest equipment rental company in the United
States based on 1995 rental revenues. The Company currently operates 82
equipment rental yards ("Profit Centers") in 12 states and in 1996 generated an
average of approximately 95,000 rental contracts per month from a diverse base
of customers including commercial and residential construction, industrial and
homeowner customers. Management estimates that more than 200,000 customers did
business with the Company in 1996. U.S. Rentals owns more than 60,000 pieces of
rental equipment, comprised of approximately 600 equipment types, including
aerial work platforms, forklifts, paving and concrete equipment, compaction
equipment, air compressors, hand tools and plumbing, landscaping and gardening
equipment. Management believes that the Company's fleet, which had a weighted
average age of approximately 28 months and an original equipment cost of
approximately $367.7 million at December 31, 1996, 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.

The Company's strategic objective is to continue to grow profitably in both
existing and new markets by acquiring rental yards, opening start-up rental
yards and expanding its equipment fleet. U.S. Rentals routinely evaluates
attractive markets for expansion where a leading position can be created by
acquiring an existing business or opening a new rental yard. The Company has
grown internally through the expansion of its equipment fleet at existing
locations and through the integration of 30 start-up and acquired equipment
rental yards since January 1992. As a result of the Company's strategy, total
revenues increased to $305.8 million in 1996 from $120.2 million in 1992, a
compound annual growth rate of 26.3%. During the same period, operating income
before non-rental depreciation increased to $49.7 million from $11.7 million, a
compound annual growth rate of 43.6%. U.S. Rentals has been profitable in every
year since 1984.

U.S. Rentals attributes its leadership position in the equipment rental
industry primarily to its innovative operating philosophy, which is based upon
a decentralized management structure, a unique profit sharing program available
to all levels of employees, a strong emphasis on personalized customer service
and maintenance of one of the most comprehensive and modern rental fleets of
brand name equipment in the industry. The Company's bottoms-up management
structure allows each Profit Center manager to tailor the equipment fleet to
the local market, make equipment fleet purchases and sales and pricing and
staffing decisions. Corporate headquarters coordinates equipment purchases and
supports Profit Center managers by providing capital, accounting, internal
audit, risk management and other services to each Profit Center. The Company's
unique incentive-based profit sharing program does not limit employee
compensation. This program motivates Profit Center managers to act as
entrepreneurs, to purchase only equipment that can be profitably deployed, to
sell rental equipment from the fleet as maintenance costs increase or as rental
demand for such equipment decreases and to minimize operating expenses. In
1996, managers of profitable locations earned an average of approximately 92%
of their base salaries in profit sharing compensation. Management believes that
its innovative operating and compensation philosophy significantly contributed
to same Profit Center revenue growth of 20.0% and 17.1% in 1995 and 1996,
respectively.

3
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INDUSTRY

The equipment rental industry serves a wide variety of commercial and
residential construction, industrial and homeowner customers. Equipment
available for rent ranges from small hand tools costing less than $100 to large
earth-moving equipment costing over $200,000. According to a survey conducted
for 1995 and published in 1996 by the Associated Equipment Distributors
("AED"), an industry trade association, the United States equipment rental
industry has grown from approximately $610 million in annual revenues in 1982
to an estimated $15 billion in annual revenues in 1995, a compound annual
growth rate of approximately 28%. Management believes that this growth
reflects, in part, increased outsourcing trends by commercial and industrial
construction customers that increasingly seek to reduce their capital invested
in equipment and to reduce the costs associated with maintaining and servicing
such equipment. While equipment users traditionally have rented equipment for
specific purposes, such as supplementing capacity during peak periods and in
connection with special projects, the convenience and cost-saving factors of
utilizing rental equipment have encouraged customers to look to suppliers such
as the Company as ongoing, comprehensive sources of equipment. Management
believes that demand for rental equipment by the commercial and industrial
segments will continue to increase as these customers continue to outsource
non-core operations. A survey conducted by The CIT Group for 1995 and published
in 1996 showed that commercial construction contractors intended to increase
the percentage of equipment they rent without a purchase option to an estimated
8% of their total equipment requirements in 1996, from an estimated 5% in 1995.

The equipment rental industry is highly fragmented and primarily consists of
a large number of relatively small, independent businesses serving discrete
local markets and a small number of multi-yard regional and multi-regional
operators. According to a May 1996 article published by Rental Equipment
Register, an industry trade magazine, the 100 largest rental equipment
companies, based on 1995 rental revenue, represented less than 20% of total
industry rental revenue estimated at $15 billion. Management believes that an
estimated 85% of the approximately 20,000 equipment rental operators in the
United States have fewer than five locations and, therefore, believes the
equipment rental industry offers substantial consolidation opportunities for
large, well-capitalized rental companies such as U.S. Rentals. Relative to
smaller competitors, multi-regional operators such as the Company benefit from
several competitive advantages, including access to capital, the ability to
offer a broad range of modern equipment, purchasing power with equipment
suppliers, sophisticated management information systems, national brand
identity and the ability to service national accounts. In addition, management
believes multi-regional operators such as the Company are less sensitive to
local economic downturns.

BUSINESS STRATEGY

U.S. Rentals' strategic objective is to continue its profitable growth in
both existing and new markets by acquiring rental yards, opening start-up
rental yards and expanding its equipment fleet. U.S. Rentals routinely
evaluates attractive markets for expansion where a leading position can be
created by acquiring an existing business or opening a new rental yard.
Primarily due to its entrepreneurial, decentralized organizational structure
that focuses on bottoms-up management and an innovative profit-driven
compensation program, the Company has been profitable each of the past 12
years. Specifically, U.S. Rentals' business strategy centers upon the following
factors:

Profitable Expansion. The Company strives to operate the most profitable
equipment rental yards in each of its markets. Management believes U.S. Rentals
is well positioned to be a leader in the consolidation of the highly fragmented
equipment rental industry. Management believes that there are numerous
attractive acquisition opportunities available and that the Company's
reputation, stability, access to capital, sophisticated management information
systems and operating expertise provide competitive advantages in making
acquisitions. These strengths allow U.S. Rentals to (i) quickly integrate
acquired companies into its information systems and operating structure,
(ii) realize synergies in the form of reduced overhead and lower costs through
greater purchasing power and (iii) significantly enhance revenue by supplying
acquired yards with additional equipment to optimize the mix of rental
equipment and modernize the fleet. In addition, the Company will open new
rental yards when a suitable business is not available for acquisition on
favorable terms. Pursuant to this strategy, U.S.

4
<PAGE>

Rentals has acquired 15 rental yards and has opened 15 start-up rental yards
since January 1, 1992. The Company routinely analyzes potential acquisitions of
rental yards but is not currently a party to any material acquisition
agreement.

Market Leadership. U.S. Rentals is the second largest equipment rental
company in the United States based on 1995 rental revenues. The Company strives
to create a leading market position in each of its markets by capitalizing on
its substantial competitive advantages, which include offering personalized
customer service, flexible rental terms, seven-days-a-week operating hours and
a diverse and modern equipment rental fleet specifically tailored to the needs
of local customers. Further, U.S. Rentals' historical strength has been in
small and medium-sized markets that the Company believes are not well served by
its competition.

Extensive Customer Base. In 1996 U.S. Rentals generated an average of
approximately 95,000 customer contracts per month from a diverse customer base.
Management estimates that more than 200,000 customers did business with the
Company in 1996. Historically, U.S. Rentals has served a large number of small
and medium-sized customers, which the Company believes are not well served by
its competition. The Company is also increasing its emphasis on multi-regional
and national customers through its national accounts program. In addition to
the Company's strong brand name recognition, comprehensive and modern equipment
rental fleet, well-located rental yards and competitive pricing, management
believes that the Company's customers value the convenience of U.S. Rentals
Profit Centers' seven-days-a-week operating hours and flexible rental terms.
Further, U.S. Rentals offers its customers "one-stop shopping" through the sale
of rental-related merchandise, parts and supplies, sales of new and used
equipment and maintenance and delivery services.

Innovative, Decentralized Operating Philosophy. U.S. Rentals' decentralized
operating philosophy encourages entrepreneurial behavior at each Profit Center
and rewards managers and employees through a profit-driven incentive
compensation program. Profit Center managers are given the necessary freedom
and flexibility to operate their respective equipment rental yards to maximize
profits. Each Profit Center manager is responsible for every aspect of a yard's
operation, including establishing rental rates, selecting equipment and
determining employee compensation. Managers and employees of profitable
locations are rewarded by the Company's profit sharing program that is based on
each location's operating income in excess of a pre-determined return on its
net assets. In 1996, managers of profitable locations earned an average of
approximately 92% of their base salaries in profit sharing compensation.

Strong Internal Controls. U.S. Rentals balances its decentralized
organizational structure and entrepreneurial operating philosophy with
extensive systems and procedures to monitor and track the performance of each
Profit Center. The Company's proprietary management information systems,
including the Company's point-of-sale ("POS") system, allow management and
Profit Center managers to review all aspects of each Profit Center's business
and assist management in closely monitoring and quickly reacting to
opportunities to increase profits at each Profit Center. These systems are used
to open customer accounts, generate rental contracts, track equipment usage,
report customer credit histories, compile accounts receivable aging reports and
monitor monthly profitability. Seven internal auditors monitor and ensure
adherence to the Company's well-established, disciplined and documented
policies and procedures. In addition, six independent division credit offices
review and approve all credit applications submitted to the Profit Centers.
Management believes that the Company's strong internal controls and proprietary
management information systems lower overall costs and increase profitability
for the Company.

5
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industry. William F. Berry, the Company's 44-year old President and Chief
Executive Officer, has over 30 years of experience in the equipment rental
business and has worked in numerous operational and managerial capacities in
the Company during his career.

The Company was incorporated in Delaware in November 1987 but has not had
operations prior to the Offerings. See "Offering Related Transactions." The
Company's principal executive offices are located at 1581 Cummins Drive, Suite
155, Modesto, California 95358, and its telephone number is (209) 544-9000.

THE OFFERINGS

Common Stock offered hereby:
<TABLE>
<S> <C>
U.S. Offering .................. 8,000,000 shares
International Offering ......... 2,000,000 shares
-----------------
Total.........................10,000,000 shares
=================
</TABLE>
<TABLE>
<S> <C>
Common Stock to be outstanding after
the Offerings........................ 30,748,975 shares(a)
Use of proceeds ...................... The net proceeds to the Company of
$186.2 million from the Offerings will be used
to repay substantially all outstanding
indebtedness of the Company, pay related
prepayment penalties and for working capital and
general corporate purposes, including possible
future acquisitions. See "Use of Proceeds."
New York Stock Exchange symbol........ USR
</TABLE>
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(a) Excludes 4,600,000 shares reserved for future issuance under the Company's
1997 Performance Award Plan (the "1997 Plan"). See "Management--Employment
Agreements" and "--1997 Performance Award Plan."

6
<PAGE>

SUMMARY FINANCIAL DATA

The following summary historical and pro forma financial data should be read
in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations," the Combined Financial Statements and
notes thereto and the Unaudited Pro Forma Combined Financial Statements and
notes thereto, included elsewhere in this Prospectus.

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------
PRO FORMA
AS ADJUSTED(A)
1992 1993 1994 1995 1996 1996
-------- -------- -------- -------- -------- --------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Total revenues.......... $120,172 $143,582 $187,758 $242,847 $305,837 $305,837
Gross profit............ 27,213 36,129 55,151 74,975 85,616 85,616
Operating income........ 8,638 12,686 23,786 38,022 (b) 42,154 (b) 43,678
Other income (expense),
net.................... 782 (31) (242) (1,620) (665)(c) 62
Interest income
(expense), net......... 1,219 1,236 (1,060) (5,310) (8,031) (13)
Income before income
taxes.................. 10,639 13,891 22,484 31,092 33,458 43,727
Income taxes............ 529 405 499 468 374 17,598
Net income.............. 10,110 13,486 21,985 30,624 33,084
Pro forma net income(d). 6,318 8,181 13,263 18,312 20,002 26,129
Pro forma net income per
share.................. 0.85
BALANCE SHEET DATA (END
OF PERIOD):
Rental equipment, net... $ 49,326 $ 65,606 $112,563 $152,848 $205,982 $205,982
Total assets............ 102,085 125,390 187,525 245,184 324,448 294,895
Total debt.............. 31,392 48,419 84,751 105,696 186,710 500
Total stockholder's
equity................. 51,739 48,608 57,951 83,077 80,730 231,834
SELECTED OPERATING DATA:
Gross equipment capital
expenditures........... $ 24,279 $ 42,892 $ 83,157 $ 88,861 $119,348 $119,348
Rental equipment
depreciation........... 20,231 24,300 33,754 43,885 56,105 56,105
Non-rental depreciation. 3,060 3,294 4,092 5,513 7,528 7,528
Profit Centers (end of
period)................ 57 57 65 71 80 80
Same Profit Center
revenue growth(e)...... 2.6% 16.0% 23.5% 20.0% 17.1% 17.1%
</TABLE>
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(a) Gives effect to (i) the Offering Related Transactions, (ii) the sale of
10,000,000 shares of Common Stock in the Offerings (assuming no exercise of
the U.S. Underwriters' over-allotment option), (iii) a reduction in
interest expense as a result of reductions in indebtedness upon application
of a portion of the net proceeds to the Company from the Offerings, (iv)
change from S corporation income tax expense to C corporation income tax
expense and recording of the related deferred tax liabilities and (v)
termination of deferred incentive compensation agreements with certain
employees. See "Offering Related Transactions," "Use of Proceeds,"
"Capitalization," "Management's Discussion and Analysis of Financial
Condition and Results of Operations," the Combined Financial Statements and
notes thereto and the Unaudited Pro Forma Combined Financial Statements and
notes thereto included elsewhere in this Prospectus.
(b) Operating income for the years ended December 31, 1995 and 1996 includes
$645,000 and $1,524,000 of non-recurring compensation expense related to
the Predecessor's deferred incentive compensation agreements that were
terminated in January 1997. See "Certain Transactions--Offering Related
Agreements."
(c) Includes $1,300,000 of non-recurring expense from non-operating assets of
the Predecessor not transferred to the Company as part of the Offering
Related Transactions.
(d) The pro forma net income reflects the estimated pro forma effect of income
taxes as if the Predecessor had been taxed as a C corporation for all
periods presented. See "Offering Related Transactions."
(e) Same Profit Center revenue growth is calculated based on the change in
total revenues of all Profit Centers open as of the beginning of the
preceding fiscal year.

7
<PAGE>

RISK FACTORS

In addition to the other information in this Prospectus, the following
factors should be considered carefully in evaluating the Company and its
business before purchasing shares of Common Stock.

ECONOMIC CONDITIONS; GEOGRAPHICAL CONCENTRATION

The Company believes that the equipment rental industry is sensitive to
economic and competitive conditions, including national, regional and local
changes in construction and industrial activity. Most of U.S. Rentals'
revenues are derived from customers in industries that are cyclical in nature
and subject to changes in general economic conditions. The Company's operating
results may be adversely affected by events or conditions in a particular
region, such as regional economic slowdowns, adverse weather and other
factors. Although the Company operates in 12 states, the Company derived
approximately 59.5% and 18.0% of its total revenues from its California and
Texas locations, respectively, in 1996. Thus, a significant economic downturn
in California or Texas may have a material adverse effect on the Company's
operating results. In addition, the Company's operating results may be
adversely affected by increases in interest rates that may lead to a decline
in economic activity. There can be no assurance that changes in economic
conditions will not have a material adverse effect on the Company's results of
operations and financial condition.

COMPETITION

The equipment rental industry is highly fragmented and very competitive. The
Company's competitors include national and multi-regional companies, regional
competitors that operate in a small number of states, small, independent
businesses with a small number of local rental locations and equipment vendors
and dealers that both sell and rent equipment directly to customers. Certain
of the Company's competitors may have greater financial resources, are more
geographically diverse and have greater name recognition than the Company.
There can be no assurance that the Company will not encounter increased
competition from existing competitors or new market entrants. There can be no
assurance that manufacturers of the equipment that the Company rents will not
commence or increase their efforts to rent or sell such equipment directly to
the Company's customers. In addition, to the extent existing or future
competitors seek to gain or retain market share by reducing prices, the
Company might be required to lower its prices, thereby affecting operating
results. Existing or future competitors also may seek to compete with the
Company for acquisition candidates, which could have the effect of increasing
the price for acquisitions or reducing the number of suitable acquisition
candidates. In addition, such competitors may also compete with the Company
for start-up locations, thereby limiting the number of attractive locations
for expansion. See "Business--Competition."

RISKS RELATING TO GROWTH

A principal component of the Company's strategy is to continue to grow
profitably in both existing and new markets by acquiring rental yards, opening
start-up rental yards and expanding its equipment fleet. The Company's future
growth will be dependent upon a number of factors including the Company's
ability to identify acceptable acquisition candidates and suitable start-up
locations, consummate acquisitions and obtain sites for start-up locations on
favorable terms, successfully integrate acquired businesses and start-up
locations with the Company's existing operations, expand its customer base at
existing and acquired locations and obtain financing to support expansion.
Historically, the Company's acquired businesses and start-up locations
generally have not been profitable until after their first year of operations
and there can be no assurance that future acquired businesses and start-up
locations will become profitable within their first several years of
operations, if at all, or achieve the results anticipated by the Company.
There can be no assurance that the Company will successfully expand or that
any expansion will result in profitability. The failure to identify, evaluate
and integrate acquired businesses and start-up locations effectively could
adversely affect the Company's operating results, possibly causing adverse
effects on the market price of the Common Stock. In addition, the results
achieved to date by the Company may not be indicative of its prospects or its
ability to penetrate new markets, many of which may have different competitive
conditions and demographic characteristics than the Company's current markets.
Further, the Company's emphasis on long-term business strategy may result in
reduced profitability in the short-term, and there can be no assurance that
its long-term strategy will result in increased profitability.

8
<PAGE>

As a result of acquisitions and the opening of start-up locations, the
Company will experience growth in the number of its employees, the scope of
its operating and financial systems and the geographic area of its operations.
This growth will increase the operating complexity of the Company and the
level of responsibility for both existing and new management personnel. To
manage this expected growth, the Company intends to invest further in its
operating and financial systems and to continue to expand, train and manage
its employee base. There can be no assurance that the Company will be able to
attract and retain qualified management and employees, that the Company's
current operating and financial systems and controls will be adequate as the
Company grows, or that any steps taken to attract and retain such employees
and to improve such systems and controls will be sufficient. See "Business--
Business Strategy."

DEPENDENCE ON KEY PERSONNEL

The Company's future performance and development will depend to a great
extent on the efforts and abilities of certain members of senior management,
particularly William F. Berry, President and Chief Executive Officer, and John
S. McKinney, Vice President--Finance and Chief Financial Officer. The loss of
service of one or more members of senior management could have a material
adverse effect on the Company's business. The Company uses several methods to
retain key employees, including employment agreements with Messrs. Berry and
McKinney. However, the Company does not maintain key man insurance for any of
its employees. The Company's ongoing success also will depend on its
continuing ability to attract, train and retain skilled personnel in all areas
of its business. See "Management."

CONTROL BY PRINCIPAL STOCKHOLDER

Upon consummation of the Offerings, Richard D. Colburn (the "Principal
Stockholder") will beneficially own approximately 67.5% of the outstanding
Common Stock (64.3% if the U.S. Underwriters' over-allotment option is
exercised in full), and will have the same percentage of the overall voting
power of the Company. Accordingly, he will be able to elect all of the
directors and exercise significant control over the business, policies and
affairs of the Company. Similarly, he will be in a position to prevent a
takeover of the Company by one or more third parties, or sell or otherwise
transfer his stock to a third party, which could deprive the Company's
stockholders of a control premium that might otherwise be realized by them in
connection with an acquisition of the Company. See "Principal Stockholders."

QUARTERLY FLUCTUATIONS AND SEASONALITY

The Company's revenues and operating results historically have fluctuated
from quarter to quarter, and the Company expects them to continue to do so in
the future. These fluctuations have been and will be caused by a number of
factors, including seasonal rental patterns of the Company's customers
(principally due to the effect of weather on construction activities), general
economic conditions in the Company's markets, the timing of acquisitions and
the development of start-up locations and related costs, the effectiveness of
integrating acquired businesses and start-up locations, and the timing of
capital expenditures for new rental equipment. The Company incurs substantial
costs in establishing or integrating newly acquired or start-up locations, and
the profitability of a new location is generally lower in the first year of
operations than in subsequent years of operations. These factors, among
others, make it likely that in some future quarters the Company's results of
operations may be below the expectations of securities analysts and investors,
which could have a material adverse effect on the market price of the Common
Stock. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Quarterly Results."

In addition, the Company expects to incur non-recurring charges of
approximately $29.0 million during the first quarter of 1997 as a result of
the termination of the Predecessor's deferred incentive compensation
agreements prior to the Offerings, the establishment of a deferred tax
liability and the associated charges resulting from the termination of the
Predecessor's election to be treated as an S corporation for tax purposes and
for an expense related to prepayment penalties on indebtedness to be repaid
with proceeds from the Offerings. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Quarterly Results," "Certain
Transactions--Offering Related Agreements" and Note 9 of notes to Combined
Financial Statements.

9
<PAGE>

GOVERNMENTAL AND ENVIRONMENTAL REGULATION

The Company's operations are subject to various federal, state and local
laws and regulations governing, among other things, worker safety, air
emissions, water discharge and 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 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. 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. There can be no assurance that the Company's
locations have been operated in compliance with environmental laws and
regulations or that future uses or conditions will not result in the
imposition of environmental liability upon the Company or expose the Company
to liability to third parties even if the Company has been indemnified by
third parties against such liabilities. There also can be no assurance that
environmental contamination does not currently exist at any of the Company's
locations from prior activities at such locations or from neighboring
properties. The Company dispenses petroleum products from above-ground storage
tanks at a majority of its Profit Centers. The remainder of its Profit Centers
dispense petroleum products from underground storage tanks. The Company
maintains an environmental compliance program that includes the implementation
of required technical and operational activities designed to minimize the
potential for leaks and spills. There can be no assurance, however, that these
tank systems have been or will at all times remain free from leaks or that the
use of these tanks has not or will not result in spills or other releases. The
Company incurs ongoing expenses associated with the removal of older
underground storage tanks and the performance of appropriate remediation at
certain of its locations. The actual cost of remediating environmental
conditions may be different from that anticipated by the Company due to the
difficulty in estimating such cost and due to potential changes in the status
of legislation and state reimbursement programs. Phase I environmental
assessments on a number of recently acquired facilities indicated the
possibility of releases of hazardous materials at those facilities, but the
Company has not determined whether releases actually have occurred or whether
remediation will be required. In addition, the Company believes that hazardous
substances currently requiring remediation are present at seven of its
facilities. The Company has applied or is applying for governmental
determinations that remediation has been completed at four of such locations
and is undertaking or anticipates undertaking remediation at the three other
facilities. No assurance can be given that such governmental determinations
will be issued without first requiring additional remediation or monitoring.
Management believes that the Company is also responsible (pursuant to the
terms of certain of its leases) for any required remediation of seven double-
walled underground storage tanks. The Company also uses other hazardous
materials in the ordinary course of its business. In addition, the Company
generates and disposes of hazardous waste such as used motor oil, radiator
fluid and solvents, and may be liable under various federal, state and local
laws for environmental contamination at facilities where its waste is or has
been disposed. See "Business--Governmental and Environmental Regulation."

DEPENDENCE ON ADDITIONAL CAPITAL TO FINANCE GROWTH

Expansion of the Company through acquisitions, development of start-up
locations and growth at existing locations will require significant capital
expenditures. To remain competitive, the Company must provide its customers
with relatively new, high-quality, well-maintained equipment and rental
facilities, requiring continual capital expenditures. The Company historically
has financed capital expenditures, acquisitions and start-up locations
primarily through internally generated cash flow, bank borrowings and proceeds
from privately placed notes (the "Senior Notes"). To implement its strategy
and meet its capital needs, the Company will incur indebtedness and may issue
additional equity securities (which could result in dilution to the purchasers
of Common Stock offered hereby). Such additional indebtedness will increase
the Company's leverage, may make the Company more vulnerable to economic
downturns and may limit its ability to withstand competitive pressures. There
can be no assurance that additional capital, if and when required, will be
available on terms acceptable to the Company, or at all. Failure by the
Company to obtain sufficient additional capital in the future could have a
material adverse effect on the Company's results of operations and financial
condition. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Liquidity and Capital Resources."

10
<PAGE>

LIABILITY AND INSURANCE

The Company's business exposes it to claims for personal injury or death
resulting from the use of equipment rented or sold by the Company, from
injuries caused in motor vehicle accidents in which Company delivery and
service personnel are involved, as well as workers' compensation claims and
other employment-related claims by the Company's employees. The Company
carries substantial coverage for product liability, general and automobile
liability and employment-related claims from various national insurance
carriers. Such coverage ranges from $3 million to $50 million per occurrence.
However, claims under $3 million and 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, are generally not covered by the
Company's insurance. There can be no assurance that existing or future claims
will not exceed the level of the Company's insurance, that the Company will
have sufficient capital available to pay any uninsured claims, or that its
insurance will continue to be available on economically reasonable terms, if
at all. See "Business--Legal Proceedings."

ANTI-TAKEOVER PROVISIONS

The Company's Restated Certificate of Incorporation (the "Certificate of
Incorporation") and its Amended and Restated Bylaws (the "Bylaws") include
provisions that could delay, defer or prevent a takeover attempt that may be
in the best interest of stockholders. These provisions include the ability of
the Board of Directors to issue up to 10,000,000 shares of preferred stock
(the "Preferred Stock") without any further stockholder approval, a provision
under which only the Board of Directors may call meetings of stockholders, and
certain advance notice procedures for nominating candidates for election to
the Board of Directors. Issuance of Preferred Stock could also discourage bids
for the Common Stock at a premium as well as create a depressive effect on the
market price of the Common Stock. In addition, under certain conditions,
Section 203 of the Delaware General Corporation Law (the "DGCL") would
prohibit the Company from engaging in a "business combination" with an
"interested stockholder" (in general, a stockholder owning 15% or more of the
Company's outstanding voting stock) for a period of three years unless the
business combination is approved in a prescribed manner. See "Description of
Capital Stock."

NO PRIOR PUBLIC MARKET; POSSIBLE VOLATILITY OF STOCK PRICE

Prior to the Offerings, there has been no public market for the Common
Stock, and there can be no assurance that an active trading market will
develop as a result of the Offerings or, if a trading market does develop,
that it will be sustained or that the shares of Common Stock could be resold
at or above the initial public offering price. The initial public offering
price of the Common Stock offered hereby was determined through negotiations
between the Company and the representatives of the Underwriters and may not be
indicative of the price at which the Common Stock will actually trade after
the Offerings. After completion of the Offerings, the market price of the
Common Stock could be subject to significant variation due to fluctuations in
the Company's operating results, changes in earnings estimates by securities
analysts, the degree of success the Company achieves in implementing its
business strategy, changes in business or regulatory conditions affecting the
Company, its customers or its competitors, and other factors. In addition, the
stock market may experience volatility that affects the market prices of
companies in ways unrelated to the operating performance of such companies,
and such volatility may adversely affect the market price of the Common Stock.

SHARES ELIGIBLE FOR FUTURE SALE; REGISTRATION RIGHTS

Upon consummation of the Offerings, the Company will have outstanding an
aggregate of 30,748,975 shares of Common Stock (32,248,975 shares if the U.S.
Underwriters' over-allotment option is exercised in full). Future sales of
substantial amounts of Common Stock by the Principal Stockholder after the
Offerings, or the perception that such sales could occur, could adversely
affect the market price of the Common Stock. No prediction can be made as to
the effect, if any, that future sales of shares, or the availability of shares
for future sale, will have on the market price of the Common Stock. In
addition, the Company has the authority to issue additional shares of Common
Stock and shares of one or more series of Preferred Stock. The Company also

11
<PAGE>

intends to register 4,600,000 shares of Common Stock reserved for issuance
under the 1997 Plan as soon as practicable following the consummation of the
Offerings. The issuance of such shares could result in the dilution of the
voting power of the shares of Common Stock purchased in the Offerings and
could have a dilutive effect on earnings per share. The Company currently has
no plans to designate and/or issue any shares of Preferred Stock.

The Company, the Predecessor and the Principal Stockholder, subject to
certain exceptions described in "Underwriting," have agreed not to directly or
indirectly offer, sell, contract to sell or otherwise dispose of or transfer
any capital stock of the Company, or any security convertible into, or
exercisable or exchangeable for, such capital stock, or in any other manner
transfer all or a portion of the economic consequences associated with the
ownership of such capital stock, or to cause a registration statement covering
any shares of capital stock to be filed, for a period of 180 days after the
date of this Prospectus, without the prior written consent of Donaldson,
Lufkin & Jenrette Securities Corporation ("DLJ"). The Predecessor is entitled
to certain rights to register its shares of Common Stock under the Securities
Act of 1933, as amended (the "Securities Act"), for resale, at the expense of
the Company. The Predecessor may also sell shares under Rule 144 of the
Securities Act. See "Management--1997 Performance Award Plan," "Certain
Transactions--Registration Rights," "Description of Capital Stock," "Principal
Stockholders," "Shares Eligible for Future Sale" and "Underwriting."

SUBSTANTIAL AND IMMEDIATE DILUTION

The initial public offering price is substantially higher than the pro forma
net tangible book value per share of Common Stock. Investors purchasing shares
of Common Stock in the Offerings will be subject to immediate dilution of
$12.51 per share in net tangible book value. See "Dilution."

ABSENCE OF DIVIDENDS

The Company does not anticipate declaring or paying any cash dividends on
the Common Stock following the Offerings. Future dividend policy will depend
on the Company's earnings, capital requirements, financial condition and other
factors considered relevant by the Board of Directors. The Company's existing
credit facility (the "Credit Facility") restricts, and the Company expects
that its new credit facility (the "New Credit Facility") will restrict, the
payment of cash dividends on the Common Stock. See "Dividend Policy" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."

FORWARD-LOOKING STATEMENTS

This Prospectus contains forward-looking statements that can be identified
by the use of forward-looking terminology such as "may," "will," "should,"
"expect," "anticipate," "estimate" or "continue" or the negative thereof or
other variations thereon or comparable terminology. The matters set forth
under "Risk Factors" constitute cautionary statements identifying important
factors with respect to such forward-looking statements, including certain
risks and uncertainties, that could cause actual results to differ materially
from those in such forward-looking statements.

12
<PAGE>

OFFERING RELATED TRANSACTIONS

The Principal Stockholder has owned all of the outstanding stock of the
Predecessor, USR Holdings, Inc. (formerly named U.S. Rentals, Inc.), a
California corporation, since 1984 and has been its majority shareholder since
1975. The Predecessor has been in the equipment rental business since 1969. In
January 1997, the Predecessor paid a cash dividend to the Principal
Stockholder of $2.0 million. In addition, prior to the consummation of the
Offerings, the Predecessor will transfer substantially all of its operating
assets and associated liabilities to the Company in exchange for 20,748,975
shares of Common Stock of the Company, representing all of the outstanding
capital stock of the Company prior to the Offerings. The Predecessor will
retain only non-operating assets and liabilities, including approximately
$25.7 million of notes receivable from related parties and approximately $23.9
million of notes payable to related parties. These transactions (collectively,
the "Offering Related Transactions") are reflected in the pro forma financial
information contained in this Prospectus, and all references to the Company or
U.S. Rentals reflect these transactions, unless otherwise indicated. See
"Certain Transactions--Offering Related Agreements."

In 1985, the Predecessor elected to be treated as an S corporation under the
Internal Revenue Code and comparable provisions of certain state tax laws and
since then has paid no federal income tax. Accordingly, federal and California
taxes were paid by the Principal Stockholder and the provision for income
taxes in all historical periods in the Combined Financial Statements reflects
certain state taxes. Upon consummation of the Offering Related Transactions,
all operating assets and liabilities will be transferred to the Company, a
C corporation under the Internal Revenue Code. Income generated by the Company
will be subject to federal income taxes and applicable state income taxes, as
reflected in the unaudited pro forma financial information included herein.

USE OF PROCEEDS

The net proceeds to the Company from the sale of the 10,000,000 shares of
Common Stock offered hereby, after deducting the underwriting discounts and
commissions and offering expenses payable by the Company, will be $186.2
million ($214.3 million if the U.S. Underwriters' over-allotment option is
exercised in full). The Company intends to use approximately $182.3 million of
the net proceeds from the Offerings to repay substantially all of its
outstanding indebtedness, including the indebtedness under the Credit Facility
and other indebtedness transferred from the Predecessor in the Offering
Related Transactions, approximately $2.0 million to pay related prepayment
penalties and approximately $1.9 million for working capital and general
corporate purposes, including possible future acquisitions. None of the
proceeds will be used to repay any indebtedness retained by the Predecessor.
See Note 5 of notes to Combined Financial Statements for interest rates and
maturity of indebtedness being repaid.

DIVIDEND POLICY

The Predecessor has paid dividends on its Common Stock to the Principal
Stockholder from time to time, including, but not limited to, cash dividends
to cover taxes payable by the Principal Stockholder due to the Predecessor's
election to be treated as an S corporation. Such dividends totaled
approximately $5.5 million and $35.4 million in 1995 and 1996, respectively.

Future dividend policy will depend on the Company's earnings, capital
requirements, financial condition and other factors considered relevant by the
Company's Board of Directors. The Company intends to retain future earnings to
finance its operations and growth and does not anticipate paying any cash
dividends on the Common Stock in the foreseeable future. The Credit Facility
restricts, and the Company expects that its New Credit Facility will restrict,
the payment of cash dividends on the Common Stock. See "Risk Factors--Absence
of Dividends" and "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Liquidity and Capital Resources."

13
<PAGE>

DILUTION

As of December 31, 1996, the Company had a pro forma net tangible book value
of $45.5 million, or $2.19 per share of Common Stock. Pro forma net tangible
book value per share is determined by dividing the pro forma net tangible book
value of the Company (total tangible assets less total liabilities), giving
effect to the Offering Related Transactions on such date, by the number of
shares of Common Stock outstanding as of such date. After giving effect to the
Offering Related Transactions and the sale by the Company of the shares of
Common Stock offered hereby (after deducting underwriting discounts and
commissions and offering expenses payable by the Company) and the application
of the net proceeds therefrom, the Company's pro forma net tangible book value
as of December 31, 1996 would have been $230.2 million or $7.49 per share of
Common Stock. This represents an immediate increase in pro forma net tangible
book value of $5.30 per share to the Principal Stockholder and an immediate
dilution of $12.51 per share to new investors purchasing shares in the
Offerings. The following table illustrates this per share dilution to new
investors:

<TABLE>
<S> <C> <C>
Initial public offering price per share........................ $20.00
------
Pro forma net tangible book value per share before the
Offerings..................................................... $2.19
Increase in pro forma net tangible book value per share
attributable to new investors................................. 5.30
-----
Pro forma net tangible book value per share after giving effect
to the Offerings.............................................. 7.49
------
Pro forma net tangible book value dilution per share to new
investors..................................................... $12.51
======
</TABLE>

The following table sets forth, as of December 31, 1996 on a pro forma
basis, the number of shares purchased from the Company, the total
consideration paid and the average price per share paid by the Principal
Stockholder (through the Predecessor) and new investors purchasing shares of
Common Stock from the Company in the Offerings.

<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
------------------ -------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ------------ ------- -------------
<S> <C> <C> <C> <C> <C>
Principal Stockholder... 20,748,975 67.5% $ 54,731,000 21.5% $ 2.64
New investors........... 10,000,000 32.5% 200,000,000 78.5% 20.00
---------- ----- ------------ -----
Total................. 30,748,975 100.0% $254,731,000 100.0%
========== ===== ============ =====
</TABLE>

The foregoing table excludes 4,600,000 shares reserved for future issuance
under the 1997 Plan. See "Management--Employment Agreements" and "--1997
Performance Award Plan."

14
<PAGE>

CAPITALIZATION

The following table sets forth the capitalization of the Company as of
December 31, 1996 on (i) a historical basis, (ii) a pro forma basis to give
effect to the Offering Related Transactions and taxation as a C corporation
and (iii) a pro forma as adjusted basis to give effect to the sale by the
Company of shares of Common Stock in the Offerings and the application of the
net proceeds therefrom. The capitalization of the Company should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations," "Use of Proceeds," the Combined Financial
Statements and notes thereto and the Unaudited Pro Forma Financial Statements
and notes thereto included elsewhere in this Prospectus.

<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1996
--------------------------------
PRO FORMA
ACTUAL(A) PRO FORMA AS ADJUSTED
--------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash and cash equivalents..................... $ 2,906 $ 906 $ 2,772
======== ======== ========
Debt:
Senior Notes................................ $ 90,000 $ 90,000 $ --
Credit Facility............................. 69,300 89,300 -- (b)
Other debt.................................. 27,410 3,467 500
-------- -------- --------
Total debt................................ 186,710 182,767 500
-------- -------- --------
Stockholder's equity:
Common stock of the Predecessor............. 699 -- --
Preferred stock of the Company, par value
$.01 per share;
10,000,000 shares authorized, none issued
or outstanding ............................ -- -- --
Common stock of the Company, par value $.01
per share; 100,000,000 shares authorized;
20,748,975 and 30,748,975 shares issued and
outstanding pro forma and pro forma as
adjusted(c)................................ -- 207 307
Additional paid-in capital.................. 13,186 54,524 240,574
Retained earnings........................... 66,845 (7,030) (9,047)
-------- -------- --------
Total stockholder's equity................ 80,730 47,701 231,834
-------- -------- --------
Total capitalization.......................... $267,440 $230,468 $232,334
======== ======== ========
</TABLE>
- ---------------------
(a) Reflects the Predecessor's capitalization on a historical basis.
(b) In conjunction with the Offerings, the Company has obtained a commitment
letter with its existing lenders for the New Credit Facility which will
provide availability of $300.0 million. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources."
(c) Excludes 4,600,000 shares reserved for future issuance under the 1997
Plan. See "Management--Employment Agreements" and""--1997 Performance
Award Plan."

15
<PAGE>

SELECTED FINANCIAL DATA

The following selected financial data for the years ended December 31, 1994,
1995 and 1996 and as of December 31, 1995 and 1996 have been derived from the
Combined Financial Statements of the Predecessor, which have been audited by
Price Waterhouse LLP, independent accountants, included elsewhere in this
Prospectus. The selected financial data for the years ended December 31, 1992
and 1993 and as of December 31, 1992, 1993 and 1994 have been derived from the
combined financial statements of the Predecessor, which have been audited but
are not contained herein. This information should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," the Combined Financial Statements and notes thereto and the
Unaudited Pro Forma Combined Financial Statements and notes thereto included
elsewhere in this Prospectus.

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------
PRO FORMA
AS ADJUSTED(A)
1996
1992 1993 1994 1995 1996 (UNAUDITED)
-------- -------- -------- -------- -------- --------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
REVENUES:
Rental revenue.......... $104,802 $127,752 $167,589 $214,849 $257,486 $257,486
Rental equipment sales.. 7,047 6,323 8,098 10,832 24,629 24,629
Merchandise and new
equipment sales........ 8,323 9,507 12,071 17,166 23,722 23,722
-------- -------- -------- -------- -------- --------
Total revenues.......... 120,172 143,582 187,758 242,847 305,837 305,837
-------- -------- -------- -------- -------- --------
COST OF REVENUES:
Rental equipment
expense................ 27,590 33,298 42,034 51,370 65,102 65,102
Rental equipment
depreciation........... 20,231 24,300 33,754 43,885 56,105 56,105
Cost of rental equipment
sales.................. 2,443 2,298 2,946 4,693 10,109 10,109
Cost of merchandise and
new equipment sales.... 4,695 5,948 7,428 11,418 17,423 17,423
Direct operating
expense................ 38,000 41,609 46,445 56,506 71,482 71,482
-------- -------- -------- -------- -------- --------
Total cost of revenues.. 92,959 107,453 132,607 167,872 220,221 220,221
-------- -------- -------- -------- -------- --------
Gross profit............ 27,213 36,129 55,151 74,975 85,616 85,616
Selling, general and
administrative expense. 15,515 20,149 27,273 31,440(b) 35,934 (b) 34,410
Non-rental depreciation. 3,060 3,294 4,092 5,513 7,528 7,528
-------- -------- -------- -------- -------- --------
Operating income........ 8,638 12,686 23,786 38,022 42,154 43,678
Other income (expense),
net.................... 782 (31) (242) (1,620) (665)(c) 62
Interest income
(expense), net......... 1,219 1,236 (1,060) (5,310) (8,031) (13)
-------- -------- -------- -------- -------- --------
Income before income
taxes.................. 10,639 13,891 22,484 31,092 33,458 43,727
Income taxes............ 529 405 499 468 374 17,598
-------- -------- -------- -------- -------- --------
Net income.............. $ 10,110 $ 13,486 $ 21,985 $ 30,624 $ 33,084
======== ======== ======== ======== ========
Pro forma net income(d). $ 6,318 $ 8,181 $ 13,263 $ 18,312 $ 20,002 $ 26,129
======== ======== ======== ======== ======== ========
Pro forma net income per
share.................. $ 0.85
========
Number of shares
outstanding............ 30,748,975
</TABLE>

16
<PAGE>

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------
PRO FORMA
AS ADJUSTED(A)
1996
1992 1993 1994 1995 1996 (UNAUDITED)
-------- -------- -------- -------- -------- --------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA (END
OF PERIOD):
Rental equipment, net... $ 49,326 $ 65,606 $112,563 $152,848 $205,982 $205,982
Total assets............ 102,085 125,390 187,525 245,184 324,448 294,895
Total debt.............. 31,392 48,419 84,751 105,696 186,710 500
Total stockholder's
equity................. 51,739 49,608 57,951 83,077 80,730 231,834
SELECTED OPERATING DATA:
Gross equipment capital
expenditures........... $ 24,279 $ 42,892 $ 83,157 $ 88,861 $119,348 $119,348
Beginning Profit
Centers................ 52 57 57 65 71 71
Profit Centers added.... 5 -- 8 6 9 9
Ending Profit Centers... 57 57 65 71 80 80
Same Profit Center
revenue growth(e)...... 2.6% 16.0% 23.5% 20.0% 17.1% 17.1%
</TABLE>
- ------------------
(a) Gives effect to (i) the Offering Related Transactions, (ii) the sale of
10,000,000 shares of Common Stock in the Offerings (assuming no exercise
of the U.S. Underwriters' over-allotment option), (iii) a reduction in
interest expense as a result of reductions in indebtedness upon
application of a portion of the net proceeds to the Company from the
Offerings, (iv) change from S corporation income tax expense to C
corporation income tax expense and recording of the related deferred tax
liabilities and (v) termination of deferred incentive compensation
agreements with certain employees. See "Offering Related Transactions,"
"Use of Proceeds," "Capitalization," "Management's Discussion and Analysis
of Financial Condition and Results of Operations," the Combined Financial
Statements and notes thereto and the Unaudited Pro Forma Combined
Financial Statements and notes thereto included elsewhere in this
Prospectus.
(b) Selling, general and administrative expense for the years ended December
31, 1995 and 1996 includes $645,000 and $1,524,000 of non-recurring
compensation expense related to the Predecessor's deferred incentive
compensation agreements that were terminated in January 1997. See "Certain
Transactions--Offering Related Agreements."
(c) Includes $1,300,000 of non-recurring expense from non-operating assets of
the Predecessor not transferred to the Company as part of the Offering
Related Transactions.
(d) The pro forma net income reflects the estimated pro forma effect of income
taxes as if the Predecessor had been taxed as a C corporation for all
periods presented.
(e) Same Profit Center revenue growth is calculated based on the change in
total revenues of all Profit Centers open as of the beginning of the
preceding fiscal year.

17
<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

The following discussion should be read in conjunction with the Combined
Financial Statements and notes thereto included elsewhere in this Prospectus.

GENERAL

U.S. Rentals attributes its profitability, long-term growth and market
leadership to its innovative operating philosophy, which is based upon a
decentralized management structure, a unique profit sharing program, a strong
emphasis on personalized customer service and maintenance of one of the most
comprehensive and modern rental fleets of brand name equipment in the
industry. From 1992 through 1996, the Company's total revenues grew at a
compound annual growth rate of 26.3%. In the same period, the Company's pro
forma net income grew to $20.0 million from $6.3 million, a compound annual
growth rate of 33.4%. U.S. Rentals has been profitable in every year since
1984.

The Company derives revenue from three sources: (i) rental of equipment,
(ii) sales of used rental equipment and (iii) sales of new equipment and
rental-related merchandise, parts and supplies. The Company's primary source
of revenue is the rental of equipment to commercial and residential
construction, industrial and homeowner customers. Growth in rental revenue is
dependent on several factors, including demand for rental equipment, the
amount of equipment available for rent, rental rates and general economic
conditions. The Company also generates revenues from the service and delivery
of equipment as well as income associated with a customer damage waiver
offered at the time of rental. The Company's revenues derived from the sale of
used equipment are affected by price, general economic conditions and U.S.
Rentals' fleet maintenance practices. Revenue from the sale of merchandise and
new equipment, including parts and convenience consumables sold at the
Company's rental locations, is affected by demand for new and rental
equipment.

The Company has historically financed its acquisitions, start-up locations
and capital expenditures primarily through internally generated cash flow,
borrowings under the Credit Facility and proceeds from the Senior Notes.
During the initial phase of an acquisition or start-up location, the Company
typically incurs expenses related to installing or converting information
systems, training employees and increased depreciation charges resulting from
upgrading or expanding the rental fleet. As a result, the Company's acquired
businesses and start-up locations generally have not been profitable until
after their first year of operations. The Company has accounted for all its
acquisitions since 1985 as asset purchases and records acquired rental
equipment at fair market value. Past acquisitions have not resulted in the
recognition of a significant amount of goodwill or other intangibles
(including covenants not to compete). The Company anticipates that as it
continues to implement its strategy, new locations will negatively impact the
Company's net income until such locations achieve profitability.

Cost of revenues consists primarily of rental equipment depreciation,
merchandise and equipment costs, wages and benefits, facility occupancy costs,
vehicle and other equipment costs and supplies. Of these costs, rental
equipment depreciation has increased over the past several years due to the
Company's substantial investment in new equipment of $83.2 million, $88.9
million and $119.3 million in years ended December 31, 1994, 1995 and 1996,
respectively. The Company records rental equipment expenditures at cost and
depreciates equipment using the straight-line method over an estimated useful
life of seven years, after giving effect to an estimated 10% salvage value.
Rental equipment acquired prior to January 1, 1996 is depreciated on a
straight-line basis over an estimated useful life of five years with no
estimated salvage value.

In 1985, the Predecessor elected to be treated as an S corporation under the
Internal Revenue Code and comparable provisions of certain state tax laws, and
since then has paid no federal income tax. Accordingly, federal and California
taxes were paid by the Principal Stockholder and the provisions for income
taxes represented income taxes payable to certain states. Upon the
consummation of the Offering Related Transactions,

18
<PAGE>

all operating assets and liabilities will be transferred to the Company, a C
corporation under the Internal Revenue Code. Income generated by the Company
will be subject to federal income taxes and applicable state income taxes
which will result in the recognition of a one-time deferred income tax
liability and corresponding expense of $7.0 million during the period in which
the Offering Related Transactions are consummated, currently expected to be
the first quarter of 1997. Because of the Company's expected change in tax
status, historical results of operations, including income tax expense, are
not, in all cases, comparable to or indicative of future financial results.
Pro forma net income reflects the estimated pro forma effect of income taxes
as if the Company had been taxed as a C corporation.

RESULTS OF OPERATIONS

The following table sets forth, for the periods indicated, certain statement
of operations data expressed as a percentage of total revenues:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------
1992 1993 1994 1995 1996
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Revenues:
Rental revenue.......... 87.2% 89.0% 89.3% 88.5% 84.2%
Rental equipment sales.. 5.9 4.4 4.3 4.5 8.0
Merchandise and new
equipment sales........ 6.9 6.6 6.4 7.0 7.8
----- ----- ----- ----- -----
Total revenues............ 100.0 100.0 100.0 100.0 100.0
Cost of revenues(a)....... 77.4 74.8 70.6 69.1 72.0
----- ----- ----- ----- -----
Gross profit.............. 22.6 25.2 29.4 30.9 28.0
Selling, general and
administrative expense... 12.9 14.0 14.5 12.9 11.7
Non-rental
depreciation(b).......... 2.5 2.4 2.2 2.3 2.5
----- ----- ----- ----- -----
Operating income.......... 7.2 8.8 12.7 15.7 13.8
Other income (expense),
net...................... 0.7 (0.0) (0.1) (0.7) (0.2)
Interest income (expense),
net...................... 1.0 0.9 (0.6) (2.2) (2.7)
----- ----- ----- ----- -----
Income before income
taxes.................... 8.9 9.7 12.0 12.8 10.9
Income taxes(c)........... 0.4 0.3 0.3 0.2 0.1
----- ----- ----- ----- -----
Net income................ 8.5% 9.4% 11.7% 12.6% 10.8%
===== ===== ===== ===== =====
Pro forma net income(c)... 5.3% 5.7% 7.1% 7.5% 6.5%
===== ===== ===== ===== =====
</TABLE>
- ---------------------
(a) Includes rental equipment depreciation.
(b) Excludes rental equipment depreciation.
(c) The pro forma net income reflects the estimated pro forma effect of income
taxes as if the Predecessor had been taxed as a C corporation for all
periods presented.

YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995

Revenues. Total revenues in 1996 increased 25.9% to $305.8 million from
$242.8 million in 1995. Rental revenue in 1996 increased 19.8% to $257.5
million or 84.2% of total revenues, as compared to rental revenue of $214.8
million or 88.5% of total revenues in 1995. Of the $42.6 million increase in
rental revenue in 1996,$33.6 million was due primarily to increased equipment
rental fleet at existing locations. The remaining increase of approximately
$9.0 million was primarily due to nine new locations which were added in 1996.
Rental equipment sales increased 127.4% to $24.6 million or 8.0% of total
revenues in 1996 from $10.8 million or 4.5% of total revenues in 1995 due to
increased customer demand and increased sales efforts. Merchandise and new
equipment sales increased 38.2% in 1996 to $23.7 million or 7.8% of total
revenues as compared to $17.2 million or 7.0% of total revenues in 1995,
primarily due to increased rental revenue and demand for new equipment.

Gross Profit. Gross profit in 1996 increased 14.2% to $85.6 million from
$75.0 million in 1995 primarily due to increased rental revenue. Gross profit
decreased to 28.0% of total revenues in 1996 from 30.9% in 1995.

19
<PAGE>

This decrease was due primarily to a 27.8% increase in rental equipment
depreciation resulting from the increase in rental fleet, offset in part by a
change in depreciation method for equipment purchases subsequent to January 1,
1996 (see Note 1 to the Notes to Combined Financial Statements). In addition,
rental equipment expense increased 26.7% due to the impact of increased rental
volume. Gross profit was also impacted by an increase in direct operating
expenses in 1996 which increased 26.5% to $71.5 million as compared to
$56.5 million in 1995. The increase reflects staffing costs resulting from an
increased number of rental yards and higher maintenance costs necessary to
support the increased size of the rental fleet. Gross profit from sales of
merchandise and new equipment increased 9.6% in 1996 as compared to 1995 due
to the impact of increased rental volume on the sale of merchandise and an
increase in new equipment sales.

Selling, General and Administrative Expense. Selling, general and
administrative expense in 1996 increased 14.3% to $35.9 million or 11.7% of
total revenues compared to $31.4 million or 12.9% of total revenues in 1995.
The increase was primarily due to higher advertising, bad debt and liability
insurance expenses, the total of which were partially offset by lower profit
sharing expense in 1996 as compared to 1995. Selling, general and
administrative expense includes $1.5 million and $0.6 million in 1996 and
1995, respectively, of non-recurring compensation expense related to the
Predecessor's deferred incentive compensation agreements that were terminated
in January 1997.

Other Income (Expense). Other expense decreased 59.0% to $0.7 million in
1996 from $1.6 million in 1995 as a result of a reduction in the level of
charitable contributions made at the direction of the Principal Stockholder
offset in part by a non-recurring write-off of $1.3 million on a non-operating
investment. Substantially all other expense items for 1996 are not expected to
be incurred by the Company in the future as a result of the Offering Related
Transactions.

Interest Expense. Interest expense net of interest income increased 51.2% to
$8.0 million in 1996 from $5.3 million in 1995. The increase was primarily the
result of higher average borrowings under the Credit Facility and other debt
outstanding of $122.6 million in 1996 as compared to $72.5 million in 1995.
However, this increase was partially offset by a decrease in the average
interest rate to 6.1% in 1996 as compared to 7.2% in 1995.

Income Taxes. Under the Predecessor's election to be taxed as an S
corporation for federal and state purposes, income tax expense was
approximately 1.1% of pre-tax income in 1996 as compared to 1.5% of pre-tax
income in 1995. On a pro forma C corporation basis, the Predecessor's
effective tax rate would have been 40.2% in 1996 as compared to 41.1% in 1995.

Net Income. Net income increased 8.0% to $33.1 million in 1996 from $30.6
million in 1995. Pro forma for the Offering Related Transactions and as
adjusted for the Offerings, net income in 1996 was $21.1 million and $26.1
million, respectively.

YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994

Revenues. Total revenues in 1995 increased 29.3% to $242.8 million from
$187.8 million in 1994. Rental revenue in 1995 increased 28.2% to $214.8
million or 88.5% of total revenues, as compared to rental revenue of $167.6
million or 89.3% of total revenues in 1994. Of the $47.2 million increase in
rental revenue in 1995, $43.0 million was due primarily to increased equipment
rental fleet at existing locations. The remaining increase of approximately
$4.2 million was primarily due to six new locations that were added in 1995.
Rental equipment sales increased 33.8% to $10.8 million or 4.5% of total
revenues in 1995 from $8.1 million or 4.3% of total revenues in 1994.
Merchandise and new equipment sales increased 42.2% to $17.2 million or 7.0%
of total revenues in 1995 as compared to $12.1 million or 6.4% of total
revenues in 1994, due to the increase in rental revenue and as a result of a
new program to sell new equipment to the Company's existing rental customer
base.

Gross Profit. Gross profit in 1995 increased 35.9% to $75.0 million from
$55.2 million in 1994 due primarily to increased rental revenue which was
partially offset by a 30.0% increase in rental equipment

20
<PAGE>

depreciation. The increased depreciation resulted from a 42.1% increase in
average equipment available for rental. The impact of an increase in the
number of employees to staff the 14 new locations added in 1994 and 1995 and
increased maintenance costs necessary to support the increased size of the
rental fleet resulted in a 21.7% increase in 1995 direct operating expenses
over the prior year. Gross profit from sales of merchandise and new equipment
increased in dollar contribution by 23.8% in 1995 compared to 1994 but
decreased to 2.4% of total revenues in 1995 from 2.5% of total revenues in
1994, due to increased rental volume. As a result of the above factors, gross
profit as a percentage of total revenues increased to 30.9% from 29.4% for
1994.

Selling, General and Administrative Expense. Selling, general and
administrative expense for 1995 increased 15.3% to $31.4 million or 12.9% of
total revenues compared to $27.3 million or 14.5% of total revenues for 1994.
The increase was due to a $1.7 million increase in profit sharing expense in
1995 and an increase in administrative costs associated with 14 locations
added in 1994 and 1995. Selling, general and administrative expense includes
$0.6 million of non-recurring compensation expense related to the
Predecessor's deferred incentive compensation agreements that were terminated
in January 1997.

Other Income (Expense), Net. Other expense increased to $1.6 million in 1995
from $0.2 million in 1994 primarily as a result of charitable contributions
made at the direction of the Principal Stockholder.

Interest Expense. Interest expense net of interest income increased to $5.3
million in 1995 from $1.1 million in 1994 primarily due to the issuance of a
$10.0 million note payable to the Principal Stockholder in the form of a
dividend at the end 1994 that bears interest at prime plus 5.0%. This note
payable will not be transferred by the Predecessor to the Company. See
"Offering Related Transactions." Interest expense also increased as a result
of higher average borrowings under the Credit Facility and other debt
outstanding of $72.5 million during 1995 as compared to $43.9 million in 1994
as well as an average interest rate change from 5.9% to 7.2%.

Income Taxes. Under the Predecessor's election to be taxed as an S
corporation for federal and state purposes, income tax expense was
approximately 1.5% of pre-tax income for 1995 as compared to 2.2% for 1994. On
a pro forma C corporation basis, the Predecessor's effective tax rate would
have been 41.1% for 1995 as compared to 41.0% for 1994.

Net Income. Net income increased 39.3% to $30.6 million in 1995 from $22.0
million in 1994. On a pro forma C corporation basis, net income increased
38.1% to $18.3 million from $13.3 million in 1994.

LIQUIDITY AND CAPITAL RESOURCES

The Company has primarily used cash to purchase rental equipment, invest in
acquired and start-up rental yards and pay dividends to the Principal
Stockholder. The Company historically has financed its cash requirements
primarily through net cash provided by operating activities, borrowings under
the Credit Facility and the issuance of Senior Notes.

In 1996, the Company's operating activities provided net cash flow of $70.7
million as compared to $75.0 million in 1995. Cash flows generated by
operating activities before adjustments for changes in operating assets and
liabilities increased to $85.3 million in 1996 from $76.9 million in 1995.
This increase was attributable to an increase in net income and depreciation
expense due to a larger rental equipment fleet that supported growth in
revenues. However, the increase was more than offset by stable levels of
accounts payable (notwithstanding significantly higher levels of purchases of
rental equipment) attributable to shorter payment terms from suppliers in
exchange for pricing discounts to obtain lower rental equipment prices. Net
cash provided by operating activities was $75.0 million in 1995 as compared to
$65.4 million in 1994. The net increase was attributable primarily to
increased net income from higher revenues and an increase in depreciation,
partially offset by a smaller increase in accounts payable in 1995 as compared
to 1994. Net cash provided by operating activities excludes proceeds from the
sale of equipment, which were $24.6 million in 1996 as compared to $10.8
million in 1995.

21
<PAGE>

Net cash used in investing activities was $115.3 million in 1996 as compared
to $89.9 million in 1995. The principal causes for the variation in cash flow
between the periods were increased purchases of rental equipment and
investment in property and equipment, partially offset by increased sales of
rental equipment. Purchases of rental equipment in 1996 were $119.3 million as
compared to $88.9 million in 1995. Net cash used in investing activities
increased to $89.9 million in 1995 from $86.5 million in 1994, primarily as a
result of an increase in purchases of rental equipment.

Net cash provided by financing activities was $43.9 million in 1996 as
compared to $15.6 million in 1995. The principal cause for the variation
between periods was net borrowings of $39.6 million under the Credit Facility
in 1996 as compared to net payments of $28.2 million in 1995, partially offset
by decreases in issuances of Senior Notes and an increase of $29.9 million in
dividends paid to the Principal Stockholder in 1996 as compared to 1995. In
1995, cash flow provided by financing activities decreased to $15.6 million
from $22.1 million in 1994. The principal causes for the variation between the
periods were payments on the Credit Facility in 1995 of $28.2 million as
compared to net borrowings under the Credit Facility in 1994 of $35.7 million,
partially offset by proceeds from issuances of Senior Notes in 1995.

The Company intends to use a portion of the net proceeds from the Offerings
to repay all of the Senior Notes and borrowings under the Credit Facility. In
conjunction with the Offerings, the Company has obtained a commitment letter
with its existing lenders for the New Credit Facility which will provide
availability of up to $300.0 million. The Credit Facility contains, and the
New Credit Facility is expected to contain, covenants which restrict, among
other things, dividends and acquisitions exceeding certain thresholds without
prior written consent. The Company believes that cash flow from operations,
proceeds from the Offerings and availability under the New Credit Facility
will be sufficient to support its operations and liquidity requirements for at
least the next 12 months.

The Company incurs capital expenditures for rental equipment, to satisfy the
equipment needs of current and new customers and to provide for the equipment
needs of new and acquired rental equipment yards. As of December 31, 1996, the
Company had open purchase commitments of $19.6 million for new equipment. Such
purchases will be financed through the sources of funds described above. The
Company has no minimum purchase commitments for equipment. Management has
budgeted $81.5 million of gross fleet capital expenditures (exclusive of
acquisitions) in 1997. These expenditures are anticipated to be partially
offset by expected proceeds from the sale of used equipment of approximately
$29.4 million. The Company also expects to spend approximately $10.0 million
in 1997 on non-rental equipment capital expenditures consisting of vehicles,
buildings, land and furniture and fixtures.

INFLATION AND GENERAL ECONOMIC CONDITIONS

Although the Company cannot accurately anticipate the effect of inflation on
its operations, the Company does not believe that inflation has had, or is
likely in the foreseeable future to have, a material effect on its results of
operations or financial condition. The Company's operating results may be
adversely affected by events or conditions in a particular region, such as
economic conditions, weather and other factors. In addition, the Company's
operating results may be adversely affected by increases in interest rates
that may lead to a decline in economic activity, while simultaneously
resulting in higher interest payments by the Company under the Credit
Facility. See "Risk Factors--Economic Conditions; Geographical Concentration"
and "--Seasonality and Quarterly Fluctuations."

22
<PAGE>

QUARTERLY RESULTS

The following table sets forth certain unaudited statement of operations
data for the quarters in the years ended December 31, 1995 and 1996. The
unaudited quarterly information has been prepared on the same basis as the
annual information and, in management's opinion, includes all adjustments
necessary to present fairly the information for the quarters presented.

<TABLE>
<CAPTION>
1995 QUARTERS ENDED 1996 QUARTERS ENDED
----------------------------------- -----------------------------------
MAR. 31 JUNE 30 SEPT. 30 DEC. 31 MAR. 31 JUNE 30 SEPT. 30 DEC. 31
------- ------- -------- ------- ------- ------- -------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total revenues.......... $45,866 $58,144 $68,844 $69,993 $58,643 $71,172 $86,647 $89,375
Gross profit............ 10,904 18,448 22,731 22,892 14,262 18,292 25,244 27,818
Operating income........ 5,122 10,370 12,799 9,731 5,575 8,714 14,037 13,828
Other income (expense),
net.................... (145) (260) (18) (1,197) 134 74 134 (1,007)
Interest income (ex-
pense), net............ (1,216) (1,310) (1,392) (1,392) (1,475) (1,822) (2,419) (2,315)
Income before income
taxes.................. 3,761 8,800 11,389 7,142 4,234 6,966 11,752 10,506
Income tax expense...... 24 308 47 89 29 131 156 58
Net income.............. 3,737 8,492 11,342 7,053 4,205 6,835 11,596 10,448
Pro forma net income(a). 2,225 5,163 6,717 4,207 2,523 4,151 7,002 6,326
</TABLE>
- ---------------------
(a) Reflects the estimated pro forma effect of income taxes as if the
Predecessor had been taxed as a C corporation for all periods presented.

The Company's revenues and operating results historically have fluctuated
from quarter to quarter, and the Company expects that they will continue to do
so in the future. These fluctuations have been caused by a number of factors,
including seasonal rental patterns of the Company's customers (principally due
to the effect of weather on construction activity), general economic
conditions in the Company's markets, the timing of acquisitions and the
development of start-up locations and related costs, the effectiveness of
integrating acquired businesses and start-up locations and the timing of
capital expenditures for fleet expansion. The Company incurs substantial costs
in establishing or integrating newly acquired and start-up locations.
Historically, the Company's acquired businesses and start-up locations
generally have not been profitable until after their first year of operations.
The operating results for any historical quarter are not necessarily
indicative of results for any future period.

In addition, the Company expects to incur non-recurring charges of
approximately $29.0 million during the first quarter of 1997 as a result of
the termination of the Predecessor's deferred incentive compensation
agreements prior to the Offerings, the establishment of a deferred tax
liability and the associated charges resulting from the termination of the
Predecessor's election to be treated as an S corporation for tax purposes and
for an expense related to prepayment penalties on indebtedness to be repaid
with proceeds from the Offerings. See "Risk Factors--Quarterly Fluctuations
and Seasonality," "Certain Transactions--Offering Related Agreements" and Note
9 of notes to Combined Financial Statements.

23
<PAGE>

BUSINESS

GENERAL

U.S. Rentals is the second largest equipment rental company in the United
States based on 1995 rental revenues. The Company currently operates 82 Profit
Centers in 12 states and in 1996 generated an average of approximately 95,000
contracts per month from a diverse base of customers including commercial and
residential construction, industrial and homeowner customers. Management
estimates that more than 200,000 customers did business with the Company in
1996. U.S. Rentals owns more than 60,000 pieces of rental equipment, comprised
of approximately 600 equipment types, including aerial work platforms,
forklifts, paving and concrete equipment, compaction equipment, air
compressors, hand tools and plumbing, landscaping and gardening equipment.
Management believes that the Company's fleet, which had a weighted average age
of approximately 28 months and an original equipment cost of approximately
$367.7 million at December 31, 1996, 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.

The Company's strategic objective is to continue to grow profitably in both
existing and new markets by acquiring rental yards, opening start-up rental
yards and expanding its equipment fleet. U.S. Rentals continually evaluates
attractive markets for expansion where a leading position can be created by
acquiring an existing business or opening a new rental yard. The Company has
grown internally through the expansion of its equipment fleet at existing
locations and through the integration of 30 start-up and acquired equipment
rental yards since January 1992. As a result of the Company's strategy, total
revenues increased to $305.8 million in 1996 from $120.2 million in 1992, a
compound annual growth rate of 26.3%. During the same period, operating income
before non-rental depreciation increased to $49.7 million from $11.7 million,
a compound annual growth rate of 43.6%. U.S. Rentals has been profitable in
every year since 1984.

U.S. Rentals attributes its leadership position in the equipment rental
industry primarily to its innovative operating philosophy, which is based upon
a decentralized management structure, a unique profit sharing program
available to all levels of employees, a strong emphasis on personalized
customer service, and maintenance of one of the most comprehensive and modern
rental fleets of brand name equipment in the industry. The Company's bottoms-
up management structure allows each Profit Center manager to tailor the
equipment fleet to the local market, make equipment fleet purchases and sales,
and pricing and staffing decisions. Corporate headquarters coordinates
equipment purchases and supports Profit Center managers by providing capital,
accounting, internal audit, risk management and other services to each Profit
Center. The Company's unique incentive-based profit sharing program does not
limit employee compensation. This program motivates Profit Center managers to
act as entrepreneurs, to purchase only equipment that can be profitably
deployed, to sell rental equipment from the fleet as maintenance costs
increase or as rental demand for such equipment decreases and to minimize
operating expenses. In 1996, managers of profitable locations earned an
average of approximately 92% of their base salaries in profit sharing
compensation. Management believes that its innovative operating and
compensation philosophy significantly contributed to same Profit Center
revenue growth of 20.0% and 17.1% in 1995 and 1996, respectively.

INDUSTRY

24
<PAGE>

such equipment. While equipment users traditionally have rented equipment for
specific purposes, such as supplementing capacity during peak periods and in
connection with special projects, the convenience and cost-saving factors of
utilizing rental equipment have encouraged customers to look to suppliers such
as the Company as ongoing, comprehensive sources of equipment. Management
believes that demand for rental equipment by the commercial and industrial
segments will continue to increase as these customers continue to outsource
non-core operations. A 1995 survey conducted by The CIT Group for 1995 and
published in 1996 showed that commercial construction contractors intended to
increase the percentage of equipment they rent without a purchase option to an
estimated 8% of their total equipment requirements in 1996, from an estimated
5% in 1995.

BUSINESS STRATEGY

U.S. Rentals' strategic objective is to continue its profitable growth by
acquiring rental yards, opening start-up rental yards in both existing and new
markets and expanding its equipment fleet. U.S. Rentals routinely evaluates
attractive markets for expansion where a leading position can be created by
acquiring an existing business or opening a new rental yard. Primarily due to
its entrepreneurial, decentralized organizational structure that focuses on
bottoms-up management and an innovative profit-driven compensation policy, the
Company has been profitable each of the past 12 years. Specifically, U.S.
Rentals' business strategy centers upon the following factors:

Profitable Expansion. The Company strives to operate the most profitable
equipment rental yards in each of its markets. Management believes U.S.
Rentals is well positioned to be a leader in the consolidation of the highly
fragmented equipment rental industry. Management believes that there are
numerous attractive acquisition opportunities available and that the Company's
reputation, stability, access to capital, sophisticated management information
systems and operating expertise provide competitive advantages in making
acquisitions. These strengths allow U.S. Rentals to (i) quickly integrate
acquired companies into its information systems and operating structure,
(ii) realize synergies in the form of reduced overhead and lower costs through
greater purchasing power and (iii) significantly enhance revenue by supplying
acquired yards with additional equipment to optimize the mix of rental
equipment and modernize the fleet. In addition, the Company will open new
rental yards when a suitable business is not available for acquisition on
favorable terms. Pursuant to this strategy, U.S. Rentals has acquired 15
rental yards and has opened 15 start-up rental yards since January 1, 1992.
The Company routinely analyzes potential acquisitions of rental yards but is
not currently a party to any material acquisition agreement. See "Risk
Factors--Risks Relating to Growth" and "--Dependence on Additional Capital to
Finance Growth."

Market Leadership. U.S. Rentals is the second largest equipment rental
company in the United States based on 1995 rental revenues. The Company
strives to create a leading market position in each of its markets by
capitalizing on its substantial competitive advantages, which include offering
personalized customer service, flexible rental terms, seven-days-a-week
operating hours and a diverse and modern equipment rental fleet specifically
tailored to the needs of local customers. Further, U.S. Rentals' historical
strength has been in small and medium-sized markets that the Company believes
are not well served by its competition.

25
<PAGE>

Extensive Customer Base. In 1996 U.S. Rentals generated an average of
approximately 95,000 customer contracts per month from a diverse customer
base. Management estimates that more than 200,000 customers did business with
the Company in 1996. U.S. Rentals' historical strength has been with small and
medium-sized customers, which the Company believes are not well served by its
competition. The Company is also increasing its emphasis on multi-regional and
national customers through its national accounts program. In addition to the
Company's strong brand name recognition, comprehensive and modern equipment
rental fleet, well-located rental yards and competitive pricing, management
believes that the Company's customers value the convenience of U.S. Rentals
Profit Centers' seven-days-a-week operating hours and flexible rental terms.
Further, U.S. Rentals offers its customers "one-stop shopping" through the
sale of rental-related merchandise, parts and supplies, sales of new and used
equipment and maintenance and delivery services.

Innovative, Decentralized Operating Philosophy. U.S. Rentals' decentralized
operating philosophy encourages entrepreneurial behavior at each Profit Center
and rewards managers and employees through a profit-driven incentive
compensation program. Profit Center managers are given the necessary freedom
and flexibility to operate their respective equipment rental yards to maximize
profits. Each Profit Center manager is responsible for every aspect of a
yard's operation, including establishing rental rates, selecting equipment and
determining employee compensation. Managers and employees of profitable
locations are rewarded by the Company's profit sharing program that is based
on each location's operating income in excess of a pre-determined return on
its net assets. In 1996, managers of profitable locations earned an average of
approximately 92% of their base salaries in profit sharing compensation.

Strong Internal Controls. U.S. Rentals balances its decentralized
organizational structure and entrepreneurial operating philosophy with
extensive systems and procedures to monitor and track the performance of each
Profit Center. The Company's proprietary management information systems,
including the Company's POS system, allow management and Profit Center
managers to review all aspects of each Profit Center's business and assist
management in closely monitoring and quickly reacting to opportunities to
increase profits at each Profit Center. These systems are used to open
customer accounts, generate rental contracts, track equipment usage, report
customers' credit histories, compile accounts receivable aging reports, and
monitor monthly profitability. Seven internal auditors monitor and ensure
adherence to the Company's well-established, disciplined and documented
policies and procedures. In addition, six independent division credit offices
review and approve all credit applications submitted to the Profit Centers.
Management believes that the Company's strong internal controls and
proprietary management information systems result in lower overall costs and
increase profitability for the Company.

Attracting, Motivating and Retaining the Best People in the
Industry. Through its decentralized, entrepreneurial approach and innovative
profit sharing program, the Company believes it has generally been able to
attract, motivate and retain the most successful, experienced group of
employees in the industry. Management believes U.S. Rentals' successful
employees are more highly compensated than those of its competitors because of
the Company's unique profit sharing program. As a result, the Company has had
voluntary turnover of only two Profit Center managers during the past five
years. In addition, U.S. Rentals' senior operating management, which has an
average of 21 years of rental industry experience, is among the most
experienced in the industry. William F. Berry, the Company's 44-year-old
President and Chief Executive Officer, has over 30 years of experience in the
equipment rental business and has worked in numerous operational and
managerial capacities in the Company during his career. See "Risk Factors--
Risks Relating to Growth" and "--Dependence on Key Personnel."

CUSTOMERS

Management estimates that in 1996 U.S. Rentals had more than 200,000
customers, ranging from Fortune 100 companies to small contractors and
homeowners. During 1996, no one customer accounted for more than 1% of the
Company's total revenues, and the top 10 customers represented less than 4.5%
of total revenues. Customers look to U.S. Rentals as an ongoing, comprehensive
source of rental equipment because of the

26
<PAGE>

economic advantages and convenience of renting, as well as the high costs
associated with equipment ownership. The Company classifies its customer base
into the following categories: (i) commercial and residential construction,
including contractors; (ii) industrial, including manufacturers, petrochemical
facilities, chemical companies, paper mills, and public utilities; and (iii)
homeowners and others. In addition to maintaining its historically strong
relationships with small and medium-sized customers, the Company is increasing
its emphasis on larger national and multi-regional accounts. Management
estimates that in 1996, commercial and residential construction, industrial
and homeowner and other customers accounted for approximately 64%, 20% and
16%, respectively, of the Company's total revenues.

Commercial and Residential Construction. U.S. Rentals' commercial and
residential construction customers include national and regional contractors
and subcontractors involved in commercial and residential construction
projects such as residential developments, apartment buildings, schools,
hospitals, airports, roads, bridges and highways, chemical plants and other
manufacturing facilities. U.S. Rentals' commercial construction customers
range from Fortune 100 companies to local independent businesses. A survey
conducted by The CIT Group for 1995 and published in 1996 estimated that
contractors intended to increase the percentage of equipment they rent without
a purchase option to an estimated 8% of their total equipment requirements in
1996 from an estimated 5% in 1995. Management believes U.S. Rentals is one of
the largest suppliers of rental equipment to contractors in its markets and is
well positioned to benefit from any increased rental of equipment by
contractors and other commercial construction customers.

Industrial. The Company's industrial customers, many of which operate 24
hours per day, utilize U.S. Rentals to outsource equipment requirements to
reduce their capital investment and minimize the ongoing maintenance, repair
and storage costs associated with equipment ownership. Management believes
that, as the second largest equipment rental company in the United States
based on 1995 rental revenues, the Company is well-positioned to take
advantage of the increasing trend among customers to outsource equipment
needs. Generally, U.S. Rentals' industrial customers tend to rent for longer
periods of time than commercial and residential construction customers,
contractors or homeowners. While historically not a primary focus, the Company
believes its recently increased emphasis on national and multi-regional
accounts will enhance its ability to provide an ongoing, comprehensive supply
of equipment to industrial customers.

Homeowners and Others. U.S. Rentals rents landscaping, plumbing, remodeling
and home improvement tools to homeowners and other customers. The Company
believes these customers value the convenience of U.S. Rentals' seven-days-a-
week operating hours, pick up and delivery service and flexible rental terms.
Rentals to homeowners are often for periods as short as two hours and provide
higher gross margins relative to other customer segments. The Company believes
that its rental yards, which are generally highly visible and well-located,
its comprehensive and well-maintained rental fleet and the Company's brand
name recognition provide a significant competitive advantage in attracting the
homeowner segment of the market.

PRODUCTS AND SERVICES

Equipment rental represents U.S. Rentals' principal line of business. In
1996, equipment rental revenue together with rental-related revenue such as
repair services, delivery and damage waiver income accounted for approximately
84.2% of the Company's total revenues. U.S. Rentals also acts as a distributor
of new equipment on behalf of certain nationally known equipment
manufacturers. Revenues from the sale of parts, merchandise and new equipment
accounted for approximately 7.8% of U.S. Rentals' total revenues in 1996.
Approximately 8.0% of U.S. Rentals' 1996 total revenues was derived from the
sale of used rental equipment.

Rental Equipment. U.S. Rentals rents over 600 different types of equipment,
and management believes that the Company's rental fleet, which consists of
more than 60,000 pieces of equipment, is one of the most comprehensive and
well-maintained fleets in the equipment rental industry. The original
equipment cost of the Company's rental fleet was approximately $367.7 million
as of December 31, 1996.

Five categories of equipment represented approximately 78.9% of U.S.
Rentals' total rental equipment fleet (based on original equipment cost) as of
December 31, 1996: (i) earth-moving equipment (22.3%); (ii) aerial

27
<PAGE>

work platforms (21.8%); (iii) forklifts (16.4%); (iv) trucks (11.8%); and (v)
compaction rollers (6.6%). The mix of rental equipment at each of U.S.
Rentals' 82 Profit Centers is tailored to meet the demands of the local
customer base.

U.S. Rentals seeks to maintain a modern, efficient rental fleet through
regular sales of used rental equipment and ongoing capital investment in new
rental equipment. As of December 31, 1996, the weighted average age of the
Company's rental equipment fleet was approximately 28 months. In addition,
management believes U.S. Rentals has one of the most advanced preventive
maintenance programs in the equipment rental industry. This program extends
the useful life of the Company's rental equipment, typically resulting in
higher resale prices. U.S. Rentals also generates revenues from maintenance
service for its customers that own equipment and from delivery charges,
particularly for larger pieces of equipment.

Sales of Used Equipment. U.S. Rentals routinely sells used rental equipment
to adjust the size and composition of its rental fleet to changing market
conditions and as part of its ongoing commitment to maintain a new, top
quality fleet. The Company achieves favorable sales prices for its used
equipment due to its strong preventive maintenance program and its practice of
selling used equipment before it becomes irreparable or obsolete. The
incentives created by the Company's profit sharing program motivate Profit
Center managers to optimize the timing of sales of used rental equipment by
taking into account maintenance costs, rental demand patterns and resale
prices. The Company sells used equipment to its existing rental customers, as
well as to domestic and international used equipment buyers.

Sales of Parts and Merchandise. U.S. Rentals also sells a wide range of
parts, supplies and merchandise, including diamond and regular saw blades,
drill bits, shovels, goggles, hard hats and other safety gear and coolers, as
a complement to its core equipment rental business. This sales activity allows
the Company to attract and retain customers by offering the convenience of
"one-stop shopping."

Sales of New Equipment. In addition to equipment rental, the Company is a
distributor for certain equipment manufacturers, including Upright and Genie
Industries (booms and high reach equipment), Sky Trak (rough terrain forklifts
and skid-steer loaders), LeRoi and Atlas-Copco (air compressors), and
Multiquip and Ingersoll Rand (earth compaction equipment and portable
generators). U.S. Rentals is also the exclusive distributor for certain
manufacturers in several of its markets. The Company believes that the volume
of its equipment purchases creates significant purchasing power with
suppliers, which leads to favorable prices and terms on equipment purchased
for its rental fleet and for sale as new equipment. The Company's ability to
sell new equipment offers flexibility to its customers while enhancing U.S.
Rentals' customer relations.

OPERATIONS

The Company's equipment rental yards occupy an average of approximately 2.2
acres and include: (i) a customer service center and showroom displaying
selected rental equipment, new equipment offered for sale and related
merchandise; (ii) an equipment service area; and (iii) storage facilities for
equipment requiring protection from inclement weather. Each Profit Center is
staffed by an average of approximately 20 full-time employees and two part-
time employees, including a manager, assistant manager, sales assistants, back
office clerks, truck drivers, mechanics and yard personnel. Each equipment
rental yard offers a broad range of equipment for rental, with the actual
equipment mix tailored to meet the anticipated needs of the customers in each
location. The rental yard employees' knowledge of the equipment enables them
to recommend the best equipment for a customer's particular application. The
Company's yards are open seven-days-a-week and provide customers with 24-hour
maintenance, repair and support services, including service at the customer's
job site. Each Profit Center manager is responsible for every aspect of the
yard's operation, including establishing rental rates, selecting equipment,
and determining employee compensation at such location. The Company's Profit
Center managers have an average of 16 years of rental experience in the
industry.

The Company operates all of its Profit Centers under the name USRentals(R),
other than two Profit Centers that are operated under the name Contractors
Equipment Rental and one Profit Center that is operated under the name U.S.
HiReach.

28
<PAGE>

SALES, MARKETING AND ADVERTISING

U.S. Rentals strives to create a partnership with each customer in order to
satisfy all the customer's equipment needs. As a result of the Company's
innovative profit sharing program, employees are motivated to know the
customers in their markets and tailor the equipment fleet to local demand
patterns. Since U.S. Rentals believes that many customers choose to rent in
order to reduce their capital investment and maintenance costs and to maximize
flexibility, the Company offers flexible rental terms to its customers.
Customers may rent equipment by the hour, day, week or month, with the
periodic cost declining as the duration of the rental term increases. The
Company, through its six regional credit offices, offers credit to its
commercial and residential construction and industrial customers.

The Company markets its products and value-added services locally primarily
through its sales force that consisted of approximately 175 field-based
salespersons and approximately 846 store-based customer service
representatives as of December 31, 1996. The Company's sales force is
knowledgeable about all of U.S. Rentals' services and products, including the
rental of equipment, sales of new and used equipment, sales of parts and
merchandise, and U.S. Rentals' value-added services, including equipment
training, delivery and maintenance. The field-based sales force calls
regularly on contractors' offices and job sites and industrial facilities,
regularly assisting customers in planning for their equipment requirements.
U.S. Rentals also provides its sales force with extensive training, including
frequent in-house training by supplier representatives about the operating
features and maintenance requirements of new equipment. The Company's sales
force does not earn commissions on equipment rentals; instead, they
participate in the Company's profit sharing program along with employees at
all levels of the Company. Management believes that the Company's sales
personnel, through the Company's innovative profit sharing program, are among
the most highly compensated in the industry.

U.S. Rentals recently began a national accounts program that is dedicated to
marketing to customers with a multi-regional or national presence. The
national accounts program supplements the efforts of the Profit Centers, which
deal directly with management of the local facilities of multi-regional and
national firms. National account sales personnel call on the corporate
headquarters of U.S. Rentals' large commercial and residential construction
and industrial customers in order to expand existing business relationships to
include additional facilities and construction sites. The national accounts
program simplifies billing and pricing for large customers while allowing
their local representatives to continue to deal primarily with local Profit
Centers.

The Company promotes its services primarily in the telephone directories in
the markets it serves, as well as by direct mail, and advertising in
newspapers and on local television and radio. Each Profit Center manager
determines the frequency and type of advertising in the local market. Profit
Centers also host open houses, customer appreciation events and other special
promotional events. The Company also selectively advertises in national
industry publications and trade journals, and provides a toll-free telephone
number (1-800-US-RENTS) that automatically connects each caller to the
Company's closest equipment rental yard. In addition to its principal
marketing methods, the Company has launched an Internet web page
(www.usrentals.com) that describes the Company's locations, product lines and
used equipment available for sale.

PURCHASING AND SUPPLIERS

The Company's size and stature in the equipment rental industry, as well as
its strong and long-standing vendor relationships, enable it to purchase
equipment directly from manufacturers at what management believes are among
the best prices and terms in the industry. The Company employs a Director of
Vendor Relations to negotiate favorable terms with preferred vendors. However,
individual Profit Center managers operate independently in evaluating and
selecting additional fleet based on local demand. U.S. Rentals has developed
strong relationships with many leading equipment manufacturers, which has led
to exclusive distribution rights for certain lines of equipment in several of
its markets. Management believes that the favorable pricing, service, training
and information that U.S. Rentals receives from its suppliers represent a
significant competitive advantage for the Company. During 1996, the Company
purchased approximately $119.3 million of rental equipment, of which
approximately 58.8% was obtained from its top 10 suppliers. No single supplier
accounted for more than 12.8% of the Company's total purchases. U.S. Rentals
believes it could readily replace any of its existing suppliers if it were to
lose its ability to purchase equipment from such supplier.

29
<PAGE>

INFORMATION SYSTEMS

U.S. Rentals' proprietary POS system was initially installed in the
Company's equipment rental yards in 1992 and is used for the day-to-day
management of its more than 60,000 pieces of rental equipment. The data
generated from each Profit Center's POS system is uploaded daily to the
Company's mainframe computer at its headquarters. The Company's proprietary
management information systems, including the Company's POS system, allow
management and Profit Center managers to review all aspects of each Profit
Center's business, including profitability, equipment utilization rates,
rental rates, number of contracts generated and collection of receivables.
Management at all levels uses these systems to generate rental contracts,
track equipment usage, report customer credit histories, compile accounts
receivables aging reports and monitor monthly profitability. Access to such
data significantly assists management in closely monitoring and quickly
reacting to the ongoing operations at each Profit Center. Additionally, the
statements generated by the Company's management information systems are
consistently reviewed by corporate, regional and divisional managers, as well
as by each Profit Center manager, to monitor profit sharing earnings and
detect areas for improvement at each location. This type of decentralized
processing, with centralized management information system reporting, provides
for timely and effective reporting of information for auditing and control
purposes. U.S. Rentals' data processing center, located at its headquarters in
Modesto, California, utilizes a Hewlett Packard mainframe computer for its
flexibility and capacity to accommodate the Company's future systems needs.
The Company's computer system is updated and maintained by a staff of three
systems development professionals, who also developed U.S. Rentals' customized
and proprietary management information systems software.

LOCATIONS AND PROPERTIES

The Company operates 82 Profit Centers in the following 12 states: Arizona
(2), Arkansas (3), California (46), Idaho (1), Kansas (1), Louisiana (3),
Nevada (4), New Mexico (2), Oklahoma (1), Oregon (1), Texas (17) and
Washington (1). U.S. Rentals owns 27 of its Profit Centers and leases the
other 55, as well as its approximately 12,000 square foot headquarters space
in Modesto, California. The Company's leases have terms expiring from 1997 to
2001, with the majority of its leases having multiple five-year renewal
options. The Company also maintains six credit offices, all of which are
leased. The net book value of owned facilities was approximately $17.6 million
at December 31, 1996, and the average annual lease expense on each leased
facility was approximately $53,000 in 1996. Management believes that none of
U.S. Rentals' leased facilities, individually, is material to the Company's
operations. In addition, as of December 31, 1996, U.S. Rentals owned a fleet
of approximately 774 non-rental delivery, fleet service and sales personnel
vehicles.

COMPETITION

The equipment rental industry is highly fragmented and competitive. Each
market in which U.S. Rentals operates is served by numerous competitors,
ranging from national and multi-regional companies such as Hertz Equipment
Rental Corporation, an affiliate of Ford Motor Company, to small, independent
businesses with a limited number of locations. Management believes that
participants in the equipment rental industry compete on the basis of customer
relationships, customer service, breadth and quality of product line and
price. In general, the Company believes that national and multi-regional
operators, especially larger operators such as U.S. Rentals, enjoy substantial
competitive advantages over small, independent rental businesses that cannot
afford to maintain the comprehensive rental equipment fleet and high level of
maintenance and service that U.S. Rentals offers. U.S. Rentals believes that
its commitment to personalized customer service, highly motivated and
experienced employees, decentralized management structure, proprietary
information systems and the breadth and the quality of its rental fleet enable
it to compete successfully. See "Risk Factors--Competition."

EMPLOYEES

As of December 31, 1996, U.S. Rentals had a total of 1,841 employees, of
which 309 were salaried and 1,532 were hourly personnel. U.S. Rentals' work
force is not unionized, and management believes that its relationship with
employees is excellent. The Company is committed to, and has realized
significant benefits

30
<PAGE>

from, its formal employee training programs. Management believes that this
investment in training and safety awareness programs for employees is a
competitive advantage that positions U.S. Rentals to be responsive to customer
needs.

MATERIAL PATENTS, LICENSES, FRANCHISES AND CONCESSIONS

The Company does not hold or depend upon any material patent, government
license, franchise or concession, except for the "USRentals(R)" service mark,
which is registered with the U.S. Patent and Trademark Office.

GOVERNMENTAL AND ENVIRONMENTAL REGULATION

The Company's operations are subject to a variety of federal, state and
local laws and regulations governing, among other things, worker safety, air
emissions, water discharge and 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 the costs
of removal or remediation of certain hazardous or toxic substances located on
or in, or emanating from, such property, as well as related costs of
investigation and property damage. Such laws often impose such liability
without regard to whether the owner or lessee knew of, or was responsible for,
the presence of such hazardous or toxic substances. The Company is often
indemnified against environmental liabilities as a purchaser or lessee of the
properties it acquires or leases. Since 1993, in connection with its
acquisitions and start-up locations that include the purchase of real
property, the Company usually obtains Phase I environmental assessment reports
prepared by independent environmental consultants for each piece of real
property it purchases. A Phase I environmental assessment consists of a site
visit, historical record review, interviews and report, with the purpose of
identifying potential environmental conditions associated with the subject
real estate. Phase I environmental assessments on a number of recently
acquired facilities indicated the possibility of releases of hazardous or
toxic substances at those facilities, but the Company has not determined
whether releases actually have occurred or whether remediation will be
required. Moreover, there can be no assurance that a Phase I environmental
assessment will disclose all environmental contamination located at that site.
The remaining owned and leased facilities were acquired without first
obtaining a Phase I environmental assessment. Environmental contamination has
been found at certain of those facilities, principally in connection with the
removal of underground storage tanks. No assurance can be given that
environmental contamination is not present at the other locations.

The Company dispenses petroleum products from above-ground storage tanks at
a majority of its Profit Centers. The remainder of its Profit Centers dispense
petroleum products from underground storage tanks. The Company maintains an
environmental compliance program that includes the implementation of required
technical and operational activities designed to minimize the potential for
leaks and spills, maintenance of records and the regular testing and
monitoring of tank systems for tightness. The Company also uses other
hazardous materials in the ordinary course of its business. In addition, the
Company generates and disposes of hazardous waste such as used motor oil,
radiator fluid and solvents, and may be liable under various federal, state
and local laws for environmental contamination at facilities where its waste
is or has been disposed. See "Risk Factors--Governmental and Environmental
Regulation." The Company incurs ongoing expenses associated with the removal
of older underground storage tanks and the performance of appropriate
remediation at certain of its locations. The Company believes that hazardous
substances currently requiring remediation are present at seven of its
facilities. The Company has applied or is applying for governmental
determinations that remediation has been completed at four locations and is
undertaking or anticipates undertaking remediation at the three other
facilities. Management believes that the Company is also responsible (pursuant
to the terms of certain of its leases) for any required remediation of seven
double-walled underground storage tanks. The Company has reserved
approximately $1.1 million for such remediation and removal of additional
underground storage tanks and associated potential liability. The Company does
not believe that costs associated with such remediation and potential
liability will have a material adverse effect on the Company's results of
operations or financial condition. See "Risk Factors--Governmental and
Environmental Regulation."

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<PAGE>

LEGAL PROCEEDINGS

The Company is involved in numerous claims and potential claims that have
arisen in the ordinary course of the Company's business. Claims (including
litigation) for property damage, personal injury and death from users of its
equipment and the estates of such users, as well as employee claims relating
to workers' compensation and other employee-related issues, are inherent in
the nature of the Company's business. The Company cannot predict the ultimate
outcome of any of its current claims; however, due to the amount of the
Company's self-insurance reserves and the existence of insurance for claims
between $3 million and $50 million, management does not believe that any of
such claims, either alone or in the aggregate, will have a material adverse
effect on the Company's results of operations or financial condition. See
"Risk Factors--Liability and Insurance."

32
<PAGE>

MANAGEMENT

EXECUTIVE OFFICERS AND DIRECTORS

The following table sets forth the executive officers and directors of the
Company:

<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<C> <C> <S>
Richard D. Colburn 85 Chairman of the Board of Directors
William F. Berry 44 President, Chief Executive Officer and Director
John S. McKinney 42 Vice President--Finance, Chief Financial Officer and
Director
James P. Miscoll 62 Director(a)
Bernard E. Lyons 62 Vice President, Secretary and Director
Grace M. Crickette 35 Vice President--Risk Management
William F. Locklin 44 Vice President and Region Manager
Steven E. Nadelman 34 Vice President and Region Manager
</TABLE>
- ---------------------
(a) Mr. Miscoll will become a Director shortly after the consummation of the
Offerings.

Richard D. Colburn purchased the Company (under its previous name of Leasing
Enterprises, Inc.) on December 31, 1975 and has been Chairman of the Board of
Directors since that date. Mr. Colburn, a private investor, owned 100% of the
Company prior to the Offerings.

William F. Berry has been an employee of the Company and one of its
predecessors since 1966, became the Company's President and Chief Executive
Officer in January 1987 and became a Director in 1996. In his more than 30
years with the Company 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 has been the Vice President--Finance and Chief Financial
Officer of the Company since 1990 and became a Director in 1996. Mr. McKinney
joined the Company in 1988 as Controller, and held that position until being
promoted to his current positions. Prior to joining the Company, Mr. McKinney
served as the controller of an electrical wholesale company, held various
financial positions with Iomega Corporation and spent several years as a
certified public accountant with Arthur Andersen & Co.

James P. Miscoll, who will become a Director of the Company shortly after
the consummation of the Offerings, was the Vice Chairman/Executive Officer,
Southern California, for Bank of America from 1985 through 1992. Mr. Miscoll
was also a member of Bank of America's Managing Committee from 1981 through
1992 and the Social Policy Committee from 1980 through 1992. Mr. Miscoll
retired from Bank of America in July 1992 and is currently a member of the
board of directors of AdAstra Resource Corporation, Chela Financial, Coast
Federal Financial, Inc., Motive Power Industries, Inc., Rykoff-Sexton, Inc.,
and Senior Advisor to America International Group, Inc.

Bernard E. Lyons has been a Director, Vice President, Secretary and the
General Counsel of the Company since 1976. Mr. Lyons is not an employee of the
Company. Mr. Lyons, a corporate lawyer, has represented numerous clients in
his more than 35 years of legal practice.

Grace M. Crickette has been the Company's Vice President--Risk Management
since March 1996. Ms. Crickette served as a Risk Management Director from 1994
until March 1996 and Risk Management Analyst from 1991 to 1994. Prior to
joining the Company, Ms. Crickette was a legal assistant for five years at a
Southern California law firm that specializes in insurance defense.

William F. Locklin has been a Vice President and Region Manager since
joining the Company in 1987. Mr. Locklin has more than 19 years of experience
in the equipment rental business. Prior to joining the Company, Mr. Locklin
held numerous management positions in the equipment rental industry over a
seven-year period with Hertz Equipment Rental Corporation.

33
<PAGE>

Steven E. Nadelman has been a Vice President and Region Manager since 1993.
Mr. Nadelman joined the Company in 1991 and served as a Profit Center Manager
and a Division Manager before being promoted to his current position. Mr.
Nadelman has more than 17 years of experience in the equipment rental
business. Prior to joining the Company, Mr. Nadelman held numerous service,
sales and management positions in the equipment rental industry, including
several years with Hertz Equipment Rental Corporation.

The executive officers of the Company serve at the discretion of its Board
of Directors. Each director of the Company serves until such director's
successor is elected and qualified or until the director's death, retirement,
resignation or removal.

The Company intends to appoint an independent director within three months
of the consummation of the Offerings and an additional independent director
within one year of the consummation of the Offerings.

COMMITTEES OF THE BOARD OF DIRECTORS

Audit Committee. Following the Offerings, the Board of Directors intends to
establish an audit committee (the "Audit Committee"), to be comprised of at
least two independent directors, to make recommendations concerning the
engagement of independent public accountants, review with the independent
public accountants the plans and results of the audit engagement, approve
professional services provided by the independent public accountants, review
independence of the independent public accountants, consider the range of
audit and non-audit fees and review the adequacy of the Company's internal
accounting controls.

Compensation Committee. Following the Offerings, the Board of Directors
intends to establish a compensation committee (the "Compensation Committee"),
to be comprised of at least two independent directors, to determine
compensation of the Company's executive officers and to administer the 1997
Plan. The current executive officer salaries were set by the Board of
Directors prior to establishment of the Compensation Committee.

DIRECTOR COMPENSATION

Upon consummation of the Offerings, the Company does not expect to pay its
directors who are employees of the Company for their services as directors.
The Company expects to pay its directors who are not employees (including
Bernard E. Lyons but not the Principal Stockholder) reasonable cash
compensation consistent with compensation paid by other publicly held
companies, but the Company has not yet set the specific amount of such
director compensation. Prior to the Offerings, the Predecessor paid a $5,000
monthly retainer to its directors.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

In 1996, the Company had no compensation committee or other committee of the
Board of Directors performing similar functions. Decisions concerning
compensation of executive officers were made by the Company's Board of
Directors. No officers or employees of the Company, other than William F.
Berry, John S. McKinney and Bernard E. Lyons, participated in deliberations
concerning such compensation matters.

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<PAGE>

EXECUTIVE COMPENSATION

The following table shows the compensation paid by the Company to the Chief
Executive Officer and each of the Company's other four most highly compensated
executive officers (collectively, the "Named Executive Officers") with respect
to fiscal 1996.

SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL
COMPENSATION
-----------------
ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS(A) COMPENSATION
--------------------------- -------- -------- ------------
<S> <C> <C> <C>
William F. Berry
President and Chief Executive Officer...... $145,000 $400,000 $260,418(b)(c)
John S. McKinney
Vice President--Finance and Chief Financial
Officer.................................... 104,167 120,000 159,893(b)(c)
William F. Locklin
Vice President and Region Manager.......... 104,167 120,000 1,470(b)
Steven E. Nadelman
Vice President and Region Manager.......... 104,167 120,000 1,109(b)
Grace M. Crickette
Vice President--Risk Management............ 72,500 35,000 200(b)
</TABLE>
- ---------------------
(a) Estimates of amounts earned in 1996 pursuant to the Company's profit
sharing program that are expected to be paid in 1997.
(b) Includes matching amounts contributed by the Company pursuant to the
Company's 401(k) plan.
(c) Includes director and executive committee fees paid for 1996, as well as
deferred compensation earned in 1996. See "--Employment Agreements."

EMPLOYMENT AGREEMENTS

The Company will enter into seven-year employment agreements with each of
William F. Berry and John S. McKinney effective upon consummation of the
Offerings. Messrs. Berry and McKinney will have the option to extend their
respective agreements for up to three years. During the term of Mr. Berry's
employment agreement, his compensation will consist of a minimum annual base
salary of $150,000, participation in the Company's profit sharing program,
deferred compensation (as described below), and fringe benefits similar to
those of other senior executives of the Company. If Mr. Berry's employment is
terminated, he will also be subject to a two-year restriction on competition
with the Company. Under Mr. Berry's agreement, he will be entitled to receive
deferred compensation of approximately $2.7 million on the earliest of
December 31, 2006, death, disability, a Change in Control Event (as defined in
1997 Plan) or termination without cause. If Mr. Berry voluntarily terminates
his employment with the Company or if his employment is terminated for cause,
he will be entitled to an amount equal to the vested portion of such deferred
compensation, initially equal to 10% and increasing 10% per year.
Mr. McKinney's employment agreement will be substantially identical to
Mr. Berry's except that Mr. McKinney's minimum annual base salary will be
$105,000 and his deferred compensation will be approximately $1.3 million.

As of the date hereof, Messrs. Berry and McKinney were issued options to
purchase 2,254,925 and 1,127,462 shares, respectively, of Common Stock under
the 1997 Plan with an exercise price equal to the initial public offering
price. The options will vest in ten equal installments over a 9.5 year period
commencing upon the first anniversary of the date hereof. See "--1997
Performance Award Plan."

35
<PAGE>

PROFIT SHARING PROGRAM

An integral part of the Company's operating philosophy is an innovative
profit sharing program applicable to all levels of employees. Profit sharing
is earned at each Profit Center based on each Profit Center's operating income
in excess of a pre-determined return on net assets at such location. Profit
sharing is accrued throughout the year and paid in cash in March of the
following year. The program does not limit the amount of profit sharing
compensation an employee may earn. For example, at the Company's top
performing Profit Center in 1996, the Profit Center manager earned
approximately 2.5 times his base salary in profit sharing. In 1996 managers of
profitable locations earned an average of approximately 92% of their base
salaries in profit sharing compensation.

Profit sharing is paid only to locations that are profitable, with
discretionary exceptions in some cases for start-up locations that generally
are not profitable until after their first year of operations. Unprofitable
locations generally must make up cumulative losses for the prior two years
before becoming eligible for profit sharing.

401(K) SAVINGS AND THRIFT PLAN

The Company has a defined contribution 401(k) plan that covers substantially
all full-time employees who have been employed by the Company for over one
year and have worked at least 1,000 hours. The 401(k) plan allows all
employees to defer amounts up to the statutory limit each year. The Company
has a discretionary matching program under which, in 1996, the Company matched
50% of employee contributions up to a maximum contribution by the Company of
$200 per employee.

1997 PERFORMANCE AWARD PLAN

The Company has established the 1997 Plan to attract, reward and retain
talented and experienced officers, other key employees and certain other
eligible persons (collectively, "Eligible Persons") who may be granted awards
from time to time by the Company's Board of Directors or the Committee (as
defined below).

Awards under the 1997 Plan may be in the form of nonqualified stock options,
incentive stock options, stock appreciation rights ("SARs"), restricted stock,
performance shares, stock bonuses, or cash bonuses based on performance.
Awards may be granted singly or in combination with other awards. Any cash
bonuses would be paid based upon the extent to which performance goals set by
the Committee are met during the performance period. Awards under the 1997
Plan generally will be nontransferable by a holder (other than by will or the
laws of descent and distribution) and rights thereunder generally will be
exercisable, during the holder's lifetime, only by the holder, subject to such
exceptions as may be authorized by the Committee.

Administration; Change in Control. The 1997 Plan provides that it will be
administered by the Board of Directors or a committee appointed by the Board
of Directors (the "Committee"). The Board of Directors intends to appoint the
Company's Compensation Committee to serve as the Committee under the 1997
Plan. The Committee will have the authority to (i) designate recipients of
awards, (ii) determine or modify the provisions of awards, including vesting
provisions, terms of exercise of an award and expiration dates, (iii) approve
the form of award agreements, and (iv) construe and interpret the 1997 Plan.
The Committee will have the discretion to accelerate and extend the
exercisability or term and establish the events of termination or reversion of
outstanding awards.

Upon a Change in Control Event each option and SAR will become immediately
exercisable, restricted stock will immediately vest free of restrictions and
the number of shares, cash or other property covered by each performance share
award will be issued to the grantee of such award, unless the Committee
determines to the contrary. A "Change in Control Event" is defined generally
to include the acquisition of 50% or more of the outstanding voting securities
of the Company by any person other than the Predecessor, the Principal
Stockholder or one of his affiliates, successors, heirs or relatives, a
transfer of substantially all of the Company's assets, the dissolution or
liquidation of the Company, or a merger, consolidation or reorganization
whereby stockholders immediately prior to such event own less than 50% of the
outstanding voting securities of the surviving entity after such event.

36
<PAGE>

Plan Amendment; Termination and Term. The Company's Board of Directors will
have the authority to amend, suspend or discontinue the 1997 Plan at any time,
but no such action will affect any outstanding award in any manner adverse to
the participant without the consent of the participant. The 1997 Plan may be
amended by the Board of Directors without stockholder approval unless such
approval is required by applicable law.

The 1997 Plan will remain in existence as to all outstanding awards until
such awards are exercised or terminated. The maximum term of unvested or
unexercised options, SARs and other rights to acquire Common Stock under the
1997 Plan is 10 years after the initial date of award. No award can be made
after the tenth anniversary of the date on which the Board of Directors
approved the 1997 Plan.

Authorized Shares and Other Provisions. The maximum number of shares of
Common Stock that may be issued in respect of awards under the 1997 Plan is
4,600,000 shares. The number of shares of Common Stock subject to awards
granted to any individual in any calendar year is limited to 2,500,000. The
number and kind of shares available for grant and the shares subject to
outstanding awards will be adjusted to reflect the effect of a stock dividend,
stock split, recapitalization, merger, consolidation, reorganization,
combination or exchange of shares, extraordinary dividend or other
distribution or other similar transaction. If any award expires or is
cancelled or terminated without having been exercised or paid in full, or if
any Common Stock subject to a restricted stock award does not vest or is not
delivered, the unpurchased, unvested or undelivered shares will again be
available for award under the 1997 Plan. No incentive stock option may be
granted at a price that is less than fair market value of the Common Stock
(less than 110% of fair market value of the Common Stock on the date of grant
for certain participants) on the date of grant.

Automatic Annual Grants to Non-Employee Directors. Under the 1997 Plan, each
director who is not an employee (including Bernard E. Lyons but not the
Principal Stockholder) (each a "Non-Employee Director") will be granted stock
options to purchase 2,500 shares of Common Stock upon becoming a director at
an exercise price equal to the market price of the Common Stock on that date.
In addition, at the close of trading on the day of the annual stockholders
meeting in each calendar year beginning in 1998 and continuing for each
subsequent year during the term of the 1997 Plan, each person who is a Non-
Employee Director as of such date will be granted stock options to purchase
1,000 shares of Common Stock at an exercise price equal to the market price of
the Common Stock on that date. No Non-Employee Director may receive options to
purchase more than 10,000 shares of Common Stock under the 1997 Plan. All Non-
Employee Director stock options have a 10-year term and will vest in equal
annual installments over a five-year period commencing on the first
anniversary of the grant date. If a Non-Employee Director's services are
terminated for any reason other than the director's death, disability or
retirement, any portion of stock options held by such director that are
exercisable will remain exercisable for six months after such termination of
services or until the expiration of the term of such option, whichever occurs
first. If the Non-Employee Director dies, becomes disabled or retires, stock
options held by such director will become exercisable immediately and remain
exercisable for two years after the date of such termination of services.

Federal Tax Consequences. The current federal income tax consequences of
awards authorized under the 1997 Plan follow certain basic patterns.
Generally, awards under the 1997 Plan that are includable in income of the
recipient at the time of award or exercise (such as nonqualified stock
options, SARs, restricted stock and performance awards) are deductible by the
Company, and awards that are not required to be included in income of the
recipient at such times (such as incentive stock options) are not deductible
by the Company.

Grant of Options. As of the date hereof, the Board of Directors of the
Company has granted options relating to 3,772,387 shares of Common Stock to
Eligible Persons including options to purchase 2,254,925 and 1,127,462 shares
of Common Stock granted to William F. Berry and John S. McKinney,
respectively. The exercise price of each option granted is the initial public
offering price per share of the Common Stock offered hereby. Other than
Messrs. Berry and McKinney's options which will vest over a 9.5 year period in
ten equal installments, such options vest in equal annual installments over a
period of five years.

37
<PAGE>

CERTAIN TRANSACTIONS

REGISTRATION RIGHTS AGREEMENT

The Predecessor and the Company have entered into a Registration Rights
Agreement under which the Predecessor (and certain permitted transferees) will
be entitled to certain rights with respect to the registration of its shares
of Common Stock under the Securities Act. Under this agreement, the
Predecessor will have the right to cause the Company to file a registration
statement on Form S-1 with respect to its Common Stock on two separate
occasions commencing six months after the date of the Offerings. Additionally,
if the Company proposes to register any of its securities under the Securities
Act, either for its own account or for the account of others, the Predecessor
is entitled, subject to certain limitations and exceptions, to notice of such
registration and is entitled to include shares of Common Stock therein. In
addition, at any time after the Company becomes eligible to file registration
statements on Form S-3 under the Securities Act, the Predecessor may require
from time to time that the Company file such a registration statement with
respect to its shares of Common Stock. All fees, costs and expenses of any
such registration (other than underwriting fees and commissions) will be borne
by the Company.

OFFERING RELATED AGREEMENTS

The Company and the Predecessor have entered into an asset contribution
agreement effective immediately prior to the consummation of the Offerings.
Under this agreement, the Predecessor will transfer substantially all of its
operating assets and associated liabilities to the Company in exchange for
20,748,975 shares of Common Stock of the Company, representing all of the
outstanding capital stock of the Company prior to the consummation of the
Offerings. The Predecessor will retain only non-operating assets and
liabilities, including approximately $25.7 million of notes receivable from
related parties and approximately $23.9 million of notes payable to related
parties. For a period of five years from the consummation of the Offerings,
the Predecessor has agreed to indemnify the Company and any of its directors,
officers, employees and agents against any losses incurred by any of them
arising from any of the assets and liabilities not transferred from the
Predecessor in the Offering Related Transactions. For the same period, or the
expiration of the applicable statute of limitations in the case of taxes and
environmental liabilities, the Company has agreed to indemnify the Predecessor
and its directors, officers, employees and agents against any losses incurred
by any of them arising from the operating business and any of the assets and
liabilities transferred to the Company in the Offering Related Transactions.
In addition, if any adjustment is made after the consummation of the Offerings
to the Predecessor's taxable income attributable to the Predecessor's business
for any period or any portion of any period ending on or prior to the
consummation of the Offerings that results in additional taxes being owed by
the Principal Stockholder, the Company will pay the Predecessor (for
distribution to the Principal Stockholder) an amount equal to such additional
taxes. The Predecessor will indemnify the Company against any liability for
taxes relating to any of the assets and liabilities not transferred as part of
the Offering Related Transactions.

In January 1997, the Predecessor entered into a Cancellation of Deferred
Compensation Agreement with each of William F. Berry and John S. McKinney.
Pursuant to such agreements, the Predecessor will pay Messrs. Berry and
McKinney approximately $13.3 million and $6.7 million, respectively, and the
Predecessor's prior deferred incentive compensation agreements will be
terminated. Prior to the Offerings, the Predecessor expects to draw down $20.0
million under the Credit Facility to fund such payments. The Company will
assume the liability for the indebtedness under the Credit Facility pursuant
to the Asset Contribution Agreement. The cost of the cancellation will be
expensed in the income statement of the Company in the first quarter of 1997.
See "Risk Factors--Quarterly Fluctuations and Seasonality," "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Quarterly Results" and Note 9 of Notes to Combined Financial Statements.

NOTES PAYABLE AND RECEIVABLE

The Predecessor made a dividend in the form of a subordinated note in the
principal amount of $10.0 million in favor of the Principal Stockholder, in
each of 1993 and 1994. Such notes bear interest at prime plus 5.0%.

38
<PAGE>

The notes, which mature on December 31, 2013 and 2014, respectively, were
subsequently donated to a charitable organization. None of the obligations
under such notes will be transferred to the Company. See "Offering Related
Transactions."

Certain notes have also been issued from time to time in favor of affiliates
of the Principal Stockholder. None of the Predecessor's obligations under such
notes will be transferred to the Company. See "Offering Related Transactions"
and Note 5 to Notes to Combined Financial Statements.

In 1984, the Predecessor received notes in connection with transactions with
an affiliate of the Principal Stockholder. Interest on these notes is due
quarterly at the rate of 13.5%. Annual principal payments of $100,000 are due
through December 31, 2013 and the remaining unpaid principal balance is due on
December 31, 2014. 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 issuer's cumulative net income from
December 31, 1984. Principal adjustments of such notes receivable reflected in
other income totalled $572,514 in 1996. None of the notes will be transferred
by the Predecessor to the Company. See "Offering Related Transactions."

The Predecessor received two notes in connection with transactions with an
immediate family member of the Principal Stockholder on May 1, 1995 and August
6, 1996, respectively. The first note, with an outstanding principal balance
as of December 31, 1995 of approximately $840,000, was repaid in full in 1996.
The second note, issued for $300,000 in August 1996, bears interest at the
Predecessor's borrowing rate from Bank of America NT&SA. Principal payments of
$3,000 plus all accrued interest are due monthly until July 31, 1998, at which
time all amounts outstanding under the note will be due. The second note will
not be transferred by the Predecessor to the Company. See "Offering Related
Transactions."

REAL PROPERTY

The Predecessor leases two pieces of property from each of Mr. Berry, the
Company's President and Chief Executive Officer, and a member of his immediate
family. The total annual lease payments for 1996 to Mr. Berry and to such
family member were $65,000 and $88,000, respectively. Further, Mr. Berry
purchased one of the aforementioned properties from the Predecessor in March
1996 for $640,000, a price the Predecessor believed to be the fair market
value. The Predecessor leases two pieces of property from an immediate family
member of the Principal Stockholder. The total annual lease payments made to
such family member in 1996 were $79,000. The Company believes that these
leases are on commercially fair and reasonable terms. All six leases will be
transferred by the Predecessor to the Company prior to consummation of the
Offerings.

MISCELLANEOUS

The Predecessor paid legal fees of $81,000 to an affiliate of the Principal
Stockholder as reimbursement to such affiliate for legal services rendered in
1996 for the Predecessor by Bernard E. Lyons, a Director and officer of the
Company.

Prior to the consummation of the Offerings, the Predecessor had a $2.5
million revolving credit arrangement (which provided for interest at a bank
reference rate plus 0.5%) with USR Leasing Company ("USRL"), an entity owned
by the Principal Stockholder. The Predecessor leased non-rental vehicles from
USRL under operating leases and agreed with USRL's lender to guarantee up to
$7.0 million of USRL's indebtedness. Lease charges from USRL amounted to
approximately $3.2 million for 1996. Prior to the consummation of the
Offerings, the Principal Stockholder will contribute all of the stock of USRL
to the Predecessor and the Predecessor will contribute such stock to the
Company as part of the Offering Related Transactions. USRL's accounts have
been combined with those of the Predecessor in the Combined Financial
Statements. See Note 1 to Notes to Combined Financial Statements.

The Predecessor has made various investments in unrelated businesses through
entities controlled by the Principal Stockholder. Such investments will not be
transferred by the Predecessor to the Company.

FUTURE TRANSACTIONS

The Company has implemented a policy requiring that any material transaction
with an affiliated party is subject to approval by a majority of the directors
not interested in such transaction, who must determine that the terms of any
such transaction are no less favorable to the Company than those that could be
obtained from an unaffiliated third party.

39
<PAGE>

PRINCIPAL STOCKHOLDERS

The following table sets forth certain information regarding beneficial
ownership of the Common Stock after giving effect to the Offering Related
Transactions and as adjusted to reflect the Offerings by (i) the Principal
Stockholder, (ii) each of the Company's directors and executive officers, and
(iii) all directors and executive officers as a group. Except as otherwise
indicated, the persons named in the table have sole voting and investment
power with respect to all shares beneficially owned.
<TABLE>
<CAPTION>
OWNERSHIP AFTER
OFFERINGS
---------------------
NUMBER OF
NAME AND ADDRESS OF BENEFICIAL OWNER (1) SHARES PERCENTAGE
---------------------------------------- ---------- ----------
<S> <C> <C>
Richard D. Colburn (2)................................ 20,748,975 67.5%
William F. Berry...................................... -- *
John S. McKinney...................................... -- *
Bernard E. Lyons...................................... -- *
Grace M. Crickette.................................... -- *
William F. Locklin.................................... -- *
Steven E. Nadelman.................................... -- *
---------- ----
All directors and executive officers as a group (7
persons)............................................. 20,748,975 67.5
========== ====
</TABLE>
- ---------------------
* Less than one percent.
(1) The business address of each of the persons listed in the table (other
than Bernard E. Lyons) is 1581 Cummins Drive, Suite 155, Modesto,
California 95358. Mr. Lyons' address is 1516 Pontius Avenue, Los Angeles,
California 90025.
(2) The Principal Stockholder owns 100% of the Predecessor, which was the sole
stockholder of the Company prior to the Offerings. See "Offering Related
Transactions."

40
<PAGE>

DESCRIPTION OF CAPITAL STOCK

The authorized capital stock of the Company consists of 100,000,000 shares
of Common Stock, par value $.01 per share, and 10,000,000 shares of Preferred
Stock, which can be issued in one or more series. Immediately following the
completion of the Offerings, an aggregate of 30,748,975 shares of Common Stock
will be issued and outstanding (assuming no exercise of the U.S. Underwriters'
over-allotment option) and no shares of Preferred Stock will be issued or
outstanding.

The following description of the Company's capital stock is a summary of the
material terms of such stock. It does not purport to be complete and is
subject in all respects to applicable Delaware law and to the provisions of
the Company's Certificate of Incorporation and Bylaws, copies of which have
been filed as exhibits to the Registration Statement of which this Prospectus
is a part.

COMMON STOCK

The Board of Directors of the Company in its sole discretion may issue
shares of Common Stock from the authorized and unissued shares of Common
Stock. Holders of Common Stock are entitled to one vote per share on all
matters to be voted upon by the stockholders, including the election of
directors. The Company's Certificate of Incorporation does not provide for
cumulative voting in the election of directors.

Holders of Common Stock are entitled to receive such dividends as may be
declared from time to time by the Board of Directors out of funds legally
available therefor. The Company does not anticipate paying any cash dividends
in the foreseeable future. See "Risk Factors--Absence of Dividends" and
"Dividend Policy." In the event of liquidation, dissolution or winding up of
the Company, holders of Common Stock are entitled to share ratably in all
assets remaining after payment of liabilities and after satisfaction of the
liquidation preference of any outstanding Preferred Stock.

Holders of Common Stock have no preemptive, conversion or redemption rights
and are not subject to further assessments by the Company. Upon consummation
of the Offerings, all of the then outstanding shares of Common Stock will be
validly issued, fully paid and nonassessable.

PREFERRED STOCK

The Company's Board of Directors is authorized to issue from time to time,
without stockholder authorization, in one or more designated series, any or
all of the authorized but unissued shares of Preferred Stock with such
dividend, redemption, conversion and exchange provisions as may be provided
for the particular series. Any series of Preferred Stock may possess voting,
dividend, liquidation and redemption rights superior to those of the Common
Stock. The rights of holders of Common Stock will be subject to and may be
adversely affected by the rights of the holders of any Preferred Stock that
may be issued in the future. Issuance of a new series of Preferred Stock,
while providing desirable flexibility in connection with possible acquisitions
and other corporate purposes, could make it more difficult for a third party
to acquire, or discourage a third party from acquiring, the outstanding voting
stock of the Company, and make removal of the present Board of Directors more
difficult. The Company has no present plans to issue any shares of Preferred
Stock. See "Risk Factors--Anti-takeover Provisions."

CERTAIN PROVISIONS OF DELAWARE LAW

The Company is a Delaware corporation and is subject to Section 203 of the
DGCL. In general, Section 203 prevents an "interested stockholder" (defined
generally as a person owning 15% or more of a corporation's outstanding voting
stock) from engaging in a "business combination" (as defined therein) with a
Delaware corporation for three years following the date such person became an
interested stockholder unless (i) before such person became an interested
stockholder, the board of directors of the corporation approved the
transaction in which the interested stockholder became an interested
stockholder or approved the business combination,

41
<PAGE>

(ii) upon consummation of the transaction that resulted in the interested
stockholder becoming an interested stockholder, the interested stockholder
owns at least 85% of the voting stock of the corporation outstanding at the
time the transaction commenced (excluding shares owned by persons who are both
officers and directors of the corporation and shares held by certain employee
stock ownership plans) or (iii) following the transaction in which such person
became an interested stockholder, the business combination is approved by the
board of directors of the corporation and authorized at a meeting of
stockholders by the affirmative vote of the holders of at least two-thirds of
the outstanding voting stock of the corporation not owned by the interested
stockholder.

LIMITATION OF LIABILITY AND INDEMNIFICATION AGREEMENTS

The Company's Certificate of Incorporation provides that to the fullest
extent permitted by the DGCL, a director of the Company shall not be liable to
the Company or its stockholders for monetary damages for breach of fiduciary
duty as a director. Under the DGCL, liability of a director may not be limited
(i) for any breach of the director's duty of loyalty to the Company or its
stockholders, (ii) for acts or omissions not in good faith or that involve
intentional misconduct or a knowing violation of law, (iii) in respect of
certain unlawful dividend payments or stock redemptions or repurchases and
(iv) for any transaction from which the director derives an improper personal
benefit. The effect of the provisions of the Company's Certificate of
Incorporation is to eliminate the rights of the Company and its stockholders
(through stockholders' derivative suits on behalf of the Company) to recover
monetary damages against a director for breach of the fiduciary duty of care
as a director (including breaches resulting from negligent or grossly
negligent behavior), except in the situations described in clauses (i) through
(iv) above. This provision does not limit or eliminate the rights of the
Company or any stockholder to seek nonmonetary relief such as an injunction or
rescission in the event of a breach of a director's duty of care. In addition,
the Company's Certificate of Incorporation provides that the Company shall
indemnify its directors, officers, employees and agents against losses
incurred by any such person by reason of the fact that such person was acting
in such capacity.

The Company has entered into agreements with each of the directors and
officers of the Company pursuant to which the Company has agreed to indemnify
such director or officer from claims, liabilities, damages, expenses, losses,
costs, penalties or amounts paid in settlement incurred by such director or
officer in or arising out of his capacity as a director, officer, employee
and/or agent of the Company or any other corporation of which such person is a
director or officer at the request of the Company to the maximum extent
provided by applicable law. In addition, such director or officer is entitled
to an advance of expenses to the maximum extent authorized or permitted by
law.

CERTAIN ANTI-TAKEOVER EFFECTS

The provisions of the Certificate of Incorporation and the Bylaws of the
Company summarized above may be deemed to have anti-takeover effects and may
delay, defer or prevent a tender offer or takeover attempt that a stockholder
might consider to be in such stockholder's best interest, including those
attempts that might result in a premium over the market price for the shares
held by stockholders. See "Risk Factors--Anti-takeover Provisions."

TRANSFER AGENT AND REGISTRAR

The Transfer Agent and Registrar for the Common Stock is American Stock
Transfer and Trust Company.

LISTING

Prior to the Offerings, there was no public trading market for the Common
Stock. The Common Stock has been approved for listing on the New York Stock
Exchange ("NYSE") upon notice of issuance under the symbol "USR."

42
<PAGE>

SHARES ELIGIBLE FOR FUTURE SALE

Upon the consummation of the Offerings, the Company will have outstanding
30,748,975 shares of Common Stock (assuming no exercise of the U.S.
Underwriters' over-allotment option). All of the shares of Common Stock sold
in the Offerings will be freely tradeable under the Securities Act, unless
purchased by "affiliates" of the Company as that term is defined under the
Securities Act. Upon the expiration of lock-up agreements between the Company,
the Predecessor, the Principal Stockholder and the Underwriters, which will
occur 180 days after the date of this Prospectus (the "Effective Date"), all
of the 20,748,975 shares of Common Stock owned by the Principal Stockholder
through the Predecessor (the "Restricted Shares") will become eligible for
sale, subject to compliance with Rule 144 of the Securities Act as described
below.

In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated) who has beneficially owned Restricted Shares for
at least two years, will be entitled to sell in any three-month period a
number of shares that does not exceed the greater of: (i) 1% of the number of
shares of Common Stock then outstanding (approximately 307,490 shares
immediately after the Offerings) or (ii) the average weekly trading volume of
the Company's Common Stock on the NYSE during the four calendar weeks
immediately preceding the date on which the notice of sale is filed with the
Securities and Exchange Commission. Sales pursuant to Rule 144 are subject to
certain requirements relating to manner of sale, notice and availability of
current public information about the Company. A person (or persons whose
shares are aggregated) who is not deemed to have been an affiliate of the
Company at any time during the 90 days immediately preceding the sale and who
has beneficially owned Restricted Shares for at least three years is entitled
to sell such shares pursuant to Rule 144(k) without regard to the limitations
and requirements described above. An amendment to Rule 144 that becomes
effective approximately 60 days from the date hereof will change the two- and
three-year holding period requirements described above to one and two years,
respectively.

The Predecessor and the Principal Stockholder have agreed with the
Underwriters that until 180 days after the Effective Date not to directly or
indirectly, offer, sell, contract to sell, grant any option to purchase or
otherwise dispose of any Common Stock or any securities convertible into or
exercisable or exchangeable for Common Stock, or in any manner transfer all or
a portion of the economic consequences associated with the ownership of the
Common Stock, or cause a registration statement covering any shares of Common
Stock to be filed, without the prior written consent of DLJ, subject to
certain limited exceptions. The Company has also agreed not to directly or
indirectly, offer, sell, contract to sell, grant any option to purchase or
otherwise dispose of any Common Stock or any securities convertible into or
exercisable or exchangeable for Common Stock or, in any manner, transfer all
or a portion of the economic consequences associated with the ownership of the
Common Stock or cause a registration statement covering any shares of Common
Stock to be filed, for a period of 180 days after the Effective Date, without
the prior written consent of DLJ, subject to certain limited exceptions
including grants of options pursuant to, and issuance of shares of Common
Stock upon exercise of options under, the 1997 Plan. The lock-up agreements
may be released at any time as to all or any portion of the shares subject to
such agreements at the sole discretion of DLJ. See "Risk Factors--Shares
Eligible for Future Sale; Registration Rights."

43
<PAGE>

UNDERWRITING

Subject to certain terms and conditions contained in an underwriting
agreement (the "Underwriting Agreement"), the U.S. Underwriters named below
(the "U.S. Underwriters") for whom DLJ, Merrill Lynch, Pierce, Fenner & Smith
Incorporated and Salomon Brothers Inc are acting as representatives (the "U.S.
Representatives"), and the international managers named below (the
"International Managers"), for whom DLJ, Merrill Lynch International and
Salomon Brothers International Limited are acting as representatives (the
"International Representatives" and together with the U.S. Representatives,
the "Representatives") have severally agreed to purchase from the Company the
number of shares of Common Stock set forth opposite their names below.

<TABLE>
<CAPTION>
NUMBER OF
U.S. UNDERWRITERS SHARES
----------------- ---------
<S> <C>
Donaldson, Lufkin & Jenrette Securities Corporation................ 1,948,000
Merrill Lynch, Pierce, Fenner & Smith Incorporated................. 1,948,000
Salomon Brothers Inc............................................... 1,948,000
ABN Amro Chicago Corporation....................................... 85,000
Bear Stearns & Co. Inc. ........................................... 85,000
Credit Suisse First Boston Corporation............................. 85,000
Deutsche Morgan Grenfell Inc. ..................................... 85,000
Furman Selz LLC.................................................... 85,000
Goldman, Sachs & Co. .............................................. 85,000
Montgomery Securities.............................................. 85,000
Morgan Stanley & Co. Incorporated.................................. 85,000
PaineWebber Incorporated........................................... 85,000
Prudential Securities Incorporated................................. 85,000
Robertson, Stephens & Company LLC.................................. 85,000
Schroder Wertheim & Co. Incorporated............................... 85,000
Smith Barney Inc. ................................................. 85,000
William Blair & Co., L.L.C. ....................................... 85,000
Advest, Inc. ...................................................... 42,000
Arnhold and S. Bleichroeder, Inc. ................................. 42,000
Robert W. Baird & Co. Incorporated................................. 42,000
Cleary Gull Reiland & McDevitt Inc. ............................... 42,000
Crowell, Weedon & Co. ............................................. 42,000
First of Michigan Corporation...................................... 42,000
Friedman, Billings, Ramsey & Co., Inc. ............................ 42,000
GS2 Securities, Inc. .............................................. 42,000
Interstate/Johnson Lane Corporation................................ 42,000
Janney Montgomery Scott Inc. ...................................... 42,000
Legg Mason Wood Walker, Incorporated............................... 42,000
McDonald & Company Securities, Inc. ............................... 42,000
Ormes Capital Markets, Inc. ....................................... 42,000
Parker/Hunter Incorporated......................................... 42,000
Pennsylvania Merchant Group Ltd.................................... 42,000
Principal Financial Securities, Inc. .............................. 42,000
Redwine & Company.................................................. 42,000
Ryan, Beck & Co. .................................................. 42,000
Sands Brothers & Co., Ltd. ........................................ 42,000
Stephens Inc. ..................................................... 42,000
Sutro & Company Inc. .............................................. 42,000
Tucker Anthony Incorporated........................................ 42,000
Wheat First Butcher Singer......................................... 42,000
---------
U.S. Offering subtotal........................................... 8,000,000
</TABLE>

44
<PAGE>

<TABLE>
<CAPTION>
NUMBER OF
INTERNATIONAL MANAGERS SHARES
---------------------- ----------
<S> <C>
Donaldson, Lufkin & Jenrette Securities Corporation............... 533,334
Merrill Lynch International Limited............................... 533,333
Salomon Brothers International Limited............................ 533,333
Cazenove & Co. ................................................... 100,000
ING Bank N.V. .................................................... 100,000
Kleinwort Benson Limited.......................................... 100,000
Societe Generale.................................................. 100,000
----------
International Offering subtotal................................. 2,000,000
----------
Total......................................................... 10,000,000
==========
</TABLE>

The Underwriting Agreement provides that the obligations of the several
Underwriters to purchase shares of Common Stock are subject to the approval of
certain legal matters by counsel and to certain other conditions. If any of
the shares of Common Stock are purchased by the Underwriters pursuant to the
Underwriting Agreement, all such shares of Common Stock (other than the shares
of Common Stock covered by the over-allotment option described below) must be
so purchased. The offering price and underwriting discounts and commissions
per share for the U.S. Offering and the International Offering are identical.

Prior to the Offerings, there has been no established trading market for the
Common Stock. The initial price to the public for the Common Stock offered
hereby was determined by negotiation between the Company and the
Representatives. The factors considered in determining the initial price to
the public include the history of and the prospects for the industry in which
the Company competes, the ability of the Company's management, the past and
present operations of the Company, the historical results of operations of the
Company, the prospects for future earnings of the Company, the general
condition of the securities markets at the time of the Offerings and the
recent market prices of securities of generally comparable companies.

The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act, or to contribute
to payments that the Underwriters may be required to make in respect thereof.

The Company has been advised by the Representatives that the Underwriters
propose to offer the shares of Common Stock to the public initially at the
price to the public set forth on the cover page of this Prospectus and to
certain dealers (who may include the Underwriters) at such price less a
concession not to exceed $0.75 per share. The Underwriters may allow, and such
dealers may reallow, discounts not in excess of $0.10 per share to any other
Underwriter and certain other dealers.

The Company has granted to the U.S. Underwriters an option to purchase up to
an aggregate of 1,500,000 additional shares of Common Stock at the initial
public offering price less underwriting discounts and commissions solely to
cover over-allotments. Such option may be exercised in whole or in part from
time to time during the 30-day period after the date of this Prospectus. To
the extent that the U.S. Underwriters exercise such option, each of the U.S.
Underwriters will be committed, subject to certain conditions, to purchase a
number of option shares proportionate to such U.S. Underwriter's initial
commitment as indicated in the preceding table.

The Company, the Predecessor and the Principal Stockholder have agreed not
to directly or indirectly offer, sell, contract to sell or otherwise dispose
of any shares of Common Stock or any securities convertible into or
exercisable or exchangeable for Common Stock, or in any manner transfer all or
a portion of the economic consequences associated with the ownership of such
Common Stock, or to cause a registration statement covering any shares of
Common Stock to be filed, for 180 days after the date of this Prospectus
without the prior written consent of DLJ, subject to certain limited
exceptions, and provided that the Company may grant options pursuant to, and
issue shares of Common Stock upon the exercise of options under, the 1997
Plan. See "Shares Eligible for Future Sale."

45
<PAGE>

Pursuant to an Agreement Between U.S. Underwriters and International
Managers, each U.S. Underwriter has represented and agreed that, with respect
to the shares included in the U.S. Offering and with certain exceptions, (a)
it is not purchasing any Common Stock for the account of anyone other than a
U.S. or Canadian Person (as defined below) and (b) it has not offered or sold,
and will not offer or sell, directly or indirectly, any Common Stock or
distribute this Prospectus outside of the U.S. or Canada or to anyone other
than a U.S. or Canadian Person. Pursuant to the Agreement Between U.S.
Underwriters and International Managers, each International Manager has
represented and agreed that, with respect to the shares included in the
International Offering and with certain exceptions, (a) it is not purchasing
any Common Stock for the account of any U.S. or Canadian Person and (b) it has
not offered or sold, and will not offer or sell, directly or indirectly, any
Common Stock or distribute this Prospectus within the U.S. or Canada or to any
U.S. or Canadian Person. The foregoing limitations do not apply to
stabilization transactions and to certain other transactions among the
International Managers and the U.S. Underwriters. As used herein, "U.S. or
Canadian Person" means any national or resident of the U.S. or Canada or any
corporation, pension, profit-sharing or other trust or other entity organized
under the laws of the U.S. or Canada or of any political subdivision thereof
(other than a branch located outside the U.S. or Canada of any U.S. or
Canadian Person) and includes any U.S. or Canadian branch of a person who is
not otherwise a U.S. or Canadian Person, and "U.S." means the United States of
America, its territories, its possessions and all areas subject to its
jurisdiction.

Pursuant to the Agreement Between U.S. Underwriters and International
Managers, sales may be made between the U.S. Underwriters and the
International Managers of any number of shares of Common Stock to be purchased
pursuant to the Underwriting Agreement as may be mutually agreed. The per
share price and currency of settlement of any shares so sold shall be the
public offering price set forth on the cover page of this Prospectus, in U.S.
dollars, less an amount not greater than the per share amount of the
concession to the dealers set forth above.

Pursuant to the Agreement Between U.S. Underwriters and International
Managers, each U.S. Underwriter has represented that it has not offered or
sold, and has agreed not to offer or sell, any Common Stock, directly or
indirectly in Canada in contravention of the securities laws of Canada or any
province or territory thereof and has represented that any offer of Common
Stock in Canada will be made only pursuant to an exemption from the
requirement to file a prospectus in the province or territory of Canada in
which such offer is made. Each U.S. Underwriter has further agreed to send to
any dealer who purchases from it any Common Stock a notice stating in
substance that, by purchasing such Common Stock, such dealer represents and
agrees that it has not offered or sold, and will not offer or sell, directly
or indirectly, any of such Common Stock in Canada in contravention of the
securities laws of Canada or any province or territory thereof and that any
offer of Common Stock in Canada will be made only pursuant to an exemption
from the requirement to file a prospectus in the province or territory of
Canada in which such offer is made, and that such dealer will deliver to any
other dealer to whom it sells any of such Common Stock a notice to the
foregoing effect.

Pursuant to the Agreement Between U.S. Underwriters and International
Managers, each International Manager has represented that (i) it has not
offered or sold and during the period of six months from the date of this
Prospectus will not offer or sell any shares of Common Stock to persons in the
United Kingdom except to persons whose ordinary activities involve them in
acquiring, holding, managing or disposing of investments (as principal or
agent) for the purposes of their businesses or otherwise in circumstances
which do not constitute an offer to the public in the United Kingdom for the
purposes of the Public Offers of Securities Regulations 1995 (the
"Regulations"); (ii) it has complied and will comply with all applicable
provisions of the Financial Services Act 1986 of Great Britain and the
Regulations with respect to anything done by it in relation to the Common
Stock in, from or otherwise involving the United Kingdom; and (iii) it has
only issued or passed on and will only issue or pass on in the United Kingdom
any document received by it in connection with the issue of the Common Stock
to a person who is of a kind described in Article 8 of the Financial Services
Act 1986 (Investment Advertisements) (Exemptions) (No. 2) Order 1995 of Great
Britain or is a person to whom such document may otherwise lawfully be issued
or passed on.

46
<PAGE>

The Representatives have informed the Company that they do not expect to
make sales to accounts over which they exercise discretionary authority in
excess of 5% of the number of shares of Common Stock offered hereby.

Up to an aggregate of 500,000 shares of Common Stock, or approximately 5% of
the shares offered hereby, have been reserved for sale at the public offering
price to certain employees of the Company and other persons designated by the
Company. The maximum investment of any such person may be limited by the
Company in its sole discretion. The number of shares of Common Stock available
for sale to the general public will be reduced to the extent such persons
purchase such reserved shares. Any reserved shares not so purchased will be
offered by the Underwriters to the general public on the same basis as the
other shares offered hereby. This program will be administered by DLJ.

The Common Stock has been approved for listing on the NYSE upon notice of
issuance. In order to meet the requirements for listing on the NYSE, the
Underwriters have undertaken to sell lots of 100 or more shares of Common
Stock to a minimum of 2,000 beneficial holders.

LEGAL MATTERS

The validity of the shares of the Common Stock offered hereby will be passed
upon for the Company by O'Melveny & Myers LLP, Los Angeles, California.
Certain legal matters will be passed upon for the Underwriters by Latham &
Watkins, Los Angeles, California.

EXPERTS

The financial statements of U.S. Rentals, Inc., the Predecessor, as of
December 31, 1995 and 1996 and for each of the three years in the period ended
December 31, 1996 and of U.S. Rentals, Inc., the Company, as of December 31,
1996 included in this Prospectus have been so included in reliance on the
reports of Price Waterhouse LLP, independent accountants, given on the
authority of said firm as experts in auditing and accounting.

AVAILABLE INFORMATION

The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-1 (together with all
amendments, exhibits, schedules and supplements thereto, the "Registration
Statement"), of which this Prospectus forms a part, covering the Common Stock
to be sold pursuant to the Offerings. As permitted by the rules and
regulations of the Commission, this Prospectus omits certain information,
exhibits and undertakings contained in the Registration Statement. Such
additional information, exhibits and undertakings can be inspected at and
obtained from the Commission at prescribed rates at the public reference
facilities maintained by the Commission at Room 1024, 450 Fifth Street, N.W.,
Judiciary Plaza, Washington, D.C. 20549 and at certain regional offices of the
Commission located at Northwestern Atrium Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661 and 13th Floor, 7 World Trade Center, New
York, New York, 10048. The Commission maintains a Web site at
http://www.sec.gov that contains reports, proxy and information statements and
other information regarding registrants that file electronically with the
Commission. In addition, the Common Stock has been approved for listing on the
NYSE upon notice of issuance, and reports and other information concerning the
Company may be inspected at the offices of such exchange. For additional
information with respect to the Company, the Common Stock and related matters
and documents, reference is made to the Registration Statement. Statements
contained herein concerning any such document are not necessarily complete
and, in each instance, reference is made to the copy of such document filed as
an exhibit to the Registration Statement. Each such statement is qualified in
its entirety by such reference.

The Company will issue annual reports and unaudited quarterly reports to its
stockholders for the first three quarters of each fiscal year. Annual reports
will include audited consolidated financial statements prepared in accordance
with accounting principles generally accepted in the United States and a
report of its independent public accountants with respect to the examination
of such financial statements. In addition, the Company will issue such other
interim reports as it deems appropriate.

47
<PAGE>

U.S. RENTALS, INC.

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
U.S. RENTALS, INC. (PREDECESSOR):
Report of Independent Accountants...................................... F-2
Combined Balance Sheets................................................ F-3
Combined Statements of Operations...................................... F-4
Combined Statements of Stockholder's Equity............................ F-5
Combined Statements of Cash Flows...................................... F-6
Notes to Combined Financial Statements................................. F-7
U.S. RENTALS, INC.:
Report of Independent Accountants...................................... F-14
Balance Sheet.......................................................... F-15
Note to Balance Sheet.................................................. F-16
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS:
Pro Forma Combined Balance Sheets...................................... F-17
Pro Forma Combined Statements of Operations............................ F-18
Notes to Pro Forma Combined Financial Statements....................... F-19
</TABLE>

F-1
<PAGE>

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors of
U.S. Rentals, Inc.

In our opinion, the accompanying combined balance sheets and the related
combined statements of operations, of stockholder's equity and of cash flows
present fairly, in all material respects, the financial position of U.S.
Rentals, Inc. at December 31, 1995 and 1996, and the results of their
operations and their cash flows for each of the three years in the period
ended December 31, 1996, in conformity with generally accepted accounting
principles. 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.

Price Waterhouse LLP
Sacramento, California
January 27, 1997

F-2
<PAGE>

U.S. RENTALS, INC. (PREDECESSOR)

COMBINED BALANCE SHEETS

(IN THOUSANDS EXCEPT SHARE AMOUNTS)

<TABLE>
<CAPTION>
PRO FORMA
DECEMBER 31, (NOTE 1)
----------------- DECEMBER 31,
1995 1996 1996
-------- -------- ------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Cash............................................ $ 3,479 $ 2,906 $ 906
Accounts receivable, net........................ 28,581 35,653 35,653
Notes receivable from affiliate................. 24,891 25,365 --
Notes receivable, other......................... 1,350 563 218
Inventories..................................... 3,938 5,841 5,841
Rental equipment, net........................... 152,848 205,982 205,982
Property and equipment, net..................... 26,370 42,345 42,345
Deferred offering costs......................... -- -- 561
Prepaid expenses and other assets............... 3,727 5,793 2,084
-------- -------- --------
Total assets.................................... $245,184 $324,448 $293,590
======== ======== ========
LIABILITIES AND STOCKHOLDER'S EQUITY
Accounts payable and other liabilities.......... $ 56,411 $ 57,008 $ 56,092
Notes payable to related parties................ 23,884 23,943 --
Notes payable, other............................ 81,812 162,767 182,767
Deferred taxes.................................. -- -- 7,030
-------- -------- --------
Total liabilities............................... 162,107 243,718 245,889
-------- -------- --------
Commitments and contingencies (Note 7)
Stockholder's equity:
Common stock, at stated value; 2,500 shares
authorized, 900 shares issued and outstanding. 699 699 207
Paid-in capital................................ 13,186 13,186 54,524
Retained earnings.............................. 69,192 66,845 (7,030)
-------- -------- --------
Total stockholder's equity...................... 83,077 80,730 47,701
-------- -------- --------
Total liabilities and stockholder's equity...... $245,184 $324,448 $293,590
======== ======== ========
</TABLE>

See accompanying notes.

F-3
<PAGE>

U.S. RENTALS, INC. (PREDECESSOR)

COMBINED STATEMENTS OF OPERATIONS

(IN THOUSANDS)

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1994 1995 1996
-------- -------- --------
<S> <C> <C> <C>
Revenues:
Rental revenue................................... $167,589 $214,849 $257,486
Rental equipment sales........................... 8,098 10,832 24,629
Merchandise and new equipment sales.............. 12,071 17,166 23,722
-------- -------- --------
Total revenues.................................. 187,758 242,847 305,837
-------- -------- --------
Cost of revenues:
Rental equipment expense......................... 42,034 51,370 65,102
Rental equipment depreciation.................... 33,754 43,885 56,105
Cost of rental equipment sales................... 2,946 4,693 10,109
Cost of merchandise and new equipment sales...... 7,428 11,418 17,423
Direct operating expense......................... 46,445 56,506 71,482
-------- -------- --------
Total cost of revenues.......................... 132,607 167,872 220,221
-------- -------- --------
Gross profit.................................... 55,151 74,975 85,616
Selling, general and administrative expense....... 27,273 31,440 35,934
Non-rental depreciation........................... 4,092 5,513 7,528
-------- -------- --------
Operating income................................ 23,786 38,022 42,154
Other expense, net................................ (242) (1,620) (665)
Interest income from affiliate.................... 3,324 3,343 3,420
Interest income, other ........................... 182 223 26
Interest expense, related parties................. (2,899) (4,078) (3,078)
Interest expense, other........................... (1,667) (4,798) (8,399)
-------- -------- --------
Income before income taxes...................... 22,484 31,092 33,458
Income tax expense................................ 499 468 374
-------- -------- --------
Net income...................................... $ 21,985 $ 30,624 $ 33,084
======== ======== ========
Unaudited pro forma data (Note 6):
Historical income before income taxes............ $ 22,484 $ 31,092 $ 33,458
Provision for income taxes....................... 9,221 12,780 13,456
-------- -------- --------
Pro forma net income............................ $ 13,263 $ 18,312 $ 20,002
======== ======== ========
</TABLE>

See accompanying notes.

F-4
<PAGE>

U.S. RENTALS, INC. (PREDECESSOR)

COMBINED STATEMENTS OF STOCKHOLDER'S EQUITY

(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
COMMON STOCK TOTAL
------------------- PAID-IN RETAINED STOCKHOLDER'S
SHARES STATED VALUE CAPITAL EARNINGS EQUITY
------ ------------ ------- -------- -------------
<S> <C> <C> <C> <C> <C>
Balance at December 31,
1993...................... 900 $699 $13,186 $ 35,723 $ 49,608
Net income................. 21,985 21,985
Dividends.................. (13,642) (13,642)
--- ---- ------- -------- --------
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
=== ==== ======= ======== ========
</TABLE>

See accompanying notes.

F-5
<PAGE>

U.S. RENTALS, INC. (PREDECESSOR)

COMBINED STATEMENTS OF CASH FLOWS

(IN THOUSANDS)

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1994 1995 1996
------- ------- --------
<S> <C> <C> <C>
Operating activities:
Net income........................................ $21,985 $30,624 $ 33,084
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation..................................... 37,846 49,398 63,633
Gain on sale of equipment........................ (5,322) (6,342) (14,955)
Principal adjustment on notes receivable......... (243) (220) (572)
Provision for doubtful accounts.................. 2,807 3,441 4,075
Changes in operating assets and liabilities:
Accounts receivable.............................. (8,633) (10,526) (11,147)
Inventories...................................... (514) (1,413) (1,903)
Prepaid expenses and other assets................ 17 (1,515) (2,066)
Accounts payable and other liabilities........... 17,462 11,588 597
------- ------- --------
Net cash provided by operating activities.......... 65,405 75,035 70,746
------- ------- --------
Investing activities:
Purchases of rental equipment..................... (83,157) (88,861) (119,348)
Proceeds from sale of rental equipment............ 8,098 10,832 24,629
Purchases of property and equipment, net.......... (10,514) (10,764) (23,068)
Funding of notes receivable, net.................. (922) (1,061) 2,537
------- ------- --------
Net cash used in investing activities.............. (86,495) (89,854) (115,250)
------- ------- --------
Financing activities:
Proceeds from (payments on) line of credit, net... 35,697 (28,200) 39,553
Proceeds from senior notes........................ -- 50,000 40,000
Payments on other obligations..................... (9,975) (718) (191)
Dividends paid.................................... (3,642) (5,498) (35,431)
------- ------- --------
Net cash provided by financing activities.......... 22,080 15,584 43,931
------- ------- --------
Net increase (decrease) in cash.................... 990 765 (573)
Cash at beginning of period........................ 1,724 2,714 3,479
------- ------- --------
Cash at end of period.............................. $ 2,714 $ 3,479 $ 2,906
======= ======= ========
Supplemental non-cash flow information:
Dividends declared to stockholder in the form of
notes payable (subsequently assigned to The
Colburn School of Performing Arts)............... $10,000 -- --
Note payable issued as partial payment for
property purchased............................... 1,000 -- --
Note payable issued as partial payment for assets
acquired in conjunction with a business
acquisition...................................... 500 -- --
</TABLE>

See accompanying notes.

F-6
<PAGE>

U.S. RENTALS, INC. (PREDECESSOR)

NOTES TO COMBINED FINANCIAL STATEMENTS

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization

U.S. Rentals, Inc. (the "Predecessor") is a California 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, 1996, the Predecessor operated 80 equipment rental
yards located in 11 states across the western and southern regions of the
United States.

Planned Offering

In connection with the planned initial public offering (the "Offerings"),
the Predecessor intends to transfer all of its operating assets and associated
liabilities to U.S. Rentals, Inc. ("U.S. Rentals"), a Delaware corporation, in
exchange for all of the outstanding shares of common stock of U.S. Rentals. In
addition, prior to the consummation of the Offerings, the Predecessor's
stockholder will contribute all of the stock of USR Leasing Company ("USRL")
(a special purpose entity owned by the Predecessor's stockholder) to the
Predecessor. In connection with the Offerings, the Predecessor will contribute
the stock of USRL to U.S. Rentals.

Related Party Transactions

As disclosed in these financial statements, the Predecessor 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.

Combination

The combined financial statements include the accounts of the Predecessor
and USRL, a special purpose entity under common control. All intercompany
accounts and transactions are eliminated in combination.

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.

Pro Forma Amounts

The pro forma amounts presented on the combined balance sheets reflect the
transfer of all of the operating assets and associated liabilities to U.S.
Rentals as discussed above, the payment of a cash dividend of $2,000,000 to
the Predecessor's stockholder as discussed in Note 9, and the recognition of a
deferred tax liability of $7,030,000 related to federal and state income taxes
as if the Predecessor had been taxed as a C corporation rather than an S
corporation since inception. A pro forma provision for income taxes has been
presented on the combined statement of operations as if the Predecessor had
been taxed as a C corporation rather than an S corporation for all periods
presented.

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.

F-7
<PAGE>

U.S. RENTALS, INC. (PREDECESSOR)

NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)

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
$136,573,000 and $161,765,000 at December 31, 1995 and 1996, respectively.

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 is 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 is 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.

Adoption of New Accounting Pronouncement

On January 1, 1996, the Predecessor adopted Statement of Financial
Accounting Standards (SFAS) No. 121, Accounting for the Impairment of Long-
Lived Assets and Long-Lived Assets to be Disposed of, which requires
impairment losses to be recorded on long-lived assets used in operations when
indicators of impairment are present and the assets' carrying amounts exceed
the undiscounted cash flows estimated to be generated by those assets. SFAS
No. 121 also requires impairment losses to be recorded when the carrying
amount of long-lived assets that are expected to be disposed of, exceed their
fair values, net of disposal costs. Adoption of SFAS No. 121 did not have a
material impact on the Predecessor's financial position at January 1, 1996 or
results of operations for the year ended December 31, 1996.

Inventories

The Predecessor'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 Predecessor 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.

F-8
<PAGE>

U.S. RENTALS, INC. (PREDECESSOR)

NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)

Earnings Per Share

Historical earnings per share data have not been presented due to the
planned change in capital structure as previously described.

Fair Value of Financial Instruments

The carrying amounts reported in the combined balance sheets for trade
accounts receivable and accounts payable and other liabilities approximate
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, 1996 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.

Concentration of Credit Risk

Financial instruments that potentially subject the Predecessor 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 Predecessor's geographic dispersion. The
Predecessor performs credit evaluations of its customers' financial condition
and generally does not require collateral on accounts receivable. The
Predecessor maintains an allowance for doubtful accounts on its receivables
based upon expected collectibility. Allowance for doubtful accounts was
$6,166,000 and $6,991,000 at December 31, 1995 and 1996, respectively.

Advertising Costs

The Predecessor advertises primarily through trade journals and the media.
Advertising costs are expensed as incurred.

Income Taxes

The Predecessor has 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 certain transactions discussed above under "Planned Offering",
historical results of operations, including income taxes, is not, in all
cases, indicative of future results. The unaudited pro forma income tax
provision is computed using the asset and liability method under which
deferred tax assets and liabilities are recognized for the expected future tax
consequences of temporary differences between tax bases and financial
reporting bases of assets and liabilities.

F-9
<PAGE>

U.S. RENTALS, INC. (PREDECESSOR)

NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)

2. NOTES RECEIVABLE FROM AFFILIATE

Interest on notes receivable from affiliate is due quarterly at the rate of
13.5%. Annual principal payments of $100,000 are due through December 31, 2013
and the remaining unpaid principal balance is due on December 31, 2014. The
Predecessor earned interest income from the affiliate of $3,324,000,
$3,343,000, and $3,420,000 for each of the three years in the period ended
December 31, 1996, 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 December 31, 1984. The accompanying financial statements
include principal adjustments in notes receivable and other income in the
amounts of $243,000, $220,000, and $572,000 for each of the three years in the
period ended December 31, 1996, respectively.

3. PROPERTY AND EQUIPMENT

Property and equipment, net, consists of the following (in thousands):

<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1995 1996
------- -------
<S> <C> <C>
Land....................................................... $ 8,233 $14,099
Buildings.................................................. 9,736 12,806
Vehicles and delivery equipment............................ 20,111 28,000
Yard equipment............................................. 2,660 3,000
Furniture and fixtures..................................... 3,826 4,626
Leaseholds................................................. 5,672 8,942
------- -------
50,238 71,473
Less accumulated depreciation.............................. (23,868) (29,128)
------- -------
$26,370 $42,345
======= =======
</TABLE>

4. ACCOUNTS PAYABLE AND OTHER LIABILITIES

Accounts payable and other liabilities consist of the following (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
---------------
1995 1996
------- -------
<S> <C> <C>
Trade payables and other accruals........................... $37,189 $34,264
Profit sharing accrual...................................... 8,945 8,742
Self-insurance reserve...................................... 10,277 14,002
------- -------
$56,411 $57,008
======= =======
</TABLE>

F-10
<PAGE>

U.S. RENTALS, INC. (PREDECESSOR)

NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)

5. NOTES PAYABLE

Notes payable consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1995 1996
-------- --------
<S> <C> <C>
Notes payable to related parties:
Subordinated note payable to The Colburn School of
Performing Arts, interest payable quarterly at prime
rate plus 5%, due in 2013 and 2014 (13.25% at December
31, 1996).............................................. $ 20,000 $ 20,000
Demand notes payable to related parties, interest at
various rates tied to the Predecessor's average bank
borrowing rate. Interest rates ranged from 8.45% to
10.25% at December 31, 1996............................ 3,884 3,943
-------- --------
23,884 23,943
-------- --------
Notes payable, other:
Senior notes payable to various parties, interest
payable semi-annually ranging from 6.82% to 7.76%, due
1999 to 2002........................................... 50,000 90,000
Revolving line of credit, interest payable monthly at
reference rate plus .125% (8.25% at December 31, 1996). 3,900 26,300
Revolving line of credit, interest payable monthly at
money market rate (ranging from 6.13% to 6.19% at
December 31, 1996)..................................... 23,000 43,000
Notes payable to a bank, interest and principal payable
monthly at rates ranging from 5.74% to 9.51%, due 1997. 4,162 2,967
Notes payable related to the purchase of certain
businesses, imputed interest averaging 7%, due through
1999................................................... 750 500
-------- --------
81,812 162,767
-------- --------
$105,696 $186,710
======== ========
</TABLE>

The Predecessor's agreement with the bank provides for a secured line of
credit of $110,000,000 maturing no later than October 31, 1997. The bank and
senior note agreements include restrictions as to limitations upon certain
ratios of liabilities to net worth and upon the minimum net worth of the
Predecessor. The Predecessor is in compliance with covenants in all
agreements. Substantially all rental equipment, property and equipment, and
notes and accounts receivable of the Predecessor are pledged as collateral for
the bank line of credit, senior notes, and notes related to purchases of
certain businesses. The Predecessor pays a commitment fee of 0.125% 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 Predecessor incurred interest expense of $2,899,000, $4,078,000, and
$3,078,000 on borrowings from related parties for each of the three years in
the period ended December 31, 1996, respectively.

Cash paid for interest was $4,535,000, $7,545,000, and $11,185,000 for each
of the three years in the period ended December 31, 1996, respectively.

F-11
<PAGE>

U.S. RENTALS, INC. (PREDECESSOR)

NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)

Maturities of debt are as follows at December 31, 1996 (in thousands):

<TABLE>
<S> <C>
1997........................................................... $ 76,510
1998........................................................... 100
1999........................................................... 10,100
2000........................................................... 10,000
2001........................................................... 30,000
Thereafter..................................................... 60,000
--------
$186,710
========
</TABLE>

6. INCOME TAXES

The income tax provision is comprised of current state income tax expense of
$499,000, $468,000, and $374,000 for each of the three years in the period
ended December 31, 1996, respectively. Deferred taxes for such periods have
been immaterial.

Cash payments of state income taxes made by the Predecessor were $353,000,
$597,000, and $353,000 for each of the three years in the period ended
December 31, 1996, respectively.

The unaudited pro forma provision for income taxes included in the
accompanying combined statements of operations shows the results as if the
Predecessor had always been subject to income taxes as a C corporation.

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:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1994 1995 1996
------- ------- -------
<S> <C> <C> <C>
Federal income taxes................................. 35.0% 35.0% 35.0%
State income taxes, net of federal benefit........... 5.3% 5.3% 4.9%
Other................................................ 0.7% 0.8% 0.3%
------- ------- -------
41.0% 41.1% 40.2%
======= ======= =======
</TABLE>

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.

Pro forma deferred taxes are provided for the temporary differences between
the financial reporting bases and the tax bases of the Predecessor's assets
and liabilities. Pro forma deferred tax assets (liabilities) are as follows
(in thousands):

<TABLE>
<CAPTION>
DECEMBER 31,
1996
------------
(UNAUDITED)
<S> <C>
Self-insurance reserves.................................... $ 5,983
Compensation related accruals.............................. 1,783
Allowances for doubtful accounts........................... 2,663
State income taxes......................................... 523
Others, net................................................ 972
-------
11,924
Depreciation............................................... (18,954)
-------
$(7,030)
=======
</TABLE>

F-12
<PAGE>

U.S. RENTALS, INC. (PREDECESSOR)

NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
7. COMMITMENTS AND CONTINGENCIES

Operating Leases

The Predecessor leases certain facilities under operating leases which
contain renewal options and provide for periodic cost of living adjustments.
Rental expense was $3,160,000, $3,365,000, and $3,681,000 for each of the
three years in the period ended December 31, 1996, respectively.

Future minimum rental commitments as of December 31, 1996 under
noncancelable operating leases are (in thousands):

<TABLE>
<S> <C>
1997............................................................ $ 3,743
1998............................................................ 2,893
1999............................................................ 2,510
2000............................................................ 1,730
2001............................................................ 1,051
Thereafter...................................................... 2,802
-------
$14,729
=======
</TABLE>
Legal Matters

The Predecessor is party to legal proceedings and potential claims arising
in the ordinary course of its business. In the opinion of management, the
Predecessor 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 Predecessor's financial position, results of
operations or cash flows. The Predecessor has accrued $7,730,000 and
$12,011,000 at December 31, 1995 and 1996, respectively, to cover the
uninsured portion of possible costs arising from these pending claims and
other potential unasserted claims.

Environmental Matters

The Predecessor 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 Predecessor
incurs ongoing expenses associated with the removal of underground storage
tanks and the performance of appropriate remediation at certain of its
locations. The Predecessor believes that such removal and remediation will not
have a material adverse effect on the Predecessor's financial position,
results of operations or cash flows.

8. EMPLOYEE BENEFIT PLANS

The Predecessor 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 Predecessor matches a minimum of 50% of the
participants' contributions up to a specified amount as determined by the
Board of Directors. Predecessor contributions to the plan were $533,000,
$246,000, and $122,000 for each of the three years in the period ended
December 31, 1996, respectively.

9. SUBSEQUENT EVENTS

In January 1997, the Predecessor declared and paid a cash dividend of
$2,000,000 to the Predecessor's stockholder.

Also in January 1997, the Predecessor entered into an agreement to cancel
deferred compensation agreements with certain executives. The cancellation is
contingent upon the transfer of operating assets and associated liabilities to
U.S. Rentals discussed in Note 1. Prior to the transfer, the Predecessor
expects to draw down $20,000,000 under its bank line of credit to fund the
cost of cancellation. U.S. Rentals will assume the liability for the
indebtedness under the bank line of credit as part of the transfer. The non-
recurring cost of the cancellation of $20,000,000 will be expensed in the
income statement of U.S. Rentals upon consummation of the transfer.

F-13
<PAGE>

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors
of U.S. Rentals, Inc.

In our opinion, the accompanying balance sheet presents fairly, in all
material respects, the financial position of U.S. Rentals, Inc., a Delaware
corporation, at December 31, 1996, in conformity with generally accepted
accounting principles. This financial statement is the responsibility of the
management of U.S. Rentals, Inc.; our responsibility is to express an opinion
on this financial statement based on our audit. We conducted our audit of this
statement in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statement is free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statement, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for the opinion expressed above.

Price Waterhouse LLP
Sacramento, California
January 27, 1997

F-14
<PAGE>

U.S. RENTALS, INC. (THE COMPANY)

BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)

<TABLE>
<CAPTION>
DECEMBER 31,
1996
------------
<S> <C>
ASSETS
Deferred offering costs............................................ $561
----
Total assets....................................................... $561
====
LIABILITIES AND STOCKHOLDER'S EQUITY
Accounts payable and other liabilities............................. $561
----
Total liabilities.................................................. 561
----
Stockholder's equity:
Preferred stock, $.01 par value; 10,000,000 shares authorized, no
shares issued or outstanding.................................... --
Common stock, $.01 par value; 100,000,000 shares authorized, no
shares issued or outstanding.................................... --
Paid-in capital.................................................... --
----
Total stockholder's equity......................................... --
----
Total liabilities and stockholder's equity......................... $561
====
</TABLE>

See accompanying notes.

F-15
<PAGE>

U.S. RENTALS, INC. (THE COMPANY)

NOTES TO BALANCE SHEET

DECEMBER 31, 1996

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 companies, industrial
enterprises, homeowners and other customers.

The Company was incorporated in 1987 in anticipation of a reorganization of
certain entities under common control. The reorganization will be undertaken
in connection with the planned offerings of Common Stock.

The balance sheet should be read in conjunction with the historical Combined
Financial Statements of U.S. Rentals, Inc., a California corporation (the
"Predecessor"), included elsewhere in this Prospectus.

Financial Statement Presentation

The preparation of the balance sheet 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 balance sheet. Actual
results could differ from those estimates.

Income Taxes

Income taxes are computed using the asset and liability method under which
deferred tax assets and liabilities are recognized for the expected future tax
consequences of temporary differences between tax bases and financial
reporting bases of assets and liabilities.

Stock-Based Compensation

The Company has adopted Statement of Financial Accounting Standards No. 123
("SFAS No. 123"), Accounting for Stock-Based Compensation effective January 1,
1996. The Company will measure compensation expense for its stock-based
employee compensation plans using the intrinsic value method prescribed by
Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to
Employees, and will provide pro forma disclosures of net income and net income
per share as if the fair value-based method prescribed by SFAS No. 123 had
been applied in measuring compensation expense.

2. DEFERRED OFFERING COSTS

The Company has incurred costs totaling $561,000, as of December 31, 1996,
in connection with the planned offerings. These costs have been reflected as
deferred offering costs in the accompanying balance sheet. If the planned
offerings are consummated, the costs will be deducted from the proceeds
received from the offerings. If the planned offerings are not consummated, the
costs will be charged to expense in the period in which a decision is made to
terminate the offerings. In such event, the costs would be paid by the
Predecessor.

F-16
<PAGE>

U.S. RENTALS, INC. (THE COMPANY)

UNAUDITED PRO FORMA COMBINED BALANCE SHEETS
DECEMBER 31, 1996
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)

<TABLE>
<CAPTION>
PRO FORMA
FOR THE
PRO FORMA OFFERING
ADJUSTMENTS PRO FORMA PRO FORMA RELATED
FOR THE OFFERING FOR THE ADJUSTMENTS TRANSACTIONS
THE THE RELATED OFFERING RELATED FOR THE AND THE
COMPANY PREDECESSOR TRANSACTIONS TRANSACTIONS OFFERINGS OFFERINGS
-------- ----------- ---------------- ---------------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Cash.................... $ -- $ 2,906 $ (2,000)(a) $ 906 $ 1,866 (i) $ 2,772
Accounts receivable,
net.................... -- 35,653 -- 35,653 -- 35,653
Notes receivable from
affiliate.............. -- 25,365 (25,365)(b) -- -- --
Notes receivables,
other.................. -- 563 (345)(b) 218 -- 218
Inventories............. -- 5,841 -- 5,841 -- 5,841
Rental equipment, net... -- 205,982 -- 205,982 -- 205,982
Property and equipment,
net.................... -- 42,345 -- 42,345 -- 42,345
Deferred offering costs. 561 -- -- 561 (561)(i) --
Prepaid expenses and
other assets........... -- 5,793 (3,709)(b) 2,084 -- 2,084
-------- -------- -------- -------- --------- --------
Total assets............ $ 561 $324,448 $(31,419) $293,590 $ 1,305 $294,895
======== ======== ======== ======== ========= ========
LIABILITIES AND STOCKHOLDER'S EQUITY
Accounts payable and
other liabilities...... $ 561 $ 57,008 $ (1,477)(b) $ 56,092 $ (561)(i) $ 55,531
Notes payable to
affiliates............. -- 23,943 (23,943)(b) -- -- --
Notes payable, other.... -- 162,767 20,000 (c) 182,767 (182,267)(h) 500
Deferred tax liability.. -- -- 7,030 (d) 7,030 -- 7,030
-------- -------- -------- -------- --------- --------
Total liabilities....... 561 243,718 1,610 245,889 (182,828) 63,061
-------- -------- -------- -------- --------- --------
Stockholder's equity:
Common stock of
Predecessor........... -- 699 (699)(a) -- -- --
Preferred stock, par
value $.01 per share;
10,000,000 shares
authorized, no shares
outstanding........... -- -- -- -- -- --
Common stock, par value
$.01 per share;
100,000,000 shares
authorized, 20,748,975
shares issued and
outstanding Pro Forma
for the Offering
Related Transactions
and 30,748,975 shares
issued and outstanding
Pro Forma for the
Offering Related
Transactions and the
Offerings............. -- -- 207 (f) 207 100 (i) 307
Paid-in capital........ -- 13,186 41,338 (f) 54,524 186,050 (i) 240,574
Retained earnings...... -- 66,845 (2,000)(a) (7,030) (2,017)(j) (9,047)
(3,300)(b)
(20,000)(c) -- --
(7,030)(d) -- --
(41,545)(f) -- --
-------- -------- -------- -------- --------- --------
Total stockholder's
equity................. -- 80,730 (33,029) 47,701 184,133 231,834
-------- -------- -------- -------- --------- --------
Total liabilities and
stockholder's equity... $ 561 $324,448 $(31,419) $293,590 $ 1,305 $294,895
======== ======== ======== ======== ========= ========
</TABLE>

See accompanying notes.

F-17
<PAGE>

U.S. RENTALS, INC. (THE COMPANY)

UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
PRO FORMA
FOR THE
PRO FORMA OFFERING
ADJUSTMENTS PRO FORMA PRO FORMA RELATED
FOR THE OFFERING FOR THE ADJUSTMENTS TRANSACTIONS
THE THE RELATED OFFERING RELATED FOR THE AND THE
COMPANY PREDECESSOR TRANSACTIONS TRANSACTIONS OFFERINGS OFFERINGS
------- ----------- ---------------- ---------------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Rental revenue......... $ -- $257,486 $ -- $257,486 $ -- $257,486
Rental equipment sales. -- 24,629 -- 24,629 -- 24,629
Merchandise and new
equipment sales....... -- 23,722 -- 23,722 -- 23,722
----- -------- -------- -------- ------ --------
Total revenues.......... -- 305,837 -- 305,837 -- 305,837
----- -------- -------- -------- ------ --------
Cost of revenues:
Rental equipment
expense............... -- 65,102 -- 65,102 -- 65,102
Rental equipment
depreciation.......... -- 56,105 -- 56,105 -- 56,105
Cost of rental
equipment sales....... -- 10,109 -- 10,109 -- 10,109
Cost of merchandise and
new equipment sales... -- 17,423 -- 17,423 -- 17,423
Direct operating
expense............... -- 71,482 -- 71,482 -- 71,482
----- -------- -------- -------- ------ --------
Total cost of revenues.. -- 220,221 -- 220,221 -- 220,221
----- -------- -------- -------- ------ --------
Gross profit............ -- 85,616 -- 85,616 -- 85,616
Selling, general and
administrative expense. -- 35,934 (1,524)(g) 34,410 -- 34,410
Non-rental depreciation. -- 7,528 -- 7,528 -- 7,528
----- -------- -------- -------- ------ --------
Operating income........ -- 42,154 1,524 43,678 -- 43,678
Other income (expense),
net.................... -- (665) 727 (e) 62 -- 62
Interest income from
affiliate.............. -- 3,420 (3,420)(e) -- -- --
Interest income, other.. -- 26 -- 26 -- 26
Interest expense,
related parties........ -- (3,078) 3,078 (e) -- -- --
Interest expense, other. -- (8,399) -- (8,399) 8,360 (l) (39)
----- -------- -------- -------- ------ --------
Income before income
taxes.................. -- 33,458 1,909 35,367 8,360 43,727
Income taxes............ -- 374 13,861 (k) 14,235 3,363 (l) 17,598
----- -------- -------- -------- ------ --------
Net income.............. $ -- $ 33,084 $(11,952) $ 21,132 $4,997 $ 26,129
===== ======== ======== ======== ====== ========
Net income per share.... $ 0.85
========
Weighted average common
shares outstanding..... 30,749
========
</TABLE>

See accompanying notes.

F-18
<PAGE>

U.S. RENTALS, INC. (THE COMPANY)

NOTES TO UNAUDITED PRO FORMA
COMBINED BALANCE SHEETS AND STATEMENTS OF OPERATIONS

1. BASIS OF PRESENTATION

Prior to the initial public offering (the "Offerings"), U.S. Rentals, Inc.,
a California corporation (the "Predecessor"), will transfer substantially all
of its operating assets and associated liabilities to U.S. Rentals, Inc. (the
"Company"), a Delaware corporation, in exchange for 20,748,975 shares of
common stock of the Company.

The unaudited pro forma financial data reflects the offering related
transactions described below and the Offerings as if such transactions had
been completed as of December 31, 1996 for pro forma combined balance sheet
data purposes and as of January 1, 1996 for pro forma combined statement of
operations data purposes. These data do not necessarily reflect the results of
operations or financial position of the Company that would have resulted had
such transactions actually been consummated as of such dates. Also, these data
are not necessarily indicative of the future results of operations or future
financial position of the Company.

2. PRO FORMA ADJUSTMENTS

Offering related transactions:

a) Reflects a cash dividend of $2,000,000 paid to the Predecessor's
stockholder in January, 1997.

b) Reflects the planned transfer of substantially all operating assets and
associated liabilities of the Predecessor to the Company in exchange for
20,748,975 shares of common stock of the Company. Not reflected in this
adjustment is cash to be retained to pay dividends to the Principal
Stockholder for income taxes due to the Predecessor's election to be
treated as an S corporation. Such cash is expected to be generated from
the Predecessor's operations from January 1, 1997 through the effective
date of the Offerings.

c) Prior to the transfer as described in b) above, the Predecessor will draw
down $20 million under its bank line of credit, which will be used to fund
the cost to cancel deferred incentive compensation agreements with certain
executives of the Predecessor. The cost to cancel such agreements will
result in a non-recurring expense in the income statement of the Company.

d) Reflects the recognition of a deferred tax liability relating to federal
and state income taxes as if the Company had been taxed as a C
corporation rather than as an S corporation since inception.

e) Reflects the pro forma effect on interest expense, interest income and
other income (expense), net from the planned transfer of all operating
assets and associated liabilities of the Predecessor to the Company.

f) Reflects the reclassification of retained earnings of the Predecessor to
paid-in capital of the Company in connection with the transfer of all
operating assets and associated liabilities of the Predecessor in
exchange for all the outstanding Common Stock of the Company.

g) Reflects the pro forma effect on selling, general and administrative
expense related to amounts earned in 1996 under deferred incentive
compensation agreements with certain executives of the Predecessor.
Expenses related to such agreements will not recur in future periods due
to the cancellation of the agreements as described in c) above.

F-19
<PAGE>

U.S. RENTALS, INC. (THE COMPANY)

NOTES TO UNAUDITED PRO FORMA
COMBINED BALANCE SHEETS AND STATEMENTS OF OPERATIONS--(CONTINUED)

Offerings:

h) Reflects the retirement of debt as described in (l) below with a portion
of the proceeds from the Offerings.

i) Reflects the net proceeds to the Company from the Offerings less the
payment of direct expenses relating to the Offerings and the retirement
of debt as described in (h) and (j).

j) Reflects the pro forma effect on retained earnings of the penalty
associated with early repayment of senior notes.

k) Adjustment to record the pro forma C corporation tax provision,
including effects of adjustments from (e) above.

l) Reflects the pro forma effect on interest expense and the related tax
effect of retiring debt with a portion of the net proceeds from the
Offerings. Such debt includes bank borrowings under a credit and
security agreement, senior notes payable and other notes payable.

3. PRO FORMA NET INCOME PER SHARE

Pro forma per share data is computed based on 30,748,975 shares of Common
Stock outstanding after giving effect to the Offering Related Transactions and
the Offerings.

F-20
<PAGE>

There is a large overview of a Profit Center covering the middle and left side
of the page. Pictures on the right side of the page are, from top to bottom: an
interior view of a Profit Center showroom with a customer looking at a product;
an overview of a Profit Center; and an interior view of a Profit Center with a
customer being served by a salesperson.
<PAGE>

- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------

NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST
NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE
UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A
SOLICITATION OF ANY OFFER TO BUY, THE COMMON STOCK IN ANY JURISDICTION WHERE,
OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH AN OFFER OR
SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE
HAS NOT BEEN ANY CHANGE IN THE FACTS SET FORTH IN THIS PROSPECTUS OR IN THE
AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.

------------

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
<S> <C>
Prospectus Summary........................................................ 3
Risk Factors.............................................................. 8
Offering Related Transactions............................................. 13
Use of Proceeds........................................................... 13
Dividend Policy........................................................... 13
Dilution.................................................................. 14
Capitalization............................................................ 15
Selected Financial Data................................................... 16
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 18
Business.................................................................. 24
Management................................................................ 33
Certain Transactions...................................................... 38
Principal Stockholders.................................................... 40
Description of Capital Stock.............................................. 41
Shares Eligible for Future Sale........................................... 43
Underwriting.............................................................. 44
Legal Matters............................................................. 47
Experts................................................................... 47
Available Information..................................................... 47
Index to Financial Statements............................................. F-1
</TABLE>

------------

UNTIL MARCH 18, 1997 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.

- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------

- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
10,000,000 SHARES

[LOGO OF U.S. RENTALS]

COMMON STOCK

----------------

PROSPECTUS

----------------

DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
MERRILL LYNCH & CO.
SALOMON BROTHERS INC

FEBRUARY 21, 1997

- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>

PROSPECTUS
FEBRUARY 21, 1997
10,000,000 SHARES

[LOGO OF U.S. RENTALS]

COMMON STOCK

Prior to the Offerings, there has been no public market for the Common
Stock. See "Underwriting" for a discussion of the factors considered in
determining the initial public offering price.

The Common Stock has been approved for listing on the New York Stock
Exchange upon notice of issuance under the symbol "USR."

SEE "RISK FACTORS" BEGINNING ON PAGE 8 FOR INFORMATION THAT SHOULD BE
CONSIDERED BY PROSPECTIVE INVESTORS.

DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
MERRILL LYNCH INTERNATIONAL
SALOMON BROTHERS INTERNATIONAL LIMITED
<PAGE>

CERTAIN UNITED STATES FEDERAL TAX CONSEQUENCES
TO NON-UNITED STATES HOLDERS OF COMMON STOCK

The following is a general summary of certain United States federal income
and estate tax consequences of the ownership, sale or other disposition of
Common Stock by a person (a "non-U.S. holder") that, for United States federal
income tax purposes, is a nonresident alien individual, a foreign corporation,
a foreign partnership or a foreign estate or trust, as such terms are defined
in the Internal Revenue Code of 1986, as amended (the "Code"). This summary
does not address all aspects of United States federal income and estate taxes
that may be relevant to non-U.S. holders in light of their particular facts
and circumstances or to certain types of non-U.S. holders that may be subject
to special treatment under United States federal income tax laws (for example,
individual non-U.S. holders who are former citizens or former long-term
residents of the United States, insurance companies, tax exempt organizations,
financial institutions or broker-dealers). Furthermore, this summary does not
discuss any aspects of foreign, state or local taxation. This summary is based
on current provisions of the Code, existing and proposed regulations
promulgated thereunder and administrative and judicial interpretations
thereof, all of which are subject to change, possibly retroactively.

DIVIDENDS

Dividends paid to a non-U.S. holder of Common Stock will generally be
subject to withholding of United States federal income tax at a 30% rate or
such lower rate as may be specified by an applicable income tax treaty, unless
the dividends are effectively connected with the conduct of a trade or
business of the non-U.S. holder within the United States. To claim the benefit
of an applicable tax treaty rate, a non-U.S. holder may have to file with the
Company or its dividend paying agent an exemption or reduced treaty rate
certificate or letter in accordance with the terms of such treaty.

Dividends that are effectively connected with such holder's conduct of a
trade or business in the United States are generally subject to tax on a net
income basis (that is, after allowance for applicable deductions) at rates
applicable to United States citizens, resident aliens and domestic United
States corporations, and are not generally subject to withholding. Any such
effectively connected dividends received by a non-U.S. corporation may also,
under certain circumstances, be subject to an additional "branch profits tax"
at a 30% rate on such lower rate as may be specified by an applicable income
tax treaty.

Under current United States Treasury regulations, dividends paid to an
address outside the United States are presumed to be paid to a resident of
such country for purposes of the withholding discussed above (unless the payor
has knowledge to the contrary). Under the current interpretation of United
States Treasury regulations, the same presumption applies for purposes of
determining the applicability of a tax treaty rate; however, under proposed
United States Treasury regulations not currently in effect, a non-U.S. holder
of Common Stock who wishes to claim the benefit of an applicable treaty rate
would be required to satisfy applicable certification and other requirements.
Certain certification and disclosure requirements must be complied with in
order to be exempt from withholding under the effectively connected income
exemption discussed above.

A non-U.S. holder of Common Stock that is eligible for a reduced rate of
United States tax withholding pursuant to an income tax treaty may obtain a
refund of any excess amounts currently withheld by filing an appropriate claim
for refund with the United States Internal Revenue Service.

DISPOSITION OF COMMON STOCK

A non-U.S. holder generally will not be subject to United States federal
income tax in respect of gain recognized on the disposition of Common Stock
unless (i) the gain is effectively connected with the conduct of a trade or
business of a non-U.S. holder in the United States, and if a tax treaty
applies, attributable to a permanent establishment maintained by the non-U.S.
holder, (ii) in the case of a non-U.S. holder who is a nonresident alien

44
<PAGE>

individual and holds Common Stock as a capital asset, such holder is present
in the United States for 183 or more days in the taxable year of the sale and
either (a) such individual's "tax home" for United States federal income tax
purposes is in the United States or (b) the gain is attributable to an office
or other fixed place of business maintained in the United States by such
individual, or (iii) if the Company is or has been a "U.S. real property
holding corporation" for federal income tax purposes at any time during the
five-year period ending on the date of the disposition or, if shorter, the
period during which the non-U.S. holder held the Common Stock and the non-U.S.
holder holds, actually or constructively, at any time during the applicable
period, more than 5% of the Common Stock. Although the Company owns some real
estate assets, it is not now and does not expect in the foreseeable future to
be a United States real property holding corporation for United States federal
tax purposes.

FEDERAL ESTATE TAXES

Common Stock owned or treated as owned by a holder who is neither a United
States citizen nor a United States resident (as specially defined for United
States federal estate tax purposes) at the time of death will be included in
such holder's gross estate for United States federal estate tax purposes,
unless an applicable estate tax treaty provides otherwise.

UNITED STATES INFORMATION REPORTING REQUIREMENTS AND BACKUP WITHHOLDING TAX

The Company must report annually to the Internal Revenue Service and to each
non-U.S. holder the amount of dividends paid to such holder and the tax
withheld with respect to such dividends. These information reporting
requirements apply regardless of whether withholding is required. Copies of
the information returns reporting such dividends and withholding may also be
made available to the tax authorities in the country in which the non-U.S.
holder resides under the provisions of an applicable income tax treaty.

United States backup withholding (which generally is imposed at a 31% rate)
generally will not apply to (i) the payment of dividends paid on Common Stock
to a non-U.S. holder at an address outside the United States or (ii) the
payment of the proceeds of the sale of Common Stock to or through the foreign
office of a foreign broker. In the case of the payment of proceeds from such a
sale of Common Stock through foreign offices of United States brokers, or
foreign brokers with certain types of relationships to the United States,
however, information reporting (but not backup withholding) is required with
respect to the payment unless the broker has documentary evidence in its files
that the owner is a non-U.S. holder (and has no actual knowledge to the
contrary) and certain other requirements are met or the holder otherwise
establishes an exemption. The payment of the proceeds of a sale of shares of
Common Stock to or through a U.S. office of a broker is subject to information
reporting and possible backup withholding at a rate of 31% unless the owner
certifies its non-U.S. status under penalties of perjury or otherwise
establishes an exemption. Any amounts withheld under the backup withholding
rules from a payment to a non-U.S. holder will be allowed as a refund or a
credit against such non-U.S. holder's United States federal income tax
liability, provided that the required information is furnished to the Internal
Revenue Service.

The United States Treasury has recently issued proposed regulations
regarding the withholding and information reporting rules discussed above. In
general, the proposed regulations do not alter the substantive withholding and
information reporting requirements but unify current certification procedures
and forms and clarify and modify reliance standards. For instance, the
proposed regulations would, among other changes, eliminate the presumption
under current regulations with respect to dividends paid to addresses outside
the United States. If finalized in their current form, the proposed
regulations would generally be effective for payments made after December 31,
1997, subject to certain transition rules.

THE FOREGOING SUMMARY IS INCLUDED FOR GENERAL INFORMATION ONLY. ACCORDINGLY,
INVESTORS ARE URGED TO CONSULT WITH THEIR TAX ADVISORS WITH RESPECT TO THE
UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF THE OWNERSHIP AND DISPOSITION
OF COMMON STOCK, INCLUDING THE APPLICATION AND EFFECT OF THE LAWS OF ANY
STATE, LOCAL, FOREIGN OR OTHER TAXING JURISDICTION.

45
<PAGE>

UNDERWRITING

<TABLE>
<S> <C>
NUMBER OF
U.S. UNDERWRITERS SHARES
---------
Donaldson, Lufkin & Jenrette Securities Corporation................ 1,948,000
Merrill Lynch, Pierce, Fenner & Smith Incorporated................. 1,948,000
Salomon Brothers Inc............................................... 1,948,000
ABN Amro Chicago Corporation....................................... 85,000
Bear Stearns & Co. Inc. ........................................... 85,000
Credit Suisse First Boston Corporation............................. 85,000
Deutsche Morgan Grenfell Inc. ..................................... 85,000
Furman Selz LLC.................................................... 85,000
Goldman, Sachs & Co. .............................................. 85,000
Montgomery Securities.............................................. 85,000
Morgan Stanley & Co. Incorporated.................................. 85,000
PaineWebber Incorporated........................................... 85,000
Prudential Securities Incorporated................................. 85,000
Robertson, Stephens & Company LLC.................................. 85,000
Schroder Wertheim & Co. Incorporated............................... 85,000
Smith Barney Inc. ................................................. 85,000
William Blair & Co., L.L.C. ....................................... 85,000
Advest, Inc. ...................................................... 42,000
Arnhold and S. Bleichroeder, Inc. ................................. 42,000
Robert W. Baird & Co. Incorporated................................. 42,000
Cleary Gull Reiland & McDevitt Inc. ............................... 42,000
Crowell, Weedon & Co. ............................................. 42,000
First of Michigan Corporation...................................... 42,000
Friedman, Billings, Ramsey & Co., Inc. ............................ 42,000
GS2 Securities, Inc. .............................................. 42,000
Interstate/Johnson Lane Corporation................................ 42,000
Janney Montgomery Scott Inc. ...................................... 42,000
Legg Mason Wood Walker, Incorporated............................... 42,000
McDonald & Company Securities, Inc. ............................... 42,000
Ormes Capital Markets, Inc. ....................................... 42,000
Parker/Hunter Incorporated......................................... 42,000
Pennsylvania Merchant Group Ltd.................................... 42,000
Principal Financial Securities, Inc. .............................. 42,000
Redwine & Company.................................................. 42,000
Ryan, Beck & Co. .................................................. 42,000
Sands Brothers & Co., Ltd. ........................................ 42,000
Stephens Inc. ..................................................... 42,000
Sutro & Company Inc. .............................................. 42,000
Tucker Anthony Incorporated........................................ 42,000
Wheat First Butcher Singer......................................... 42,000
---------
U.S. Offering subtotal........................................... 8,000,000
</TABLE>

46
<PAGE>

47
<PAGE>

48
<PAGE>

LEGAL MATTERS

EXPERTS

AVAILABLE INFORMATION

49
<PAGE>

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TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
<S> <C>
Prospectus Summary........................................................ 3
Risk Factors.............................................................. 8
Offering Related Transactions............................................. 13
Use of Proceeds........................................................... 13
Dividend Policy........................................................... 13
Dilution.................................................................. 14
Capitalization............................................................ 15
Selected Financial Data................................................... 16
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 18
Business.................................................................. 24
Management................................................................ 33
Certain Transactions...................................................... 38
Principal Stockholders.................................................... 40
Description of Capital Stock.............................................. 41
Shares Eligible for Future Sale........................................... 43
Certain United States Federal Tax Consequences to Non-United States
Holders of Common Stock.................................................. 44
Underwriting.............................................................. 46
Legal Matters............................................................. 49
Experts................................................................... 49
Available Information..................................................... 49
Index to Financial Statements............................................. F-1
</TABLE>

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10,000,000 SHARES

[LOGO OF U.S. RENTALS]

COMMON STOCK

----------------

PROSPECTUS

----------------

DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
MERRILL LYNCH INTERNATIONAL
SALOMON BROTHERS
INTERNATIONAL LIMITED

FEBRUARY 21, 1997

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