AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 10, 1998
                                                   REGISTRATION NO. 333-
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                      SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, D.C. 20549
 
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                                   FORM S-4
                            REGISTRATION STATEMENT
                                     UNDER
                          THE SECURITIES ACT OF 1933
                             UNITED RENTALS, INC.
            (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
         DELAWARE                  7353                  06-1493538
     (STATE OR OTHER         (PRIMARY STANDARD        (I.R.S. EMPLOYER 
     JURISDICTION OF     INDUSTRIAL CLASSIFICATION     IDENTIFICATION 
     INCORPORATION OR             NUMBER)                  NUMBER)     
      ORGANIZATION)
 
                          FOUR GREENWICH OFFICE PARK
                         GREENWICH, CONNECTICUT 06830
                                (203) 622-3131
  (ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
                   REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
 
                               BRADLEY S. JACOBS
                     CHAIRMAN AND CHIEF EXECUTIVE OFFICER
                             UNITED RENTALS, INC.
                          FOUR GREENWICH OFFICE PARK
                         GREENWICH, CONNECTICUT 06830
                                (203) 622-3131
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
                             OF AGENT FOR SERVICE)
 
                                  Copies to:
 
  Stephen M. Besen, Esq.    Joseph Ehrenreich, Esq.     Kent V. Graham, Esq.
  Weil, Gotshal & Manges     Ehrenreich Eilenberg      O'Melveny & Myers LLP 
           LLP               Krause & Zivian LLP      1999 Avenue of the Stars
     767 Fifth Avenue         11 East 44th Street      Los Angeles, CA 90067 
    New York, NY 10153        New York, NY 10017           (310) 553-6700     
      (212) 310-8000            (212) 986-9700                              
                                                                            
  Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this Registration Statement and the
effective time of the merger (the "Merger") of UR Acquisition Corporation, a
Delaware corporation and wholly-owned subsidiary of the Registrant, with and
into U.S. Rentals, Inc., a Delaware corporation ("USR"), as described in the
Agreement and Plan of Merger attached as Exhibit A to the Joint Proxy
Statement/Prospectus forming part of this Registration Statement.
 
  If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance
with General Instruction G, check the following box: [_]
 
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                        CALCULATION OF REGISTRATION FEE
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PROPOSED AMOUNT PROPOSED MAXIMUM MAXIMUM AMOUNT OF TITLE OF EACH CLASS OF TO BE OFFERING PRICE AGGREGATE REGISTRATION SECURITIES TO BE REGISTERED REGISTERED(1) PER UNIT(2) OFFERING PRICE(3) FEE(4) - --------------------------------------------------------------------------------------------- Common Stock, par value $0.01 per share...................... 29,620,913 $20.03 $593,341,518 $175,035.75 - ---------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------- (1) The amount of common stock, par value $0.01 per share, of the Registrant ("URI Common Stock") to be registered hereunder has been determined on the basis of the exchange rate for such shares in the Merger (i.e., 0.9625 of a share of URI Common Stock for each share of common stock, par value $0.01 per share, of USR ("USR Common Stock")). (2) Represents the quotient obtained by dividing (i) the proposed maximum aggregate offering price (determined as described in note (3) below) and (ii) the number of shares of URI Common Stock being registered hereunder. (3) Estimated pursuant to Rule 457(f)(1) under the Securities Act of 1933, as amended, solely for purposes of calculating the registration fee. Represents the product of (i) $19.28 (the average of the high and low sales prices per share of USR Common Stock as reported on the New York Stock Exchange on September 8, 1998) and (ii) 30,774,975 (the maximum number of outstanding shares of USR Common Stock which will be converted into shares of URI Common Stock in the Merger). (4) Pursuant to Rules 0-11 and 14a-6(i) under the Securities Exchange Act of 1934, as amended, a fee of $283,217.19 was paid on July 14, 1998 upon the initial filing by the Registrant and USR with the Commission of their preliminary joint proxy materials relating to the Merger. Pursuant to such Rules and Rule 457(b) under the Securities Act, the registration fee in respect of this filing has been completely offset by the amount of the fee previously paid upon the filing of such preliminary proxy materials. Accordingly, no additional fee is payable to the Commission with the filing of this Registration Statement. --------------- THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE. - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- UNITED RENTALS, INC. U.S. RENTALS, INC. MERGER PROPOSED--YOUR VOTE IS VERY IMPORTANT The respective Boards of Directors of United Rentals and U.S. Rentals have agreed on a merger transaction designed to create one of the largest and most geographically diversified equipment rental companies in North America. The combined company will continue under the name "UNITED RENTALS, INC." and will be headquartered in Greenwich, Connecticut. If the merger is completed, U.S. Rentals stockholders will receive 0.9625 shares of United Rentals Common Stock for each share of U.S. Rentals Common Stock that they own immediately prior to the effective time of the merger. United Rentals stockholders will continue to own their existing shares of United Rentals Common Stock after the merger. All outstanding options to purchase shares of U.S. Rentals Common Stock will be assumed by United Rentals and converted into options to purchase United Rentals Common Stock, subject to the exchange ratio. Based on the number of shares of U.S. Rentals Common Stock outstanding on August 28, 1998, approximately 29.6 million shares of United Rentals Common Stock may be issued to U.S. Rentals stockholders in connection with the merger, which will represent approximately 44.2% of the outstanding stock of United Rentals after the merger. The merger cannot be completed unless U.S. Rentals stockholders adopt the merger agreement and United Rentals stockholders approve an amendment to the United Rentals certificate of incorporation increasing the number of authorized shares of United Rentals Common Stock and the issuance of shares of United Rentals Common Stock to U.S. Rentals stockholders in connection with the merger. Each of our Boards of Directors has determined that the terms of the merger agreement and the merger are fair to and in the best interests of our respective stockholders and has unanimously approved and adopted the merger agreement. THEREFORE, THE UNITED RENTALS BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT UNITED RENTALS STOCKHOLDERS VOTE FOR APPROVAL OF AN AMENDMENT TO THE UNITED RENTALS CERTIFICATE OF INCORPORATION INCREASING THE AUTHORIZED NUMBER OF SHARES OF UNITED RENTALS COMMON STOCK AND THE ISSUANCE OF THE UNITED RENTALS COMMON STOCK TO U.S. RENTALS STOCKHOLDERS IN CONNECTION WITH THE MERGER; AND THE U.S. RENTALS BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT U.S. RENTALS STOCKHOLDERS VOTE FOR ADOPTION OF THE MERGER AGREEMENT. THE UNITED RENTALS BOARD OF DIRECTORS ALSO UNANIMOUSLY RECOMMENDS THAT UNITED RENTALS STOCKHOLDERS VOTE FOR APPROVAL OF THE ADOPTION OF THE UNITED RENTALS 1998 STOCK OPTION PLAN. Whether or not you plan to attend a meeting, please take the time to vote by completing and mailing the enclosed proxy card to us. If you sign, date and mail your proxy card without indicating how you want to vote, your proxy will be counted as a vote in favor of the adoption of the merger agreement, in the case of the U.S. Rentals meeting, in favor of the amendment to the United Rentals certificate of incorporation, the share issuance and the adoption of the United Rentals 1998 Stock Option Plan, in the case of the United Rentals meeting, and in the discretion of the proxy holder, in the case of either meeting, with respect to any other matter which may properly come before such meeting, including any adjournment or postponement thereof. The dates, times and places of the meetings are as follows: FOR UNITED RENTALS STOCKHOLDERS: SEPTEMBER 29, 1998; 11:00 A.M. PLACE: THE ST. REGIS HOTEL 2 EAST 55TH STREET NEW YORK, NEW YORK 10022 FOR U.S. RENTALS STOCKHOLDERS: SEPTEMBER 29, 1998; 10:00 A.M. PLACE: THE ST. REGIS HOTEL 2 EAST 55TH STREET NEW YORK, NEW YORK 10022 This Joint Proxy Statement/Prospectus constitutes a prospectus of United Rentals relating to the issuance of United Rentals Common Stock in connection with the merger and a joint proxy statement for both United Rentals and U.S. Rentals in connection with the solicitation of proxies by their respective Boards of Directors for use at their respective meetings of stockholders. This Joint Proxy Statement/Prospectus provides you with detailed information about the proposed merger. In addition, you may obtain information about our companies from documents that we have filed with the Securities and Exchange Commission. We encourage you to read this entire document carefully. /s/ Bradley S. Jacobs /s/ Richard D. Colburn Bradley S. Jacobs Richard D. Colburn Chairman of the Board and Chief Chairman of the Board of Directors Executive Officer U.S. Rentals, Inc. United Rentals, Inc. NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES REGULATORS HAVE APPROVED THE UNITED RENTALS COMMON STOCK TO BE ISSUED IN CONNECTION WITH THE MERGER OR DETERMINED IF THIS JOINT PROXY STATEMENT/PROSPECTUS IS ACCURATE OR ADEQUATE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. This Joint Proxy Statement/Prospectus is dated September 11, 1998 and is being first mailed to stockholders on September 14, 1998. UNITED RENTALS, INC. FOUR GREENWICH OFFICE PARK GREENWICH, CONNECTICUT 06830 NOTICE OF SPECIAL MEETING OF STOCKHOLDERS TO BE HELD ON SEPTEMBER 29, 1998 NOTICE IS HEREBY GIVEN that a Special Meeting of Stockholders of United Rentals, Inc., a Delaware corporation ("United Rentals"), will be held at The St. Regis Hotel, 2 East 55th Street, New York, New York 10022 on September 29, 1998 at 11:00 a.m., local time, for the following purposes: 1. To consider and vote upon a proposal to approve an amendment to the United Rentals certificate of incorporation (the "Charter Amendment") to increase the authorized number of shares of United Rentals common stock, par value $0.01 per share ("United Rentals Common Stock"), from 75,000,000 shares to 500,000,000 shares; 2. To consider and vote upon a proposal to approve, subject to approval of the Charter Amendment, the issuance of United Rentals Common Stock (the "Share Issuance") pursuant to an Agreement and Plan of Merger, dated as of June 15, 1998, as amended and restated on August 31, 1998 (the "Merger Agreement"), among United Rentals, UR Acquisition Corporation, a Delaware corporation and a wholly owned subsidiary of United Rentals ("Merger Sub"), and U.S. Rentals, Inc. ("U.S. Rentals"). Pursuant to the Merger Agreement, Merger Sub would be merged with and into U.S. Rentals (the "Merger"), U.S. Rentals would become a wholly owned subsidiary of United Rentals and, among other things, each share of common stock, par value $0.01 per share, of U.S. Rentals outstanding at the effective time of the Merger would be converted into the right to receive 0.9625 shares of United Rentals Common Stock, all as more fully described in the materials that follow this notice; 3. To consider and vote upon a proposal to approve the adoption of the United Rentals 1998 Stock Option Plan; and 4. To transact such other business incident to the conduct of the meeting as may properly come before the Special Meeting or any adjournments or postponement thereof, including adjournment or postponements for the purpose of soliciting additional proxies to approve the Charter Amendment, the Share Issuance and the adoption of the United Rentals 1998 Stock Option Plan. The Board of Directors of United Rentals has fixed the close of business on August 28, 1998 as the record date for the determination of stockholders entitled to notice of, and to vote at, the Special Meeting and any adjournment thereof. Only holders of record of shares of United Rentals Common Stock at the close of business on the record date are entitled to notice of, and to vote at, the Special Meeting. YOUR VOTE IS IMPORTANT. THE AFFIRMATIVE VOTE OF THE HOLDERS OF A MAJORITY OF THE OUTSTANDING SHARES OF UNITED RENTALS COMMON STOCK ENTITLED TO VOTE AT THE SPECIAL MEETING IS REQUIRED FOR APPROVAL OF THE CHARTER AMENDMENT AND THE AFFIRMATIVE VOTE OF A MAJORITY OF THOSE SHARES OF UNITED RENTALS COMMON STOCK PRESENT AND VOTING IS REQUIRED TO APPROVE THE ADOPTION OF THE UNITED RENTALS 1998 STOCK OPTION PLAN AND THE ISSUANCE OF UNITED RENTALS COMMON STOCK IN CONNECTION WITH THE MERGER (PROVIDED THAT THE TOTAL NUMBER OF VOTES CAST ON THE PROPOSAL REPRESENTS OVER 50% OF THE SHARES OF UNITED RENTALS COMMON STOCK ENTITLED TO VOTE ON THE PROPOSAL). EVEN IF YOU PLAN TO ATTEND THE SPECIAL MEETING IN PERSON, WE REQUEST THAT YOU SIGN AND RETURN THE ENCLOSED PROXY OR VOTING INSTRUCTION CARD AND THUS ENSURE THAT YOUR SHARES WILL BE REPRESENTED AT THE SPECIAL MEETING IF YOU ARE UNABLE TO ATTEND. IF YOU DO ATTEND THE SPECIAL MEETING AND WISH TO VOTE IN PERSON, YOU MAY WITHDRAW YOUR PROXY AND VOTE IN PERSON. By Order of the Board of Directors, /s/ John N. Milne John N. Milne Vice Chairman and Secretary Greenwich, Connecticut September 11, 1998 U.S. RENTALS, INC. 1581 CUMMINS DRIVE MODESTO, CALIFORNIA 95358 NOTICE OF SPECIAL MEETING OF STOCKHOLDERS TO BE HELD ON SEPTEMBER 29, 1998 NOTICE IS HEREBY GIVEN that a Special Meeting of Stockholders of U.S. Rentals, Inc., a Delaware corporation ("U.S. Rentals"), will be held at The St. Regis Hotel, 2 East 55th Street, New York, New York 10022 on September 29, 1998 at 10:00 a.m., local time, for the following purposes: 1. To consider and vote upon a proposal to adopt the Agreement and Plan of Merger, dated as of June 15, 1998, as amended and restated on August 31, 1998 (the "Merger Agreement"), among U.S. Rentals, United Rentals, Inc., a Delaware corporation ("United Rentals"), and UR Acquisition Corporation, a Delaware corporation and a wholly owned subsidiary of United Rentals ("Merger Sub"). Pursuant to the Merger Agreement, Merger Sub would be merged with and into U.S. Rentals (the "Merger"), U.S. Rentals would become a wholly owned subsidiary of United Rentals and, among other things, each share of common stock, par value $.01 per share, of U.S. Rentals ("U.S. Rentals Common Stock") outstanding at the effective time of the Merger would be converted into the right to receive 0.9625 shares of common stock, par value $.01 per share, of United Rentals, all as more fully described in the materials that follow this notice; and 2. To transact such other business incident to the conduct of the meeting as may properly come before the Special Meeting or any adjournments or postponements thereof, including adjournments or postponements of the Special Meeting for the purpose of soliciting additional proxies to adopt the Merger Agreement. The Board of Directors of U.S. Rentals has fixed the close of business on August 28, 1998 as the record date for the determination of stockholders entitled to notice of, and to vote at, the Special Meeting and any adjournment thereof. Only holders of record of shares of U.S. Rentals Common Stock at the close of business on the record date are entitled to notice of, and to vote at, the Special Meeting. Holders of U.S. Rentals Common Stock are not entitled to any appraisal rights under Delaware law in respect of the Merger. RICHARD D. COLBURN, CHAIRMAN OF THE BOARD OF DIRECTORS OF U.S. RENTALS, BENEFICIALLY OWNS APPROXIMATELY 67% OF THE OUTSTANDING U.S. RENTALS COMMON STOCK AND HAS AGREED TO VOTE SUCH SHARES IN FAVOR OF ADOPTION OF THE MERGER AGREEMENT. ACCORDINGLY, ADOPTION OF THE MERGER AGREEMENT BY THE STOCKHOLDERS OF U.S. RENTALS IS ASSURED. REGARDLESS, HOLDERS OF U.S. RENTALS COMMON STOCK ARE URGED TO VOTE ON THE PROPOSAL TO ADOPT THE MERGER AGREEMENT. EVEN IF YOU PLAN TO ATTEND THE SPECIAL MEETING IN PERSON, WE REQUEST THAT YOU SIGN AND RETURN THE ENCLOSED PROXY OR VOTING INSTRUCTION CARD AND THUS ENSURE THAT YOUR SHARES WILL BE REPRESENTED AT THE SPECIAL MEETING IF YOU ARE UNABLE TO ATTEND. IF YOU DO ATTEND THE SPECIAL MEETING AND WISH TO VOTE IN PERSON, YOU MAY WITHDRAW YOUR PROXY AND VOTE IN PERSON. By Order of the Board of Directors, /s/ Richard D. Colburn Richard D. Colburn Chairman of the Board of Directors Modesto, California September 11, 1998 JOINT PROXY STATEMENT/PROSPECTUS TABLE OF CONTENTS
PAGE ---- QUESTIONS AND ANSWERS...................................................... 1 SUMMARY.................................................................... 3 Market Price and Dividend Data........................................... 9 United Rentals Selected Historical Consolidated Financial Information.... 10 U.S. Rentals Selected Historical Financial Information................... 11 Summary Combined Unaudited Pro Forma Condensed Financial Information..... 12 Comparative Unaudited Per Share Data..................................... 15 FORWARD-LOOKING STATEMENTS................................................. 16 THE COMPANIES.............................................................. 17 United Rentals........................................................... 17 Merger Sub............................................................... 17 U.S. Rentals............................................................. 17 RISK FACTORS............................................................... 18 THE SPECIAL MEETINGS....................................................... 23 Date, Time and Place of the Meetings; Purposes of the Meetings........... 23 Record Date and Outstanding Shares....................................... 24 Voting and Revocation of Proxies......................................... 24 Votes Required........................................................... 25 Solicitation of Proxies.................................................. 26 Other Matters............................................................ 26 THE MERGER................................................................. 27 General Description of the Merger........................................ 27 Background of the Merger................................................. 27 Reasons for the Merger; Recommendation of the Boards of Directors........ 31 Opinion of Financial Advisors to United Rentals.......................... 35 Opinion of Financial Advisors to U.S. Rentals............................ 38 Certain Information Provided............................................. 44 Interests of Certain Persons in the Merger............................... 44 Material United States Federal Income Tax Consequences................... 46 Accounting Treatment..................................................... 47
PAGE ---- Governmental and Regulatory Approvals.................................. 48 Restrictions on Resales by Affiliates.................................. 48 Stock Market Listing................................................... 48 Appraisal Rights....................................................... 48 MATERIAL TERMS OF THE MERGER AGREEMENT................................... 49 The Merger............................................................. 49 Effective Time......................................................... 49 Conversion of Shares; Exchange of Stock Certificates; No Fractional Shares................................................................ 49 Treatment of U.S. Rentals Stock Options................................ 50 Representations and Warranties......................................... 51 Certain Covenants...................................................... 51 Conditions............................................................. 54 Termination............................................................ 56 Fees and Expenses...................................................... 57 Amendment; Extension; Waiver........................................... 58 Certain Terms of the Voting Agreements................................. 59 COMBINED UNAUDITED PRO FORMA CONDENSED FINANCIAL STATEMENTS.............. 60 MANAGEMENT OF UNITED RENTALS FOLLOWING THE MERGER........................ 74 Board of Directors..................................................... 74 Executive Officers..................................................... 75 ADDITIONAL MATTERS TO BE CONSIDERED AT THE UNITED RENTALS SPECIAL MEETING................................................................. 76 DESCRIPTION OF UNITED RENTALS CAPITAL STOCK.............................. 81 COMPARISON OF STOCKHOLDERS' RIGHTS....................................... 83 SECURITY OWNERSHIP BY CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OF UNITED RENTALS................................................................. 86 SECURITY OWNERSHIP BY CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OF U.S. RENTALS................................................................. 88
i JOINT PROXY STATEMENT/PROSPECTUS TABLE OF CONTENTS--(CONTINUED)
PAGE ---- LEGAL MATTERS............................................................ 89 EXPERTS.................................................................. 89 SUBMISSION OF FUTURE STOCKHOLDER PROPOSALS............................... 90 WHERE YOU CAN FIND MORE INFORMATION...................................... 91 INDEX OF DEFINED TERMS................................................... 92 APPENDICES Exhibit A--Amended and Restated Agreement and Plan of Merger among U.S. Rentals, Inc., United Rentals, Inc. and UR Acquisition Corporation Exhibit B--U.S. Rentals Voting Agreement Exhibit C--United Rentals Voting Agreement Exhibit D--Form of Employment Agreement between United Rentals and Mr. Berry Exhibit E--Form of Employment Agreement between United Rentals and Mr. McKinney Exhibit F--Form of Registration Rights Agreement Exhibit G--Opinion of Goldman, Sachs & Co. Exhibit H--Opinion of Donaldson, Lufkin & Jenrette Securities Corporation
PAGE ---- Exhibit I--Description of United Rentals Selected Historical and Pro Forma Consolidated Financial Information............................................. I-2 Management's Discussion and Analysis of Financial Condition and Results of Operations........................................................ I-4 Business........................................................... I-13 Management......................................................... I-23 Certain Transactions............................................... I-30 Index to Financial Statements...................................... I-31 Exhibit J--United Rentals 1998 Stock Option Plan Exhibit K--U.S. Rentals' Annual Report on Form 10-K for the year ended December 31, 1997 Exhibit L--U.S. Rentals' Quarterly Report on Form 10-Q for the quarter ended March 31, 1998 Exhibit M--U.S. Rentals' Quarterly Report on Form 10-Q for the quarter ended June 30, 1998
ii QUESTIONS AND ANSWERS ABOUT THE UNITED RENTALS/U.S. RENTALS MERGER Q: WHY ARE THE TWO COMPANIES PROPOSING TO MERGE? HOW WILL I BENEFIT? A: We believe that the merger of United Rentals and U.S. Rentals will create one of the largest and most geographically diversified equipment rental companies in North America. We believe the merger will provide opportunities to achieve substantial operating and administrative benefits for the combined company and its stockholders that might not otherwise be available. The combination of United Rentals' and U.S. Rentals' financial resources, management and equipment will produce a stronger company better able to capitalize on growth opportunities and serve its existing customer base as well as new customers. Q: WHAT WILL U.S. RENTALS STOCKHOLDERS RECEIVE FOR THEIR U.S. RENTALS SHARES? A: U.S. Rentals stockholders will be entitled to receive 0.9625 shares of United Rentals Common Stock in exchange for each share of U.S. Rentals Common Stock. This exchange ratio will not change, even if the market price of United Rentals Common Stock or U.S. Rentals Common Stock increases or decreases between now and the date that the merger is completed. Q: WILL UNITED RENTALS STOCKHOLDERS RECEIVE ANY SHARES AS A RESULT OF THE MERGER? A: No. The merger will not have any effect on the number of shares of United Rentals Common Stock that United Rentals stockholders own. Q: WHAT DO I NEED TO DO NOW? A: Just mail your signed proxy card in the enclosed return envelope as soon as possible so that your shares can be voted at the September 29, 1998 United Rentals special meeting (if you are a United Rentals stockholder) or at the September 29, 1998 U.S. Rentals special meeting (if you are a U.S. Rentals stockholder). Q: IF MY SHARES ARE HELD IN "STREET NAME" BY MY BROKER, WILL MY BROKER VOTE MY SHARES FOR ME? A: Your broker will not be able to vote your shares without instructions from you. You should instruct your broker to vote your shares, following the procedure provided by your broker. Q: CAN I CHANGE MY VOTE AFTER I HAVE MAILED MY SIGNED PROXY CARD? A: Yes. You can change your vote at any time before your proxy card is voted at the applicable stockholder meeting. You can do this in one of three ways. First, you can send a written notice stating that you would like to revoke your proxy. Second, you can complete and submit a new proxy card. Third, you can attend the appropriate meeting and vote in person. Your attendance alone will not, however, revoke your proxy. If you have instructed a broker to vote your shares, you must follow the procedure provided by your broker to change those instructions. Q: SHOULD I SEND IN MY STOCK CERTIFICATES NOW? A: No. If you are a U.S. Rentals stockholder, after the merger is completed you will receive written instructions for exchanging your stock certificate(s) representing shares of U.S. Rentals Common Stock as of the effective time for stock certificate(s) representing shares of United Rentals Common Stock. If you are a United Rentals stockholder, you will keep your stock certificates. Q: WHAT ARE THE TAX CONSEQUENCES OF THE MERGER TO STOCKHOLDERS? A: The exchange of shares of U.S. Rentals Common Stock for shares of United Rentals Common Stock in connection with the merger is intended to be tax- free to U.S. Rentals stockholders for federal income tax purposes. You will, however, recognize gain or loss with respect to any cash received by you for fractional shares. Your tax basis in the shares of United Rentals Common Stock that you will receive in connection with the merger will equal your current tax basis in your U.S. Rentals Common Stock. The merger will not have any effect on United Rentals stockholders for federal income tax purposes. 1 Q: WHEN DO YOU EXPECT THE MERGER TO BE COMPLETED? A: We hope to complete the merger in the fall of 1998. We are working toward completing the merger as quickly as possible. Q: WHERE CAN I FIND MORE INFORMATION ABOUT THE COMPANIES? A: Both of our companies file periodic reports and other information with the Securities and Exchange Commission. You may read and copy this information at the Commission's public reference facilities. Please call the Commission at 1-800-SEC-0330 for information about these facilities. This information is also available at the Internet site maintained by the Commission at http://www.sec.gov and at the offices of the New York Stock Exchange. For a more detailed description of the information available, please see page 91. Q: WHO CAN HELP ANSWER MY QUESTIONS? A: If you are a United Rentals stockholder and you have more questions about the merger, you should contact: Michael J. Nolan United Rentals, Inc. Four Greenwich Office Park Greenwich, Connecticut 06830 Telephone: (203) 622-3131 or Georgeson & Company Incorporated, United Rentals' proxy solicitor, who may be called toll-free at (800) 223-2064 If you are a U.S. Rentals stockholder and you have more questions about the merger, you should contact: John S. McKinney U.S. Rentals, Inc. 1581 Cummins Drive Modesto, California 95358 Telephone: (209) 544-9000 or Georgeson & Company Incorporated, U.S. Rentals' proxy solicitor, who may be called toll-free at (800) 223-2064 2 SUMMARY This summary primarily highlights selected information from this document and may not contain all of the information that is important to you. To understand the proposed merger fully and for a more complete description of the legal terms of the merger, you should read carefully this entire document and the other available information referred to in "Where You Can Find More Information" (page 91). The merger agreement is attached as Exhibit A to this Joint Proxy Statement/Prospectus. We encourage you to read the merger agreement. It is the legal document that governs the merger. We have included page references parenthetically to direct you to a more complete description of the topics presented in this summary. THE COMPANIES UNITED RENTALS, INC. (PAGE 17) Four Greenwich Office Park Greenwich, Connecticut 06830 United Rentals is a large and geographically diversified equipment rental company with 269 rental locations in 31 states and Canada. United Rentals rents a broad array of equipment to a diverse customer base that includes construction industry participants, industrial companies, homeowners and other individuals. United Rentals also sells used rental equipment, acts as a distributor for certain new equipment, and sells related merchandise and parts. United Rentals commenced equipment rental operations in October 1997 by acquiring six established equipment rental companies and has acquired 66 additional equipment rental companies to date in 1998. U.S. RENTALS, INC. (PAGE 17) 1581 Cummins Drive Modesto, California 95358 U.S. Rentals is the second largest equipment rental company in the United States and the largest in the Western United States based on 1997 rental revenues. U.S. Rentals currently operates 129 stores in 23 states and Mexico and generates an average of approximately 145,000 rental contracts per month from a diverse base of customers including commercial and residential construction, industrial and homeowner customers. U.S. Rentals owns more than 100,000 pieces of rental equipment comprised of over 600 equipment categories including aerial work platforms, forklifts, paving and concrete equipment, compaction equipment, air compressors, hand tools and plumbing, landscaping and gardening equipment. 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. OUR REASONS FOR THE MERGER (PAGE 31) We believe that the merger of United Rentals and U.S. Rentals will create one of the largest and most geographically diversified equipment rental companies in North America. We believe the merger will provide opportunities to achieve substantial operating and administrative benefits for the combined company and its stockholders that might not otherwise be available. The combination of United Rentals' and U.S. Rentals' financial resources, management and equipment will produce a stronger company better able to capitalize on growth opportunities and serve its existing customer base as well as new customers. THE STOCKHOLDER MEETINGS (PAGE 23) United Rentals. A Special Meeting of the stockholders of United Rentals will be held on September 29, 1998, at The St. Regis Hotel, 2 East 55th Street, New York, New York 10022 at 11:00 a.m. local time. At the meeting, United Rentals stockholders will be asked to: . approve an amendment to the United Rentals certificate of incorporation to increase the number of authorized shares of United Rentals Common Stock from 75,000,000 to 500,000,000; . approve the issuance of shares of United Rentals Common Stock to U.S. Rentals stockholders in connection with the merger; and . approve the adoption of the United Rentals 1998 Stock Option Plan. U.S. Rentals. A Special Meeting of the stockholders of U.S. Rentals will be held on September 29, 1998, at The St. Regis Hotel, 2 East 55th Street, New York, New York 10022 at 10:00 a.m. local time. At the meeting, U.S. Rentals stockholders will be asked to adopt the merger agreement. 3 OUR RECOMMENDATIONS TO STOCKHOLDERS (PAGE 31) To United Rentals Stockholders: The United Rentals Board of Directors believes that the merger is fair to you and in your best interest and unanimously recommends that you vote "FOR" the approval of the amendment to the United Rentals certificate of incorporation, "FOR" the issuance of the United Rentals shares to the U.S. Rentals stockholders in connection with the merger and "FOR" the adoption of the United Rentals 1998 Stock Option Plan. To U.S. Rentals Stockholders: The U.S. Rentals Board of Directors believes that the merger is fair to you and in your best interest and unanimously recommends that you vote "FOR" adoption of the merger agreement. RECORD DATE AND VOTING POWER (PAGE 24) United Rentals. You are entitled to vote at the United Rentals special meeting if you owned shares of United Rentals Common Stock at the close of business on August 28, 1998, the record date for the special meeting. You will have one vote at the United Rentals special meeting for each share of United Rentals Common Stock you owned on the record date on each of the matters to be considered at the special meeting. There are 37,328,491 shares of United Rentals Common Stock entitled to be voted at the special meeting. U.S. Rentals. You are entitled to vote at the U.S. Rentals special meeting if you owned shares of U.S. Rentals Common Stock at the close of business on August 28, 1998, the record date for the special meeting. You will have one vote at the U.S. Rentals special meeting for each share of U.S. Rentals Common Stock you owned on the record date for each of the matters to be considered at the special meeting. There are 30,774,975 shares of U.S. Rentals Common Stock entitled to be voted at the special meeting. VOTES REQUIRED (PAGE 25) United Rentals. The transaction of business at the United Rentals special meeting requires the presence in person or by proxy of the holders of a majority of the outstanding shares of United Rentals Common Stock entitled to vote at the special meeting. If a quorum is present, (i) approval of the amendment to the certificate of incorporation of United Rentals requires the affirmative vote of a majority of the outstanding shares of United Rentals Common Stock entitled to vote and (ii) approval of the share issuance and adoption of the Stock Option Plan each requires the affirmative vote of a majority of the shares of United Rentals Common Stock cast on the proposal (provided that the total number of votes cast on the proposal represents a majority of the shares of United Rentals Common Stock entitled to vote on the proposal). Bradley S. Jacobs, Chairman and Chief Executive Officer of United Rentals, beneficially owns 10,000,100 shares of United Rentals Common Stock, constituting approximately 26.8% of the outstanding United Rentals Common Stock. Mr. Jacobs also has currently exercisable warrants to acquire an additional 5,000,000 shares which, if exercised, would give him ownership of a total of approximately 40.2% of the outstanding United Rentals Common Stock. Mr. Jacobs had not exercised any of such warrants as of the record date for the United Rentals special meeting. As part of the transaction, Mr. Jacobs has agreed to vote all of his shares of United Rentals Common Stock in favor of both the amendment to the United Rentals certificate of incorporation and the share issuance. U.S. Rentals. The transaction of business at the U.S. Rentals special meeting requires the presence in person or by proxy of the holders of a majority of the outstanding shares of U.S. Rentals Common Stock entitled to vote at the special meeting. If a quorum is present at the U.S. Rentals special meeting, adoption of the merger agreement requires the affirmative vote of the holders of a majority of the outstanding shares of U.S. Rentals Common Stock entitled to vote thereon. Richard D. Colburn, Chairman of the Board of U.S. Rentals, beneficially owns 20,603,105 shares of U.S. Rentals Common Stock, constituting approximately 67% of the outstanding U.S. Rentals Common Stock. AS PART OF THE TRANSACTION, MR. COLBURN HAS AGREED TO VOTE ALL OF SUCH SHARES IN FAVOR OF ADOPTION OF THE MERGER AGREEMENT. ACCORDINGLY, ADOPTION OF THE MERGER AGREEMENT IS ASSURED. NOTWITHSTANDING MR. COLBURN'S AGREEMENT, HOWEVER, ALL HOLDERS OF U.S. RENTALS COMMON STOCK ARE URGED TO VOTE ON THE ADOPTION OF THE MERGER AGREEMENT. 4 SHARE OWNERSHIP (PAGES 86 AND 88) United Rentals. As of the record date for the United Rentals special meeting, the directors and executive officers of United Rentals (including Mr. Bradley Jacobs) owned approximately 34% of the shares of United Rentals Common Stock entitled to vote at the special meeting. Each of them has advised United Rentals that he or she plans (or, in the case of Mr. Jacobs, has agreed) to vote all such shares in favor of the approval of the charter amendment, the share issuance and the adoption of the United Rentals 1998 Stock Option Plan. U.S. Rentals. As of the record date for the U.S. Rentals special meeting, the directors and executive officers of U.S. Rentals (including Mr. Richard D. Colburn) owned approximately 68.2% of the shares of U.S. Rentals Common Stock entitled to vote at the special meeting. Each of them has advised U.S. Rentals that he or she plans (or, in the case of Mr. Colburn, has agreed) to vote all such shares in favor of adoption of the merger agreement. OPINIONS OF FINANCIAL ADVISORS (PAGES 35 AND 38) United Rentals. Goldman, Sachs & Co. ("Goldman Sachs") has delivered its opinion dated June 15, 1998 to the United Rentals Board of Directors to the effect that, as of such date, the exchange ratio pursuant to the merger agreement was fair from a financial point of view to United Rentals. The full text of the written opinion of Goldman Sachs, which sets forth assumptions made, matters considered and limitations on the review undertaken in connection with the opinion, is attached hereto as Exhibit G and is incorporated herein by reference. The opinion of Goldman Sachs referred to herein does not constitute a recommendation as to how any holder of shares of United Rentals Common Stock should vote with respect to such transaction. HOLDERS OF SHARES OF UNITED RENTALS COMMON STOCK ARE URGED TO, AND SHOULD, READ SUCH OPINION IN ITS ENTIRETY. See "The Merger--Opinion of Financial Advisors to United Rentals." U.S. Rentals. In deciding to approve the merger agreement, one of the factors that the U.S. Rentals Board of Directors considered was the opinion of its financial advisor, Donaldson, Lufkin & Jenrette Securities Corporation ("DLJ"), that, as of June 15, 1998, the exchange ratio was fair to the holders of shares of U.S. Rentals Common Stock (the "Public Stockholders") other than Ayr, Inc. and Richard D. Colburn from a financial point of view. The opinion of DLJ referred to herein does not constitute a recommendation as to how any holder of shares of U.S. Rentals Common Stock should vote with respect to such transaction. The full text of DLJ's opinion describes the bases and assumptions on which its opinion was rendered and is attached as Exhibit H to this Joint Proxy Statement/Prospectus. U.S. RENTALS URGES ITS STOCKHOLDERS TO READ DLJ'S OPINION CAREFULLY AND IN ITS ENTIRETY. See "The Merger--Opinion of Financial Advisors to U.S. Rentals." WHAT YOU WILL RECEIVE IN THE MERGER (PAGE 27) United Rentals Stockholders. After the merger, each share of United Rentals Common Stock will remain outstanding and will represent one share of the combined company, which will continue under the name "United Rentals, Inc." U.S. Rentals Stockholders. In connection with the merger, U.S. Rentals stockholders will be entitled to receive 0.9625 shares of United Rentals Common Stock in exchange for each share of U.S. Rentals Common Stock they own. Because the merger agreement provides that United Rentals will not issue fractional shares in connection with the merger, you will receive a cash payment for the value of the remaining fraction of a share of United Rentals Common Stock that you would otherwise receive in connection with the merger. OWNERSHIP OF UNITED RENTALS FOLLOWING THE MERGER Based on the number of shares of U.S. Rentals Common Stock outstanding as of the record date for the U.S. Rentals special meeting, we anticipate that United Rentals will issue approximately 29.6 million shares of United Rentals Common Stock to U.S. Rentals stockholders in connection with the merger and that such shares will constitute approximately 44.2% of the outstanding shares of United Rentals Common Stock after the merger. BOARD OF DIRECTORS AND MANAGEMENT OF UNITED RENTALS FOLLOWING THE MERGER (PAGE 74) Each of the current members of the United Rentals Board of Directors will continue to serve on the Board of Directors of the combined company. In 5 addition, pursuant to the merger agreement, United Rentals and U.S. Rentals have agreed that the Board of Directors of United Rentals at the time the merger is completed will be increased by four members, and will include Mr. Colburn, William F. Berry, President and Chief Executive Officer of U.S. Rentals, one other member of the current U.S. Rentals Board of Directors selected by United Rentals and one person to be mutually agreed upon by Mr. Jacobs and Mr. Colburn. Mr. Colburn will become Chairman Emeritus of the United Rentals Board of Directors and Mr. Jacobs will remain as Chairman of the Board and Chief Executive Officer of United Rentals. In addition, pursuant to the merger agreement, United Rentals will enter into employment contracts with Mr. Berry and John S. McKinney, the Chief Financial Officer of U.S. Rentals. Mr. Berry will become President of United Rentals and Mr. McKinney will become Vice President, Finance. Wayland R. Hicks, currently President and Chief Operating Officer of United Rentals, will become Vice Chairman and Chief Operating Officer, John N. Milne will remain as Vice Chairman and Chief Acquisition Officer and Michael J. Nolan will remain as Chief Financial Officer of United Rentals. OTHER INTERESTS OF OFFICERS AND DIRECTORS IN THE MERGER (PAGE 44) In considering the recommendation of the U.S. Rentals Board of Directors that U.S. Rentals stockholders adopt the merger agreement, U.S. Rentals stockholders should be aware that a number of U.S. Rentals' officers and directors have interests in the merger that are different from other U.S. Rentals stockholders. Pursuant to the merger agreement, United Rentals will enter into employment contracts, which will become effective at the effective time of the merger, with Mr. Berry, who will become President of United Rentals, and Mr. McKinney, who will become Vice President, Finance. Pursuant to these employment contracts, Messrs. Berry and McKinney will receive options to purchase additional shares of United Rentals Common Stock. In addition, under their current employment contracts, certain deferred compensation payments will become due upon the merger pursuant to which Messrs. Berry and McKinney will receive $2,666,683 and $1,333,342, respectively. Under the terms of U.S. Rentals' stock option plan, all outstanding U.S. Rentals stock options issued pursuant to the plan will become vested on the affirmative vote by U.S. Rentals stockholders in favor of the adoption of the merger agreement. Under the terms of the merger agreement, the U.S. Rentals stock options will become options to purchase United Rentals Common Stock. In addition, Messrs. Berry and McKinney will have certain registration rights with respect to shares of United Rentals Common Stock subject to their options. In addition, United Rentals has agreed to indemnify each officer and director of U.S. Rentals against losses arising from his or her service as a director or officer of U.S. Rentals and will also continue to maintain directors' and officers' liability insurance for such persons. CONDITIONS TO THE MERGER (PAGE 54) United Rentals and U.S. Rentals will not complete the merger unless a number of conditions are satisfied or, if permitted, waived by them. These include: . the adoption of the merger agreement by the stockholders of U.S. Rentals; . the approval by the stockholders of United Rentals of the amendment to the certificate of incorporation of United Rentals and the share issuance in connection with the merger; . the absence of any law, regulation or order making the merger illegal or prohibiting the merger; . the receipt of necessary approvals from U.S. governmental authorities; and . the receipt of letters from their respective independent accountants that it is appropriate to account for the merger as a pooling of interests. GOVERNMENTAL APPROVALS (PAGE 48) On June 26, 1998, United Rentals and U.S. Rentals each filed under the Hart- Scott-Rodino Antitrust Improvements Act of 1976 a premerger notification with the Department of Justice and the Federal Trade Commission in respect of the merger. On July 9, 1998, United Rentals and U.S. Rentals were advised that early termination of the waiting period under such Act had been granted. 6 NO SOLICITATION (PAGE 52) United Rentals and U.S. Rentals have each agreed not to initiate or, subject to certain exceptions which may not be exercised until after October 14, 1998, engage in any discussions with another party regarding a business combination with such other party while the merger is pending, provided that United Rentals or U.S. Rentals may each continue to acquire other companies. TERMINATION OF THE MERGER AGREEMENT (PAGE 56) United Rentals and U.S. Rentals mutually can agree to terminate the merger agreement at any time, whether before or after the receipt of stockholder approval, without completing the merger. In addition, either company can terminate the merger agreement if: . the merger is not completed before December 31, 1998; . a governmental authority prohibits the merger; . the stockholders of U.S. Rentals do not adopt the merger agreement; . the stockholders of United Rentals do not approve the amendment to the United Rentals certificate of incorporation or the issuance of shares of United Rentals Common Stock in connection with the merger; . the other party materially breaches or fails to comply with (and fails to cure such breach or failure within the requisite time period) any of its representations, warranties, covenants or agreements set forth in the merger agreement; or . after October 14, 1998 and before the special meeting of its stockholders, under certain circumstances, by a party if the Board of Directors of such party withdraws or modifies its recommendation to its stockholders in accordance with the merger agreement or accepts a superior proposal from a third party. TERMINATION FEES (PAGE 57) The merger agreement requires United Rentals or U.S. Rentals to pay the other certain fees if the merger agreement is terminated under the following circumstances: (i) $15 million if the agreement is terminated because of a non-willful breach of the agreement, (ii) $30 million if the merger agreement is terminated because of a willful breach of the merger agreement or (iii) $30 million if the merger agreement is terminated upon the occurrence of certain of the events described under the caption "Termination of the Merger Agreement" above. VOTING AGREEMENTS (PAGE 58) Richard D. Colburn, Chairman of the Board of U.S. Rentals, beneficially owns 20,603,105 shares of U.S. Rentals Common Stock constituting approximately 67% of the outstanding U.S. Rentals Common Stock. As part of the transaction, Mr. Colburn has agreed to vote such shares in favor of adoption of the merger agreement. Accordingly, the adoption of the merger agreement is assured. Bradley S. Jacobs, Chairman and Chief Executive Officer of United Rentals, beneficially owns 10,000,100 shares of United Rentals Common Stock constituting approximately 26.8% of the outstanding United Rentals Common Stock. Mr. Jacobs also has currently exercisable warrants to acquire an additional 5,000,000 shares which, if exercised, would give him ownership of a total of approximately 40.2% of the outstanding United Rentals Common Stock. Mr. Jacobs had not exercised any of such warrants as of the record date for the United Rentals special meeting. As part of the transaction, Mr. Jacobs has agreed to vote all of his shares of United Rentals Common Stock in favor of both the amendment to the United Rentals certificate of incorporation increasing the number of authorized shares of United Rentals Common Stock and the issuance of shares of United Rentals Common Stock in connection with the merger. MATERIAL FEDERAL INCOME TAX CONSEQUENCES (PAGE 46) The merger is intended to be tax free to United Rentals, U.S. Rentals and U.S. Rentals stockholders, who will not recognize any gain or loss for federal income tax purposes in connection with the merger, except with respect to any cash received in lieu of fractional shares. The merger is conditioned upon the receipt of legal opinions to that effect. TAX MATTERS CAN BE COMPLICATED AND THE TAX CONSEQUENCES OF THE MERGER TO YOU WILL DEPEND ON THE FACTS OF YOUR OWN SITUATION. YOU SHOULD CONSULT YOUR OWN TAX ADVISORS TO FULLY UNDERSTAND THE TAX CONSEQUENCES OF THE MERGER TO YOU. 7 ANTICIPATED ACCOUNTING TREATMENT (PAGE 47) The merger is expected to be accounted for as a "pooling of interests" for financial accounting purposes. The receipt of letters from each of United Rentals' and U.S. Rentals' independent accountants to the effect that it is appropriate to account for the merger as a pooling of interests is a condition to the closing of the merger. NO APPRAISAL RIGHTS Neither United Rentals' nor U.S. Rentals' stockholders are entitled to any appraisal rights in connection with the merger. COMPARATIVE RIGHTS OF U.S. RENTALS AND UNITED RENTALS STOCKHOLDERS (PAGE 83) In connection with the merger, if you are a U.S. Rentals stockholder, you will receive shares of United Rentals Common Stock and become a United Rentals stockholder. There are various differences between the rights of U.S. Rentals stockholders and the rights of United Rentals stockholders. If you are a United Rentals stockholder, there will be no change in your rights as a United Rentals stockholder after the merger. However, the number of authorized and outstanding shares of United Rentals Common Stock will be increased significantly as a result of the amendment to the certificate of incorporation of United Rentals and the consummation of the merger. UNITED RENTALS 1998 STOCK OPTION PLAN (PAGE 76) The Compensation Committee of the United Rentals Board of Directors adopted the United Rentals 1998 Stock Option Plan in the form attached as Exhibit J to this Joint Proxy Statement/Prospectus. The United Rentals 1998 Stock Option Plan provides for the grant of up to 4,000,000 stock options to officers and directors of United Rentals and its subsidiaries. The plan is designed to provide incentives to attract, retain, and motivate highly competent persons as officers and directors of United Rentals and its subsidiaries by providing them opportunities to acquire United Rentals Common Stock, and to assist in aligning the interests of United Rentals' officers and directors with those of its stockholders. 8 MARKET PRICE AND DIVIDEND DATA The United Rentals Common Stock is listed for trading on the New York Stock Exchange (the "NYSE") under the symbol "URI." The U.S. Rentals Common Stock is listed for trading on the NYSE and the Pacific Stock Exchange under the symbol "USR." The following table sets forth the range of high and low per share sales prices for United Rentals Common Stock and U.S. Rentals Common Stock, as reported on the NYSE Composite Tape, for the period since December 18, 1997, in the case of United Rentals, and since February 21, 1997, in the case of U.S. Rentals. The exchange ratio for the merger is 0.9625 shares of United Rentals Common Stock for each share of U.S. Rentals Common Stock outstanding at the effective time of the merger.
UNITED RENTALS U.S. RENTALS --------------- ------------- HIGH LOW HIGH LOW ------- ------- ------ ------ 1997 First Quarter................................... $ -- $ -- $22.75 $16.50 Second Quarter.................................. -- -- 28.00 15.25 Third Quarter................................... -- -- 29.63 28.75 Fourth Quarter.................................. 19.31 14.38 27.75 23.00 1998 First Quarter................................... $ 27.38 $ 17.25 $29.13 $21.38 Second Quarter.................................. 42.00 24.13 39.44 27.13 Third Quarter (through September 9, 1998)....... 48.06 18.12 45.25 17.50
On June 15, 1998, the last trading day immediately preceding the public announcement of the proposed merger, the closing sales prices on the NYSE per share of United Rentals Common Stock and U.S. Rentals Common Stock were $33.38 and $30.19, respectively. On September 9, 1998, the last trading day for which closing sales prices were available prior to the time of the printing of this Joint Proxy Statement/Prospectus, the closing sales prices on the NYSE per share of United Rentals Common Stock and U.S. Rentals Common Stock were $19.56 and $18.00, respectively. The equivalent per share price (as defined in the following sentence) of shares of U.S. Rentals Common Stock on June 15, 1998 and September 9, 1998, was $32.13 and $18.83, respectively. The "equivalent per share price" of shares of U.S. Rentals Common Stock represents the closing sales price on the NYSE per share of United Rentals Common Stock on the applicable date, multiplied by the exchange ratio. Because the market price of shares of United Rentals Common Stock inherently is subject to fluctuation, the market value of the shares of United Rentals Common Stock that holders of shares of U.S. Rentals Common Stock will receive in connection with the merger may increase or decrease before or after the proposed merger. See "Risk Factors--Fixed Exchange Ratio." STOCKHOLDERS ARE ENCOURAGED TO OBTAIN CURRENT QUOTATIONS FOR SHARES OF UNITED RENTALS COMMON STOCK AND U.S. RENTALS COMMON STOCK. Neither United Rentals nor U.S. Rentals has paid any dividends on its common stock. After the merger, United Rentals has no plans to pay dividends on its common stock and intends to continue to retain its earnings for the foreseeable future for use in the operation and expansion of its business. The agreements governing United Rentals' outstanding indebtedness prohibit or restrict the payment of cash dividends on the United Rentals Common Stock. The payment of future dividends on United Rentals Common Stock will be determined by the Board of Directors of United Rentals in light of conditions then existing. 9 SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA OF UNITED RENTALS The following table presents selected income statement and balance sheet data of United Rentals. The balance sheet data of United Rentals as of December 31, 1997 and the income statement data of United Rentals for the period from August 14, 1997 (inception) to December 31, 1997 (which includes the operations of the companies acquired by United Rentals from their respective acquisition dates through December 31, 1997) are derived from the audited Consolidated Financial Statements of United Rentals included elsewhere in this Joint Proxy Statement/Prospectus. The balance sheet data of United Rentals as of June 30, 1998 and the income statement data of United Rentals for the six months ended June 30, 1998 are derived from the unaudited Consolidated Financial Statements of United Rentals included elsewhere in this Joint Proxy Statement/Prospectus. The following data should be read in conjunction with (i) the information set forth in Exhibit I to this Joint Proxy Statement/Prospectus under "Selected Historical and Pro Forma Consolidated Financial Information" and "Management's Discussion and Analysis of Financial Condition and Results of Operations," and (ii) the Consolidated Financial Statements and the related notes thereto of United Rentals included elsewhere in this Joint Proxy Statement/Prospectus.
PERIOD FROM AUGUST 14, 1997 (INCEPTION) SIX MONTHS THROUGH ENDED DECEMBER 31, JUNE 30, 1997 1998 ------------ ---------- (IN THOUSANDS, EXCEPT PER SHARE DATA) INCOME STATEMENT DATA: Total revenues.......................................... $10,633 $127,351 Total cost of operations................................ 6,822 80,112 ------- -------- Gross profit............................................ 3,811 47,239 Selling general and administrative expense.............. 3,311 25,102 Non-rental depreciation and amortization................ 262 3,815 ------- -------- Operating income........................................ 238 18,322 Interest expense........................................ 454 4,937 Other income............................................ (270) (528) ------- -------- Income before taxes..................................... 54 13,913 Income taxes............................................ 20 5,693 ------- -------- Net income.............................................. $ 34 $ 8,220 ======= ======== Basic earnings per share................................ $ 0.00 $ 0.27 ======= ======== Diluted earnings per share.............................. $ 0.00 $ 0.23 ======= ======== Depreciation and amortization........................... $ 1,301 $ 18,380 ======= ======== Dividends on Common Stock............................... -- --
AS OF AS OF DECEMBER 31, JUNE 30, 1997 1998 ------------ -------- (IN THOUSANDS) BALANCE SHEET DATA: Cash and cash equivalents................................ $ 68,608 $ 5,486 Rental equipment, net.................................... 33,408 298,956 Total assets............................................. 169,110 889,164 Debt..................................................... 1,074 389,181 Stockholders' equity..................................... 157,730 418,394
10 SELECTED HISTORICAL FINANCIAL DATA OF U.S. RENTALS The following selected historical financial data for the years ended December 31, 1995, 1996 and 1997 and as of December 31, 1996 and 1997 have been derived from the financial statements of U.S. Rentals, which have been audited by PricewaterhouseCoopers LLP, independent accountants, and included elsewhere in this Joint Proxy Statement/Prospectus. The selected historical financial data for the years ended December 1993 and 1994 and as of December 31, 1993, 1994 and 1995 have been derived from the financial statements of U.S. Rentals, which have been audited but are not contained in or incorporated by reference herein. The selected historical financial data as of June 30, 1997 and 1998 and for the six months ended June 30, 1997 and 1998 were derived from unaudited financial statements prepared on the same basis as the audited financial statements and, in the opinion of management, include all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of U.S. Rentals' financial position and results of operations. The results of operations for any interim period are not necessarily indicative of results to be expected for a full year. The data set forth below should be read in conjunction with, and are qualified by reference to, "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the financial statements and the notes thereto of U.S. Rentals included elsewhere in this Joint Proxy Statement/Prospectus.
SIX MONTHS ENDED YEARS ENDED DECEMBER 31, JUNE 30, ------------------------------------------------------ ---------------------- 1993 1994 1995 1996 1997 1997 1998 ---------- ---------- ---------- ---------- ---------- ---------- ---------- (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) STATEMENT OF INCOME DATA: Revenues................ $ 143,582 $ 187,758 $ 242,847 $ 305,837 $ 424,693 $ 177,415 $ 271,360 Income from operations.. 12,686 23,786 38,022 42,154 43,591 2,420 36,417 Income (loss) before income taxes and extraordinary item..... 13,891 22,484 31,092 33,458 35,748 (281) 27,530 Income tax expense (b).. 405 499 468 374 29,407 14,455 11,067 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Net income (loss) before extraordinary item..... 13,486 21,985 30,624 33,084 6,341 (14,736) 16,463 Extraordinary item, net of tax benefit of $995................... -- -- -- -- 1,511 1,511 -- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Net income (loss)....... $ 13,486 $ 21,985 $ 30,624 $ 33,084 $ 4,830 $ (16,247) $ 16,463 ========== ========== ========== ========== ========== ========== ========== Basic net income (loss) per share.............. $ 0.65 $ 1.06 $ 1.48 $ 1.59 $ 0.17 $ (0.58) $ 0.54 Diluted net income (loss) per share....... $ 0.65 $ 1.06 $ 1.48 $ 1.59 $ 0.16 $ (0.57) $ 0.52 Basic weighted average shares outstanding..... 20,748,975 20,748,975 20,748,975 20,748,975 29,351,715 27,946,777 30,760,301 Diluted weighted average shares outstanding..... 20,748,975 20,748,975 20,748,975 20,748,975 29,843,752 28,537,859 31,920,944 PRO FORMA FOR THE RECAPITALIZATION AND THE IPO (a): Pro forma income before income taxes........... $ 57,935 $ 21,906 Pro forma income tax expense (b)............ 23,290 8,806 ---------- ---------- Pro forma net income.... $ 34,645 $ 13,100 ========== ========== Pro forma net income per share.................. $ 1.13 $ 0.43 Shares used in computing pro forma net income per share.............. 30,748,975 30,748,975 PRO FORMA TRANSACTIONS: Termination of deferred compensation agreements............. $ 20,290 $ 20,290 Interest expense........ 1,897 1,897 Non-recurring expenses of the Predecessor not transferred to the Company................ -- -- ---------- ---------- $ 22,187 $ 22,187 ========== ========== BALANCE SHEET DATA (AT END OF PERIOD): Rental equipment, net... $ 65,606 $ 112,563 $ 152,848 $ 205,982 $ 390,598 $ 270,183 $ 521,696 Total assets............ 125,390 187,525 245,184 324,448 585,811 395,646 769,065 Total debt.............. 48,419 84,751 105,696 186,710 220,300 77,300 378,600
- -------- (a) The pro forma results of operations assume the Recapitalization (defined below) and the subsequent IPO (defined below) occurred on January 1, 1997, along with the following items: (i) one-time charge relating to termination of deferred compensation agreements with certain employees, (ii) interest expense as a result of reductions of indebtedness and (iii) income and expenses from non-operating assets of the Predecessor (defined below) not transferred to U.S. Rentals. The pro forma operations data has been prepared for comparative purposes only and does not purport to represent what U.S. Rentals' actual results of operations would have been had the Recapitalization and the subsequent IPO in fact occurred on January 1, 1997. U.S. Rentals' initial public offering ("IPO") was declared effective on February 20, 1997. Prior to the IPO, the equipment rental business was operated by Ayr, Inc. (formerly known as USR Holdings, Inc.), a California corporation (the "Predecessor") that was treated as an S corporation under the Internal Revenue Code. U.S. Rentals did not have any operations prior to its IPO. Prior to the closing of the IPO, the Predecessor transferred substantially all of its operating assets and associated liabilities to U.S. Rentals in exchange for 20,748,975 shares of U.S. Rentals Common Stock representing all of U.S. Rentals outstanding capital stock prior to the IPO. The Predecessor retained only non-operating assets and liabilities, including approximately $25.7 million of notes receivable from related parties and approximately $24.4 million of notes payable to related parties. These transactions are referred to as the "Recapitalization." (b) Prior to the IPO and Recapitalization, U.S. Rentals was an S corporation, and accordingly, federal and state taxes were generally paid at the shareholder level only. Subsequent to February 26, 1997, U.S. Rentals is subject to federal and state income taxes as a C corporation. Pro forma income tax expense is computed as if U.S. Rentals were taxed as a C corporation for all periods presented. 11 SUMMARY COMBINED UNAUDITED PRO FORMA CONDENSED FINANCIAL INFORMATION AND SUPPLEMENTAL INFORMATION The following summary combined unaudited pro forma condensed financial statements of United Rentals and U.S. Rentals gives effect to the merger under the "pooling of interests" method of accounting as if the merger had been consummated as of the beginning of the periods presented. Such pro forma information for the years ended December 31, 1995, 1996 and 1997 was prepared based upon the audited financial statements of U.S. Rentals for such periods, which financial statements are included elsewhere in this Joint Proxy Statement/Prospectus, and upon the audited financial statements of United Rentals for the period from August 14, 1997 (inception) to December 31, 1997, which financial statements are included elsewhere in this Joint Proxy Statement/Prospectus. Such pro forma information as of and for the six months ended June 30, 1998 was prepared based upon the respective unaudited financial statements of United Rentals and U.S. Rentals. United Rentals has completed 72 acquisitions since its formation in September 1997 as described in Exhibit I hereto. The following unaudited supplemental pro forma income statement data with respect to the year ended December 31, 1997 and the six months ended June 30, 1998 gives effect to the merger as described in the preceding paragraph and, in addition, gives effect to each acquisition completed by United Rentals after the beginning of such period, and the financing of each such acquisition, as if all such transactions had occurred at the beginning of the period. The following unaudited supplemental pro forma income statement data with respect to the years ended December 31, 1995 and 1996 gives effect to the merger as described in the preceding paragraph and, in addition, gives effect to the acquisition of Rental Tools and Equipment Co. International, Inc. (an acquisition which was completed by United Rentals in August 1998 and accounted for as a "pooling of interests"), as if such transaction had occurred at the beginning of the period presented. The following unaudited supplemental pro forma balance sheet data as of June 30, 1998 gives effect to the merger as described in the preceding paragraph and, in addition, gives effect to each acquisition completed by United Rentals after such date, and the financing of each such acquisition, as if all such transactions had occurred on June 30, 1998. The following data should be read in conjunction with (i) the Consolidated Financial Statements and the related notes thereto of United Rentals included elsewhere in this Joint Proxy Statement/Prospectus and the Consolidated Financial Statements and related notes thereto of U.S. Rentals which are included elsewhere in this Joint Proxy Statement/Prospectus, and (ii) the United Rentals and U.S. Rentals Combined Unaudited Pro Forma Condensed Financial Statements and the Supplemental Information relating thereto included elsewhere in this Joint Proxy Statement/Prospectus. The following pro forma data for each period presented is provided for informational purposes only and does not purport to be indicative of the results that would have actually been obtained had the merger and the acquisitions reflected therein been completed at the beginning of the period or of results that may be achieved in the future. 12 UNITED RENTALS AND U.S. RENTALS COMBINED
SIX MONTHS ENDED YEAR ENDED DECEMBER 31, JUNE 30, 1998 ------------------------------------------------------ ------------------------ SUMMARY COMBINED SUMMARY COMBINED UNAUDITED SUPPLEMENTAL UNAUDITED PRO FORMA CONDENSED UNAUDITED PRO FORMA FINANCIAL INFORMATION PRO FORMA CONDENSED SUPPLEMENTAL -------------------------- --------------------------- FINANCIAL UNAUDITED 1995(A) 1996(A) 1997 1995(B) 1996(B) 1997 INFORMATION PRO FORMA -------- -------- -------- -------- -------- --------- ----------- ------------ (IN THOUSANDS, EXCEPT PER SHARE DATA) INCOME STATEMENT DATA: Revenues Equipment rentals...... $214,849 $257,486 $347,526 $254,889 $304,126 $ 860,050 $293,552 $459,753 Sales of equipment, merchandise and other revenue............... 27,998 48,351 87,800 27,998 49,070 333,572 105,159 190,266 -------- -------- -------- -------- -------- --------- -------- -------- Total revenues......... 242,847 305,837 435,326 282,887 353,196 1,193,622 398,711 650,019 Cost of revenues Cost of equipment rentals, excluding depreciation.......... 107,876 136,584 188,480 125,583 155,793 382,201 146,518 212,437 Depreciation of rental equipment............. 43,885 56,105 70,270 51,947 65,293 167,339 60,544 96,473 Cost of sales and other operating costs....... 16,111 27,532 55,065 16,111 27,532 234,444 68,768 127,324 -------- -------- -------- -------- -------- --------- -------- -------- Total cost of revenues.............. 167,872 220,221 313,815 193,641 248,618 783,984 275,830 436,234 -------- -------- -------- -------- -------- --------- -------- -------- Gross profit............ 74,975 85,616 121,511 89,246 104,578 409,638 122,881 213,785 Selling, general and administrative expenses............... 31,440 35,934 45,908 40,147 45,913 197,120 56,652 109,734 Non-rental depreciation and amortization....... 5,513 7,528 11,484 6,916 9,383 37,971 11,490 21,228 Termination cost of deferred compensation agreements............. 20,290 20,290 -------- -------- -------- -------- -------- --------- -------- -------- Operating income........ 38,022 42,154 43,829 42,183 49,282 154,257 54,739 82,823 Interest expense........ 5,310 8,031 7,824 7,471 10,936 74,339 13,824 32,982 Other (income) expense, net.................... 1,620 665 203 947 247 (6,570) (528) (5,652) -------- -------- -------- -------- -------- --------- -------- -------- Income before provision for income taxes and extraordinary item..... 31,092 33,458 35,802 33,765 38,099 86,488 41,443 55,493 Provision for income taxes.................. 468 374 29,427 468 374 50,209 16,760 22,531 -------- -------- -------- -------- -------- --------- -------- -------- Income before extraordinary item..... $ 30,624 $ 33,084 $ 6,375 $ 33,297 $ 37,725 $ 36,279 $ 24,683 $ 32,962 ======== ======== ======== ======== ======== ========= ======== ======== Basic earnings per share before extraordinary item................... $ 1.53 $ 1.66 $ 0.14 $ 1.47 $ 1.66 $ 0.55 $ 0.41 $ 0.49 ======== ======== ======== ======== ======== ========= ======== ======== Diluted earnings per share before extraordinary item..... $ 1.53 $ 1.66 $ 0.14 $ 1.47 $ 1.66 $ 0.53 $ 0.38 $ 0.46 ======== ======== ======== ======== ======== ========= ======== ======== Basic weighted average equivalent shares outstanding............ 19,971 19,971 44,570 22,715 22,715 65,565 59,576 66,934 ======== ======== ======== ======== ======== ========= ======== ======== Diluted weighted average equivalent shares outstanding............ 19,971 19,971 46,897 22,715 22,715 67,831 65,816 72,056 ======== ======== ======== ======== ======== ========= ======== ======== PRO FORMA FOR THE RECAPITALIZATION AND THE IPO (c): Pro forma income before income taxes........... $ 57,989 $ 108,675 Pro forma income tax ex- pense (d).............. 23,311 43,687 -------- --------- Pro forma net income.... $ 34,678 $ 64,988 ======== ========= Pro forma net income per diluted share.......... $ 0.73 $ 0.95 ======== ========= Diluted shares used in computing pro forma net income per share....... 47,768 68,702 ======== ========= PRO FORMA TRANSACTIONS: Termination of deferred compensation agree- ments.................. $ 20,290 $ 20,290 Interest expense........ 1,897 1,897 Non-recurring expenses of the Predecessor not transferred to U.S. Rentals................ -- -- -------- --------- $ 22,187 $ 22,187 ======== =========
13 - -------- (a) The Summary Combined Unaudited Pro Forma Condensed Financial Information for the years ended December 31, 1995 and 1996 reflect the results of operations of U.S. Rentals only, since United Rentals had not yet commenced operations. (b) The Supplemental Unaudited Pro Forma data for the years ended December 31, 1995 and 1996 reflect the results of operations of U.S. Rentals and Rental Tools and Equipment Co. International, Inc. only, since United Rentals had not yet commenced operations. (c) The pro forma results of operations assume the Recapitalization and the subsequent IPO occurred on January 1, 1997, along with the following items: (i) one-time charge relating to termination of deferred compensation agreements with certain employees, (ii) interest expense as a result of reductions of indebtedness and (iii) income and expenses from non-operating assets of the Predecessor not transferred to U.S. Rentals. The pro forma operations data has been prepared for comparative purposes only and does not purport to represent what U.S. Rentals' actual results of operations would have been had the Recapitalization and the subsequent IPO in fact occurred on January 1, 1997. U.S. Rentals' IPO was declared effective on February 20, 1997. Prior to the IPO, the equipment rental business was operated by Predecessor that was treated as an S corporation under the Internal Revenue Code. U.S. Rentals did not have any operations prior to its IPO. Prior to the closing of the IPO, the Predecessor transferred substantially all of its operating assets and associated liabilities to U.S. Rentals in exchange for 20,748,975 shares of U.S. Rentals Common Stock representing all of U.S. Rentals outstanding capital stock prior to the IPO. The Predecessor retained only non-operating assets and liabilities, including approximately $25.7 million of notes receivable from related parties and approximately $24.4 million of notes payable to related parties. (d) Prior to the IPO and Recapitalization, U.S. Rentals was an S corporation, and accordingly, federal and state taxes were generally paid at the shareholder level only. Subsequent to February 26, 1997, U.S. Rentals is subject to federal and state income taxes as a C corporation. Pro forma income tax expense is computed as if U.S. Rentals were taxed as a C corporation for all periods presented.
SUPPLEMENTAL COMBINED UNAUDITED UNAUDITED PRO FORMA CONDENSED PRO FORMA FINANCIAL INFORMATION AS OF AS OF JUNE 30, 1998 JUNE 30, 1998 --------------------- ------------- (IN THOUSANDS) BALANCE SHEET DATA: Cash and cash equivalents................... $ 27,996 $ 26,510 Rental equipment, net....................... 820,652 1,081,380 Total assets................................ 1,658,229 2,374,226 Debt........................................ 767,781 1,406,859 Stockholders' equity........................ 640,863 669,823
14 COMPARATIVE UNAUDITED PER SHARE DATA The following table sets forth for the periods and as of the dates indicated (a) basic and diluted earnings per share before extraordinary item, the book value per share and the tangible book value per share of United Rentals Common Stock; (b) basic and diluted earnings per share before extraordinary item, the book value per share and the tangible book value per share of U.S. Rentals Common Stock; (c) the combined unaudited pro forma basic and diluted earnings per share before extraordinary item, the unaudited pro forma book value per share and the unaudited tangible book value per share of United Rentals Common Stock after giving effect to the merger on a pooling of interests basis; and (d) the U.S. Rentals equivalent combined unaudited pro forma basic and diluted earnings per share before extraordinary item, and the unaudited pro forma book value per share and tangible book value per share attributable to the 0.9625 shares of United Rentals Common Stock that will be received by U.S. Rentals stockholders for each share of U.S. Rentals Common Stock. The supplemental pro forma data shown in the table with respect to a specified period gives effect to the merger as described in the preceding paragraph and, in addition, gives effect to each acquisition completed by United Rentals after the beginning of such period and the financing of each such acquisition, as if all such transactions had occurred at the beginning of the period. The supplemental pro forma data as of June 30, 1998 shown in the table gives effect to the merger as described in the preceding paragraph and, in addition, gives effect to each acquisition completed by United Rentals after such date and the financing of each such acquisition, as if all such transactions had occurred on June 30, 1998. The following data should be read in conjunction with (i) the Consolidated Financial Statements and the related notes thereto of United Rentals included elsewhere in this Joint Proxy Statement/Prospectus and the Consolidated Financial Statements and related notes thereto of U.S. Rentals included elsewhere in this Joint Proxy Statement/Prospectus and (ii) the United Rentals and U.S. Rentals Combined Unaudited Pro Forma Condensed Financial Statements and the Supplemental Information relating thereto included elsewhere in this Joint Proxy Statement/Prospectus.
U.S. RENTALS EQUIVALENT COMBINED COMBINED PRO UNITED RENTALS U.S. RENTALS PRO FORMA FORMA -------------- ------------ --------- ------------ Basic and diluted earnings per share before extraordinary item: Historical: Year ended December 31, 1995, basic and dilut- ed...................... $1.48 $1.53 $1.47 Year ended December 31, 1996, basic and dilut- ed...................... 1.59 1.66 1.60 Year ended December 31, 1997, basic............. $0.00 0.22 0.14 0.14 Year ended December 31, 1997, diluted........... 0.00 0.21 0.14 0.14 Six months ended June 30, 1998, basic............. 0.27 0.54 0.41 0.40 Six months ended June 30, 1998, diluted........... 0.23 0.52 0.38 0.37 Supplemental--Pro Forma: Year ended December 31, 1995, basic and dilut- ed...................... 1.47 1.41 Year ended December 31, 1996, basic and dilut- ed...................... 1.66 1.60 Year ended December 31, 1997, basic............. 0.55 0.53 Year ended December 31, 1997, diluted........... 0.53 0.51 Six months ended June 30, 1998, basic............. 0.49 0.47 Six months ended June 30, 1998, diluted........... 0.46 0.44 Book Value per share at June 30, 1998: Historical................ 12.24 9.18 10.04 9.66 Supplemental--Pro Forma... 10.00 9.63 Tangible book value per share at June 30, 1998: Historical................ (0.31) 8.32 2.91 2.80 Supplemental--Pro Forma .. (1.81) (1.74)
Neither United Rentals nor U.S. Rentals has ever declared or paid cash dividends on its common stock. See "Market Price and Dividend Data." 15 FORWARD-LOOKING STATEMENTS Certain information contained in this Joint Proxy Statement/Prospectus, including statements as to the benefits of the merger, synergies and cost savings expected to be realized as a result of the merger, and as to the future financial performance of United Rentals, may constitute "Forward- Looking Statements." Such statements can be identified by the use of forward- looking terminology such as "believes," "expects," "may," "will," "should" or "anticipates" or the negative thereof or comparable terminology, or by discussions of strategy or financial projections. Numerous factors could cause actual results to differ from those suggested by such Forward Looking Statements, including the factors set forth in "Risk Factors." The Private Securities Litigation Reform Act of 1995 provides certain "safe harbor" protection for Forward-Looking Statements in order to encourage companies to provide prospective information about their businesses. Although each of United Rentals and U.S. Rentals believe that the assumptions upon which its Forward-Looking Statements were based were reasonable when made, because such assumptions are inherently subject to significant uncertainties and contingencies which are difficult or impossible to predict and are beyond United Rentals' and U.S. Rentals' control, the estimates contained in such Forward-Looking Statements may not be realized and neither company is representing or warranting to that effect. None of United Rentals, U.S. Rentals or any of their respective agents, employees or advisors intend or have any duty or obligation to supplement, amend, update or revise any of the Forward-Looking Statements set forth in this Joint Proxy Statement/Prospectus. Neither United Rentals' nor U.S. Rentals' independent auditors have examined or compiled such statements or applied any procedures with respect to such statements. Accordingly, such auditors have not expressed any opinion or other form of assurances with respect to such statements. 16 THE COMPANIES UNITED RENTALS United Rentals is a large and geographically diversified equipment rental company with 269 locations in 31 states and Canada. United Rentals rents a broad array of equipment to a diverse customer base that includes construction industry participants, industrial companies, homeowners and other individuals. United Rentals also engages in related activities such as selling used rental equipment, acting as a distributor for certain new equipment, and selling related merchandise and parts. United Rentals commenced equipment rental operations in October 1997 by acquiring six established equipment rental companies and has acquired 66 additional equipment rental companies to date in 1998. The types of rental equipment offered by United Rentals include a broad range of light to heavy construction and industrial equipment (such as pumps, generators, forklifts, backhoes, cranes, bulldozers, aerial lifts and compressors), general tools and equipment (such as hand tools and garden and landscaping equipment) and, to a lesser extent, special event equipment (such as tents, tables and chairs). The equipment mix varies at each of United Rentals' locations, with some locations offering a general mix and some specializing in specific equipment categories. As of September 4, 1998, United Rentals' rental equipment included approximately 153,000 units (not including special event equipment), had an original purchase price of approximately $849 million and had a weighted average age (based on original purchase price) of approximately 32 months. On August 5, 1998, United Rentals completed a reorganization of its legal structure (the "Reorganization") pursuant to Section 251(g) of the General Corporation Law of the State of Delaware (the "DGCL") pursuant to which United Rentals was formed as a new parent holding company of United Rentals (North America), Inc. (formerly known as United Rentals, Inc.) ("Old URI"), which became a wholly owned subsidiary of United Rentals. As a result of the Reorganization, all of the common stock of Old URI was automatically converted into United Rentals Common Stock which began trading on the NYSE in place of the common stock of Old URI. The purpose of the Reorganization was to facilitate certain financings of United Rentals. All references to United Rentals herein include the operations of Old URI prior to the Reorganization and all references to United Rentals Common Stock include the common stock of Old URI which was converted in the Reorganization. MERGER SUB UR Acquisition Corporation ("Merger Sub") is a direct wholly owned subsidiary of United Rentals that was incorporated in May 1998 in the State of Delaware. Merger Sub has conducted no operations other than those related to the transactions contemplated by the merger agreement. U.S. RENTALS U.S. Rentals is the second largest equipment rental company in the United States and the largest in the Western United States based on 1997 rental revenues. U.S. Rentals currently operates 129 equipment rental locations in 23 states and Mexico and generates an average of approximately 145,000 rental contracts per month from a diverse base of customers including commercial and residential construction, industrial and homeowner customers. U.S. Rentals management estimates that more than 280,000 customers did business with U.S. Rentals in 1997. U.S. Rentals owns more than 100,000 pieces of rental equipment comprised of approximately 600 equipment categories including aerial work platforms, forklifts, paving and concrete equipment, compaction equipment, air compressors, hand tools, and plumbing, landscaping and gardening equipment. U.S. Rentals management believes that U.S. Rentals' fleet, which had a weighted average age of approximately 23 months and an original equipment cost of approximately $725 million at June 30, 1998, is one of the most comprehensive and well-maintained equipment rental fleets in the industry. U.S. Rentals also sells new equipment manufactured by nationally known companies, used equipment from its rental fleet and rental-related merchandise, parts and supplies. 17 RISK FACTORS The following risk factors, in addition to the other information contained or incorporated by reference in this Joint Proxy Statement/Prospectus, should be carefully considered by holders of U.S. Rentals Common Stock in evaluating whether to adopt the merger agreement: FIXED EXCHANGE RATIO. Under the terms of the merger agreement, each share of U.S. Rentals Common Stock issued and outstanding immediately prior to the effective time of the merger will be converted into the right to receive 0.9625 shares (the "Exchange Ratio") of United Rentals Common Stock. The merger agreement does not contain any provisions for adjustment of the Exchange Ratio based on fluctuations in the price of United Rentals Common Stock or U.S. Rentals Common Stock. Accordingly, the value of the consideration to be received by stockholders of U.S. Rentals will depend on the market price of United Rentals Common Stock. Before and after the merger, the trading price of United Rentals Common Stock could be subject to, among other things, fluctuations in response to competitive factors in the equipment rental industry, periodic variations in operating and financial results, and general market conditions. See "--Quarterly Fluctuations of Operating Results," "--Volatility of Stock Price" and "--Shares Eligible For Future Sale." Because the Exchange Ratio will not be adjusted to reflect changes in the market value of United Rentals Common Stock or U.S. Rentals Common Stock, the market value of the United Rentals Common Stock issued in connection with the merger, and the market value of the U.S. Rentals Common Stock surrendered in the merger, may be higher or lower than the value of such shares at the time the merger agreement was entered into by United Rentals and U.S. Rentals or adopted by U.S. Rentals stockholders. SENSITIVITY TO GENERAL ECONOMIC AND WEATHER CONDITIONS. United Rentals believes that the equipment rental business is sensitive to changes in general economic conditions and may be temporarily disrupted by adverse weather conditions. Although United Rentals believes that the impact of these factors may be mitigated by its geographic diversification, which will be enhanced as a result of the consummation of the merger, there can be no assurance that United Rentals' business and financial condition will not be adversely affected by (i) changes in general economic conditions, including changes in construction and industrial activity, or increases in prevailing interest rates, or (ii) adverse weather conditions that may temporarily decrease construction and industrial activity in any one particular geographic area. INTEGRATION OF OPERATIONS OF UNITED RENTALS AND U.S. RENTALS. Realization of the anticipated benefits of the merger will depend, in part, upon the efficient, effective and timely integration of U.S. Rentals' business with United Rentals. No assurance can be given that the respective operations of the two companies can be integrated without encountering difficulties or disruption of operations or that the benefits expected from such integration will be fully realized. UNITED RENTALS' SUBSIDIARIES NOT HISTORICALLY OPERATED AS A COMBINED BUSINESS. The 72 companies acquired by United Rentals to date (the "Acquired Companies") have been in existence an average of 26.5 years and some have been in existence for more than 50 years. However, the businesses of these companies have not historically been operated as a combined business and there can be no assurance that United Rentals will be able to successfully integrate the businesses of the Acquired Companies with the business of U.S. Rentals (or the businesses of any companies acquired in the future), to profitably operate the business on a combined basis, or to effectively manage the combined business. Failure by United Rentals to successfully integrate or effectively manage the Acquired Companies and U.S. Rentals could have a material adverse effect on United Rentals' results of operations and financial condition. LIMITED OPERATING HISTORY. Old URI was incorporated in August 1997 and commenced equipment rental operations in October 1997 by acquiring six established rental companies. United Rentals (through Old URI) acquired 66 additional companies to date in 1998. Consequently, United Rentals has a limited operating history upon which an evaluation of United Rentals and its prospects can be based. Furthermore, United Rentals' historical financial statements included herein do not fully reflect its current operations in view of the fact that 18 (i) acquisitions completed after the commencement of a period are reflected in United Rentals' results for only a portion of the period and (ii) acquisitions completed subsequent to the end of a period are not reflected in United Rentals' results for such period. RISKS RELATING TO GROWTH STRATEGY. United Rentals' growth strategy includes continued expansion through its ongoing acquisition program, the start-up of new locations, and internal growth. However, there can be no assurance that United Rentals will successfully implement its growth strategy or that this strategy will result in continued profitability. In addition, under the terms of United Rentals' borrowing arrangements, United Rentals may not make acquisitions unless certain financial conditions are satisfied or the consent of the lenders is obtained. Furthermore, there can be no assurance that United Rentals' growth rate will be comparable to the past or future growth rate of the overall equipment rental industry or any segment thereof. United Rentals' growth strategy involves a number of risks and uncertainties, including: Availability of Acquisition Targets and Sites for Start-up Locations. United Rentals may encounter substantial competition in its efforts to identify and acquire appropriate acquisition candidates and sites for start-up locations, which could have the effect of increasing prices for acquisition or such sites. There can be no assurance that United Rentals will succeed in identifying appropriate acquisition candidates or sites for start-up locations or that United Rentals will be able to acquire any acquisition candidate or site that it does identify on terms that are acceptable to United Rentals. Need to Integrate New Operations. Realization of the anticipated benefits of completed and future acquisitions will depend, in part, upon the efficient, effective and timely integration of acquired operations. As United Rentals grows, it intends to focus substantial efforts on the efficient integration of new operations, the elimination of duplicative costs and the reduction of overhead. There can be no assurance, however, that United Rentals will be successful in these efforts or that these efforts may not in certain circumstances adversely affect existing operations. Certain Risks Related to Start-up Locations. United Rentals expects that start-up locations may initially have a negative impact on results of operations and margins due to several factors, including: (i) United Rentals will incur significant start-up expenses in connection with establishing each start-up location and (ii) it will generally take some time following the commencement of operations for a start-up location to become profitable. Although start-ups can generate long term growth, there can be no assurance that any start-up location will become profitable within any specific time period, if at all. DEPENDENCE ON ADDITIONAL CAPITAL TO FINANCE GROWTH. United Rentals' growth strategy will require substantial capital investment. Capital will be required by United Rentals for, among other purposes, completing acquisitions, establishing new rental locations, integrating completed acquisitions, acquiring rental equipment and maintaining the condition of its rental equipment. United Rentals intends to pay for future acquisitions using cash, capital stock, notes and/or assumption of indebtedness. To the extent that cash generated internally and cash available under United Rentals' borrowing facilities is not sufficient to fund United Rentals' capital requirements, United Rentals will require additional debt and/or equity financing. There can be no assurance, however, that such financing will be available or, if available, will be available on terms satisfactory to United Rentals. Failure by United Rentals to obtain sufficient additional capital in the future could limit United Rentals' ability to implement its business strategy. Future debt financings, if available, may result in increased interest and amortization expense, increased leverage and decreased income available to fund further acquisitions and expansion, and may limit United Rentals' ability to withstand competitive pressures and render United Rentals more vulnerable to economic downturns. Future equity financings may dilute the equity interest of existing stockholders of United Rentals. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Liquidity and Capital Resources--General" and "--General Cash Requirements Related to Operations" in Exhibit I to this Joint Proxy Statement/Prospectus. CAPITAL REQUIREMENTS IN CONNECTION WITH THE MERGER. United Rentals has obtained commitments from a group of lenders to provide United Rentals with a new $750 million revolving credit facility which would replace United Rentals' existing credit facility. United Rentals expects that it will (i) use a portion of this new 19 facility to refinance approximately $382 million of U.S. Rentals' outstanding indebtedness and pay approximately $60 million of expenses in connection with the merger and (ii) use the balance for general corporate purposes, including acquisitions. If for any reason United Rentals were unable to obtain the expected new credit facility, consummation of the merger could be delayed or prevented. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Liquidity and Capital Resources--Cash Requirements Relating to the Merger" and "--General Cash Requirements Relating to Operations" in Exhibit I to this Joint Proxy Statement/Prospectus. POSSIBLE UNDISCOVERED LIABILITIES OF ACQUIRED COMPANIES. Although United Rentals performs a due diligence investigation of each business that it acquires, there may nevertheless be liabilities of the Acquired Companies or future acquired companies that United Rentals fails or is unable to discover during its due diligence investigation and for which United Rentals, as a successor owner, may be responsible. In connection with acquisitions, United Rentals seeks to minimize the impact of these liabilities by obtaining indemnities and warranties from the sellers which may be supported by deferring payment of a portion of the purchase price. However, these indemnities and warranties, if obtained, may not fully cover the liabilities due to their limited scope, amount, or duration, the financial limitations of the indemnitor or warrantor, or other reasons. DEPENDENCE ON MANAGEMENT. United Rentals is highly dependent upon its senior management team. The loss of the services of any member of senior management may have a material adverse effect on United Rentals. The agreements governing United Rentals' senior secured indebtedness provide that the failure of certain members of United Rentals' current senior management to continue to hold executive positions with United Rentals for a period of 30 consecutive days constitutes an event of default under such agreements unless replacement officers satisfactory to the lenders are appointed. See "Management's Discussion and Analysis of Financial Condition and Results of Operations-- Liquidity and Capital Resources" in Exhibit I to this Joint Proxy Statement/Prospectus. United Rentals does not presently maintain "key man" life insurance with respect to members of senior management. United Rentals' rental locations are managed by local managers who have extensive experience in the equipment rental industry and substantial knowledge of the local markets served. These managers are generally former owners or employees of the businesses acquired by United Rentals. The loss of one or more of these managers may have a material adverse effect on United Rentals if United Rentals is unable to find a suitable replacement in a timely manner. COMPETITION. The equipment rental industry is highly fragmented and competitive. United Rentals' competitors include public companies or divisions of public companies; regional competitors which operate in one or more states; small, independent businesses with one or two rental locations; and equipment vendors and dealers who both sell and rent equipment directly to customers. There can be no assurance that United Rentals will not encounter increased competition from existing competitors or new market entrants or that equipment manufacturers will not commence, or increase their efforts, to rent or sell equipment directly to United Rentals' customers. In addition, to the extent that competitors seek to gain or retain market share by reducing prices, United Rentals may be required to lower its prices, thereby affecting operating results. See "Business--Competition" in Exhibit I to this Joint Proxy Statement/Prospectus. QUARTERLY FLUCTUATIONS OF OPERATING RESULTS. United Rentals expects that its revenues and operating results may fluctuate from quarter to quarter due to a number of factors, including: seasonal rental patterns of United Rentals' customers (with rental activity tending to be lower in the winter); changes in general economic conditions in United Rentals' markets; the timing of acquisitions and the opening of start-up locations (which generally will require a period of time to become profitable) and related costs; the effect of the integration of acquired businesses and start-up locations; the timing of expenditures for new equipment and the disposition of used equipment; and price changes in response to competitive factors. These factors, among others, may result in United Rentals' results of operations in some future periods not meeting expectations, which could have a material adverse impact on the market price of the United Rentals Common Stock. 20 LIABILITY AND INSURANCE. United Rentals is subject to various possible claims, including claims for personal injury or death caused by equipment rented or sold by United Rentals or motor vehicle accidents involving United Rentals' delivery and service personnel and compensation and other employment related claims. United Rentals carries a broad range of insurance for the protection of its assets and operations. However, such coverage is subject to a deductible of $250,000 and limited to a maximum of $25 million per occurrence. In addition, United Rentals does not maintain insurance coverage for environmental liability, since United Rentals believes that the cost for such coverage is high relative to the benefit that it provides. Furthermore, certain types of claims, such as claims for punitive damages or for damages arising from intentional misconduct, which are often alleged in third party lawsuits, might not be covered by United Rentals' insurance. There can be no assurance that insurance will continue to be available to United Rentals on economically reasonable terms, if at all, that existing or future claims will not exceed the level of United Rentals' insurance or relate to matters not covered by United Rentals' insurance (such as environmental liability), or that United Rentals will have sufficient capital available to pay any uninsured claims. ENVIRONMENTAL REGULATION. United Rentals uses hazardous materials, such as solvents, to clean and maintain its rental equipment and generates and disposes of wastes such as used motor oil, radiator fluid, solvents and batteries. In addition, United Rentals currently dispenses, or may in the future dispense, petroleum products from underground and above-ground storage tanks located at certain rental locations. These and other activities of United Rentals are subject to various federal, state and local laws and regulations governing the generation, handling, storage, transportation, treatment and disposal of hazardous substances and wastes. Under such laws, an owner or lessee of real estate may be liable for, among other things, (i) the costs of removal or remediation of certain hazardous or toxic substances located on, in, or emanating from, such property, as well as related costs of investigation and property damage and substantial penalties for violations of such laws, and (ii) environmental contamination at facilities where its waste is or has been disposed. Such laws often impose such liability without regard to whether the owner or lessee knew of, or was responsible for, the presence of such hazardous or toxic substances. Although United Rentals investigates each business or property that it acquires or leases and believes there are no existing material liabilities relating to non-compliance with environmental laws and regulations, there can be no assurance that there are no undiscovered potential liabilities relating to non-compliance with environmental laws and regulations, that historic or current operations have not resulted in undiscovered conditions that will require investigation and/or remediation under environmental laws, or that future uses or conditions will not result in the imposition of environmental liability upon United Rentals or expose United Rentals to third-party actions such as tort suits. Furthermore, there can be no assurance that changes in environmental regulations in the future will not require United Rentals to make significant capital expenditures to change methods of disposal of hazardous materials or otherwise alter aspects of its operations. See "Business--Environmental Regulation" in Exhibit I to this Joint Proxy Statement/Prospectus. CONCENTRATED CONTROL. Immediately following consummation of the merger, the executive officers and directors of United Rentals will own an aggregate of 32,545,978 shares of United Rentals Common Stock and warrants and options to purchase an additional 9,500,913 shares of United Rentals Common Stock (including 2,852,500 options which are not currently exercisable), representing on a pro forma basis giving effect to the exercise of such warrants and options approximately 62.8% of the United Rentals Common Stock to be outstanding immediately following consummation of the merger (including 16,200,100 beneficially owned by Bradley S. Jacobs and 19,830,489 beneficially owned by Richard D. Colburn). Such share ownership may effectively give such persons the ability to elect the entire Board of Directors of United Rentals and to control United Rentals' management and affairs. VOLATILITY OF STOCK PRICE. Both before and after the merger, the market price of United Rentals Common Stock may experience significant volatility. The market price of United Rentals Common Stock could be subject to significant variation due to fluctuations in United Rentals' operating results, the degree of success United Rentals achieves in implementing its business strategy, changes in business or regulatory conditions affecting United Rentals, its customers or its competitors, and other factors. In addition, the financial markets may experience volatility that affects the market prices of securities in ways unrelated to the operating performance 21 of the issuers of such securities, and such volatility may adversely affect the market price of United Rentals Common Stock. There can be no assurance that the market price of United Rentals Common Stock will not decline below the price at which United Rentals Common Stock was trading at the time the merger agreement was negotiated or adopted by U.S. Rentals stockholders. See"--Fixed Exchange Ratio." ABSENCE OF DIVIDENDS. United Rentals has never paid any dividends on its Common Stock and has no plans to pay dividends on its Common Stock in the foreseeable future. The agreements governing United Rentals' outstanding indebtedness prohibit United Rentals from paying dividends on its Common Stock. See "Market Price and Dividend Data." SHARES ELIGIBLE FOR FUTURE SALE. Sales of substantial amounts of United Rentals Common Stock (including shares issued upon exercise of warrants or options), or the perception that such sales could occur, could adversely affect prevailing market prices for United Rentals Common Stock. Subject to certain Affiliate Agreements (as described under "The Merger--Accounting Treatment"), many of the shares of United Rentals Common Stock held by current stockholders of United Rentals are eligible for immediate sale in the public market pursuant to a shelf registration statement previously filed by United Rentals. Other outstanding shares of United Rentals Common Stock are eligible for resale subject to the public information, manner of sale, volume limitation and notice of sale provisions of the federal securities laws. United Rentals has granted certain registration rights to certain holders of its outstanding Common Stock. In addition, United Rentals has granted certain registration rights to certain holders of U.S. Rentals Common Stock with respect to shares of United Rentals Common Stock that will be issued to such holders in connection with the merger. See "The Merger--Interests of Certain Persons in the Merger--Registration Rights Agreement." ANTI-TAKEOVER PROVISIONS. Certain provisions of United Rentals' certificate of incorporation and by-laws, as well as applicable Delaware law, may have the effect of discouraging unsolicited acquisition proposals or making it more difficult for a third party to gain control of United Rentals. These provisions provide, among other things, that (i) United Rentals' Board of Directors be divided into three classes, with directors of each class serving for a staggered three-year period, (ii) directors may be removed only for cause and only upon the affirmative vote of at least 66 2/3% of the voting power of all the then outstanding shares of stock entitled to vote, (iii) stockholders may not act by written consent, (iv) stockholder nominations and proposals may only be made if specified advance notice requirements are complied with, (v) stockholders are precluded from calling a special meeting of stockholders, and (vi) United Rentals' Board of Directors has the authority to issue up to 5,000,000 shares of preferred stock in one or more series and to fix the powers, preferences and rights of any such series without stockholder approval. Moreover, under certain conditions, Section 203 of the DGCL may prevent United Rentals from engaging in a "business combination" with an "interested stockholder" for a period of three years following the time that a stockholder became an interested stockholder. See "Comparison of Stockholders' Rights." RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS. United Rentals' operations outside the United States are subject to risks normally associated with international operations, including currency conversion risks and complying with foreign laws. 22 THE SPECIAL MEETINGS DATE, TIME AND PLACE OF THE MEETINGS; PURPOSES OF THE MEETINGS United Rentals The Special Meeting of Stockholders of United Rentals (the "United Rentals Special Meeting") will be held on September 29, 1998, at The St. Regis Hotel, 2 East 55th Street, New York, New York 10022 commencing at 11:00 a.m. local time. At the United Rentals Special Meeting, holders of United Rentals Common Stock will be asked (i) to approve an amendment to United Rentals' certificate of incorporation (the "United Rentals Charter") to increase the authorized number of shares of United Rentals Common Stock from 75,000,000 shares to 500,000,000 shares (the "Charter Amendment"), (ii) subject to approval of the Charter Amendment, to approve the issuance of United Rentals Common Stock pursuant to an Agreement and Plan of Merger, dated as of June 15, 1998, as amended and restated on August 31, 1998 (the "Merger Agreement"), among United Rentals, Merger Sub and U.S. Rentals (the "Share Issuance"), (iii) to approve the adoption of the United Rental 1998 Stock Option Plan and (iv) to consider such other matters incident to the conduct of the United Rentals Special Meeting as may properly be brought before the meeting or any adjournment or postponement thereof. Pursuant to the Merger Agreement, Merger Sub would be merged with and into U.S. Rentals (the "Merger"), U.S. Rentals would become a wholly owned subsidiary of United Rentals and, among other things, each share of U.S. Rentals Common Stock outstanding at the effective time of the Merger (the "Effective Time") would be converted into the right to receive 0.9625 shares of United Rentals Common Stock. Charter Amendment. The Charter Amendment increasing the authorized number of shares of United Rentals Common Stock from 75,000,000 shares to 500,000,000 shares will enable United Rentals to have a sufficient number of authorized shares of United Rentals Common Stock for the Share Issuance. If the Merger is consummated, United Rentals estimates that up to 33,604,110 shares of United Rentals Common Stock would be required for issuance in connection with the Merger (including the shares of United Rentals Common Stock issuable upon exercise of options to purchase U.S. Rentals Common Stock ("U.S. Rentals Options") which will become options to purchase United Rentals Common Stock at the Effective Time). While United Rentals has no present intention of issuing any of the shares sought to be authorized that are not required to be issued in connection with the Merger (other than shares issuable upon the exercise of outstanding options and warrants or upon conversion of convertible securities), United Rentals believes that the availability of additional authorized shares of United Rentals Common Stock would provide it with the ability to respond to future business needs and opportunities. The additional authorized shares would be available for issuance by United Rentals from time to time after the Effective Time without further action or authorization by stockholders (except as required by law or by a national securities exchange) in connection with possible financing activities, acquisitions of assets and other companies or for other corporate purposes as determined by the United Rentals Board of Directors. Such financing activities might include raising additional capital funds through offerings of shares of United Rentals Common Stock or of equity or debt securities convertible into or exchangeable for shares of United Rentals Common Stock. Such other corporate purposes might include the issuance of shares of United Rentals Common Stock in connection with employee benefit plans and executive compensation plans of United Rentals and its subsidiaries. If such additional authorized shares are issued to other than existing holders of United Rentals Common Stock, the percentage interest of existing holders in United Rentals would be reduced. Although the existence or issuance of authorized but unissued shares of United Rentals capital stock could, under certain circumstances, have an anti-takeover effect, United Rentals has no present intention to issue such shares for anti-takeover purposes. Shares Issuance. Approval of the Share Issuance by the holders of shares of United Rentals Common Stock is required by the NYSE because the number of shares of United Rentals Common Stock to be issued in connection with the Merger will exceed 20% of the shares of United Rentals Common Stock outstanding immediately prior to the Share Issuance. The number of shares of United Rentals Common Stock currently authorized by the United Rentals Charter but unissued or not reserved for issuance is insufficient to issue the number of shares of United Rentals Common 23 Stock required to be issued upon consummation of the Merger in exchange for shares of U.S. Rentals Common Stock outstanding at the Effective Time (30,774,975 as of the U.S. Rentals Record Date (as hereinafter defined) plus any shares of U.S. Rentals Common Stock issued prior to the Effective Time upon exercise of U.S. Rentals Options or otherwise) or upon exercise of U.S. Rentals Options assumed by United Rentals at the Effective Time. The Charter Amendment, if approved, will provide the necessary additional authorized United Rentals Common Stock. If the Charter Amendment is not approved, the Share Issuance cannot be effected and consequently the Merger will not be consummated. The Share Issuance will not be effected unless the Merger is consummated. United Rentals may elect to not effect the Charter Amendment if the Merger is not consummated. 1998 Stock Option Plan. Approval of the adoption of the United Rentals 1998 Stock Option Plan by the holders of shares of United Rentals Common Stock is required by the rules of the NYSE and by Sections 162(m) and 422 of the Internal Revenue Code of 1986, as amended (the "Code"). The Compensation Committee of the United Rentals Board of Directors adopted the United Rentals 1998 Stock Option Plan in the form attached as Exhibit J to this Joint Proxy Statement/Prospectus. The United Rentals 1998 Stock Option Plan provides for the grant of up to 4,000,000 stock options to officers and directors of United Rentals and its subsidiaries. The plan is designed to provide incentives to attract, retain, and motivate highly competent persons as officers and directors of United Rentals and its subsidiaries by providing them opportunities to acquire United Rentals Common Stock, and to assist in aligning the interests of United Rentals' officers and directors with those of its stockholders. U.S. Rentals The Special Meeting of Stockholders of U.S. Rentals (the "U.S. Rentals Special Meeting") will be held on September 29, 1998, at The St. Regis Hotel, 2 East 55th Street, New York, New York 10022 commencing 10:00 a.m. local time. At the meeting, holders of U.S. Rentals Common Stock will be asked (i) to adopt the Merger Agreement and (ii) to consider such other matters incident to the conduct of the meeting as may properly be brought before the meeting. RECORD DATE AND OUTSTANDING SHARES United Rentals Only holders of record of United Rentals Common Stock at the close of business on August 28, 1998 (the "United Rentals Record Date") are entitled to notice of, and to vote at, the United Rentals Special Meeting. On the United Rentals Record Date, there were approximately 229 holders of record of the 37,328,491 shares of United Rentals Common Stock then issued and outstanding. Each share of United Rentals Common Stock entitles the holder thereof to one vote on each matter submitted for stockholder approval. See "Security Ownership by Certain Beneficial Owners and Management of United Rentals" for information regarding persons known to the management of United Rentals to be the beneficial owners of more than 5% of the outstanding United Rentals Common Stock. U.S. Rentals Only holders of record of U.S. Rentals Common Stock at the close of business on August 28, 1998 (the "U.S. Rentals Record Date") are entitled to notice of, and to vote at, the U.S. Rentals Special Meeting. On the U.S. Rentals Record Date, there were approximately 36 holders of record of the 30,774,975 shares of U.S. Rentals Common Stock then issued and outstanding. Each share of U.S. Rentals Common Stock entitles the holder thereof to one vote on each matter submitted for stockholder approval. See "Security Ownership by Certain Beneficial Owners and Management of U.S. Rentals" for information regarding persons known to the management of U.S. Rentals to be the beneficial owners of more than 5% of the outstanding U.S. Rentals Common Stock. VOTING AND REVOCATION OF PROXIES All properly executed proxies that are not revoked will be voted at the United Rentals Special Meeting or the U.S. Rentals Special Meeting, as applicable, in accordance with the instructions contained therein. If a holder of United Rentals Common Stock executes and returns a proxy and does not specify otherwise, the shares represented by such proxy will be voted (i) for approval of the Charter Amendment, (ii) for approval 24 of the Share Issuance, (iii) for approval of the United Rentals 1998 Stock Option Plan and (iv) in the discretion of the proxy holder with respect to any other matter which may properly come before the United Rentals Special Meeting, including any adjournment or postponement thereof. THE UNITED RENTALS BOARD OF DIRECTORS RECOMMENDS THAT THE HOLDERS OF THE UNITED RENTALS COMMON STOCK VOTE (I) FOR APPROVAL OF THE CHARTER AMENDMENT, (II) FOR APPROVAL OF THE SHARE ISSUANCE AND (III) FOR APPROVAL OF THE UNITED RENTALS 1998 STOCK OPTION PLAN. If a holder of U.S. Rentals Common Stock executes and returns a proxy and does not specify otherwise, the shares represented by such proxy will be voted "for" adoption of the Merger Agreement and in the discretion of the proxy holders with respect to any other matter which may properly come before the U.S. Rentals Special Meeting, including any adjournment or postponement thereof. THE U.S. RENTALS BOARD OF DIRECTORS RECOMMENDS THAT THE HOLDERS OF U.S. RENTALS COMMON STOCK VOTE FOR ADOPTION OF THE MERGER AGREEMENT. A stockholder of United Rentals or a stockholder of U.S. Rentals who has executed and returned a proxy may revoke it at any time before it is voted at the appropriate Special Meeting by (i) executing and returning a proxy bearing a later date, (ii) filing written notice of such revocation with the Secretary of United Rentals or U.S. Rentals, as appropriate, stating that the proxy is revoked or (iii) attending the appropriate Special Meeting and voting in person. A stockholder's attendance at a Special Meeting will not, by itself, revoke a proxy. Any stockholder who has instructed a broker to vote his or her shares must follow the procedure provided by the broker to revoke those instructions. VOTES REQUIRED United Rentals Quorum. The presence, in person or by proxy, at the United Rentals Special Meeting of the holders of a majority of the outstanding shares of United Rentals Common Stock entitled to vote at the meeting will constitute a quorum for the transaction of business. On the United Rentals Record Date, there were 37,328,491 shares of United Rentals Common Stock entitled to vote at the United Rentals Special Meeting. Abstentions and broker non-votes will be counted as shares present in determining the presence of a quorum. Charter Amendment. Approval of the Charter Amendment will require, under the applicable provisions of the DGCL and the United Rentals Charter, the affirmative vote of the holders of a majority of the outstanding shares of United Rentals Common Stock entitled to vote thereon. In determining whether the Charter Amendment has received the requisite number of affirmative votes, abstentions and broker non-votes will have the same effect as a vote against the Charter Amendment. Share Issuance. The Share Issuance does not, under the DGCL, require stockholder approval. The rules of the NYSE require, however, that the Share Issuance be submitted to the stockholders of United Rentals and be approved by a majority of the votes cast on the proposal, provided that the total number of votes cast on the proposal represents over 50% of the shares of United Rentals Common Stock entitled to vote on the proposal. In determining for this purpose (i) the total number of votes cast on the proposal and (ii) whether the proposal has been approved by a majority of the votes cast, abstentions will be counted and will have the same effect as votes cast against the Share Issuance and broker non-votes will not be counted. 1998 Stock Option Plan. Adoption of the United Rentals 1998 Stock Option Plan does not, under the DGCL, require stockholder approval. The rules of the NYSE and Sections 162(m) and 422 of the Code require, however, that the adoption of United Rentals 1998 Stock Option Plan be submitted to the stockholders of United Rentals and be approved by a majority of the votes cast on the proposal. In determining for this purpose (i) the total number of votes cast on the proposal and (ii) whether the proposal has been approved by a majority of the votes cast, abstentions will be counted and will have the same effect as votes cast against the adoption of the United Rentals 1998 Stock Option Plan and broker non-votes will not be counted. 25 U.S. Rentals Quorum. The presence, in person or by proxy, at the U.S. Rentals Special Meeting of the holders of a majority of the outstanding shares of U.S. Rentals Common Stock entitled to vote at the U.S. Rentals Special Meeting will constitute a quorum for the transaction of business. On the U.S. Rentals Record Date, there were 30,774,975 shares of U.S. Rentals Common Stock outstanding and entitled to vote at the U.S. Rentals Special Meeting. Abstentions and broker non-votes will be counted as shares present in determining the presence of a quorum. Merger Agreement. Adoption of the Merger Agreement requires, under the DGCL, the affirmative vote of the holders of a majority of the issued and outstanding shares of U.S. Rentals Common Stock entitled to vote thereon. In determining whether the Merger Agreement has received the requisite number of affirmative votes, abstentions and broker non-votes will have the same effect as a vote against adoption of the Merger Agreement. Richard D. Colburn, Chairman of the Board of U.S. Rentals, beneficially owns (through his ownership of all of the outstanding stock of Ayr, Inc.) 20,603,105 shares of U.S. Rentals Common Stock constituting approximately 67% of the outstanding U.S. Rentals Common Stock. AS PART OF THE TRANSACTION, MR. COLBURN HAS AGREED TO VOTE SUCH SHARES IN FAVOR OF ADOPTION OF THE MERGER AGREEMENT. ACCORDINGLY, THE ADOPTION OF THE MERGER AGREEMENT IS ASSURED. NOTWITHSTANDING MR. COLBURN'S AGREEMENT, ALL U.S. RENTALS' STOCKHOLDERS ARE URGED TO VOTE THEIR SHARES AT THE U.S. RENTALS SPECIAL MEETING. SOLICITATION OF PROXIES In addition to solicitation by mail, the directors, officers, employees and agents of United Rentals and U.S. Rentals may solicit proxies from their respective stockholders by personal interview, telephone, telegram or otherwise. United Rentals and U.S. Rentals will each bear the costs of the solicitation of proxies from their respective stockholders, except that United Rentals and U.S. Rentals will each pay one-half of the cost of printing this Joint Proxy Statement/Prospectus. Arrangements will also be made with brokerage firms and other custodians, nominees and fiduciaries who hold of record voting securities of United Rentals or U.S. Rentals for the forwarding of solicitation materials to the beneficial owners thereof. United Rentals and U.S. Rentals will reimburse such brokers, custodians, nominees and fiduciaries for the reasonable out-of-pocket expenses incurred by them in connection therewith. United Rentals has engaged the services of Georgeson & Company Incorporated ("Georgeson") to assist in the solicitation of proxies from United Rentals stockholders for a fee of $8,500 plus reimbursement of reasonable out-of-pocket expenses; and U.S. Rentals has engaged the services of Georgeson to assist in the solicitation of proxies from U.S. Rentals stockholders for a fee of $6,500 plus reimbursement of reasonable out-of- pocket expenses. OTHER MATTERS At the date of this Joint Proxy Statement/Prospectus, the Boards of Directors of United Rentals and U.S. Rentals do not know of any business to be presented at their respective Special Meetings other than as set forth in the notices accompanying this Joint Proxy Statement/Prospectus. If any other matters should properly come before their respective Special Meetings, it is intended that, in the absence of instructions to the contrary set forth on such proxy, the shares represented by proxies will be voted with respect to such matters in accordance with the judgment of the persons voting such proxies, provided that no proxy which is voted against the Charter Amendment or the Share Issuance, in the case of the United Rentals Special Meeting, or against the adoption of the Merger Agreement, in the case of the U.S. Rentals Special Meeting, will be voted in favor of any adjournment or postponement of the respective Special Meeting. Representatives of Ernst & Young LLP, United Rentals' independent auditors, are expected to be present at the United Rentals Special Meeting, and representatives of PricewaterhouseCoopers LLP, U.S. Rentals' independent public accountants, are expected to be present at the U.S. Rentals Special Meeting. Such representatives will have an opportunity to make statements at these meetings if they so desire and will be available to respond to appropriate questions. 26 THE MERGER GENERAL DESCRIPTION OF THE MERGER The Merger Agreement provides for a business combination involving the merger of Merger Sub with and into U.S. Rentals, with U.S. Rentals surviving the Merger as a wholly owned subsidiary of United Rentals. At the Effective Time, each outstanding share of U.S. Rentals Common Stock (other than shares of U.S. Rentals Common Stock held in the treasury of U.S. Rentals or owned by United Rentals or by any direct or indirect wholly owned subsidiary of United Rentals or of U.S. Rentals, which shares shall be cancelled at the Effective Time) will be converted into the right to receive 0.9625 shares of United Rentals Common Stock. Based on the number of shares of U.S. Rentals Common Stock outstanding as of the U.S. Rentals Record Date, 29,620,913 shares of United Rentals Common Stock will be issuable pursuant to the Merger Agreement (assuming no exercise of U.S. Rentals Options between the U.S. Rentals Record Date and the Effective Time), representing approximately 44.2% of the total number of shares of United Rentals Common Stock to be outstanding after such issuance (based on the number of shares of United Rentals Common Stock outstanding as of the United Rentals Record Date). BACKGROUND OF THE MERGER U.S. Rentals completed its initial public offering in February, 1997. At that time, and continuing through the present, a significant part of U.S. Rentals' business and growth strategy has been to participate in the accelerating consolidation of the equipment rental industry. In June, 1997, the sale of a leading company in the equipment rental business was announced at a valuation that Richard D. Colburn, Chairman and the majority stockholder of U.S. Rentals, and U.S. Rentals' management, believed to be very attractive. On June 19, 1997, at the request of Mr. Colburn, U.S. Rentals retained Donaldson, Lufkin & Jenrette Securities Corporation ("DLJ") to explore whether there might be companies interested in a strategic combination with U.S. Rentals at valuation levels that would reflect the valuations implied by the recent transaction. At that time, Mr. Colburn indicated that he was willing to consider the possibility of a transaction, but emphasized that he had made no decision to dispose of his stock. DLJ compiled a list of companies that in its judgment might have an interest in a strategic transaction with U.S. Rentals, including equipment rental companies and other companies related to the equipment rental industry. DLJ made preliminary contacts with many of these companies, and seven of them indicated that they were interested in receiving additional information with respect to U.S. Rentals. U.S. Rentals exchanged certain financial information with five of those entities. On July 17, 1997, at a regular meeting, U.S. Rentals' Board of Directors (the "U.S. Rentals Board") discussed with counsel and management various issues associated with a possible transaction involving U.S. Rentals. The U.S. Rentals Board deferred any decisions with respect to this process, pending further discussions with management and counsel. On July 23, 1997, the U.S. Rentals Board held a special meeting to continue the discussions started at the July 17 meeting with respect to the implications of a possible transaction involving U.S. Rentals. Management reported that Mr. Colburn continued to be interested in exploring the possibility of a strategic transaction. It was reported that he had made no decisions with respect to any such matter, but was intrigued by the possible valuation of U.S. Rentals that could be implied from a recent transaction in the industry, and that a transaction reflecting that valuation could be attractive and of interest to all stockholders. The U.S. Rentals Board decided to authorize confidential discussions with two prospective equipment rental companies that they believed might be in a position to engage in a tax deferred transaction utilizing stock. On July 30, 1997, the U.S. Rentals Board held a special meeting to continue discussions about these matters. DLJ presented information with respect to companies in the equipment rental industry, various transactions in 27 the industry, a preliminary framework for the consideration of valuation issues with respect to U.S. Rentals, an overview of the companies contacted, the process that DLJ had followed to date, and the possible timing of future events. Mr. Colburn again indicated that he was merely interested in exploring options with respect to his position in U.S. Rentals, and had made no decision to sell his interest or engage in definitive negotiations with respect thereto. After discussions about the relative merits of various alternatives, the U.S. Rentals Board instructed DLJ to focus on the possibility of a transaction with one particular public equipment rental company, which had indicated through its investment banker that it might be interested in a combination with U.S. Rentals. At a regular meeting of the U.S. Rentals Board on October 21, 1997, DLJ reported on its preliminary discussions with the foregoing party, and the U.S. Rentals Board concluded that it did not appear that an acceptable transaction could be accomplished. The U.S. Rentals Board then indicated to management that if there was no continuing interest in pursuing discussions with other companies, it would be appropriate to terminate the engagement of DLJ. DLJ was kept on engagement by U.S. Rentals management to assist in connection with the significant and accelerating consolidation of the equipment rental industry. Various possible larger acquisition candidates were discussed from time to time by management and DLJ. On December 15, 1997, Mr. Colburn met with the investment banker for the controlling stockholder of another publicly traded company in the equipment rental business. Mr. Colburn's initial inquiry was with respect to the possible acquisition of that company's equipment rental business by U.S. Rentals, or a joint venture. This company indicated that they were not interested in such a transaction, but might be interested in U.S. Rentals merging with it. Following discussions between DLJ and the other company's investment bankers during January 1998, U.S. Rentals' management concluded that a transaction at valuation levels that would be attractive to U.S. Rentals would be unlikely, and discussions were terminated. That was reported to the U.S. Rentals Board at a regular meeting on February 2, 1998. On February 25, 1998, Bradley S. Jacobs, Chairman and Chief Executive Officer of United Rentals, and John N. Milne, Vice Chairman and Chief Acquisition Officer of United Rentals, met in Beverly Hills, California with Mr. Colburn, William F. Berry, President and Chief Executive Officer of U.S. Rentals, John S. McKinney, Chief Financial Officer of U.S. Rentals, and a representative of DLJ at which time U.S. Rentals first raised the possibility of a business combination between United Rentals and U.S. Rentals. On March 12, 1998 in Beverly Hills, California and again on March 19, 1998 in New York, New York, Messrs. Jacobs and Colburn met to discuss the possibility of a merger between United Rentals and U.S. Rentals. On March 20, 1998, United Rentals engaged Goldman, Sachs & Co. ("Goldman Sachs") to act as its financial advisor in respect of a possible business combination transaction between United Rentals and U.S. Rentals. On March 26, 1998, United Rentals and U.S. Rentals executed a confidentiality agreement under which management of U.S. Rentals provided to United Rentals certain non-public information regarding U.S. Rentals. After execution of a confidentiality agreement with respect to United Rentals, similar information relating to United Rentals was received and evaluated by DLJ and U.S. Rentals' management. On March 27, 1998, Mr. Milne met with Messrs. Berry and McKinney in Modesto, California to begin preliminary financial and business due diligence with respect to U.S. Rentals. On April 17, 1998, management of each company held a conference call regarding related matters. On April 16, 1998, representatives of DLJ and representatives of Goldman Sachs met to discuss the potential business combination of United Rentals and U.S. Rentals. On April 21, 1998, at a regular meeting of the U.S. Rentals Board, the possibility of a combination with United Rentals was discussed. U.S. Rentals management provided information about United Rentals and its management, including its financial background, history as a public company, and acquisition activities. The U.S. 28 Rentals Board authorized management to further evaluate a possible business combination, but without authority to make commitment on terms without the approval of the U.S. Rentals Board. Management was instructed to review United Rentals financial information and other due diligence materials, and the potential structure of a transaction. On April 28, 1998, Messrs. Jacobs and Milne, Michael J. Nolan, Chief Financial Officer of United Rentals, Wayland R. Hicks, President and Chief Operating Officer of United Rentals, and representatives of Goldman Sachs met in Greenwich, Connecticut with Messrs. Colburn, Berry and McKinney and representatives of DLJ. The following day such persons met in New York to exchange certain due diligence information relating to their respective businesses and to discuss the potential structure and general terms of a combination of United Rentals and U.S. Rentals. On April 30, 1998, the parties' respective financial advisors engaged in preliminary discussions with respect to the exchange ratio at which shares of U.S. Rentals Common Stock would be converted into United Rentals Common Stock in such a transaction, and United Rentals proposed a post-transaction management structure for the combined company. Following such preliminary discussions, discussions between the parties ceased. On May 7, 1998, the U.S. Rentals Board held a special meeting and received an update from management with respect to issues associated with a possible transaction with United Rentals. Management reported on discussions that had taken place with management of United Rentals, and discussions that had taken place between the companies' financial advisors. The U.S. Rentals Board was also updated on acquisitions and financing activity involving other companies in the equipment rental industry. After discussion involving various elements of a possible transaction with United Rentals, the U.S. Rentals Board authorized management and DLJ to continue to pursue a possible business combination with United Rentals, but without authority to make a commitment on terms without approval of the U.S. Rentals Board. On May 16, 1998, representatives of DLJ contacted Mr. Jacobs to review United Rentals' position with respect to the transaction, to reiterate U.S. Rentals' position relating thereto, and to ascertain United Rentals' interest in resuming discussions regarding a possible transaction. Thereafter, various telephone discussions ensued between representatives of Goldman Sachs and DLJ concerning the proposed transaction. On May 18, 1998, a regularly scheduled meeting of the Board of Directors of United Rentals (the "United Rentals Board") was held. At such meeting, the management of United Rentals discussed with the United Rentals Board the history and status of the discussions regarding a potential merger between United Rentals and U.S. Rentals. On May 21, 1998, United Rentals instructed its legal counsel to deliver a draft of a merger agreement to U.S. Rentals and its advisors. On May 28, 1998, Messrs. Milne and Nolan, together with representatives of Goldman Sachs and counsel for United Rentals, met in New York with Messrs. Berry and McKinney, representatives of DLJ and counsel for U.S. Rentals, to resume business and operational due diligence and to discuss the general terms of the draft merger agreement and the other agreements contemplated thereby. Various telephone conversations concerning certain of the issues raised during such meeting ensued over the following week between representatives of United Rentals and U.S. Rentals. Between June 5 and June 11, 1998, representatives of United Rentals held numerous telephonic conferences with representatives of U.S. Rentals and counsel for Messrs. Colburn, Berry and McKinney to negotiate the terms of the draft transaction documents and narrow the number of unresolved issues. Among the principal issues discussed were matters relating to the exchange ratio; the circumstances under which a party could negotiate with third parties, or terminate the merger agreement, once the merger agreement had been executed; conditions to the parties' respective obligations to consummate the merger; the terms of Mr. Colburn's and Mr. Jacobs' voting agreements; the terms of the employment agreements to be entered into between United Rentals and Messrs. Berry and McKinney; and the composition of the combined company's board of directors following the merger. On June 2, 1998, a special meeting of the U.S. Rentals Board was held to continue discussion of a potential business combination with United Rentals, and to update the U.S. Rentals Board on the status of negotiations. In 29 addition, representatives of O'Melveny & Myers LLP, U.S. Rentals' regular counsel, and representatives of Richards Layton & Finger, P.A., special Delaware counsel to the U.S. Rentals Board, attended the meeting. Representatives of DLJ updated the U.S. Rentals Board with respect to the status of discussions, and the U.S. Rentals Board and DLJ discussed the strategic and financial elements of a combination of the two companies. Among other things, the U.S. Rentals Board discussed the proposed financial terms of a proposed transaction, various structural considerations, post-transaction management structure, valuation issues, and Mr. Colburn's intentions and desires. Prior to the meeting a draft merger agreement from United Rentals had been distributed to the U.S. Rentals Board, and it was discussed at the meeting. On June 9, the U.S. Rentals Board held a special meeting to continue their discussion of these matters and to further discuss with counsel their duties and responsibilities in connection with these matters. Counsel, DLJ and management updated the U.S. Rentals Board on all aspects of the negotiations to date, including issues that had been negotiated with respect to economic terms, structure, timing, and post-transaction management structure. Various financial and economic items were discussed by the U.S. Rentals Board and its advisors. At this meeting, Mr. Colburn indicated that he was still interested in exploring the negotiations and recommended that additional seats on the combined company's board of directors should be sought to provide the benefits of U.S. Rentals' long history in the equipment rental business. The U.S. Rentals Board was advised that negotiations were moving in a satisfactory fashion, but that important business and economic terms had not been resolved, including the exchange ratio; the circumstances under which a party could negotiate with third parties, or terminate the merger agreement, once the merger agreement had been executed; conditions to the parties' respective obligations to consummate the merger; the terms of the employment agreements to be entered into between United Rentals and Messrs. Berry and McKinney; and the composition of the combined company's board of directors following the merger. By June 11, 1998, the principal unresolved issues with respect to the transaction were (i) the exchange ratio and (ii) certain matters relating to each party's ability to negotiate with third parties or terminate the merger agreement once it had been executed. On June 11, 1998, representatives of United Rentals provided United Rentals' proposal with respect to the remaining unresolved issues to representatives of U.S. Rentals. On June 11, 1998, the U.S. Rentals Board held a special meeting to review a summary of the principal terms that had been negotiated in each of the major agreements that were to be executed in connection with the merger. A mark-up of United Rentals' draft of the merger agreement, prepared by U.S. Rentals' counsel, had been sent to the U.S. Rentals Board and was discussed. U.S. Rentals management and advisors made presentations regarding various elements of the negotiations. On June 14, 1998, Mr. Milne called Mr. Berry to ascertain the status of U.S. Rentals' response to United Rentals' proposal. As a result of such conversation, various discussions between representatives of the companies ensued. On June 14, 1998, the United Rentals Board met to discuss and review the proposed terms of the transaction. At such meeting, United Rentals' management and advisors made presentations regarding the terms of the proposed merger. Also at such meeting, representatives of Goldman Sachs presented financial analyses relating to the proposed merger and indicated that if the definitive merger agreement were to be substantially similar to the draft of the merger agreement reviewed by Goldman Sachs at such time, Goldman Sachs would be in a position to provide an opinion to the effect that, as of the date of such opinion, based upon and subject to various qualifications and assumptions to be set forth in such opinion, the exchange ratio pursuant to the merger agreement was fair from a financial point of view to United Rentals. United Rentals' legal counsel reviewed the terms of the proposed merger agreement and other agreements related thereto with the United Rentals Board and discussed with the United Rentals Board its duties and responsibilities in connection with the consideration of the merger. Following further discussion, the United Rentals Board unanimously approved the merger agreement, authorized Messrs. Jacobs and Milne to negotiate the final terms of the merger agreement including the exchange ratio of 0.9625 and resolved to recommend that the holders of United Rentals Common Stock vote in favor of the transactions contemplated by the merger agreement, including the Charter Amendment and the Share Issuance. 30 On June 15, 1998, the U.S. Rentals Board held a special meeting to enable its advisors to update it on the status of negotiations. The principal terms of the proposed transaction and the related documents were reviewed, but the exchange ratio had not yet been agreed upon. The meeting was adjourned until later in the day, at which time DLJ reported that the final negotiations with respect to the exchange ratio had resulted in a ratio of 0.9625 shares of United Rentals Common Stock for each share of U.S. Rentals Common Stock. The financial implications of that ratio were discussed by the U.S. Rentals Board. After discussion, representatives of DLJ delivered an oral opinion to the effect that as of such date, and based upon and subject to the various qualifications and assumptions described in its subsequent written opinion, the exchange ratio was fair to the public stockholders of U.S. Rentals from a financial point of view. Following further discussion, the U.S. Rentals Board unanimously approved the merger agreement, authorized its signature, and resolved to recommend that the holders of U.S. Rentals common stock vote in favor of the adoption of the merger agreement. On June 15, 1998, United Rentals and U.S. Rentals agreed upon an exchange ratio of 0.9625 shares of United Rentals Common Stock for each share of U.S. Rentals Common Stock and resolved the outstanding issues relating to the merger agreement and other transaction documents. On the evening of June 15, 1998, United Rentals and U.S. Rentals executed and delivered the merger agreement. A joint public announcement of the Merger was made by the parties on the morning of June 16, 1998. On July 31, 1998, United Rentals and U.S. Rentals amended the merger agreement to provide for the Reorganization. On August 31, 1998, the merger agreement was amended and restated in the form attached as Exhibit A to this Joint Proxy Statement/Prospectus. United Rentals, as part of its growth strategy, is continuously involved in discussions relating to potential acquisitions of equipment rental companies of varying size (including smaller companies to complement existing or anticipated locations and combinations with large companies that have an established presence in one or more regions), and in due diligence investigations of potential acquisition candidates. See "Business" in Exhibit I to this Joint Proxy Statement/Prospectus. In response to the rapid consolidation taking place in the equipment rental industry, U.S. Rentals also has routinely pursued potential acquisitions to complement and expand its business. Accordingly, during the period in which the Merger was being negotiated, both United Rentals and U.S. Rentals considered, and engaged in discussions and initiated due diligence with respect to, numerous potential acquisitions of equipment rental companies and, as discussed in Exhibit I to this Joint Proxy Statement/Prospectus, United Rentals consummated numerous acquisitions, and U.S. Rentals consummated a number of acquisitions as well. However, none of the other transactions considered by United Rentals or U.S. Rentals during the period in which the Merger was being negotiated was viewed by their respective boards of directors as an alternative to the Merger, nor did United Rentals or U.S. Rentals forego pursuing any of such transactions in order to pursue the Merger. REASONS FOR THE MERGER; RECOMMENDATION OF THE BOARDS OF DIRECTORS United Rentals The United Rentals Board has unanimously determined that the Merger, the Charter Amendment and the Share Issuance are fair to and in the best interests of United Rentals and its stockholders and has approved and adopted the Merger Agreement, approved the Charter Amendment and the Share Issuance. Accordingly, the United Rentals Board unanimously recommends that United Rentals stockholders vote in favor of the approval of the Charter Amendment and the Share Issuance. The United Rentals Board believes that approval of the Merger will provide opportunities to achieve substantial benefits for the combined company and its stockholders and customers that might not otherwise be available. As a result of the combination of United Rentals' and U.S. Rentals' financial resources, management and equipment, the United Rentals Board believes that United Rentals will be a stronger company and will be better able to capitalize on growth opportunities and compete more effectively in the markets it serves as well as 31 new markets. The Merger furthers United Rentals' strategy of seeking continued expansion through disciplined acquisitions and of diversifying geographic locations, equipment categories and customers. The United Rentals Board believes that the Merger Agreement and the Merger are fair to and in the best interests of United Rentals and its stockholders. The following are the material factors considered by the United Rentals Board in reaching its conclusion: . the judgment, advice and analysis of the management of United Rentals with respect to the strategic, financial and operational benefits of the Merger, based in part on the due diligence performed with respect to U.S. Rentals; . the present and anticipated environment of the equipment rental business, which is experiencing rapid consolidation, and the opportunity for the combined company to secure a position as an industry leader by virtue of the Merger; . the strategic benefits of the Merger and the complementary geographic areas of the companies' businesses which will give the combined company a nationwide presence and increase the opportunities for future acquisitions and growth; . the historical market prices and trading information with respect to United Rentals Common Stock and U.S. Rentals Common Stock; . the financial condition, results of operations, business and prospects of each of United Rentals and U.S. Rentals; . the potential cost savings and synergies (estimated to be in the range of $5 million to $10 million per annum) and limited operating synergies to be realized by the combined operations of United Rentals and U.S. Rentals, including the opportunity to achieve savings through economies of scale, including greater purchasing power with suppliers; . the ability to retain key U.S. Rentals personnel by the combined entity after the Merger, including that Mr. Berry will become President and Mr. McKinney, Vice President, Finance of the combined company following the Merger; . the treatment of the Merger as a "tax-free reorganization" for federal income tax purposes and a "pooling-of-interests" transaction for accounting purposes (which avoids the reduction in earnings that would result from the creation and amortization of goodwill under purchase accounting); . the terms and conditions of the Merger Agreement, including the Exchange Ratio, which were viewed by management and the United Rentals Board as providing an equitable basis for the Merger from United Rentals' perspective; . the discussion and analysis of Goldman Sachs at the June 14, 1998 meeting of the United Rentals Board and its opinion to the effect that as of the date of such opinion, the Exchange Ratio pursuant to the Merger Agreement was fair, from a financial point of view, to United Rentals. In considering the opinion of Goldman Sachs, the United Rentals Board did not rely or place any specific emphasis on any particular analysis performed by Goldman Sachs and presented to the United Rentals Board. Rather, the United Rentals Board considered Goldman Sachs' analyses in their entirety as supporting the determination of the United Rentals Board that the Merger is in the best interests of United Rentals; and . a number of potential risks relating to the Merger, including (i) the challenges inherent in combining two large, geographically diversified business enterprises such as United Rentals and U.S. Rentals and the possible resulting diversion of management resources and attention from other strategic opportunities and operational matters for an extended period of time; (ii) the risk that the synergies and cost savings expected to result from the Merger may not be realized or, even if they are realized, may not be realized within the expected time periods; (iii) the risk that the Merger would not be consummated due to the failure of one or more conditions to the Merger to be satisfied (see "Material Terms of the Merger Agreement--Conditions"); (iv) the risk that certain members of U.S. 32 Rentals' management would not remain with the combined company following the Merger and (v) the other factors described under "Risk Factors." Having assessed these and other risks, the United Rentals Board concluded that the management of the combined company would be likely to manage these risks successfully and that the numerous favorable factors described above, taken together, outweighed the potential risks. The foregoing discussion of the information and factors considered by the United Rentals Board is not meant to be exhaustive but includes all material factors considered by the United Rentals Board. The United Rentals Board did not quantify or attach any particular weight to the various factors that it considered in reaching its determination that the Merger Agreement and the Merger are fair to and in the best interests of United Rentals and its stockholders. Rather, the United Rentals Board made its determination based on the totality of the information presented to it, and the judgments of individual members of the United Rentals Board may have been influenced to a greater or lesser degree by different factors. U.S. Rentals The U.S. Rentals Board has unanimously determined that the Merger is fair to and in the best interests of U.S. Rentals and its stockholders and has unanimously approved the Merger Agreement. Accordingly, the U.S. Rentals Board unanimously recommends that stockholders of U.S. Rentals vote in favor of the adoption of the Merger Agreement. The U.S. Rentals Board believes that the Merger will provide opportunities to achieve substantial benefits for the combined company and its stockholders that might not otherwise be available. The U.S. Rentals Board believes that the combination of United Rentals' and U.S. Rentals' financial resources, management and equipment will result in a stronger company that will be better able to capitalize on growth opportunities and compete effectively in the markets it serves, as well as new markets. The U.S. Rentals Board believes that the Merger is consistent with U.S. Rentals' long term strategy of participating in the consolidation of the equipment rental industry. The U.S. Rentals Board believes that the Merger will enable U.S. Rentals stockholders to continue to own shares in a stronger equipment rental company that will have a more broadly diversified geographic, customer and equipment base, and the financial resources to seek continued expansion through disciplined acquisitions. The following are the material factors considered by the U.S. Rentals Board in reaching its conclusions. . U.S. Rentals' and United Rentals' business, financial condition, results of operations and future prospects, current and anticipated developments in the equipment rental business, and historical stock prices, and the U.S. Rentals Board's belief that the Merger consideration fairly reflects U.S. Rentals' intrinsic value and potential for future growth. . Management's view that the equipment rental industry trend of accelerated consolidation will continue in a manner that, unless met with increased acquisition activity by U.S. Rentals, could pose a significant strategic challenge to U.S. Rentals and reduce the perception among investors that it is a leading consolidator in the industry. . The U.S. Rentals Board's belief that the two companies have excellent management teams with complementary strengths; the fact that three U.S. Rentals directors will be on the board of the combined company and that U.S. Rentals' chief executive officer and chief financial officer will be involved as officers of the combined company; and the fact that the combined company will have Mr. Colburn and Mr. Jacobs as its largest stockholders following the Merger, but that no person will have actual or voting control of the combined company. . The U.S. Rentals Board's belief, based on discussions with DLJ regarding the historical performance of United Rentals and discussions with U.S. Rentals' management regarding anticipated future developments in the equipment rental industry, that United Rentals is a highly attractive, interested merger candidate with an impressive history of accomplishments and outstanding business prospects. . The U.S. Rentals Board's belief, based on discussions with DLJ regarding market conditions and discussions with U.S. Rentals' management regarding anticipated operations of the combined 33 companies, that there would be, following the announcement of the proposed Merger, an increase in the value of the shares then owned by U.S. Rentals stockholders, based on the investment community's likely favorable reaction to the Merger. . The U.S. Rentals Board's belief, based on discussions with DLJ at meetings of the U.S. Rentals Board in June 1998 regarding market conditions and discussions with U.S. Rentals' management regarding anticipated operations of the combined companies, that there were excellent prospects for a substantial increase in the value of the shares of United Rentals to be owned by U.S. Rentals stockholders following the Merger, due in part to: . the possibility that U.S. Rentals' earnings, as a part of United Rentals, will be capitalized at a higher multiple in the stock market, because of the combined company's prospects. . the financial strength and buying power of the combined companies, which will enable greater access to capital, and provide greater diversification and protection in a downturn of the economy. . potential cost savings (estimated to be in the range of $5 million to $10 million per annum) and other potential synergies and efficiencies in the operations of the two companies. . The expressed desire and intention of Mr. Colburn to engage in the transaction; the tax deferred nature of the transaction, in light of the expressed desire of Mr. Colburn for such a transaction; and the limited number of attractive potential companies at this time that could reasonably pursue a tax-free business combination that fits the strategic direction of U.S. Rentals. . The events leading to the signing of the Merger Agreement, as described under "--Background of the Merger." . DLJ's opinion that the Exchange Ratio is fair to U.S. Rentals' Public Stockholders from a financial point of view. In considering the opinion of DLJ, the U.S. Rentals Board did not rely or place any specific emphasis on any particular analysis performed by DLJ and presented to the U.S. Rentals Board. Rather, the U.S. Rentals Board considered DLJ's opinion in its entirety as supporting the determination of the U.S. Rentals Board that the Merger is in the best interests of U.S. Rentals and its stockholders. . The terms and conditions of the Merger Agreement, including the Exchange Ratio, the absence of any "collars" (thereby providing U.S. Rentals' stockholders with the possible benefits of a post-announcement increase in the price of United Rentals' stock, and the possible risks associated with the absence of downside protection in connection therewith); and the restrictions on U.S Rentals' ability to discuss any alternative transaction with other parties. . The terms of the arrangements with Mr. Colburn and Mr. Jacobs with respect to voting of their shares for the Merger, and the legal restrictions on transfer of their shares after the Merger. . Possible alternatives to the Merger, including continuing to operate as an independent public company, seeking a combination with another strategic partner or seeking a sale of U.S. Rentals, and the effect, short term and long term, of such alternatives on the value of U.S. Rentals' common stock. . The advice of U.S. Rentals' management (and, to the extent set forth below, DLJ's advice at meetings of the U.S. Rentals Board in June 1998) as to the likelihood of other potential companies being willing or able to engage in a more favorable transaction with U.S. Rentals. In discussing this factor, U.S. Rentals management advised the U.S. Rentals Board that in management's view, no other prospective merger candidate would be likely to be able to offer the combination of these benefits that a merger with United Rentals would offer. This advice was based in part on their knowledge and information provided by DLJ at meetings of the U.S. Rentals Board in June 1998 about the structure of other past and potential combinations in the industry, the size and financial strength of U.S. Rentals compared to other companies in the industry, and the number of prospective merger candidates in the industry that might be able to provide prospects for the U.S. Rentals stockholders to accomplish a transaction on a tax-deferred basis. In addition, the ability of the parties to engage in a transaction that would qualify for pooling-of-interests accounting distinguished the transaction, since management did not believe that such accounting treatment would be possible at the time with most other possible merger candidates in the equipment rental industry. 34 The foregoing discussion of the information and factors considered by the U.S. Rentals Board is not meant to be exhaustive, but summarizes the material factors considered by the U.S. Rentals Board, including the risk that some of the perceived benefits might not be realized. The U.S. Rentals Board did not quantify or attach any particular weight to the various factors, or determine that any particular factors were of primary importance. Rather, the U.S. Rentals Board made its determination that the Merger Agreement and the Merger are fair to and in the best interests of U.S. Rentals and its stockholders based on the totality of the information presented to and considered by it. Individual members of the U.S. Rentals Board may have given different weight to these different factors. OPINION OF FINANCIAL ADVISORS TO UNITED RENTALS Goldman Sachs delivered its written opinion dated June 15, 1998 to the United Rentals Board to the effect that, as of the date of such opinion, the Exchange Ratio pursuant to the Merger Agreement was fair from a financial point of view to United Rentals. THE FULL TEXT OF THE WRITTEN OPINION OF GOLDMAN SACHS DATED JUNE 15, 1998, WHICH SETS FORTH ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITATIONS ON THE REVIEW UNDERTAKEN IN CONNECTION WITH THE OPINION, IS ATTACHED AS EXHIBIT G TO THIS JOINT PROXY STATEMENT/PROSPECTUS AND IS INCORPORATED HEREIN BY REFERENCE. HOLDERS OF UNITED RENTALS COMMON STOCK ARE URGED TO, AND SHOULD, READ SUCH OPINION IN ITS ENTIRETY. In connection with its opinion, Goldman Sachs reviewed, among other things, (i) the Merger Agreement; (ii) the Annual Reports to Stockholders and Annual Reports on Form 10-K of United Rentals and U.S. Rentals for the year ended December 31, 1997; (iii) the Registration Statement on Forms S-1 of U.S. Rentals, including the Prospectus forming a part thereof dated February 21, 1997, related to the initial public offering of the U.S. Rentals Common Stock; (iv) the Registration Statement on Form S-1 of United Rentals including the Prospectus forming a part thereof dated December 16, 1997 related to the initial public offering of the United Rental Common Stock; (v) certain interim reports to stockholders and Quarterly Reports on Form 10-Q of United Rentals and U.S. Rentals; (vi) certain other communications from United Rentals and U.S. Rentals to their respective stockholders; and (vii) certain financial analyses and forecasts for United Rentals and U.S. Rentals prepared by their respective managements (in the case of U.S. Rentals such forecasts were dated February 12, 1998). Goldman Sachs also held discussions with members of the senior managements of each of United Rentals and U.S. Rentals regarding the strategic rationale for, and the potential benefits of, the transaction contemplated by the Merger Agreement and the past and current business operations, financial condition, and future prospects of their respective companies. In addition, Goldman Sachs reviewed the reported price and trading activity for shares of United Rentals Common Stock and U.S. Rentals Common Stock, compared certain financial and stock market information for United Rentals and U.S. Rentals with similar information for certain other companies the securities of which are publicly traded, reviewed the financial terms of certain recent business combinations in the equipment rental industry specifically and in other industries generally, and performed such other studies and analyses as it considered appropriate. Goldman Sachs relied upon the accuracy and completeness of all of the financial and other information reviewed by and discussed with it and assumed such accuracy and completeness for purposes of rendering its opinion. In addition, Goldman Sachs did not make an independent evaluation or appraisal of the assets and liabilities of United Rentals or U.S. Rentals or any of their respective subsidiaries, and Goldman Sachs has not been furnished with any such evaluation or appraisal. Goldman Sachs also assumed with the consent of the United Rentals Board that the transaction contemplated by the Merger Agreement will be accounted for as a pooling of interests under generally accepted accounting principles. The opinion of Goldman Sachs referred to in this Joint Proxy Statement/Prospectus was provided for the information and assistance of the United Rentals Board in connection with its consideration of the transaction contemplated by the Merger Agreement and such opinion does not constitute a recommendation as to how any holder of United Rentals Common Stock should vote with respect to such transaction. 35 The following is a summary of certain of the financial analyses used by Goldman Sachs in connection with providing its opinion to the United Rentals Board dated June 15, 1998. (i) Selected Companies Analysis. Goldman Sachs reviewed and compared certain financial information relating to United Rentals and U.S. Rentals to corresponding financial information, ratios and public market multiples for two publicly traded corporations: Rental Service Corporation and Neff Corp. (the "Selected Companies"). The Selected Companies were chosen because they are publicly traded companies with operations that for purposes of analysis may be considered similar to United Rentals and U.S. Rentals. Goldman Sachs calculated and compared various financial multiples and ratios. The multiples of United Rentals were calculated using a price of $34.31 per share of United Common Rentals Stock, and the multiples of U.S. Rentals were calculated using a price of $30.56 per share of U.S. Rentals Common Stock, the closing prices of the United Common Stock and the U.S. Rentals Common Stock on the NYSE on June 12, 1998; the multiples of the Selected Companies were calculated using the respective closing prices of their shares on June 12, 1998. The multiples and ratios for United Rentals, U.S. Rentals and for the Selected Companies were based on recent publicly available information. With respect to the Selected Companies, Goldman Sachs considered levered market capitalization (i.e., market value of common equity plus in-the-money common equivalents plus book value of debt less cash) as a multiple of latest twelve months ("LTM") sales, as a multiple of LTM earnings before interest, taxes, depreciation and amortization ("EBITDA"), as a multiple of estimates (based on various publicly available sources) of 1998 EBITDA, as a multiple of estimates (based on various publicly available sources) of 1999 EBITDA, and as a multiple of LTM earnings before interest and taxes ("EBIT"). Goldman Sachs' analyses of the Selected Companies indicated levered multiples of LTM sales of 2.0x and 3.0x, LTM EBITDA of 6.7x and 9.0x, estimated 1998 EBITDA of 3.2x (1998 EBITDA estimates were not available for Neff Corp.), estimated 1999 EBITDA of 2.4x (1999 EBITDA estimates were not available for Neff Corp.), and LTM EBIT of 19.5x and 20.4x, compared to levered multiples of 5.0x, 28.6x, 11.6x, 5.4x, and 57.6x, respectively for United Rentals and 2.7x, 8.0x, 5.3x, 4.3x and 18.9x, respectively for U.S. Rentals. Goldman Sachs also considered for Rental Service Corp. price/earnings ("PE") ratios (such ratios were not applicable to Neff Corp. because it did not have positive earnings per share ("EPS") in 1997 and it was not, at the time, covered by First Call Corporation), of 27.9x based on actual 1997 EPS for Rental Service Corp. (Neff Corp. did not have positive earnings in 1997) compared to 27.0x for U.S. Rentals (United Rentals' multiple of actual 1997 EPS did not provide a meaningful number because it reflected only a few months of operation); estimated 1998 and 1999 PE ratios (based on median estimates from First Call Corporation), of 20.1x for estimated 1998 and 16.4x for estimated 1999 compared to 56.3x and 27.5x, respectively for United Rentals and 21.7x and 17.6x, respectively for U.S. Rentals; estimates of five-year compound annual growth rate of EPS (provided by Institutional Broker Estimate Service) of 25.0% compared to 42.5% for United Rentals and 24.0% for U.S. Rentals; and multiples of estimated 1998 and 1999 P/E multiples to 5-year EPS growth of 0.81x compared to 1.32x for United Rentals and 0.90x for U.S. Rentals for 1998 and 0.65x for 1999 compared to 0.65x for United Rentals and 0.73x for U.S. Rentals. (ii) Historical Exchange Ratio Analysis. Goldman Sachs reviewed historical trading prices for the shares of United Rentals Common Stock and the U.S. Rentals Common Stock since the initial public offering of the United Rentals Common Stock in December 1997 and the initial public offering of the U.S. Rentals Common Stock in February 1997, and derived, from the daily closing prices of such shares (beginning on December 18, 1997), implied exchange ratios. Such analysis indicated that the daily implied exchange ratios for the period from December 18, 1997 to June 12, 1998 ranged from 1.650 to 0.823 with an average for such period of 1.046. Such analysis also indicated average implied exchange ratios of 0.985, 0.972, 0.904, 0.930, 0.914, 0.914 for the 90, 60, 30, 20, 15 and 10 trading days ending June 12, 1998, respectively. (iii) Contribution Analysis. Goldman Sachs reviewed certain historical and estimated future operating and financial information (including, among other things, revenues, EBITDA and net income) for United Rentals, U.S. Rentals and the pro forma combined company following the Merger based on United Rentals' and U.S. Rentals' managements' (in the case of U.S. Rentals' management both with (such estimates, together with United Rentals' management's estimates, the "Base Estimates") and without U.S. 36 Rentals making acquisitions (such estimates, together with United Rentals' management's estimates, the "Base Estimates Without U.S. Rentals Acquisitions")) and financial forecasts from Merrill Lynch & Co.'s equity research reports dated April 28, 1998 and March 19, 1998 for each of United Rentals and U.S. Rentals, in each case without taking into account any synergies that may result from the Merger. This analysis indicated that for estimated 1998, United Rentals would have contributed 43.6%, 44.2% and 38.7% to combined revenues, 41.5%, 41.9% and 36.3% to combined EBITDA, and 40.1%, 40.6% and 37.4% to combined net income based on the Base Estimates, Base Estimates Without U.S. Rentals Acquisitions, and Merrill Lynch's estimates, respectively. The analysis also indicated that for estimated 1999, United Rentals would have contributed 57.4% and 60.6% to combined revenue, and 56.7% and 59.4% to combined EBITDA based on the Base Estimates and Base Estimates Without U.S. Rentals Acquisitions, respectively, and 53.4%, 54.4% and 55.5% to combined net income based on the Base Estimates, Base Estimates Without U.S. Acquisitions and Merrill Lynch's estimates, respectively. The analysis further indicated that for estimated 2000, United Rentals would have contributed 65.3% and 70.4% to combined revenue, 65.1% and 69.8% to combined EBITDA and 62.1% and 64.8% to combined net income based on the Base Estimates and Base Estimates Without U.S. Rentals Acquisitions, respectively. (iv) Pro Forma EPS Analysis. Goldman Sachs prepared pro forma analyses of the EPS impact of the Merger. Using earnings estimates for United Rentals and U.S. Rentals prepared by their respective managements and median earnings estimates provided by First Call Corporation in each case for 1998, 1999 and 2000, Goldman Sachs compared the EPS of United Rentals Common Stock, on a standalone basis, to the EPS of United Rentals Common Stock on a pro forma basis assuming completion of the Merger in three scenarios, (a) without achieving any synergies, (b) achieving $5.0 million in pre-tax synergies (in each case United Rentals informed Goldman Sachs that it expected that most of the synergies which might be realized as a result of the Merger would be achieved through the elimination of corporate and public company expenses), and (c) achieving $10.0 million in pre-tax synergies in each scenario at exchange ratios of 0.935, 0.950 and 0.975. Goldman Sachs performed this analysis based on a price of $34.31 per United Rentals Common Stock (the closing per share price of the United Rentals Common Stock on June 12, 1998). In each case and in all scenarios, the Merger was accretive to United Rentals' EPS on a pro forma basis. (v) Implied P/E Multiple Analysis. Goldman Sachs calculated implied P/E multiples for the combined company following the Merger. Goldman Sachs based this analysis on EPS growth rates for the combined company following the Merger ranging from 15.0% to 55.0% and 1999 P/E to earnings growth ratios ranging from 0.60x to 0.95x. Such analysis indicated implied P/E multiples for the combined company ranging from 9.0x to 52.3x for estimated 1999 EPS compared to 27.5x for United Rentals on a standalone basis and compared to 17.6x for U.S. Rentals Common Stock (using the median 1999 EPS estimates provided by First Call Corporation). (vi) Implied Value Creation Analysis. Goldman Sachs calculated the implied overall premium of the Merger to the share price of U.S. Rentals Common Stock and the United Rentals Common Stock based on pro forma earnings estimates for the combined company following the Merger and various P/E multiples. This analysis was conducted on two bases; first, assuming that no synergies would be achieved in the Merger and, second, assuming $7.5 million in pre-tax synergies would be achieved. Goldman Sachs calculated the pro forma EPS of the combined company based on median analysts' EPS estimates for United Rentals and U.S. Rentals (which were supplied by First Call Corporation) and exchange ratios ranging from 0.935 to 0.975. Based on the closing stock prices of the United Rentals Common Stock and the U.S. Rentals Common Stock on June 12, 1998 and estimated 1999 P/E multiples ranging from 23.0x to 27.5x, Goldman Sachs calculated an implied overall premium on a per share basis without synergies to the U.S. Rentals Common Stock ranging from 0.4% to 23.0% and to the United Rentals Common Stock ranging from negative 5.8% to positive 14.2%; with achieving $7.5 million in pre-tax synergies, it calculated an implied overall premium to the U.S. Rentals Common Stock ranging from 4.0% to 27.4% and to the shares of United Rentals Common Stock ranging from negative 2.5% to positive 18.2%. (vii) Discounted Cash Flow Analysis. Goldman Sachs performed a discounted cash flow analysis on U.S. Rentals, using the portion of the Base Estimates Without U.S. Rentals Acquisitions provided by U.S. 37 Rentals' management. Goldman Sachs calculated a net present value of free cash flows for U.S. Rentals for the years 1998 through 2002. Goldman Sachs calculated U.S. Rentals' terminal values in 2002 based on multiples ranging from 5.0x EBITDA to 10.0x EBITDA. Goldman Sachs discounted the free cash flows and these terminal values to present value using discount rates ranging from 8.0% to 13.0% and such analysis indicated implied per share values for the U.S. Rentals Common Stock ranging from $19.39 to $57.95. The preparation of a fairness opinion is a complex process and is not necessarily susceptible to partial analysis or summary description. Selecting portions of the analyses or of the summary set forth above, without considering the analyses as a whole, could create an incomplete view of the processes underlying Goldman Sachs' opinion. In arriving at its fairness determination, Goldman Sachs considered the results of all such analyses. No company or transaction used in the above analyses as a comparison is directly comparable to United Rentals or U.S. Rentals or the Merger. The analyses were prepared solely for purposes of Goldman Sachs' providing its opinion to the United Rentals Board as to the fairness from a financial point of view of the Exchange Ratio to United Rentals and do not purport to be appraisals or necessarily reflect the prices at which businesses or securities actually may be sold. Analyses based upon forecasts of future results are not necessarily indicative of actual future results, which may be significantly more or less favorable than suggested by such analyses. Because such analyses are inherently subject to uncertainty, being based upon numerous factors or events beyond the control of the parties or their respective advisors, none of United Rentals, U.S. Rentals, Goldman Sachs or any other person assumes responsibility if future results are materially different from those forecast. As described above, Goldman Sachs' opinion to the United Rentals Board was one of many factors taken into consideration by the United Rentals Board in making its determination to approve the Merger Agreement. The foregoing summary does not purport to be a complete description of the analysis performed by Goldman Sachs and is qualified by reference to the written opinion of Goldman Sachs set forth in Exhibit G hereto. Goldman Sachs, as part of its investment banking business, is continually engaged in the valuation of businesses and their securities in connection with mergers and acquisitions, negotiated underwritings, competitive biddings, secondary distributions of listed and unlisted securities, private placements, and valuations for estate, corporate and other purposes. Goldman Sachs is familiar with United Rentals, having provided certain investment banking and financial advisory services to United Rentals from time to time, including having acted as lead manager of the offering of the 6 1/2% Convertible Quarterly Income Preferred Securities of United Rentals Trust I and as a co- manager of the offering of its 9.50% $200 million senior subordinated notes due 2008. United Rentals selected Goldman Sachs as its financial advisor because it is a nationally recognized investment banking firm that has substantial experience in transactions similar to the Merger. Goldman Sachs provides a full range of financial advisory and brokerage services and, in the course of its normal trading activities, may from time to time effect transactions and hold securities, including derivative securities, of United Rentals or U.S. Rentals for its own account and for the accounts of customers. Pursuant to a letter agreement dated March 20, 1998 (the "Engagement Letter"), United Rentals engaged Goldman Sachs to act as its financial advisor in connection with a possible acquisition of U.S. Rentals. Pursuant to the terms of the Engagement Letter, United Rentals has agreed to pay Goldman Sachs upon consummation of the Merger a transaction fee of $5,000,000. United Rentals has agreed to reimburse Goldman Sachs for its out-of-pocket expenses not exceeding $75,000 (other than sales, use or similar taxes), including attorney's fees, and to indemnify Goldman Sachs against certain liabilities, including certain liabilities under the federal securities laws. OPINION OF FINANCIAL ADVISORS TO U.S. RENTALS In its role as financial advisor to U.S. Rentals, DLJ was asked by U.S. Rentals to render an opinion to the U.S. Rentals Board as to the fairness to the holders of shares of U.S. Rentals Common Stock (the "Public Stockholders") other than Ayr, Inc. and Richard D. Colburn from a financial point of view, of the Exchange Ratio pursuant to the terms of the Merger Agreement. DLJ was not retained as an advisor or agent to U.S. Rentals shareholders or any other person, other than as an advisor to the U.S. Rentals Board. On June 15, 1998 DLJ delivered an oral opinion (the "DLJ Opinion"), subsequently confirmed in writing as of the same date, to the 38 effect that as of the date of such opinion, and based upon and subject to the assumptions, limitations and qualifications set forth in such opinion, the Exchange Ratio was fair to the Public Stockholders from a financial point of view. THE FULL TEXT OF THE DLJ OPINION IS ATTACHED AS EXHIBIT H TO THIS JOINT PROXY STATEMENT/PROSPECTUS AND IS INCORPORATED HEREIN BY REFERENCE. U.S. RENTALS STOCKHOLDERS ARE URGED TO READ THE DLJ OPINION IN ITS ENTIRETY FOR ASSUMPTIONS MADE, PROCEDURES FOLLOWED, OTHER MATTERS CONSIDERED AND LIMITS OF THE REVIEW UNDERTAKEN IN ARRIVING AT SUCH OPINION. THE DLJ OPINION WAS PREPARED FOR THE U.S. RENTALS BOARD AND IS DIRECTED ONLY TO THE FAIRNESS OF THE EXCHANGE RATIO TO THE PUBLIC STOCKHOLDERS FROM A FINANCIAL POINT OF VIEW AND DOES NOT ADDRESS THE MERITS OF THE UNDERLYING DECISION BY U.S. RENTALS TO ENGAGE IN THE MERGER OR OTHER BUSINESS STRATEGIES CONSIDERED BY THE U.S. RENTALS BOARD. THE DLJ OPINION DOES NOT CONSTITUTE A RECOMMENDATION TO ANY U.S. RENTALS STOCKHOLDER AS TO HOW SUCH STOCKHOLDER SHOULD VOTE AT THE U.S. RENTALS SPECIAL MEETING. The DLJ Opinion does not constitute an opinion as to the price at which United Rentals Common Stock will trade at any time. The Exchange Ratio was determined in arm's length negotiations between U.S. Rentals and United Rentals, in which negotiations DLJ advised U.S. Rentals. No restrictions or limitations were imposed by U.S. Rentals upon DLJ with respect to the investigations made or the procedures followed by DLJ in rendering its opinion. In arriving at its opinion, DLJ reviewed, among other things, the Merger Agreement dated June 15, 1998, and the exhibits thereto. DLJ also reviewed financial and other information that was publicly available or furnished to it by U.S. Rentals and United Rentals, including information provided during discussions with their respective managements. Included in the information provided to DLJ were certain financial projections of U.S. Rentals prepared by the management of U.S. Rentals and certain financial projections of United Rentals prepared by the management of United Rentals. In addition, DLJ compared certain financial and securities data of U.S. Rentals and United Rentals with various other companies whose securities are traded in the public markets, reviewed the historical stock prices and trading volumes of U.S. Rentals Common Stock and United Rentals Common Stock, reviewed prices and premiums paid in certain other business combinations and conducted such other financial studies, analyses and investigations as DLJ deemed appropriate for purposes of rendering its opinion. In rendering its opinion, DLJ relied upon and assumed the accuracy and completeness of all of the financial and other information that was available to it from public sources, that was provided to it by U.S. Rentals and United Rentals or their respective representatives, or that was otherwise reviewed by it. In particular, DLJ relied upon discussions with the management of U.S. Rentals of the operating synergies achievable as a result of the Merger (the "Synergies") and its discussion of the Synergies with the management of United Rentals. DLJ also assumed that the financial projections supplied to it were reasonably prepared on the basis reflecting the best currently available estimates and judgments of the respective managements of U.S. Rentals and United Rentals as to the future operating and financial performance of U.S. Rentals and United Rentals, respectively. DLJ has not assumed any responsibility for making any independent evaluation or appraisal of the assets or liabilities of U.S. Rentals or United Rentals, nor did DLJ independently verify the information reviewed by it. DLJ relied on the advice of counsel to U.S. Rentals as to certain legal matters. DLJ assumed that United Rentals will account for the Merger as a pooling-of-interests in accordance with generally accepted accounting principles ("GAAP"), and that the Merger qualifies for such treatment. The DLJ Opinion is necessarily based on economic, market, financial and other conditions as they existed on, and on the information made available to it as of, the date of its opinion. It should be understood that, although subsequent developments may affect its opinion, DLJ does not have any obligation to update, revise or reaffirm its opinion as a result of changes in such conditions or otherwise. The following is a brief summary of the principal financial analyses performed by DLJ to arrive at its opinion dated June 15, 1998. This summary does not purport to be a complete description of the analyses 39 performed by DLJ. DLJ drew no specific conclusions from any of these analyses but subjectively factored its observations from these analyses into its qualitative assessment of the relevant facts and circumstances. For purposes of the following analyses, the financial ratios were calculated based upon the closing prices of U.S. Rentals Common Stock and United Rentals Common Stock on June 15, 1998. For purposes of U.S. Rentals and United Rentals LTM financial results, the LTM results of U.S. Rentals are actual reported results as of March 31, 1998, adjusted for non-recurring charges, and the LTM results of United Rentals are as of December 31, 1997, pro forma for all acquisitions completed by United Rentals as of May 19, 1998. Common Stock Trading Price History. DLJ examined the historical closing prices of U.S. Rentals Common Stock for the period from February 21, 1997 (the date of U.S. Rentals' initial public offering) to June 15, 1998 and of United Rentals Common Stock for the period from December 18, 1997 (the date of United Rentals' initial public offering) to June 15, 1998. This information was presented solely to provide the U.S. Rentals Board with background regarding the stock prices of U.S. Rentals and United Rentals over the periods indicated. From February 21, 1997 to June 15, 1998, U.S. Rentals Common Stock closed at a low of $15.38 per share (on April 14, 1997) and a high of $33.31 per share (on June 2, 1998). DLJ also reviewed the history of closing prices of U.S. Rentals Common Stock for the 10, 20, 30, 60 and 90 trading days ending on June 15, 1998. During such periods, U.S. Rentals Common Stock closed at per share ranges of $30.19 to $33.31, $30.19 to $33.31, $30.19 to $33.31, $26.38 to $33.31 and $22.06 to $33.31, respectively. From December 18, 1997 to June 15, 1998 United Rental's Common Stock closed at low of $15.00 per share (on December 22, 1997) and a high of $37.00 per share (on May 13, 1998). DLJ also reviewed the history of United Rental's closing prices for the 10, 20, 30, 60 and 90 trading days ending on June 15, 1998. During such periods, United Rentals Common Stock closed at per share ranges of $33.38 to $36.00, $33.38 to $36.00, $33.38 to $37.00, $21.94 to $37.00 and $21.94 to $37.00, respectively. Exchange Ratio Analysis. DLJ reviewed the daily closing prices of U.S. Rentals Common Stock and United Rentals Common Stock to determine the implied exchange ratio based upon the relative prices of U.S. Rentals Common Stock and United Rentals Common Stock. Based on June 15, 1998 closing prices, the implied exchange ratio was 0.904x. DLJ analyzed the implied exchange ratio between U.S. Rentals Common Stock and United Rentals Common Stock for the period from December 18, 1997 to June 15, 1998. During such period, the implied exchange ratio reached a high of 1.650x (on December 18, 1997) and a low of 0.823x (on May 13, 1998). DLJ also calculated the average historical implied exchange ratios for the last 60, 30, 20 and 10 trading days ending on June 15, 1998. The average implied exchange ratios during each of the foregoing time periods were 0.971x, 0.902x, 0.920x and 0.910x, respectively. Premium Analysis. DLJ examined the premiums to market price offered in 45 selected public company merger and acquisition transactions announced since June 1993 in which the transaction value was between $750 million and $1.5 billion and in which common stock was offered as consideration. For the selected transactions, the average premiums to the market price one day, one week and one month prior to announcement were 26.4%, 29.4% and 37.7%, respectively. The value per share of U.S. Rentals Common Stock implied by the Exchange Ratio represented a 6.4%, 0.0% and 1.6% premium to the market price of U.S. Rentals Common Stock one day, one week and one month prior to June 15, 1998, respectively. No transaction utilized in the Premium Analysis is identical to the Merger. Accordingly, such analysis necessarily involves complex considerations and judgements concerning differences in financial and operating characteristics of U.S. Rentals and United Rentals and other factors that could affect the acquisition value of the companies to which they are being compared. Relative Contribution Analysis. DLJ analyzed the relative contribution of U.S. Rentals and United Rentals to the combined entity with respect to total revenues; EBITDA; EBIT; and net income. This analysis was performed for the LTM period and projected results for the three fiscal years ending December 31, 2000 (based 40 on U.S. Rentals and United Rentals management projections) and did not reflect any Synergies. As of June 15, 1998, U.S. Rentals and United Rentals provided 44.4% and 55.6%, respectively, of the combined equity value (including shares underlying outstanding options using the treasury stock method) and 48.6% and 51.4%, respectively, of the combined Enterprise Value (as defined). This compares with U.S. Rentals' contribution to the combined entity's LTM pro forma results of approximately 60.0% of revenues, 65.3% of EBITDA, 62.4% of EBIT, and 62.0% of net income. U.S. Rentals' contribution to the combined entity's pro forma results for the projected fiscal years ended December 31, 1998, 1999 and 2000, are estimated as follows:
1998 1999 2000 ---- ---- ---- Revenues................................................ 59.5% 46.1% 36.5% EBITDA.................................................. 62.6 47.4 36.9 EBIT.................................................... 58.4 43.0 33.0 Net Income.............................................. 59.8 46.6 35.8
Pro Forma Earnings per Share Analysis and Pro Forma Value per Share Analysis. DLJ analyzed certain pro forma effects on the EPS of U.S. Rentals and United Rentals resulting from the Merger. The analysis was based on earnings estimates for U.S. Rentals and United Rentals prepared by their respective management and median earnings estimates provided by First Call Corporation ("First Call"), but did not take into account any restructuring charges or non-recurring transaction costs related to the Merger. The analysis indicated that on a pro forma basis, the EPS of a current share of U.S. Rentals Common Stock would be $0.48, or 34.2%, less in the fiscal year ending December 31, 1998 and $0.36, or 20.7%, less in the fiscal year ending December 31, 1999 than First Call EPS estimates for U.S. Rentals as a stand- alone entity during the same periods. On a pro forma basis using First Call EPS estimates, the EPS of a share of United Rentals Common Stock would be $0.34, or 54.4%, greater in the fiscal year ending December 31, 1998 and $0.20, or 16.0%, greater in the fiscal year ending December 31, 1999 than the First Call estimates for United Rentals as a stand-alone entity during the same periods. Assuming the realization of the Synergies, the analysis indicated that on a pro forma basis using First Call EPS estimates, the EPS of an equivalent share of U.S. Rentals Common Stock would be $0.40, or 28.7%, less in the fiscal year ending December 31, 1998 and $0.30, or 17.0%, less in the fiscal year ending December 31, 1999 than First Call EPS estimates for U.S. Rentals as a stand- alone entity during the same periods. On a pro forma basis, assuming realization of the Synergies, the EPS of a share of United Rentals Common Stock would be $0.42, or 67.2%, greater in the fiscal year ending December 31, 1998 and $0.27, or 21.5%, greater in the fiscal year ending December 31, 1999 than the First Call estimates for United Rentals as a stand-alone entity during the same periods. DLJ calculated the pro forma value of an equivalent share of U.S. Rentals Common Stock based on: (i) the Exchange Ratio; (ii) the pro forma fiscal year 1999 EPS of United Rentals; and (iii) the ratio of common stock price to projected EPS ("P/E Multiple") of United Rentals Common Stock. On June 15, 1998, the P/E Multiple (based on 1999 First Call EPS estimates) of U.S. Rentals Common Stock was 17.2x, and the P/E Multiple (based on 1999 First Call EPS estimates) of United Rentals Common Stock was 26.7x. Accordingly, the range of P/E Multiples for this analysis was set with a minimum of 17.2x and a maximum of 26.7x. This analysis indicated a range of pro forma values per equivalent share of U.S. Rentals Common Stock of $23.94 to $37.27, assuming no Synergies, and $25.07 to $39.02, assuming Synergies. Analysis of Certain Other Publicly Traded Companies. To provide comparative market information, DLJ compared selected historical Common Stock prices, earnings and operating and financial ratios for U.S. Rentals and United Rentals to the corresponding data and ratios of certain other companies whose securities are publicly traded (collectively, the "Comparable Companies"). The Comparable Companies were chosen because they possess general business, operating and financial characteristics representative of companies in the industry in which U.S. Rentals and United Rentals operate. The Comparable Companies consisted of: Neff Corp., Rental Service Corporation and The Hertz Corporation. Such data and ratios included Enterprise Value ("Enterprise 41 Value" is defined as (i) the product of the stock price and total shares outstanding plus (ii) Net Debt ("Net Debt" is defined as total debt less cash and cash equivalents, which for U.S. Rentals was assumed to be $273.9 million, the amount outstanding at March 31, 1998 and $92.5 million for United Rentals, the amount outstanding at December 31, 1997, pro forma for acquisitions completed as of May 19, 1998 and the private placement of $200 million of senior subordinated notes on May 19, 1998)) as a multiple of LTM revenues and LTM EBITDA. The multiples of Enterprise Value to LTM revenues for the Comparable Companies ranged from 2.0x to 2.4x, compared to 4.5x for United Rentals and 2.8x for U.S. Rentals based on the Exchange Ratio. The multiples of Enterprise Value to LTM EBITDA for the Comparable Companies ranged from 5.2x to 6.8x, compared to 16.7x for United Rentals and 8.4x for U.S. Rentals based on the Exchange Ratio. In addition, DLJ examined the 1998 and 1999 P/E Multiples (based on reported closing prices on June 15, 1998 and estimated fiscal year 1998 and 1999 EPS estimates provided by First Call). The 1998 P/E ratios for the Comparable Companies ranged from 18.4x to 28.2x, while the 1998 P/E Multiple was 53.8x for United Rentals and 22.9x for U.S. Rentals based on the Exchange Ratio. The 1999 P/E Multiples for the Comparable Companies ranged from 13.7x to 16.2x, while the 1999 P/E Multiple was 26.7x for United Rentals and 18.3x for U.S. Rentals based on the Exchange Ratio. No company utilized in the Analysis of Certain Other Publicly Traded Companies is identical to U.S. Rentals or United Rentals. Accordingly, such analysis necessarily involves complex considerations and judgements concerning differences in financial and operating characteristics of U.S. Rentals and United Rentals and other factors that could affect the public trading values of U.S. Rentals, United Rentals and companies included in such analysis. Comparable Transaction Analysis. DLJ reviewed six selected equipment rental industry acquisitions announced since December 1994, with transaction values greater than $100 million (the "Comparable Transactions"). The Comparable Transactions included Atlas Copco AB's acquisition of Prime Service Inc., Investcorp SA's acquisition of Primeco Inc., National Equipment Services, Inc.'s acquisition of Falconite Inc. (pending), Rental Service Corporation's acquisition of Rent-it-Center Inc. (d/b/a Center Rental and Sales), Rental Service Corporation's acquisition of JDW Enterprises, Inc. (d/b/a Valley Rentals) and Neff Corp's acquisition of Richbourg's Sales and Rentals, Inc. For purposes of the Comparable Transaction Analysis, total transaction value ("Transaction Value") was calculated as the aggregate purchase price of equity (in the case of stock purchases), or the aggregate purchase price of the assets (in the case of asset purchases) plus Net Debt. For each of the Comparable Transactions, DLJ calculated the multiple of Transaction Value to LTM revenues and LTM EBITDA. The analysis resulted in (i) a range of 1.4x to 3.3x of Transaction Value to LTM revenues for the Comparable Transactions, compared to 2.8x for U.S. Rentals based on the Exchange Ratio and (ii) a range of 4.7x to 11.3x of Transaction Value to LTM EBITDA for the Comparable Transactions, compared to 8.4x for U.S. Rentals based on the Exchange Ratio. For the only Comparable Transaction involving a publicly traded company, Atlas Copco AB's acquisition of Prime Service Inc. (the "Prime Service Transaction"), DLJ also calculated the multiple of price per share of Common Stock to (i) estimated EPS for the calendar year in which the announcement of the transaction occurred ("CY EPS") and (ii) the estimated EPS for the calendar year following the year in which the announcement of the transaction occurred ("CY+1 EPS"). The analysis resulted in (i) a price per share of Common Stock to CY EPS multiple of 20.9x for the Prime Service Transaction, compared to 22.9x for U.S. Rentals based on the Exchange Ratio and (ii) a price per share of Common Stock to CY+1 EPS multiple of 16.9x for the Prime Service Transaction, compared to 18.3x for U.S. Rentals based on the Exchange Ratio. No transaction utilized in the Comparable Transaction Analysis is identical to the Merger. Accordingly, such analysis necessarily involves complex considerations and judgements concerning differences in financial and operating characteristics of U.S. Rentals and United Rentals and other factors that could affect the acquisition value of the companies to which they are being compared. Discounted Cash Flow Analysis. DLJ performed a discounted cash flow analysis for the three-year period ending with fiscal year 2000 on the stand-alone unlevered free cash flows of U.S. Rentals and United Rentals, 42 based on financial projections provided by the respective managements of both companies. Unlevered free cash flows were calculated as: (i) the projected EBIT adjusted for taxes; (ii) plus projected depreciation and amortization; (iii) plus (or minus) projected net changes in working capital; and (iv) minus projected capital expenditures (including the cost of acquisitions). DLJ calculated terminal values by applying a range of estimated EBITDA multiples of 7.0x to 9.0x to the projected EBITDA of U.S. Rentals and United Rentals, respectively in the fiscal year 2000. The unlevered free cash flows and terminal values were then discounted to the present using a range of discount rates of 11% to 15%, representing an estimated range of the weighted average cost of capital for U.S. Rentals and United Rentals and other subjective judgements including industry prospects. Based on this analysis, DLJ calculated values per share of U.S. Rentals Common Stock ranging from $33.27 to $51.29 and of United Rentals Common Stock ranging from $37.93 to $62.78, resulting in implied exchange ratios of 0.817x to 0.877x. The summary set forth above does not purport to be a complete description of the analyses performed or factors considered by DLJ, but describes in summary form, the principal elements of the presentation made by DLJ to the U.S. Rentals Board on June 15, 1998. The preparation of a fairness opinion involves various determinations as to the most appropriate and relevant methods of financial analysis and the application of these methods to the particular circumstances and, therefore, such an opinion is not readily susceptible to summary description. Each of the analyses conducted by DLJ was carried out in order to provide a different perspective on the transaction and add to the total mix of information available. DLJ did not form a conclusion as to whether any individual analysis, considered in isolation, supported or failed to support an opinion as to fairness from a financial point of view. Rather, in reaching its conclusion, DLJ considered the results of the analyses in light of each other and ultimately reached its opinion based on the results of all analyses taken as a whole. DLJ did not place particular reliance or weight on any individual analysis, but instead concluded that its analyses, taken as a whole, supported its determination. Accordingly, notwithstanding the separate factors summarized above, DLJ believes that its analyses must be considered as a whole and that selecting portions of its analysis and the factors considered by it, without considering all analyses and factors, could create an incomplete or misleading view of the evaluation process underlying its opinions. In performing its analyses, DLJ made numerous assumptions with respect to industry performance, business and economic conditions and other matters. The analyses performed by DLJ are not necessarily indicative of actual values or future results, which may be significantly more or less favorable than suggested by such analyses. Pursuant to the terms of an engagement letter dated June 19, 1997 U.S. Rentals agreed to pay DLJ (i) a fee of $1,000,000 (the "Opinion Fee") upon notification that DLJ is prepared to deliver the DLJ Opinion and (ii) an additional fee equal to 0.60 percent (0.60%) of the aggregate value of the outstanding common stock of U.S. Rentals (treating any shares issuable upon exercise of options, warrants or other rights of conversion as outstanding) based on the fair market value on the last day before the Closing of United Rentals Common Stock to be issued as consideration in the Merger, less the Opinion Fee, which amount will be paid upon consummation of the Merger. U.S. Rentals has also agreed to reimburse DLJ promptly for all out-of-pocket expenses (including the reasonable fees and out-of-pocket expenses of counsel) incurred by DLJ in connection with its engagement, and to indemnify DLJ and certain related persons against certain liabilities in connection with its engagement, including liabilities under the federal securities laws. The terms of the fee arrangement with DLJ, which DLJ and U.S. Rentals believe are customary in transactions of this nature, were negotiated at arm's length between U.S. Rentals and DLJ and the U.S. Rentals Board was aware of such arrangement, including the fact that a significant portion of the aggregate fee payable to DLJ is contingent upon consummation of the Merger. Based on the number of shares of U.S. Rentals Common Stock and options and warrants to purchase U.S. Rentals Common Stock and other rights of conversion outstanding on June 15, 1998 and the closing sales price of United Rentals Common Stock as of August 20, 1998, which was $30 1/4, the fee payable to DLJ upon consummation of the Merger would be approximately $4.6 million (not including the Opinion Fee). DLJ as part of its investment banking services, is regularly engaged in the valuation of businesses and securities in connection with mergers, acquisitions, underwritings, sales and distributions of listed and unlisted securities, private placements and valuations for corporate and other purposes. DLJ has performed investment banking and other services for U.S. Rentals and United Rentals in the past and has received usual and customary 43 compensation for such services including (i) acting as the lead manager in the initial public offering of the U.S. Rentals' Common Stock in February 1997, (ii) acting as a co-manager in the initial public offering of United Rentals' Common Stock in December 1997, (iii) acting as a co-manager in a public offering of United Rentals' Common Stock in March 1998, (iv) acting as a co- manager in a private offering of senior subordinated notes for United Rentals in May 1998 and (v) acting as a co-manager in a private offering of convertible quarterly income preferred securities of a trust affiliated with United Rentals in August 1998. CERTAIN INFORMATION PROVIDED In connection with the discussions between United Rentals and U.S. Rentals described above under "--Background of the Merger," United Rentals and U.S. Rentals provided to each other certain confidential financial projections. In the case of United Rentals, such financial projections related to its projected operating results for the three years ending December 31, 2000 and, in the case of U.S. Rentals, the financial projections related to its projected operating results for the five years ending December 31, 2002. These financial forecasts were developed for internal use only; were not prepared with the intent that they would be publicly distributed; were based on numerous assumptions, many of which (e.g., projected revenues to be generated by businesses projected to be acquired in the future) are beyond the control of United Rentals or U.S. Rentals; and are not necessarily indicative of future results. See "Forward-Looking Statements." Such financial projections in the case of United Rentals reflected, among other things, growth in revenues, operating income and net income of approximately 283%, 331% and 322%, respectively, from projected 1998 to projected 2000 (the projected growth from 1997 (actual) to 1998 (projected) is not meaningful because the 1997 results only reflect the results of United Rentals from August 14, 1997 (inception) through December 31, 1997), and in the case of U.S. Rentals reflected, among other things, growth in revenues, operating income and net income of approximately 198%, 248% and 219%, respectively, from 1997 to projected 2002. In the case of United Rentals, such financial projections assumed a certain number of both identified and unidentified acquisitions together with assumed operating and net income margins and, in the case of U.S. Rentals, the financial projections assumed certain revenue growth rates and operating and net income margins as well as certain future acquisitions. Neither United Rentals nor U.S. Rentals customarily publishes financial projections and, whether or not the Merger is consummated, neither United Rentals nor U.S. Rentals intends to update the foregoing projections nor do they intend that the foregoing disclosure constitute a current projection of results for the periods set forth above. INTERESTS OF CERTAIN PERSONS IN THE MERGER In considering the recommendation of the U.S. Rentals Board with respect to the adoption of the Merger Agreement, U.S. Rentals stockholders should be aware that certain of U.S. Rentals' directors and officers have interests respecting the Merger separate from their interests as holders of U.S. Rentals Common Stock, including those referred to below. Board Seats on the United Rentals Board of Directors. In the Merger Agreement, United Rentals and U.S. Rentals have agreed that the United Rentals Board at the time of the Merger will be increased by four members and will include Mr. Richard D. Colburn, Chairman of the Board of Directors of U.S. Rentals (to be added to the class of United Rentals directors whose term expires in 2001), William F. Berry, President, Chief Executive Officer and a Director of U.S. Rentals (to be added to the class of United Rentals directors whose term expires in 2000), a third member of U.S. Rentals' current board of directors to be selected by United Rentals, and a fourth person to be mutually selected by the Chairmen of United Rentals and U.S. Rentals. Employment Agreements. Pursuant to the Merger Agreement, United Rentals will enter into employment agreements (the "Employment Agreements") effective upon the Closing Date (as defined below) with each of Messrs. Berry and McKinney in the forms attached as Exhibits D and E to this Joint Proxy Statement/Prospectus. It is a condition to United Rentals' and U.S. Rentals' respective obligations to consummate the Merger that the Employment Agreements be executed. Certain terms of the Employment Agreements are summarized below. The Employment Agreements provide for Mr. Berry to serve as President (reporting to Wayland Hicks, who will become the Vice Chairman and Chief Operating Officer) and Mr. McKinney to serve as Vice President, Finance, of United Rentals following the Merger. The Employment Agreements provide for an annual base salary 44 of $225,000 for Mr. Berry and $175,000 for Mr. McKinney, subject to minimum annual upward adjustments based upon changes in a designated cost of living index. The Employment Agreements do not provide for mandatory bonuses; however, the agreements provide that in addition to the compensation specifically provided for, United Rentals may pay such bonuses as may be authorized from time to time by the United Rentals Board. The agreements provide that Messrs. Berry and McKinney will participate in insurance, retirement and compensation plans and an automobile reimbursement program made available to United Rentals' senior executives. The agreement with Mr. Berry provides for United Rentals to reimburse him for certain relocation expenses up to a maximum of $100,000. The term of each of the Employment Agreements will commence on the closing date of the Merger (the "Closing Date") and continue for three years (unless terminated earlier as provided therein), provided that at no time will the balance of the term of the agreement be less than two years. Under each of the Employment Agreements, United Rentals or the employee may at any time terminate the agreement, with or without cause, provided that if United Rentals terminates the agreement without cause (as defined in the agreement), the employee will be entitled to receive from United Rentals his then current monthly base salary and benefits over the balance of the term of the agreement. The Employment Agreements provide for the grant (i) to Mr. Berry of options to purchase 200,000 shares and Mr. McKinney of options to purchase 100,000 shares of United Rentals Common Stock, in each case, at a price per share equal to the closing price per share of United Rentals Common Stock as reported on the NYSE on the Closing Date (the "Market Price"), and (ii) to Mr. Berry of options to purchase 75,000 shares and Mr. McKinney of options to purchase 37,500 shares of United Rentals Common Stock, in each case, at a price per share equal to the greater of (x) 125% of the Market Price and (y) $45. All of such options will vest over a three year term. The agreements provide that all stock options at any time granted to the employee will automatically vest upon a "change of control" of United Rentals, if the employee is terminated without "good cause" or if the employee resigns for "good reason" (as such terms are defined in the Employment Agreements). Stock Options. The directors and officers of U.S. Rentals hold an aggregate of 3,710,387 options to purchase U.S. Rentals Common Stock. Pursuant to the terms of the outstanding options to purchase U.S. Rentals Common Stock, such options will, by reason of the Merger, automatically accelerate and vest prior to their scheduled vesting time. Pursuant to the Merger Agreement, each such option will be assumed by United Rentals and be converted into an option to purchase the number of shares of United Rentals Common Stock equal to the number of shares of U.S. Rentals Common Stock subject to such option multiplied by the Exchange Ratio, at an exercise price per share of United Rentals Common Stock equal to the former exercise price per share of U.S. Rentals Common Stock under such option divided by the Exchange Ratio (subject to certain exceptions for options to which Section 421 of the Code applies. Except as provided in this paragraph, the substituted United Rentals stock options will be subject to the same terms and conditions (including expiration date and exercise provisions) as were applicable to the converted U.S. Rentals stock option immediately prior to the Merger. United Rentals has agreed to use its best efforts to file certain registration statements under the Securities Act to enable the holders of shares of United Rentals Common Stock acquired pursuant to the exercise of such options to publicly sell such shares. See "Material Terms of the Merger Agreement--Treatment of U.S. Rentals Stock Options." Deferred Compensation. Pursuant to the terms of their current employment agreements with U.S. Rentals, Messrs. Berry and McKinney are entitled to certain deferred compensation payments. As a result of the Merger, such deferred compensation will become accelerated and, therefore, on the Closing Date, Messrs. Berry and McKinney will receive cash payments of $2,666,683 and $1,333,342, respectively. Registration Rights Agreement. Pursuant to the Merger Agreement, upon completion of the Merger, United Rentals will enter into a registration rights agreement (the "Registration Rights Agreement") with Richard D. Colburn and each affiliate of U.S. Rentals who has executed an Affiliate Agreement described under "--Accounting Treatment" (collectively, the "Holders"). The form of Registration Rights Agreement is attached as Exhibit F to this Joint Proxy Statement/Prospectus. It is a condition to United Rentals' and U.S. Rentals' respective obligations to consummate the Merger that the Registration Rights Agreement be executed. 45 Pursuant to the Registration Rights Agreement, commencing on such date as consolidated financial results covering at least 30 days of post-Merger combined operations of United Rentals and U.S. Rentals have been published by United Rentals, the Holders may demand that United Rentals file a registration statement under the Securities Act of 1933, as amended (the "Securities Act"), for an underwritten public offering of such number of shares of United Rentals Common Stock covered by the Registration Rights Agreement ("Registrable Securities") equal to the lesser of (a) one-third ( 1/3) of the aggregate number of Registrable Securities then owned by the Holders and (b) such number of Registrable Securities as would generate anticipated gross proceeds in such offering of not more than $200,000,000. In addition, commencing after the date which is 11 1/2 months after the Closing Date (or earlier under certain circumstances), the Holders will be entitled to three demands with respect to the filing of registration statements by United Rentals covering all or any part of the Registrable Securities. Indemnification of U.S. Rentals Officers and Directors. United Rentals has agreed to indemnify, defend and hold harmless each person who is, or has been at any prior time, or who becomes prior to completion of the Merger, an officer or director of U.S. Rentals to the fullest extent permitted by applicable law against (i) all losses, expenses (including reasonable attorney's fees and expenses), claims, damages or liabilities or amounts paid in settlement, arising out of actions or omissions occurring at or prior to the completion of the Merger that are based on or arise out of the fact that such person is or was a director or officer of U.S. Rentals and (ii) all such liabilities to the extent they are based on or arise out of or pertain to the transactions contemplated by the Merger Agreement. Subject to certain limitations, United Rentals has also agreed that for a period of six years after the Closing Date, United Rentals will maintain in effect policies of directors' and officers' liability insurance covering acts or omissions occurring prior to the Closing Date for the benefit of directors and officers of U.S. Rentals who are currently covered by such policies on terms no less favorable than the terms of such current insurance coverage. United Rentals will also cause the surviving corporation, for a period of six years after the Closing Date, to (A) maintain in effect in its certificate of incorporation and by-laws the provisions regarding the elimination of liability of directors and indemnification of and advancement of expenses to officers, directors, employees and agents currently contained in the certificate of incorporation and by-laws of U.S. Rentals and (B) maintain the existing indemnification agreements covering such directors of U.S. Rentals. See "Material Terms of the Merger Agreement--Certain Covenants--Indemnification; Directors' and Officers' Insurance." MATERIAL UNITED STATES FEDERAL INCOME TAX CONSEQUENCES The following discussion is a general summary of the material federal income tax consequences of the Merger and is based on the Code, the final, proposed and temporary treasury regulations promulgated thereunder, administrative rulings and interpretations, and judicial decisions, in each case in effect as of the date hereof. All of the foregoing are subject to change at any time, possibly with retroactive effect. The discussion set forth below does not address all aspects of federal income taxation that may be relevant to a stockholder in light of such stockholder's particular circumstances or to stockholders subject to special rules under the federal income tax laws, such as non-United States persons, financial institutions, tax-exempt organizations, insurance companies, dealers in securities or stockholders who acquired their U.S. Rentals Common Stock pursuant to the exercise of employee stock options or otherwise as compensation, nor any consequences arising under the laws of any state, locality or foreign jurisdiction. This discussion assumes that holders of U.S. Rentals Common Stock hold their shares of stock as capital assets within the meaning of Section 1221 of the Code. Neither United Rentals nor U.S. Rentals intends to secure a ruling from the Internal Revenue Service with respect to the tax consequences of the Merger. United Rentals has received an opinion from Weil, Gotshal & Manges LLP to the effect that the Merger will be treated for federal income tax purposes as a reorganization within the meaning of Section 368(a) of the Code; that United Rentals, Merger Sub and U.S. Rentals will each be a party to the reorganization within the meaning of Section 368(b) of the Code; and that United Rentals, Merger Sub and U.S. Rentals will not recognize any gain or loss as a result of the Merger. U.S. Rentals has received an opinion from O'Melveny & Myers LLP to the effect that the Merger will be treated for federal income tax purposes as a reorganization within the meaning of Section 368(a) of the Code; that United Rentals, Merger Sub and U.S. Rentals will each be a party to the reorganization within the meaning of Section 368(b) of 46 the Code; and that no gain or loss will be recognized by a holder of U.S. Rentals Common Stock upon receipt of United Rentals Common Stock in exchange for shares of U.S. Rentals Common Stock pursuant to the Merger (except with respect to cash received in lieu of fractional shares). The opinions of Weil, Gotshal & Manges LLP and O'Melveny & Myers LLP referred to in this paragraph were based on facts existing at the date this Joint Proxy Statement/Prospectus was filed with the Securities and Exchange Commission (the "Commission"). In rendering the opinions of counsel referred to in this paragraph, Weil, Gotshal & Manges LLP and O'Melveny & Myers LLP assumed the absence of changes in existing facts and relied on representations and covenants made by United Rentals, Merger Sub, U.S. Rentals and others. Tax Implications to U.S. Rentals Shareholders. No gain or loss will be recognized by a holder of U.S. Rentals Common Stock upon receipt of United Rentals Common Stock in exchange for shares of U.S. Rentals Common Stock pursuant to the Merger (except with respect to cash received in lieu of fractional shares). The aggregate tax basis of the shares of United Rentals Common Stock received by a U.S. Rentals stockholder in connection with the Merger (including any fractional share deemed received) will be the same as the aggregate tax basis of the shares of U.S. Rentals Common Stock surrendered in the exchange therefor. The holding period of the shares of United Rentals Common Stock received by a U.S. Rentals stockholder in connection with the Merger (including any fractional share deemed received) will include the holding period of the shares of U.S. Rentals Common Stock surrendered in exchange therefor. A stockholder of U.S. Rentals who receives cash in lieu of a fractional share of United Rentals Common Stock will recognize gain or loss equal to the difference, if any, between such stockholder's tax basis in the fractional share (as described above) and the amount of cash received. Such gain or loss will be capital gain or loss if the U.S. Rentals Common Stock is held by such stockholder as a capital asset at the time of the consummation of the Merger and the tax rate applicable to such capital gain or loss will depend on the holding period for the fractional share (as described above) as of that time. STOCKHOLDERS SHOULD CONSULT WITH THEIR OWN TAX ADVISERS AS TO THE PARTICULAR TAX CONSEQUENCES TO THEM OF THE MERGER, INCLUDING THE APPLICABILITY AND EFFECT OF FOREIGN, STATE, LOCAL AND OTHER TAX LAWS AND THE EFFECT OF ANY PROPOSED CHANGES IN THE TAX LAWS. ACCOUNTING TREATMENT The Merger is expected to be accounted for using the "pooling of interests" method of accounting pursuant to Opinion No. 16 of the Accounting Principles Board ("APB 16") and applicable guidelines published by the Commission. The pooling of interests method of accounting assumes that the combining companies have been merged from inception, and the historical consolidated financial statements for periods prior to consummation of the Merger are restated as though the companies had been combined from inception. See the Combined Unaudited Pro Forma Condensed Financial Statements and notes thereto included elsewhere in this Joint Proxy Statement/Prospectus. Consummation of the Merger is conditioned upon receipt of letters from Ernst & Young LLP, United Rentals' independent auditors, and PricewaterhouseCoopers LLP, U.S. Rentals' independent accountants, regarding such accountants' concurrence with the conclusions of management of United Rentals and U.S. Rentals, respectively, as to the appropriateness of pooling of interests accounting treatment under APB 16. Such accountants' advice contemplates that each person who may be deemed an affiliate of United Rentals or U.S. Rentals will agree in writing ("Affiliate Agreements") not to sell or otherwise transfer any shares of U.S. Rentals Common Stock or United Rentals Common Stock, as the case may be, within 30 days prior to the consummation of the Merger or any United Rentals Common Stock thereafter prior to the publication of financial results that include at least 30 days of post-Merger combined operations of United Rentals and U.S. Rentals. Pursuant to the Merger Agreement, United Rentals and U.S. Rentals have heretofore obtained executed Affiliate Agreements from all persons known to the managements of United Rentals or U.S. Rentals to be affiliates of such corporations, respectively. 47 GOVERNMENTAL AND REGULATORY APPROVALS Each of United Rentals and U.S. Rentals filed pre-merger notifications under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act"), on June 26, 1998, with the Antitrust Division of the Department of Justice and the Federal Trade Commission. On July 9, 1998, United Rentals and U.S. Rentals were advised that early termination of the waiting period under the HSR Act had been granted. At any time before or after the consummation of the Merger, governmental authorities or private persons or entities could seek under the antitrust or competition laws, among other things, to enjoin the Merger or to cause United Rentals to divest itself, in whole or in part, of some or all of U.S. Rentals' or United Rentals' businesses. There can be no assurance that a challenge to the Merger will not be made or that, if such a challenge is made, United Rentals and U.S. Rentals will prevail. See "Material Terms of the Merger Agreement--Certain Covenants--Reasonable Best Efforts; Further Assurances." RESTRICTIONS ON RESALES BY AFFILIATES The shares of United Rentals Common Stock to be received by U.S. Rentals stockholders in connection with the Merger have been registered under the Securities Act, and, except as set forth in this paragraph, may be traded without restriction. The shares of United Rentals Common Stock to be issued in connection with the Merger and received by persons who are deemed to be "affiliates" of U.S. Rentals prior to the Merger may be resold by them only in transactions permitted by the resale provisions of Rule 145 under the Securities Act (or, in case of those persons who become affiliates of United Rentals, Rule 144 under the Securities Act) or as otherwise permitted under the Securities Act. Pursuant to the Registration Rights Agreement, United Rentals has agreed to provide certain registration rights with respect to the shares of United Rentals Common Stock to be received by affiliates of U.S. Rentals. See "--Interests of Certain Persons in the Merger--Registration Rights Agreement." STOCK MARKET LISTING United Rentals Common Stock trades on the NYSE under the symbol "URI." An application will be filed for the listing on the NYSE of the shares of United Rentals Common Stock to be issued in connection with the Merger. It is a condition to the parties' obligation to consummate the Merger that the shares of United Rentals Common Stock to be issued in connection with the Merger be authorized for listing on the NYSE upon official notice of issuance. APPRAISAL RIGHTS Both of U.S. Rentals and United Rentals are Delaware corporations. Under Delaware law, neither holders of United Rentals Common Stock nor holders of U.S. Rentals Common Stock will be entitled to any appraisal rights in connection with the Merger. 48 MATERIAL TERMS OF THE MERGER AGREEMENT The following is a summary of material provisions of the Merger Agreement, a copy of which is attached as Exhibit A to this Joint Proxy Statement/Prospectus and is incorporated herein by reference. This summary is qualified in its entirety by reference to the full text of the Merger Agreement. Capitalized terms used and not defined below or elsewhere in this Joint Proxy Statement/Prospectus have the respective meanings assigned to them in the Merger Agreement. All holders of United Rentals Common Stock and U.S. Rentals Common Stock are encouraged to read the Merger Agreement carefully and in its entirety. THE MERGER The Merger Agreement provides that, subject to the satisfaction or waiver of the terms and conditions contained therein (including the requisite adoption of the Merger Agreement by the holders of outstanding shares of U.S. Rentals Common Stock and the requisite approval of the Charter Amendment and Share Issuance by the holders of outstanding shares of United Rentals Common Stock), Merger Sub will be merged with and into U.S. Rentals. Following the Merger, U.S. Rentals will continue as the surviving corporation and as a wholly-owned subsidiary of United Rentals. EFFECTIVE TIME The Merger Agreement provides that, subject to the satisfaction or waiver of the terms and conditions contained therein, the Merger will become effective upon the filing of an appropriate Certificate of Merger with the Secretary of State of the State of Delaware or at such time thereafter as is provided in the Certificate of Merger. CONVERSION OF SHARES; EXCHANGE OF STOCK CERTIFICATES; NO FRACTIONAL SHARES At the Effective Time, pursuant to the Merger Agreement, each share of U.S. Rentals Common Stock issued and outstanding immediately prior to the Effective Time (other than shares of U.S. Rentals Common Stock held by United Rentals or any of its subsidiaries) will, by virtue of the Merger and without any action on the part of United Rentals, U.S. Rentals, Merger Sub, or the holder thereof, be converted into the right to receive 0.9625 of a fully paid and nonassessable share of United Rentals Common Stock. If between the date of the Merger Agreement and the Effective Time the outstanding shares of United Rentals Common Stock and/or U.S. Rentals Common Stock shall have been changed into a different number of shares or a different class by reason of any stock dividend, subdivision, reclassification, recapitalization, split, combination or exchange of shares, the amount of shares of United Rentals Common Stock constituting the Exchange Ratio will be correspondingly adjusted to reflect such stock dividend, subdivision, reclassification, recapitalization, split, combination, exchange of shares or other similar transaction. At the Effective Time, each outstanding share of common stock of Merger Sub will be converted into one share of common stock of the surviving corporation, and each share of U.S. Rentals Common Stock held by United Rentals or any of its subsidiaries will be canceled and cease to exist and no payment will be made with respect thereto. No fractional shares of United Rentals Common Stock will be issued in connection with the Merger to the holders of U.S. Rentals Common Stock, but in lieu thereof, each holder of U.S. Rentals Common Stock otherwise entitled to receive a fractional share of United Rentals Common Stock, upon surrender of its, his or her certificates evidencing shares of U.S. Rentals Common Stock, will be entitled to receive an amount of cash (without interest) determined by multiplying (x) the average closing price for United Rentals Common Stock as reported on the NYSE for the five trading days immediately preceding the Effective Time by (y) the fractional share interest to which such holder would otherwise be entitled. As of the Effective Time, United Rentals will make available to American Stock Transfer & Trust Company, as Exchange Agent, for the benefit of the holders of shares of U.S. Rentals Common Stock: (i) certificates representing the appropriate number of shares of United Rentals Common Stock issuable pursuant to 49 the Merger Agreement in exchange for outstanding shares of U.S. Rentals Common Stock and (ii) cash to be paid in lieu of fractional shares of United Rentals Common Stock. As soon as reasonably practicable after the Effective Time, the Exchange Agent will mail to each holder of record of a certificate or certificates which immediately prior to the Effective Time represented outstanding shares of U.S. Rentals Common Stock whose shares were converted into the right to receive shares of United Rentals Common Stock (i) a letter of transmittal (which will specify that delivery will be effected, and risk of loss and title to the certificates will pass, only upon delivery of the certificates to the Exchange Agent and will be in such form and have such other provisions as United Rentals may reasonably specify) and (ii) instructions for use in effecting the surrender of the certificates in exchange for certificates representing shares of United Rentals Common Stock. Upon surrender of a stock certificate for cancellation to the Exchange Agent, together with such letter of transmittal, duly executed, the holder of such certificate will be entitled to receive in exchange therefor a certificate representing that number of whole shares of United Rentals Common Stock and, if applicable, a check representing the cash consideration to which such holder may be entitled pursuant to the Merger Agreement on account of a fractional share of United Rentals Common Stock, which such holder has the right to receive in exchange therefor, and the certificate so surrendered will forthwith be canceled. STOCKHOLDERS SHOULD NOT FORWARD THEIR CERTIFICATES TO THE EXCHANGE AGENT UNTIL THEY HAVE RECEIVED A LETTER OF TRANSMITTAL AND INSTRUCTIONS TO EFFECT THE PROPER DELIVERY THEREOF. Until surrendered, each certificate which immediately prior to the Effective Time represented shares of U.S. Rentals Common Stock will be deemed after the Effective Time to evidence only the right to receive upon such surrender a certificate representing the number of whole shares of United Rentals Common Stock and cash in lieu of any fractional shares which the holder of such certificate is entitled to receive in the Merger. The holder of any unexchanged certificate will not be entitled to receive any dividends or other distributions payable by United Rentals nor will any cash payment in lieu of fractional shares be paid until the certificate has been exchanged. Subject to the effect of applicable laws, following surrender of any such certificate there will be paid to such holder, without interest, (i) promptly after the time of such surrender, the amount of any cash payable in lieu of fractional shares of United Rentals Common Stock to which such holder is entitled and the amount of dividends or other distributions with a record date after the Effective Time paid with respect to such whole shares of United Rentals Common Stock, and (ii) at the appropriate payment date, the amount of dividends or other distributions with a record date after the Effective Time but prior to such surrender and a payment date subsequent to such surrender payable with respect to such whole shares of United Rentals Common Stock. All shares of United Rentals Common Stock issued upon the surrender for exchange of certificate formerly representing shares of U.S. Rentals Common Stock (together with any cash payable to the holder thereof pursuant to the Merger Agreement) will be deemed to have been issued in full satisfaction of all rights pertaining to such shares of U.S. Rentals Common Stock. TREATMENT OF U.S. RENTALS STOCK OPTIONS Each option to purchase shares of U.S. Rentals Common Stock (a "U.S. Rentals Stock Option") pursuant to U.S. Rentals' 1997 Performance Award Plan (the "USR Stock Plan") which is outstanding as of the Effective Time will be assumed by United Rentals and converted into an option (or a new substitute option will be granted) to purchase the number of shares of United Rentals Common Stock (rounded up to the nearest whole share) equal to the number of shares of U.S. Rentals Common Stock subject to such option multiplied by the Exchange Ratio, at an exercise price per share of United Rentals Common Stock (rounded down to the nearest penny) equal to the former exercise price per share of U.S. Rentals Common Stock under such option immediately prior to the Effective Time divided by the Exchange Ratio; provided, however, that in the case of any U.S. Rentals Stock Option to which Section 421 of the Code applies by reason of its qualification under Section 422 of the Code, the conversion formula will be adjusted, if necessary, to comply with Section 424(a) of the Code. Except as provided above and in the following paragraph, the substituted United Rentals Stock Option will be subject to 50 the same terms and conditions (including expiration date, vesting and exercise provisions) as were applicable to the converted U.S. Rentals Stock Option immediately prior to the Effective Time. As soon as practicable after the Effective Time, United Rentals will deliver to the holders of U.S. Rentals Stock Options appropriate notices setting forth such holders' rights with respect thereto. United Rentals has agreed to use its best efforts to file or cause to be filed on or prior to the first anniversary of the Closing Date certain registration statements under the Securities Act registering the shares of United Rentals Common Stock issuable upon exercise of U.S. Rentals Stock Options converted as provided above. Except as set forth in this paragraph, United Rentals has no obligation to register under the Securities Act or any state securities laws any shares of United Rentals Common Stock issuable upon exercise of converted USR Stock Options. REPRESENTATIONS AND WARRANTIES The Merger Agreement contains various representations and warranties of the parties thereto. These include representations and warranties by each of U.S. Rentals and United Rentals as to their respective organization and qualification under applicable law; subsidiaries; capitalization; requisite authority and approvals with respect to the transactions contemplated by the Merger Agreement; noncontravention of, and compliance with, applicable legal and contractual requirements; reports filed with the Commission and financial statements; absence of certain changes or liabilities; litigation; information supplied for use in this Joint Proxy Statement/Prospectus; tax matters; employee benefit and labor matters; environmental matters; material contracts; opinion of financial advisors; stockholder votes required in connection with approving the transactions contemplated by the Merger Agreement; tax-free reorganization and "pooling-of-interests" accounting matters; and brokers. The respective representations and warranties of the parties will not survive the Effective Time or termination of the Merger Agreement. CERTAIN COVENANTS The Merger Agreement contains various covenants and agreements of the parties, certain of which are summarized below. Conduct of Business Pending the Merger. Each of United Rentals and U.S. Rentals has agreed that, until the Effective Time or earlier termination of the Merger Agreement (except as expressly contemplated or permitted by the Merger Agreement or to the extent the other parties have otherwise consented thereto in writing): (i) it will carry on its businesses in the usual, regular and ordinary course consistent with past custom and practice and use all commercially reasonable efforts to preserve intact its present business organizations and goodwill, preserve the goodwill and relationships with customers, suppliers and others having business dealings with them and, subject to prudent management of work force needs and ongoing programs currently in force, keep available the services of their present officers and employees; provided, however, that neither party is restricted from (A) transferring operations to such party or any of its wholly owned subsidiaries, (B) agreeing to consummate or consummating acquisitions of entities engaged in, or assets useful in, the equipment rental business, (C) incurring additional indebtedness or refinancing its outstanding indebtedness, or (D) issuing additional equity or debt securities, provided that neither party may issue any securities (or options, warrants or rights in respect of the same) to any of its directors, officers or employees except for, in the case of U.S. Rentals, issuances of shares of U.S. Rentals Common Stock pursuant to outstanding U.S. Rentals Stock Options and options to purchase not more than 100,000 shares of U.S. Rentals Common Stock pursuant to the USR Stock Plan granted to employees other than directors and present officers, provided that the vesting of such options shall not accelerate upon the Merger, and in the case of United Rentals, issuances of securities (including stock options at fair market value) pursuant to United Rentals' 1997 Stock Option Plan and issuances of United Rentals Common Stock pursuant to the exercise of outstanding options and warrants to acquire United Rentals Common Stock; 51 (ii) it will not declare or pay any dividends on or make other distributions in respect of any of its capital stock (other than, in the case of United Rentals, distributions of shares of United Rentals Common Stock to effect any stock split); or combine or reclassify any of its capital stock or issue or authorize or propose the issuance of any other securities in lieu of or in substitution for shares of its capital stock; or redeem, repurchase or otherwise acquire any shares of its capital stock (except, in the case of United Rentals, for certain repurchases of United Rentals Common Stock (and warrants to acquire the same) pursuant to the terms of agreements previously publicly disclosed by United Rentals in its reports filed with the Commission); (iii) it will not amend or propose to amend its charter or by-laws (except as contemplated by the Merger and the Charter Amendment); (iv) it will not sell or dispose of certain assets except for sales of equipment or merchandise inventory and dispositions of assets in the ordinary course of business consistent with prior custom and practice; (v) it will not make any changes in its accounting methods (except as required by law or GAAP), or take any action which would, or would be reasonably likely to, prevent United Rentals and the surviving corporation from accounting for the Merger as a pooling-of-interests in accordance with GAAP and applicable Commission regulations; (vi) it will use commercially reasonable efforts to obtain all consents required in connection with the transactions contemplated by the Merger Agreement; (vii) it will not willfully take any action that would or is reasonably likely to result in a material breach of any provision of the Merger Agreement or in any of its representations and warranties set forth in the Merger Agreement being untrue as of the Closing Date; and (viii) except, in the case of United Rentals, for the United Rentals 1998 Stock Option Plan and the United Rentals stock option plan described under "Additional Matters to be Considered at the United Rentals Special Meeting--Proposal to Approve the Adoption of the United Rentals 1998 Stock Option Plan--Other Information," it will not enter into, adopt or amend or increase the amount or accelerate the payment or vesting of any benefit or amount payable under, any employee benefit plan or other agreement, commitment, arrangement, plan, trust, fund or policy maintained by, contributed to or entered into by such party or increase, or enter into any agreement, commitment or arrangement to increase the compensation or fringe benefits, or otherwise to extend, expand or enhance the engagement, employment or any related rights, of any director, officer or other employee, except for normal extensions and increases for employees other than officers or directors in the ordinary course of business consistent with past practice that, in the aggregate, do not result in a material increase in benefits or compensation expense to such party or in connection with any acquisition permitted by the Merger Agreement; enter into or amend any employment, severance or special pay arrangement with respect to the termination of employment or other similar contract, agreement or arrangement with any director or officer or other employee other than in the ordinary course of business consistent with past practice; or deposit into any trust amounts in respect of any employee benefit obligations or obligations to directors (except that certain transfers with respect to non-qualified deferred compensation, may be made in accordance with past practice). Shareholders' Meetings. United Rentals and U.S. Rentals have agreed to call meetings of their respective stockholders for the purpose of U.S. Rentals stockholders adopting the Merger Agreement and United Rentals stockholders approving the Charter Amendment and Share Issuance, and each of United Rentals and U.S. Rentals has agreed to recommend that their respective stockholders approve such matters; provided, that at any time following the 120th day after the date of the Merger Agreement (October 14, 1998), U.S. Rentals' Board of Directors may withhold such recommendation if it shall conclude in good faith on the basis of advice of a nationally recognized firm of outside counsel that withholding such a recommendation may be necessary for such Board of Directors to act in a manner consistent with its fiduciary duties under applicable law. No Solicitation. Each of United Rentals and U.S. Rentals has agreed that it will not, and will not authorize or permit any of its representatives to, directly or indirectly, solicit, initiate or encourage (including by way of furnishing information) or take any other action to facilitate knowingly any inquiries or the making of any 52 proposal which constitutes or may reasonably be expected to lead to an Acquisition Proposal (as defined below) from any person or entity, or engage in any discussion or negotiations relating thereto or accept any Acquisition Proposal; provided, however, that either party may (i) comply with Rule 14e-2 promulgated under the Securities Exchange Act of 1934, as amended, with regard to a tender or exchange offer; and (ii) at any time after October 14, 1998 and prior to the time U.S. Rentals' stockholders shall have voted to adopt the Merger Agreement, (A) engage in discussions or negotiations with a third party who (without any solicitation, initiation, encouragement, discussion or negotiation, directly or indirectly, by or with the party or its representatives after the date of the Merger Agreement) seeks to initiate such discussions or negotiations, and may furnish such third party information concerning the party and its business, properties and assets if, and only to the extent that, (1)(w) the third party has first made an Acquisition Proposal that the Board of Directors of such party believes in good faith (after consultation with its financial advisor) is reasonably capable of being completed, taking into account all relevant legal, financial, regulatory and other aspects of the Acquisition Proposal and the source of its financing, on the terms proposed and, believes in good faith (after consultation with its financial advisor and after taking into account the strategic benefits anticipated to be derived from the Merger and the long-term prospects of U.S. Rentals and United Rentals as a combined company), would, if consummated, result in a transaction more favorable to the stockholders of U.S. Rentals or United Rentals, as the case may be, from a financial point of view, than the transactions contemplated by the Merger Agreement and believes in good faith (after consultation with its financial advisor) that the person making such Acquisition Proposal has, or is reasonably likely to have or obtain, any necessary funds or customary commitments to provide any funds necessary to consummate such Acquisition Proposal (any such more favorable Acquisition Proposal being referred to as a "Superior Proposal") and (x) the party's Board of Directors shall conclude in good faith, after considering applicable provisions of state law, on the basis of advice of a nationally recognized firm of outside counsel, that such action may be necessary for the Board of Directors to act in a manner consistent with its fiduciary duties under applicable law, and (2) prior to furnishing such information to or entering into discussions or negotiations with such person or entity, such party (y) provides prompt notice to the other party to the effect that it is furnishing information to or entering into discussions or negotiations with such person or entity and (z) receives from such person or entity an executed confidentiality agreement in reasonably customary form on terms not materially more favorable to such person or entity than the terms contained in the Confidentiality Agreement between United Rentals and U.S. Rentals, and/or (B) accept a Superior Proposal from a third party, provided that the conditions set forth in clauses (A)(1) and (A)(2) above have been satisfied and such party terminates the Merger Agreement and pays any required termination fees described below under "--Fees and Expenses." Each of United Rentals and U.S. Rentals has agreed to notify the other party orally and in writing of any such inquiries, offers or proposals (including the terms and conditions of any such proposal and the identity of the person making it), within 24 hours of the receipt thereof, and to keep the other party informed of the status and details of any such inquiry, offer or proposal. The term "Acquisition Proposal" means a proposal or offer (other than by another party to the Merger Agreement) for a tender or exchange offer for the securities of a party to the Merger Agreement, or a merger, consolidation or other business combination involving an acquisition of a party or any material subsidiary of a party or any proposal to acquire in any manner a substantial equity interest in or a substantial portion of the assets of a party or any material subsidiary of a party. Indemnification; Directors' and Officers' Insurance. United Rentals has agreed that, from and after the Effective Time, United Rentals will, to the fullest extent permitted by applicable law, indemnify, defend and hold harmless each person who is, or has been at any prior time, or who becomes prior to the Effective Time, an officer or director of U.S. Rentals (an "Indemnified Party") against (i) all losses, expenses (including reasonable attorney's fees and expenses), claims, damages or liabilities or amounts paid in settlement, arising out of actions or omissions occurring at or prior to the Effective Time (and whether asserted or claimed prior to, at or after the Effective Time) that are, in whole or in part, based on or arising out of the fact that such person is or was a director or officer of U.S. Rentals ("Indemnified Liabilities"), and (ii) all Indemnified Liabilities to the extent they are based on or arise out of or pertain to the transactions contemplated by the Merger Agreement; provided, however, that United Rentals shall not be liable for any settlement effected without its written consent (which consent shall not be unreasonably withheld or delayed). In addition, United Rentals has agreed that for a period of six years after the Effective Time, United Rentals will cause to be maintained in effect policies of directors' 53 and officers' liability insurance covering acts or omissions occurring prior to the Effective Time for the benefit of directors and officers of U.S. Rentals who are currently covered by such policies on terms no less favorable than the terms of such current insurance coverage; provided, however, that United Rentals will not be required to expend in any year an amount in excess of 150% of the annual aggregate premiums currently paid by U.S. Rentals for such insurance; and provided, further, that if the annual premiums of such insurance coverage exceed such amount, United Rentals will be obligated to obtain a policy with the best coverage available, in the reasonable judgment of the Board of Directors of United Rentals, for a cost not exceeding such amount. United Rentals will also cause the surviving corporation, for a period of six years after the Effective Date to (A) maintain in effect in its certificate of incorporation and by-laws the provisions regarding the elimination of liability of directors and indemnification of and advancement of expenses to officers, directors, employees and agents currently contained in the certificate of incorporation and by-laws of U.S. Rentals and (B) maintain the existing indemnification agreements covering such directors of U.S. Rentals. Post-Merger Board of Directors and Officers. United Rentals has agreed to take such action as may be necessary to cause the number of directors comprising the full Board of Directors of United Rentals at the Effective Time to be increased by four persons, two of whom shall be Richard D. Colburn and William F. Berry, one of whom shall be another current member of the U.S. Rentals Board of Directors to be chosen by United Rentals and one of whom shall be a person to be mutually agreed upon by the Chairmen of United Rentals and U.S. Rentals; provided that if, prior to the Effective Time, any such designee shall decline or be unable to serve, U.S. Rentals shall, subject to the written approval of United Rentals, designate another person to serve in such person's stead. In addition, United Rentals has agreed to take such action as is required to cause the persons listed below to be appointed, effective as of the Effective Time, to the offices of United Rentals set forth opposite their respective names: Richard D. Colburn--Chairman Emeritus Bradley S. Jacobs--Chairman and Chief Executive Officer John N. Milne--Vice Chairman and Chief Acquisition Officer Wayland R. Hicks--Vice Chairman and Chief Operating Officer William F. Berry--President Michael J. Nolan--Chief Financial Officer John S. McKinney--Vice President, Finance Robert P. Miner--Vice President, Strategic Planning For a description of the employment agreements to be entered into as of the Effective Time between United Rentals and Messrs. Berry and McKinney, respectively, see "The Merger--Interests of Certain Persons in the Merger-- Employment Agreements." In addition, U.S. Rentals has agreed to use its best efforts to cause the persons identified in writing by United Rentals to enter into employment agreements with United Rentals in form acceptable to United Rentals. Reasonable Best Efforts; Further Assurances. Subject to the provisions described under "--No Solicitation" above, each party to the Merger Agreement agreed to use its reasonable best efforts to (a) satisfy the conditions to closing thereunder and consummate the transactions contemplated thereby as promptly as reasonably practicable, and (b) execute such further documents and instruments and take such further actions as may reasonably be requested by any other party in order to consummate the Merger in accordance with the terms set forth in the Merger Agreement; provided that United Rentals shall not be required to (or be required to agree to) dispose of or hold separate any material part of its or U.S. Rentals' business or operations (or a combination of United Rentals' and U.S. Rentals' business or operations), or agree not to operate or compete in any geographic area or line of business, in order to satisfy the foregoing. CONDITIONS The respective obligations of each of United Rentals and U.S. Rentals to effect the Merger is subject to the satisfaction (or, to the extent permitted by law, waiver) on or prior to the Closing Date of the following 54 conditions: (i) U.S. Rentals' stockholders shall have duly adopted the Merger Agreement and United Rentals' stockholders shall have duly approved the Charter Amendment and the Share Issuance, and the Charter Amendment shall have been filed and become effective; (ii) no temporary restraining order or preliminary or permanent injunction or other order by any Governmental Authority preventing consummation of the Merger shall have been issued and be continuing in effect, and the Merger and the other transactions contemplated by the Merger Agreement shall not be prohibited under any applicable federal or state law or regulation; (iii) the Registration Statement of which this Joint Proxy Statement/Prospectus forms a part shall have become effective in accordance with the provisions of the Securities Act, and no stop order suspending such effectiveness shall have been issued and remain in effect; (iv) the shares of United Rentals Common Stock issuable in connection with the Merger pursuant to the Merger Agreement shall have been approved for listing on the NYSE subject to official notice of issuance; (v) the waiting period (and any extension thereof) under the HSR Act applicable to the Merger shall have been terminated or shall have expired, and all other notices, filings, consents and approvals required by law or any Governmental Authority in connection with the Merger on the part of United Rentals or U.S. Rentals the failure of which to have been made or obtained would violate any applicable law or cause a Material Adverse Effect (as defined below) on such party shall have been made and obtained; (vi) each of United Rentals and U.S. Rentals shall have received a letter of its independent public accountants, dated the Closing Date, addressed to and in form and substance reasonably satisfactory to them, regarding such accountants' concurrence with the conclusions of management of United Rentals or U.S. Rentals, as the case may be, as to the appropriateness of pooling of interests accounting for the Merger under applicable accounting rules if the Merger is consummated in accordance with the Merger Agreement; and (vii) United Rentals and the other parties thereto shall have entered into the Registration Rights Agreement described under "The Merger--Interests of Certain Persons in the Merger--Registration Rights Agreement." The obligation of United Rentals to effect the Merger is further subject to the satisfaction (or waiver by United Rentals), on or prior to the Closing Date, of the following conditions: (i) U.S. Rentals shall have performed in all material respects its agreements and covenants contained in or contemplated by the Merger Agreement which are required to be performed by it at or prior to the Effective Time; (ii) the representations and warranties of U.S. Rentals set forth in the Merger Agreement shall be true and correct (A) on and as of the date of the Merger Agreement and (B) on and as of the Closing Date with the same effect as though such representations and warranties had been made on and as of the Closing Date (except for representations and warranties that expressly speak only as of a specific date or time which need only be true and correct as of such date or time, and except in each of cases (A) and (B) for such failures of representations or warranties to be true and correct (without giving effect to any materiality qualification or standard contained in any such representations and warranties) which, individually or in the aggregate, do not and would not be reasonably likely to result in a Material Adverse Effect on U.S. Rentals); (iii) United Rentals shall have received a certificate signed by the chief executive officer and chief financial officer of U.S. Rentals, dated the Closing Date, to the effect that, to the best of such officers' knowledge, the conditions set forth in the foregoing clauses (i) and (ii) have been satisfied; (iv) no Material Adverse Effect with respect to U.S. Rentals shall have occurred; (v) United Rentals shall have received an opinion from Weil, Gotshal & Manges LLP, counsel to United Rentals, in form and substance reasonably satisfactory to United Rentals, dated as of the Closing Date, substantially to the effect that (x) the Merger will constitute a reorganization for United States federal income tax purposes within the meaning of Section 368(a) of the Code, (y) U.S. Rentals, United Rentals and Merger Sub will each be a party to the reorganization within the meaning of Section 368(b) of the Code and (z) no gain or loss will be recognized by U.S. Rentals, United Rentals or Merger Sub pursuant to the Merger; (vi) United Rentals shall have received the Affiliate Agreements described under "The Merger--Accounting Treatment" from each "affiliate" of U.S. Rentals; (vii) United Rentals shall have received the consents or waivers with respect to the Merger and the transactions contemplated by the Merger Agreement set forth on a schedule thereto; and (viii) each of Messrs. Berry and McKinney shall have executed the employment agreements with United Rentals described under "The Merger--Interests of Certain Persons in the Merger--Employment Agreements." The obligation of U.S. Rentals to effect the Merger is further subject to the satisfaction (or waiver by U.S. Rentals), on or prior to the Closing Date, of the following conditions: (i) United Rentals shall have performed in all material respects its agreements and covenants contained in or contemplated by the Merger Agreement which 55 are required to be performed by it at or prior to the Effective Time; (ii) the representations and warranties of United Rentals set forth in the Merger Agreement shall be true and correct (A) on and as of the date of the Merger Agreement and (B) on and as of the Closing Date with the same effect as though such representations and warranties had been made on and as of the Closing Date (except for representations and warranties that expressly speak only as of a specific date or time which need only be true and correct as of such date or time, and except in each of cases (A) and (B) for such failures of representations or warranties to be true and correct (without giving effect to any materiality qualification or standard contained in any such representations and warranties) which, individually or in the aggregate, do not and would not be reasonably likely to result in a Material Adverse Effect on United Rentals); (iii) U.S. Rentals shall have received a certificate signed by the chief executive officer and chief financial officer of United Rentals, dated the Closing Date, to the effect that, to the best of such officers' knowledge, the conditions set forth in the foregoing clauses (i) and (ii) have been satisfied; (iv) no Material Adverse Effect with respect to United Rentals shall have occurred; (v) U.S. Rentals shall have received an opinion from O'Melveny & Myers LLP, counsel to U.S. Rentals, in form and substance reasonably satisfactory to U.S. Rentals, dated as of the Closing Date, substantially to the effect that (x) the Merger will constitute a reorganization for United States federal income tax purposes within the meaning of Section 368(a) of the Code, (y) U.S. Rentals, United Rentals and Merger Sub will each be a party to the reorganization within the meaning of Section 368(b) of the Code, and (z) no gain or loss will be recognized by stockholders of U.S. Rentals as a result of the Merger (except to the extent that cash is received in lieu of fractional share interests); (vi) U.S. Rentals shall have received the Affiliate Agreements described under "The Merger--Accounting Treatment" from each "affiliate" of United Rentals; and (vii) United Rentals shall have executed the employment agreements with each of Messrs. Berry and McKinney described under "The Merger--Interests of Certain Persons in the Merger--Employment Agreements" and offered at will employment agreements to certain employees of U.S. Rentals. As used in the Merger Agreement, a "Material Adverse Effect" on a party means any change or effect (i) that is materially adverse to the properties, business, results of operations or financial condition of such party and its subsidiaries, taken as whole, other than any change or effect arising out of general economic conditions or conditions generally affecting the equipment rental industry or (ii) that would impair the ability of such party to consummate the transactions contemplated by the Merger Agreement. TERMINATION The Merger Agreement may be terminated at any time prior to the Effective Time, whether before or after approval of the transactions contemplated thereby by the stockholders of U.S. Rentals and/or United Rentals: (i) by mutual written consent of the respective Boards of Directors of U.S. Rentals and United Rentals; (ii) by either United Rentals or U.S. Rentals (A) if there has been any breach of any representations, warranties, covenants or agreements on the part of the other set forth in the Merger Agreement, which breaches individually or in the aggregate would result in a Material Adverse Effect with respect to the breaching party, and which breaches have not been cured or are incapable of being cured within 20 days following receipt by the breaching party of notice of such breach or adequate assurance of such cure shall not have been given by or on behalf of the breaching party within such 20-day period, (B) if the Board of Directors of the other party shall approve, recommend or accept any Superior Proposal with respect to such party, or resolve to take any of such actions, or (C) if any state or federal law, order, rule or regulation is adopted or issued which has the effect, as supported by the written opinion of outside counsel for such party, of prohibiting the Merger, or by any party to the Merger Agreement if any court of competent jurisdiction in the United States or any state shall have issued an order, judgment or decree permanently restraining, enjoining or otherwise prohibiting the Merger, and such order, judgment or decree shall have become final and nonappealable; (iii) by either United Rentals or U.S. Rentals, by written notice to the other parties, if the Effective Time shall not have occurred, for any reason, on or before December 31, 1998 (the "Walk-Away Date"); provided, however, that the right to terminate the Merger Agreement under this clause (iii) will not be available to any party whose failure to fulfill any obligation under the Merger Agreement has been the cause of, or resulted in, the failure of the Effective Time to occur on or before such date; provided, further, that such party's right to terminate the Merger Agreement under this clause (iii) will be restored if such failure 56 has been cured, and the Walk-Away Date shall be deemed to be extended by the number of days elapsed between such failure and its cure; (iv) by either United Rentals or U.S. Rentals, by written notice to the other parties, if at a duly held meeting of United Rentals stockholders convened for purposes of obtaining the same, the requisite approval by United Rentals' stockholders of the Charter Amendment and Share Issuance shall not have been obtained, including any adjournments thereof, or if at a duly held meeting of U.S. Rentals stockholders convened for purposes of obtaining the same, the requisite adoption by U.S. Rentals' stockholders of the Merger Agreement shall not have been obtained, including any adjournments thereof; (v) by U.S. Rentals, at any time after October 14, 1998 and prior to obtaining the requisite adoption of the Merger Agreement by U.S. Rentals stockholders, and on 72 hours prior notice to United Rentals (the "U.S. Rentals Notice") (a) if U.S. Rentals' Board of Directors withdraws or modifies, or resolves to withdraw or modify, in any manner material to United Rentals, its approval or recommendation of the Merger Agreement or the Merger pursuant to and in accordance with the Merger Agreement or (b) pursuant to clause (ii)(B) set forth under "--Certain Covenants--No Solicitation" but only if during the 72 hour period after the U.S. Rentals Notice, (x) U.S. Rentals shall have negotiated with, and shall have caused its respective financial and legal advisors to negotiate with, United Rentals to attempt to make such commercially reasonable adjustments in the terms and conditions of the Merger Agreement as would enable U.S. Rentals to proceed with the transactions contemplated thereby and (y) the Board of Directors of U.S. Rentals shall have concluded, after considering the results of such negotiations, that any Superior Proposal giving rise to such U.S. Rentals Notice continues to be a Superior Proposal as defined under "--Certain Covenants--No Solicitation." U.S. Rentals may not effect such termination unless contemporaneously therewith U.S. Rentals pays to United Rentals in immediately available funds the fees set forth under "-- Fees and Expenses;" and (vi) by United Rentals, at any time after October 14, 1998 and prior to obtaining the requisite approval of the Charter Amendment and Share Issuance by United Rentals stockholders, and on 72 hours prior notice to U.S. Rentals (the "United Rentals Notice") (a) if United Rentals' Board of Directors withdraws or modifies, or resolves to withdraw or modify, in any manner material to U.S. Rentals, its approval or recommendation of the transactions contemplated by the Merger Agreement pursuant to and in accordance with the Merger Agreement or (b) pursuant to clause (ii)(B) set forth under "--Certain Covenants--No Solicitation" but only if during the 72 hour period after the United Rentals Notice, (x) United Rentals shall have negotiated with, and shall have caused its respective financial and legal advisors to negotiate with, U.S. Rentals to attempt to make such commercially reasonable adjustments in the terms and conditions of the Merger Agreement as would enable United Rentals to proceed with the transactions contemplated thereby and (y) the Board of Directors of United Rentals shall have concluded, after considering the results of such negotiations, that any Superior Proposal giving rise to such United Rentals Notice continues to be a Superior Proposal as defined under "--Certain Covenants--No Solicitation." United Rentals may not effect such termination unless contemporaneously therewith United Rentals pays to U.S. Rentals in immediately available funds the fees set forth under "--Fees and Expenses." If the Merger Agreement is terminated as provided above, the Merger Agreement will become void and have no effect, without any liability on the part of United Rentals, U.S. Rentals or their respective directors, officers or stockholders, other than the provisions of the Merger Agreement relating to termination of the Merger Agreement, access to information and fees and expenses, and except for any liability for any willful breach of the Merger Agreement. No termination by a party of the Merger Agreement will be effective unless and until all fees required to be paid by such party as described under "-- Fees and Expenses" have been received by the other party. FEES AND EXPENSES Except as set forth below, and except for the cost of printing and mailing this Joint Proxy Statement/Prospectus, which will be borne equally by United Rentals and U.S. Rentals, each of United Rentals and U.S. Rentals will pay its own expenses in connection with the transactions contemplated by the Merger Agreement. 57 If the Merger Agreement is terminated pursuant to clause (ii)(A) described under "--Termination," then the breaching party shall promptly pay to the non- breaching party a fee of $15 million in cash, minus any amounts as may have been previously paid by such breaching party pursuant to the termination fee provisions of the Merger Agreement; provided, however, that, if the Merger Agreement is terminated by a party as a result of a willful breach by the other party, the breaching party shall pay to the non-breaching party a fee of $30 million in cash, minus any amounts as may have been previously paid by such breaching party pursuant to the termination fee provisions of the Merger Agreement. The Merger Agreement provides that the fees and expenses described in this paragraph are not intended to be the exclusive remedy available against any party that breaches the Merger Agreement. If the Merger Agreement is terminated (i) by U.S. Rentals pursuant to clause (v) described under "--Termination," (ii) by United Rentals pursuant to pursuant to clause (vi) described under "--Termination," (iii) in the circumstances described in clause (ii)(B) under "--Termination," or (iv) by a party as a result of the other party's breach of its obligation to call a meeting of, and make a recommendation to, its stockholders in accordance with the Merger Agreement, then the party whose action gave rise to the right to terminate shall pay to the other party a fee of $30 million in cash minus any amounts as may have been previously paid by such party pursuant to the termination fee provisions of the Merger Agreement. If the Merger Agreement is terminated (i) following a failure of the stockholders of United Rentals or U.S. Rentals to grant the necessary approvals contemplated by the Merger Agreement, and (ii) prior to the meeting of the stockholders of the party whose stockholders failed to grant the necessary approval, there was an Acquisition Proposal involving such party or any of its affiliates (whether or not such Acquisition Proposal was rejected or withdrawn prior to the time of such termination or of the stockholders' meeting), and (iii) within 12 months of any such termination described in clause (i) above, the party or its affiliate which is the subject of the Acquisition Proposal (the "Target Party") becomes a subsidiary of the offeror of such Acquisition Proposal or an affiliate thereof or accepts a written offer to consummate or consummates an Acquisition Proposal with such offeror or affiliate thereof, then such Target Party, upon the signing of a definitive agreement relating to such an Acquisition Proposal, or, if no such agreement is signed then at the closing (and as a condition to the closing) of such transaction, shall pay to the other party a fee of $30 million in cash minus any amounts as may have been previously paid by the Target Party pursuant to the termination fee provisions of the Merger Agreement. AMENDMENT; EXTENSION; WAIVER The Merger Agreement may be amended by the Boards of Directors of the parties thereto, at any time before or after the approval of the transactions contemplated thereby by the stockholders of U.S. Rentals and/or United Rentals and prior to the Effective Time, but after such stockholder approvals no such amendment which by law requires further approval by such stockholders shall be made without such further approval. At any time prior to the Effective Time, any party to the Merger Agreement may (i) extend the time for the performance of any of the obligations or other acts of the other parties, (ii) waive any inaccuracies in the representations and warranties of the other parties and (iii) waive compliance with any of the agreements or conditions contained herein, to the extent permitted by applicable law. Any agreement on the part of a party hereto to any such extension or waiver shall be valid only if set forth in an instrument in writing signed on behalf of such party. United Rentals and U.S. Rentals intend to notify their respective stockholders of any material amendment, extension or waiver of a material term of the Merger Agreement in the manner and to the extent such notification is required by applicable law or NYSE rule. In addition, United Rentals intends to resolicit stockholder approval of the Charter Amendment and the Share Issuance, and U.S. Rentals intends to resolicit stockholder approval of the adoption of the Merger Agreement, in the event of a material change occurring prior to consummation of the Merger in the anticipated United States federal income tax consequences or accounting treatment of the Merger from that described in this Joint Proxy Statement/Prospectus. 58 CERTAIN TERMS OF THE VOTING AGREEMENTS As an inducement and a condition to United Rentals entering into the Merger Agreement, Richard D. Colburn and Ayr, Inc., a corporation owned by Mr. Colburn (collectively, the "Colburn Stockholders"), entered into a Voting Agreement with United Rentals dated as of June 15, 1998 (the "Colburn Voting Agreement"). As an inducement and condition of U.S. Rentals entering into the Merger Agreement, Bradley S. Jacobs and certain affiliates (collectively, the "Jacobs Stockholders") entered into a voting agreement with U.S. Rentals dated as of June 15, 1998 (the "Jacobs Voting Agreement" and together with the Colburn Voting Agreement, the "Voting Agreements"). The Colburn Stockholders own approximately 67% of the outstanding U.S. Rentals Common Stock (the "Colburn Stockholders Shares"). The Jacobs Stockholders own approximately 26.8% of the outstanding United Rentals Common Stock and have the right to acquire an additional 13.4% upon the exercise of currently exercisable warrants to purchase United Rentals Common Stock (the "Jacobs Stockholders Shares" and together with the Colburn Stockholders Shares, the "Stockholders Shares"). The following summary of the Voting Agreements are qualified in their entirety by reference to the complete text of the Voting Agreements, which are incorporated by reference herein and attached as Exhibits B and C to this Joint Proxy Statement/Prospectus. The Colburn Stockholders have agreed, among other things, to vote the Colburn Stockholders Shares in favor of the adoption of the Merger Agreement; and each of the Jacobs Stockholders have agreed, among other things, to vote the Jacobs Stockholders Shares in favor of the approval of the Charter Amendment and the Share Issuance. The Voting Agreements provide that each of the Colburn Stockholders and the Jacobs Stockholders will not, among other things, directly or indirectly: (i) except as contemplated by the Merger Agreement or the Voting Agreements, offer for sale, sell, transfer, tender, pledge (other than to a bank or other financial institution), encumber, assign or otherwise dispose of, or grant or enter into any contract, option or other arrangement or understanding with respect to or consent to the offer for sale, sale, transfer, tender, pledge, encumbrance, assignment or other disposition of, any or all of their respective Stockholder Shares or any interest therein (except for gifts by the Colburn Stockholders to charitable foundations that agree to be bound by the Colburn Voting Agreement); (ii) except as contemplated by the Voting Agreements, grant any proxies or powers of attorney, deposit the Stockholder Shares into a voting trust or enter into a voting agreement with respect to the Stockholder Shares; or (iii) take any action that would make any representation or warranty of such stockholders contained in the Voting Agreements untrue or incorrect or would result in a breach by such stockholders of their obligations thereunder. In addition, each of the Colburn Stockholders and the Jacobs Stockholders has agreed not to take any actions with respect to solicitation of offers which would lead to an Acquisition Proposal as described under "--Certain Covenants-- No Solicitation" above. 59 UNITED RENTALS AND U.S. RENTALS COMBINED UNAUDITED PRO FORMA CONDENSED FINANCIAL STATEMENTS The following combined unaudited pro forma condensed financial statements of United Rentals and U.S. Rentals gives effect to the Merger under the "pooling of interests" method of accounting, as if the Merger had been consummated as of the beginning of the periods presented. Such combined unaudited pro forma condensed financial statements for the years ended December 31, 1995, 1996 and 1997 were prepared based upon (i) the audited financial statements of U.S. Rentals for such periods (which financial statements are included elsewhere in this Joint Proxy Statement/Prospectus) and (ii) the audited financial statements of United Rentals for the period from August 14, 1997 (inception) to December 31, 1997 (which financial statements are included elsewhere in this Joint Proxy Statement/Prospectus). Such combined unaudited pro forma condensed financial statements as of June 30, 1998 and for the six months ended June 30, 1998 were prepared based upon the respective unaudited financial statements of United Rentals and U.S. Rentals. The following combined unaudited pro forma condensed financial statements should be read in conjunction with the respective financial statements of United Rentals and U.S. Rentals upon which they are based as described above. The following combined unaudited pro forma condensed financial statements are not necessarily indicative of the results that would have actually been obtained had the Merger been completed at the beginning of the periods presented or of results that may be achieved in the future. 60 UNITED RENTALS AND U.S. RENTALS COMBINED UNAUDITED PRO FORMA CONDENSED BALANCE SHEET JUNE 30, 1998 The following combined unaudited pro forma condensed balance sheet presents the combined financial position of United Rentals and U.S. Rentals as of June 30, 1998. Such unaudited pro forma combined information is based on the historical unaudited condensed consolidated balance sheets of United Rentals and U.S. Rentals as of June 30, 1998, after giving effect to the Merger using the "pooling of interests" method of accounting and to the pro forma adjustments as described in the notes to the combined unaudited pro forma condensed financial statements.
UNITED U.S. PRO FORMA COMBINED RENTALS RENTALS ADJUSTMENTS PRO FORMA -------- -------- ----------- ---------- (IN THOUSANDS, EXCEPT SHARE AND PAR VALUE AMOUNTS) ASSETS: Cash and cash equivalents.......... $ 5,486 $ 22,510 $ 27,996 Accounts receivable, net........... 67,203 74,124 141,327 Inventory.......................... 33,255 19,040 52,295 Rental equipment, net.............. 298,956 521,696 820,652 Property and equipment, net........ 32,349 93,130 125,479 Intangible assets, net............. 429,028 26,398 455,426 Prepaid expenses and other assets.. 22,887 12,167 35,054 -------- -------- -------- ---------- $889,164 $769,065 $1,658,229 ======== ======== ======== ========== LIABILITIES AND STOCKHOLDERS' EQUI- TY: Liabilities Accounts payable, accrued expenses and other liabilities............. $ 79,213 $ 78,264 $ 60,000 (a) $ 217,477 Debt............................... 389,181 357,100 746,281 Notes payable to related party..... 21,500 21,500 Deferred income taxes.............. 2,376 29,732 32,108 -------- -------- -------- ---------- Total liabilities................ 470,770 486,596 60,000 1,017,366 Commitments and contingencies Stockholders' equity United Rentals preferred stock-- $.01 par value, 5,000,000 shares authorized, no shares outstanding....................... -- -- -- -- Common stock: United Rentals--$.01 par value, 75,000,000 shares authorized historical 34,192,085 shares (63,812,998 pro forma shares) issued and outstanding............ 342 -- 296 (b) 638 U.S. Rentals--$.01 par value, 100,000,000 shares authorized; 30,774,975 issued and outstanding....................... -- 308 (308)(b) Additional paid-in capital......... 409,817 244,830 12 (b) 654,659 Retained earnings.................. 8,235 37,331 (60,000)(a) (14,434) -------- -------- -------- ---------- Total stockholders' equity....... 418,394 282,469 $(60,000) 640,863 -------- -------- -------- ---------- $889,164 $769,065 $1,658,229 ======== ======== ======== ==========
See notes to combined unaudited pro forma condensed financial statements. 61 UNITED RENTALS AND U.S. RENTALS COMBINED UNAUDITED PRO FORMA CONDENSED STATEMENT OF OPERATIONS The following combined unaudited pro forma condensed statement of operations for the six months ended June 30, 1998 was prepared based on the historical unaudited statement of operations of United Rentals and U.S. Rentals for such period after giving effect to the Merger using the "pooling of interests" method of accounting and to the pro forma adjustments described in the notes to the combined unaudited pro forma condensed financial statements.
UNITED RENTALS U.S. RENTALS SIX MONTHS SIX MONTHS ENDED JUNE 30, ENDED JUNE 30, PRO FORMA COMBINED 1998 1998 ADJUSTMENTS PRO FORMA -------------- -------------- ----------- --------- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Revenues Equipment rentals..... $86,105 $207,447 $293,552 Sales of rental equip- ment................. 10,464 31,555 42,019 Sales of new equip- ment, merchandise and other revenue........ 30,782 32,358 63,140 ------- -------- ------ -------- Total revenues........ 127,351 271,360 398,711 Cost of revenues Cost of equipment rentals, excluding depreciation......... 35,608 110,910 146,518 Depreciation of rental equipment............ 14,565 45,979 60,544 Cost of rental equip- ment sales........... 5,828 15,898 21,726 Cost of new equipment and merchandise sales and other operating costs................ 24,111 22,931 47,042 ------- -------- ------ -------- Total cost of reve- nues................. 80,112 195,718 275,830 ------- -------- ------ -------- Gross profit............ 47,239 75,642 122,881 Selling, general and ad- ministrative expenses.. 25,102 31,550 56,652 Non rental depreciation and amortization....... 3,815 7,675 11,490 ------- -------- ------ -------- Operating income........ 18,322 36,417 54,739 Interest expense........ 4,937 8,293 13,230 Related party interest expense (income), net.. 594 594 Other (income) expense, net.................... (528) (528) ------- -------- ------ -------- Income before provision for income taxes....... 13,913 27,530 41,443 Provision for income taxes.................. 5,693 11,067 16,760 ------- -------- ------ -------- Net income.............. $ 8,220 $ 16,463 $ 24,683 ======= ======== ====== ======== Basic earnings per share.................. $ 0.27 $ 0.54 $ 0.41(c) ======= ======== ======== Diluted earnings per share.................. $ 0.23 $ 0.52 $ 0.38(c) ======= ======== ======== Basic weighted average equivalent shares outstanding............ 29,970 30,760 (1,154)(c) 59,576 ======= ======== ====== ======== Diluted weighted average equivalent shares outstanding............ 35,092 31,921 (1,197)(c) 65,816 ======= ======== ====== ========
See notes to combined unaudited pro forma condensed financial statements. 62 UNITED RENTALS AND U.S. RENTALS COMBINED UNAUDITED PRO FORMA CONDENSED STATEMENT OF OPERATIONS The following combined unaudited pro forma condensed statement of operations for the year ended December 31, 1997 gives effect to the Merger using the "pooling of interests" method of accounting and to the pro forma adjustments described in the notes to the combined unaudited pro forma condensed financial statements. Such statement is based upon (i) the historical statement of operations of United Rentals for the period from August 14, 1997 (inception) through December 31, 1997 and (ii) the historical statements of operations of U.S. Rentals for the year ended December 31, 1997.
UNITED RENTALS PERIOD FROM AUGUST 14, 1997 U.S. RENTALS (INCEPTION) THROUGH YEAR ENDED DECEMBER 31, DECEMBER 31, PRO FORMA COMBINED 1997 1997 ADJUSTMENTS PRO FORMA ------------------- ------------ ----------- --------- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Revenues Equipment rentals..... $ 7,019 $340,507 $347,526 Sales of rental equip- ment................. 1,011 38,839 39,850 Sales of new equipment, merchandise and other revenue.............. 2,603 45,347 47,950 ------- -------- ------ -------- Total revenues.......... 10,633 424,693 435,326 Cost of revenues Cost of equipment rentals, excluding depreciation......... 3,203 185,277 188,480 Depreciation of rental equipment............ 1,039 69,231 70,270 Cost of rental equip- ment sales........... 528 19,065 19,593 Cost of new equipment and merchandise sales and other operating costs................ 2,052 33,420 35,472 ------- -------- ------ -------- Total cost of revenues.. 6,822 306,993 313,815 ------- -------- ------ -------- Gross profit............ 3,811 117,700 121,511 Selling, general and ad- ministrative expenses.. 3,311 42,597 45,908 Non-rental depreciation and amortization....... 262 11,222 11,484 Termination cost of deferred compensation agreements............. -- 20,290 20,290 ------- -------- ------ -------- Operating income........ 238 43,591 43,829 Interest expense........ 454 6,680 7,134 Related party interest expense (income), net.. 690 690 Other (income) expense, net.................... (270) 473 203 ------- -------- ------ -------- Income before provision for income taxes and extraordinary item..... 54 35,748 35,802 Provision for income taxes.................. 20 29,407 29,427 ------- -------- ------ -------- Income before extraordi- nary item.............. $ 34 $ 6,341 $ 6,375 ======= ======== ====== ======== Basic earnings per share before extraordinary item................... $ -- $ 0.22 $ 0.14(c) ======= ======== ======== Diluted earnings per share before extraordinary item..... $ -- $ 0.21 $ 0.14(c) ======= ======== ======== Basic weighted average equivalent shares out- standing............... 16,319 29,352 (1,101)(c) 44,570 ======= ======== ====== ======== Diluted weighted average equivalent shares outstanding............ 18,172 29,844 (1,119)(c) 46,897 ======= ======== ====== ========
See notes to combined unaudited pro forma condensed financial statements. 63 UNITED RENTALS AND U.S. RENTALS COMBINED UNAUDITED PRO FORMA CONDENSED STATEMENT OF OPERATIONS The following combined unaudited pro forma condensed statement of operations for the year ended December 31, 1996 gives effect to the Merger using the "pooling of interests" method of accounting and to the pro forma adjustments described in the notes to the combined unaudited pro forma condensed financial statements. Such statement is based upon the historical statement of operations of U.S. Rentals for the year ended December 31, 1996. United Rentals was not in existence in 1996 and, accordingly, historical data for United Rentals is not presented for such period.
UNITED RENTALS U.S. RENTALS YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, PRO FORMA COMBINED 1996 1996 ADJUSTMENTS PRO FORMA -------------- ------------ ----------- --------- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Revenues: Equipment rentals........ $257,486 $257,486 Sales of rental equip- ment.................... 24,629 24,629 Sales of equipment, merchandise and other revenue................. 23,722 23,722 --- -------- ---- -------- Total revenues............. 305,837 305,837 Cost of revenues: Cost of equipment rentals, excluding depreciation............ 136,584 136,584 Depreciation of rental equipment............... 56,105 56,105 Cost of rental equipment sales................... 10,109 10,109 Cost of new equipment and merchandise sales and other operating costs... 17,423 17,423 --- -------- ---- -------- Total cost of revenues..... 220,221 220,221 --- -------- ---- -------- Gross profit............... 85,616 85,616 Selling, general and admin- istrative expenses........ 35,934 35,934 Non-rental depreciation and amortization.............. 7,528 7,528 --- -------- ---- -------- Operating income........... 42,154 42,154 Interest expense........... 8,373 8,373 Related party interest ex- pense (income), net....... (342) (342) Other (income) expenses, net....................... 665 665 --- -------- ---- -------- Income before provision for income taxes.............. 33,458 33,458 Provision for income tax- es........................ 374 374 --- -------- ---- -------- Net income................. $ 33,084 $ 33,084 === ======== ==== ======== Basic and diluted earnings per share................. $1.59 $1.66(c) === ======== ======== Basic and diluted weighted average equivalent shares outstanding............... 20,749 (778)(c) 19,971 === ======== ==== ========
See notes to combined unaudited pro forma condensed financial statements. 64 UNITED RENTALS AND U.S. RENTALS COMBINED UNAUDITED PRO FORMA CONDENSED STATEMENT OF OPERATIONS The following combined unaudited pro forma condensed statement of operations for the year ended December 31, 1995 gives effect to the Merger using the "pooling of interests" method of accounting and to the pro forma adjustments described in the notes to the combined unaudited pro forma condensed financial statements. Such statement is based upon the historical statement of operations of U.S. Rentals for the year ended December 31, 1995. United Rentals was not in existence in 1995 and, accordingly, historical data for United Rentals is not presented for such period.
UNITED RENTALS U.S. RENTALS YEAR ENDING YEAR ENDED DECEMBER 31, DECEMBER 31, PRO FORMA COMBINED 1995 1995 ADJUSTMENTS PRO FORMA -------------- ------------ ----------- --------- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Revenues: Equipment rentals...... $214,849 $214,849 Sales of rental equipment............. 10,832 10,832 Sales of equipment mer- chandise and other revenue............... 17,166 17,166 ----- -------- ---- -------- Total revenues........... 242,847 242,847 Cost of revenues: Cost of equipment rentals, excluding depreciation.......... 107,876 107,876 Depreciation of rental equipment............. 43,885 43,885 Cost of rental equip- ment sales............ 4,693 4,693 Cost of new equipment and merchandise sales and other oper- ating costs.......... 11,418 11,418 ----- -------- ---- -------- Total cost of revenues... 167,872 167,872 ----- -------- ---- -------- Gross profit............. 74,975 74,975 Selling, general and ad- ministrative expenses... 31,440 31,440 Non-rental depreciation and amortization........ 5,513 5,513 ----- -------- ---- -------- Operating income......... 38,022 38,022 Interest expense......... 4,575 4,575 Related party interest expense (income), net... 735 735 Other (income) expense, net..................... 1,620 1,620 ----- -------- ---- -------- Income before provision for income taxes........ 31,092 31,092 Provision for income tax- es...................... 468 468 ----- -------- ---- -------- Net income............... $ 30,624 $ 30,624 ===== ======== ==== ======== Basic and diluted earn- ings per share.......... $ 1.48 $ 1.53(c) ===== ======== ======== Basic and diluted weighted average equivalent shares outstanding............. 20,749 (778)(c) 19,971 ===== ======== ==== ========
See notes to combined unaudited pro forma condensed financial statements. 65 UNITED RENTALS AND U.S. RENTALS NOTES TO COMBINED UNAUDITED PRO FORMA CONDENSED FINANCIAL STATEMENTS 1. BASIS OF PRESENTATION The combined unaudited pro forma condensed financial statements assume the issuance of United Rentals Common Stock in exchange for all outstanding U.S. Rentals Common Stock. Such financial statements also assume that the Merger will be accounted for using the "pooling of interests" method of accounting pursuant to APB 16. The "pooling of interests" method of accounting assumes that the combining companies have been merged from their inception, and the historical financial statements for periods prior to consummation of the Merger are restated as though the companies had been combined from their inception. Pursuant to the rules and regulations of the Commission, the combined unaudited pro forma condensed statements of operations exclude the results of operations associated with discontinued businesses, extraordinary items and cumulative effects of accounting changes. In addition, the combined unaudited pro forma condensed balance sheet includes an adjustment for estimated nonrecurring costs directly related to the Merger which are expected to be included in operations of United Rentals within the twelve months succeeding the consummation of the Merger. Such costs are currently estimated to be approximately $60 million. Certain reclassifications have been made to the historical financial statements of United Rentals and U.S. Rentals to conform to the pro forma presentation. Such reclassifications are not material to the combined unaudited pro forma condensed financial statements. 2. PRO FORMA ADJUSTMENTS (a) Reflects a charge to stockholders' equity and an increase in accrued liabilities for the estimated nonrecurring costs of $60 million related to the Merger. Actual nonrecurring merger costs may vary from such estimates. (b) The stockholders' equity accounts have been adjusted to reflect the assumed issuance of 29,620,913 shares of United Rentals Common Stock for all issued and outstanding shares of U.S. Rentals Common Stock (based on the exchange ratio of 0.9625 shares of United Rentals Common Stock for each share of U.S. Rentals Common Stock outstanding as of June 30, 1998). The actual number of shares of United Rentals Common Stock to be issued pursuant to the Merger will be based upon the number of shares of U.S. Rentals Common Stock issued and outstanding immediately prior to the consummation of the Merger. (c) Pro forma basic earnings per share for each period presented are based on the basic weighted average shares outstanding, after giving effect to the issuance of 0.9625 shares of United Rentals Common Stock for each share of U.S. Rentals Common Stock. Pro forma diluted earnings per share for each period presented are based on the basic weighted average shares outstanding adjusted for the effect of potentially dilutive securities, after giving effect to the issuance of 0.9625 shares of United Rentals Common Stock for each share of U.S. Rentals Common Stock. 66 UNITED RENTALS AND U.S. RENTALS SUPPLEMENTAL INFORMATION RELATING TO THE COMBINED UNAUDITED PRO FORMA CONDENSED FINANCIAL STATEMENTS The following unaudited supplemental pro forma balance sheet data as of June 30, 1998 gives effect to the Merger under the "pooling of interests" method of accounting (as described in the notes to the Combined Unaudited Pro Forma Condensed Financial Statements) and, in addition, gives effect to each acquisition completed by United Rentals after such date, and the financing of each such acquisition, as if all such transactions had occurred on June 30, 1998. The following unaudited supplemental pro forma income statement data with respect to the year ended December 31, 1997 and the six months ended June 30, 1998 gives effect to the Merger under the "pooling of interests" method of accounting (as described in the notes to the Combined Unaudited Pro Forma Financial Statements) and, in addition, gives effect to each acquisition completed by United Rentals after the beginning of such period, and the financing of each such acquisition, as if all such transactions had occurred at the beginning of the period. The following unaudited supplemental pro forma income statement data with respect to the years ended December 31, 1995 and 1996 gives effect to the Merger under the "pooling of interests" method of accounting (as described in the notes to the Combined Unaudited Pro Forma Financial Statements) and, in addition, gives effect to the acquisition of Rental Tools and Equipment Co. International, Inc. (which was completed by United Rentals in August 1998 and accounted for as a "pooling of interests"). 67 UNITED RENTALS AND U.S. RENTALS SUPPLEMENTAL UNAUDITED BALANCE SHEET INFORMATION JUNE 30, 1998
EQUIPMENT MCCLINCH INC. SUPPLY AND MCCLINCH SUPPLEMENTAL COMBINED CO., INC. AND EQUIPMENT OTHER SUPPLEMENTAL UNAUDITED PRO FORMA AFFILIATES SERVICES, INC. ACQUISITIONS ADJUSTMENTS PRO FORMA ---------- ------------- -------------- ------------ ------------ ------------ (IN THOUSANDS, EXCEPT SHARE AND PAR VALUE AMOUNTS) ASSETS: Cash and cash equivalents............ $ 27,996 $ 1,784 $ 1,136 $ 11,895 $ (16,301)(a) $ 26,510 Accounts receivable, net.................... 141,327 16,528 7,536 27,210 192,601 Inventory............... 52,295 4,508 1,735 12,703 71,241 Rental equipment, net... 820,652 111,618 38,172 100,154 10,784 (b) 1,081,380 Property and equipment, net.................... 125,479 5,267 5,850 26,813 (2,448)(c) 160,961 Intangible assets, net.. 455,426 3,639 331,868 (d) 790,933 Prepaid expenses and other assets........... 35,054 7,022 1,158 7,366 50,600 ---------- -------- ------- -------- --------- ---------- $1,658,229 $150,366 $55,587 $186,141 $ 323,903 $2,374,226 ========== ======== ======= ======== ========= ========== LIABILITIES AND STOCKHOLDERS' EQUITY: Liabilities: Accounts payable, accrued expenses and other liabilities...... $ 217,477 $ 16,587 $ 6,873 $ 23,559 $ 264,496 Debt.................... 767,781 94,819 32,052 96,139 $(185,113)(e) 1,406,859 601,181 (f) Deferred income taxes... 32,108 940 33,048 ---------- -------- ------- -------- --------- ---------- Total liabilities..... 1,017,366 112,346 38,925 119,698 416,068 1,704,403 Commitments and contingencies Stockholders' equity: United Rentals preferred stock--$.01 par value, 5,000,000 shares authorized, no shares outstanding............ Common stock: United Rentals--$.01 par value, 75,000,000 shares authorized, historical 34,192,085 shares (63,812,998 combined pro forma shares and 66,947,915 supplemental pro forma shares) issued and outstanding............ 638 1 26 2,676 (2,703)(g) 669 31 (h) Additional paid-in capital................ 654,659 364 (608) (1,199) 1,063 (g) 666,932 12,653 (h) Retained earnings....... (14,434) 37,655 17,244 64,966 (103,209)(g) 2,222 ---------- -------- ------- -------- --------- ---------- Total stockholders' equity............... 640,863 38,020 16,662 66,443 (92,165) 669,823 ---------- -------- ------- -------- --------- ---------- $1,658,229 $150,366 $55,587 $186,141 $ 323,903 $2,374,226 ========== ======== ======= ======== ========= ==========
See notes to supplemental information. 68 UNITED RENTALS AND U.S. RENTALS SUPPLEMENTAL UNAUDITED STATEMENT OF OPERATIONS INFORMATION FOR THE SIX MONTHS ENDED JUNE 30, 1998
EQUIPMENT MCCLINCH INC. POWER SUPPLY AND MCCLINCH SUPPLEMENTAL COMBINED ACCESS RENTAL CO., INC. EQUIPMENT OTHER SUPPLEMENTAL UNAUDITED PRO FORMA RENTALS, INC. CO., INC. AND AFFILIATES SERVICE, INC. ACQUISITIONS ADJUSTMENTS PRO FORMA --------- ------------- --------- -------------- ------------- ------------ ------------ ------------ (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Revenues Equipment rent- als............. $293,552 $2,313 $ 6,295 $34,382 $16,515 $106,696 $459,753 Sales of equipment, merchandise and other revenue... 105,159 841 1,555 8,958 5,601 68,152 190,266 -------- ------ ------- ------- ------- -------- ------- -------- Total revenues.... 398,711 3,154 7,850 43,340 22,116 174,848 650,019 Cost of revenues Cost of equipment rentals, excluding depreciation.... 146,518 1,131 3,416 12,529 6,770 42,073 212,437 Depreciation of rental equip- ment............ 60,544 402 2,987 10,368 3,316 27,926 $(9,070)(a) 96,473 Cost of sales and other operating costs........... 68,768 741 638 7,267 3,795 46,115 127,324 -------- ------ ------- ------- ------- -------- ------- -------- Total cost of rev- enues............ 275,830 2,274 7,041 30,164 13,881 116,114 (9,070) 436,234 -------- ------ ------- ------- ------- -------- ------- -------- Gross profit...... 122,881 880 809 13,176 8,235 58,734 9,070 213,785 Selling, general and administrative expenses......... 56,652 774 3,200 9,672 3,535 46,463 (10,381)(c) 109,734 (181)(d) Non-rental depreciation and amortization..... 11,490 23 304 359 382 2,570 6,100 (e) 21,228 -------- ------ ------- ------- ------- -------- ------- -------- Operating income (loss)........... 54,739 83 (2,695) 3,145 4,318 9,701 13,532 82,823 Interest expense.. 13,824 147 631 4,220 763 7,693 (11,203)(f) 32,982 16,907 (g) Other (income) ex- pense, net....... (528) (52) (95) (198) (51) (4,728) (5,652) -------- ------ ------- ------- ------- -------- ------- -------- Income (loss) before provision for income taxes............ 41,443 (12) (3,231) (877) 3,606 6,736 7,828 55,493 Provision for income taxes..... 16,760 (2,638) 896 841 6,672 (h) 22,531 -------- ------ ------- ------- ------- -------- ------- -------- Net income (loss)........... $ 24,683 $ (12) $(3,231) $ 1,761 $ 2,710 $ 5,895 $ 1,156 $ 32,962 ======== ====== ======= ======= ======= ======== ======= ======== Basic earnings per share............ $ 0.41 $ 0.49 ======== ======== Diluted earnings per share........ $ 0.38 $ 0.46 ======== ======== Basic weighted average equivalent shares outstanding...... 59,576 66,934 ======== ======== Diluted weighted average equivalent shares outstanding...... 65,816 72,056 ======== ========
See notes to supplemental information. 69 UNITED RENTALS AND U.S. RENTALS SUPPLEMENTAL UNAUDITED STATEMENT OF OPERATIONS INFORMATION FOR THE YEAR ENDED DECEMBER 31, 1997
MCCLINCH EQUIPMENT INC. AND MISSION SUPPLY MCCLINCH ACCESS BNR GROUP VALLEY POWER CO., INC. EQUIPMENT SUPPLEMENTAL COMBINED RENTALS, OF RENTALS, RENTAL AND SERVICES, OTHER SUPPLEMENTAL UNAUDITED PRO FORMA INC. COMPANIES INC. CO., INC. AFFILIATES INC. ACQUISITIONS ADJUSTMENTS PRO FORMA --------- -------- --------- -------- --------- ---------- --------- ------------ ------------ ------------ (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Revenues Equipment rent- als............ $347,526 $42,316 $ 9,403 $7,853 $35,382 $78,142 $30,615 $308,813 $ 860,050 Sales of equipment, merchandise and other revenues....... 87,800 9,943 14,612 765 5,154 16,416 9,418 189,464 333,572 -------- ------- ------- ------ ------- ------- ------- -------- -------- ---------- Total revenues... 435,326 52,259 24,015 8,618 40,536 94,558 40,033 498,277 1,193,622 Cost of revenues Cost of equipment rentals, excluding depreciation... 188,480 12,415 4,662 3,437 12,678 23,510 11,590 125,429 382,201 Depreciation of rental equipment...... 70,270 8,480 1,589 1,746 9,706 20,397 5,888 65,115 $(15,852)(a) 167,339 Cost of sales and other operating costs.......... 55,065 8,862 10,361 518 3,648 11,362 6,485 138,215 (72)(b) 234,444 -------- ------- ------- ------ ------- ------- ------- -------- -------- ---------- Total cost of revenues........ 313,815 29,757 16,612 5,701 26,032 55,269 23,963 328,759 (15,924) 783,984 -------- ------- ------- ------ ------- ------- ------- -------- -------- ---------- Gross profit..... 121,511 22,502 7,403 2,917 14,504 39,289 16,070 169,518 15,924 409,638 Selling, general and administrative expenses........ 45,908 10,440 5,402 3,062 12,147 17,875 8,605 117,195 (23,337)(c) 197,120 (177)(d) Non-rental depreciation and amortization.... 11,484 1,355 104 32 1,226 878 714 6,683 15,495 (e) 37,971 Termination cost of deferred compensation agreements...... 20,290 20,290 -------- ------- ------- ------ ------- ------- ------- -------- -------- ---------- Operating in- come............ 43,829 10,707 1,897 (177) 1,131 20,536 6,751 45,640 23,943 154,257 Interest ex- pense........... 7,824 3,700 501 434 2,344 11,186 2,195 19,008 (38,817)(f) 74,339 65,964 (g) Other (income) expense, net.... 203 (809) (61) (370) (2,859) (715) (1,959) (6,570) -------- ------- ------- ------ ------- ------- ------- -------- -------- ---------- Income before provision for income taxes and extraordinary item............ 35,802 7,816 1,396 (550) (843) 12,209 5,271 28,591 (3,204) 86,488 Provision for in- come taxes...... 29,427 2,745 459 (73) 1,242 1,189 3,215 12,005 (h) 50,209 -------- ------- ------- ------ ------- ------- ------- -------- -------- ---------- Income before ex- traordinary item............ $ 6,375 $ 5,071 $ 937 $ (477) $ (843) $10,967 $ 4,082 $ 25,376 $(15,209) $ 36,279 ======== ======= ======= ====== ======= ======= ======= ======== ======== ========== Basic earnings per share before extraordinary item............ $ 0.14 $ 0.55 ======== ========== Diluted earnings per share before extraordinary item............ $ 0.14 $ 0.53 ======== ========== Basic weighted average equivalent shares outstanding..... 44,570 65,565 ======== ========== Diluted weighted average equivalent shares outstanding..... 46,897 67,831 ======== ==========
See notes to supplemental information. 70 UNITED RENTALS AND U.S. RENTALS SUPPLEMENTAL UNAUDITED STATEMENT OF OPERATIONS INFORMATION FOR THE YEAR ENDED DECEMBER 31, 1996
SUPPLEMENTAL COMBINED OTHER SUPPLEMENTAL UNAUDITED PRO FORMA ACQUISITION ADJUSTMENTS PRO FORMA --------- ----------- ------------ ------------ (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Revenues Equipment rentals..... $257,486 $46,640 $304,126 Sales of equipment, merchandise and other revenue.............. 48,351 719 49,070 -------- ------- ----- -------- Total revenues.......... 305,837 47,359 353,196 Cost of revenues Cost of equipment rentals, excluding depreciation......... 136,584 19,209 155,793 Depreciation of rental equipment............ 56,105 9,188 65,293 Cost of sales and other operating costs................ 27,532 27,532 -------- ------- ----- -------- Total cost of revenues.. 220,221 28,397 248,618 -------- ------- ----- -------- Gross profit............ 85,616 18,962 104,578 Selling, general and administrative expenses............... 35,934 9,979 45,913 Non-rental depreciation and amortization....... 7,528 1,855 9,383 -------- ------- ----- -------- Operating income........ 42,154 7,128 49,282 Interest expense........ 8,373 2,563 10,936 Other (income) expense, net.................... 323 (76) 247 -------- ------- ----- -------- Income before provision for income taxes....... 33,458 4,641 38,099 Provision for income taxes.................. 374 374 -------- ------- ----- -------- Net income.............. $ 33,084 $ 4,641 $ 37,725 ======== ======= ===== ======== Basic and diluted earn- ings per share......... $ 1.66 $ 1.66 ======== ======== Basic and diluted weighted average equivalent shares outstanding............ 19,971 2,744 22,715 ======== ===== ========
See notes to supplemental information. 71 UNITED RENTALS AND U.S. RENTALS SUPPLEMENTAL UNAUDITED STATEMENT OF OPERATIONS INFORMATION FOR THE YEAR ENDED DECEMBER 31, 1995
SUPPLEMENTAL COMBINED OTHER SUPPLEMENTAL UNAUDITED PRO FORMA ACQUISITION ADJUSTMENTS PRO FORMA --------- ----------- ------------ ------------ (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Revenues Equipment rentals...... $214,849 $40,040 $254,889 Sales of equipment, merchandise and other revenue............... 27,998 27,998 -------- ------- ----- -------- Total revenues.......... 242,847 40,040 282,887 Cost of revenues Cost of equipment rentals, excluding depreciation.......... 107,876 17,707 125,583 Depreciation of rental equipment............. 43,885 8,062 51,947 Cost of sales and other operating costs....... 16,111 16,111 -------- ------- ----- -------- Total cost of revenues.. 167,872 25,769 193,641 -------- ------- ----- -------- Gross profit............ 74,975 14,271 89,246 Selling, general and administrative expenses............... 31,440 8,707 40,147 Non-rental depreciation and amortization....... 5,513 1,403 6,916 -------- ------- ----- -------- Operating income........ 38,022 4,161 42,183 Interest expense........ 5,310 2,161 7,471 Other (income) expense, net.................... 1,620 (673) 947 -------- ------- ----- -------- Income before provision for income taxes....... 31,092 2,673 33,765 Provision for income taxes.................. 468 468 -------- ------- ----- -------- Net income.............. $ 30,624 $ 2,673 $ 33,297 ======== ======= ===== ======== Basic and diluted earn- ings per share......... $ 1.53 $ 1.47 ======== ======== Basic and diluted weighted average equivalent shares outstanding............ 19,971 2,744 22,715 ======== ===== ========
See notes to supplemental information. 72 UNITED RENTALS AND U.S. RENTALS NOTES TO SUPPLEMENTAL UNAUDITED INFORMATION 1. BASIS OF PRESENTATION The unaudited supplemental pro forma balance sheet data as of June 30, 1998 gives effect to the Merger under the "pooling of interests" method of accounting (as described in the notes to the Combined Unaudited Pro Forma Condensed Financial Statements) and, in addition, gives effect to each acquisition completed by United Rentals after such date, and the financing of each such acquisition, as if all such transactions had occurred on June 30, 1998. The unaudited supplemental pro forma income statement data with respect to the year ended December 31, 1997 and the six months ended June 30, 1998 gives effect to the Merger under the "pooling of interests" method of accounting (as described in the notes to the Combined Unaudited Pro Forma Financial Statements) and, in addition, gives effect to each acquisition completed by United Rentals after the beginning of such period, and the financing of each such acquisition, as if all such transactions had occurred at the beginning of the period. The unaudited supplemental pro forma income statement data with respect to the years ended December 31, 1995 and 1996 gives effect to the Merger under the "pooling of interests" method of accounting (as described in the notes to the Combined Unaudited Pro Forma Financial Statements) and, in addition, gives effect to the acquisition of Rental Tools and Equipment Co. International, Inc. (which was completed by United Rentals in August 1998 and accounted for as a "pooling of interests"). 2. SUPPLEMENTAL INFORMATION--PRO FORMA ADJUSTMENTS Balance sheet adjustments: a. Records the portion of the acquisition consideration and debt repayment paid from available cash on hand. b. Adjusts the carrying value of rental equipment to fair market value. c. Adjusts the carrying value of property and equipment to fair market value. d. Records the excess of the acquisition consideration over the estimated fair value of net assets acquired. e. Records the repayment of certain indebtedness of the acquisitions. f. Records the portion of the acquisition consideration and debt repayment funded by borrowing under United Rentals' credit facility, senior subordinated notes and term loan. g. Records the elimination of the stockholders' equity of the acquisitions. h. Records the portion of the acquisition consideration paid in the form of common stock. Statement of operations adjustments: a. Adjusts the depreciation of rental equipment and other property and equipment based upon adjusted carrying values utilizing the following lives (subject to a salvage value ranging from 0 to 10%): Rental equipment.............................................. 2-10 years Other property and equipment.................................. 2-15 years
b. Adjusts the method of accounting for inventory at one of the acquisitions from the LIFO method to the FIFO method. c. Adjusts the compensation to former owners and executives of the acquisitions to current levels of compensation. d. Adjusts the lease expense for real estate utilized by the acquisitions to current lease agreements. e. Records the amortization of the excess of cost over net assets acquired attributable to the acquisitions using an estimated life of 40 years. f. Eliminates interest expense related to the outstanding indebtedness of the acquisitions which was repaid by United Rentals. g. Records interest expense relating to the portion of the acquisitions funded through borrowing under United Rentals' credit facility using a rate per annum of 7%, senior subordinated notes using a rate per annum of 9 1/2% and term loan using a rate per annum of 7.6%. h. Records a provision for income taxes at an estimated rate of 41%. 73 MANAGEMENT OF UNITED RENTALS FOLLOWING THE MERGER BOARD OF DIRECTORS It is anticipated that the Board of Directors of United Rentals upon consummation of the Merger will be comprised of the following ten individuals: The Six Current Members of the United Rentals Board: Bradley S. Jacobs, 42, Chairman and Chief Executive Officer of United Rentals, founded United Waste Systems, Inc. in 1989 and served as its Chairman and Chief Executive Officer from inception until the sale of the company in August 1997. From 1984 to July 1989, Mr. Jacobs was Chairman and Chief Operating Officer of Hamilton Resources Ltd., an international trading company, and from 1979 to 1983, he was Chief Executive Officer of Amerex Oil Associates, Inc., an oil brokerage firm that he co-founded. Wayland R. Hicks, 55, President and Chief Operating Officer of United Rentals, served in various senior executive positions at Xerox Corporation where he worked for 28 years (1966-1994). His positions at Xerox Corporation included Executive Vice President, Corporate Operations (1993-1994), Executive Vice President, Corporate Marketing and Customer Support Operations (1989- 1993) and Executive Vice President, Engineering and Manufacturing--Xerox Business Products and Systems Group (1987-1989). Mr. Hicks served as Vice Chairman and Chief Executive Officer of Nextel Communications Corp. (1994- 1995) and as Chief Executive Officer and President of Indigo N.V. (1996-1997). He is also a director of Maytag Corporation. Following the Merger, Mr. Hicks will become Vice Chairman of United Rentals in place of his current position as President of United Rentals. John N. Milne, 39, Vice Chairman, Chief Acquisition Officer and Secretary of United Rentals, was Vice Chairman and Chief Acquisition Officer of United Waste Systems, Inc. from 1993 until August 1997 and held other senior executive positions at United Waste from 1990 until 1993. Mr. Milne had primary responsibility for implementing United Waste's acquisition program. From September 1987 to March 1990, Mr. Milne was employed in the Corporate Finance Department of Drexel Burnham Lambert Incorporated. Ronald M. DeFeo, 46, is the Chief Executive Officer, President, Chief Operating Officer and a director of Terex Corporation, a leading global provider of equipment for the manufacturing, mining and construction industries. Mr. DeFeo joined Terex in 1992 as President of the Terex heavy equipment group and was appointed President and Chief Operating Officer in 1993 and Chief Executive Officer in 1995. From 1984 to 1992, Mr. DeFeo held various management positions at Tenneco Inc., including Senior Vice President and Managing Director. Richard J. Heckmann, 54, has served since 1990 as Chairman, President and Chief Executive Officer of United States Filter Corporation, a leading global provider of industrial and commercial water and wastewater treatment systems and services. Mr. Heckmann is also a director of USA Waste Services, Inc. and K2 Inc. Gerald Tsai, Jr., 69, served as Chairman, Chief Executive Officer and President of Delta Life Corporation, an insurance company, from 1993 until the sale of the company in October 1997. Mr. Tsai was Chairman of the Executive Committee of the Board of Directors of Primerica Corporation, a diversified financial services company, from December 1988 until April 1991, and served as Chief Executive Officer of Primerica Corporation from April 1986 until December 1988. Mr. Tsai is currently a private investor and serves as a director of Meditrust Corporation, Proffitt's, Inc., Rite Aid Corporation, Sequa Corporation, Triarc Companies, Inc. and Zenith National Insurance Corp. He also serves as a trustee of Boston University and New York University Medical Center. Persons to Be Added to the United Rentals Board In Connection With The Merger: Richard D. Colburn, 87, purchased U.S. Rentals (under its previous name of Leasing Enterprises, Inc.) on December 31, 1975 and has been Chairman of the Board of U.S. Rentals since that date. Mr. Colburn, a private 74 investor, beneficially owns approximately 67% of the outstanding U.S. Rentals Common Stock. Following the Merger, Mr. Colburn will be Chairman Emeritus and a director of United Rentals. William F. Berry, 45, has been an employee of U.S. Rentals and one of its predecessors since 1966, became U.S. Rentals' President and Chief Executive Officer in January 1987 and became a director in 1996. In his more than 30 years with U.S. Rentals and its predecessor, Mr. Berry has held numerous operational and managerial positions, including Profit Center Manager, Division Manager and Regional Vice President. Following the Merger, Mr. Berry will become President and a director of United Rentals. Pursuant to the Merger Agreement, two other persons will be added to the United Rentals Board, one of whom will be a current member of the U.S. Rentals Board to be chosen by United Rentals and the other of whom will be mutually agreed upon by the Chairmen of United Rentals and U.S. Rentals. As of the date of this Joint Proxy Statement/Prospectus, such persons have not been identified. Classification of the United Rentals Board of Directors The United Rentals Board is divided into three classes. The term of office of the first class (anticipated to be comprised, following completion of the Merger, of Messrs. Hicks and Tsai) will expire at the first annual meeting of stockholders of United Rentals following January 1, 1998, the term of office of the second class (anticipated to be comprised, following completion of the Merger, of Messrs. Berry, DeFeo and Heckmann) will expire at the second annual meeting of stockholders of United Rentals following January 1, 1998 and the term of office of the third class (anticipated to be comprised, following completion of the Merger, of Messrs. Colburn, Jacobs and Milne) will expire at the third annual meeting of stockholders of United Rentals following January 1, 1998. At each annual meeting of United Rentals stockholders, successors to directors of the class whose term expires at such meeting will be elected to serve for three-year terms and until their successors are elected and qualified. EXECUTIVE OFFICERS It is anticipated that the executive officers of United Rentals following completion of the Merger will be as follows: Bradley S. Jacobs....... 42 Chairman and Chief Executive Officer Wayland R. Hicks........ 55 Vice Chairman and Chief Operating Officer John N. Milne........... 39 Vice Chairman, Chief Acquisition Officer, and Secretary William F. Berry........ 45 President Michael J. Nolan........ 37 Chief Financial Officer John S. McKinney........ 43 Vice President, Finance Robert P. Miner......... 48 Vice President, Strategic Planning
Certain information with respect to Messrs. Jacobs, Hicks, Milne and Berry is set forth above under "--Board of Directors." Certain information relating to the other named executives follows. Michael J. Nolan served as the Chief Financial Officer of United Waste Systems, Inc. from February 1994 until August 1997. He served in other finance positions at United Waste from November 1991 until February 1994, including Vice President, Finance, from October 1992 to February 1994. From 1985 until November 1991, Mr. Nolan held various positions at the accounting firm of Ernst & Young, including senior audit manager, and is a Certified Public Accountant. John S. McKinney has been the Vice President--Finance and Chief Financial Officer of U.S. Rentals since 1990 and became a director of U.S. Rentals in 1996. Mr. McKinney joined U.S. Rentals in 1988 as Controller, and held that position until being promoted to his current positions. Prior to joining U.S. Rentals, Mr. McKinney 75 served as the controller of an electrical wholesale company, held various financial positions at Iomega Corporation and spent several years as a certified public accountant with Arthur Andersen & Co. Robert P. Miner was an executive officer of United Waste Systems, Inc. from November 1994 until August 1997, serving first as Vice President, Finance and then Vice President, Acquisitions. Prior to joining United Waste, he was a research analyst with PaineWebber Incorporated (November 1988 to October 1994) and Needham & Co. (January 1987 to October 1988) and held various executive positions at General Electric Environmental Services, Inc., Stauffer Chemical Company, and OHM Corporation. ADDITIONAL MATTERS TO BE CONSIDERED AT THE UNITED RENTALS SPECIAL MEETING PROPOSAL TO APPROVE THE ADOPTION OF THE UNITED RENTALS 1998 STOCK OPTION PLAN Background The United Rentals Board is proposing for stockholder approval the United Rentals 1998 Stock Option Plan. The United Rentals 1998 Stock Option Plan is intended to provide incentives which will attract and retain highly competent persons as officers and directors of United Rentals and its subsidiaries, by providing them with opportunities to acquire United Rentals Common Stock. In addition, the United Rentals 1998 Stock Option Plan is intended to assist in aligning the interests of officers and directors of United Rentals with those of its stockholders. The United Rentals Compensation Committee (the "Committee") adopted, and the United Rentals Board ratified, subject to stockholder approval, the United Rentals 1998 Stock Option Plan. The following summary of the United Rentals 1998 Stock Option Plan is not intended to be complete and is qualified in its entirety by reference to the United Rentals 1998 Stock Option Plan attached as Exhibit J to this Joint Proxy Statement/Prospectus. Shares Available The United Rentals 1998 Stock Option Plan provides for the grant of incentive stock options within the meaning of Section 422 of the Code ("ISOs"), and non-statutory stock options which do not qualify under Section 422 of the Code ("NSOs" and together with ISOs the "Stock Options"), and makes available an aggregate of 4,000,000 shares of United Rentals Common Stock, subject to certain adjustments. During the term of the United Rentals 1998 Stock Option Plan, the maximum number of shares of United Rentals Common Stock with respect to which Stock Options may be granted to any individual participant may not exceed 3,000,000. Any shares of United Rentals Common Stock subject to Stock Options which for any reason are cancelled or terminated without having been exercised shall again be available for Stock Options under the United Rentals 1998 Stock Option Plan (other than for purposes of determining the maximum number of Stock Options which may be granted to any individual participant). Administration The United Rentals 1998 Stock Option Plan provides for administration by the Committee, which is appointed by the United Rentals Board from among its members, and which shall be comprised solely of not less than two members who shall be (i) "Non-Employee Directors" within the meaning of Rule 16b-3(b)(3) (or any successor rule) promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and (ii) unless otherwise determined by the United Rentals Board, "outside directors" within the meaning of Treasury Regulation Section 1.162-27(e)(3) under Section 162(m) of the Code. The Committee is authorized, subject to the provisions of the United Rentals 1998 Stock Option Plan, to establish such rules and regulations as it deems necessary for the proper administration of the United Rentals 1998 Stock Option Plan and to make such determinations and interpretations and to take such action in connection with the United Rentals 1998 Stock Option Plan and any Stock Options granted as it deems necessary or advisable. Among the Committee's powers 76 are the authority to select the officers and directors of United Rentals to receive Stock Options, and to determine the form, amount, exercise prices, exercise periods and other terms and conditions of such Stock Options. The Committee also has the power to modify or waive restrictions on Stock Options, to amend and to grant extensions and accelerations of Stock Options. The Committee is currently comprised of Messrs. DeFeo, Heckmann and Tsai. Eligibility for Participation Officers and directors of United Rentals and its subsidiaries are eligible to participate in the United Rentals 1998 Stock Option Plan. The selection of participants from those eligible is within the discretion of the Committee. As of the date of this Joint Proxy Statement/Prospectus, there are 15 individuals eligible to participate in the United Rentals 1998 Stock Option Plan. Types of Benefits The United Rentals 1998 Stock Option Plan provides for the grant of ISOs and NSOs. Stock Options may be granted singly, in combination, or in tandem as determined by the Committee. The Committee will, with regard to each Stock Option, determine the number of shares of United Rentals Common Stock subject to such Stock Option, the manner and time of the Stock Option's exercise (which time period shall in no event expire later than ten years after the date of grant) and vesting, and the exercise price per share of United Rentals Common Stock subject to such Stock Option; however, the exercise price will not be less than 100% of the fair market value of the United Rentals Common Stock on the date the Stock Option is granted (the "Fair Market Value") or, in the case of an ISO held by a stockholder of 10% or more of United Rentals Common Stock (as such stockholder is defined in Section 422(b)(6) of the Code) 110% of Fair Market Value. The exercise price may be paid in cash or, in the discretion of the Committee, by the delivery of shares of United Rentals Common Stock then owned by the holder of the Stock Option, by delivering to United Rentals a promissory note (or other form of indebtedness) on such terms and conditions as the Committee shall determine in its sole discretion at the date of grant, or by a combination of these methods. In the discretion of the Committee, payment may also be made by delivering a properly executed exercise notice together with a copy of irrevocable instructions to a broker to deliver promptly to United Rentals the amount of sale or loan proceeds to pay the exercise price. In determining which methods a holder of the Stock Option may utilize to pay the exercise price, the Committee may consider such factors as it determines are appropriate. Other Terms of the Stock Options The United Rentals 1998 Stock Option Plan provides that Stock Options will not be transferable other than by will or the laws of descent and distribution. The Committee will determine the treatment to be afforded to a holder of the Stock Option in the event of termination of employment for any reason, except that, with respect to an ISO, such ISO shall lapse prior to the 89th day after the date of termination. Notwithstanding the foregoing, other than with respect to ISOs, the Committee may permit the transferability of an award by a holder of a Stock Option to members of such holder's immediate family or trusts for the benefit of such person or family partnerships. Upon the grant of any Stock Options under the United Rentals 1998 Stock Option Plan, the Committee may, by way of an agreement with the holder of a Stock Option, establish such other terms, conditions, restrictions and/or limitations covering the grant of the Stock Option as are not inconsistent with the United Rentals 1998 Stock Option Plan. No Stock Options will be granted under the United Rentals 1998 Stock Option Plan after August 20, 2008. The United Rentals Board reserves the right to amend, suspend or terminate the United Rentals 1998 Stock Option Plan at any time, subject to the rights of participants with respect to any outstanding Stock Options. The United Rentals 1998 Stock Option Plan contains provisions for equitable adjustment of Stock Options in the event of a merger, consolidation, reorganization, recapitalization, stock dividend, stock split, reverse stock split, split up, spinoff, combination of shares, exchange of shares, dividend in kind or other like change in capital structure or distribution (other than normal cash dividends) to United Rentals stockholders. 77 Certain Federal Income Tax Consequences The statements in the following paragraphs of the principal federal income tax consequences of the Stock Options under the United Rentals 1998 Stock Option Plan are based on statutory authority and judicial and administrative interpretations, as of the date of this Joint Proxy Statement/Prospectus, which are subject to change at any time (possibly with retroactive effect). The law is technical and complex, and the discussion below represents only a general summary. Incentive Stock Options. ISOs granted under the United Rentals 1998 Stock Option Plan are intended to meet the definitional requirements of Section 422(b) of the Code for "incentive stock options." An employee who receives an ISO does not recognize any taxable income upon the grant of such ISO. Similarly, the exercise of an ISO generally does not give rise to federal income tax to the employee, provided that (i) the federal "alternative minimum tax," which depends on the employee's particular tax situation, does not apply and (ii) the employee is employed by United Rentals from the date of grant of the ISO until three months prior to the exercise thereof, except where such employment terminates by reason of disability (where the three month period is extended to one year) or death (where this requirement does not apply). If an employee exercises an ISO after these requisite periods, the ISO will be treated as an NSO and will be subject to the rules set forth below under the caption "Non-Statutory Stock Options." Further, if after exercising an ISO, an employee disposes of United Rentals Common Stock so acquired more than two years from the date of grant and more than one year from the date of transfer of the United Rentals Common Stock pursuant to the exercise of such ISO (the "applicable holding period"), the employee will generally recognize capital gain or loss equal to the difference, if any, between the amount received for the United Rentals Common Stock and the exercise price. If, however, an employee does not hold the United Rentals Common Stock so acquired for the applicable holding period-- thereby making a "disqualifying disposition"--the employee would recognize ordinary income equal to the excess of the Fair Market Value at the time of the ISO was exercised (or, under certain circumstances, the selling price, if lower) over the exercise price and the balance, if any, would be capital gain (provided the employee held such shares as a capital asset as such time). An employee who exercises an ISO by delivering United Rentals Common Stock previously acquired pursuant to the exercise of another ISO is treated as making a "disqualifying disposition" of such United Rentals Common Stock if such shares are delivered before the expiration of their applicable holding period. Upon the exercise of an ISO with previously acquired shares as to which no disqualifying disposition occurs, despite some uncertainty, it appears that the employee would not recognize gain or loss with respect to such previously acquired shares. United Rentals will not be allowed a federal income tax deduction upon the grant or exercise of an ISO or the disposition, after the applicable holding period, of the United Rentals Common Stock acquired upon exercise of an ISO. In the event of a disqualifying disposition, United Rentals generally will be entitled to a deduction in an amount equal to the ordinary income included by the employee, provided that such amount constitutes an ordinary and necessary business expense to United Rentals and is reasonable and the limitations of Sections 280G and 162(m) of the Code (discussed below) do not apply. Non-Statutory Stock Options. NSOs granted under the United Rentals 1998 Stock Option Plan are options that do not qualify as ISOs. An employee who receives an NSO will not recognize any taxable income upon the grant of such NSO. However, the employee generally will recognize ordinary income upon exercise of an NSO in an amount equal to the excess of the fair market value of the shares of United Rentals Common Stock at the time of exercise over the exercise price. As a result of Section 16(b) of the Exchange Act, under certain circumstances, the timing of income recognition may be deferred (generally for up to six months following the exercise of an NSO (the "Deferral Period")) for any individual who is an officer or director of United Rentals or a beneficial owner of more than 78 ten percent of any class of equity securities of United Rentals. Absent a Section 83(b) election (as described below), recognition of income by the individual will be deferred until the expiration of the Deferral Period, if any. The ordinary income recognized with respect to the receipt of shares upon exercise of an NSO will be subject to both wage withholding and other employment taxes. In addition to the customary methods of satisfying the withholding tax liabilities that arise upon the exercise of an NSO, United Rentals may satisfy the liability in whole or in part by withholding shares of United Rentals Common Stock from those that otherwise would be issuable to the individual or by the employee tendering other shares owned by him or her, valued at their Fair Market Value as of the date that the tax withholding obligation arises. A federal income tax deduction generally will be allowed to United Rentals in an amount equal to the ordinary income included by the individual with respect to his or her NSO, provided that such amount constitutes an ordinary and necessary business expense to United Rentals and is reasonable and the limitations of Section 280G and 162(m) of the Code do not apply. If an individual exercises an NSO by delivering shares of United Rentals Common Stock, other than shares previously acquired pursuant to the exercise of an ISO which is treated as a "disqualifying disposition" as described above, the individual will not recognize gain or loss with respect to the exchange of such shares of United Rentals Common Stock, even if their then Fair Market Value is different from the individual's tax basis. The individual, however, will be taxed as described above with respect to the exercise of the NSO as if he or she had paid the exercise price in cash, and United Rentals likewise generally will be entitled to an equivalent tax deduction. With respect to Stock Options under the United Rentals 1998 Stock Option Plan that are settled in United Rentals Common Stock that are restricted to transferability or subject to a substantial risk of forfeiture--absent a written election pursuant to Section 83(b) of the Code filed with the Internal Revenue Service within 30 days after the date of transfer of such shares pursuant to the exercise (a "Section 83(b) election")--an individual will recognize ordinary income at the earlier of the time at which (i) the shares of United Rentals Common Stock become transferable or (ii) the restrictions that impose a substantial risk of forfeiture of such shares of United Rentals Common Stock lapse, in an amount equal to the excess of the Fair Market Value on such date of such shares of United Rentals Common Stock over the exercise price paid for the shares. If an election is made under Section 83(b) of the Code, the individual will recognize ordinary income, as of the transfer date, in an amount equal to the excess of the Fair Market Value of the United Rentals Common Stock as of that date over the exercise price paid for the shares. Change in Control. In general, if the total amount of payments to an individual that are contingent upon a "change of control" of United Rentals (as defined in Section 280G of the Code), including payments under the United Rentals 1998 Stock Option Plan that vest upon a "change in control" in the event any Stock Options containing "change of control" vesting provisions are granted, equals or exceeds three times the individual's "base amount" (generally, such individual's average annual compensation for the five calendar years preceding the change in control), then, subject to certain exceptions, the payments may be treated as "parachute payments" under the Code, in which case a portion of such payments would be non-deductible to United Rentals and the individual would be subject to a 20% excise tax on such portion of the payments. Certain Limitations on Deductibility of Executive Compensation. With certain exceptions, Section 162(m) of the Code denies a deduction to publicly held corporations for compensation paid to certain executive officers in excess of $1 million per executive per taxable year (including any deduction with respect to the exercise of an NSO or the disqualifying disposition of stock purchased pursuant to an ISO). One such exception applies to certain performance-based compensation provided that such compensation has been approved by stockholders in a separate vote and certain other requirements are met. If approved by its stockholders, United Rentals believes that Stock Options granted under the United Rentals 1998 Stock Option Plan should qualify for the performance-based compensation exception to Section 162(m). 79 Other Information For information relating to the market price of United Rentals Common Stock, see "Market Price and Dividend Data" (page 9). The United Rentals 1998 Stock Option Plan is being submitted for United Rentals stockholder approval in accordance with the rules of the NYSE and Sections 162(m) and 422 of the Code. The favorable vote of a majority of the votes cast with respect to the proposal is required for approval of the United Rentals 1998 Stock Option Plan. The United Rentals Board recommends that United Rentals stockholders vote FOR adoption of the United Rentals 1998 Stock Option Plan. If a United Rentals stockholder executes and returns a proxy and does not specify otherwise, the shares represented by such proxy will be voted in favor of the adoption of the United Rentals 1998 Stock Option Plan. Concurrently with the adoption of the United Rentals 1998 Stock Option Plan, the United Rentals Board adopted a second stock option plan which makes available options with respect to an aggregate of 750,000 shares of United Rentals Common Stock for grants to employees who are not officers or directors of United Rentals, and consultants and independent contractors who perform services for United Rentals. Because such stock option plan will not be qualified under Sections 162(m) and 422 of the Code, stockholder approval is not being sought for this plan. 80 DESCRIPTION OF UNITED RENTALS CAPITAL STOCK The authorized capital stock of United Rentals currently consists of 75,000,000 shares of United Rentals Common Stock, par value $0.01 per share, and 5,000,000 shares of preferred stock, par value $0.01 per share. As of the date of this Joint Proxy Statement/Prospectus, there are 37,328,491 shares of United Rentals Common Stock outstanding and no shares of preferred stock outstanding or reserved for issuance. This Joint Proxy Statement/Prospectus relates to a proposal to, among other things, amend the United Rentals Charter to increase the number of authorized shares of United Rentals Common Stock from 75,000,000 to 500,000,000. The following description of United Rentals' capital stock is a summary of the material terms of such stock. The following does not purport to be complete and is subject in all respects to applicable Delaware law and to the provisions of the United Rentals Charter and United Rentals' by-laws. UNITED RENTALS COMMON STOCK The holders of shares of United Rentals Common Stock are entitled to one vote per share held on all matters submitted to a vote at a meeting of stockholders. Each stockholder may exercise such vote either in person or by proxy. Stockholders of United Rentals are not entitled to cumulate their votes for the election of directors, which means that, subject to such rights as may be granted to the holders of shares of preferred stock, if any, the holders of more than 50% of the outstanding shares of United Rentals Common Stock are able to elect all of the directors to be elected by holders of shares of United Rentals Common Stock and the holders of the remaining shares of United Rentals Common Stock will not be able to elect any director. Subject to such preferences to which holders of shares of preferred stock, if any, may be entitled, the holders of outstanding shares of United Rentals Common Stock are entitled to receive ratably such dividends, if any, as may be declared from time to time by the Board of Directors of United Rentals out of funds legally available therefor. In the event of a liquidation, dissolution or winding up of United Rentals, the holders of outstanding shares of United Rentals Common Stock are entitled to share ratably in all assets of United Rentals which are legally available for distribution to stockholders, subject to the prior rights on liquidation of creditors and to preferences, if any, to which holders of shares of preferred stock, if any, may be entitled. The holders of outstanding shares of United Rentals Common Stock do not have any preemptive, subscription, redemption or sinking fund rights. PREFERRED STOCK United Rentals is authorized by the United Rentals Charter to issue up to 5,000,000 shares of preferred stock, in one or more series and containing such rights, privileges and limitations, including dividend rights, voting rights, conversion privileges, redemption rights, liquidation rights and/or sinking fund rights, as may from time to time be determined by the Board of Directors of United Rentals. Preferred stock may be issued in the future in connection with acquisitions, financings or such other matters as the Board of Directors of United Rentals deems to be appropriate. In the event that any such shares of preferred stock shall be issued, a Certificate of Designation, setting forth the series of such preferred stock and the relative rights, privileges and limitations with respect thereto, is required to be filed with the Secretary of State of the State of Delaware. The effect of having such preferred stock authorized is that United Rentals' Board of Directors alone, within the bounds and subject to the federal securities laws and Delaware law, may be able to authorize the issuance of preferred stock, which may adversely affect the voting and other rights of holders of United Rentals Common Stock. The issuance of preferred stock may also have the effect of delaying or preventing a change in control of United Rentals. WARRANTS, OPTIONS AND CONVERTIBLE NOTE There are currently outstanding warrants to purchase an aggregate of 7,119,058 shares of United Rentals Common Stock. Such warrants provide for a weighted average exercise price of $11.76 per share. There are currently outstanding options to purchase an aggregate of 4,974,875 shares of United Rentals Common Stock. These options provide for exercise prices ranging from $10.00 to $46.44 per share, with the 81 weighted average exercise price being $22.97 per share. Of these options, options to purchase an aggregate of 208,325 shares of United Rentals Common Stock are currently exercisable and options to purchase 4,766,550 shares of United Rentals Common Stock will become exercisable in installments over specified periods. There is currently outstanding a $274,464 convertible note issued in connection with an acquisition, which note is convertible into United Rentals Common Stock at a conversion price equal to $16.20 per share. CONVERTIBLE QUARTERLY INCOME PREFERRED SECURITIES In August 1998, a subsidiary trust of United Rentals issued in a private offering $300 million of 6.5% Convertible Quarterly Income Preferred Securities that are convertible at the option of the holders thereof into United Rentals Common Stock at a conversion price equivalent to $46.63 per share. TRANSFER AGENT AND REGISTRAR American Stock Transfer & Trust Company serves as transfer agent and registrar for the United Rentals Common Stock. 82 COMPARISON OF STOCKHOLDERS' RIGHTS GENERAL Both the rights of U.S. Rentals stockholders and the rights of United Rentals stockholders are governed by the DGCL. The rights of U.S. Rentals stockholders are also governed by the certificate of incorporation and bylaws of U.S. Rentals ("U.S. Rentals Charter" and the "U.S. Rentals Bylaws," respectively), and the rights of United Rentals stockholders are also governed by the United Rentals Charter and the bylaws of United Rentals (the "United Rentals Bylaws"). Accordingly, upon consummation of the Merger, the rights of U.S. Rentals stockholders who become United Rentals stockholders in connection with the Merger will be governed by the DGCL, the United Rentals Charter and the United Rentals Bylaws. The following is a summary of the principal differences between the current rights of U.S. Rentals stockholders and those of United Rentals stockholders. The following summary is not intended to be complete and is qualified in its entirety by reference to the U.S. Rentals Charter, the United Rentals Charter, the U.S. Rentals Bylaws and the United Rentals Bylaws. Copies of the U.S. Rentals Charter, the U.S. Rentals Bylaws, the United Rentals Charter and the United Rentals Bylaws have been filed with the Commission and will be sent to holders of shares of U.S. Rentals Common Stock upon request. See "Where You Can Find More Information." COMPARISON OF CURRENT U.S. RENTALS' STOCKHOLDER RIGHTS AND RIGHTS OF UNITED RENTALS STOCKHOLDERS FOLLOWING THE MERGER The United Rentals Charter is being amended pursuant to the Charter Amendment to increase the number of authorized shares of United Rentals Common Stock. The United Rentals Bylaws are not being amended in connection with the Merger. The rights of U.S. Rentals stockholders under the U.S. Rentals Charter and the U.S. Rentals Bylaws prior to the Merger are substantially the same as the rights of United Rentals stockholders under the DGCL and the United Rentals Charter and the United Rentals Bylaws, with the following principal exceptions. Authorized Capital Stock. The authorized capital stock of U.S. Rentals consists of 100,000,000 shares of U.S. Rentals Common Stock and 10,000,000 shares of preferred stock. As of August 28, 1998, there were 30,774,975 shares of U.S. Rentals Common Stock outstanding and no shares of preferred stock outstanding. The authorized capital stock of United Rentals is described under "Description of United Rentals Capital Stock." Classified Board of Directors. The United Rentals Charter provides that the United Rentals Board shall be divided into three classes of directors, with the number of directors in each class being as nearly equal as possible. The terms of each class of directors are staggered. This classification has the effect of making it difficult for stockholders to change the composition of the United Rentals Board. U.S. Rentals does not have a classified Board. Further, the United Rentals Charter provides that directors may be removed only for cause and only upon the affirmative vote of holders of at least 66 2/3% of the outstanding voting stock (the U.S. Rentals Charter contains a similar provision regarding removal of directors by holders of at least 50% of the outstanding voting stock). This has the effect of discouraging a third party from initiating a proxy contest or making a tender offer for United Rentals. These provisions of the United Rentals Charter increase the likelihood that incumbent directors retain their positions. Special Meetings of Stockholders. The United Rentals Charter and the United Rentals Bylaws provide that only a majority of the Board of Directors or the chief executive officer of United Rentals will be able to call a special meeting of stockholder and that the business permitted to be conducted at a special meeting of stockholders is limited to matters properly brought before the meeting by or at the direction of the United Rentals Board. Special meetings of stockholders of U.S. Rentals may be called by the Chairman, any Vice Chairman or the President, and shall be called by the President, the Secretary or the Assistant Secretary at the request in writing of a majority of the Board, the Chairman or any Vice Chairman of U.S. Rentals. Such special meetings of stockholders of U.S. Rentals may not be called by any other person. 83 Stockholder Action by Written Consent. The United Rentals Charter provides that stockholder action may be taken only at a duly called and convened annual or special meeting of stockholders and may not be taken by written consent. This provision prevents United Rentals stockholders from forcing consideration by the stockholders of stockholder proposals over the opposition of the United Rentals Board, except at an annual meeting. The U.S. Rentals Charter permits its stockholders to act by written consent. Amendment of the Charter and By Laws. The United Rentals Charter contains provisions requiring the affirmative vote of 66 2/3% of the outstanding voting stock to amend certain provisions of the United Rentals Charter (including the provisions relating to the size and classification of the United Rentals Board, replacement and/or removal of directors, action by written consent, special stockholder meetings, the authorization for the United Rentals Board to take steps to encourage or oppose, as the case may be, transactions which may result in a change of control of United Rentals, and limitation of the liability of directors) or to amend any provision of the United Rentals Bylaws by action of stockholders. These provisions make it more difficult for stockholders to make changes in the United Rentals Charter and the United Rentals Bylaws, including changes designed to facilitate the exercise of control over United Rentals. The U.S. Rentals Charter requires the affirmative vote of 50% of U.S. Rentals' outstanding voting stock to amend the U.S. Rentals Charter or to amend by stockholder action the U.S. Rentals Bylaws. Voting Rights. Neither the United Rentals Charter nor the U.S. Rentals Charter provides for cumulative voting in the election of directors or otherwise. Limitation of Liability of Directors. Both the United Rentals Charter and the U.S. Rentals Charter provide that a director will not be personally liable to the corporation or its stockholders for monetary damages for any breach of fiduciary duty as a director, except for liability (i) for any breach of the director's duty of loyalty to the corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the DGCL, which concerns unlawful payments of dividends, stock purchases or redemption or (iv) for any transaction from which the director derived an improper personal benefit. Under the United Rentals Charter, if the DGCL is subsequently amended to permit further limitation of the personal liability of directors, the liability of a director of United Rentals will be eliminated or limited to the fullest extent permitted by the DGCL as so amended. Certain Notice Provisions for Stockholder Nominations and Stockholder Proposals. The United Rentals Bylaws establish an advance notice procedure for stockholders to make nominations of candidates for election as director, or to bring other business before an annual meeting of stockholders of United Rentals (the "Stockholder Notice Procedure"). The Stockholder Notice Procedure provides that, subject to the rights of any holders of preferred stock, only persons who are nominated by or at the direction of the United Rentals Board, any committee appointed by the United Rentals Board, or by a United Rentals stockholder who has given timely written notice to the Secretary of United Rentals prior to the meeting at which directors are to be elected, will be eligible for election as directors of United Rentals. The Stockholder Notice Procedure also provides that at an annual meeting only such business may be conducted as has been brought before the meeting by, or at the direction of, the United Rentals Board, any committee appointed by the United Rentals Board, or by a stockholder who has given timely written notice to the Secretary of United Rentals of such stockholder's intention to bring such business before such meeting. Under the Stockholder Notice Procedure, to be timely, notice of stockholder nominations or proposals to be made at an annual or special meeting must be received by United Rentals not less than 60 days nor more than 90 days prior to the scheduled date of the meeting (or, if less than 70 days' notice or prior public disclosure of the date of the meeting is given, then the 15th day following the earlier of (i) the day such notice was mailed or (ii) the day such public disclosure was made). The U.S. Rentals Charter and Bylaws contain similar provisions relating to advance notice of stockholder nominations or proposals. Certain Provisions Relating To Potential Change of Control. The United Rentals Charter authorizes the United Rentals Board and any committee of the United Rentals Board to take such action as it may determine to 84 be reasonably necessary or desirable to encourage any person or entity to enter into negotiations with the United Rentals Board and management regarding any transaction which may result in a change of control of United Rentals, or to contest or oppose any such transaction which the United Rentals Board determines to be unfair, abusive or otherwise undesirable to United Rentals, its business, assets, properties or stockholders. The United Rentals Board or any such committee is specifically authorized to adopt plans or to issue securities of the United Rentals including plans, rights, options, capital stock, notes, debentures or other debt securities, which securities may be exchangeable or convertible into cash or other securities on such terms and conditions as the United Rentals Board or any such committee determines. In addition, the United Rentals Board or such committee may provide that any holder or class of holders of such designated securities will be treated differently than all other security holders in respect of the terms, conditions, provisions and rights of such securities. The U.S. Rentals Charter contains no such provisions. 85 SECURITY OWNERSHIP BY CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OF UNITED RENTALS The table below sets forth certain information concerning the beneficial ownership (as defined in Rule 13d-3 under the Exchange Act) of United Rentals Common Stock as of August 28, 1998 by (i) each director and executive officer of United Rentals and (ii) all executive officers and directors of United Rentals as a group. Except as indicated in the table, no other person has filed a report under the Exchange Act indicating that it is the beneficial owner of more than 5% of the outstanding United Rentals Common Stock. For purposes of the table, each executive officer is deemed to be the beneficial owner of all shares of United Rentals Common Stock that may be acquired upon the exercise of certain warrants (the "Warrants") held by such officer. The Warrants are currently exercisable at an exercise price of $10.00 per share (representing an aggregate exercise price of $61.4 million, assuming the exercise of all Warrants held by executive officers). The address of each person listed below is c/o United Rentals, Inc., Four Greenwich Office Park, Greenwich, Connecticut 06830.
PERCENT OF UNITED NUMBER OF RENTALS SHARES COMMON BENEFICIALLY STOCK NAME OWNED(1)(2) OWNED(2) - ---- ------------ ----------- Bradley S. Jacobs............................... 15,000,100(3)(4) 35.4% Wayland R. Hicks................................ 103,591(5) * John N. Milne................................... 2,142,857(6) 5.6 Michael J. Nolan................................ 857,244(7) 2.3 Robert P. Miner................................. 428,571(8) 1.1 Ronald M. DeFeo................................. 63,000(9) * Richard J. Heckmann............................. 80,000(10) * Gerald Tsai, Jr. ............................... 360,000(11) * All executive officers and directors as a group (8 persons).................................... 19,035,363(12) 43.6%
- -------- * Less than 1% (1) Unless otherwise indicated, each person has sole investment and voting power with respect to the shares indicated. For purposes of this table, a person or group of persons is deemed to have "beneficial ownership" of any shares as of a given date which such person has the right to acquire within 60 days after such date. For purposes of computing the percentage of outstanding shares held by each person or group of persons named above on a given date, any security which such person or persons has the right to acquire within 60 days after such date is deemed to be outstanding for the purpose of computing the percentage ownership of such person or persons, but is not deemed to be outstanding for the purpose of computing the percentage ownership of any other person. (2) In certain cases, includes securities owned by one or more entities controlled by the named holder. (3) Consists of 10,000,100 outstanding shares and 5,000,000 shares issuable upon the exercise of currently exercisable Warrants. Does not include 1,200,000 shares issuable upon exercise of options which are not currently exercisable. (4) Mr. Jacobs has certain rights relating to the disposition of the shares and Warrants owned by each of the other officers of United Rentals. By virtue of such rights, Mr. Jacobs is deemed to share beneficial ownership (within the meaning of Rule 13d-3 under the Exchange Act) of the shares owned by the other officers of United Rentals. The shares that the table indicates are owned by Mr. Jacobs do not include the shares with respect to which Mr. Jacobs is deemed to share beneficial ownership as aforesaid. Including such shares, Mr. Jacobs is deemed the beneficial owner of an aggregate of 19,133,672 shares of United Rentals Common Stock (comprised of 12,790,814 outstanding shares and 6,342,858 shares issuable upon the exercise of outstanding Warrants.) (5) Consists of 103,591 outstanding shares. Does not include unissued shares that United Rentals is required to pay Mr. Hicks as part of his base salary as described in Exhibit I under "Management--Employment Agreements." Does not include 675,000 shares issuable upon exercise of options which are not currently exercisable. 86 (6) Consists of 1,428,571 outstanding shares and 714,286 shares issuable upon the exercise of currently exercisable Warrants. Does not include 300,000 shares issuable upon exercise of options which are not currently exercisable. (7) Consists of 571,529 outstanding shares and 285,715 shares issuable upon the exercise of currently exercisable Warrants. Does not include 225,000 shares issuable upon exercise of options which are not currently exercisable. (8) Consists of 285,714 outstanding shares and 142,857 shares issuable upon the exercise of currently exercisable Warrants. Does not include 40,000 shares issuable upon exercise of options which are not currently exercisable. (9) Consists of 3,000 outstanding shares and 60,000 shares issuable upon the exercise of currently exercisable options. (10) Consists of 20,000 outstanding shares and 60,000 shares issuable upon exercise of currently exercisable options. (11) Consists of 300,000 outstanding shares and 60,000 shares issuable upon exercise of currently exercisable options. (12) Consists of 12,712,505 outstanding shares, 6,142,858 shares issuable upon the exercise of currently exercisable Warrants and 180,000 shares issuable upon the exercise of currently exercisable options. Does not include 2,440,000 shares issuable upon exercise of options which are not currently exercisable. 87 SECURITY OWNERSHIP BY CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OF U.S. RENTALS The following table sets forth certain information regarding the beneficial ownership of U.S. Rentals Common Stock as of August 28, 1998 by (i) all those known by U.S. Rentals to be beneficial owners of more than 5% of the shares of outstanding U.S. Rentals Common Stock, (ii) each director of U.S. Rentals and executive officer of U.S. Rentals and (iii) all directors and executive officers of U.S. Rentals as a group. The address of each person listed is c/o U.S. Rentals, 1581 Cummins Drive, Suite 155, Modesto, California 95358, unless otherwise indicated.
NUMBER OF PERCENT OF SHARES U.S. RENTALS BENEFICIALLY COMMON NAME OWNED(1) STOCK OWNED - ---- ------------ ------------- Richard D. Colburn................................. 20,603,105 66.9% William F. Berry................................... 225,593 * John S. McKinney................................... 115,746 * Grace M. Crikette.................................. 4,100 * William F. Locklin................................. 16,000 * Steven E. Nadelman................................. 11,000 * Vincent Nardi...................................... -0- * J.H.B. Kean........................................ -0- * James P. Miscoll(2)................................ 5,500 * Robert D. Paulson(3)............................... 5,500 * Keith W. Renken(4)................................. 2,000 * All executive officers and directors as a group (9 persons).......................................... 20,988,544 68.2%
- -------- * Less than 1 percent. (1) Gives effect to options exercisable within 60 days of August 28, 1998. (2) The address for M. Miscoll is c/o Bank of America, 555 California Street, 11th Floor, San Francisco, California 94104. (3) The address for Mr. Paulson is c/o Aerostar Capital, LLC, 590 South Sandhill Crane Road, P.O. Box 1106, Wilson, Wyoming 83014-1106. (4) The address for Mr. Renken is c/o Deloitte & Touche, 1000 Wilshire Boulevard, Los Angeles, California 90017. 88 LEGAL MATTERS The validity of the United Rentals Common Stock to be issued in connection with the Merger will be passed upon for United Rentals by Weil, Gotshal & Manges LLP, New York, New York. Certain federal income tax consequences of the Merger will be passed upon for United Rentals by Weil, Gotshal & Manges LLP, New York, New York and for U.S. Rentals by O'Melveny & Myers LLP, Los Angeles, California. EXPERTS The consolidated financial statements of United Rentals, Inc. at December 31, 1997 and for the period from August 14, 1997 (Inception) to December 31, 1997, the financial statements of J&J Rental Services, Inc., at December 31, 1996 and October 22, 1997 and for each of the two years in the period ended December 31, 1996, the six months ended June 30, 1997 and for the period from July 1, 1997 to October 22, 1997, the financial statements of Bronco Hi-Lift, Inc. at December 31, 1996 and October 24, 1997 and for each of the two years in the period ended December 31, 1996 and for the period from January 1, 1997 to October 24, 1997, and the financial statements of Mission Valley Rentals, Inc. at June 30, 1996 and 1997 and for the years then ended, the combined financial statements of Valley Rentals, Inc. at December 31, 1997 and for the year then ended, the financial statements of Pro Rentals, Inc. at December 31, 1997 and for the year then ended, the combined financial statements of Able Equipment Rental, Inc. at December 31, 1997 and for the year then ended, the combined financial statements of Channel Equipment Holding, Inc. at December 31, 1997 and for the year then ended, and the financial statements of ASC Equipment Company at December 31, 1997 and for the year then ended, the financial statements of Power Rental Co., Inc. at July 31, 1997 and for the year then ended and the combined financial statements of Adco Equipment, Inc. at December 31, 1997 and for the year then ended, included in the Joint Proxy Statement of United Rentals, Inc. and U.S. Rentals, Inc., which is referred to and made a part of this Prospectus and Registration Statement, have been audited by Ernst & Young LLP, independent auditors, as set forth in their reports appearing elsewhere herein, and are included in reliance upon such reports given upon the authority of such firm as experts in accounting and auditing. The consolidated financial statements of A&A Tool Rentals & Sales, Inc. and subsidiary as of October 19, 1997 and October 31, 1996, and for the period from November 1, 1996 to October 19, 1997 and for the years ended October 31, 1996 and 1995, have been included herein in reliance upon the report of KPMG Peat Marwick LLP, independent certified public accountants, appearing elsewhere herein. The financial statements of MERCER Equipment Company appearing in this Joint Proxy Statement/Prospectus have been audited by Webster Duke & Co., independent auditors, as set forth in their reports thereon included elsewhere herein. The combined financial statements of Coran Enterprises, Inc. (dba A-1 Rents) and Monterey Bay Equipment Rental, Inc., appearing in this Joint Proxy Statement/Prospectus, have been audited by Grant Thornton LLP, independent auditors, as set forth in their report thereon appearing elsewhere herein. The combined financial statements of BNR Group of Companies as of March 31, 1996 and 1997 and for the years ended March 31, 1996 and 1997 and the consolidated financial statements of Perco Group Ltd. as of December 31, 1997 and for the year ended December 31, 1997, have been included herein in reliance upon the reports of KPMG, independent chartered accountants, appearing elsewhere herein. The audited financial statements of Access Rentals, Inc. and Subsidiary and Affiliate included in this Joint Proxy Statement/Prospectus have been included herein in reliance on the report of Battaglia, Andrews & Moag, P.C., independent certified public accountants, 210 East Main Street, Batavia, New York 14020, for the periods indicated. The financial statements of West Main Rentals & Sales, Incorporated as of December 31, 1997, and the year then ended have been included herein in reliance upon the report of Moss Adams LLP, independent certified public accountants, appearing elsewhere herein. 89 The financial statements of U.S. Rentals, Inc. at December 31, 1997 and 1996 and for each of the three years in the period ended December 31, 1997 included herein have been so included in reliance on the report of PricewaterhouseCoopers LLP, independent accountants, given on the authority of said firm as experts in auditing and accounting. The combined financial statements of Equipment Supply Co., Inc. and Affiliates included herein have been audited by BDO Seidman, LLP, independent certified public accountants, to the extent and for the periods set forth in their reports appearing elsewhere herein, and are included in reliance upon such reports given upon the authority of said firm as experts in auditing and accounting. The consolidated financial statements of McClinch Inc. and subsidiaries as of January 31, 1998, and the year then ended and the financial statements of McClinch Equipment Services, Inc. as of December 31, 1997 and the year then ended included herein have been audited by Coopers & Lybrand L.L.P., independent accountants, as set forth in their report thereon included herein. The financial statements of Lift Systems, Inc. as of December 31, 1997 and the year then ended have been included in reliance upon the report of Altschuler, Melvoin and Glasser LLP, independent accountants, appearing elsewhere herein. The financial statements of Reitzel Rentals Ltd. as of February 28, 1998 and for the year ended February 28, 1998, included herein have been audited by PricewaterhouseCoopers LLP, independent chartered accountants, as set forth in their report thereon included herein. The combined financial statements of Grand Valley Equipment Co., Inc. and Kubota of Grand Rapids, Inc. as of December 31, 1997, and the year then ended have been included herein in reliance upon the report of Beene Garter LLP, independent auditors, appearing elsewhere herein. The financial statements of Paul E. Carlson, Inc. (d/b/a Carlson Equipment Company) as of February 28, 1998, and for the year then ended, included herein, have been audited by McGladrey & Pullen, LLP, independent accountants, as stated in their report appearing herein. The financial statements of Industrial Lift, Inc. as of December 31, 1997 and 1996 and the years then ended included herein in reliance upon the report of Schalleur & Surgent, LLC, independent auditors, appearing elsewhere herein. The financial statements of Rental Tools & Equipment Co. International, Inc. as of June 30, 1997 and 1998, and for each of the three years in the period ended June 30, 1998, included in this Prospectus have been so included in reliance on the report of PricewaterhouseCoopers LLP, independent accountants, given on the authority of said firm as experts in auditing and accounting. SUBMISSION OF FUTURE STOCKHOLDER PROPOSALS Any United Rentals stockholder proposals for the 1999 annual meeting of United Rentals' stockholders must be received by the Secretary of United Rentals, Four Greenwich Office Park, Greenwich, Connecticut 06830 a reasonable time before United Rentals prints and mails its proxy materials for such meeting in order to be included in the related proxy statement and form of proxy. Stockholders should note that any stockholder wishing to make a nomination for director, or wishing to introduce a proposal or other business, at such meeting must comply with the advance notice requirements for stockholder nominations and proposals contained in the United Rentals Bylaws as described under "Comparison of Stockholders' Rights." Due to the contemplated consummation of the Merger, U.S. Rentals does not currently expect to hold a 1999 annual meeting of stockholders because, following the Merger, U.S. Rentals will not be a publicly traded company. If the Merger is not consummated and such a meeting is held, to be eligible for inclusion in U.S. 90 Rentals' proxy statement and form of proxy relating to such meeting, proposals of stockholders intended to be presented at such meeting must be received by U.S. Rentals prior to December 1, 1998. Stockholders should note that any stockholder wishing to make a nomination for director, or wishing to introduce a proposal or other business, at such meeting must comply with the advance notice requirements for stockholder nominations and proposals contained in the U.S. Rentals Bylaws. WHERE YOU CAN FIND MORE INFORMATION United Rentals and U.S. Rentals each file annual, quarterly and current reports, proxy statements and other information with the Securities and Exchange Commission. You may read and copy any reports, statements or other information that the companies file at the Commission's public reference rooms in Washington, D.C., New York, New York and Chicago, Illinois. Please call the Commission at 1-800-SEC-0330 for further information on the public reference rooms. United Rentals' and U.S. Rentals' public filings are also available to the public from commercial document retrieval services and at the Internet web site maintained by the Commission at http://www.sec.gov. Reports, proxy statements and other information concerning United Rentals and U.S. Rentals also may be inspected at the offices of the NYSE, 20 Broad Street, New York, New York 10005. United Rentals has filed a Form S-4 Registration Statement (the "Registration Statement") to register with the Commission the offering and sale of the shares of United Rentals Common Stock to be issued to U.S. Rentals stockholders in connection with the Merger. This Joint Proxy Statement/Prospectus is a part of the Registration Statement and constitutes a prospectus of United Rentals, as well as a proxy statement of United Rentals for the United Rentals special meeting and a proxy statement of U.S. Rentals for the U.S. Rentals special meeting. As allowed by Commission rules, this Joint Proxy Statement/Prospectus does not contain all the information that stockholders can find in the Registration Statement or the exhibits to the Registration Statement. Certain additional information with respect to United Rentals is attached as Exhibit I to this Joint Proxy Statement/Prospectus, and certain documents previously filed by U.S. Rentals with the Commission are attached as Exhibits K-M of this Joint Proxy Statement/Prospectus. United Rentals has supplied all information contained in this Joint Proxy Statement/Prospectus relating to United Rentals and Merger Sub, and U.S. Rentals has supplied all information contained in this Joint Proxy Statement/Prospectus relating to U.S. Rentals. YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS JOINT PROXY STATEMENT/PROSPECTUS TO VOTE YOUR SHARES AT THE SPECIAL MEETINGS. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION THAT DIFFERS FROM THAT CONTAINED IN THIS JOINT PROXY STATEMENT/PROSPECTUS. THIS JOINT PROXY STATEMENT/PROSPECTUS IS DATED SEPTEMBER 11, 1998. YOU SHOULD NOT ASSUME THAT THE INFORMATION CONTAINED IN THIS JOINT PROXY STATEMENT/PROSPECTUS IS ACCURATE AS OF ANY DATE OTHER THAN THAT DATE, AND NEITHER THE MAILING OF THIS JOINT PROXY STATEMENT/PROSPECTUS TO STOCKHOLDERS NOR THE ISSUANCE OF SHARES OF UNITED RENTALS COMMON STOCK IN CONNECTION WITH THE MERGER SHALL CREATE ANY IMPLICATION TO THE CONTRARY. 91 INDEX OF DEFINED TERMS
TERM PAGE ---- ----- Acquired Companies.................................................. 18 Affiliate Agreement................................................. 47 APB 16.............................................................. 47 Charter Amendment................................................... 23 Closing Date........................................................ 45 Code................................................................ 24 Commission.......................................................... 47 DGCL................................................................ 17 DLJ................................................................. 5, 27 Effective Time...................................................... 23 Employment Agreements............................................... 44 Exchange Act........................................................ 76 Exchange Ratio...................................................... 18 GAAP................................................................ 39 Goldman Sachs....................................................... 5, 28 HSR Act............................................................. 48 Material Adverse Effect............................................. 56 Merger.............................................................. 23 Merger Agreement.................................................... 23 Merger Sub.......................................................... 17 NYSE................................................................ 9 Old URI............................................................. 17 Public Stockholders................................................. 38 Registration Rights Agreement....................................... 45 Registration Statement.............................................. 91 Reorganization...................................................... 17 Securities Act...................................................... 46 Share Issuance...................................................... 23 Superior Proposal................................................... 53 United Rentals Board................................................ 29 United Rentals Bylaws............................................... 83 United Rentals Charter.............................................. 23 United Rentals Record Date.......................................... 24 United Rentals Special Meeting...................................... 23 U.S. Rentals Board.................................................. 27 U.S. Rentals Bylaws................................................. 83 U.S. Rentals Options................................................ 23 U.S. Rentals Record Date............................................ 24 U.S. Rentals Special Meeting........................................ 24 USR Stock Plan...................................................... 50
92 EXHIBIT A - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER AMONG U.S. RENTALS, INC., UNITED RENTALS, INC. AND UR ACQUISITION CORPORATION DATED AS OF AUGUST 31, 1998 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- A-i TABLE OF CONTENTS
PAGE ---- ARTICLE I The Merger Section 1.1 The Merger.................................................. A-1 Section 1.2 Effective Time.............................................. A-2 Section 1.3 Closing of the Merger....................................... A-2 Section 1.4 Effects of the Merger....................................... A-2 Section 1.5 Certificate of Incorporation and By-laws.................... A-2 Section 1.6 Directors................................................... A-2 Section 1.7 Officers.................................................... A-2 Section 1.8 Conversion of Shares........................................ A-2 Section 1.9 Exchange of Certificates.................................... A-3 ARTICLE II Representations and Warranties of USR Section 2.1 Organization and Qualification.............................. A-4 Section 2.2 Subsidiaries................................................ A-4 Section 2.3 Capitalization.............................................. A-5 Section 2.4 Authority; Approvals; Noncontravention; Compliance.......... A-5 Section 2.5 Reports and Financial Statements............................ A-6 Section 2.6 Absence of Certain Changes or Events; Liabilities........... A-7 Section 2.7 Litigation.................................................. A-7 Section 2.8 Registration Statement and Proxy Statement.................. A-7 Section 2.9 Tax Matters................................................. A-8 Section 2.10 Employee Matters; ERISA; Labor.............................. A-9 Section 2.11 Environmental Protection.................................... A-10 Section 2.12 Material Contracts.......................................... A-11 Section 2.13 Opinion of Financial Advisor................................ A-11 Section 2.14 Vote Required............................................... A-11 Section 2.15 Reorganization and Accounting Matters....................... A-11 Section 2.16 Brokers..................................................... A-12 ARTICLE III Representations and Warranties of URI and MERGER SUB Section 3.1 Organization and Qualification.............................. A-12 Section 3.2 Subsidiaries................................................ A-12 Section 3.3 Capitalization.............................................. A-12 Section 3.4 Authority; Approvals; Noncontravention; Compliance.......... A-13 Section 3.5 Reports and Financial Statements............................ A-14 Section 3.6 Absence of Certain Changes or Events; Liabilities........... A-15 Section 3.7 Litigation.................................................. A-15 Section 3.8 Registration Statement and Proxy Statement.................. A-15 Section 3.9 Tax Matters................................................. A-15 Section 3.10 Employee Matters; ERISA; Labor.............................. A-16 Section 3.11 Environmental Protection.................................... A-17 Section 3.12 Material Contracts.......................................... A-18 Section 3.13 Opinion of Financial Advisor................................ A-18 Section 3.14 Vote Required............................................... A-18 Section 3.15 Reorganization and Accounting Matters....................... A-18 Section 3.16 Brokers..................................................... A-18
A-ii
PAGE ---- ARTICLE IV Conduct of Business Pending The Merger Section 4.1 Covenants of the Parties.................................. A-19 ARTICLE V Additional Agreements Section 5.1 Access to Information..................................... A-21 Section 5.2 Joint Proxy Statement and Registration Statement; A-21 Shareholders' Approval.................................... Section 5.3 Regulatory Matters........................................ A-22 Section 5.4 Directors' and Officers' Indemnification.................. A-22 Section 5.5 Public Announcements...................................... A-23 Section 5.6 Affiliate Letters......................................... A-23 Section 5.7 No Solicitations.......................................... A-24 Section 5.8 Post-Merger Board of Directors............................ A-24 Section 5.9 Post-Merger Officers; Employment Agreements............... A-25 Section 5.10 Stock Option Plans........................................ A-25 Section 5.11 Employee Benefit Plans.................................... A-25 Section 5.12 Expenses.................................................. A-26 Section 5.13 Reasonable Best Efforts; Further Assurances............... A-26 Section 5.14 Cooperation with respect to Litigation.................... A-26 Section 5.15 Subsidiaries.............................................. A-26 ARTICLE VI Conditions Section 6.1 Conditions to Each Party's Obligation to Effect the A-26 Merger.................................................... Section 6.2 Conditions to Obligations of URI and MERGER SUB to Effect A-27 the Merger................................................ Section 6.3 Conditions to Obligation of USR to Effect the Merger...... A-27 ARTICLE VII Termination, Amendment and Waiver Section 7.1 Termination............................................... A-28 Section 7.2 Effect of Termination..................................... A-29 Section 7.3 Termination Fees; Expenses................................ A-29 Section 7.4 Amendment................................................. A-30 Section 7.5 Waiver.................................................... A-30 ARTICLE VIII General Provisions Section 8.1 Non-Survival of Representations and Warranties............ A-30 Section 8.2 Notices................................................... A-30 Section 8.3 Entire Agreement.......................................... A-31 Section 8.4 Governing Law............................................. A-31 Section 8.5 Interpretation............................................ A-31 Section 8.6 Counterparts.............................................. A-32 Section 8.7 Binding Nature; Assignment................................ A-32 Section 8.8 WAIVER OF JURY TRIAL AND CERTAIN DAMAGES.................. A-32 Section 8.9 Enforcement............................................... A-32 Section 8.10 Submission to Jurisdiction; Waivers....................... A-32
A-iii INDEX OF DEFINED TERMS Acquisition Proposal....................................... Section 5.7 Affiliates................................................. Section 2.15 Agreement.................................................. Preamble APB 16..................................................... Section 2.15 Bankruptcy and Equity Exception............................ Section 2.4 Certificates............................................... Section 1.9 Certificate of Merger...................................... Section 1.2 Closing; Closing Date...................................... Section 1.3 Code....................................................... Whereas clauses Confidentiality Agreement.................................. Section 5.1 DGCL....................................................... Section 1.1 Effective Time............................................. Section 1.2 Environmental Claim........................................ Section 2.11 Environmental Laws......................................... Section 2.11 Environmental Permits...................................... Section 2.11 ERISA...................................................... Section 2.10 Exchange Act............................................... Section 2.4 Exchange Agent............................................. Section 1.9 Exchange Fund.............................................. Section 1.9 Exchange Ratio............................................. Section 1.8 GAAP....................................................... Section 2.5 Governmental Authority..................................... Section 2.4 Hazardous Materials........................................ Section 2.11 HSR Act.................................................... Section 2.4 Joint Proxy/Registration Statement......................... Section 5.2 June Agreement............................................. Whereas clauses Merger..................................................... Whereas clauses person..................................................... Section 8.5 Proxy Statement............................................ Section 2.8 Registration Statement..................................... Section 2.8 Release.................................................... Section 2.11 Representatives............................................ Section 5.1 SEC........................................................ Section 2.5 Securities Act............................................. Section 2.4 Shares..................................................... Section 1.8 Signing Date............................................... Whereas Clauses subsidiary................................................. Section 2.1 Superior Proposal.......................................... Section 5.7 Surviving Corporation...................................... Section 1.1 Taxes...................................................... Section 2.9 Tax Returns................................................ Section 2.9 URI Common Stock........................................... Sections 1.8 and 3.3 URI Disclosure Schedule.................................... Section 3.2 URI Material Adverse Effect................................ Section 3.1 URI Reorganization......................................... Whereas Clauses URI SEC Reports............................................ Section 3.5 URI Shareholders' Approval................................. Section 3.14 URNA....................................................... Whereas Clauses USR Benefit Plans.......................................... Section 2.10 USR Common Stock........................................... Section 1.8
A-iv USR Disclosure Schedule............................................ Section 2.2 USR Material Adverse Effect........................................ Section 2.1 USR SEC Reports.................................................... Section 2.5 USR Shareholders' Approval......................................... Section 2.14 USR Stock Option................................................... Section 5.10 USR Stock Plan..................................................... Section 2.3 WARN............................................................... Section 2.10
A-v AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER (this "Agreement"), dated as of August 31, 1998, by and among U.S. RENTALS, INC., a Delaware corporation ("USR"), UNITED RENTALS, INC., a Delaware corporation ("URI"), and UR ACQUISITION CORPORATION, a Delaware corporation and a direct wholly-owned subsidiary of URI ("MERGER SUB"). WHEREAS, USR and URI have determined to engage in a business combination whereby MERGER SUB will be merged with and into USR, with USR as the surviving corporation of such merger and a direct wholly-owned subsidiary of URI (the "Merger"); and WHEREAS, in furtherance thereof, the respective boards of directors of USR, URI and MERGER SUB have approved this Agreement and the Merger; and WHEREAS, in order to induce URI to enter into this Agreement, certain stockholders of USR have executed an agreement with URI in the form of Exhibit A hereto; and WHEREAS, in order to induce USR to enter into this Agreement, certain stockholders of URI have executed an agreement with USR in the form of Exhibit B hereto; and WHEREAS, it is intended that the Merger shall be recorded for accounting purposes as a pooling-of-interests; and WHEREAS, for United States federal income tax purposes, it is intended that the Merger shall qualify as a reorganization within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended (the "Code"), and this Agreement is intended to be and is adopted as a plan of reorganization within the meaning of Section 368 of the Code; and WHEREAS, USR, MERGER SUB and United Rentals (North America), Inc., a Delaware corporation ("URNA"), entered into an Agreement and Plan of Merger, dated as of June 15, 1998 (the "Signing Date"), providing for the Merger (the "June Agreement"); and WHEREAS, pursuant to a reorganization (the "URI Reorganization") effected on August 5, 1998, (i) URNA became a wholly-owned subsidiary of URI, (ii) the name of URNA, which had theretofore been "United Rentals, Inc.", was changed to "United Rentals (North America), Inc." and the name of URI, which had theretofore been "United Rentals Holdings, Inc.", was changed to "United Rentals, Inc." and (iii) all of the outstanding capital stock of URNA was converted, on a share-for-share basis, into capital stock of URI; and WHEREAS, the June Agreement was amended on July 31, 1998 to provide for (i) the URI Reorganization, (ii) the assignment of URNA's rights and obligations under the June Agreement to URI and (iii) the transfer of all of the outstanding capital stock of MERGER SUB from URNA to URI; and WHEREAS, the parties hereto desire to further amend certain provisions of the June Agreement and to restate the June Agreement in its entirety in this Agreement. NOW, THEREFORE, in consideration of the premises and the representations, warranties, covenants and agreements contained herein, the parties hereto, intending to be legally bound, hereby agree as follows: ARTICLE I The Merger Section 1.1 The Merger. At the Effective Time (as defined in Section 1.2 below) and upon the terms and subject to the conditions of this Agreement and in accordance with the General Corporation Law of the State of Delaware (the "DGCL"), MERGER SUB shall be merged with and into USR. Following the Merger, USR shall continue as the surviving corporation (the "Surviving Corporation") and as a wholly-owned subsidiary of URI and the separate corporate existence of MERGER SUB shall cease. A-1 Section 1.2 Effective Time. Subject to the provisions of this Agreement, the parties hereto shall cause the Merger to be consummated by filing an appropriate certificate of merger (the "Certificate of Merger") with the Secretary of State of the State of Delaware in such form as required by, and executed in accordance with, the relevant provisions of the DGCL, as soon as practicable on or after the Closing Date (as defined in Section 1.3 below). The Merger shall become effective upon such filing or at such time thereafter as is provided in the Certificate of Merger (the "Effective Time"). Section 1.3 Closing of the Merger. The closing of the Merger (the "Closing") will take place at a time and on a date to be specified by the parties, which shall be no later than the second business day after satisfaction or waiver of the conditions set forth in Article VI (other than those conditions that by their nature are to be satisfied at the Closing, but subject to the fulfillment or waiver of those conditions) (the "Closing Date"), at the offices of Weil, Gotshal & Manges LLP, 767 Fifth Avenue, New York, New York 10153, unless another time, date or place is agreed to in writing by the parties hereto. Section 1.4 Effects of the Merger. The Merger shall have the effects set forth in the DGCL. Without limiting the generality of the foregoing, and subject thereto, at the Effective Time, all properties, rights, privileges, powers and franchises of USR and MERGER SUB shall vest in the Surviving Corporation, and all debts, liabilities and duties of USR and MERGER SUB shall become the debts, liabilities and duties of the Surviving Corporation. Section 1.5 Certificate of Incorporation and By-laws. The certificate of incorporation and by-laws of USR in effect at the Effective Time shall be the certificate of incorporation and by-laws of the Surviving Corporation until respectively amended in accordance with their terms and applicable law. Section 1.6 Directors. The directors of MERGER SUB at the Effective Time shall be the initial directors of the Surviving Corporation, each to hold office in accordance with the certificate of incorporation and by-laws of the Surviving Corporation until such director's successor is duly elected and qualified. Section 1.7 Officers. The persons listed on Schedule 1.7 hereto shall, as of the Effective Time, be the initial officers of the Surviving Corporation, each to hold the office set forth opposite his name on such Schedule in accordance with the certificate of incorporation and by-laws of the Surviving Corporation until such officer's successor is duly elected or appointed and qualified. Section 1.8 Conversion of Shares. (a) At the Effective Time, each share of common stock, par value $0.01 per share, of USR ("USR Common Stock") issued and outstanding immediately prior to the Effective Time (individually a "Share" and collectively, the "Shares") (other than Shares held by URI, MERGER SUB or any other subsidiary of URI) shall, by virtue of the Merger and without any action on the part of USR, MERGER SUB or the holder thereof, be converted into the right to receive 0.9625 (the "Exchange Ratio") fully paid and nonassessable shares of common stock, par value $0.01 per share, of URI ("URI Common Stock"). If between the date hereof and the Effective Time the outstanding shares of URI Common Stock and/or USR Common Stock shall have been changed into a different number of shares or a different class by reason of any stock dividend, subdivision, reclassification, recapitalization, split, combination or exchange of shares, the amount of shares of URI Common Stock constituting the Exchange Ratio shall be correspondingly adjusted to reflect such stock dividend, subdivision, reclassification, recapitalization, split, combination, exchange of shares or other similar transaction. (b) At the Effective Time, each outstanding share of common stock, par value $0.01 per share, of MERGER SUB shall be converted into one share of common stock, par value $0.01 per share, of the Surviving Corporation. (c) At the Effective Time, each Share held by URI, MERGER SUB or any other subsidiary of URI immediately prior to the Effective Time shall, by virtue of the Merger and without any action on the part of USR, URI, MERGER SUB or the holder thereof, be canceled, retired and cease to exist and no payment shall be made with respect thereto. A-2 (d) In accordance with Section 262 of the DGCL, no appraisal rights shall be available to holders of Shares in connection with the Merger. Section 1.9 Exchange of Certificates. (a) As of the Effective Time, URI shall make available to American Stock Transfer & Trust Company (the "Exchange Agent"), for the benefit of the holders of Shares, for exchange in accordance with this Article I, through the Exchange Agent: (i) certificates representing the appropriate number of shares of URI Common Stock issuable pursuant to Section 1.8 and (ii) cash to be paid in lieu of fractional shares of URI Common Stock pursuant to Section 1.9(f) (such shares of URI Common Stock and such cash are hereinafter referred to as the "Exchange Fund"). (b) As soon as reasonably practicable after the Effective Time, the Exchange Agent shall mail to each holder of record of a certificate or certificates which immediately prior to the Effective Time represented outstanding Shares (the "Certificates") whose Shares were converted into the right to receive shares of URI Common Stock pursuant to Section 1.8: (i) a letter of transmittal (which shall specify that delivery shall be effected, and risk of loss and title to the Certificates shall pass, only upon delivery of the Certificates to the Exchange Agent and shall be in such form and have such other provisions as URI may reasonably specify) and (ii) instructions for use in effecting the surrender of the Certificates in exchange for certificates representing shares of URI Common Stock. Upon surrender of a Certificate for cancellation to the Exchange Agent or to such other agent or agents as may be appointed by URI, together with such letter of transmittal, duly executed, the holder of such Certificate shall be entitled to receive in exchange therefor a certificate representing that number of whole shares of URI Common Stock and, if applicable, a check representing the cash consideration to which such holder may be entitled pursuant to Section 1.9(c) or Section 1.9(f), which such holder has the right to receive pursuant to the provisions of this Article I, and the Certificate so surrendered shall forthwith be canceled. The stock transfer books of USR shall be closed as of the Effective Time. In the event of a transfer of ownership of Shares which is not registered in the transfer records of USR, a certificate representing the proper number of shares of URI Common Stock may be issued to a transferee if the Certificate representing such Shares is presented to the Exchange Agent, accompanied by all documents required to evidence and effect such transfer and by evidence that any applicable stock transfer taxes have been paid or are not applicable. Until surrendered as contemplated by this Section 1.9, each Certificate shall be deemed at any time after the Effective Time to represent only the right to receive upon such surrender the certificate representing shares of URI Common Stock and cash in lieu of any fractional shares of URI Common Stock as contemplated by this Section 1.9. (c) No dividends or other distributions declared or made after the Effective Time with respect to URI Common Stock with a record date after the Effective Time shall be paid to the holder of any unsurrendered Certificate with respect to the shares of URI Common Stock issued with respect thereto pursuant to Article I and no cash payment in lieu of fractional shares shall be paid to any such holder pursuant to Section 1.9(f) until the holder of record of such Certificate shall surrender such Certificate. Subject to the effect of applicable laws, following surrender of any such Certificate, there shall be paid to the record holder of the certificates representing whole shares of URI Common Stock issued in exchange therefor, without interest, (i) at the time of such surrender, the amount of any cash payable in lieu of a fractional share of URI Common Stock to which such holder is entitled pursuant to Section 1.9(f) and the amount of dividends or other distributions with a record date after the Effective Time theretofore paid with respect to such whole shares of URI Common Stock, and (ii) at the appropriate payment date, the amount of dividends or other distributions with a record date after the Effective Time but prior to surrender and a payment date subsequent to surrender payable with respect to such whole shares of URI Common Stock. (d) In the event that any Certificate shall have been lost, stolen or destroyed, the Exchange Agent shall issue in exchange therefor, upon the making of an affidavit of that fact by the holder thereof, such shares of URI Common Stock and cash in lieu of fractional shares, if any, as may be required pursuant to this Agreement; provided, however, that URI may, at its discretion, require the delivery of a suitable bond or indemnity. A-3 (e) All shares of URI Common Stock issued upon surrender of Certificates in accordance with the terms hereof (together with any cash paid pursuant to Section 1.9(c) or 1.9(f)) shall be deemed to have been issued in full satisfaction of all rights pertaining to the Shares formerly represented thereby and there shall be no further registration of transfers on the stock transfer books of USR or the Surviving Corporation of the Shares which were outstanding immediately prior to the Effective Time. If, after the Effective Time, Certificates are presented to the Surviving Corporation for any reason, they shall be canceled and exchanged as provided in this Article I. (f) Notwithstanding Section 1.8 hereof, no fractions of a share of URI Common Stock shall be issued in connection with the Merger, but in lieu thereof each holder of Shares otherwise entitled to a fraction of a share of URI Common Stock shall, upon surrender of his or her Certificate or Certificates, be entitled to receive an amount of cash (without interest) determined by multiplying the average of the last reported sales price per share of URI Common Stock as reported by the New York Stock Exchange for the five trading days immediately preceding the Effective Time by the fractional share interest to which such holder would otherwise be entitled. The parties acknowledge that payment of the cash consideration in lieu of issuing fractional shares was not separately bargained for consideration but merely represents a mechanical rounding-off for purposes of simplifying the corporate and accounting problems which would otherwise be caused by the issuance of fractional shares. (g) Any portion of the Exchange Fund which remains undistributed to the former stockholders of USR for six months after the Effective Time shall be delivered to URI, upon demand, and any former stockholders of USR who have not theretofore complied with this Article I shall thereafter look only to URI for payment of their claim for URI Common Stock, for any cash in lieu of fractional shares of URI Common Stock and any dividends or distributions with respect to URI Common Stock, as the case may be. (h) None of URI, MERGER SUB or USR shall be liable to any person for shares of URI Common Stock (or dividends or distributions with respect thereto) or cash from the Exchange Fund delivered to a public official pursuant to any applicable abandoned property, escheat or similar law. ARTICLE II Representations and Warranties of USR USR represents and warrants to URI and MERGER SUB as follows: Section 2.1 Organization and Qualification. USR and each of its subsidiaries (as defined below), is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation and has all requisite corporate power and authority to own, lease and operate its properties and to carry on its businesses as now being conducted, except where the failure to be so organized, existing and in good standing or to have such power and authority would not have a USR Material Adverse Effect (as defined below). As used in this Agreement, the term (a) "subsidiary" of a person shall mean any corporation or other entity (including partnerships, limited liability companies, trusts and other business associations) of which at least a majority of the voting power represented by the outstanding capital stock or other voting securities or interests having voting power under ordinary circumstances to elect directors or similar members of the governing body of such corporation or entity shall at the time be held or controlled, directly or indirectly, by such person; and (b) "USR Material Adverse Effect" shall mean any change or effect (i) that is materially adverse to the properties, business, results of operations or financial condition of USR and its subsidiaries, taken as whole, other than any change or effect arising out of general economic conditions or conditions generally affecting the equipment rental industry or (ii) that would impair the ability of USR to consummate the transactions contemplated by this Agreement. Section 2.2 Subsidiaries. Section 2.2 of the Disclosure Schedule previously delivered by USR to URI (the "USR Disclosure Schedule") sets forth a list as of the Signing Date of all of USR's subsidiaries. Except as set A-4 forth in Section 2.2 of the USR Disclosure Schedule, (a) all of the issued and outstanding shares of capital stock of each of USR's subsidiaries are validly issued, fully paid, nonassessable and free of preemptive rights, and are owned, directly or indirectly, by USR free and clear of any liens, claims, encumbrances, security interests, charges and options of any nature whatsoever (other than liens in favor of USR's senior creditors as disclosed in USR's SEC Reports (as defined in Section 2.5)); (b) there are no outstanding subscriptions, options, calls, contracts, voting trusts, proxies or other commitments, understandings, restrictions, arrangements, rights or warrants, including any right of conversion or exchange under any outstanding security, instrument or other agreement, obligating USR or any such subsidiary of USR to issue, deliver or sell, or cause to be issued, delivered or sold, additional shares of capital stock or other voting securities of any such subsidiary, or obligating it to grant, extend or enter into any such agreement or commitment; and (c) there are no outstanding commitments or obligations of USR or any of its subsidiaries to repurchase, redeem or otherwise acquire any outstanding shares of capital stock or other ownership interests in any subsidiary of USR. Section 2.3 Capitalization. As of the Signing Date, the authorized capital stock of USR consisted of 100,000,000 shares of USR Common Stock and 10,000,000 shares of preferred stock, $.01 par value ("USR Preferred Stock"). At the close of business on the Signing Date, (a) 30,774,975 shares of USR Common Stock were issued and outstanding, (b) not more than 4,600,000 shares of USR Common Stock were reserved for issuance pursuant to USR's 1997 Performance Award Plan (the "USR Stock Plan"), of which 4,138,387 shares of USR Common Stock were reserved for issuance upon exercise of outstanding stock options, (c) no shares of USR Common Stock were held by USR in its treasury or by its wholly owned subsidiaries, and (d) no shares of USR Preferred Stock were issued and outstanding. Except as set forth above or as set forth in Section 2.3 of the USR Disclosure Schedule, as of the Signing Date, there were outstanding (i) no shares of capital stock or other voting securities of USR, (ii) no securities of USR or any of its subsidiaries convertible into or exchangeable for shares of capital stock or voting securities of USR, (iii) no options, warrants or other rights to acquire from USR or any of its subsidiaries, and no commitments or obligations of USR or any of its subsidiaries to issue, any capital stock, voting securities or securities convertible into or exchangeable for capital stock or voting securities of USR, and (iv) no equity equivalents, interests in the ownership or earnings of USR or its subsidiaries or other similar rights (including stock appreciation rights) (collectively, "USR Securities"). There are no outstanding obligations of USR or its subsidiaries to repurchase, redeem or otherwise acquire any USR Securities. Except as set forth in Section 2.3 of the USR Disclosure Schedule, there are no stockholder agreements, voting trusts or other agreements or understandings to which USR is a party or to which it is bound relating to the voting of any USR Securities. Section 2.4 Authority; Approvals; Noncontravention; Compliance. (a) USR has all necessary corporate power and authority to execute and deliver this Agreement and to consummate the transactions contemplated hereby. The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby have been duly and validly authorized by the board of directors of USR (the "USR Board") and no other corporate proceedings on the part of USR are necessary to authorize this Agreement or to consummate the transactions contemplated hereby (other than, with respect to the Merger, the USR Shareholders' Approval (as defined in Section 2.14 below)). This Agreement has been duly and validly executed and delivered by USR and constitutes the valid, legal and binding agreement of USR, enforceable against USR in accordance with its terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors' rights and to general equity principles (the "Bankruptcy and Equity Exception"). The USR Board has, by unanimous vote, duly and validly approved, and taken all corporate actions required to be taken by the USR Board for the consummation of, the transactions, including the Merger, contemplated hereby and resolved to recommend that the stockholders of USR adopt this Agreement. The Board of Directors of USR has taken all actions necessary under the DGCL, including approving the transactions contemplated by the Merger Agreement, to ensure that the restrictions on Business Combinations (as defined in Section 203 of the DGCL) do not, and will not, apply to the transactions contemplated hereby if consummated in accordance with the terms hereof. (b) Except for filings, permits, authorizations, consents and approvals as may be required under, and other applicable requirements of, the Securities Act of 1933, as amended (the "Securities Act"), Securities Exchange A-5 Act of 1934, as amended (the "Exchange Act"), state securities or blue sky laws, the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act"), the filing of the Certificate of Merger as required by the DGCL and as otherwise set forth in Section 2.4(b) of the USR Disclosure Schedule, no filing or registration with or notice to, and no permit, authorization, consent or approval of, any United States or foreign federal, state, provincial or local court or tribunal or administrative, governmental or regulatory body, agency, commission or authority (each, a "Governmental Authority") is necessary for the execution and delivery by USR of this Agreement or the consummation by USR of the transactions contemplated hereby, except where the failure to obtain such permits, authorizations, consents or approvals or to make such filings or give such notice would not have a USR Material Adverse Effect. (c) Except as set forth in Section 2.4(c) of the USR Disclosure Schedule, neither the execution, delivery and performance of this Agreement by USR nor the consummation by USR of the transactions contemplated hereby will (i) conflict with or result in any breach of any provision of the respective certificate or articles of incorporation or by-laws (or similar governing documents) of USR or any of its subsidiaries, (ii) result in a violation or breach of, or constitute (with or without due notice or lapse of time or both) a default (or give rise to any right of termination, amendment, cancellation or acceleration, lien or other encumbrance) under, any of the terms, conditions or provisions of any note, bond, mortgage, indenture, lease, license, contract, agreement or other instrument or obligation to which USR or any of its subsidiaries is a party or by which any of them or any of their respective properties or assets may be bound, or (iii) violate any order, writ, injunction, decree, law, statute, rule or regulation applicable to USR or any of its subsidiaries or any of their respective properties or assets, except, in the case of clauses (ii) or (iii), for violations, breaches or defaults which would not have a USR Material Adverse Effect. (d) Except as set forth in Sections 2.4(d), 2.7, 2.10 and 2.11 of the USR Disclosure Schedule, or as disclosed in the USR SEC Reports filed prior to the Signing Date, neither USR nor any of its subsidiaries is in violation of, or is, to the knowledge of USR, under investigation with respect to any violation of, or has been given notice or been charged with any violation of, any law, statute, order, rule, regulation, ordinance, decree or judgment (including any applicable environmental law, ordinance or regulation) of any Governmental Authority, except for possible violations which individually or in the aggregate would not have a USR Material Adverse Effect. Except as set forth in Section 2.4(d) of the USR Disclosure Schedule or as expressly disclosed in the USR SEC Reports filed prior to the Signing Date, USR and its subsidiaries have all permits, licenses, franchises and other governmental authorizations, consents and approvals necessary to conduct their businesses as presently conducted which are material to the operation of their businesses. Except as set forth in Section 2.4(d) of the USR Disclosure Schedule, USR and each of its subsidiaries is not in breach or violation of or in default in the performance or observance of any term or provision of, and no event has occurred which, with lapse of time or action by a third party, could result in a default by USR or any of its subsidiaries under (i) any contract, commitment, agreement, indenture, mortgage, loan agreement, note, lease, bond, license, approval or other instrument to which it is a party or by which it is bound or to which any of its property or assets is subject, except for possible violations, breaches or defaults which individually or in the aggregate would not have a USR Material Adverse Effect, or (ii) its certificate of incorporation or by-laws (or similar governing document). Section 2.5 Reports and Financial Statements. The filings required to be made by USR and its subsidiaries since March 1, 1997 under the Securities Act and the Exchange Act have been filed with the Securities and Exchange Commission (the "SEC"), including all forms, statements, reports, agreements, documents, exhibits, amendments and supplements appertaining thereto, and complied, as of their respective dates, in all material respects, with all applicable requirements of the appropriate statutes and the rules and regulations thereunder. USR has made available to URI a true and complete copy of each report, schedule, registration statement and definitive proxy statement filed with the SEC by USR and its subsidiaries pursuant to the requirements of the Securities Act or Exchange Act since March 1, 1997, including all amendments thereto (as such documents have since the time of their filing been amended, the "USR SEC Reports"). As of their respective dates, the USR SEC Reports did not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they A-6 were made, not misleading. The audited consolidated financial statements and unaudited interim financial statements of USR, its predecessors and its subsidiaries included in the USR SEC Reports have been prepared in accordance with United States generally accepted accounting principles applied on a consistent basis ("GAAP") (except as may be indicated therein or in the notes thereto and except with respect to unaudited statements as permitted by Form 10-Q of the SEC) and fairly present the financial position of USR and its subsidiaries as of the dates thereof and the results of their respective operations, cash flows and change in financial position for the periods then ended, subject, in the case of the unaudited interim financial statements, to normal, recurring audit adjustments. Since December 31, 1997, except as set forth in the USR SEC Reports, there has not been any change, or any application or request for any change, by USR or any of its subsidiaries in accounting principles, methods or policies for financial accounting or tax purposes. True, accurate and complete copies of the certificate of incorporation and by-laws of USR, as in effect on the Signing Date, are included in the USR SEC Reports. USR has heretofore made available to URI a complete and correct copy of any material amendments or modifications, which have not yet been filed with the SEC, to agreements and other documents which had previously been filed by USR with the SEC pursuant to the Securities Act or the Exchange Act. Section 2.6 Absence of Certain Changes or Events; Liabilities. Except as disclosed in the USR SEC Reports filed prior to the Signing Date or as set forth in Section 2.6 of the USR Disclosure Schedule, since December 31, 1997, USR and each of its subsidiaries have conducted their business only, to USR's knowledge, in the ordinary course of business consistent with past practice and there has not been, and no fact or condition exists, and no events or changes have occurred and no liabilities or obligations of any nature (whether or not accrued, contingent or otherwise, and whether due or to become due or asserted or unasserted) have been incurred, in each case, which would have or, insofar as reasonably can be foreseen, could have, a USR Material Adverse Effect. Except as and to the extent publicly disclosed in the USR SEC Reports filed prior to the Signing Date and except for liabilities incurred in connection with the transactions contemplated by this Agreement, USR and its subsidiaries have no liabilities or obligations of any nature, whether or not accrued, contingent or otherwise, and whether due or to become due or asserted or unasserted, which, individually or in the aggregate, would have a USR Material Adverse Effect. Section 2.7 Litigation. Except as disclosed in the USR SEC Reports filed prior to the Signing Date or as set forth in Sections 2.7, 2.10 and 2.11 of the USR Disclosure Schedule, (a) there are no claims, suits, actions or proceedings by any Governmental Authority or arbitrator pending or, to the knowledge of USR, threatened, nor are there, to the knowledge of USR, any investigations or reviews by any Governmental Authority or any arbitrator pending or threatened against, relating to or affecting USR or any of its subsidiaries which would have a USR Material Adverse Effect, (b) to USR's knowledge, there have not been any significant developments since December 31, 1997 with respect to such disclosed claims, suits, actions, proceedings, investigations or reviews that would have a USR Material Adverse Effect and (c) there are no judgments, decrees, injunctions, rules or orders of any court, governmental department, commission, agency, instrumentality or authority or any arbitrator applicable to USR or any of its subsidiaries, except for such that would not have a USR Material Adverse Effect. Section 2.8 Registration Statement and Proxy Statement. None of the information supplied or to be supplied by or on behalf of USR and included or incorporated by reference in (a) the registration statement on Form S-4 to be filed with the SEC by URI in connection with the issuance of shares of URI Common Stock in connection with the Merger (the "Registration Statement") will, at the time the Registration Statement becomes effective under the Securities Act, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading and (b) the joint proxy statement, in definitive form, relating to the meetings of USR and URI stockholders to be held in connection with the Merger (the "Proxy Statement") will, at the dates mailed to stockholders and at the times of the meetings of stockholders to be held in connection with the Merger, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they are made, not misleading. The Proxy Statement, insofar as it relates to the meeting of USR's stockholders, will comply as to form in all material respects with the applicable provisions of the Securities Act and the Exchange Act and the rules and regulations thereunder. A-7 Section 2.9 Tax Matters. Except as set forth in Section 2.9 of the USR Disclosure Schedule: (a) USR and its subsidiaries, and each affiliated group (within the meaning of Section 1504 of the Code) of which USR or any of its subsidiaries is or has been a member, has timely filed all federal and all other material Tax Returns (as defined below) required to be filed by them. All such Tax Returns are true and correct in all material respects. All material Taxes (as defined below) due and payable by USR and its subsidiaries have been timely paid in full. The most recent consolidated financial statements contained in the USR SEC Reports reflect an adequate reserve in accordance with GAAP for all Taxes payable by USR and its subsidiaries for all taxable periods and portions thereof through the date of such financial statements. (b) No material deficiencies for any Taxes have been proposed, asserted or assessed against USR or any of its subsidiaries that have not been fully paid or adequately provided for in the appropriate financial statements of USR and its subsidiaries, no requests for waivers of the time to assess any Taxes are pending, and no power of attorney with respect to any Taxes has been executed or filed with any taxing authority. No material issues relating to Taxes have been raised in writing by any Governmental Authority during any presently pending audit or examination. No claim has been made by any taxing authority in a jurisdiction where USR or any of its subsidiaries does not file a Tax Return, that it or any of its subsidiaries may be subject to any material Tax in that jurisdiction. (c) There are no material liens or encumbrances for Taxes on any of the assets of USR or its subsidiaries (other than for current Taxes not yet due and payable). (d) USR and its subsidiaries have complied in all material respects with all applicable laws, rules and regulations relating to the payment and withholding of Taxes. (e) None of USR or its subsidiaries has filed a consent under Section 341(f) of the Code or agreed to have Section 341(f)(2) of the Code apply. (f) None of USR or its subsidiaries has made any payments, nor is any of them obligated to make any payments, and is not a party to any agreement that could obligate it to make any payments that would not be deductible by reason of Sections 280G or 162(m) of the Code. (g) None of USR or its subsidiaries is a party to any tax allocation agreement, tax sharing agreement, tax indemnity agreement or similar agreement, arrangement or practice with respect to Taxes (including any advance pricing agreement, closing agreement or other agreement relating to Taxes with any taxing authority). (h) No federal, state, local or foreign audits or other administrative proceedings or court proceedings are presently pending with regard to any Taxes or Tax Returns of USR or its subsidiaries and neither USR nor any of its subsidiaries has received a written notice of any pending audit or proceeding, in any such case involving a material issue with respect to Taxes. (i) Neither USR nor any of its subsidiaries has agreed to or is required to make any material adjustment under Section 481(a) of the Code. (j) No property owned by USR or any of its subsidiaries (i) is property required to be treated as being owned by another person pursuant to the provisions of Section 168(f)(8) of the Internal Revenue Code of 1954, as amended and in effect immediately prior to the enactment of the Tax Reform Act of 1986; (ii) constitutes "tax exempt use property" within the meaning of Section 168(h)(1) of the Code; or (iii) is tax exempt bond financed property within the meaning of Section 168(g) of the Code. (k) Neither USR nor any of its subsidiaries is or has ever been a "personal holding company" as defined under Section 542 of the Code. (l) For purposes of this Agreement, (i) the terms "Tax" or "Taxes" shall mean all taxes, charges, fees, imposts, levies or other assessments, including, without limitation, all net income, gross receipts, capital, sales, A-8 use, ad valorem, value added, transfer, franchise, profits, inventory, capital stock, license, withholding, payroll, employment, social security, unemployment, excise, severance, stamp, occupation, property and estimated taxes, customs duties, fees, assessments and charges of any kind whatsoever, together with any interest and any penalties, fines, additions to tax or additional amounts imposed by any taxing authority (domestic or foreign) and shall include any transferee liability in respect of Taxes, any liability in respect of Taxes imposed by contract, tax sharing agreement, tax indemnity agreement or any similar agreement, and (ii) the term "Tax Return" shall mean any report, return, document, declaration or any other information or filing required to be supplied to any taxing authority or jurisdiction (foreign or domestic) with respect to Taxes, including, without limitation, information returns or any document with respect to or accompanying payments or estimated Taxes, or with respect to or accompanying requests for the extension of time in which to file any such report, return document, declaration or other information. Section 2.10 Employee Matters; ERISA; Labor. (a) With respect to all the employee benefit plans (as that phrase is defined in Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA")) maintained for, or contributed to, the benefit of any current or former employee, officer or director of USR or any of its subsidiaries ("USR ERISA Plans") and any other benefit or compensation plan, program or arrangement maintained for the benefit of any current or former employee, officer or director of USR or any of its subsidiaries (the USR ERISA Plans and such plans being collectively referred to as the "USR Benefit Plans"), except as set forth in Section 2.10(a) of the USR Disclosure Schedule: (i) none of the USR ERISA Plans is a "multiemployer plan" within the meaning of ERISA; (ii) none of the USR Benefit Plans promises or provides retiree medical or life insurance benefits to any person except as required by Section 601 of ERISA and Section 4980B of the Code; (iii) none of the USR Benefit Plans provides for payment of a benefit, the increase of a benefit amount, the payment of a contingent benefit, or the acceleration of the payment or vesting of a benefit by reason of the execution of this Agreement or the consummation of the transactions contemplated by this Agreement; (iv) neither USR nor any of its subsidiaries has an obligation to adopt, or is considering the adoption of, any new USR Benefit Plan or, except as required by law, the amendment of an existing USR Benefit Plan; (v) each USR ERISA Plan intended to be qualified under Section 401(a) of the Code has received a favorable determination letter from the Internal Revenue Service (the "IRS") that it is so qualified and, to the knowledge of USR, nothing has occurred since the date of such letter that could reasonably be expected to affect the qualified status of such USR ERISA Plan; (vi) each USR Benefit Plan has been operated in all respects in accordance with its terms and the requirements of all applicable law; (vii) neither USR nor any of its subsidiaries or members of their "controlled group" has incurred any direct or indirect liability under, arising out of or by operation of Title IV of ERISA in connection with the termination of, or withdrawal from, any USR ERISA Plan or other retirement plan or arrangement, and, to the knowledge of USR, no fact or event exists that could reasonably be expected to give rise to any such liability; (viii) the aggregate accumulated benefit obligations of each USR ERISA Plan subject to Title IV of ERISA (as of the date of the most recent actuarial valuation prepared for such USR ERISA Plan) does not exceed the fair market value of the assets of such USR ERISA Plan (as of the date of such valuation); and (ix) except for claims for benefits arising in the ordinary operation of the USR Benefit Plans, USR is not aware of any claims relating to the USR Benefit Plans; provided, however, that the failure of the representations set forth in clauses (v), (vi), (vii), (viii) and (ix) to be true and correct shall not be deemed to be a breach of any such representation unless any such failure, individually or in the aggregate, is reasonably likely to have a USR Material Adverse Effect. (b) Except as set forth in Section 2.10(b) of the USR Disclosure Schedule: (i) there are no labor or collective bargaining agreements which pertain to employees of USR or any of its subsidiaries; (ii) there are no pending strikes, work stoppages, slowdowns, lockouts, arbitrations or other material labor disputes against USR or any of its subsidiaries; (iii) there are no pending complaints, charges or claims against the USR or any of its subsidiaries filed with any Governmental Authority based upon the employment or termination of employment of any of their employees; and (iv) USR and its subsidiaries are in compliance with all laws, regulations and orders relating to the employment of labor, including all such laws, regulations and orders relating to wages, hours, the Workers Adjustment and Retraining Notification Act ("WARN"), collective bargaining, discrimination, civil rights, safety and health, workers' compensation and the collection and payment of withholding and/or social security A-9 Taxes and any similar Tax; provided, however, that the failure of the representations set forth in clauses (iii) and (iv) to be true and correct shall not be deemed to be a breach of any representation unless any such failure, individually or in the aggregate, is reasonably likely to have a USR Material Adverse Effect. Section 2.11 Environmental Protection. (a) Except as set forth in Section 2.11 of the USR Disclosure Schedule or in the USR SEC Reports filed prior to the Signing Date: (i) USR and each of its subsidiaries is in compliance with all applicable Environmental Laws (as defined below) except where the failure to so comply would not have a USR Material Adverse Effect, and neither USR nor any of its subsidiaries has received any communication from any person or Governmental Authority that alleges that USR or any of its subsidiaries is not in such compliance with applicable Environmental Laws. (ii) USR and each of its subsidiaries has obtained or has applied for all environmental, health and safety permits and governmental authorizations (collectively, the "Environmental Permits") necessary for the construction of their facilities or the conduct of their operations except where the failure to so obtain would not have a USR Material Adverse Effect, and all such Environmental Permits are in good standing or, where applicable, a renewal application has been timely filed and is pending agency approval, and USR and its subsidiaries are in material compliance with all terms and conditions of the Environmental Permits. (iii) There is no Environmental Claim (as defined below) pending or, to the best knowledge of USR, threatened (A) against USR or any of its subsidiaries, (B) against any person or entity whose liability for any Environmental Claim USR or any of its subsidiaries has or may have retained or assumed either contractually or by operation of law, or (C) against any real or personal property or operations which USR or any of its subsidiaries owns, leases or manages, in whole or in part, which, in any such case described in this clause (iii), would have a USR Material Adverse Effect. (iv) USR has no knowledge of any Releases (as defined below) of any Hazardous Material that would be reasonably likely to form the basis of any Environmental Claim against USR or any of its subsidiaries, or against any person or entity whose liability for any Environmental Claim USR or any of its subsidiaries has retained or assumed either contractually or by operation of law or which would result in USR incurring liability under any Environmental Law, except for any Environmental Claim or liability which would not have a USR Material Adverse Effect. (v) USR has no knowledge, with respect to any predecessor of USR or any of its subsidiaries or any real property formerly owned, leased or operated by USR or any of its subsidiaries, of any Environmental Claim which would have a USR Material Adverse Effect pending or threatened, or of any Release of Hazardous Materials (as defined below) that would be reasonably likely to form the basis of any Environmental Claim which would have a USR Material Adverse Effect. (b) USR has made available to URI true and complete copies of all environmental audits, surveys, reports and assessments relating to real property owned, leased or operated by USR or any of its subsidiaries. (c) As used in this Agreement: (i) "Environmental Claim" means any and all administrative, regulatory or judicial actions, suits, demands, demand letters, directives, claims, liens, investigations, proceedings or notices of noncompliance or violation (written or oral) by any person or entity (including any Governmental Authority) alleging potential liability (including potential responsibility for or liability for enforcement, investigatory costs, cleanup costs, governmental response costs, removal costs, remedial costs, natural resources damages, property damages, personal injuries or penalties) arising out of, based on or resulting from (A) the presence, Release or threatened Release into the environment of any Hazardous Materials at any location, whether or not owned, operated, leased or managed by USR or any of its subsidiaries (for purposes of this Section 2.11) or by URI or any of URI's subsidiaries (for purposes of Section 3.11); or (B) circumstances forming the basis of any violation or alleged violation of any Environmental Law or (C) any and all claims by any third party seeking damages, contribution, indemnification, cost recovery, compensation or injunctive relief resulting from the presence or Release of any Hazardous Materials. A-10 (ii) "Environmental Laws" means all applicable federal, state and local laws, rules and regulations relating to pollution, the environment (including ambient air, surface water, groundwater, land surface or subsurface strata), natural resources or protection of human health as it relates to the environment including laws and regulations relating to Releases or threatened Releases of Hazardous Materials, or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of Hazardous Materials. (iii) "Hazardous Materials" means (A) any petroleum or petroleum products, radioactive materials, asbestos in any form that is or could become friable, urea formaldehyde foam insulation and transformers or other equipment that contain dielectric fluid containing polychlorinated biphenyls ("PCBs"); (B) any chemicals, materials or substances which are now defined as or included in the definition of "hazardous substances," "hazardous wastes," "hazardous materials," "extremely hazardous wastes," "restricted hazardous wastes," "toxic substances," "toxic pollutants," or words of similar import under any Environmental Law and (C) any other chemical, material, substance or waste, exposure to which is now prohibited, limited or regulated under any Environmental Law in a jurisdiction in which USR or any of its subsidiaries operates (for purposes of this Section 2.11) or in which URI or any of URI's subsidiaries operates (for purposes of Section 3.11). (iv) "Release" means any release, spill, emission, leaking, injection, deposit, disposal, discharge, dispersal, leaching or migration into the atmosphere, soil, surface water, groundwater or property. Section 2.12 Material Contracts. USR has filed as an exhibit to an Annual Report on Form 10-K or another document filed pursuant to the Securities Act or the Exchange Act, or has delivered or otherwise made available to URI true, correct and complete copies of all contracts and agreements to which USR or any of its subsidiaries is a party (a) that are required to be filed in an exhibit to an Annual Report on Form 10-K filed by USR with the SEC as of the date of this Agreement, (b) that purport to limit, curtail or restrict the ability of USR or any of its subsidiaries to operate or compete in any geographic area or line of business or (c) that provide for any severance or other agreement with any employee or consultant pursuant to which such person would be entitled to receive any additional compensation or an accelerated payment of compensation as a result of the consummation of the transactions contemplated hereby (collectively, the "USR Contracts"). Each of the USR Contracts is valid and enforceable in accordance with its terms (subject to the Bankruptcy and Equity Exception), and there is no default under any USR Contract so listed either by USR or any of its subsidiaries or, to the knowledge of USR, by any other party thereto, and no event has occurred that with the lapse of time or the giving of notice or both would constitute a default thereunder by USR or any such subsidiary or, to the knowledge of USR, any other party, in any such case in which such default or event would have a USR Material Adverse Effect. No party to any USR Contract has given notice to USR of or made a claim against USR with respect to any breach or default thereunder, in any such case in which such breach or default would have a USR Material Adverse Effect. Section 2.13 Opinion of Financial Advisor. USR has received the opinion of Donaldson, Lufkin & Jenrette Securities Corporation, dated the Signing Date, to the effect that, as of the date thereof, the Exchange Ratio is fair from a financial point of view to the holders of USR Common Stock. Section 2.14 Vote Required. The adoption of this Agreement by the holders of a majority of the votes entitled to be cast by all holders of the outstanding shares of USR Common Stock (the "USR Shareholders' Approval") is the only vote of the holders of any class or series of the capital stock of USR or any of its subsidiaries required to adopt this Agreement. Section 2.15 Reorganization and Accounting Matters. Neither USR nor, to USR's best knowledge, any of its Affiliates (as defined below) has taken or agreed to take any action that would (a) prevent the Merger from constituting a reorganization within the meaning of Section 368(a) of the Code or (b) prevent URI and the Surviving Corporation from accounting for the transactions to be effected pursuant to this Agreement as a pooling-of-interests in accordance with GAAP, Opinion 16 of the Accounting Principles Board ("APB 16") and applicable SEC regulations. USR has no reason to believe that the transaction contemplated by this Agreement will not qualify as a pooling-of- interest transaction in accordance with GAAP, APB 16 and applicable A-11 SEC regulations. As used in this Agreement, the term "Affiliate," except where otherwise defined herein, shall mean, as to any person, any other person which directly or indirectly controls, or is under common control with, or is controlled by, such person and, as used in this definition, "control" (and, with correlative meanings, "controlled by" and "under common control with") shall mean possession, directly or indirectly, of power to direct or cause the direction of management or policies (whether through ownership of securities or partnership or other ownership interests, by contract or otherwise). Section 2.16 Brokers. Except for Donaldson, Lufkin & Jenrette Securities Corporation, whose fees have been disclosed to URI prior to the Signing Date, no broker, finder or investment banker is entitled to any brokerage, finder's or other fee or commission in connection with the Merger or the transactions contemplated by this Agreement based upon arrangements made by or on behalf of USR. ARTICLE III Representations and Warranties of URI and Merger Sub URI and MERGER SUB represent and warrant to USR as follows: Section 3.1 Organization and Qualification. URI and each of its subsidiaries (including MERGER SUB) is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation and has all requisite corporate power and authority to own, lease and operate its properties and to carry on its businesses as now being conducted, except where the failure to be so organized, existing and in good standing or to have such power and authority would not have a URI Material Adverse Effect (as defined below). As used in this Agreement, the term "URI Material Adverse Effect" shall mean any change or effect (i) that is materially adverse to the properties, business, results of operations or financial condition of URI and its subsidiaries, taken as whole, other than any change or effect arising out of general economic conditions or conditions generally affecting the equipment rental industry or (ii) that would impair the ability of URI and MERGER SUB to consummate the transactions contemplated by this Agreement. Section 3.2 Subsidiaries. Section 3.2 of the Disclosure Schedule previously delivered by URNA to USR (the "URI Disclosure Schedule") sets forth a list as of the Signing Date of all of URNA's subsidiaries. Except as set forth in Section 3.2 of the URI Disclosure Schedule, (a) all of the issued and outstanding shares of capital stock of each of URI's subsidiaries (including MERGER SUB) are validly issued, fully paid, nonassessable and free of preemptive rights, and are owned, directly or indirectly, by URI free and clear of any liens, claims, encumbrances, security interests, charges and options of any nature whatsoever (other than liens in favor of URI's senior creditors as disclosed in URI's SEC Reports (as defined in Section 3.5)); (b) there are no outstanding subscriptions, options, calls, contracts, voting trusts, proxies or other commitments, understandings, restrictions, arrangements, rights or warrants, including any right of conversion or exchange under any outstanding security, instrument or other agreement, obligating URI or any such subsidiary to issue, deliver or sell, or cause to be issued, delivered or sold, additional shares of capital stock or other voting securities of any such subsidiary, or obligating it to grant, extend or enter into any such agreement or commitment; and (c) there are no outstanding commitments or obligations of URI or any of its subsidiaries to repurchase, redeem or otherwise acquire any outstanding shares of capital stock or other ownership interests in any subsidiary of URI. Section 3.3 Capitalization. On August 5, 1998, pursuant to the URI Reorganization, all of the then outstanding common stock of URNA were converted, on a share-for-share basis, into URI Common Stock. As used below in this Section 3.3, the term "URI Common Stock" refers to the common stock, $0.01 par value, of URNA for periods prior to August 5, 1998 and to the common stock, $0.01 par value, of URI, for periods thereafter. As of the Signing Date, the authorized capital stock of URNA consisted of 75,000,000 shares of URI Common Stock and 5,000,000 shares of preferred stock, $0.01 par value ("URI Preferred Stock"). At the close of business on the Signing Date, (a) 34,387,856 shares of URI Common Stock were issued and outstanding, (b) not more than 5,000,000 shares of URI Common Stock were reserved for issuance pursuant to URI's 1997 Stock A-12 Option Plan of which 4,470,725 shares were reserved for issuance upon exercise of outstanding stock options, not more than 6,519,058 shares of URI Common Stock were reserved for issuance upon exercise of outstanding warrants and not more than 16,942 shares of URI Common Stock were reserved for issuance upon conversion of a convertible note of URNA, (c) no shares of URI Common Stock were held by URI in its treasury or by its wholly owned subsidiaries, and (d) no shares of URI Preferred Stock were issued and outstanding. Except as set forth above, as contemplated by this Agreement or as set forth in Section 3.3 of the URI Disclosure Schedule, as of the Signing Date, there were outstanding (i) no shares of capital stock or other voting securities of URI or URNA, (ii) no securities of URI, URNA or their respective subsidiaries convertible into or exchangeable for shares of capital stock or voting securities of URI or URNA, (iii) no options, warrants or other rights to acquire from URI, URNA or their respective subsidiaries, and no commitments or obligations of URI, URNA or their respective subsidiaries to issue, any capital stock, voting securities or securities convertible into or exchangeable for capital stock or voting securities of URI or URNA, and (iv) no equity equivalents, interests in the ownership or earnings of URI, URNA or their respective subsidiaries or other similar rights (including stock appreciation rights) (collectively, "URI Securities"). There are no outstanding obligations of URI or its subsidiaries to repurchase, redeem or otherwise acquire any URI Securities. Except as set forth in Section 3.3 of the URI Disclosure Schedule or the URI SEC Reports, there are no stockholder agreements, voting trusts or other agreements or understandings to which URI is a party or to which it is bound relating to the voting of any URI Securities. Section 3.4 Authority; Approvals; Noncontravention; Compliance. (a) Each of URI and MERGER SUB has all necessary corporate power and authority to execute and deliver this Agreement and to consummate the transactions contemplated hereby. The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby have been duly and validly authorized by the board of directors of URI (the "URI Board") and the board of directors of MERGER SUB and no other corporate proceedings on the part of URI or MERGER SUB are necessary to authorize this Agreement or to consummate the transactions contemplated hereby (other than, with respect to the Merger, the URI Shareholders' Approval (as defined in Section 3.14 below)). This Agreement has been duly and validly executed and delivered by URI and MERGER SUB and constitutes the valid, legal and binding agreements of URI and MERGER SUB, enforceable against them in accordance with its terms, subject to the Bankruptcy and Equity Exception. The URI Board has, by unanimous vote, duly and validly approved, and taken all corporate actions required to be taken by the URI Board for the consummation of, the transactions, including the Merger, contemplated hereby, and resolved to recommend that the stockholders of URI approve the Charter Amendment and the Share Issuance (each as defined in Section 3.14 below). The Board of Directors of URI has taken all actions necessary under the DGCL, including approving the transactions contemplated by the Merger Agreement, to ensure that the restrictions on Business Combinations (as defined in Section 203 of the DGCL) do not, and will not, apply to the transactions contemplated hereby if consummated in accordance with the terms hereof. (b) Except for filings, permits, authorizations, consents and approvals as may be required under, and other applicable requirements of, the Securities Act (including the filing and effectiveness of the Registration Statement in connection with the issuance of URI Common Stock pursuant to the Merger), the Exchange Act, state securities or blue sky laws, the HSR Act, the filing of the Certificate of Merger as required by the DGCL, required filings with and approvals of the New York Stock Exchange and as otherwise set forth in Section 3.4(b) of the URI Disclosure Schedule, no filing or registration with or notice to, and no permit, authorization, consent or approval of, any Governmental Authority is necessary for the execution and delivery by URI and MERGER SUB of this Agreement or the consummation by URI and MERGER SUB of the transactions contemplated hereby, except where the failure to obtain such permits, authorizations, consents or approvals or to make such filings or give such notice would not have a URI Material Adverse Effect. (c) Except as set forth in Section 3.4(c) of the URI Disclosure Schedule, neither the execution, delivery and performance of this Agreement by URI or MERGER SUB nor the consummation by URI or MERGER SUB of the transactions contemplated hereby will (i) conflict with or result in any breach of any provision of the respective certificate or articles of incorporation or by- laws (or similar governing documents) of URI or any of A-13 its subsidiaries, (ii) result in a violation or breach of, or constitute (with or without due notice or lapse of time or both) a default (or give rise to any right of termination, amendment, cancellation or acceleration, lien or other encumbrance) under, any of the terms, conditions or provisions of any note, bond, mortgage, indenture, lease, license, contract, agreement or other instrument or obligation to which URI or any of its subsidiaries is a party or by which any of them or any of their respective properties or assets may be bound, or (iii) violate any order, writ, injunction, decree, law, statute, rule or regulation applicable to URI or any of its subsidiaries or any of their respective properties or assets, except, in the case of clauses (ii) or (iii), for violations, breaches or defaults which would not have a URI Material Adverse Effect. (d) Except as set forth in Sections 3.4(d), 3.7, 3.10 and 3.11 of the URI Disclosure Schedule, or as disclosed in the URI SEC Reports filed prior to the Signing Date, neither URI nor any of its subsidiaries is in violation of, is, to the knowledge of URI, under investigation with respect to any violation of, or has been given notice or been charged with any violation of, any law, statute, order, rule, regulation, ordinance, decree or judgment (including any applicable environmental law, ordinance or regulation) of any Governmental Authority, except for possible violations which individually or in the aggregate would not have a URI Material Adverse Effect. Except as set forth in Section 3.4(d) of the URI Disclosure Schedule or as expressly disclosed in the URI SEC Reports filed prior to the Signing Date, URI and its subsidiaries have all permits, licenses, franchises and other governmental authorizations, consents and approvals necessary to conduct their businesses as presently conducted which are material to the operation of their businesses. Except as set forth in Section 3.4(d) of the URI Disclosure Schedule, URI and each of its subsidiaries is not in breach or violation of or in default in the performance or observance of any term or provision of, and no event has occurred which, with lapse of time or action by a third party, could result in a default by URI or any of its subsidiaries under (i) any contract, commitment, agreement, indenture, mortgage, loan agreement, note, lease, bond, license, approval or other instrument to which it is a party or by which it is bound or to which any of its property or assets is subject, except for possible violations, breaches or defaults which individually or in the aggregate would not have a URI Material Adverse Effect, or (ii) its certificate of incorporation or by-laws (or similar governing document). Section 3.5 Reports and Financial Statements. The filings required to be made by URI and its subsidiaries since December 31, 1997 under the Securities Act and the Exchange Act have been filed with the SEC, including all forms, statements, reports, agreements, documents, exhibits, amendments and supplements appertaining thereto, and complied, as of their respective dates, in all material respects, with all applicable requirements of the appropriate statutes and the rules and regulations thereunder. URI has made available to USR a true and complete copy of each report, schedule, registration statement and definitive proxy statement filed with the SEC by URI and its subsidiaries pursuant to the requirements of the Securities Act or Exchange Act since December 31, 1997, including all amendments thereto (as such documents have since the time of their filing been amended, the "URI SEC Reports"). As of their respective dates, the URI SEC Reports did not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. The audited consolidated financial statements and unaudited interim financial statements of URI and its subsidiaries included in the URI SEC Reports have been prepared in accordance with GAAP (except as may be indicated therein or in the notes thereto and except with respect to unaudited statements as permitted by Form 10-Q of the SEC) and fairly present the financial position of URI and its subsidiaries as of the dates thereof and the results of their respective operations, cash flows and change in financial position for the periods then ended, subject, in the case of the unaudited interim financial statements, to normal, recurring audit adjustments. Since December 31, 1997, except as set forth in the URI SEC Reports, there has not been any change, or any application or request for any change, by URI or any of its subsidiaries in accounting principles, methods or policies for financial accounting or tax purposes. True, accurate and complete copies of the certificate of incorporation and by-laws of URNA, as in effect on the Signing Date, are included in the URI SEC Reports. URI has heretofore made available to USR a complete and correct copy of any material amendments or modifications, which have not yet been filed with the SEC, to agreements and other documents which had previously been filed by URI with the SEC pursuant to the Securities Act or the Exchange Act. A-14 Section 3.6 Absence of Certain Changes or Events; Liabilities. Except as disclosed in the URI SEC Reports filed prior to the Signing Date or as set forth in Section 3.6 of the URI Disclosure Schedule, since December 31, 1997, URI and each of its subsidiaries have conducted their business only, to URI's knowledge, in the ordinary course of business consistent with past practice and there has not been, and no fact or condition exists, and no events or changes have occurred and no liabilities or obligations of any nature (whether or not accrued, contingent or otherwise, and whether due or to become due or asserted or unasserted) have been incurred, in each case, which would have or, insofar as reasonably can be foreseen, could have, a URI Material Adverse Effect. Except as and to the extent publicly disclosed in the URI SEC Reports filed prior to the Signing Date and except for liabilities incurred in connection with the transactions contemplated by this Agreement, URI and its subsidiaries have no liabilities or obligations of any nature, whether or not accrued, contingent or otherwise, and whether due or to become due or asserted or unasserted, which, individually or in the aggregate, would have a URI Material Adverse Effect. Section 3.7 Litigation. Except as disclosed in the URI SEC Reports filed prior to the Signing Date or as set forth in Sections 3.7, 3.10 and 3.11 of the URI Disclosure Schedule, (a) there are no claims, suits, actions or proceedings by any Governmental Authority or any arbitrator pending or, to the knowledge of URI, threatened, nor are there, to the knowledge of URI, any investigations or reviews by any Governmental Authority or any arbitrator pending or threatened against, relating to or affecting URI or any of its subsidiaries which would have a URI Material Adverse Effect, (b) to URI's knowledge, there have not been any significant developments since December 31, 1997, with respect to such disclosed claims, suits, actions, proceedings, investigations or reviews that would have a URI Material Adverse Effect and (c) there are no judgments, decrees, injunctions, rules or orders of any court, governmental department, commission, agency, instrumentality or authority or any arbitrator applicable to URI or any of its subsidiaries, except for such that would not have a URI Material Adverse Effect. Section 3.8 Registration Statement and Proxy Statement. None of the information supplied or to be supplied by or on behalf of URI and included or incorporated by reference in (a) the Registration Statement will, at the time the Registration Statement becomes effective under the Securities Act, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading, and (b) the Proxy Statement will, at the dates mailed to stockholders and at the times of the meetings of stockholders to be held in connection with the Merger, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they are made, not misleading. The Registration Statement and the Proxy Statement, insofar as it relates to the meeting of URI's stockholders, will comply as to form in all material respects with the applicable provisions of the Securities Act and the Exchange Act and the rules and regulations thereunder. Section 3.9 Tax Matters. Except as set forth in Section 3.9 of the URI Disclosure Schedule: URI and its subsidiaries, and each affiliated group (within the meaning of Section 1504 of the Code) of which URI or any of its subsidiaries is or has been a member, has timely filed all federal and all other material Tax Returns required to be filed by them. All such Tax Returns are true and correct in all material respects. All material Taxes (as defined below) due and payable by URI and its subsidiaries have been timely paid in full. The most recent consolidated financial statements contained in the URI SEC Reports reflect an adequate reserve in accordance with GAAP for all Taxes payable by URI and its subsidiaries for all taxable periods and portions thereof through the date of such financial statements. (b) No material deficiencies for any Taxes have been proposed, asserted or assessed against URI or any of its subsidiaries that have not been fully paid or adequately provided for in the appropriate financial statements of URI and its subsidiaries, no requests for waivers of the time to assess any Taxes are pending, and no power of attorney with respect to any Taxes has been executed or filed with any taxing authority. No material issues relating to Taxes have been raised in writing by any Governmental Authority during any presently pending audit or examination. No claim has been made by any taxing authority in a jurisdiction where URI or any of its subsidiaries does not file a Tax Return, that it or any of its subsidiaries may be subject to any material Tax in that jurisdiction. A-15 (c) There are no material liens or encumbrances for Taxes on any of the assets of URI or its subsidiaries (other than for current Taxes not yet due and payable). (d) URI and its subsidiaries have complied in all material respects with all applicable laws, rules and regulations relating to the payment and withholding of Taxes. (e) None of URI or its subsidiaries has filed a consent under Section 341(f) of the Code or agreed to have Section 341(f)(2) of the Code apply. (F) None of URI or its subsidiaries has made any payments, nor is any of them obligated to make any payments, and is not a party to any agreement that could obligate it to make any payments that would not be deductible by reason of Sections 280G or 162(m) of the Code. (g) None of URI or its subsidiaries is a party to any tax allocation agreement, tax sharing agreement, tax indemnity agreement or similar agreement, arrangement or practice with respect to Taxes (including any advance pricing agreement, closing agreement or other agreement relating to Taxes with any taxing authority). (h) No federal, state, local or foreign audits or other administrative proceedings or court proceedings are presently pending with regard to any Taxes or Tax Returns of URI or its subsidiaries and neither URI nor any of its subsidiaries has received a written notice of any pending audit or proceeding, in any such case involving a material issue with respect to Taxes. (i) Neither URI nor any of its subsidiaries has agreed to or is required to make any material adjustment under Section 481(a) of the Code. (j) No property owned by URI or any of its subsidiaries (i) is property required to be treated as being owned by another person pursuant to the provisions of Section 168(f)(8) of the Internal Revenue Code of 1954, as amended and in effect immediately prior to the enactment of the Tax Reform Act of 1986; (ii) constitutes "tax exempt use property" within the meaning of Section 168(h)(1) of the Code; or (iii) is tax exempt bond financed property within the meaning of Section 168(g) of the Code. (k) Neither URI nor any of its subsidiaries is or has ever been a "personal holding company" as defined under Section 542 of the Code. Section 3.10 Employee Matters; ERISA; Labor. (a) With respect to all the employee benefit plans (as that phrase is defined in Section 3(3) of ERISA) maintained for, or contributed to, the benefit of any current or former employee, officer or director of URI or any of its subsidiaries ("URI ERISA Plans") and any other benefit or compensation plan, program or arrangement maintained for the benefit of any current or former employee, officer or director of URI or any of its subsidiaries (the URI ERISA Plans and such plans being collectively referred to as the "URI Benefit Plans"), except as set forth in Section 3.10(a) of the URI Disclosure Schedule: (i) none of the URI ERISA Plans is a "multiemployer plan" within the meaning of ERISA; (ii) none of the URI Benefit Plans promises or provides retiree medical or life insurance benefits to any person except as required by Section 601 of ERISA and Section 4908B of the Code; (iii) none of the URI Benefit Plans provides for payment of a benefit, the increase of a benefit amount, the payment of a contingent benefit, or the acceleration of the payment or vesting of a benefit by reason of the execution of this Agreement or the consummation of the transactions contemplated by this Agreement; (iv) neither URI nor any of its subsidiaries has an obligation to adopt, or is considering the adoption of, any new URI Benefit Plan or, except as required by law, the amendment of an existing URI Benefit Plan; (v) each URI ERISA Plan intended to be qualified under Section 401(a) of the Code has received a favorable determination letter from the IRS that it is so qualified and, to the knowledge of URI, nothing has occurred since the date of such letter that could reasonably be expected to affect the qualified status of such URI ERISA Plan; (vi) each URI Benefit Plan has been operated in all respects in accordance with its terms and the requirements of all applicable law; (vii) neither URI nor any of its subsidiaries or members of their "controlled group" has incurred any direct or indirect liability under, arising out of or by operation of Title A-16 IV of ERISA in connection with the termination of, or withdrawal from, any URI ERISA Plan or other retirement plan or arrangement, and, to the knowledge of URI, no fact or event exists that could reasonably be expected to give rise to any such liability; (viii) the aggregate accumulated benefit obligations of each URI ERISA Plan subject to Title IV of ERISA (as of the date of the most recent actuarial valuation prepared for such URI ERISA Plan) does not exceed the fair market value of the assets of such URI ERISA Plan (as of the date of such valuation); and (ix) except for claims for benefits arising in the ordinary operation of the URI Benefit Plans, URI is not aware of any claims relating to the URI Benefit Plans; provided, however, that the failure of the representations set forth in clauses (v), (vi), (vii), (viii) and (ix) to be true and correct shall not be deemed to be a breach of any such representation unless any such failure, individually or in the aggregate, is reasonably likely to have a URI Material Adverse Effect. (b) Except as set forth in Section 3.10(b) of the URI Disclosure Schedule: (i) there are no labor or collective bargaining agreements which pertain to employees of URI or any of its subsidiaries; (ii) there are no pending strikes, work stoppages, slowdowns, lockouts, arbitrations or other material labor disputes against URI or any of its subsidiaries; (iii) there are no pending complaints, charges or claims against the URI or any of its subsidiaries filed with any Governmental Authority based upon the employment or termination of employment of any of their employees; and (iv) URI and its subsidiaries are in compliance with all laws, regulations and orders relating to the employment of labor, including all such laws, regulations and orders relating to wages, hours, WARN, collective bargaining, discrimination, civil rights, safety and health, workers' compensation and the collection and payment of withholding and/or social security Taxes and any similar Tax; provided, however, that the failure of the representations set forth in clauses (iii) and (iv) to be true and correct shall not be deemed a breach of any representation unless any such failure, individually or in the aggregate, is reasonably likely to have a URI Material Adverse Effect. Section 3.11 Environmental Protection. (a) Except as set forth in Section 3.11 of the URI Disclosure Schedule or in the URI SEC Reports filed prior to the Signing Date: (i) URI and each of its subsidiaries is in compliance with all applicable Environmental Laws, except where the failure to so comply would not have a URI Material Adverse Effect, and neither URI nor any of its subsidiaries has received any communication from any person or Governmental Authority that alleges that URI or any of its subsidiaries is not in such compliance with applicable Environmental Laws. (ii) URI and each of its subsidiaries has obtained or has applied for all Environmental Permits necessary for the construction of their facilities or the conduct of their operations except where the failure to so obtain would not have a URI Material Adverse Effect, and all such Environmental Permits are in good standing or, where applicable, a renewal application has been timely filed and is pending agency approval, and URI and its subsidiaries are in material compliance with all terms and conditions of the Environmental Permits. (iii) There is no Environmental Claim pending or, to the best knowledge of URI, threatened (A) against URI or any of its subsidiaries, (B) against any person or entity whose liability for any Environmental Claim URI or any of its subsidiaries has or may have retained or assumed either contractually or by operation of law, or (C) against any real or personal property or operations which URI or any of its subsidiaries owns, leases or manages, in whole or in part, which, in any such case described in this clause (iii), would have a URI Material Adverse Effect. (iv) URI has no knowledge of any Releases of any Hazardous Material that would be reasonably likely to form the basis of any Environmental Claim against URI or any of its subsidiaries, or against any person or entity whose liability for any Environmental Claim URI or any of its subsidiaries has retained or assumed either contractually or by operation of law or which would result in URI incurring liability under any Environmental Law, except for any Environmental Claim or liability which would not have a URI Material Adverse Effect. A-17 (v) URI has no knowledge, with respect to any predecessor of URI or any of its subsidiaries or any real property formerly owned, leased or operated by URI or any of its subsidiaries, of any Environmental Claim which would have a URI Material Adverse Effect pending or threatened, or of any Release of Hazardous Materials that would be reasonably likely to form the basis of any Environmental Claim which would have a URI Material Adverse Effect. (b) URI has made available to USR true and complete copies of all environmental audits, surveys, reports and assessments relating to real property owned, leased or operated by URI or any of its subsidiaries. Section 3.12 Material Contracts. URI has filed as an exhibit to an Annual Report on Form 10-K or another document filed pursuant to the Securities Act or the Exchange Act, or has delivered or otherwise made available to USR true, correct and complete copies of all contracts and agreements to which URI or any of its subsidiaries is a party (a) that are required to be filed in an exhibit to an Annual Report on Form 10-K filed by URI with the SEC as of the date of this Agreement, (b) that purport to limit, curtail or restrict the ability of URI or any of its subsidiaries to operate or compete in any geographic area or line of business or (c) that provide for any severance or other agreement with any employee or consultant pursuant to which such person would be entitled to receive any additional compensation or an accelerated payment of compensation as a result of the consummation of the transactions contemplated hereby (collectively, the "URI Contracts"). Each of the URI Contracts is valid and enforceable in accordance with its terms (subject to the Bankruptcy and Enforceability Exception), and there is no default under any URI Contract so listed either by URI or any of its subsidiaries or, to the knowledge of URI, by any other party thereto, and no event has occurred that with the lapse of time or the giving of notice or both would constitute a default thereunder by URI or any such subsidiary or, to the knowledge of URI, any other party, in any such case in which such default or event would have a URI Material Adverse Effect. No party to any URI Contract has given notice to URI of or made a claim against URI with respect to any breach or default thereunder, in any such case in which such breach or default would have a URI Material Adverse Effect. Section 3.13 Opinion of Financial Advisor. URI has received the opinion of Goldman, Sachs & Co. ("Goldman"), dated the Signing Date, to the effect that, as of the date thereof, the Exchange Ratio to be exchanged by URI pursuant to this Agreement is fair from a financial point of view to URI. Section 3.14 Vote Required. The approval of (a) an amendment to the certificate of incorporation of URI to the increase in the number of authorized shares of URI Common Stock to 500,000,000 shares (the "Charter Amendment") by the holders of a majority of the votes entitled to be cast by all holders of URI Common Stock and (b) the issuance of URI Common Stock pursuant to the Merger (the "Share Issuance") by the holders of a majority of all shares of URI Common Stock casting votes in accordance with the rules of the New York Stock Exchange (collectively, the "URI Shareholders' Approval") is the only vote of the holders of any class or series of the capital stock of URI required to approve this Agreement and the transactions contemplated hereby, including the Merger. Section 3.15 Reorganization and Accounting Matters. Neither URI nor, to URI's best knowledge, any of its Affiliates has taken or agreed to take any action that would (a) prevent the Merger from constituting a reorganization within the meaning of Section 368(a) of the Code or (b) prevent URI and the Surviving Corporation from accounting for the transactions to be effected pursuant to this Agreement as a pooling-of-interests in accordance with GAAP, APB 16 and applicable SEC regulations. URI has no reason to believe that the transaction contemplated by this Agreement will not qualify as a pooling-of- interest transaction in accordance with GAAP, APB 16 and applicable SEC regulations. Section 3.16 Brokers. Except for Goldman, whose fees have been disclosed to USR prior to the Signing Date, no broker, finder or investment banker is entitled to any brokerage, finder's or other fee or commission in connection with the Merger or the transactions contemplated by this Agreement based upon arrangements made by or on behalf of URI. A-18 ARTICLE IV Conduct of Business Pending the Merger Section 4.1 Covenants of the Parties. After the Signing Date and prior to the Effective Time or earlier termination of this Agreement, USR and URI each agree as follows, each as to itself and to each of its subsidiaries (which, in the case of URI, includes MERGER SUB), as the case may be, except for the URI Reorganization or as otherwise expressly contemplated or permitted in this Agreement, or to the extent the other parties hereto shall otherwise consent in writing, which consent shall not be unreasonably withheld or delayed: (a) Ordinary Course of Business. Each party hereto shall, and shall cause its subsidiaries to, carry on their respective businesses in the usual, regular and ordinary course consistent with past custom and practice and use all commercially reasonable efforts to preserve intact their present business organizations and goodwill, preserve the goodwill and relationships with customers, suppliers and others having business dealings with them and, subject to prudent management of work force needs and ongoing programs currently in force, keep available the services of their present officers and employees, provided, however, that nothing shall prohibit or restrict either party or any of its subsidiaries from (i) transferring operations to such party or any of its wholly owned subsidiaries, (ii) agreeing to consummate or consummating acquisitions of entities engaged in, or assets useful in, the equipment rental business, (iii) incurring additional indebtedness or refinancing its outstanding indebtedness, or (iv) issuing additional equity or debt securities, provided that neither party shall issue any securities (or options, warrants or rights in respect of the same) to any of their respective directors, officers or employees except for, in the case of USR, issuances of shares of USR Common Stock pursuant to outstanding USR Stock Options (as defined in Section 5.10 hereof) and options to purchase not more than 100,000 shares of USR Common Stock pursuant to the USR Stock Plan granted to employees other than directors and present officers, provided that the vesting of such options shall not accelerate upon the Merger, and in the case of URI, issuances of securities (including stock options at fair market value) pursuant to URI's 1997 Stock Option Plan and issuances of URI Common Stock pursuant to the exercise of outstanding options and warrants to acquire URI Common Stock as disclosed pursuant to Section 3.3 hereof. (b) Dividends. No party shall, nor shall any party permit any of its subsidiaries to, (i) declare or pay any dividends on or make other distributions in respect of any of their capital stock other than to such party or its wholly owned subsidiaries and other than, in the case of URI, distributions of shares of URI Common Stock to effect any stock split, (ii) combine or reclassify any of their capital stock or issue or authorize or propose the issuance of any other securities in lieu of or in substitution for shares of their capital stock or (iii) redeem, repurchase or otherwise acquire any shares of its capital stock except, in the case of URI, for repurchases of URI Common Stock (and warrants to acquire the same) pursuant to the terms of agreements publicly disclosed in the URI SEC Reports prior to the Signing Date. (c) Charter Documents. No party shall amend or propose to amend its respective charter or by-laws, or similar governing documents, except as contemplated herein and except, in the case of URI, for the Charter Amendment. (d) No Dispositions. Except as set forth in Section 4.1(d) of the USR Disclosure Schedule or 4.1(d) of the URI Disclosure Schedule, no party shall, nor shall any party permit any of its subsidiaries to, sell or dispose of any of its assets (including capital stock of subsidiaries) other than (i) dispositions by a party or its subsidiaries of assets that, individually or in the aggregate with all other assets disposed by such party and its subsidiaries since the Signing Date (other than assets disposed in accordance with clause (ii) below), generated less than $10 million in gross revenues during the 12 month period immediately preceding the date of disposition or (ii) sales of equipment or merchandise inventory and dispositions of assets in the ordinary course of business consistent with prior custom and practice. (e) Accounting. No party shall, nor shall any party permit any of its subsidiaries to, make any changes in their accounting methods, except as required by law, rule, regulation or GAAP. A-19 (f) Pooling. No party shall, nor shall any party permit any of its subsidiaries to, take any action which would, or would be reasonably likely to, prevent URI and the Surviving Corporation from accounting for the transactions to be effected pursuant to this Agreement as a pooling-of- interests in accordance with GAAP, APB 16 and applicable SEC regulations, and each party hereto shall use all commercially reasonable efforts to achieve such accounting treatment (including taking such commercially reasonable actions as may be necessary to cure any facts or circumstances that could prevent such transactions from qualifying for pooling-of- interests accounting treatment). (g) Cooperation, Notification. Each party shall (i) confer on a regular and frequent basis with one or more representatives of the other party to discuss, subject to applicable law, material operational matters and the general status of its ongoing operations, (ii) promptly notify the other party of any significant changes in its business, properties, assets, condition (financial or other), results of operations or prospects, (iii) promptly advise the other party of any material inaccuracy in any of its representations or warranties herein or of change or event which has had or, insofar as reasonably can be foreseen, is reasonably likely to result in, in the case of USR, a USR Material Adverse Effect or, in the case of URI, a URI Material Adverse Effect and (iv) promptly provide the other party with copies of all filings made by such party or any of its subsidiaries with any Governmental Authority in connection with this Agreement and the transactions contemplated hereby. (h) Third-Party Consents. Each party hereto shall, and shall cause its subsidiaries to, use all commercially reasonable efforts to obtain all consents required in connection with the transactions contemplated by this Agreement, and each party hereto shall promptly notify the other parties of any failure or prospective failure to obtain any such consents and, if requested by the other party, shall provide such other party with copies of all material filings and correspondence in connection with, and evidence of, all consents applied for or obtained. (i) No Breach, Etc. No party shall, nor shall any party permit any of its subsidiaries to, willfully take any action that would or is reasonably likely to result in a material breach of any provision of this Agreement or in any of its representations and warranties set forth in this Agreement being untrue as of the Closing Date. (j) Insurance. Each party shall, and shall cause its subsidiaries to, maintain with financially responsible insurance companies insurance in such amounts and against such risks and losses as are customary for companies of its size engaged in the equipment rental industry; provided, however, that the foregoing shall not apply to USR's self insurance arrangements as referenced in Section 4.1(j) of the USR Disclosure Schedule so long as USR does not change such arrangements. (k) Permits. Each party shall, and shall cause its subsidiaries to, use reasonable efforts to maintain in effect all existing governmental permits which are material to the operations of such party or its subsidiaries. (l) Compensation, Benefits. Except, in the case of USR, as set forth in Section 4.1(l) of the USR Disclosure Schedule, and in the case of URI, except for the adoption of the United Rentals, Inc. 1998 Stock Option Plan (for officers and directors) and the United Rentals stock option plan for employees, consultants and independent contractors (in substantially the forms of the drafts of such plans previously delivered by URI to USR) and as otherwise set forth in Section 4.1(l) of the URI Disclosure Schedule, and in each case, except as may be required by applicable law or as contemplated by this Agreement, no party shall, nor shall any party permit any of its subsidiaries to, (i) enter into, adopt or amend or increase the amount or accelerate the payment or vesting of any benefit or amount payable under, any employee benefit plan or other contract, agreement, commitment, arrangement, plan, trust, fund or policy maintained by, contributed to or entered into by such party or any of its subsidiaries or increase, or enter into any contract, agreement, commitment or arrangement to increase in any manner, the compensation or fringe benefits, or otherwise to extend, expand or enhance the engagement, employment or any related rights, of any director, officer or other employee of such party or any of its subsidiaries, except for normal extensions and increases for employees other than officers or directors in the ordinary course of business consistent with past practice that, in the aggregate, do not result in a material increase in benefits or compensation expense to such party or any of A-20 its subsidiaries or in connection with any acquisition permitted by Section 4.1(a) hereof; (ii) enter into or amend any employment, severance or special pay arrangement with respect to the termination of employment or other similar contract, agreement or arrangement with any director or officer or other employee other than in the ordinary course of business consistent with past practice; or (iii) deposit into any trust (including any "rabbi trust") amounts in respect of any employee benefit obligations or obligations to directors; provided that transfers into any trust, other than a rabbi or other trust with respect to any non-qualified deferred compensation, may be made in accordance with past practice. ARTICLE V Additional Agreements Section 5.1 Access to Information. Upon reasonable notice and subject to applicable law, each party shall, and shall cause its subsidiaries to, afford to the officers, directors, employees, accountants, counsel, investment bankers, financial advisors and other representatives of the other (collectively, "Representatives") reasonable access, during normal business hours throughout the period prior to the Effective Time, to all of its properties, books, contracts, commitments and records (including Tax Returns) and, during such period, each party shall, and shall cause its subsidiaries to, furnish promptly to the other (i) access to each report, schedule and other document filed or received by it or any of its subsidiaries pursuant to the requirements of federal or state securities laws or filed with or sent to the SEC, the Department of Justice, the Federal Trade Commission or any other Governmental Authority and (ii) access to all information concerning themselves, their subsidiaries, directors, officers and stockholders and such other matters as may be reasonably requested by the other party in connection with any filings, applications or approvals required or contemplated by this Agreement or for any other reason related to the transactions contemplated by this Agreement; provided, however, that information with respect to specific contemplated or pending acquisitions will not be made available until the condition set forth in Section 6.1(e) with respect to the HSR Act has been satisfied and the Joint Proxy/Registration Statement contemplated by Section 5.2(a) has been mailed to the respective stockholders of URI and USR. Each party shall, and shall cause its subsidiaries and Representatives to, hold in strict confidence all documents and information concerning the other furnished to it in connection with the transactions contemplated by this Agreement in accordance with the Confidentiality Agreements, dated March 26, 1998 and April 13, 1998, between USR and URI, as they may be amended from time to time (the "Confidentiality Agreement"). Section 5.2 Joint Proxy Statement and Registration Statement; Shareholders' Approval. (a) Preparation and Filing. The parties hereto shall prepare and file with the SEC as soon as reasonably practicable after the Signing Date the Proxy Statement and, as soon as the parties are notified that the SEC has no further comments on the Proxy Statement, URI will prepare and file with the SEC the Registration Statement in which a prospectus, the Proxy Statement and form of proxy will be included (collectively, the "Joint Proxy/Registration Statement"). URI shall use its best efforts to cause the Registration Statement to be declared effective under the Securities Act as promptly as practicable after such filing, and URI shall also take such action as is required to cause the shares of URI Common Stock issuable in connection with the Merger to be registered or to obtain an exemption from registration under applicable state "blue sky" or securities laws; provided, however, that URI shall not be required to register or qualify as a foreign corporation or to take other action which would subject it to service of process or general taxation in any jurisdiction where URI and the Surviving Corporation will not be, following the Merger, so subject. URI shall also use its best efforts to cause the shares of URI Common Stock issuable in the Merger to be approved for listing on the New York Stock Exchange subject to official notice of issuance. Each of the parties hereto shall furnish all information concerning itself which is required or customary for inclusion in the Joint Proxy/Registration Statement. The information provided by any party hereto for use in the Joint Proxy/Registration Statement shall be true and correct in all material respects without misstatement of any material fact or omission of any material fact which is necessary or required to make the statements therein, in light of the circumstances under which they were made, not false or misleading and, in the event any party becomes aware prior to the Effective Time of any information that should be included A-21 in the Joint Proxy/Registration Statement such that the Joint Proxy/Registration Statement shall not contain any misstatement of any material fact or omission of any material fact which is necessary or required to make the statements therein, in light of the circumstances under which they were made, not false or misleading, such party shall promptly notify the other parties thereof and, to the extent required by applicable law, an appropriate amendment to the Joint Proxy/Registration Statement shall be promptly prepared, filed with the SEC and disseminated to stockholders. No part of the Joint Proxy/Registration Statement or any amendment or supplement thereto shall be filed by any party with the SEC or mailed to stockholders without providing the other parties a reasonable prior opportunity to review the same and comment thereon. No representation, covenant or agreement is made by any party hereto with respect to information supplied by any other party for inclusion in the Joint Proxy/Registration Statement. (b) Letter of USR's Accountants. USR shall use its reasonable best efforts to cause to be delivered to URI a letter of Price Waterhouse LLP dated the Closing Date stating that accounting for the Merger as a pooling-of-interests under GAAP, APB 16 and applicable SEC rules is appropriate if the Merger is consummated as contemplated by this Agreement. (c) Letter of URI's Accountants. URI shall use its reasonable best efforts to cause to be delivered to USR a letter of Ernst & Young LLP dated the Closing Date regarding their concurrence with URI management's conclusions as to the appropriateness of pooling-of-interests accounting for the Merger under APB 16 if the Merger is consummated as contemplated by this Agreement. (d) Shareholders' Meetings. URI and USR shall each use their respective reasonable best efforts to duly call, give notice of, convene and hold meetings of their respective stockholders as soon as reasonably practicable following the Signing Date, but in any event following the date on which the Registration Statement is declared effective by the SEC, such meetings shall, to the extent practicable, be held on the same date, as URI and USR shall mutually determine, or on such other dates as the parties may agree. URI and USR shall distribute to their respective stockholders, in accordance with applicable federal and state law and their respective certificates of incorporation and by-laws, the Proxy Statement for the purpose of securing the URI Shareholders' Approval and USR Shareholders' Approval, respectively, at such meetings, and unless, at any time after the 120th day following the Signing Date, the Board of Directors of a party shall conclude in good faith on the basis of advice of a nationally recognized firm of outside counsel that withholding such a recommendation may be necessary for such Board of Directors to act in a manner consistent with its fiduciary duties under applicable law, recommend to their respective stockholders the approval and adoption of the Merger and of this Agreement in the case of USR, or the approval of the Charter Amendment and the Share Issuance, in the case of URI, and cooperate and consult with the other parties hereto with respect to each of the foregoing matters. Section 5.3 Regulatory Matters. As soon as practicable following the Signing Date: (a) HSR Filings. Each party hereto shall file or cause to be filed with the Federal Trade Commission and the Department of Justice any notifications required to be filed by their respective "ultimate parent" companies under the HSR Act and the rules and regulations promulgated thereunder with respect to the transactions contemplated hereby. Such parties will use all commercially reasonable efforts to make such filings promptly and to respond on a timely basis to any requests for additional information made by either of such agencies. (b) Other Regulatory Approvals. Each party hereto shall cooperate and use its best efforts to promptly prepare and file all necessary documentation, to effect all necessary applications, notices, petitions, filings and other documents, and to use all commercially reasonable efforts to obtain all necessary permits, consents, approvals and authorizations of all Governmental Authorities required, necessary or advisable of it in connection with this Agreement and the transactions contemplated hereby. Section 5.4 Directors' and Officers' Indemnification. (a) Indemnification. From and after the Effective Time, URI shall, to the fullest extent permitted by applicable law, indemnify, defend and hold harmless each person who is now, or has been at any time prior to the Signing Date, or who becomes prior to the Effective Time, an officer or director of USR (each an "Indemnified Party" and collectively, the "Indemnified Parties") against (i) all losses, expenses (including A-22 reasonable attorney's fees and expenses), claims, damages or liabilities or amounts paid in settlement, arising out of actions or omissions occurring at or prior to the Effective Time (and whether asserted or claimed prior to, at or after the Effective Time) that are, in whole or in part, based on or arising out of the fact that such person is or was a director or officer of such party (the "Indemnified Liabilities"), and (ii) all Indemnified Liabilities to the extent they are based on or arise out of or pertain to the transactions contemplated by this Agreement; provided, however, that URI shall not be liable for any settlement effected without its written consent (which consent shall not be unreasonably withheld or delayed). URI shall be entitled to control the defense of all actions giving rise to such Indemnified Liabilities with a firm of counsel selected by URI to represent all Indemnified Parties as a group with respect to each such matter or group of related matters; provided that if, under applicable standards of professional conduct as expressed in an opinion of counsel reasonably satisfactory to URI, a conflict with respect to any significant issue between positions of any Indemnified Party and any other Indemnified Party or Indemnified Parties exists in connection with such matter, URI shall not be required to retain more than one separate firm of counsel (other than necessary local counsel) to represent all of the Indemnified Parties to which such conflict relates. (b) Insurance. For a period of six years after the Effective Time, URI shall cause to be maintained in effect policies of directors' and officers' liability insurance covering acts or omissions occurring prior to the Effective Time for the benefit of directors and officers of USR who are currently covered by such policies on terms no less favorable than the terms of such current insurance coverage; provided, however, that URI shall not be required to expend in any year an amount in excess of 150% of the annual aggregate premiums currently paid by USR for such insurance; and provided, further, that if the annual premiums of such insurance coverage exceed such amount, URI shall be obligated to obtain a policy with the best coverage available, in the reasonable judgment of the board of directors of URI, for a cost not exceeding such amount. (c) Director and Officer Liability. URI will cause the Surviving Corporation, for a period of six years after the Effective Date to (i) maintain in effect in its certificate of incorporation and by-laws the provisions regarding the elimination of liability of directors and indemnification of and advancement of expenses to officers, directors, employees and agents currently contained in the certificate of incorporation and by-laws of USR and (ii) maintain the existing indemnification agreements covering such directors of USR, copies of which have been provided to URI before the date of this Agreement. (d) Successors. In the event URI or any of its successors or assigns (i) consolidates with or merges into any other person or entity and shall not be the continuing or surviving corporation or entity of such consolidation or merger or (ii) transfers all or substantially all of its properties and assets to any person or entity, then and in either such case, proper provisions shall be made so that the successors and assigns of URI shall assume the obligations set forth in this Section 5.4. (e) Benefit. The provisions of this Section 5.4 are intended to be for the benefit of, and shall be enforceable by, each Indemnified Party, his or her heirs and his or her representatives. Section 5.5 Public Announcements. Subject to each party's disclosure obligations imposed by applicable law and stock exchange rules, USR and URI will coordinate with each other in the development and distribution of all news releases and other public information disclosures with respect to this Agreement or any of the transactions contemplated hereby. Section 5.6 Affiliate Letters. Section 5.6 of the USR Disclosure Schedule identifies all persons who are, and all persons who to USR's best knowledge will be at the Closing Date, "affiliates" of USR for purposes of Rule 145 under the Securities Act or for purposes of qualifying the Merger for pooling- of-interests accounting treatment under APB 16 and applicable SEC rules, and (b) Section 5.6 of the URI Disclosure Schedule identifies all persons who are, and all persons who to URI's best knowledge will be at the Closing Date, "affiliates" of URI for purposes of qualifying the Merger for pooling-of- interests accounting treatment under APB 16 and applicable SEC rules. USR and URI will each respectively cause such lists to be updated promptly through the Closing Date. On the Signing Date, USR caused its "affiliates" to deliver to URI a written agreement A-23 substantially in the form attached as Exhibit C (each, a "USR Affiliate Agreement"), and URI caused its "affiliates" to deliver to USR a written agreement substantially in the form attached as Exhibit D (each, a "URI Affiliate Agreement"). Section 5.7 No Solicitations. From and after the Signing Date, USR and URI shall not, and shall not authorize or permit any of their respective subsidiaries or Representatives to, directly or indirectly, solicit, initiate or encourage (including by way of furnishing information) or take any other action to facilitate knowingly any inquiries or the making of any proposal which constitutes or may reasonably be expected to lead to an Acquisition Proposal (as defined herein) from any person or entity, or engage in any discussion or negotiations relating thereto or accept any Acquisition Proposal; provided, however, that notwithstanding any other provision hereof, either party may (i) comply with Rule 14e-2 promulgated under the Exchange Act with regard to a tender or exchange offer; and (ii) at any time after the 120th day following the Signing Date and prior to the time USR stockholders shall have voted to adopt this Agreement, (A) engage in discussions or negotiations with a third party who (without any solicitation, initiation, encouragement, discussion or negotiation, directly or indirectly, by or with the party or its Representatives after the Signing Date) seeks to initiate such discussions or negotiations, and may furnish such third party information concerning the party and its business, properties and assets if, and only to the extent that, (1)(w) the third party has first made an Acquisition Proposal that the Board of Directors of such party believes in good faith (after consultation with its financial advisor) is reasonably capable of being completed, taking into account all relevant legal, financial, regulatory and other aspects of the Acquisition Proposal and the source of its financing, on the terms proposed and, believes in good faith (after consultation with its financial advisor and after taking into account the strategic benefits anticipated to be derived from the Merger and the long-term prospects of USR and URI as a combined company), would, if consummated, result in a transaction more favorable to the stockholders of USR or URI, as the case may be, from a financial point of view, than the transactions contemplated by this Agreement and believes in good faith (after consultation with its financial advisor) that the person making such Acquisition Proposal has, or is reasonably likely to have or obtain, any necessary funds or customary commitments to provide any funds necessary to consummate such Acquisition Proposal (any such more favorable Acquisition Proposal being referred in this Agreement as a "Superior Proposal") and (x) the party's Board of Directors shall conclude in good faith, after considering applicable provisions of state law, on the basis of advice of a nationally recognized firm of outside counsel, that such action may be necessary for the Board of Directors to act in a manner consistent with its fiduciary duties under applicable law, and (2) prior to furnishing such information to or entering into discussions or negotiations with such person or entity, such party (y) provides prompt notice to the other party to the effect that it is furnishing information to or entering into discussions or negotiations with such person or entity and (z) receives from such person or entity an executed confidentiality agreement in reasonably customary form on terms not materially more favorable to such person or entity than the terms contained in the Confidentiality Agreement, and/or (B) accept a Superior Proposal from a third party, provided that the conditions set forth in clauses (A)(1) and (A)(2) above have been satisfied and such party complies with and terminates this Agreement pursuant to Section 7.1(e) or 7.1(f), as applicable. Each party shall immediately cease and terminate any existing solicitation, initiation, encouragement, activity, discussion or negotiation with any persons or entities conducted heretofore by the party or its Representatives with respect to the foregoing. Each party hereto shall notify the other party orally and in writing of any such inquiries, offers or proposals (including the terms and conditions of any such proposal and the identify of the person making it), within 24 hours of the receipt thereof, and shall keep the other party informed of the status and details of any such inquiry, offer or proposal. As used herein, "Acquisition Proposal" shall mean a proposal or offer (other than by another party hereto) for a tender or exchange offer for the securities of a party hereto, or a merger, consolidation or other business combination involving an acquisition of a party or any material subsidiary of a party or any proposal to acquire in any manner a substantial equity interest in or a substantial portion of the assets of a party or any material subsidiary of a party. Section 5.8 Post-Merger Board of Directors. URI's Board of Directors will take such action as may be necessary to cause the number of directors comprising the full Board of Directors of URI at the Effective Time to be increased by four persons, two of whom shall be as set forth on Schedule 5.8 hereto, one of whom shall be a current director of USR chosen by URI, and one of whom shall be mutually agreed upon by the Chairman A-24 of each of USR and URI; provided that if, prior to the Effective Time, any such designee shall decline or be unable to serve, USR shall, subject to the written approval of URI, designate another person to serve in such person's stead. Section 5.9 Post-Merger Officers; Employment Agreements. (a) The Board of Directors of URI shall take such action as is required to cause the individuals listed on Schedule 5.9(a) hereto to be appointed, effective as of the Effective Time, to the offices of URI set forth opposite their respective names on such schedule. (b) At the Effective Time, URI shall enter into employment agreements with each of William F. Berry and John S. McKinney in substantially the form of Exhibits E-1 and E-2 hereto, respectively. (c) USR shall use its best efforts to cause the persons identified in writing to USR with reference to this Section to enter into employment agreements with URI acceptable to URI. Section 5.10 Stock Option Plans. (a) The Board of Directors of each of USR and URI shall take all such actions as may be necessary such that, subject to the provisions of Section 16 of the Exchange Act, as of the Effective Time each option to purchase shares of USR Common Stock pursuant to the USR Stock Plan (a "USR Stock Option") which is outstanding as of the Effective Time shall be assumed by URI and converted into an option (or a new substitute option shall be granted) to purchase the number of shares of URI Common Stock (rounded up to the nearest whole share) equal to the number of shares of USR Common Stock subject to such option multiplied by the Exchange Ratio, at an exercise price per share of URI Common Stock (rounded down to the nearest penny) equal to the former exercise price per share of USR Common Stock under such option immediately prior to the Effective Time divided by the Exchange Ratio; provided, however, that in the case of any USR Stock Option to which Section 421 of the Code applies by reason of its qualification under Section 422 of the Code, the conversion formula shall be adjusted, if necessary, to comply with Section 424(a) of the Code. Except as provided above and in Section 5.10(b) below, the substituted URI Stock Option shall be subject to the same terms and conditions (including expiration date, vesting and exercise provisions) as were applicable to the converted USR Stock Option immediately prior to the Effective Time. As soon as practicable after the Effective Time, URI shall deliver to the holders of USR Stock Options appropriate notices setting forth such holders' rights with respect thereto. URI shall reserve a sufficient number of shares of URI Common Stock for issuance upon exercise of converted USR Stock Options following the Merger. (b) URI shall use its best efforts to file (or cause to be filed) and have declared effective one or more registration statements on Form S-8 under the Securities Act (i) during URI's fiscal quarter ending March 31, 1999 registering such number of Option Shares (as defined below) as equals the Registration Amount (as defined below) and (ii) after URI's fiscal quarter ending March 31, 1999 and on or prior to the first anniversary of the Closing Date registering the remainder of the Option Shares. Except as set forth above, URI shall have no obligation to register under the Securities Act or any state securities laws any shares of URI Common Stock issuable upon exercise of converted USR Stock Options. As used in this Agreement, (A) the term "Option Shares" means shares of URI Common Stock issuable pursuant to outstanding USR Stock Options converted pursuant to Section 5.10(a); and (B) the "Registration Amount" with respect to the registration statement referred to in clause (i) of the preceding paragraph means one-third of the total number of Option Shares held by each holder of Option Shares at the time such registration statement is filed with the SEC plus any Option Shares held by an employee of USR that entered into an employment agreement with URI as of the Closing Date that died, became disabled or was terminated without "good cause" or resigned for "good reason" (as respectively defined in the Employment Agreements attached as Exhibit E hereto) during the period commencing on the Closing Date and ending prior to the date of such filing. Section 5.11 Employee Benefit Plans. The consummation of the Merger shall not be treated as a termination of employment for purposes of any USR Benefit Plan; provided, however, that nothing herein shall not prohibit URI and its subsidiaries from amending, terminating or otherwise modifying any USR Benefit Plan in accordance with its terms and applicable law. Each participant of any USR Benefit Plan shall receive credit for purposes of eligibility to participate and vesting under any benefit plan of URI or any of its subsidiaries that replaces a USR Benefit Plan. A-25 Section 5.12 Expenses. Subject to Section 7.3, all costs and expenses incurred in connection with this Agreement and the transactions contemplated hereby shall be paid by the party incurring such expenses, except that those expenses incurred in connection with printing and mailing the Joint Proxy/Registration Statement, as well as the filing fee relating thereto, shall be shared equally by USR and URI. Section 5.13 Reasonable Best Efforts; Further Assurances. Subject to Section 5.7 hereof, each party will, and will cause its subsidiaries to, use reasonable best efforts to (a) satisfy the conditions to Closing hereunder and consummate the transactions contemplated hereby as promptly as reasonably practicable, and (b) execute such further documents and instruments and take such further actions as may reasonably be requested by any other party in order to consummate the Merger in accordance with the terms hereof; provided that URI shall not be required to (or be required to agree to) dispose of or hold separate any material part of its or USR's business or operations (or a combination of URI's and USR's business or operations), or agree not to operate or compete in any geographic area or line of business, in order to satisfy the foregoing. Section 5.14 Cooperation with respect to Litigation. USR and URI shall cooperate in connection with, and shall each give the other a reasonable opportunity to participate in the defense of, any litigation against USR or URI, as applicable, relating to the transactions contemplated by this Agreement. Section 5.15 Subsidiaries. USR will take all action necessary to ensure that the subsidiaries listed on Schedule 2.2 of the USR Disclosure Schedule are wholly-owned by USR on or before the Effective Time. ARTICLE VI Conditions Section 6.1 Conditions to Each Party's Obligation to Effect the Merger. The respective obligations of each party to effect the Merger shall be subject to the satisfaction on or prior to the Closing Date of the following conditions, except, to the extent permitted by applicable law, that such conditions may be waived in writing pursuant to Section 7.5 by the joint action of the parties hereto: (a) Shareholder Approvals. The URI Shareholders' Approval and the USR Shareholders' Approval shall have been obtained and the Charter Amendment shall have been filed and become effective. (b) No Injunction. No temporary restraining order or preliminary or permanent injunction or other order by any Governmental Authority preventing consummation of the Merger shall have been issued and be continuing in effect, and the Merger and the other transactions contemplated hereby shall not be prohibited under any applicable federal or state law or regulation. (c) Registration Statement. The Registration Statement shall have become effective in accordance with the provisions of the Securities Act, and no stop order suspending such effectiveness shall have been issued and remain in effect. (d) Listing of Shares. The shares of URI Common Stock issuable in connection with the Merger pursuant to Article I shall have been approved for listing on the New York Stock Exchange subject to official notice of issuance. (e) Statutory Approvals. The waiting period (and any extension thereof) under the HSR Act applicable to the Merger shall have been terminated or shall have expired, and all other notices, filings, consents and approvals required by law or any Governmental Authority in connection with the Merger on the part of URI or USR the failure of which to have been made or obtained would violate any applicable law or cause a URI Material Adverse Effect or a USR Material Adverse Effect shall have been made and obtained. (f) Pooling. Each of USR and URI shall have received a letter of its independent public accountants, dated the Closing Date, addressed to and in form and substance reasonably satisfactory to USR and URI, respectively, regarding such accountants' concurrence with the conclusions of management of URI or USR, as the case may be, as to the appropriateness of pooling of interests accounting for the Merger under APB 16 if consummated in accordance with this Agreement. (g) Registration Rights Agreement. URI shall have entered into a Registration Rights Agreement in substantially the form of Exhibit F hereto with the Holders (as defined therein). A-26 Section 6.2 Conditions to Obligations of URI and MERGER SUB to Effect the Merger. The obligations of URI and MERGER SUB to effect the Merger shall be further subject to the satisfaction, on or prior to the Closing Date, of the following conditions, except as may be waived by URI and MERGER SUB in writing pursuant to Section 7.5: (a) Performance of Obligations of USR. USR shall have performed in all material respects its agreements and covenants contained in or contemplated by this Agreement which are required to be performed by it at or prior to the Effective Time. (b) Representations and Warranties. The representations and warranties of USR set forth in this Agreement shall be true and correct (i) on and as of the Signing Date and (ii) on and as of the Closing Date with the same effect as though such representations and warranties had been made on and as of the Closing Date (except for representations and warranties that expressly speak only as of a specific date or time which need only be true and correct as of such date or time) except in each of cases (i) and (ii) for such failures of representations or warranties to be true and correct (without giving effect to any materiality qualification or standard contained in any such representations and warranties) which, individually or in the aggregate, do not and would not be reasonably likely to result in a USR Material Adverse Effect. (c) Closing Certificates. URI shall have received a certificate signed by the chief executive officer and chief financial officer of USR, dated the Closing Date, to the effect that, to the best of such officers' knowledge, the conditions set forth in Section 6.2(a) and Section 6.2(b) have been satisfied. (d) USR Material Adverse Effect. No USR Material Adverse Effect shall have occurred. (e) Tax Opinion. URI shall have received an opinion from Weil, Gotshal & Manges LLP ("WGM"), counsel to URI, in form and substance reasonably satisfactory to URI, dated as of the Closing Date, substantially to the effect that (i) the Merger will constitute a reorganization for United States federal income tax purposes within the meaning of Section 368(a) of the Code, (ii) USR, URI and MERGER SUB will each be a party to the reorganization within the meaning of Section 368(b) of the Code, and (iii) no gain or loss will be recognized by USR, URI or MERGER SUB pursuant to the Merger. In rendering such opinion, WGM may require and rely upon representations contained in certificates of officers of USR, URI and MERGER SUB and others. (f) Affiliate Agreements. URI shall have received the USR Affiliate Agreements contemplated by Section 5.6 duly executed by each "affiliate" of USR. (g) Consents. URI shall have received the consents or waivers with respect to the Merger and the transactions contemplated by this Agreement set forth on Schedule 6.2(g) hereto. (h) Employment Agreements. Each of William F. Berry and John S. McKinney shall have executed the employment agreements with URI described in Section 5.9(b). Section 6.3 Conditions to Obligation of USR to Effect the Merger. The obligation of USR to effect the Merger shall be further subject to the satisfaction, on or prior to the Closing Date, of the following conditions, except as may be waived by USR in writing pursuant to Section 7.5: (a) Performance of Obligations of URI. URI and MERGER SUB shall have performed in all material respects their agreements and covenants contained in or contemplated by this Agreement which are required to be performed by them at or prior to the Effective Time. (b) Representations and Warranties. The representations and warranties of URI and MERGER SUB set forth in this Agreement shall be true and correct (i) on and as of the Signing Date and (ii) on and as of the Closing Date with the same effect as though such representations and warranties had been made on and as of the Closing Date (except for representations and warranties that expressly speak only as of a specific date or time which need only be true and correct as of such date or time) except in each of cases (i) and (ii) for such failures of representations or warranties to be true and correct (without giving effect to any materiality qualification or standard contained in any such representations and warranties) which, individually or in the aggregate, do not and would not be reasonably likely to result in a URI Material Adverse Effect. A-27 (c) Closing Certificates. USR shall have received a certificate signed by the chief executive officer and chief financial officer of URI, dated the Closing Date, to the effect that, to the best of such officers' knowledge, the conditions set forth in Section 6.3(a) and Section 6.3(b) have been satisfied. (d) URI Material Adverse Effect. No URI Material Adverse Effect shall have occurred. (e) Tax Opinion. USR shall have received an opinion from O'Melveny & Myers LLP, counsel to USR, in form and substance reasonably satisfactory to USR, dated as of the Closing Date, substantially to the effect that (i) the Merger will constitute a reorganization for United States federal income tax purposes within the meaning of Section 368(a) of the Code, (ii) USR, URI and MERGER SUB will each be a party to the reorganization within the meaning of Section 368(b) of the Code, and (iii) no gain or loss will be recognized by stockholders of USR as a result of the Merger (except to the extent that cash is received in lieu of fractional share interests). In rendering such opinion, such counsel may require and rely upon representations contained in certificates of officers of USR, URI and MERGER SUB and others. (f) Affiliate Agreements. USR shall have received the URI Affiliate Agreements contemplated by Section 5.6 duly executed by each "affiliate" of URI. (g) Employment Agreements. URI shall have (i) executed the employment agreements with each of William F. Berry and John S. McKinney described in Section 5.9(b) and (ii) offered each employee of USR that is a holder of outstanding USR Stock Options the opportunity to enter into an at-will employment agreement with URI on terms comparable to those offered to similarly situated employees of URI. ARTICLE VII Termination, Amendment and Waiver Section 7.1 Termination. This Agreement may be terminated at any time prior to the Effective Time, whether before or after the USR Shareholders' Approval and/or the URI Shareholders' Approval: (a) by mutual written consent of the respective boards of directors of USR, URI and MERGER SUB; (b) by either URI or USR (i) if there has been any breach of any representations, warranties, covenants or agreements on the part of the other set forth in this Agreement, which breaches individually or in the aggregate would result in a URI Material Adverse Effect or a USR Material Adverse Effect, as the case may be, and which breaches have not been cured or are incapable of being cured within 20 days following receipt by the breaching party of notice of such breach or adequate assurance of such cure shall not have been given by or on behalf of the breaching party within such 20-day period, (ii) if the Board of Directors of the other or any committee of the Board of Directors of the other (A) shall approve, recommend or accept any Superior Proposal with respect to such party, or (B) shall resolve to take any of the actions specified in clause (A), or (iii) if any state or federal law, order, rule or regulation is adopted or issued which has the effect, as supported by the written opinion of outside counsel for such party, of prohibiting the Merger, or by any party hereto if any court of competent jurisdiction in the United States or any state shall have issued an order, judgment or decree permanently restraining, enjoining or otherwise prohibiting the Merger, and such order, judgment or decree shall have become final and nonappealable; (c) by any party hereto, by written notice to the other parties, if the Effective Time shall not have occurred, for any reason, on or before December 31, 1998 (the "Walk-Away Date"); provided, however, that the right to terminate this Agreement under this Section 7.1(c) shall not be available to any party whose failure to fulfill any obligation under this Agreement has been the cause of, or resulted in, the failure of the Effective Time to occur on or before such date; provided, further, that such party's right to terminate the Agreement under this Section 7.1(c) shall be restored if such failure has been cured, and the Walk-Away Date shall be deemed to be extended by the number of days elapsed between such failure and its cure; (d) by any party hereto, by written notice to the other parties, if at a duly held meeting of URI shareholders convened for purposes of obtaining the same, the URI Shareholders' Approval shall not have been obtained, including any adjournments thereof, or if at a duly held meeting of USR shareholders A-28 convened for purposes of obtaining the same, the USR Shareholders' Approval shall not have been obtained, including any adjournments thereof; (e) by USR, at any time after 120 days after the Signing Date and prior to obtaining the USR Shareholder's Approval, and on 72 hours prior notice to URI (the "USR Notice") (i) if USR's Board of Directors withdraws or modifies, or resolves to withdraw or modify, in any manner material to URI, its approval or recommendation of this Agreement or the Merger pursuant to and in accordance with Section 5.2(d) hereof or (ii) pursuant to Section 5.7(ii)(B) but only if during the 72 hour period after the USR Notice, (A) USR shall have negotiated with, and shall have caused its respective financial and legal advisors to negotiate with, URI to attempt to make such commercially reasonable adjustments in the terms and conditions of this Agreement as would enable USR to proceed with the transactions contemplated herein and (B) the Board of Directors of USR shall have concluded, after considering the results of such negotiations, that any Superior Proposal giving rise to such USR Notice continues to be a Superior Proposal as defined in Section 5.7. USR may not effect such termination unless contemporaneously therewith USR pays to URI in immediately available funds the fees required to be paid pursuant to Section 7.3(b). (f) by URI, at any time after 120 days after the Signing Date and prior to obtaining the URI Shareholder's Approval and on 72 hours prior notice to URI (the "URI Notice") (i) if URI's Board of Directors withdraws or modifies, or resolves to withdraw or modify, in any manner material to USR, its approval or recommendation of this Agreement or the Merger pursuant to and in accordance with Section 5.2(d) hereof of (ii) pursuant to Section 5.7(ii)(B) but only if during the 72 hour period after the URI Notice, (A) URI shall have negotiated with, and shall have caused its respective financial and legal advisors to, negotiate with USR to attempt to make such commercially reasonable adjustments in the terms and conditions of this Agreement as would enable URI to proceed with the transactions contemplated herein and (B) but only if the Board of Directors of URI shall have concluded, after considering the results of such negotiations, that any Superior Proposal giving rise to such URI Notice continues to be a Superior Proposal as defined in Section 5.7. URI may not effect such termination unless contemporaneously therewith URI pays to USR in immediately available funds the fees required to be paid pursuant to Section 7.3(b). Section 7.2 Effect of Termination. Except as provided in Section 7.3, in the event of termination of this Agreement by either USR or URI pursuant to Section 7.1 there shall be no liability on the part of either USR or URI or their respective officers or directors hereunder, except that Section 5.12 and Section 7.3, the agreement contained in the last sentence of Section 5.1, and Article VIII shall survive any such termination. Section 7.3 Termination Fees; Expenses. (a) Termination Fee upon Breach. If this Agreement is terminated pursuant to Section 7.1(b)(i), then the breaching party shall promptly (but not later than five business days after receipt of notice from the non-breaching party) pay to the non-breaching party a fee of $15 million in cash, minus any such amounts as may have been previously paid by such breaching party pursuant to this Section 7.3; provided, however, that, if this Agreement is terminated by a party as a result of a willful breach by the other party, the breaching party shall pay to the non-breaching party a fee of $30 million in cash, minus any amounts as may have been previously paid by such breaching party pursuant to this Section 7.3. The fees and expenses set forth in this Section 7.3 shall not be the exclusive remedy available against any party that breaches this Agreement. (b) Termination Fee Upon Certain Events. If this Agreement is terminated (A) by USR pursuant to Section 7.1(e), (B) by URI pursuant to Section 7.1(f), (C) in the circumstances described in Section 7.1(b)(ii), or (D) by a party as a result of the other party's breach of Section 5.2(d), then the party whose action gave rise to the right to terminate shall pay to the other party a fee of $30 million in cash minus any amounts as may have been previously paid by such party pursuant to this Section 7.3. (c) Additional Termination Fees. If this Agreement is terminated: (i) following a failure of the shareholders of a party to grant the necessary approval described in Section 2.14 or 3.14, as the case may be; and A-29 (ii) prior to the meeting of the shareholders of the party whose shareholders failed to grant the necessary approval, there shall have been an Acquisition Proposal involving such party or any of its Affiliates (whether or not such Acquisition Proposal shall have been rejected or shall have been withdrawn prior to the time of such termination or of the shareholders' meeting); and (iii) within 12 months of any such termination described in clause (i) above, the party or its Affiliate which is the subject of the Acquisition Proposal (the "Target Party") becomes a subsidiary of the offeror of such Acquisition Proposal or an Affiliate thereof or accepts a written offer to consummate or consummates an Acquisition Proposal with such offeror or Affiliate thereof, then such Target Party (jointly and severally with its Affiliates), upon the signing of a definitive agreement relating to such an Acquisition Proposal, or, if no such agreement is signed then at the closing (and as a condition to the closing) of such Target Party becoming such a subsidiary or of such Acquisition Proposal, shall pay to the other party a fee of $30 million in cash minus any amounts as may have been previously paid by the Target Party pursuant to this Section 7.3. (d) Expenses. The parties agree that the agreements contained in this Section 7.3 are an integral part of the transactions contemplated by this Agreement. No termination by a party of this Agreement under Article VII hereof shall be effective unless and until all fees required to be paid by such party pursuant to Section 7.3 hereof shall have been received in immediately available funds by the other party. Notwithstanding anything to the contrary contained in this Section 7.3, if one party fails to promptly pay to the other any fee due under Sections 7.3(a), (b) or (c), in addition to any amounts paid or payable pursuant to such sections, the defaulting party shall pay the costs and expenses (including legal fees and expenses) in connection with any action, including the filing of any lawsuit or other legal action, taken to collect payment, together with interest on the amount of any unpaid fee at the publicly announced prime rate of Citibank, N.A. from the date such fee was required to be paid. Section 7.4 Amendment. This Agreement may be amended by the Boards of Directors of the parties hereto, at any time before or after the USR Shareholders' Approval and/or the URI Shareholders' Approval and prior to the Effective Time, but after such shareholder approvals no such amendment which by law requires further approval by such shareholders shall be made without such further approval. This Agreement may not be amended except by an instrument in writing signed on behalf of each of the parties hereto. Section 7.5 Waiver. At any time prior to the Effective Time, a party hereto may (a) extend the time for the performance of any of the obligations or other acts of the other parties hereto, (b) waive any inaccuracies in the representations and warranties contained herein or in any document delivered pursuant hereto and (c) subject to Section 7.4 hereof, waive compliance with any of the agreements or conditions contained herein, to the extent permitted by applicable law. Any agreement on the part of a party hereto to any such extension or waiver shall be valid only if set forth in an instrument in writing signed on behalf of such party. The failure of any party to assert any of its rights hereunder or otherwise shall not constitute a waiver of such rights. ARTICLE VIII General Provisions Section 8.1 Non-Survival of Representations and Warranties. No representations or warranties in this Agreement shall survive the Effective Time, except as otherwise provided in this Agreement. This Section 8.1 shall not limit any covenant or agreement of the parties set forth herein which by its terms contemplates performance or compliance after the Effective Time. Section 8.2 Notices. All notices and other communications hereunder shall be in writing and shall be deemed given (a) when delivered personally, (b) when sent by reputable overnight courier service, or (c) when telecopied (with answerback/confirmation of successful transmission received and which notice is confirmed by A-30 copy sent within one business day by a reputable overnight courier service) to the parties at the following addresses (or at such other address as shall be specified by like notice): (i) If to URI or MERGER SUB, to: United Rentals, Inc. Four Greenwich Office Park Greenwich, Connecticut 06830 Attn: Chief Executive Officer Telecopy: (203) 622-6080 Telephone: (203) 622-3131 with copies (which shall not constitute notice) to: Oscar D. Folger, Esq. 521 Fifth Avenue, 24th Floor New York, New York 10175 Telecopy: (212) 697-7833 Telephone: (212) 697-6464 and Weil, Gotshal & Manges LLP 767 Fifth Avenue New York, New York 10153 Attn: Stephen E. Jacobs, Esq. Stephen M. Besen, Esq. Telecopy: (212) 310-8007 Telephone: (212) 310-8000 and, (ii) if to USR, to: U.S. Rentals, Inc. 1581 Cummins Drive Modesto, California 95358 Attn: Chief Executive Officer Telecopy: (209) 544-6756 Telephone: (209) 544-9000 with a copy (which shall not constitute notice) to: O'Melveny & Myers LLP 1999 Avenue of the Stars Los Angeles, California 90067 Attn: Kent V. Graham, Esq. Telecopy: (310) 246-6779 Telephone: (310) 246-6820 Section 8.3 Entire Agreement. This Agreement (including the Exhibits hereto and the other documents and instruments referred to herein) and the Confidentiality Agreement constitute the entire agreement and supersede all other prior agreements (including the June Agreement) and understandings, both written and oral, among the parties, or any of them, with respect to the subject matter hereof. Section 8.4 Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware applicable to contracts executed in and to be fully performed in such State, without giving effect to its conflicts of law rules or principles. Section 8.5 Interpretation. When a reference is made in this Agreement to Sections or Exhibits, such reference shall be to a Section or Exhibit of this Agreement, respectively, unless otherwise indicated. The table A-31 of contents and section headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. As used in this Agreement, the term "person" includes any individual, corporation, limited liability company, partnership, trust, unincorporated association, Governmental Authority or other entity. Whenever the words "include," "includes" or "including" are used in this Agreement, they shall be deemed to be followed by the words "without limitation." Section 8.6 Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original, but all of which shall constitute one and the same agreement. Section 8.7 Binding Nature; Assignment. This Agreement shall be binding upon and inure solely to the benefit of each party hereto, and, except as set forth in Sections 1.8, 1.9, 5.4 and 5.10, nothing in this Agreement, express or implied, is intended to confer upon any other person (including any employees of USR) any rights or remedies of any nature whatsoever under or by reason of this Agreement. This Agreement (and the respective rights and obligations of the parties hereunder) shall not be assigned (by operation of law or otherwise) without the express prior written consent of all parties hereto and any purported assignment without such consent shall be null and void. Section 8.8 WAIVER OF JURY TRIAL AND CERTAIN DAMAGES. EACH PARTY TO THIS AGREEMENT WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, (A) ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY ACTION, SUIT OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT AND (B) WITHOUT LIMITATION OF SECTIONS 5.7 AND 7.3 HEREOF, ANY RIGHT IT MAY HAVE TO RECEIVE DAMAGES FROM ANY OTHER PARTY BASED ON ANY THEORY OF LIABILITY FOR ANY SPECIAL, INDIRECT, CONSEQUENTIAL (INCLUDING LOST PROFITS) OR PUNITIVE DAMAGES. Section 8.9 Enforcement. The parties agree that irreparable damage would occur in the event that any of the provisions of this Agreement were not performed in accordance with their specific terms or were otherwise breached. It is accordingly agreed that the parties shall be entitled to an injunction or injunctions to prevent breaches of this Agreement and to enforce specifically the terms and provisions of this Agreement in any court of the United States or any state having jurisdiction, this being in addition to any other remedy to which they are entitled at law or in equity. Section 8.10 Submission to Jurisdiction; Waivers. Each of the parties hereto irrevocably agrees that any legal action or proceeding with respect to this Agreement or for recognition and enforcement of any judgment in respect hereof brought by the other party hereto or its successors or assigns shall be brought and determined in any federal court located in the State of Delaware or the Chancery or other courts of the State of Delaware, and each of the parties hereto irrevocably submits with regard to any such action or proceeding for itself and in respect to its property, generally and unconditionally, to the exclusive jurisdiction of the aforesaid courts. Each of the parties hereto irrevocably waives, and agrees not to assert, by way of motion, as a defense, counterclaim or otherwise, in any action or proceeding with respect to this Agreement, (a) any claim that it is not personally subject to the jurisdiction of the above-named courts for any reason other than the failure to serve process in accordance with this Section 8.10, (b) that it or its property is exempt or immune from jurisdiction of any such court or from any legal process commenced in such courts (whether through service of notice, attachment before judgment, attachment in aid of execution of judgment, execution of judgment or otherwise), and (c) to the fullest extent permitted by applicable law, that (i) the suit, action or proceeding in any such court is brought in an inconvenient forum, (ii) the venue of such suit, action or proceeding is improper or (iii) this Agreement, or the subject matter hereof, may not be enforced in or by such court. Each of the parties hereto further covenants and agrees that each such party shall maintain a duly appointed agent for service of summonses and other legal processes in the State of Delaware (a "Service Agent"), unless such party is organized under the laws of the State of Delaware or qualified to do business in the State of Delaware, and will notify the other parties hereto of the name and address of such Service Agent. [signature page follows] A-32 IN WITNESS WHEREOF, USR, URI and MERGER SUB have caused this Agreement to be signed by their respective officers thereunto duly authorized as of the date first written above. U.S. RENTALS, INC. By: /s/ John S. McKinney ---------------------------------- Name: John S. McKinney Title: Chief Financial Officer UNITED RENTALS, INC. By: /s/ Michael J. Nolan ---------------------------------- Name: Michael J. Nolan Title: Chief Financial Officer UR ACQUISITION CORPORATION By: /s/ Michael J. Nolan ---------------------------------- Name: Michael J. Nolan Title: Vice President A-33 EXHIBIT B VOTING AGREEMENT VOTING AGREEMENT, dated June 15, 1998 (this "Agreement"), by and among United Rentals, Inc, a Delaware corporation ("URI"), AYR Inc., a California corporation ("AYR"), and Richard D. Colburn, an individual who is the sole shareholder of AYR (the "Shareholder"). W I T N E S S E T H: WHEREAS, concurrently herewith, URI, a subsidiary of URI, and U.S. Rentals, Inc., a Delaware corporation (the "Company"), are entering into an Agreement and Plan of Merger (as such agreement may hereafter be amended from time to time, the "Merger Agreement"; capitalized terms used and not defined herein have the respective meanings ascribed to them in the Merger Agreement) pursuant to which MERGER SUB will be merged with and into the Company, with the Company as the surviving corporation and wholly-owned subsidiary of URI (the "Merger"); WHEREAS, AYR owns, beneficially and of record, 20,603,105 shares (the "Shares") of USR Common Stock and Shareholder owns, beneficially and of record, all of the outstanding capital stock of AYR; and WHEREAS, as an inducement and a condition to entering into the Merger Agreement, URI has required that each of Shareholder and AYR agree, and Shareholder and AYR have agreed, to enter into this Agreement; and further Shareholder has agreed to enter into this Agreement strictly in his capacity as a beneficial owner, through AYR, of the Shares and not in his capacity as a director of the Company. NOW, THEREFORE, in consideration of the foregoing and the mutual premises, representations, warranties, covenants and agreements contained herein, and intending to be legally bound hereby, the parties hereto hereby agree as follows: 1. Provisions Concerning the Shares. (a) Each of AYR and Shareholder hereby agree that during the period commencing on the date hereof and continuing until this provision terminates pursuant to Section 5 hereof, at any meeting of the holders of shares of USR Common Stock, however called, or in connection with any written consent of the holders of shares of USR Common Stock, each of AYR and Shareholder shall vote, (or cause to be voted) the Shares held of record or Beneficially Owned (as defined below) by Shareholder, whether heretofore owned or hereafter acquired, in favor of the Merger and the adoption of the Merger Agreement and any actions required in furtherance thereof and hereof. (b) Neither AYR nor Shareholder shall enter into any agreement or understanding with any Person (as defined below) the effect of which would be inconsistent or violative of the provisions of this Agreement. (c) For purposes of this Agreement: "Beneficially Own" or "Beneficial Ownership" with respect to any securities shall mean having "beneficial ownership" of such securities (as determined pursuant to Rule 13d-3 under the Securities Exchange Act of 1934, as amended (the "Exchange Act")), including pursuant to any agreement, arrangement or understanding, whether or not in writing; without duplicative counting of the same securities by the same holder, securities Beneficially Owned by a Person shall include securities Beneficially Owned by all other Persons with whom such Person would constitute a "group" within the meaning of Section 13(d)(3) of the Exchange Act; and "Person" shall mean an individual, corporation, partnership, limited liability company, joint venture, association, trust, unincorporated organization or other entity. (d) In the event of a stock dividend or distribution, or any change in the USR Common Stock by reason of any stock dividend, stock split, recapitalization, reclassification, combination, exchange of shares, merger or the B-1 like, the term "Shares" as used in this Agreement shall be deemed to refer to and include the Shares as well as all such stock dividends and distributions and any shares or other securities into which or for which any or all of the Shares may be converted, changed or exchanged. 2. Representations and Warranties. Each of Shareholder and AYR hereby represents and warrants to URI as follows: (a) Ownership of Shares. Shareholder is the record and Beneficial Owner of all of the shares of AYR and AYR is the record and beneficial owner of all of the Shares. On the date hereof, the Shares constitute all of the shares of USR Common Stock owned of record or Beneficially Owned by AYR or Shareholder. Shareholder and AYR have shared voting power and shared power to issue instructions with respect to the matters set forth in Section 1 hereof, shared power of disposition and shared power to agree to all of the matters set forth in this Agreement, in each case with respect to all of the Shares, with no limitations, qualifications or restrictions on such rights (subject to applicable securities laws). (b) Power; Binding Agreement. Shareholder has the legal capacity, power and authority, and AYR has the corporate power and authority, to enter into and perform all of their respective obligations under this Agreement. This Agreement has been duly and validly authorized, executed and delivered by each of Shareholder and AYR and constitutes a valid and binding agreement of each of Shareholder and AYR, enforceable against each of Shareholder and AYR in accordance with its terms. There is no beneficiary or holder of a voting trust certificate or other interest of any trust of which AYR or Shareholder is settlor or trustee whose consent is required for the execution and delivery of this Agreement or the consummation by AYR or Shareholder of the transactions contemplated hereby. (c) Organization. AYR (i) is a corporation duly organized, validly existing and in good standing under the laws of the State of California and (ii) has all requisite corporate power and authority to own its properties and assets and to carry on its business as it is now being conducted. (d) No Conflicts. (i) Except for filings under the HSR Act, the Securities Act and Exchange Act, no filing with, and no permit, authorization, consent or approval of, any state or federal public body or authority is necessary for the execution of this Agreement by Shareholder and the consummation by Shareholder of the transactions contemplated hereby and (ii) none of the execution and delivery of this Agreement by Shareholder, the consummation by Shareholder of the transactions contemplated hereby or compliance by Shareholder with any of the provisions hereof will (A) result in a violation or breach of, or constitute (with or without notice or lapse of time or both) a default (or give rise to any third party right of termination, cancellation, material modification or acceleration) under any of the terms, conditions or provisions of any declaration of trust, note, bond, mortgage, indenture, security or pledge agreement, voting agreement, shareholders' agreement or voting trust, license, contract, commitment, arrangement, understanding, agreement or other instrument or obligation of any kind to which Shareholder is a party or by which Shareholder or any of Shareholder's properties or assets may be bound, or (B) violate any order, writ, injunction, decree, judgment, order, statute, rule or regulation applicable to Shareholder or any of Shareholder's properties or assets. (e) Reliance by URI. Shareholder and AYR understand and acknowledge that URI is entering into the Merger Agreement in reliance upon execution and delivery of this Agreement by Shareholder and AYR. (f) Sophistication. Shareholder acknowledges that Shareholder is an informed and sophisticated investor and, together with Shareholder's advisors, has undertaken such investigation as they have deemed necessary, including the review of the Merger Agreement and this Agreement, to enable Shareholder to make an informed and intelligent decision with respect to the Merger Agreement and this Agreement and the transactions contemplated thereby and hereby. (g) No Broker. Except for fees payable by the Company and disclosed pursuant to Section 2.16 of the Merger Agreement, no broker, investment banker, financial adviser or other Person is entitled to any commission, broker's fee, finder's fee, adviser's fee or similar fee in connection with the transactions contemplated by this Agreement based upon arrangements made by or on behalf of Shareholder or AYR. B-2 3. No Solicitation. (a) From and after the date hereof and continuing until this provision terminates pursuant to Section 5 hereof, neither AYR nor Shareholder shall directly or indirectly, initiate, solicit or encourage (including by way of furnishing non-public information or assistance), or take any other action to facilitate, any inquiries or the making of any proposal that constitutes, or may reasonably be expected to lead to, any Acquisition Proposal with respect to the Company or enter into or maintain or continue discussions or negotiate with any Person in furtherance of such inquiries or to obtain such an Acquisition Proposal or agree to or endorse any such Acquisition Proposal, and Shareholder shall promptly notify URI orally (in all events within 24 hours) and in writing (as promptly thereafter as practicable) of the material terms and status of all inquiries and proposals which Shareholder or any agent of Shareholder may receive after the date hereof relating to any of such matters and, if such inquiry or proposal is in writing, Shareholder shall deliver to URI a copy of such inquiry or proposal promptly; provided, however, that, notwithstanding any other provision of this Agreement, Shareholder, as a member of the board of directors of the Company, may take any action in his capacity as a director that the board of directors of the Company would be permitted to take in accordance with Sections 5.7 and 7.1 of the Merger Agreement. Shareholder will immediately cease and cause to be terminated any existing activities, discussions or negotiations, with any parties conducted heretofore with respect to any of the foregoing. (b) URI acknowledges that this Agreement is entered into by the Shareholder in his capacity as a beneficial owner, through AYR, of the Shares, and that nothing in this Agreement shall in any way restrict or limit the Shareholder from taking any action in his capacity as a director or officer of USR or otherwise fulfilling his fiduciary obligations as a director or officer of USR, notwithstanding that any such action would be inconsistent with or violative of his obligations under this Agreement if taken in his capacity as a beneficial owner, through AYR, of the Shares. 4. Restriction on Transfer; Proxies; Non-Interference; Stop Transfers; etc. (a) Neither AYR nor Shareholder shall directly or indirectly, during the period commencing on the date hereof and continuing until this provision terminates pursuant to Section 5 hereof: (i) except as contemplated by the Merger Agreement or for transfers to charitable foundations before June 30, 1998, provided the transferee of the transferred shares takes such shares subject to the provisions of this Agreement, offer for sale, sell, transfer, tender, pledge, encumber, assign or otherwise dispose of, or grant or enter into any contract, option or other arrangement or understanding with respect to or consent to the offer for sale, sale, transfer, tender, pledge, encumbrance, assignment or other disposition of, any or all of the Shares or any interest therein (including any interest in AYR); (ii) except as contemplated by this Agreement, grant any proxies or powers of attorney, deposit any Shares into a voting trust or enter into a voting agreement with respect to any Shares; or (iii) take any action that would make any of AYR's or Shareholder's representations or warranties contained herein untrue or incorrect or have the effect of preventing or disabling AYR or Shareholder from performing their respective obligations under this Agreement; provided that the foregoing shall not prevent AYR or Shareholder from pledging any of the Shares to a bank or other financial institution or to prevent such bank or financial institution from selling the Shares on foreclosure so long as AYR or Shareholder retain the right to vote such Shares if the pledge has not been foreclosed upon. (b) AYR agrees with, and covenants to, URI that AYR shall not, during the period set forth in Section 4(a), request that the Company register the transfer (book-entry or otherwise) of any certificate or uncertificated interest representing the Shares, unless such transfer is made in compliance with this Agreement. AYR shall promptly after the date hereof surrender to the Company all certificates representing the Shares for purpose of placing the following legend on such certificates: THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO RESTRICTIONS ON TRANSFER AND VOTING AND PURSUANT TO AN AGREEMENT BETWEEN THE HOLDER OF THIS CERTIFICATE AND URI, A COPY OF WHICH MAY BE OBTAINED FROM THE HOLDER HEREOF OR THE ISSUER OF THIS SECURITY. The foregoing legend shall be removed from all certificates representing the shares upon termination of the period set forth in Section 4(a). B-3 5. Termination. Except as otherwise provided herein, the covenants and agreements contained in Sections 1, 3 and 4 hereof shall terminate (i) in the event the Merger Agreement is terminated in accordance with the terms thereof, upon such termination, and (ii) in the event the Merger is consummated, upon the Effective Time. Notwithstanding anything to the contrary herein, (A) the provisions of Section 7 hereof shall survive any termination of this Agreement, and (B) no termination of this Agreement shall relieve any party of liability for a breach hereof prior to termination. 6. Further Assurances. From time to time, at the other party's request and without further consideration, AYR, Shareholder and URI shall execute and deliver such additional documents and take all such further lawful action as may be necessary or desirable to consummate and make effective, in the most expeditious manner practicable, the transactions contemplated by this Agreement. 7. Miscellaneous. (a) Entire Agreement. This Agreement and the Merger Agreement constitute the entire agreement between the parties with respect to the subject matter hereof and supersede all other prior agreements and understandings, both written and oral, between the parties with respect to the subject matter hereof. (b) Certain Events. Each of AYR and Shareholder agree that this Agreement and the obligations hereunder shall attach to the Shares and shall be binding upon any person or entity to which legal or beneficial ownership of such Shares shall pass, whether by operation of law or otherwise, including, without limitation, Shareholder's heirs, executors, guardians, administrators, trustees or successors. Notwithstanding any transfer of Shares, the transferor shall remain liable for the performance of all obligations under this Agreement of the transferor. (c) Assignment. This Agreement shall not be assigned by any party hereto, by operation of law or otherwise, without the prior written consent of the other party, and any purported assignment without such consent shall be null and void; provided, however, that URI may assign, in its sole discretion, its rights and obligations hereunder to any direct or indirect wholly owned subsidiary of URI without the consent of AYR or Shareholder. (d) Amendments, Waivers, Etc. This Agreement may not be amended, changed, supplemented, waived or otherwise modified or terminated except upon the execution and delivery of a written agreement executed by each of the parties hereto. (e) Notices. All notices, requests, claims, demands and other communications hereunder shall be in writing and shall be given (and shall be deemed to have been duly received if so given) by hand delivery, telegram, telex or telecopy, or by mail (registered or certified mail, postage prepaid, return receipt requested) or by any courier service, such as Federal Express, providing proof of delivery. All communications hereunder shall be delivered to the respective parties at the following addresses: (i) if to URI, to its address set forth in the Merger Agreement; and (ii) if to AYR or Shareholder, to: 1581 Cummins Dr.--Ste. 155, Modesta, CA 95358, with a copy to: Stephen E. Newton, Heller Ehrman White & McAuliffe, 601 South Figueroa Street, Los Angeles, California 90017; or, in each case, to such other address as the Person to whom notice is given may have previously furnished to the others in writing in the manner set forth above. (f) Severability. Whenever possible, each provision or portion of any provision of this Agreement will be interpreted in such manner as to be effective and valid under applicable law, but if any provision or portion of any provision of this Agreement is held to be invalid, illegal or unenforceable in any respect under any applicable law or rule in any jurisdiction, such invalidity, illegality or unenforceability will not affect any other provision or portion of any provision in such jurisdiction, and this Agreement will be reformed, construed and enforced in such jurisdiction as if such invalid, illegal or unenforceable provision or portion of any provision had never been contained herein. (g) Specific Performance. All of the parties hereto recognizes and acknowledges that a breach by it of any covenants or agreements contained in this Agreement will cause the other party to sustain damages for which it would not have an adequate remedy at law for money damages, and therefore each of the parties hereto agrees B-4 that in the event of any such breach the aggrieved party shall be entitled to the remedy of specific performance of such covenants and agreements and injunctive and other equitable relief in addition to any other remedy to which it may be entitled, at law or in equity. (h) Remedies Cumulative. All rights, powers and remedies provided under this Agreement or otherwise available in respect hereof at law or in equity shall be cumulative and not alternative, and the exercise of any thereof by any party shall not preclude the simultaneous or later exercise of any other such right, power or remedy by such party. (i) No Waiver. The failure of any party hereto to exercise any right, power or remedy provided under this Agreement or otherwise available in respect hereof at law or in equity, or to insist upon compliance by any other party hereto with its obligations hereunder, and any custom or practice of the parties at variance with the terms hereof, shall not constitute a waiver by such party of its right to exercise any such or other right, power or remedy or to demand such compliance. (j) No Third Party Beneficiaries. This Agreement is not intended to be for the benefit of, and shall not be enforceable by, any person or entity who or which is not a party hereto. (k) Governing Law. This Agreement shall be governed and construed in accordance with the laws of the State of Delaware, without giving effect to the principles of conflicts of law thereof. (l) Jurisdiction; Waiver of Jury Trial. All of the parties hereto irrevocably agrees that any legal action or proceeding with respect to this Agreement or for recognition and enforcement of any judgment in respect hereof brought by any other party hereto or its successors or assigns shall be brought and determined in any federal court located in the State of Delaware or the Chancery or other courts of the State of Delaware, and each of the parties hereto irrevocably submits with regard to any such action or proceeding for itself and in respect to its property, generally and unconditionally, to the exclusive jurisdiction of the aforesaid courts. Each of the parties hereto irrevocably waives, and agrees not to assert, by way of motion, as a defense, counterclaim or otherwise, in any action or proceeding with respect to this Agreement, (a) any claim that it is not personally subject to the jurisdiction of the above-named courts for any reason, (b) that it or its property is exempt or immune from jurisdiction of any such court or from any legal process commenced in such courts (whether through service of notice, attachment before judgment, attachment in aid of execution of judgment, execution of judgment or otherwise), and (c) to the fullest extent permitted by applicable law, that (i) the suit, action or proceeding in any such court is brought in an inconvenient forum, (ii) the venue of such suit, action or proceeding is improper or (iii) this Agreement, or the subject matter hereof, may not be enforced in or by such court. (m) Descriptive Headings. The descriptive headings used herein are inserted for convenience of reference only and are not intended to be part of or to affect the meaning or interpretation of this Agreement. (n) Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed to be an original, but all of which, taken together, shall constitute one and the same Agreement. (o) No Present Intent to Liquidate or Merge. URI has no current plan or intention to liquidate USR; to merge USR with or into another corporation; to sell, distribute or otherwise dispose of USR Common Stock acquired in the Merger except for transfers or successive transfers of USR Common Stock to one or more corporations controlled (within the meaning of Section 368(c) of the Code) in each case by the transferor corporation; or to cause USR to sell or otherwise dispose of any of its assets or any of the assets acquired from MERGER SUB, except for dispositions made in the ordinary course of business or transfers or successive transfers of assets to one or more corporations controlled (within the meaning of Section 368(c) of the Code) in each case by the transferor corporation. [signature page follows] B-5 IN WITNESS WHEREOF, URI, Shareholder and AYR have executed and delivered this Agreement as of the day and year first above written. UNITED RENTALS, INC. By: /s/ Bradley S. Jacobs ---------------------------------- Name: Bradley S. Jacobs Title: Chief Executive Officer /s/ Richard D. Colburn ---------------------------------- Richard D. Colburn AYR INC. By: /s/ Richard D. Colburn ---------------------------------- Name: Richard D. Colburn Title: President B-6 EXHIBIT C VOTING AGREEMENT VOTING AGREEMENT, dated June 15, 1998 (this "Agreement"), by and among U.S. Rentals, Inc., a Delaware corporation ("USR"), Bradley Jacobs, LLC, a Virginia limited liability company, ("BJ LLC") and Bradley Jacobs (1997) LLC, a Virginia limited liability company, ("BJ (1997) LLC" and together with BJ LLC, the "LLC's"), and Bradley S. Jacobs, an individual who owns all of the outstanding limited liability company interests of the LLC's (the "Shareholder"). W I T N E S S E T H: WHEREAS, concurrently herewith, United Rentals, Inc., a Delaware corporation (the "Company"), a subsidiary of the Company, and USR are entering into an Agreement and Plan of Merger (as such agreement may hereafter be amended from time to time, the "Merger Agreement"; capitalized terms used and not defined herein have the respective meanings ascribed to them in the Merger Agreement) pursuant to which MERGER SUB will be merged with and into USR, with USR as the surviving corporation and wholly-owned subsidiary of the Company (the "Merger"); WHEREAS, BJ LLC owns, beneficially and of record, 4,938,200 shares of URI Common Stock, BJ (1997) LLC owns, beneficially and of record, 1,625,000 Shares of URI Common Stock (together, the "LLC Shares") and Shareholder owns (i) beneficially and of record, 8,436,900 shares of URI Common Stock (the "Shareholder Shares" and, together with the LLC Shares, the "Shares") and (ii) beneficially and of record, all of the outstanding limited liability company interests of the LLC's; and WHEREAS, as an inducement and a condition to entering into the Merger Agreement, USR has required that each of Shareholder and the LLC's agree, and Shareholder and the LLC's have agreed, to enter into this Agreement; and further Shareholder has agreed to enter into this Agreement strictly in his capacity as a beneficial owner of the Shares and not in his capacity as a director of the Company. NOW, THEREFORE, in consideration of the foregoing and the mutual premises, representations, warranties, covenants and agreements contained herein, and intending to be legally bound hereby, the parties hereto hereby agree as follows: 1. Provisions Concerning the Shares. (a) Each of the LLC's and Shareholder hereby agree that during the period commencing on the date hereof and continuing until this provision terminates pursuant to Section 5 hereof, at any meeting of the holders of shares of URI Common Stock, however called, or in connection with any written consent of the holders of shares of URI Common Stock, each of the LLC's and Shareholder shall vote, (or cause to be voted) the Shares held of record or Beneficially Owned (as defined below) by the LLC's and Shareholder, whether heretofore owned or hereafter acquired, in favor of the Charter Amendment and the Share Issuance and any actions required in furtherance thereof and hereof. (b) Neither the LLC's nor Shareholder shall enter into any agreement or understanding with any Person (as defined below) the effect of which would be inconsistent or violative of the provisions of this Agreement. (c) For purposes of this Agreement: "Beneficially Own" or "Beneficial Ownership" with respect to any securities shall mean having "beneficial ownership" of such securities (as determined pursuant to Rule 13d-3 under the Securities Exchange Act of 1934, as amended (the "Exchange Act")), including pursuant to any agreement, arrangement or understanding, whether or not in writing; without duplicative counting of the same securities by the same holder, securities Beneficially Owned by a Person shall include securities Beneficially Owned by all other Persons with whom such Person would constitute a "group" within the meaning of Section C-1 13(d)(3) of the Exchange Act "Person" shall mean an individual, corporation, partnership, limited liability company, joint venture, association, trust, unincorporated organization or other entity; and "Person" shall mean an individual, corporation, partnership, limited liability company, joint venture, association, trust, unincorporated organization or other entity. (d) In the event of a stock dividend or distribution, or any change in the URI Common Stock by reason of any stock dividend, stock split, recapitalization, reclassification, combination, exchange of shares, merger or the like, the term "Shares" as used in this Agreement shall be deemed to refer to and include the Shares as well as all such stock dividends and distributions and any shares or other securities into which or for which any or all of the Shares may be converted, changed or exchanged. 2. Representations and Warranties. Each of Shareholder and the LLC's hereby agrees, represents and warrants to USR as follows: (a) Ownership of Shares. Shareholder is the record and Beneficial Owner of all of the limited liability company interests of the LLC's and the LLC's and the Shareholder are jointly the record and beneficial owners of all of the Shares. On the date hereof, the Shares constitute all of the shares of URI Common Stock owned of record or Beneficially Owned by the LLC's and Shareholder. Shareholder and the LLC's have shared voting power and shared power to issue instructions with respect to the matters set forth in Section 1 hereof, shared power of disposition and shared power to agree to all of the matters set forth in this Agreement, in each case with respect to all of the Shares, with no limitations, qualifications or restrictions on such rights (subject to applicable securities laws). (b) Power; Binding Agreement. Shareholder has the legal capacity, power and authority, and the LLC's have the power and authority as limited liability companies, to enter into and perform all of their respective obligations under this Agreement. This Agreement has been duly and validly authorized, executed and delivered by each of Shareholder and the LLC's and constitutes a valid and binding agreement of each of Shareholder and the LLC's, enforceable against each of Shareholder and the LLC's in accordance with its terms. There is no beneficiary or holder of a voting trust certificate or other interest of any trust of which the LLC's or Shareholder is settlor or trustee whose consent is required for the execution and delivery of this Agreement or the consummation by the LLC's or Shareholder of the transactions contemplated hereby. (c) Organization. The LLC's (i) are limited liability companies duly formed, validly existing and in good standing as limited liability companies under the laws of the State of Virginia and (ii) have all requisite power and authority to own their properties and assets and to carry on their business as it is now being conducted. (d) No Conflicts. (i) Except for filings under the HSR Act, the Securities Act and Exchange Act, no filing with, and no permit, authorization, consent or approval of, any state or federal public body or authority is necessary for the execution of this Agreement by Shareholder and the consummation by Shareholder of the transactions contemplated hereby and (ii) none of the execution and delivery of this Agreement by Shareholder, the consummation by Shareholder of the transactions contemplated hereby or compliance by Shareholder with any of the provisions hereof will (A) result in a violation or breach of, or constitute (with or without notice or lapse of time or both) a default (or give rise to any third party right of termination, cancellation, material modification or acceleration) under any of the terms, conditions or provisions of any declaration of trust, note, bond, mortgage, indenture, security or pledge agreement, voting agreement, shareholders' agreement or voting trust, license, contract, commitment, arrangement, understanding, agreement or other instrument or obligation of any kind to which Shareholder is a party or by which Shareholder or any of Shareholder's properties or assets may be bound, or (B) violate any order, writ, injunction, decree, judgment, order, statute, rule or regulation applicable to Shareholder or any of Shareholder's properties or assets. (e) Reliance by USR. Shareholder and the LLC's understand and acknowledge that USR is entering into the Merger Agreement in reliance upon execution and delivery of this Agreement by Shareholder and the LLC's. C-2 (f) Sophistication. Shareholder acknowledges that Shareholder is an informed and sophisticated investor and, together with Shareholder's advisors, has undertaken such investigation as they have deemed necessary, including the review of the Merger Agreement and this Agreement, to enable Shareholder to make an informed and intelligent decision with respect to the Merger Agreement and this Agreement and the transactions contemplated thereby and hereby. (g) No Broker. Except for fees payable by the Company and disclosed pursuant to Section 3.16 of the Merger Agreement, no broker, investment banker, financial adviser or other Person is entitled to any commission, broker's fee, finder's fee, adviser's fee or similar fee in connection with the transactions contemplated by this Agreement based upon arrangements made by or on behalf of Shareholder or the LLC's. 3. No Solicitation. (a) From and after the date hereof and continuing until this provision terminates pursuant to Section 5 hereof, neither the LLC's nor Shareholder shall directly or indirectly, initiate, solicit or encourage (including by way of furnishing non-public information or assistance), or take any other action to facilitate, any inquiries or the making of any proposal that constitutes, or may reasonably be expected to lead to, any Acquisition Proposal with respect to the Company or enter into or maintain or continue discussions or negotiate with any Person in furtherance of such inquiries or to obtain such an Acquisition Proposal or agree to or endorse any such Acquisition Proposal, and Shareholder shall promptly notify USR orally (in all events within 24 hours) and in writing (as promptly thereafter as practicable) of the material terms and status of all inquiries and proposals which Shareholder or any agent of Shareholder may receive after the date hereof relating to any of such matters and, if such inquiry or proposal is in writing, Shareholder shall deliver to USR a copy of such inquiry or proposal promptly; Shareholder, as a member of the board of directors of the Company, may take any action in his capacity as a director that the board of directors of the Company would be permitted to take in accordance with Sections 5.7 and 7.1 of the Merger Agreement. Shareholder will immediately cease and cause to be terminated any existing activities, discussions or negotiations, with any parties conducted heretofore with respect to any of the foregoing. (b) USR acknowledges that this Agreement is entered into by the Shareholder in his capacity as a beneficial owner of the Shares, and that nothing in this Agreement shall in any way restrict or limit the Shareholder from taking any action in his capacity as a director or officer of the Company or otherwise fulfilling his fiduciary obligations as a director or officer of the Company, notwithstanding that any such action would be inconsistent with or violative of his obligations under this Agreement if taken in his capacity as a beneficial owner of the Shares. 4. Restriction on Transfer; Proxies; Non-Interference; Stop Transfers; etc. (a) Neither the LLC's nor Shareholder shall directly or indirectly, during the period commencing on the date hereof and continuing until this provision terminates pursuant to Section 5 hereof: (i) except as contemplated by the Merger Agreement, offer for sale, sell, transfer, tender, pledge, encumber, assign or otherwise dispose of, or grant or enter into any contract, option or other arrangement or understanding with respect to or consent to the offer for sale, sale, transfer, tender, pledge, encumbrance, assignment or other disposition of, any or all of the Shares or any interest therein (including any interest in the LLC's); (ii) except as contemplated by this Agreement, grant any proxies or powers of attorney, deposit any Shares into a voting trust or enter into a voting agreement with respect to any Shares; or (iii) take any action that would make any of the LLC's or Shareholder's representations or warranties contained herein untrue or incorrect or have the effect of preventing or disabling the LLC's or Shareholder from performing their respective obligations under this Agreement; provided that the foregoing shall not prevent the LLC's or Share holder from pledging any of the Shares to a bank or other financial institution or to prevent such bank or other financial institution from selling the Shares on foreclosure so long as the LLC's and Shareholder retain the right to vote such Shares if the pledge has not been foreclosed upon. (b) Shareholder and the LLC's agree with, and covenant to, USR that neither Shareholder nor the LLC's shall, during the period set forth in Section 4(a), request that the Company register the transfer (book-entry or otherwise) of any certificate or uncertificated interest representing the Shares, unless such transfer is made in C-3 compliance with this Agreement. Shareholder and the LLC's shall promptly after the date hereof surrender to the Company all certificates representing the Shares for purpose of placing the following legend on such certificates: THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO RESTRICTIONS ON TRANSFER AND VOTING AND PURSUANT TO AN AGREEMENT BETWEEN THE HOLDER OF THIS CERTIFICATE AND USR, A COPY OF WHICH MAY BE OBTAINED FROM THE HOLDER HEREOF OR THE ISSUER OF THIS SECURITY. The foregoing legend shall be removed from all certificates representing the shares upon termination of the period set forth in Section 4(a). 5. Termination. Except as otherwise provided herein, the covenants and agreements contained in Sections 1, 3 and 4 hereof shall terminate (i) in the event the Merger Agreement is terminated in accordance with the terms thereof, upon such termination, and (ii) in the event the Merger is consummated, upon the Effective Time. Notwithstanding anything to the contrary herein, (A) the provisions of Section 7 hereof shall survive any termination of this Agreement, and (B) no termination of this Agreement shall relieve any party of liability for a breach hereof prior to termination. 6. Further Assurances. From time to time, at the other party's request and without further consideration, the LLC's, Shareholder and USR shall execute and deliver such additional documents and take all such further lawful action as may be necessary or desirable to consummate and make effective, in the most expeditious manner practicable, the transactions contemplated by this Agreement. 7. Miscellaneous. (a) Entire Agreement. This Agreement and the Merger Agreement constitute the entire agreement between the parties with respect to the subject matter hereof and supersede all other prior agreements and understandings, both written and oral, between the parties with respect to the subject matter hereof. (b) Certain Events. Each of the LLC's and Shareholder agree that this Agreement and the obligations hereunder shall attach to the Shares and shall be binding upon any person or entity to which legal or beneficial ownership of such Shares shall pass, whether by operation of law or otherwise, including, without limitation, Shareholder's heirs, executors, guardians, administrators, trustees or successors. Notwithstanding any transfer of Shares, the transferor shall remain liable for the performance of all obligations under this Agreement of the transferor. (c) Assignment. This Agreement shall not be assigned by any party hereto, by operation of law or otherwise, without the prior written consent of the other party, and any purported assignment without such consent shall be null and void. (d) Amendments, Waivers, Etc. This Agreement may not be amended, changed, supplemented, waived or otherwise modified or terminated except upon the execution and delivery of a written agreement executed by each of the parties hereto. (e) Notices. All notices, requests, claims, demands and other communications hereunder shall be in writing and shall be given (and shall be deemed to have been duly received if so given) by hand delivery, telegram, telex or telecopy, or by mail (registered or certified mail, postage prepaid, return receipt requested) or by any courier service, such as Federal Express, providing proof of delivery. All communications hereunder shall be delivered to the respective parties at the following addresses: (i) if to USR, to its address set forth in the Merger Agreement; and (ii) if to the LLC's or Shareholder, to: 4 Greenwich Office Park, Greenwich, CT 06830, with a copy to: Oscar D. Folger, Esq., 521 Fifth Avenue, New York, N.Y. 10175; or, in each case, to such other address as the Person to whom notice is given may have previously furnished to the others in writing in the manner set forth above. C-4 (f) Severability. Whenever possible, each provision or portion of any provision of this Agreement will be interpreted in such manner as to be effective and valid under applicable law, but if any provision or portion of any provision of this Agreement is held to be invalid, illegal or unenforceable in any respect under any applicable law or rule in any jurisdiction, such invalidity, illegality or unenforceability will not affect any other provision or portion of any provision in such jurisdiction, and this Agreement will be reformed, construed and enforced in such jurisdiction as if such invalid, illegal or unenforceable provision or portion of any provision had never been contained herein. (g) Specific Performance. All of the parties hereto recognizes and acknowledges that a breach by it of any covenants or agreements contained in this Agreement will cause the other party to sustain damages for which it would not have an adequate remedy at law for money damages, and therefore each of the parties hereto agrees that in the event of any such breach the aggrieved party shall be entitled to the remedy of specific performance of such covenants and agreements and injunctive and other equitable relief in addition to any other remedy to which it may be entitled, at law or in equity. (h) Remedies Cumulative. All rights, powers and remedies provided under this Agreement or otherwise available in respect hereof at law or in equity shall be cumulative and not alternative, and the exercise of any thereof by any party shall not preclude the simultaneous or later exercise of any other such right, power or remedy by such party. (i) No Waiver. The failure of any party hereto to exercise any right, power or remedy provided under this Agreement or otherwise available in respect hereof at law or in equity, or to insist upon compliance by any other party hereto with its obligations hereunder, and any custom or practice of the parties at variance with the terms hereof, shall not constitute a waiver by such party of its right to exercise any such or other right, power or remedy or to demand such compliance. (j) No Third Party Beneficiaries. This Agreement is not intended to be for the benefit of, and shall not be enforceable by, any person or entity who or which is not a party hereto. (k) Governing Law. This Agreement shall be governed and construed in accordance with the laws of the State of Delaware, without giving effect to the principles of conflicts of law thereof. (l) Jurisdiction; Waiver of Jury Trial. All of the parties hereto irrevocably agrees that any legal action or proceeding with respect to this Agreement or for recognition and enforcement of any judgment in respect hereof brought by any other party hereto or its successors or assigns shall be brought and determined in any federal court located in the State of Delaware or the Chancery or other courts of the State of Delaware, and each of the parties hereto irrevocably submits with regard to any such action or proceeding for itself and in respect to its property, generally and unconditionally, to the exclusive jurisdiction of the aforesaid courts. Each of the parties hereto irrevocably waives, and agrees not to assert, by way of motion, as a defense, counterclaim or otherwise, in any action or proceeding with respect to this Agreement, (a) any claim that it is not personally subject to the jurisdiction of the above-named courts for any reason, (b) that it or its property is exempt or immune from jurisdiction of any such court or from any legal process commenced in such courts (whether through service of notice, attachment before judgment, attachment in aid of execution of judgment, execution of judgment or otherwise), and (c) to the fullest extent permitted by applicable law, that (i) the suit, action or proceeding in any such court is brought in an inconvenient forum, (ii) the venue of such suit, action or proceeding is improper or (iii) this Agreement, or the subject matter hereof, may not be enforced in or by such court. (m) Descriptive Headings. The descriptive headings used herein are inserted for convenience of reference only and are not intended to be part of or to affect the meaning or interpretation of this Agreement. (n) Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed to be an original, but all of which, taken together, shall constitute one and the same Agreement. [signature page follows] C-5 IN WITNESS WHEREOF, USR, Shareholder and the LLC's have executed and delivered this Agreement as of the day and year first above written. U.S. RENTALS, INC. By: /s/ William F. Berry ---------------------------------- Name: William F. Berry Title: Chief Executive Officer /s/ Bradley S. Jacobs ---------------------------------- Bradley S. Jacobs BRADLEY JACOBS LLC By: /s/ Bradley S. Jacobs ---------------------------------- Name: Bradley S. Jacobs Title: Member BRADLEY JACOBS (1997) LLC By: /s/ Bradley S. Jacobs ---------------------------------- Name: Bradley S. Jacobs Title: Member C-6 EXHIBIT D EMPLOYMENT AGREEMENT This AGREEMENT between United Rentals, Inc., a Delaware corporation ("URI"), and William F. Berry ("Employee"), is hereby entered into as of [CLOSING DATE OF THE MERGER]. RECITALS: URI and its affiliates (collectively, the "Company") are engaged in the business of acquiring and operating companies which rent, operate, maintain, distribute, sell or otherwise deal in or with equipment or similar assets, and may in the future engage in other businesses which the Company deems to be related to the foregoing. All such businesses are collectively referred to herein as the "Business." Employee was heretofore the President and Chief Executive Officer of U.S. Rentals, Inc. ("USR"). Pursuant to an Agreement and Plan of Merger dated June 15, 1998, as amended and restated on August 31, 1998 (the "Merger Agreement"), (i) URI acquired USR and (ii) URI is offering Employee employment with the Company on the terms set forth in this Agreement. This Agreement replaces and supersedes in all respects Employee's existing employment agreement with USR. Pursuant to this Agreement, Employee will be employed by the Company in a confidential relationship wherein Employee, in the course of his employment with the Company, will become familiar with and aware of information as to the specific manner of doing business and the potential acquisition candidates and customers of the Company and its affiliates and future plans with respect thereto, all of which will be established and maintained at great expense to the Company; this information is a trade secret and constitutes the valuable goodwill of the Company. Employee recognizes that the Company's business is dependent upon a number of trade secrets, including the identity of customers and potential acquisition candidates, the analysis of such candidates and financial data of the Company. The protection of these trade secrets is of critical importance to the Company. The Company will sustain great loss and damage if, for whatever reason, Employee should violate the provisions of this Agreement. Further, monetary damages for such losses would be extremely difficult to measure. NOW, THEREFORE, in consideration of the mutual promises, terms, covenants and conditions set forth herein and the performance of each, it is hereby agreed as follows: 1. Employment and Duties. (a) Upon commencement of the term of this Agreement, the Company shall employ Employee as the President of URI on the terms and conditions herein set forth. Employee shall perform such duties, have such authority, and report to such persons (including, without limitation, the Vice Chairman and Chief Operating Officer of URI), as shall from time to time be designated by the Board of Directors of URI (the "Board"). Employee shall accept this employment upon the terms and conditions herein contained and agrees to devote his full time, attention and efforts to promote and further the business and services of the Company. Employee shall faithfully adhere to, execute and fulfill all policies established by the Company. (b) Employee shall perform such duties, assume such responsibilities and devote such time, attention and energy to the business of the Company as the Board shall from time to time require and shall not, during the term of his employment hereunder, be engaged in any other business activity pursued for gain, profit or other pecuniary advantage without the prior written consent of the Board. However, the foregoing limitations shall not be construed as prohibiting Employee from making personal investments in such form or manner as will neither require his services in the operation or affairs of the companies or enterprises in which such investments are made nor violate the terms of Section 5. (c) Employee will initially be based in the Company's offices in Modesto, California, but shall relocate to the Connecticut area at a mutually agreeable time. D-1 2. Compensation and Other Benefits. For all services rendered by Employee to the Company, the Company shall compensate the Employee as follows: (a) Base Salary and Bonus. The initial base salary payable to Employee during the term of this Agreement shall be $225,000 per year, payable in accordance with URI's standard payroll practices. Minimum annual increases in the base salary payable to Employee shall be determined by adding to Employee's then current base salary the sum, if any, determined by multiplying Employee's then current base salary by the percentage that the Consumer Price Index for "Urban Wage Earners & Clerical Workers", as prepared by the Bureau of Labor Statistics of the Department of Labor of the United States for the city in which Employee's residence is located, for the most recently ended calendar year has increased over the index from the previous calendar year; provided that Employee's base salary shall not be increased on account of the foregoing cost of living adjustments to an amount in excess of $270,000 per annum. In addition, the Board may from time to time award bonuses to Employee based on such criteria as the Board may establish in its discretion. The payment of salary and bonuses shall be subject to all federal, state and withholding taxes, social security deductions and other general obligations. (b) Vacation. Employee shall be entitled to three (3) weeks of paid vacation during each 12-month period of his employment hereunder at times mutually acceptable to Employee and the Company. Unused vacations can be carried forward for 12 months, and shall thereupon lapse. (c) Other Compensation and Benefits. During the term of this Agreement, Employee may be entitled to receive the additional payments from the Company set forth below. Employee shall be entitled to participate upon commencement of the term of this Agreement in URI's group health insurance plan and any bonus, option or similar incentive compensation plan, 401(k) plan, group life plan and automobile allowance program which is made available, from time to time, to other senior executives of URI, on a basis consistent with such participation. (d) Reimbursement. The Company shall reimburse Employee for properly documented expenses which are incurred by Employee on behalf of the Company in the performance of his duties hereunder in accordance with Company policies in effect from time to time. In addition, upon presentation by Employee to the Company of expense reports and satisfactory supporting documentation evidencing payment of such expenses, in such form as shall be requested by the Company, the Company shall reimburse Employee, up to a maximum aggregate amount reimbursable under this Section 2(d)(ii) of $100,000, for such expenses as the Board, in its sole and absolute discretion, determines to be necessary and reasonable in connection with the relocation of Employee, should Employee relocate his family and their personal effects from California to Connecticut. (e) Stock Options. (i) The term "Options" as used herein means (A) all options to purchase common stock of URI ("URI Common Stock") to which Employee became entitled pursuant to Section 5.10 of the Merger Agreement in respect of options to purchase USR common stock previously granted to Employee (the "Carry-Over Options"), (B) the options to purchase URI Common Stock described in the stock option award letters, dated the date hereof, attached hereto(1) and (C) any and all options to purchase shares of URI Common Stock which are at any time hereafter granted by URI to Employee, whether under URI's 1997 Stock Option Plan or otherwise. All unvested Options shall automatically vest on a Change of Control. (ii) A "Change of Control" shall be deemed to have occurred if: (A) any "person" is or becomes a "beneficial owner" (as defined in Rule 13d-3 under the Securities Exchange Act of 1934 (the "Act")), directly or indirectly, of securities of URI - -------- (1) To reflect the award of (a) 200,000 options exercisable at a price per share equal to the closing price per share of URI Common Stock on the NYSE on the Closing Date (the "Market Price") and (b) 75,000 options exercisable at a price per share equal to the greater of (i) 125% of the Market Price and (ii) $45. All of such options shall vest over a three year term. D-2 representing 50% or more of the total voting power represented by then outstanding voting securities of URI, or has the power (whether as a result of stock ownership, revocable or irrevocable proxies, contract or otherwise) or ability to elect or cause the election of directors consisting at the time of such election of a majority of the Board. The term "persons" is defined in Sections 13(d) and 14(d) of the Act, except that the term "person" shall not include: (1) any person or an Affiliate (as defined below) of such person who as of the date of this Agreement owns 10% or more of the total voting power represented by the outstanding voting securities of URI; and (2) a trustee or other fiduciary holding securities under any employee benefit plan of the Company or a corporation which is owned directly or indirectly by the stockholders of URI in substantially the same percentage as their ownership in URI. An "Affiliate" of a person is a person that controls, is controlled by, or is under common control with such person. or (B) the stockholders of URI approve a merger of URI, or a plan of complete liquidation of URI, or an agreement for the sale or disposition by URI of all or substantially all of its assets, or any other business combination of URI with any other corporation, other than any such merger or business combination which would result in the voting securities of URI outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) at least 50% of the total voting power represented by the voting securities of URI or such surviving entity outstanding immediately after such merger or business combination. (iii) URI shall use its best efforts to file (or cause to be filed) and have declared effective one or more registration statements on Form S-8 under the Securities Act of 1933 (A) during URI's fiscal quarter ending March 31, 1999 registering one-third of the shares of URI Common Stock issuable upon exercise of the Carry-Over Options and (B) after URI's fiscal quarter ending March 31, 1999 and on or prior to the first anniversary of the Closing Date registering the remainder of the shares of URI Common Stock issuable upon exercise of the Carry-Over Options. Except as set forth above, the Company shall have no obligation to register under the Securities Act or any state securities laws any of Employee's Options or any of the shares of URI Common Stock issuable upon exercise thereof. (iv) Notwithstanding the foregoing, in the event the Employee dies, becomes disabled or is terminated without good cause (as defined below), or resigns for good reason (as defined below), prior to March 31, 1999, the registration to be filed on or prior to such date pursuant to Section 2(e)(iii) above shall cover all Carry-Over Options then outstanding. As used in this paragraph, the term "good reason" means (A) a material diminution in Employee's duties, responsibilities or title; (B) the occurrence of a Change of Control or (C) URI's material breach of this Agreement which is not cured within 30 days after notice. 3. Term; Termination; Rights of Termination. (a) The term of this Agreement shall begin on the date hereof and shall continue until the third anniversary of the date hereof or such earlier date set forth below, provided that the term shall automatically renew at the end of each month after the first year so that at no time shall the balance of the term of Employee's employment be less than two years. This Agreement and Employee's employment may terminate in any one of the following ways: (i) The death of Employee shall terminate this Agreement; (ii) A notice of resignation by the Employee presented to the Board shall terminate this Agreement; (iii) The Company may terminate this Agreement after ten (10) days' written notice to Employee for "good cause", which is defined to mean: (A) Employee's material breach of this Agreement, including, without limitation, his insubordination. D-3 (B) the material default of the Company in performing its obligations under contracts with other persons or business entities if directly caused by Employee, intentionally and without authorization; (C) if, because of illness or physical or mental disability or other incapacity which continues for a period in excess of four months in any consecutive 16-month period, Employee is unable to perform his duties under this Agreement; (D) Employee's fraud or dishonesty with respect to the business or affairs of the Company or if Employee is convicted of a crime which in the reasonable opinion of the Board would negatively affect the Company's business or reputation; or (E) alcohol or drug abuse by Employee. (iv) The Company may terminate this Agreement without cause at any time, provided that in the event of a termination of this Agreement without cause, Employee shall be entitled to receive from the Company his then current monthly base salary over the balance of the term of his employment, in the same installments and subject to the same withholding, as applied during his employment. In addition, for the number of months remaining in the term of this Agreement, the Company shall continue to be obligated to provide to Employee with life, health, disability and accident insurance and benefits and all other executive benefits (including without limitation, retirement benefits and automobile and expense allowances) comparable to those provided to Employee prior to his termination. To the extent that Employee is no longer lawfully eligible for any aforementioned benefit because he is no longer employed by the Company, the Company shall pay to Employee a lump sum cash payment equal to the present value of the benefits which would have been provided to Employee had his employment continued for the number of months remaining in the then term of this Agreement. (b) Upon termination of this Agreement or Employee's employment for any reason whatsoever, Employee shall be entitled to receive all salary earned under this Agreement to the date of termination. However, termination of this Agreement shall not accelerate the payment date of any monies accrued or accruing to the account of Employee as a result of any bonuses or other compensation, nor shall termination vest in Employee any right in connection therewith other than as expressly set forth herein. (c) In the event of termination of this Agreement for any reason provided in this Section or if Employee resigns prior to the expiration of the term of this Agreement, all rights and obligations of the Company and Employee under this Agreement shall cease immediately, except for those which by their terms specifically apply to periods following the termination of this Agreement (including, without limitation, Sections 2(e)(iii) and 2(e)(iv) and Sections 3 through 11 hereof), and thereafter Employee shall have no right to receive any compensation hereunder except as otherwise expressly set forth above. 4. Confidentiality. (a) During and at all times after Employee's employment: (i) Employee shall not disclose to any person or entity, without the Company's prior consent, any confidential or secret information, whether prepared by him or others. (ii) Employee shall not, except in furtherance of the business of the Company, directly or indirectly use any such information other than as directed by the Company. (iii) Employee shall not, except in the furtherance of the business of the Company, remove confidential or secret information from the premises of the Company without the prior consent of the Company. (iv) Upon termination of his employment for whatever reason, with or without cause, Employee shall promptly deliver to the Company all originals and copies (whether in note, memo or other document form or on video, audio or computer tapes or discs or otherwise) of confidential or secret information that is in his possession, custody or control, whether prepared by him or others. D-4 (b) Confidential information includes, but is not limited to: (i) the name of any company or business all or any substantial part of which is or at any time was a candidate for potential acquisition by the Company, together with all analyses and other information which the Company has generated, compiled or otherwise obtained with respect to such candidate, business or potential acquisition, or with respect to the potential effect of such acquisition on the Company's business, assets, financial results or prospects; (ii) business, pricing and management methods; (iii) finances, strategies, systems, research, surveys, plans, reports, recommendations and conclusions; (iv) names, arrangements with, or other information relating to, the Company's customers, suppliers, equipment manufacturers, financiers, owners or operators, representatives and other persons who have business relationships with the Company or who are prospects for business relationships with the Company; (v) technical information, work products and know-how; and (vi) cost, operating, and other management information systems, and other software and programming. 5. Non-Compete Provisions. The following covenants are made by Employee in partial consideration for the substantial economic investment made by the Company in the hiring, education and training of Employee and the compensation and other benefits afforded by the Company to the Employee. Such covenants were material inducements to the Company in hiring Employee. (a) During his employment by the Company and for a period of 24 months immediately following the termination of his employment for any reason whatsoever, whether or not for cause: (i) Employee shall not in any Restricted Area (as hereinafter defined) directly or indirectly be employed or retained by any person or entity who or which then competes with the Company to any extent, nor will Employee directly or indirectly own any interest in any such person or entity or render to it any consulting, brokerage, contracting, financial or other services. Employee shall be deemed to be employed or retained in the Restricted Area if he has an office in the Restricted Area or if he performs any duties or renders any advice with respect to any facility or business activities in the Restricted Area. A "Restricted Area" means each of: (A) any state in the United States and any province in Canada in which the Company conducts any equipment rental or other equipment- related activity, it being agreed that each state and province is one unitary market for purposes of the Company's business; (B) regardless of state, the area within a 200-mile radius of any office or facility of the Company in which or in relation to which Employee shall have performed any duties for the Company during the one year period preceding the termination of his employment. (ii) Employee shall not anywhere in the United States or Canada directly or indirectly be employed or retained by a Similar Entity (as hereinafter defined) nor will Employee directly or indirectly own any interest in any Similar Entity or render to it any consulting, brokerage, financing, contracting, or other services; provided, however, that the Employee may own, directly or indirectly, solely as an investment, securities of any business traded on any national securities exchange or Nasdaq, provided the Employee is not a controlling person of, or a member of a group which controls, such business; and further provided that the Employee does not, directly or indirectly, own 5% or more of any class of securities in such business. A "Similar Entity" means each of: (A) the entities listed in Exhibit A to this Agreement; (B) any person or entity which anywhere in the United States now or hereafter engages in any business in which the Company engages now or hereafter during the term of Employee's employment; (C) any entity which at any time during the term of Employee's employment was a candidate for acquisition by or merger with the Company; and D-5 (D) any entity which owns or owned any facility which was acquired by the Company, or was a candidate for acquisition by the Company, at any time during the term of Employee's employment. (iii) Employee shall not anywhere directly or indirectly (whether as an owner, partner, employee, consultant, broker, contractor or otherwise, and whether personally or through other persons): (A) solicit or accept the business of, or call upon, any person or entity who or which is or was (1) a customer, supplier or manufacturer of equipment which is sold, leased or rented out by the Company, finder or broker, who had a business relationship with the Company at any time during the period the period of his employment, or (2) an affiliate of any such person; (B) approve, solicit or retain, or discuss the employment or retention (whether as an employee, consultant or otherwise) of any person who was an employee of the Company at any time during the one- year period preceding the termination of his employment; (C) solicit or encourage any person to leave the employ of the Company; (D) call upon or assist in the acquisition of any company which was, during the term of his employment, either called upon by an employee of the Company or by a broker or other third party, for possible acquisition by the Company or for which an employee of the Company or other person made an acquisition analysis for the Company; or (E) own any interest in or be employed by or provide any services to any person or entity which engages in any conduct which is prohibited to Employee under this Section 5(a); provided, however, that the Employee may own, directly or indirectly, solely as an investment, securities of any business traded on any national securities exchange or NASDAQ, provided the Employee is not a controlling person of, or a member of a group which controls, such business and further provided that the Employee does not, directly or indirectly, own 5% or more of any class of securities of such business. (b) Before taking any position with any person or entity during the 24-month period following the termination of his employment for any reason, with or without cause, Employee will give prior written notice to the Chairman of the Board of the name of such person or entity. The Company shall be entitled to advise each such person or entity of the provisions of this Agreement, and to correspond and otherwise deal with each such person or entity to ensure that the provisions of this Agreement are enforced and duly discharged. (c) All time periods in this Agreement shall be computed by excluding from such computation any time during which Employee is in violation of any provision of this Agreement and any time during which there is pending in any court of competent jurisdiction any action (including any appeal from any final judgment) brought by any person, whether or not a party to this Agreement, in which action the Company seeks to enforce the agreements and covenants in this Agreement or in which any person contests the validity of such agreements and covenants or their enforceability or seeks to avoid their performance or enforcement. (d) Employee understands that the provisions of this Agreement have been carefully designed to restrict his activities to the minimum extent which is consistent with law and the Company's requirements. Employee has carefully considered these restrictions, and Employee confirms that they will not unduly restrict Employee's ability to obtain a livelihood. Before signing this Agreement, Employee has had the opportunity to discuss this Agreement and all of its terms with his attorney. (e) Since monetary damages will be inadequate and the Company will be irreparably damaged if the provisions of this Agreement are not specifically enforced, the Company shall be entitled, among other remedies to an injunction restraining any violation of this Agreement (without any bond or other security being required) by Employee and by any person or entity to whom Employee provides or proposes to provide any services in violation of this Agreement. D-6 (f) If any provision contained in this Agreement is determined to be void, illegal or unenforceable, in whole or in part, then the other provisions contained herein shall remain in full force and effect as if the provision which was determined to be void, illegal, or unenforceable had not been contained herein. (g) The courts enforcing this Agreement shall be entitled to modify the duration and scope of any restriction contained herein to the extent such restriction would otherwise be unenforceable, and such restriction as modified shall be enforced. 6. Return of Company Property. All products, records, designs, patents, plans, manuals, "field guides," memoranda, lists and other property delivered to Employee by or on behalf of the Company or by its customers (including, but not limited to, customers obtained for the Company by Employee), and all records compiled by the Employee which pertain to the business of the Company (whether or not confidential) shall be and remain the property of the Company and be subject at all times to its discretion and control. Likewise, all correspondence with customers or representatives, reports, records, charts, advertising materials, and any data collected by Employee, or by or on behalf of the Company or its representatives (whether or not confidential) shall be delivered promptly to the Company without request by it upon termination of Employee's employment. 7. Inventions. Employee shall disclose promptly to the Company any and all conceptions and ideas for inventions, improvements and valuable discoveries, whether patentable or not, which are conceived or made by Employee solely or jointly with another during the period of employment or within one (1) year thereafter and which are related to the business or activities of the Company or which Employee conceives as a result of his employment by the Company, and Employee hereby assigns and agrees to assign all his interests therein to the Company or its nominee. Whenever requested to do so by the Company, Employee shall execute any and all applications, assignments or other instruments that the Company shall deem necessary to apply for and obtain Letters Patent of the United States or any foreign country or to otherwise protect the Company's interest therein. These obligations shall continue beyond the termination of employment with respect to inventions, improvements and valuable discoveries, whether patentable or not, conceived, made or acquired by Employee during the period of employment or within one (1) year thereafter and which are related to the business or activities of the Company or which Employee conceives as a result of his employment by the Company, and shall be binding upon Employee's assigns, executors, administrators and other legal representatives. 8. Suits Against Company. (a) Both during and after the term of employment hereunder, Employee covenants that Employee shall not bring suit or file counterclaims against the Company for corporate misconduct (which for this purpose does not mean the mere breach by the Company of this Agreement or any conduct which affects the rights of the Employee), unless both of (i) and (ii) below shall have occurred, namely: (i) Employee shall have first made written demand to the Board to investigate and deal with such misconduct, and (ii) the Board shall have failed within 45 days after the date of receipt of such demand to establish a Special Litigation Committee, consisting exclusively of outside directors, to investigate and deal with such misconduct. (b) Without limiting the generality and to further implement the foregoing, Employee irrevocably and unconditionally consents at the option of the Company to the entry of temporary restraining orders and temporary and permanent injunctions (without posting bond or other security) against the filing of any action or counterclaim which is prohibited hereunder. (c) The opinion of the Board shall be binding and conclusive on the determination of which directors constitute "outside directors," and the determination of the Special Litigation Committee shall be binding and conclusive on all matters relating to the actual or alleged misconduct which is referred to it as aforesaid. 9. Cooperation in Proceedings. During and after the termination of Employee's employment, Employee shall for reasonable compensation consistent with his compensation from the Company cooperate fully and at reasonable times with the Company and its subsidiaries in all litigations and regulatory proceedings on which the Company or any subsidiary seeks Employee's assistance and as to which Employee has any knowledge or D-7 involvement. Without limiting the generality of the foregoing, Employee will be available upon reasonable notice for periods of reasonable duration, considering his other responsibilities and obligations, to testify at such litigations and other proceedings, and will cooperate with counsel to the Company in preparing materials and offering advice in such litigations and other proceedings. Except as required by law and then only upon reasonable prior written notice to the Company, Employee shall not in any way cooperate or assist any person or entity in any matter which is adverse to the Company or to any person who was at any time an officer or director of the Company. 10. No Derogation. Except as otherwise required by law (and then only upon 10 days' prior written notice to the Company), Employee shall not from and after the date hereof, whether during Employee's employment or at any time thereafter, in any way or to any person, denigrate or derogate the Company or any of its subsidiaries, or any person who was at any time an officer or director of the Company, or any products, services or procedures of the Company, whether or not such denigrating or derogatory statements shall be true and are based on acts or omissions which were learned or are learned by Employee heretofore or from and after the date hereof or on acts or omissions which occurred at any time heretofore or which occur at any time from and after the date hereof, or otherwise. 11. Miscellaneous. (a) Complete Agreement. There are no oral representations, understandings or agreements with the Company or any of its officers, directors or representatives covering the same subject matter as this Agreement. This written Agreement is the final, complete and exclusive statement and expression of the agreement between the Company and Employee and of all the terms of this Agreement, it cancels and replaces and supersedes all prior agreements with respect to the subject matter hereof (including, without limitation, any employment, deferred compensation, bonus or stock option agreements between Employee and USR), and it cannot be varied, contradicted or supplemented by evidence of any prior or contemporaneous oral or written agreements. This written Agreement may not be later modified except by a further writing signed by the Company and Employee, and no term of this Agreement may be waived except by writing signed by the party waiving the benefit of such terms. (b) No Waiver. No waiver by the parties hereto of any default or breach of any term, condition or covenant of this Agreement shall be deemed to be a waiver of any subsequent default or breach of the same or any other term, condition or covenant contained herein. (c) Binding Effect. This Agreement shall be binding upon and inure to the benefit of the parties thereto and their respective heirs, successors and permitted assigns. The Company may assign this Agreement only to a person or entity who or which directly or indirectly succeeds to all or any substantial part of the Company's assets or business. This Agreement is personal to Employee and may not be assigned or delegated by him and any such purported assignment or delegation shall be null and void. (d) Notice. Whenever any notice is required hereunder, it shall be given in writing addressed as follows: (i) if to the Company, to: URI, Four Greenwich Office Park, Greenwich, Connecticut 06830, Attn: Chairman of the Board, with a copy (which shall not constitute notice) to: Oscar D. Folger, Esq., 24th Floor, 521 Fifth Avenue, New York, New York 10175; and (ii) if to Employee, to: ___________, with a copy (which shall not constitute notice) to: Stephen E. Newton, Esq., Heller, Ehrman, White & McAuliffe, 601 South Figueroa Street, Los Angeles, California 90017. Notice shall be deemed given and effective (a) five business days after the deposit in the U.S. mail of a writing addressed as above and sent first class mail, certified, return receipt requested, (b) one (1) business day after delivered to a nationally recognized air courier for next day delivery service, or (c) upon personal delivery. Either party may change the address for notice by notifying the other party of such change in accordance with this paragraph. (e) Severability; Headings. If any portion of this Agreement is held invalid or inoperative, the other portions of this agreement shall be deemed valid and operative, and so far as it is reasonable and possible, effect shall be D-8 given to the intent manifested by the portion held invalid or inoperative. The paragraph headings herein are for reference purposes only and are not intended in any way to describe, interpret, define or limit the extent or intent of this Agreement or any part hereof. (f) Governing Law; Resolution of Disputes; Service of Process. This Agreement shall in all respects be construed according to the laws of the State of Connecticut. All disputes relating to the interpretation and enforcement of the provisions of this Agreement shall be resolved and determined exclusively by arbitration in San Francisco, California under the rules of the American Arbitration Association. Service of process shall be effective when given in the manner provided for notices hereunder. IN WITNESS WHEREOF the parties have signed and delivered this Agreement as of the date first set forth above. UNITED RENTALS, INC. By: ---------------------------------- Name: Title: ---------------------------------- William F. Berry D-9 EXHIBIT E EMPLOYMENT AGREEMENT This AGREEMENT between United Rentals, Inc., a Delaware corporation ("URI"), and John S. McKinney ("Employee"), is hereby entered into as of [CLOSING DATE OF THE MERGER]. RECITALS: URI and its affiliates (collectively, the "Company") are engaged in the business of acquiring and operating companies which rent, operate, maintain, distribute, sell or otherwise deal in or with equipment or similar assets, and may in the future engage in other businesses which the Company deems to be related to the foregoing. All such businesses are collectively referred to herein as the "Business." Employee was heretofore the Chief Financial Officer of U.S. Rentals, Inc. ("USR"). Pursuant to an Agreement and Plan of Merger dated June 15, 1998, as amended and restated on August 31, 1998 (the "Merger Agreement"), (i) URI acquired USR and (ii) URI is offering Employee employment with the Company on the terms set forth in this Agreement. This Agreement replaces and supersedes in all respects Employee's existing employment agreement with USR. Pursuant to this Agreement, Employee will be employed by the Company in a confidential relationship wherein Employee, in the course of his employment with the Company, will become familiar with and aware of information as to the specific manner of doing business and the potential acquisition candidates and customers of the Company and its affiliates and future plans with respect thereto, all of which will be established and maintained at great expense to the Company; this information is a trade secret and constitutes the valuable goodwill of the Company. Employee recognizes that the Company's business is dependent upon a number of trade secrets, including the identity of customers and potential acquisition candidates, the analysis of such candidates and financial data of the Company. The protection of these trade secrets is of critical importance to the Company. The Company will sustain great loss and damage if, for whatever reason, Employee should violate the provisions of this Agreement. Further, monetary damages for such losses would be extremely difficult to measure. NOW, THEREFORE, in consideration of the mutual promises, terms, covenants and conditions set forth herein and the performance of each, it is hereby agreed as follows: 1. Employment and Duties. (a) Upon commencement of the term of this Agreement, the Company shall employ Employee as the Vice President-Finance of URI on the terms and conditions herein set forth. Employee shall perform such duties, have such authority, and report to such persons (including, without limitation, the Vice Chairman and Chief Operating Officer of URI), as shall from time to time be designated by the Board of Directors of URI (the "Board"). Employee shall accept this employment upon the terms and conditions herein contained and agrees to devote his full time, attention and efforts to promote and further the business and services of the Company. Employee shall faithfully adhere to, execute and fulfill all policies established by the Company. (b) Employee shall perform such duties, assume such responsibilities and devote such time, attention and energy to the business of the Company as the Board shall from time to time require and shall not, during the term of his employment hereunder, be engaged in any other business activity pursued for gain, profit or other pecuniary advantage without the prior written consent of the Board. However, the foregoing limitations shall not be construed as prohibiting Employee from making personal investments in such form or manner as will neither require his services in the operation or affairs of the companies or enterprises in which such investments are made nor violate the terms of Section 5. (c) Employee will be based in URI's offices in Modesto, California, and shall not be required to relocate. E-1 2. Compensation and Other Benefits. For all services rendered by Employee to the Company, the Company shall compensate the Employee as follows: (a) Base Salary and Bonus. The initial base salary payable to Employee during the term of this Agreement shall be $175,000 per year, payable in accordance with URI's standard payroll practices. Minimum annual increases in the base salary payable to Employee shall be determined by adding to Employee's then current base salary the sum, if any, determined by multiplying Employee's then current base salary by the percentage that the Consumer Price Index for "Urban Wage Earners & Clerical Workers", as prepared by the Bureau of Labor Statistics of the Department of Labor of the United States for the city in which Employee's residence is located, for the most recently ended calendar year has increased over the index from the previous calendar year; provided that Employee's base salary shall not be increased on account of the foregoing cost of living adjustments to an amount in excess of $210,000 per annum. In addition, the Board may from time to time award bonuses to Employee based on such criteria as the Board may establish in its discretion. The payment of salary and bonuses shall be subject to all federal, state and withholding taxes, social security deductions and other general obligations. (b) Vacation. Employee shall be entitled to three (3) weeks of paid vacation during each 12-month period of his employment hereunder at times mutually acceptable to Employee and the Company. Unused vacations can be carried forward for 12 months, and shall thereupon lapse. (c) Other Compensation and Benefits. During the term of this Agreement, Employee may be entitled to receive the additional payments from the Company set forth below. Employee shall be entitled to participate upon commencement of the term of this Agreement in URI's group health insurance plan and any bonus, option or similar incentive compensation plan, 401(k) plan, group life plan and automobile allowance program which is made available, from time to time, to other senior executives of URI, on a basis consistent with such participation. (d) Reimbursement. The Company shall reimburse Employee for properly documented expenses which are incurred by Employee on behalf of the Company in the performance of his duties hereunder in accordance with Company policies in effect from time to time. (e) Stock Options. (i) The term "Options" as used herein means (A) all options to purchase common stock of URI ("URI Common Stock") to which Employee became entitled pursuant to Section 5.10 of the Merger Agreement in respect of options to purchase USR common stock previously granted to Employee (the "Carry-Over Options"), (B) the options to purchase URI Common Stock described in the stock option award letters, dated the date hereof, attached hereto(1) and (C) any and all options to purchase shares of URI Common Stock which are at any time hereafter granted by URI to Employee, whether under URI's 1997 Stock Option Plan or otherwise. All unvested Options shall automatically vest on a Change of Control. (ii) A "Change of Control" shall be deemed to have occurred if: (A) any "person" is or becomes a "beneficial owner" (as defined in Rule 13d-3 under the Securities Exchange Act of 1934 (the "Act")), directly or indirectly, of securities of URI representing 50% or more of the total voting power represented by then outstanding voting securities of URI, or has the power - -------- (1) To reflect the award of (a) 100,000 options exercisable at a price per share equal to the closing price per share of URI Common Stock on the NYSE on the Closing Date (the "Market Price") and (b) 37,500 options exercisable at a price per share equal to the greater of (i) 125% of the Market Price and (ii) $45. All of such options shall vest over a three year term. Mr. McKinney's option grant letters will provide that (a) all options scheduled to vest in a given period will vest in full on the first day of such period if he is employed by the Company on such date, and (b) all shares of URI Common Stock which are acquired by Mr. McKinney upon exercise of vested options that are covered by an effective Registration Statement on Form S-8 may be resold by him in accordance with the grant letters upon exercise. E-2 (whether as a result of stock ownership, revocable or irrevocable proxies, contract or otherwise) or ability to elect or cause the election of directors consisting at the time of such election of a majority of the Board. The term "persons" is defined in Sections 13(d) and 14(d) of the Act, except that the term "person" shall not include: (1) any person or an Affiliate (as defined below) of such person who as of the date of this Agreement owns 10% or more of the total voting power represented by the outstanding voting securities of URI; and (2) a trustee or other fiduciary holding securities under any employee benefit plan of the Company or a corporation which is owned directly or indirectly by the stockholders of URI in substantially the same percentage as their ownership in URI. An "Affiliate" of a person is a person that controls, is controlled by, or is under common control with such person. or (B) the stockholders of URI approve a merger of URI, or a plan of complete liquidation of URI, or an agreement for the sale or disposition by URI of all or substantially all of its assets, or any other business combination of URI with any other corporation, other than any such merger or business combination which would result in the voting securities of URI outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) at least 50% of the total voting power represented by the voting securities of URI or such surviving entity outstanding immediately after such merger or business combination. (iii) URI shall use its best efforts to file (or cause to be filed) and have declared effective one or more registration statements on Form S-8 under the Securities Act of 1933 (A) during URI's fiscal quarter ending March 31, 1999 registering one-third of the shares of URI Common Stock issuable upon exercise of the Carry-Over Options and (B) after URI's fiscal quarter ending March 31, 1999 and on or prior to the first anniversary of the Closing Date registering the remainder of the shares of URI Common Stock issuable upon exercise of the Carry-Over Options. Except as set forth above, the Company shall have no obligation to register under the Securities Act or any state securities laws any of Employee's Options or any of the shares of URI Common Stock issuable upon exercise thereof. (iv) Notwithstanding the foregoing, in the event the Employee dies, becomes disabled or is terminated without good cause (as defined below), or resigns for good reason (as defined below), prior to March 31, 1999, the registration to be filed on or prior to such date pursuant to Section 2(e)(iii) above shall cover all Carry-Over Options then outstanding. As used in this paragraph, the term "good reason" means (A) a material diminution in Employee's duties, responsibilities or title; (B) the occurrence of a Change of Control or (C) URI's material breach of this Agreement which is not cured within 30 days after notice. 3. Term; Termination; Rights of Termination. (a) The term of this Agreement shall begin on the date hereof and shall continue until the third anniversary of the date hereof or such earlier date set forth below, provided that the term shall automatically renew at the end of each month after the first year so that at no time shall the balance of the term of Employee's employment be less than two years. This Agreement and Employee's employment may terminate in any one of the following ways: (i) The death of Employee shall terminate this Agreement; (ii) A notice of resignation by the Employee presented to the Board shall terminate this Agreement; (iii) The Company may terminate this Agreement after ten (10) days' written notice to Employee for "good cause", which is defined to mean: (A) Employee's material breach of this Agreement, including, without limitation, his insubordination. (B) the material default of the Company in performing its obligations under contracts with other persons or business entities if directly caused by Employee, intentionally and without authorization; E-3 (C) if, because of illness or physical or mental disability or other incapacity which continues for a period in excess of four months in any consecutive 16-month period, Employee is unable to perform his duties under this Agreement ; (D) Employee's fraud or dishonesty with respect to the business or affairs of the Company or if Employee is convicted of a crime which in the reasonable opinion of the Board would negatively affect the Company's business or reputation; or (E) alcohol or drug abuse by Employee. (iv) The Company may terminate this Agreement without cause at any time, provided that in the event of a termination of this Agreement without cause, Employee shall be entitled to receive from the Company his then current monthly base salary over the balance of the term of his employment, in the same installments and subject to the same withholding, as applied during his employment. In addition, for the number of months remaining in the term of this Agreement, the Company shall continue to be obligated to provide to Employee with life, health, disability and accident insurance and benefits and all other executive benefits (including without limitation, retirement benefits and automobile and expense allowances) comparable to those provided to Employee prior to his termination. To the extent that Employee is no longer lawfully eligible for any aforementioned benefit because he is no longer employed by the Company, the Company shall pay to Employee a lump sum cash payment equal to the present value of the benefits which would have been provided to Employee had his employment continued for the number of months remaining in the then term of this Agreement. (b) Upon termination of this Agreement or Employee's employment for any reason whatsoever, Employee shall be entitled to receive all salary earned under this Agreement to the date of termination. However, termination of this Agreement shall not accelerate the payment date of any monies accrued or accruing to the account of Employee as a result of any bonuses or other compensation, nor shall termination vest in Employee any right in connection therewith other than as expressly set forth herein. (c) In the event of termination of this Agreement for any reason provided in this Section or if Employee resigns prior to the expiration of the term of this Agreement, all rights and obligations of the Company and Employee under this Agreement shall cease immediately, except for those which by their terms specifically apply to periods following the termination of this Agreement (including, without limitation, Sections 2(e)(iii) and 2(e)(iv), and Sections 3 through 11 hereof), and thereafter Employee shall have no right to receive any compensation hereunder except as otherwise expressly set forth above. 4. Confidentiality. (a) During and at all times after Employee's employment: (i) Employee shall not disclose to any person or entity, without the Company's prior consent, any confidential or secret information, whether prepared by him or others. (ii) Employee shall not, except in furtherance of the business of the Company, directly or indirectly use any such information other than as directed by the Company. (iii) Employee shall not, except in the furtherance of the business of the Company, remove confidential or secret information from the premises of the Company without the prior consent of the Company. (iv) Upon termination of his employment for whatever reason, with or without cause, Employee shall promptly deliver to the Company all originals and copies (whether in note, memo or other document form E-4 or on video, audio or computer tapes or discs or otherwise) of confidential or secret information that is in his possession, custody or control, whether prepared by him or others. (b) Confidential information includes, but is not limited to: (i) the name of any company or business all or any substantial part of which is or at any time was a candidate for potential acquisition by the Company, together with all analyses and other information which the Company has generated, compiled or otherwise obtained with respect to such candidate, business or potential acquisition, or with respect to the potential effect of such acquisition on the Company's business, assets, financial results or prospects; (ii) business, pricing and management methods; (iii) finances, strategies, systems, research, surveys, plans, reports, recommendations and conclusions; (iv) names, arrangements with, or other information relating to, the Company's customers, suppliers, equipment manufacturers, financiers, owners or operators, representatives and other persons who have business relationships with the Company or who are prospects for business relationships with the Company; (v) technical information, work products and know-how; and (vi) cost, operating, and other management information systems, and other software and programming. 5. Non-Compete Provisions. The following covenants are made by Employee in partial consideration for the substantial economic investment made by the Company in the hiring, education and training of Employee and the compensation and other benefits afforded by the Company to the Employee. Such covenants were material inducements to the Company in hiring Employee. (a) During his employment by the Company and for a period of 24 months immediately following the termination of his employment for any reason whatsoever, whether or not for cause: (i) Employee shall not in any Restricted Area (as hereinafter defined) directly or indirectly be employed or retained by any person or entity who or which then competes with the Company to any extent, nor will Employee directly or indirectly own any interest in any such person or entity or render to it any consulting, brokerage, contracting, financial or other services. Employee shall be deemed to be employed or retained in the Restricted Area if he has an office in the Restricted Area or if he performs any duties or renders any advice with respect to any facility or business activities in the Restricted Area. A "Restricted Area" means each of: (A) any state in the United States and any province in Canada in which the Company conducts any equipment rental or other equipment- related activity, it being agreed that each state and province is one unitary market for purposes of the Company's business; (B) regardless of state, the area within a 200-mile radius of any office or facility of the Company in which or in relation to which Employee shall have performed any duties for the Company during the one year period preceding the termination of his employment. (ii) Employee shall not anywhere in the United States or Canada directly or indirectly be employed or retained by a Similar Entity (as hereinafter defined) nor will Employee directly or indirectly own any interest in any Similar Entity or render to it any consulting, brokerage, financing, contracting, or other services; provided, however, that the Employee may own, directly or indirectly, solely as an investment, securities of any business traded on any national securities exchange or Nasdaq, provided the Employee is not a controlling person of, or a member of a group which controls, such business; and further provided that the Employee does not, directly or indirectly, own 5% or more of any class of securities in such business. A "Similar Entity" means each of: (A) the entities listed in Exhibit A to this Agreement; E-5 (B) any person or entity which anywhere in the United States now or hereafter engages in any business in which the Company engages now or hereafter during the term of Employee's employment; (C) any entity which at any time during the term of Employee's employment was a candidate for acquisition by or merger with the Company; and (D) any entity which owns or owned any facility which was acquired by the Company, or was a candidate for acquisition by the Company, at any time during the term of Employee's employment. (iii) Employee shall not anywhere directly or indirectly (whether as an owner, partner, employee, consultant, broker, contractor or otherwise, and whether personally or through other persons): (A) solicit or accept the business of, or call upon, any person or entity who or which is or was (1) a customer, supplier or manufacturer of equipment which is sold, leased or rented out by the Company, finder or broker, who had a business relationship with the Company at any time during the period the period of his employment, or (2) an affiliate of any such person; (B) approve, solicit or retain, or discuss the employment or retention (whether as an employee, consultant or otherwise) of any person who was an employee of the Company at any time during the one- year period preceding the termination of his employment; (C) solicit or encourage any person to leave the employ of the Company; (D) call upon or assist in the acquisition of any company which was, during the term of his employment, either called upon by an employee of the Company or by a broker or other third party, for possible acquisition by the Company or for which an employee of the Company or other person made an acquisition analysis for the Company; or (E) own any interest in or be employed by or provide any services to any person or entity which engages in any conduct which is prohibited to Employee under this Section 5(a); provided, however, that the Employee may own, directly or indirectly, solely as an investment, securities of any business traded on any national securities exchange or NASDAQ, provided the Employee is not a controlling person of, or a member of a group which controls, such business and further provided that the Employee does not, directly or indirectly, own 5% or more of any class of securities of such business. (b) Before taking any position with any person or entity during the 24-month period following the termination of his employment for any reason, with or without cause, Employee will give prior written notice to the Chairman of the Board of the name of such person or entity. The Company shall be entitled to advise each such person or entity of the provisions of this Agreement, and to correspond and otherwise deal with each such person or entity to ensure that the provisions of this Agreement are enforced and duly discharged. (c) All time periods in this Agreement shall be computed by excluding from such computation any time during which Employee is in violation of any provision of this Agreement and any time during which there is pending in any court of competent jurisdiction any action (including any appeal from any final judgment) brought by any person, whether or not a party to this Agreement, in which action the Company seeks to enforce the agreements and covenants in this Agreement or in which any person contests the validity of such agreements and covenants or their enforceability or seeks to avoid their performance or enforcement. (d) Employee understands that the provisions of this Agreement have been carefully designed to restrict his activities to the minimum extent which is consistent with law and the Company's requirements. Employee has carefully considered these restrictions, and Employee confirms that they will not unduly restrict Employee's ability to obtain a livelihood. Before signing this Agreement, Employee has had the opportunity to discuss this Agreement and all of its terms with his attorney. (e) Since monetary damages will be inadequate and the Company will be irreparably damaged if the provisions of this Agreement are not specifically enforced, the Company shall be entitled, among other remedies to an injunction restraining any violation of this Agreement (without any bond or other security being required) E-6 by Employee and by any person or entity to whom Employee provides or proposes to provide any services in violation of this Agreement. (f) If any provision contained in this Agreement is determined to be void, illegal or unenforceable, in whole or in part, then the other provisions contained herein shall remain in full force and effect as if the provision which was determined to be void, illegal, or unenforceable had not been contained herein. (g) The courts enforcing this Agreement shall be entitled to modify the duration and scope of any restriction contained herein to the extent such restriction would otherwise be unenforceable, and such restriction as modified shall be enforced. 6. Return of Company Property. All products, records, designs, patents, plans, manuals, "field guides," memoranda, lists and other property delivered to Employee by or on behalf of the Company or by its customers (including, but not limited to, customers obtained for the Company by Employee), and all records compiled by the Employee which pertain to the business of the Company (whether or not confidential) shall be and remain the property of the Company and be subject at all times to its discretion and control. Likewise, all correspondence with customers or representatives, reports, records, charts, advertising materials, and any data collected by Employee, or by or on behalf of the Company or its representatives (whether or not confidential) shall be delivered promptly to the Company without request by it upon termination of Employee's employment. 7. Inventions. Employee shall disclose promptly to the Company any and all conceptions and ideas for inventions, improvements and valuable discoveries, whether patentable or not, which are conceived or made by Employee solely or jointly with another during the period of employment or within one (1) year thereafter and which are related to the business or activities of the Company or which Employee conceives as a result of his employment by the Company, and Employee hereby assigns and agrees to assign all his interests therein to the Company or its nominee. Whenever requested to do so by the Company, Employee shall execute any and all applications, assignments or other instruments that the Company shall deem necessary to apply for and obtain Letters Patent of the United States or any foreign country or to otherwise protect the Company's interest therein. These obligations shall continue beyond the termination of employment with respect to inventions, improvements and valuable discoveries, whether patentable or not, conceived, made or acquired by Employee during the period of employment or within one (1) year thereafter and which are related to the business or activities of the Company or which Employee conceives as a result of his employment by the Company, and shall be binding upon Employee's assigns, executors, administrators and other legal representatives. 8. Suits Against Company. (a) Both during and after the term of employment hereunder, Employee covenants that Employee shall not bring suit or file counterclaims against the Company for corporate misconduct (which for this purpose does not mean the mere breach by the Company of this Agreement or any conduct which affects the rights of the Employee), unless both of (i) and (ii) below shall have occurred, namely: (i) Employee shall have first made written demand to the Board to investigate and deal with such misconduct, and (ii) the Board shall have failed within 45 days after the date of receipt of such demand to establish a Special Litigation Committee, consisting exclusively of outside directors, to investigate and deal with such misconduct. (b) Without limiting the generality and to further implement the foregoing, Employee irrevocably and unconditionally consents at the option of the Company to the entry of temporary restraining orders and temporary and permanent injunctions (without posting bond or other security) against the filing of any action or counterclaim which is prohibited hereunder. (c) The opinion of the Board shall be binding and conclusive on the determination of which directors constitute "outside directors," and the determination of the Special Litigation Committee shall be binding and conclusive on all matters relating to the actual or alleged misconduct which is referred to it as aforesaid. 9. Cooperation in Proceedings. During and after the termination of Employee's employment, Employee shall for reasonable compensation consistent with his compensation from the Company cooperate fully and at E-7 reasonable times with the Company and its subsidiaries in all litigations and regulatory proceedings on which the Company or any subsidiary seeks Employee's assistance and as to which Employee has any knowledge or involvement. Without limiting the generality of the foregoing, Employee will be available upon reasonable notice for periods of reasonable duration, considering his other responsibilities and obligations, to testify at such litigations and other proceedings, and will cooperate with counsel to the Company in preparing materials and offering advice in such litigations and other proceedings. Except as required by law and then only upon reasonable prior written notice to the Company, Employee shall not in any way cooperate or assist any person or entity in any matter which is adverse to the Company or to any person who was at any time an officer or director of the Company. 10. No Derogation. Except as otherwise required by law (and then only upon 10 days' prior written notice to the Company), Employee shall not from and after the date hereof, whether during Employee's employment or at any time thereafter, in any way or to any person, denigrate or derogate the Company or any of its subsidiaries, or any person who was at any time an officer or director of the Company, or any products, services or procedures of the Company, whether or not such denigrating or derogatory statements shall be true and are based on acts or omissions which were learned or are learned by Employee heretofore or from and after the date hereof or on acts or omissions which occurred at any time heretofore or which occur at any time from and after the date hereof, or otherwise. 11. Miscellaneous. (a) Complete Agreement. There are no oral representations, understandings or agreements with the Company or any of its officers, directors or representatives covering the same subject matter as this Agreement. This written Agreement is the final, complete and exclusive statement and expression of the agreement between the Company and Employee and of all the terms of this Agreement, it cancels and replaces and supersedes all prior agreements with respect to the subject matter hereof (including, without limitation, any employment, deferred compensation, bonus or stock option agreements between Employee and USR), and it cannot be varied, contradicted or supplemented by evidence of any prior or contemporaneous oral or written agreements. This written Agreement may not be later modified except by a further writing signed by the Company and Employee, and no term of this Agreement may be waived except by writing signed by the party waiving the benefit of such terms. (b) No Waiver. No waiver by the parties hereto of any default or breach of any term, condition or covenant of this Agreement shall be deemed to be a waiver of any subsequent default or breach of the same or any other term, condition or covenant contained herein. (c) Binding Effect. This Agreement shall be binding upon and inure to the benefit of the parties thereto and their respective heirs, successors and permitted assigns. The Company may assign this Agreement only to a person or entity who or which directly or indirectly succeeds to all or any substantial part of the Company's assets or business. This Agreement is personal to Employee and may not be assigned or delegated by him and any such purported assignment or delegation shall be null and void. (d) Notice. Whenever any notice is required hereunder, it shall be given in writing addressed as follows: (i) if to the Company, to: URI, Four Greenwich Office Park, Greenwich, Connecticut 06830, Attn: Chairman of the Board, with a copy (which shall not constitute notice) to: Oscar D. Folger, Esq., 24th Floor, 521 Fifth Avenue, New York, New York 10175; and (ii) if to Employee, to: ___________, with a copy (which shall not constitute notice) to: Stephen E. Newton, Esq., Heller, Ehrman, White & McAuliffe, 601 South Figueroa Street, Los Angeles, California 90017. Notice shall be deemed given and effective (a) five business days after the deposit in the U.S. mail of a writing addressed as above and sent first class mail, certified, return receipt requested, (b) one (1) business day after delivered to a nationally recognized air courier for next day delivery service, or (c) upon personal delivery. Either party may change the address for notice by notifying the other party of such change in accordance with this paragraph. E-8 (e) Severability; Headings. If any portion of this Agreement is held invalid or inoperative, the other portions of this agreement shall be deemed valid and operative, and so far as it is reasonable and possible, effect shall be given to the intent manifested by the portion held invalid or inoperative. The paragraph headings herein are for reference purposes only and are not intended in any way to describe, interpret, define or limit the extent or intent of this Agreement or any part hereof. (f) Governing Law; Resolution of Disputes; Service of Process. This Agreement shall in all respects be construed according to the laws of the State of Connecticut. All disputes relating to the interpretation and enforcement of the provisions of this Agreement shall be resolved and determined exclusively by arbitration in San Francisco, California under the rules of the American Arbitration Association. Service of process shall be effective when given in the manner provided for notices hereunder. IN WITNESS WHEREOF the parties have signed and delivered this Agreement as of the date first set forth above. UNITED RENTALS, INC. By: ---------------------------------- Name: Title: ------------------------------------- John S. McKinney E-9 EXHIBIT F REGISTRATION RIGHTS AGREEMENT THIS REGISTRATION RIGHTS AGREEMENT (this "AGREEMENT"), is entered into as of [CLOSING DATE], 1998, between United Rentals, Inc., a Delaware corporation (the "COMPANY"), the Persons listed on Schedule A hereto (each a "HOLDER" and collectively, the "HOLDERS").(1) The parties agree as follows. RECITALS A. Holders were holders of shares of common stock, par value $.01 per share ("USR STOCK") of U.S. Rentals, Inc., a Delaware corporation ("USR"). B. Pursuant to an Agreement and Plan of Merger, dated as of June 15, 1998, as amended and restated on August 31, 1998, among the Company, UR Acquisition Corporation, a Delaware corporation and wholly-owned subsidiary of the Company ("MERGER SUB"), and USR, Merger Sub was merged with and into USR, with USR as the surviving corporation and wholly-owned subsidiary of the Company (the "MERGER"). C. Pursuant to the Merger, each share of USR Stock was converted into the right to receive 0.9625 of a share of common stock, par value $.01 per share, of the Company ("COMMON STOCK"). D. Pursuant to the Merger, Holders received shares of Common Stock (the "SHARES") in respect of the USR Stock theretofore owned by the Holder which will be subject to the provisions of Rule 145 under the Securities Act of 1933, as amended. E. Holders and the Company desire to set forth herein their agreement with respect to the registration rights, and certain other covenants, applicable to the Shares. 1. Certain Definitions. As used in this Agreement: "AFFILIATE" of a Person means any other Person directly or indirectly controlling, controlled by or under direct or indirect common control with the first mentioned Person. Without limiting the generality of the foregoing, for purposes of this Agreement, each of the following shall be deemed Affiliates of a Person: (i) such Person's spouse, lineal descendants and the respective spouses of such descendants; (ii) any trust the majority of the beneficiaries of which are such Person and/or Persons described in clause (i) and/or any Affiliates of such Person or Persons; (iii) any trust of which such Person and/or its Affiliates is grantor or settlor and (iv) any charitable, educational or political foundation or fund established or endowed by any of the foregoing Persons or any of their Affiliates. "BUSINESS DAY" means any day that commercial banks are not authorized or required to close in Los Angeles, California. "COMMISSION" means the Securities and Exchange Commission or any other similar or successor agency of the United States government administering the Securities Act. "EXCHANGE ACT" means the Securities Exchange Act of 1934, and any similar or successor federal statute, and the rules and regulations of the Commission thereunder, as in effect at the time. "NYSE" means the New York Stock Exchange. "OFFERING" means the registration of the Company's securities under the Securities Act, whether underwritten or not, for sale to the public. - -------- (1) Will be all persons signing "Affiliate" letters pursuant to the Merger Agreement. F-1 "PERMITTED TRANSFEREE" means (a) any entity all of the equity of which is directly or indirectly owned by the transferor or any person who owns an equity interest in the transferor; (b) in the case of a transferor who is an individual, (i) such transferor's spouse and lineal descendants, (ii) such transferor's successors, personal representatives and heirs, (iii) any trustee of any trust created primarily for the benefit of any, some or all of such spouse and lineal descendants (but that may include beneficiaries that are charities) or of any revocable trust created by such transferor, (iv) following the death of such transferor, all beneficiaries under either such trust, (v) the transferor, in the case of a transfer from any Permitted Transferee back to its transferor and (vi) any entity all of the equity of which is directly or indirectly owned by any of the foregoing; (c) any charitable or educational organization that is exempt from federal income taxes; or (d) in the case of a transferor who is a trustee of a trust which would be a Permitted Transferee, any beneficiary of such trust. "PERSON" means a corporation, an association, a trust, a partnership, a limited liability company, a joint venture, an organization, a business, an individual, a government or political subdivision thereof, or a governmental body. "PROSPECTUS" means the prospectus included in any Registration Statement, together with and including any amendment or supplement to such prospectus, covering the Offering of any portion of the Registrable Securities covered by a Registration Statement, and all material incorporated by reference in such Prospectus. "REGISTRABLE SECURITIES" means the Shares and any securities issued or issuable with respect to the Shares by way of a stock dividend or stock split or in connection with a combination of shares, recapitalization, merger, consolidation, reclassification or other reorganization. A security will cease to be a Registrable Security when it (a) has been effectively registered under the Securities Act and disposed of in accordance with the Registration Statement covering it, (b) is distributed to the public pursuant to Rule 144 (or any similar rule then in force) under the Securities Act or (c) has otherwise been transferred and a new certificate not bearing a restrictive legend and not subject to any stop transfer order lawfully has been delivered by or on behalf of the Company and no other restriction on transfer exists. "REGISTRATION STATEMENT" means a registration statement filed by the Company with the Commission covering Registrable Securities. "REQUIRED HOLDERS" means, at any time, Richard D. Colburn or any person or persons whom he so designates by notice to the Company. "SECURITIES ACT" means the Securities Act of 1933, as amended, or any similar federal statute, together with the rules and regulations of the Commission promulgated thereunder, as in effect at the time. 2. Registration Rights. 2.1 Demand Registration. Commencing on such date as consolidated financial results (including combined sales and net income) covering at least 30 days of post-Merger combined operations of the Company and USR have been published by the Company (the "RESTRICTION TERMINATION DATE"), the Required Holders may, by written notice to the Company (the "DEMAND NOTICE"), demand that the Company file, and, subject to Section 2.3 below, the Company shall file, a Registration Statement for an underwritten public offering covering an Offering of such number of Registrable Securities equal to the lesser of (a) one-third ( 1/3) of the aggregate number of Registrable Securities then owned by the Holders and (b) such number of Registrable Securities as would generate anticipated gross proceeds (based on the then current trading price of the Common Stock as reported by the NYSE) in such Offering of not more than $200,000,000. In addition, the Required F-2 Holders will be entitled at any time after ________, 1999 [date which is 11 1/2 months after Effective Time of Merger] or, if earlier, such date as Bradley Jacobs has received $250,000,000 in gross proceeds from the sale of Common Stock to demand that the Company file and cause to be declared effective a Registration Statement (collectively with the Registration Statement referred to in the preceding sentence, "DEMAND REGISTRATION STATEMENTS") covering all or any part of the Registrable Securities; provided that the Holders shall not be entitled to more than (x) one such demand (other than the demand provided in the first sentence of this Section 2.1) during any 12 month period and (y) three such demands in the aggregate. Subject to Section 2.3 below, such Demand Registration Statements shall be filed on an appropriate form under the Securities Act, as soon as practicable after the Company receives the Demand Notice, the Company will use its best efforts to cause any Demand Registration Statement to be declared effective on the date requested by the managing underwriter for the Offering (no earlier than 60 days from the date of the Demand Notice), or, if such Offering is not underwritten, as soon as practicable after filing with the Commission and (3) the Company will keep such Demand Registration Statement effective until the related Offering is completed (but not more than 60 days from the effective date of the Demand Registration Statement). 2.2 Company Participation. The Company can elect to register equity securities of the Company in a Demand Registration Statement or to participate in the Offering, by including any of its equity securities in the Demand Registration Statement, subject to the following: (a) Notice. The Company must give notice of such election to the Holders within 10 days after the Demand Notice was given to it, including the number of Shares proposed to be sold by the Company in the Offering (the "OTHER SHARES"); (b) Conditions. The Company must agree to sell such Other Shares on the same basis provided in the underwriting arrangements approved by the Holders and the Company (including standard indemnification provisions) and to timely complete and execute all questionnaires, powers of attorney, indemnities, holdback agreements, underwriting agreements and other documents reasonably required by such underwriting arrangements, by the Commission, or by any state securities regulatory body; and (c) Limitation On Amount. The number of Other Shares that may be sold by the Company will be limited if the managing underwriter decides that market conditions require a limitation. In such event, the number of shares of Common Stock that may be sold in the Offering will be allocated first to the Holders, second, to the extent available, to the Company, and, third, to the extent available, to any other Person exercising registration rights with respect to the Common Stock. 2.3 Delay. Except for a Demand Notice made within 60 days after the end of the Restriction Termination Date, the Company may delay the filing of any Demand Registration Statement if upon receipt of the Demand Notice (a) the Company notifies the Holders that it is contemplating filing a registration statement for a primary offering within 120 days of such demand, (b) the Company notifies the Holders that a material event has occurred or is likely to occur that has not been publicly disclosed that, if disclosed, would have a material adverse effect on the Company, or (c) the Company decides that the registration and offering could interfere with, or would require the Company to accelerate public disclosure of, any material financing, acquisition, disposition, corporate reorganization or other material transaction involving the Company or its subsidiaries. In the case of clause (a) of this subsection, the Company will use its best efforts, as soon as practicable, upon the earlier of the Company's abandonment of its contemplated registration statement or the expiration of 180 days after receipt of the Demand Notice, unless such Demand Notice is withdrawn by the Holders. In the case of clause (b) or clause (c), the Company may not delay the filing of the Demand Registration Statement for more than 90 days from the date of the Demand Notice unless such Demand Notice is withdrawn by the Holders. The Company cannot exercise the rights of postponement described above more than one time in any 12-month period, and may not postpone a Demand Registration Statement for more than 180 consecutive days. If there is a postponement under any clause above, the Demand Notice may be withdrawn by the Holders by notice to the Company. In such case, no Demand Notice will have been delivered for the purposes of Section 2.1. F-3 2.4 Selection Of Underwriters. The managing underwriter of any Offering shall be designated by the Company, subject to the reasonable approval of the Requisite Holders. 3. Registration Procedures. Subject to the terms of this Agreement, the Company will use its best efforts to effect any registration under Section 2 in a manner that permits the sale of the Registrable Securities covered thereby in accordance with the intended method or methods of disposition. The Company will, as promptly as practicable, do the following. 3.1 Copies; Review. At least five (5) Business Days before filing a Registration Statement or Prospectus or any amendment or supplement thereto (whether before or after effectiveness), the Company will furnish to the Holders participating in such Registration Statement (the "REGISTERING HOLDERS") and the underwriters, if any, copies of all such documents proposed to be filed. Such documents will be subject to the review of the Registering Holders and such underwriters (and their respective counsel). The Company will not file any Registration Statement or any Prospectus or any amendment or supplement thereto (whether before or after effectiveness) to which the Registering Holders or the underwriters, if any, reasonably object. 3.2 Amendments. The Company will (a) prepare and file with the Commission such amendments and post-effective amendments to the Registration Statement as may be necessary to keep the Registration Statement effective for the applicable time period required herein, (b) cause the Prospectus to be supplemented by any required Prospectus supplement, and as so supplemented to be filed pursuant to Rule 424 under the Securities Act, and (c) comply with the provisions of the Securities Act with respect to the disposition of all securities covered by such Registration Statement during the applicable period in accordance with the intended methods of disposition by the Registering Holders set forth in such Registration Statement or Prospectus supplement. 3.3 Notification. The Company will promptly notify the Registering Holders and the managing underwriters, and (if requested by any such Person) confirm such notification in writing, (a) when the Prospectus has been filed, and, with respect to the Registration Statement, when it has become effective, (b) of any request by the Commission for amendments or supplements to the Registration Statement or the Prospectus or for additional information, (c) of the issuance of any stop order suspending the effectiveness of the Registration Statement, or the refusal or suspension of qualification of registration of Registrable Securities, or the initiation of any proceedings for that purpose, (d) if at any time the representations and warranties of the Company contemplated by Section 8 cease to be true and correct, and (e) of any event that makes any material statement made in the Registration Statement, the Prospectus or any document incorporated therein by reference untrue or that requires the making of any changes in the Registration Statement, the Prospectus or any document incorporated therein by reference in order to make the statements therein, in light of the circumstances under which they were made, not misleading in any material respect. The Company will make every reasonable effort to obtain the withdrawal of any order suspending the effectiveness of the Registration Statement at the earliest possible moment. If any event contemplated by clause (e) occurs, the Company will promptly prepare a supplement or post-effective amendment to the Registration Statement or the Prospectus or any document incorporated therein by reference or file any other required document so that, as thereafter delivered to the purchasers of the Registrable Securities, the Prospectus will not contain an untrue statement of a material fact or omit to state any material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. Upon receipt of any notice from the Company that any event of the kind described in clause (e) has happened, each Registering Holder will discontinue offering the Registrable Securities until the Registering Holder receives the copies of the supplemented or amended Prospectus contemplated by the previous sentence, or until it is advised in writing by the Company that the use of the Prospectus may be resumed, and has received copies of any additional or supplemental filings that are incorporated by reference in the Prospectus. The period during which distribution of the Shares is suspended will not be counted toward completion of the required period of effectiveness for any Registration Statement. 3.4 Information Included. If requested by the managing underwriters or the Registering Holders, the Company will as soon as practicable incorporate in a Prospectus supplement or post-effective amendment such information as the managing underwriters and the Registering Holders agree should be included therein relating F-4 to the sale of the Registrable Securities, including, but not limited to, information with respect to the number of Registrable Securities being sold to such underwriters or other Persons, the purchase price being paid therefor by such underwriters or other Persons and any other terms of the distribution of the Registrable Securities to be sold in such Offering. Such information will include, if applicable, any required disclosure of arrangements with underwriters. The Company will make all required filings of such Prospectus supplement or post-effective amendment as promptly as practicable after being notified of the matters to be incorporated in such Prospectus supplement or post-effective amendment. 3.5 Copies. The Company will (a) promptly furnish to the Registering Holders and each managing underwriter without charge, at least one signed copy of the Registration Statement and any post-effective amendment thereto, including financial statements and schedules, all documents incorporated therein by reference and all exhibits (including those incorporated by reference), and (b) promptly deliver to the Registering Holders and the underwriters without charge, as many copies of the Prospectus (including each preliminary Prospectus) and any amendment or supplement thereto as such Persons may reasonably request. The Company consents to the use of the Prospectus or any amendment or supplement thereto by the Registering Holders and the underwriters in connection with the Offering and sale of the Registrable Securities covered by the Prospectus or any amendment or supplement thereto. 3.6 Blue Sky Registration. Prior to any Offering of Registrable Securities covered by a Registration Statement under Section 2, the Company will register or qualify or cooperate with the Registering Holders, the underwriters and their respective counsel in connection with the registration or qualification of such Registrable Securities under the securities or blue sky laws of such jurisdictions as the Registering Holders or underwriter reasonably request in writing, and do any and all other acts or things necessary or advisable to enable the disposition in such jurisdictions of such Registrable Securities. The Company will not be required to take any actions under this subsection if such actions would require it to submit to the general taxation of such jurisdiction or to file therein any general consent to service of process, unless this limitation means that the Registrable Securities would not be qualified (or exempt from qualification) for offer and sale in at least 20 states. 3.7 Other Registrations. The Company will use its best efforts to cause the Registrable Securities covered by the Registration Statement to be registered with or approved by such governmental agencies or authorities other than the Commission and state securities regulatory bodies as may be necessary to enable the Registering Holders or the underwriters to consummate the disposition of such Registrable Securities. 3.8 Certificates. The Company will cooperate with the Registering Holders and the managing underwriter to facilitate the timely preparation and delivery of certificates representing Registrable Securities to be sold that do not bear any restrictive legends. Such certificates will be in such denominations and registered in such names as the managing underwriter requests at least two business days prior to any sale of Registrable Securities to the underwriters. 3.9 Other Actions. In addition, the Company will (a) make such representations and warranties to the Registering Holders and the underwriters as are customarily made by issuers to underwriters in primary underwritten offerings (or as may be reasonably requested by the underwriters), (b) obtain opinions of counsel to the Company and updates (which counsel and opinions must be reasonably satisfactory to the Registering Holders), (c) obtain customary "cold comfort" letters and updates from the Company's independent certified public accountants addressed to the underwriters, and use its best efforts to obtain such a letter for the Registering Holders or to obtain a letter from such accountants authorizing the Registering Holders to rely on such "cold comfort" letter, (d) if an underwriting agreement is entered into, ensure that it sets forth customary indemnification provisions and procedures with respect to the Company and the Registering Holders similar to those set forth in Section 4 hereof, and (e) deliver such documents and certificates as may be requested by the Registering Holders and the managing underwriter to evidence compliance with clause (a) and with any customary conditions contained in the underwriting agreement or other agreement entered into by the Company with the Registering Holders. The above will be done in connection with each closing under such underwriting or similar agreement or as and to the extent required thereunder. F-5 3.10 Due Diligence. The Company will make available for inspection by the Registering Holders, any underwriter participating in any, and any attorney or accountant retained by the Registering Holders or managing underwriter, all financial and other records, pertinent corporate documents and properties of the Company, and cause the Company's officers, directors and employees to be available to discuss and to supply all information reasonably requested by any such Person in connection with the Registration Statement. If reasonably requested by the managing underwriter, the Company will make suitable officers available to participate in a customary "road show." All such records, information or documents will be subject to standard confidentiality arrangements. 3.11 Section 11(a) Notice. The Company will make generally available to its stockholders earnings statements satisfying the provisions of Section 11(a) of the Securities Act. 3.12 Expenses. Except as set forth in the next to last sentence of this Section 3.12, all expenses incident to the Company's performance of or compliance with this Agreement, including, but not limited to, all registration and filing fees, fees and expenses of compliance with securities or blue sky laws, printing expenses, messenger expenses, telephone and delivery expenses, and fees and disbursements of Company counsel and of independent certified public accountants of the Company (including the expenses of any special audit required by or incident to such performance), will be borne by the Company. The Company will also pay its internal expenses (including travel), the expense of any annual audit and the fees and expenses of any Person retained by the Company. In addition, the Company will pay all reasonable fees and disbursements of counsel to the Holders, such fees not to exceed $30,000. All such expenses are referred to as "REGISTRATION EXPENSES." All underwriting fees and commissions with respect to an underwritten Offering and transfer taxes, if any, will be borne by the Holders in proportion to the number of Registrable Securities sold by them. 4. Indemnification. 4.1 Indemnification By The Company. The Company will indemnify and hold harmless the Holder, its officers, directors, agents (including, but not limited to counsel) and employees and each Person who controls the Holder (within the meaning of Section 15 of the Securities Act) (each, a "CONTROLLING PERSON") (all of the foregoing are "INDEMNIFIED PERSONS") from and against any and all losses, claims, damages and liabilities (including any investigation, legal or other expenses ("LOSSES") reasonably incurred in connection with, and any amount paid in settlement of, any action, suit or proceeding or any claim asserted) to which the Indemnified Person may become subject under the Securities Act, the Exchange Act or other federal or state securities law or regulation, at common law or otherwise, insofar as such Losses arise out of or are based upon (a) any untrue statement or alleged untrue statement of a material fact contained in any Registration Statement, Prospectus or preliminary prospectus or any amendment or supplement thereto or the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, or (b) any violation by the Company of the Securities Act or the Exchange Act, or other federal or state securities law applicable to the Company and relating to any action or inaction required of the Company in connection with such registration. In addition, the Company will reimburse the Indemnified Person for any reasonable investigation, legal or other expenses incurred by such Indemnified Person in connection with investigating or defending any such Loss. Notwithstanding anything herein to the contrary, the Company will not be liable with respect to the portion of any such Loss that (i) arises out of or is based upon any alleged untrue statement or alleged omission made in such Registration Statement, preliminary Prospectus, Prospectus, or amendment or supplement in reliance upon and in conformity with written information furnished to the Company by the Indemnified Person specifically for use therein or (ii) attributable to an Indemnified Person's (A) use of a Prospectus after being notified by the Company to suspend use thereof pursuant to Section 3.3 above or (B) failure to deliver a final Prospectus to the Person asserting any losses, claims, damages and liabilities and judgments caused by any untrue statement or alleged untrue statement of a material fact contained in any preliminary prospectus, or caused by any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, if such material misstatement or omission or alleged material misstatement or omission was cured in an amended or supplemented Prospectus prepared by the Company and delivered to the F-6 Holder and the underwriters at or prior to the time written confirmation of sale to such Person was required to be made. The foregoing indemnity will remain in full force and effect regardless of any investigation made by or on behalf of the Indemnified Person, and will survive the transfer of such securities by the Indemnified Person. The Company will also indemnify underwriters, selling brokers, dealer managers and similar securities industry professionals participating in the distribution, their officers and directors and each Person who controls such Persons (within the meaning of Section 15 of the Securities Act) to the same extent customarily requested by such Persons in similar circumstances. 4.2 Indemnification By Holders Of Registrable Securities. If a Holder sells Registrable Securities under a Prospectus that is part of a Registration Statement, the Holder will indemnify and hold harmless the Company, its directors and each officer who signed such Registration Statement and each Person who controls the Company (within the meaning of Section 15 of the Securities Act) under the same circumstances as the foregoing indemnity from the Company to the Holders but only to the extent that such Losses arise out of or are based upon any untrue or allegedly untrue statement of a material fact or omission or alleged omission of a material fact that was made in the Prospectus, the Registration Statement, or any amendment or supplement thereto, in reliance upon and in conformity with written information relating to a Holder furnished to the Company by a Holder expressly for use therein. In no event will the aggregate liability of a Holder exceed the amount of the net proceeds received by the Holder upon the sale of the Registrable Securities giving rise to such indemnification obligation. Such indemnity will remain in full force and effect regardless of any investigation made by or on behalf of the Company or such officer, director, employee or Controlling Person, and will survive the transfer of such securities by the Holder. The Company and the Holders will be entitled to receive indemnities from underwriters, selling brokers, dealer managers and similar securities industry professionals participating in the distribution, to the same extent as customarily furnished by such Persons in similar circumstances. 4.3 Contribution. If the indemnification provided for in the foregoing Sections is unavailable to an indemnified party or is insufficient to hold such indemnified party harmless for any Losses in respect of which the foregoing Sections would otherwise apply by their terms (other than by reason of exceptions provided in the foregoing Sections), then each applicable indemnifying party, in lieu of indemnifying such indemnified party, will have a joint and several obligation to contribute to the amount paid or payable by such indemnified party as a result of such Losses. Such contribution will be in such proportion as is appropriate to reflect the relative fault of the indemnifying party, on the one hand, and such indemnified party, on the other hand, in connection with the actions, statements or omissions that resulted in such Losses, as well as any other relevant equitable considerations. The relative fault of such indemnifying party, on the one hand, and indemnified party, on the other hand, will be determined by reference to, among other things, whether any action in question, including any untrue or alleged untrue statement of a material fact or omission or alleged omission to state a material fact, has been taken or made by, or relates to information supplied by, such indemnifying party or indemnified party, and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent any such action, statement or omission. The amount paid or payable by a party as a result of any such Losses will be deemed to include any investigation, legal or other fees or expenses incurred by such party in connection with any investigation or proceeding, to the extent such party would have been indemnified for such expenses if the indemnification provided for in the foregoing Sections was available to such party. 4.4 Conduct Of Indemnification Proceedings. Any Person entitled to indemnification hereunder will (a) give prompt notice to the indemnifying party of any claim with respect to which it seeks indemnification, and (b) permit such indemnifying party to assume the defense of such claim with counsel reasonably satisfactory to the indemnified party; provided that the failure to give such notice shall not relieve an indemnifying party of liability except to the extent it has been prejudiced as a result. Any Person entitled to indemnification hereunder will have the right to employ separate counsel and to participate in (but not control) the defense of such claim, but the fees and expenses of such counsel will be at the expense of such Person and not of the indemnifying party unless (x) the indemnifying party has agreed to pay such fees or expenses, (y) the indemnifying party has failed to assume the defense of such claim and employ counsel reasonably satisfactory to such Person within a reasonable period of time pursuant to this Agreement, or (z) in the opinion of counsel of the Person to be F-7 indemnified, a conflict of interest exists between such Person and the indemnifying party with respect to such claims that would make such separate representation required under applicable ethical rules. In the case of (z) if the Person notifies the indemnifying party in writing that such Person elects to employ separate counsel at the expense of the indemnifying party, the indemnifying party will not have the right to assume the defense of such claim on behalf of such Person. If such defense is not assumed by the indemnifying party, the indemnifying party will not be subject to any liability for any settlement made without its consent (but such consent will not be unreasonably withheld). No indemnified party will be required to consent to entry of any judgment or enter into any settlement that does not include as an unconditional term the giving of a release, by all claimants or plaintiffs, to such indemnified party from all liability in respect to such claim or litigation. Any indemnifying party who is not entitled to, or elects not to, assume the defense of a claim will not be obligated to pay the fees and expenses of more than one counsel (other than required local counsel) for all parties indemnified by such indemnifying party with respect to such claim. 5. Other Agreements. 5.1 Restrictions On Public Sale By The Holders. If requested by the managing underwriter of an underwritten Offering, the Holders will not effect any public sale or distribution of securities of the same class (or securities exchangeable or exercisable for or convertible into securities of the same class) as the securities included in the Offering (including, but not limited to, a sale pursuant to Rule 144 of the Securities Act) during the 10-day period prior to and the 90-day period (or shorter period requested by the underwriter) beginning on the effective date of, such Offering. 5.2 Rule 144. (a) The Holders hereby irrevocably and unconditionally acknowledge and agree on behalf of themselves, their present and future Affiliates and Permitted Transferees that, for so long as each Holder together with its Affiliates and Permitted Transferees beneficially owns (within the meaning of Rule 13d under the Exchange Act) in the aggregate 10% or more of the outstanding shares of Common Stock, each of such Persons shall be deemed "affiliates" of the Company (within the meaning and for purposes of Rule 144 under the Securities Act) and shall be subject to the provisions of Rule 144(e)(1) under the Securities Act with respect to transactions in the Company's securities. (b) The Company will file, on a timely basis, all reports required to be filed by it under the Securities Act and the Exchange Act, and will take such further action and provide such documents as the Holders may reasonably request, all to the extent required from time to time to enable the Holders to sell Registrable Securities without registration under the Securities Act within the limitation of the conditions provided by (i) Rule 144 under the Securities Act, as such rule may be amended from time to time, or (ii) any similar rule or regulation hereafter adopted by the Commission. Upon the request of a Holder, the Company will deliver to the Holder a statement verifying that it has complied with such information and requirements. (c) The provisions of Section 5.2(a) shall expire on January 15, 2000. 5.3 Representations And Warranties. 5.3.1 Validity. The Company represents and warrants to the Holder that this Agreement has been duly and validly executed and delivered by the Company and constitutes a legally valid and binding agreement of the Company enforceable in accordance with its terms, except as enforceability may be limited by bankruptcy, insolvency, reorganization and other similar laws now or hereafter in effect relating to or affecting creditors' rights generally and except that the remedy of specific performance and injunctive and other forms of equitable relief are subject to certain equitable defenses and to the discretion of the court before which any proceeding therefor may be brought and except as rights to indemnity and contribution hereunder may be limited by federal or state securities laws. 5.3.2 No Inconsistent Agreements. The Company represents and warrants that it has not previously entered into, and will not on or after the date of this Agreement enter into, any agreement with respect to its securities F-8 that is inconsistent with the terms of this Agreement, including any agreement that impairs or limits the registration rights granted to the Holder or that otherwise conflicts with the provisions hereof or would preclude the Company from discharging its obligations under this Agreement. 5.3.3 Furnish Information. The Company will promptly deliver to the Holder copies of all financial statements, reports and proxy statements that the Company is required to send to its stockholders generally. 5.4 Assignment. This Agreement and the rights hereunder are assignable by the Holder only to Permitted Transferees in connection with the transfer of Registrable Securities in accordance with this Section 5.4. As a condition to the effectiveness of any such assignment the Company shall have received (a) written notice of such assignment, the number of Registrable Securities to be transferred and the name and address of the transferee, and (b) a written agreement in form and substance reasonably acceptable to the Company whereby each such Permitted Transferee agrees to be bound by the terms of this Agreement; whereupon such Permitted Transferee will become a "HOLDER" under this Agreement. Further, no rights under this Agreement may be assigned without the concurrent assignment of the related Shares. Other than as set forth above, this Agreement is not assignable by a Holder and any purported assignment not in accordance with the foregoing shall be null and of no effect. No Person other than the Holders and their Permitted Transferees shall be entitled to any of the registration rights provided by this Agreement. 6. Miscellaneous Provisions. 6.1 Amendments; Waivers. Amendments, waivers, demands, consents and approvals under this Agreement must be in writing and designated as such. No failure or delay in exercising any right will be deemed a waiver of such right. 6.2 Integration. This Agreement is the entire agreement between the parties pertaining to its subject matter, and supersedes and replaces all prior agreements and understandings of the parties (or their respective predecessors) in connection with such subject matter. 6.3 Interpretation; Governing Law. This Agreement is to be construed as a whole and in accordance with its fair meaning. This Agreement is to be interpreted in accordance with the laws of the State of Delaware. 6.4 Headings. Headings of Sections and subsections are for convenience only and are not a part of this Agreement. 6.5 Counterparts. This Agreement may be executed in one or more counterparts, all of which constitute one agreement. 6.6 Successors And Assigns. This Agreement is binding upon and inures to the benefit of each party and such party's respective heirs, personal representatives, successors and permitted assigns (including any Permitted Transferees). Nothing in this Agreement, express or implied, is intended to confer any rights or remedies upon any other person. 6.7 Expenses; Legal Fees. Each party will pay its own expenses in the negotiation, preparation and performance of this Agreement. The prevailing party in any action relating to this Agreement will be entitled to recover, in addition to other appropriate relief, reasonable legal fees, costs and expenses incurred in such action. 6.8 Representation By Counsel; Interpretation. Each party acknowledges that it has been represented by counsel in connection with this Agreement. Any rule of law, including, but not limited to, Section 1654 of the California Civil Code, or any legal decision that would require interpretation of any claimed ambiguities in this Agreement against the party that drafted it, has no application and is expressly waived. 6.9 Specific Performance. In view of the uniqueness of the matters contemplated by this Agreement, the parties would not have an adequate remedy at law for money damages if this Agreement is not being performed in accordance with its terms. F-9 The Company therefore agrees that the Holders will be entitled to specific enforcement of the terms hereof in addition to any other remedy to which the Holders may be entitled. 6.10 Time is of the Essence. Time is of the essence in the performance of each and every term, provision and covenant in this Agreement. 6.11 Notices. Any notice to be given hereunder must be in writing and delivered as follows (or to another address as either shall designate in writing): If to the Company to: United Rentals, Inc. 4 Greenwich Office Park Greenwich, CT 06830 Attn: Chief Financial Officer If to the Holders to: ------------------------------------- ------------------------------------- ------------------------------------- Attn: ---------------------------------- IN WITNESS WHEREOF, this Registration Rights Agreement has been signed as of the date first set forth above. UNITED RENTALS, INC. By: ---------------------------------- Its: AYR, INC. By: ---------------------------------- Its: [OTHER HOLDERS] ------------------------------------- F-10 EXHIBIT G GOLDMAN, SACHS & CO. 85 BROAD STREET NEW YORK, NEW YORK 10004 PERSONAL AND CONFIDENTIAL June 15, 1998 Board of Directors United Rentals, Inc. Four Greenwich Office Park Greenwich, CT 06830 Gentlemen: You have requested our opinion as to the fairness from a financial point of view to United Rentals, Inc. ("United") of the exchange ratio (the "Exchange Ratio") of 0.9625 shares of common stock, par value $0.01 per share ("United Common Stock"), of United to be exchanged by United for each share of Common Stock, par value $0.01 per share ("Company Common Stock"), of U.S. Rentals Inc. (the "Company"), pursuant to the Agreement and Plan of Merger dated as of June 15, 1998, by and among the Company, United and UR Acquisition Corporation, a wholly-owned subsidiary of United, (the "Agreement"). Goldman, Sachs & Co., as part of its investment banking business, is continually engaged in the valuation of businesses and their securities in connection with mergers and acquisitions, negotiated underwritings, competitive biddings, secondary distributions of listed and unlisted securities, private placements and valuations for estate, corporate and other purposes. We are familiar with United having provided certain investment banking and financial advisory services to United from time to time, including having acted as a co-manager of 9.50% $200 million senior subordinated notes due 2008 and having acted as financial advisor in connection with, and having participated in certain of the negotiations leading to, the Agreement. Goldman, Sachs & Co. provides a full range of financial advisory and securities services and, in the course of its normal trading activities, may from time to time effect transactions and hold securities, including derivative securities, of United or the Company for its own account and the accounts of customers. In connection with this opinion, we have reviewed, among other things, the Agreement; the Registration Statement on Form S-1 of the Company, including the Prospectus forming a part thereof dated February 21, 1997, related to the initial public offering of Company Common Stock; the Registration Statement on Form S-1 of United, including the Prospectus forming a part thereof dated December 16, 1997, related to the initial public offering of United Common Stock; Annual Reports to Stockholders and Annual Reports on Form 10-K of the Company and United for the year ended December 31, 1997; certain interim reports to stockholders and Quarterly Reports on Form 10-Q of the Company and United; certain other communications from the Company and United to their respective stockholders; and, certain financial analyses and forecasts for the Company and United prepared by their respective managements. We have held discussions with members of the senior management of the Company and United regarding the strategic rationale for, and the potential benefits of, the transaction contemplated by the Agreement and the past and current business operations, financial condition and future prospects of their respective companies. In addition, we have reviewed the reported price and trading activity for Company Common Stock and United Common Stock, compared certain financial and stock market information for the Company and United with similar information for certain other companies the securities of which are publicly traded, reviewed the financial terms of certain recent business combinations in the equipment rental industry specifically and in other industries generally and performed such other studies and analyses as we considered appropriate. G-1 We have relied upon the accuracy and completeness of all of the financial and other information reviewed by and discussed with us and have assumed such accuracy and completeness for purposes of rendering this opinion. In that regard, we have assumed, with your consent, that the forecasts of the Company have been prepared on a basis reflecting the best currently available estimates and judgments. In addition, we have not made an independent evaluation or appraisal of the assets and liabilities of the Company or United or any of their respective subsidiaries and we have not been furnished with any such evaluation or appraisal. We also have assumed with your consent that the transaction contemplated by the Agreement will be accounted for as a pooling of interests under generally accepted accounting principles. Our advisory services and the opinion expressed herein are provided for the information and assistance of the Board of Directors of United in connection with its consideration of the transaction contemplated by the Agreement and such opinion does not constitute a recommendation as to how any holder of United Common Stock should vote with respect to such transaction. Based upon and subject to the foregoing and based upon such other matters as we consider relevant, it is our opinion that as of the date hereof the Exchange Ratio pursuant to the Agreement is fair from a financial point of view to United. Very truly yours, GOLDMAN, SACHS & CO. G-2 EXHIBIT H DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION 2121 AVENUE OF THE STARS LOS ANGELES, CALIFORNIA 90067 June 15, 1998 Board of Directors U.S. Rentals, Inc. 1581 Cummins Drive, Suite 155 Modesto, CA 95358 Dear Sirs: You have requested our opinion as to the fairness from a financial point of view to the Public Stockholders (as defined below) of U.S. Rentals, Inc. (the "Company") of the Exchange Ratio (as defined below) pursuant to the terms of the Agreement and Plan of Merger, dated as of June 15, 1998 (the "Agreement"), by and among the Company, United Rentals, Inc. ("United Rentals") and UR Acquisition Corporation, a direct wholly-owned subsidiary of United Rentals ("Merger Sub"), pursuant to which Merger Sub will be merged (the "Merger") with and into the Company. It has been represented to us that, on a fully diluted basis, approximately 64.4% of the issued and outstanding shares of common stock, par value $0.01 per share, of the Company (the "Company Common Stock") is held by Ayr, Inc. and Richard D. Colburn (the "Inside Holders") and that approximately 35.6% of the issued and outstanding shares of the Company Common Stock is held by holders other than the Inside Holders (the "Public Stockholders"). Pursuant to the Agreement, each share of Company Common Stock will be converted into the right to receive 0.9625 shares (the "Exchange Ratio") of common stock, par value $0.01 per share, of United Rentals (the "United Rentals Common Stock"). In arriving at our opinion, we have reviewed, among other things, the June 15, 1998 draft of the Agreement and the exhibits thereto. We also have reviewed financial and other information that was publicly available or furnished to us by the Company and United Rentals, including information provided during discussions with their respective managements. Included in the information provided during discussions with the respective managements were certain financial projections of the Company for the period beginning January 1, 1998 and ending December 31, 2000 prepared by the management of the Company and certain financial projections of United Rentals for the period beginning January 1, 1998 and ending December 31, 2000 prepared by the management of United Rentals. In addition, we have compared certain financial and securities data of the Company and United Rentals with various other companies whose securities are traded in the public markets, reviewed the historical stock prices and trading volumes of the common stock of the Company and United Rentals, reviewed prices and premiums paid in certain other business combinations and conducted such other financial studies, analyses and investigations as we deemed appropriate for purposes of this opinion. In rendering our opinion, we have relied upon and assumed the accuracy and completeness of all of the financial and other information that was available to us from public sources, that was provided to us by the Company and United Rentals or their respective representatives, or that was otherwise reviewed by us. In particular, we have relied upon oral estimates provided by the management of the Company of the operating synergies achievable as a result of the Merger. With respect to the financial projections supplied to us, we have assumed that they have been reasonably prepared on the basis reflecting the best currently available estimates and judgments of the management of the Company and United Rentals as to the future operating and financial performance of the Company and United Rentals, respectively. We have not assumed any responsibility for making an independent evaluation or appraisal of any assets or liabilities of the Company or United Rentals or H-1 for making any independent verification of any of the information reviewed by us. We have relied as to certain legal matters on advice of counsel to the Company. DLJ assumed that United Rentals will account for the Merger as a pooling-of-interests in accordance with generally accepted accounting principles ("GAAP"), and that the Merger qualifies for such treatment. Our opinion is necessarily based on economic, market, financial and other conditions as they exist on, and on the information made available to us as of, the date of this letter. It should be understood that, although subsequent developments may affect this opinion, we do not have any obligation to update, revise or reaffirm this opinion as a result of changes in these conditions or otherwise. We are expressing no opinion herein as to the prices at which United Rentals Common Stock will trade at any time. Our opinion does not address the relative merits of the Merger or the underlying decision of the Company to engage in the Merger or other business strategies being considered by the Company's Board of Directors, nor does it address the Board's decision to proceed with the Merger. Our opinion does not constitute a recommendation to any stockholder as to how such stockholder should vote on the proposed transaction. Donaldson, Lufkin & Jenrette Securities Corporation ("DLJ"), as part of its investment banking services, is regularly engaged in the valuation of businesses and securities in connection with mergers, acquisitions, underwritings, sales and distributions of listed and unlisted securities, private placements and valuations for corporate and other purposes. DLJ has performed investment banking and other services for the Company and United Rentals in the past and has received usual and customary compensation for such services including (i) acting as the lead manager in the initial public offering of the Company's common stock in February 1997, (ii) acting as a co- manager in the initial public offering of United Rentals' common stock in December 1997, (iii) acting as a co-manager in a public offering of United Rentals' common stock in March 1998, and (iv) acting as a co-manager in a private offering of senior subordinated notes for United Rentals in May 1998. Based upon the foregoing and such other factors as we deem relevant, we are of the opinion that the Exchange Ratio is fair to the Public Stockholders from a financial point of view. Very truly yours, DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION /s/ Michael K. Hooks By: _________________________________ Michael K. Hooks Managing Director H-2 EXHIBIT I DESCRIPTION OF UNITED RENTALS Selected Historical and Pro Forma Consolidated Financial Information..... I-2 Management's Discussion and Analysis of Financial Condition and Results of Operations........................................................... I-4 Business................................................................. I-13 Management............................................................... I-23 Certain Transactions..................................................... I-30 Index to Financial Statements............................................ I-31
I-1 United Rentals, Inc. is principally a holding company (the "Holding Company") and principally conducts its operations through its wholly owned subsidiary United Rentals (North America), Inc. ("URI") and subsidiaries of URI. URI was incorporated in August 1997, initially capitalized in September 1997 and commenced equipment rental operations in October 1997. The Holding Company was incorporated in July 1998 and became the parent company of URI on August 5, 1998 pursuant to the reorganization (the "Reorganization") described under "Business--Background." Prior to the Reorganization, the name of United Rentals (North America), Inc. was United Rentals, Inc. Unless otherwise indicated, as used in this Exhibit I, (i) the terms "United Rentals" and "the Company" refer collectively to URI and its subsidiaries, with respect to periods prior to the Reorganization, and to the Holding Company and its subsidiaries, with respect to periods thereafter, (ii) the term "Common Stock" refers to the common stock of URI, with respect to periods prior to the Reorganization, and to the common stock of the Holding Company, with respect to periods thereafter and (iii) the term the "Acquired Companies" refers collectively to the 72 companies acquired by the Company since its formation (through September 8, 1998). SELECTED HISTORICAL AND PRO FORMA CONSOLIDATED FINANCIAL INFORMATION The Company commenced rental operations in October 1997 by acquiring six established rental companies and acquired 66 additional companies in the first nine months of 1998 (through September 8, 1998). The following table presents selected historical and pro forma income statement and balance sheet data for the Company. The income statement data of the Company for the period from inception to December 31, 1997 is derived from the audited Consolidated Financial Statements of the Company included elsewhere in this Joint Proxy Statement/Prospectus. The balance sheet data of the Company as of June 30, 1998 and the income statement data of the Company for the six months ended June 30, 1998, are derived from the unaudited Consolidated Financial Statements of the Company included elsewhere in this Joint Proxy Statement/Prospectus.The following data should be read in conjunction with (i) the information set forth under "Management's Discussion and Analysis of Financial Condition and Results of Operations," (ii) the Consolidated Financial Statements and the related notes thereto and Pro Forma Consolidated Financial Statements and the related notes thereto of the Company included elsewhere in this Joint Proxy Statement/Prospectus and (iii) the financial statements of certain of the Acquired Companies included elsewhere in this Joint Proxy Statement/Prospectus. I-2 The following unaudited pro forma income statement data with respect to the year ended December 31, 1997 and the six months ended June 30, 1998 gives effect to each acquisition completed by the Company after the beginning of such period (through September 8, 1998) and the financing of each such acquisition, as if all such transactions had occurred at the beginning of such period. The following unaudited pro forma income statement data with respect to the years ended December 31, 1995 and 1996 gives effect to the acquisition of Rental Tools and Equipment Co. International, Inc. (which was completed in August 1998 and accounted for as a "pooling of interests"), as if such transaction had occurred at the beginning of the period presented. The following unaudited pro forma balance sheet data as of June 30, 1998 gives effect to each acquisition completed by the Company subsequent to such date (through September 8, 1998) and the financing of each such acquisition, as if all such transactions had occurred on such date. The pro forma data set forth below is provided for informational purposes only and does not purport to be indicative of the results that would have actually been obtained had the acquisitions reflected in such data been completed at the beginning of the period presented or of the results that may be expected to occur in the future.
HISTORICAL PRO FORMA ------------------------------------- ------------------------------------------- PERIOD FROM AUGUST 14, 1997 (INCEPTION) SIX MONTHS SIX MONTHS THROUGH DECEMBER 31, ENDED JUNE 30, ENDED JUNE 30, 1997 1998 YEAR ENDED DECEMBER 31, 1998 ---------------------- -------------- ---------------------------- -------------- 1995(A) 1996(A) 1997 ------- ------- ---------- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) INCOME STATEMENT DATA: Total revenues.......... $10,633 $127,351 $40,040 $47,359 $768,929 $ 378,659 Total cost of operations............. 6,822 80,112 25,769 28,397 476,991 240,516 ------- -------- ------- ------- -------- ---------- Gross profit............ 3,811 47,239 14,271 18,962 291,938 138,143 Selling general and administrative expense................ 3,311 25,102 8,707 9,979 154,523 78,184 Non-rental depreciation and amortization....... 262 3,815 1,403 1,855 26,749 13,553 ------- -------- ------- ------- -------- ---------- Operating income........ 238 18,322 4,161 7,128 110,666 46,406 Interest expense........ 454 4,937 2,161 2,563 66,969 24,095 Other (income) expense, net.................... (270) (528) (673) (76) (7,043) (5,652) ------- -------- ------- ------- -------- ---------- Income before income taxes.................. 54 13,913 2,673 4,641 50,740 27,963 Income taxes............ 20 5,693 20,802 11,464 ------- -------- ------- ------- -------- ---------- Net income.............. $ 34 $ 8,220 $ 2,673 $ 4,641 $ 29,938 $ 16,499 ======= ======== ======= ======= ======== ========== Basic earnings per share.................. $ 0.00 $ 0.27 $ 0.97 $ 1.69 $ 0.76 $ 0.47 ======= ======== ======= ======= ======== ========== Diluted earnings per share.................. $ 0.00 $ 0.23 $ 0.97 $ 1.69 $ 0.72 $ 0.42 ======= ======== ======= ======= ======== ========== AT JUNE 30, 1998 ------------------------- HISTORICAL PRO FORMA ---------- -------------- (DOLLARS IN THOUSANDS) BALANCE SHEET DATA: Cash and cash equivalents..................................................... $ 5,486 $ 4,000 Rental equipment, net......................................................... 298,956 559,684 Total assets.................................................................. 889,164 1,605,161 Total debt.................................................................... 389,181 1,028,259 Stockholders' equity.......................................................... 418,394 447,354
- -------- (a) The pro forma data for the years ended December 31, 1995 and 1996 reflect the results of operations of Rental Tools and Equipment Co. International, Inc. only, since United Rentals had not yet commenced operations. I-3 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion should be read in conjunction with the Consolidated Financial Statements and related notes thereto, the unaudited Pro Forma Consolidated Financial Statements and related notes thereto and the "Selected Historical and Pro Forma Consolidated Financial Information" of the Company included elsewhere in this Joint Proxy Statement/Prospectus. GENERAL The Company was organized in August 1997 and commenced equipment rental operations in October 1997 by acquiring six established rental companies. The Company acquired 66 additional companies in the first nine months of 1998 (through September 8, 1998). The Company primarily derives revenues from the following sources: (i) equipment rental (including additional fees that may be charged for equipment delivery, fuel, repair of rental equipment, and damage waivers), (ii) the sale of used rental equipment, (iii) the sale of new equipment and (iv) the sale of related merchandise and parts. Cost of operations consists primarily of depreciation costs associated with rental equipment, the cost of repairing and maintaining rental equipment, the cost of used and new equipment sold, personnel costs, occupancy costs, supplies, and expenses related to information systems. The Company records rental equipment expenditures at cost and depreciates equipment using the straight-line method over the estimated useful life (which ranges from 2 to 10 years), after giving effect to an estimated salvage value of 0% to 10% of cost. Selling, general and administrative expense includes advertising and marketing expenses, management salaries, and clerical and administrative overhead. Non-rental depreciation and amortization includes (i) depreciation expense associated with equipment that is not offered for rent (such as vehicles, computers and office equipment) and depreciation expense associated with leasehold improvements and (ii) the amortization of intangible assets. The Company's intangible assets include goodwill, which represents the excess of the purchase price of acquired companies over the estimated fair market value of the assets acquired. The Company's acquisition of the Acquired Companies changed the cost structures of these companies due to changes relating to depreciation and amortization, interest expense, compensation to former owners and lease expense for real estate. In view of these changes, the Company believes that the pre-acquisition historical results of the Acquired Companies are not indicative of future results. Therefore, the discussion below focuses on the historical and pro forma results of the Company rather than on pre-acquisition historical results of the Acquired Companies. CONSIDERATION PAID FOR THE ACQUIRED COMPANIES The aggregate consideration paid by the Company for the Acquired Companies was $1,015.2 million and consisted of approximately $872.7 million in cash, 5,105,380 shares of Common Stock, a convertible note in the principal amount of $300,000, and warrants to purchase an aggregate of 30,000 shares of Common Stock. In addition, the Company repaid or assumed outstanding indebtedness of the Acquired Companies in the aggregate amount of $498.8 million. The Company also agreed in connection with 12 of the acquisitions to pay additional amounts to the former owners based upon specified future revenues (such amounts being limited to (i) $10,000,000, $2,800,000, $2,000,000, $1,400,000, $1,000,000, $800,000, $500,000, $500,000, $500,000, $350,000 and Cdn$4,000,000, respectively, with respect to 11 of such acquisitions and (ii) an amount based on the revenues of a single store with respect to the other acquisition). I-4 HISTORICAL RESULTS OF OPERATIONS The Company believes that its historical results for each of the periods discussed below do not fully reflect its current operations in view of the fact that (i) acquisitions completed after the commencement of the period are reflected in the Company's results for only a portion of the period and (ii) acquisitions completed subsequent to the end of the period are not reflected in the Company's results for such period. SIX MONTHS ENDED JUNE 30, 1998 Revenues. Total revenues were $127.4 million for the six months ended June 30, 1998. Equipment rental revenues accounted for 67.6% of such revenues. Gross Profits. For the six months ended June 30, 1998, the gross profit margin was (i) 41.7% from equipment rentals, (ii) 44.3% from sales of rental equipment and (iii) 21.7% from sales of new equipment, merchandise and other revenues. Selling, General and Administrative Expense. For the six months ended June 30, 1998, selling, general and administrative expense ("SG&A") was $25.1 million or 19.7% of total revenues. Non-rental Depreciation and Amortization. For the six months ended June 30, 1998, non-rental depreciation and amortization was $3.8 million or 3.0% of total revenues. Interest Expense. For the six months ended June 30, 1998, interest expense was $4.9 million. Income Taxes. The Company's effective income tax rate for the six months ended June 30, 1998 was 41.0%. PERIOD FROM AUGUST 14, 1997 (INCEPTION) THROUGH DECEMBER 31, 1997 Revenues. Total revenues were $10.6 million for the period from August 14, 1997 through December 31, 1997. Equipment rental revenues accounted for 66.0% of such revenues. Gross Profit. For the period from August 14, 1997 through December 31, 1997, the gross profit margin was (i) 39.6% from equipment rentals, (ii) 47.8% from sales of rental equipment and (iii) 21.2% from sales of new equipment, merchandise and other revenues. Selling, General and Administrative Expense. For the period from August 14, 1997 through December 31, 1997, SG&A was $3.3 million or 31.1% of total revenues. Non-rental Depreciation and Amortization. For the period from August 14, 1997 through December 31, 1997, non-rental depreciation and amortization was $262,000 or 2.5% of total revenues. Interest Expense. For the period from August 14, 1997 through December 31, 1997, interest expense was $454,000. Income Taxes. The Company's effective income tax rate for the period from August 14, 1997 through December 31, 1997 was 37.9%. PRO FORMA RESULTS OF OPERATIONS The pro forma income statement data with respect to each period discussed below gives effect to each acquisition completed by the Company after the beginning of such period (through September 8, 1998) and the financing of each such acquisition, as if all such transactions had occurred at the beginning of the period. Such I-5 pro forma income statement data, however, does not reflect (i) potential cost savings, synergies and efficiencies that may be achieved through the integration of the businesses and operations of the Acquired Companies, (ii) the expenses that the Company may incur as it seeks to increase internal growth at the Acquired Companies, including expenditures required in order to expand and modernize rental equipment, increase sales and marketing efforts and expand and diversify the customer segments served and (iii) the costs incurred subsequent to the end of the period in connection with installing the Company's integrated information technology system. In addition, the pro forma income statement data for 1997, does not reflect the additional compensation expense relating to the Company's senior management which would have been incurred had such compensation accrued commencing at the beginning of the year (rather than in September 1997). The pro forma income statement data discussed below does not purport to be indicative of the results that would have actually been obtained had the acquisition of each of the Acquired Companies and the financing of each such acquisition been completed at the beginning of the period discussed or of the results that may be expected to occur in the future. SIX MONTHS ENDED JUNE 30, 1998 Revenues. Total revenues were $378.7 million for the six months ended June 30, 1998. Equipment rental revenues accounted for 66.6% of such revenues. Gross Profits. For the six months ended June 30, 1998, the gross profit margin was (i) 39.7% from equipment rentals and (ii) 30.0% from sales of equipment and merchandise and other revenues. Selling, General and Administrative Expense. For the six months ended June 30, 1998, SG&A was $78.2 million or 20.6% of total revenues. Non-rental Depreciation and Amortization. For the six months ended June 30, 1998, non-rental depreciation and amortization was $13.6 million or 3.6% of total revenues. Interest Expense. For the six months ended June 30, 1998, interest expense was $24.1 million. Income Taxes. The Company's effective income tax rate for the six months ended June 30, 1998 was 41.0%. YEAR ENDED DECEMBER 31, 1997 Revenues. Total revenues were $768.9 million for the year ended December 31, 1997. Equipment rental revenues accounted for 67.6% of such revenues. Gross Profit. For the year ended December 31, 1997, the gross profit margin was (i) 43.2% from equipment rentals and (ii) 27.0% from sales of equipment and merchandise and other revenues. Selling, General and Administrative Expense. For the year ended December 31, 1997, SG&A was $154.5 million or 20.1% of total revenues. Non-rental Depreciation and Amortization. For the year ended December 31, 1997, non-rental depreciation and amortization was $26.7 million or 3.5% of total revenues. Interest Expense. Interest expense was $67.0 million for the year ended December 31, 1997. Income Taxes. Pro forma income taxes was computed for the year ended December 31, 1997 using an estimated rate of 41.0%. I-6 LIQUIDITY AND CAPITAL RESOURCES GENERAL The Company has funded its cash requirements to date from (i) the sale of Common Stock and warrants in private placements to the officers and directors of the Company for aggregate consideration of $46.8 million, (ii) other sales of Common Stock in private placements for aggregate consideration of $7.9 million, (iii) the sale of Common Stock in the Company's initial public offering in December 1997 and in an additional public offering in March 1998 for aggregate consideration of $307 million (after deducting the underwriting discounts and estimated offering expenses), (iv) borrowings under the Company's $300 million revolving credit facility (the "Credit Facility"), (v) the sale of $200 million aggregate principal amount of 9 1/2% senior subordinated notes ("9 1/2% Notes") in May 1998 for aggregate consideration of $194.5 million (after deducting the initial purchasers' discount), (vi) the proceeds of a $250 million term loan that the Company received in July 1998, (vii) the sale by a subsidiary trust of 6 1/2% convertible quarterly income preferred securities in August 1998 for aggregate consideration of $290 million (after deducting the initial purchasers' discount), (viii) the sale of $205 million aggregate principal amount of 8.80% senior subordinated notes (the "8.8% Notes") in August 1998 for aggregate consideration of $197.5 million (after deducting the initial purchaser's discount) and (ix) cash generated from operations and from the sale of equipment. The Company generated cash from operations of $1.1 million and $28.8 million during the period from August 14, 1997 (inception) through December 31, 1997, and the first six months of 1998, respectively. For additional information concerning certain of the financings described above, see "--Certain Information Concerning Preferred Securities" and "--Certain Information Concerning the Credit Facility and Other Indebtedness." The Company's principal existing sources of cash are borrowings available under the Credit Facility and cash generated from operations. The Company will require additional financing in connection with the Merger as described below under "--Cash Requirements Relating to the Merger." CASH REQUIREMENTS RELATING TO THE MERGER The Company has obtained commitments from a group of lenders to provide the Company with a new $750 million revolving credit facility which would replace the Company's existing Credit Facility. The Company expects that it will (i) use a portion of this new facility to refinance approximately $382 million of U.S. Rentals' outstanding indebtedness and pay approximately $60 million of expenses in connection with the Merger (as described below) and (ii) use the balance for general corporate purposes, including acquisitions. If for any reason the Company were unable to obtain the expected new credit facility, consummation of the Merger could be delayed or prevented. The principal cash outlays that the Company expects will be required in connection with the Merger are discussed below. Repayment of U.S. Rentals' Credit Facility. Upon completion of the Merger, U.S. Rentals will be required to immediately repay all outstanding indebtedness under its revolving credit facility. As of September 4, 1998, there was $130.0 million of indebtedness outstanding under such credit facility. Prepayment of U.S. Rentals' Senior Notes. The Company and U.S. Rentals are engaged in discussions with the holders of $252 million aggregate principal amount of U.S. Rentals' senior unsecured notes with respect to obtaining the agreement of such holders to certain amendments to the terms of such notes that would enable URI to assume such notes in connection with the Merger. Any such amendment would likely provide, among other things, for an increase in the interest rate on the notes following the Merger. There can be no assurance I-7 that the holders of the notes will agree to such an amendment. If agreement to such amendment is not obtained, the Company will prepay the notes pursuant to the terms thereof concurrently with the closing of the Merger. The Company intends to fund such repayment with the new credit facility that the Company expects to obtain as described above. Other Cash Expenditures. The Company estimates that other cash expenditures in connection with the Merger will be in the range of $50 million to $60 million (excluding non-cash charges of approximately $10 million). These include expenditures for (i) accelerated deferred compensation for certain employees of U.S. Rentals, (ii) severance for certain employees of U.S. Rentals, and (iii) professional fees and investment banking fees. GENERAL CASH REQUIREMENTS RELATED TO OPERATIONS The Company expects to obtain a new credit facility (as described above). The Company estimates that borrowings under such credit facility and cash generated from operations will be sufficient for at least two years following completion of the Merger to fund the cash required for (i) the existing operations of the Company and (ii) the existing operations of U.S. Rentals to be acquired in the Merger. The Company expects that following the Merger its principal uses of cash relating to its operations will be to fund (i) operating activities and working capital, (ii) the purchase of rental equipment and inventory of items offered for sale and (iii) debt service. The Company estimates that equipment expenditures over the next 12 months will be in the range of $350 million to $400 million for (a) the existing operations of the Company and (b) the existing operations of U.S. Rentals to be acquired in the Merger. The Company expects to fund the foregoing expenditures from its existing cash sources described above. The Company cannot quantify at this time the amount of additional equipment expenditures that will be required in connection with new acquisitions, but expects that generally such expenditures will be funded from the cash flow generated by such acquisitions. Principal elements of the Company's strategy include continued expansion through a disciplined acquisition program and the opening of new rental locations. The Company expects to pay for future acquisitions using cash, capital stock, notes and/or assumption of indebtedness. The Company expects that it will require additional financing for future acquisitions and, consequently, the Company's indebtedness may increase as the Company implements its growth strategy. There can be no assurance that any such future debt or equity financings will be available or, if available, will be on terms satisfactory to the Company. The Company is in the process of developing three start-up locations. See "Business--Start-up Locations." In addition, U.S. Rentals is in the process of developing two start-up locations. The Company estimates that the aggregate costs associated with such start-up locations will be in the range of $3 million to $5 million (including expenditures of approximately $700,000 incurred to date). The Company has recently installed a new integrated information technology system as described under "Business--Information Technology System." The cost of installing such system was approximately $7.4 million. The Company estimates that the cost of extending the system to the locations to be acquired through the Merger will be approximately $3.3 million. The Company has been informed by its software vendors that the Company's new information technology system is year 2000 compliant. The Company has, therefore, not developed any contingency plans relating to year 2000 issues and has not budgeted any funds for year 2000 issues. Although the Company believes that its system is year 2000 compliant, there can be no assurance that unanticipated year 2000 problems will not arise I-8 which, depending on the nature and magnitude of the problem, could have a material adverse effect on the Company's business and financial condition. Furthermore, year 2000 problems involving third parties may have a negative impact on the general economy or on the ability of businesses generally to receive essential services (such as telecommunications, banking services, etc.). Any such occurrence could have a material adverse effect on the Company's business and financial condition. Based upon the terms of the Company's currently outstanding indebtedness (including currently outstanding indebtedness of U.S. Rentals that will be assumed in the Merger), the Company is scheduled to repay approximately $1.2 million of indebtedness during the balance of 1998 and $3.7 million during 1999. (Such amounts are in addition to the amounts that the Company will be required to repay in connection with the Merger as described above under "-- Cash Requirements Relating to the Merger"). In addition, the Company may be required at any time to repay a $21 million demand note that the Company will assume in connection with the Merger. CERTAIN INFORMATION CONCERNING PREFERRED SECURITIES On August 5, 1998, a subsidiary trust (the "Trust") of the Holding Company sold in a private offering (the "Preferred Securities Offering") $300 million of 6 1/2% Convertible Quarterly Income Preferred Securities (the "Preferred Securities"). The net proceeds from the Preferred Securities Offering were approximately $290 million. The Trust used the proceeds from the Preferred Securities Offering to purchase convertible subordinated debentures from the Holding Company which resulted in the Holding Company receiving all of the proceeds of the Preferred Securities Offering. The Holding Company in turn contributed the net proceeds of the Preferred Securities Offering to its wholly owned subsidiary URI. URI has used approximately $281 million of such net proceeds to repay outstanding indebtedness under the Credit Facility and has used the balance of such net proceeds for acquisitions. The preferred securities are convertible into Common Stock of the Company at a conversion price equivalent to $43.63 per share. CERTAIN INFORMATION CONCERNING THE CREDIT FACILITY AND OTHER INDEBTEDNESS Set forth below is certain information concerning the Company's existing Credit Facility and certain other indebtedness of the Company. Existing Credit Facility. The Company's existing Credit Facility is with a group of financial institutions, for which Bank of America National Trust and Savings Association acts as U.S. agent and Bank of America Canada acts as Canadian agent. Set forth below is certain information concerning the terms of the Credit Facility. As described above, the Company expects to obtain a new credit facility that will increase the Company's borrowing capacity. The terms of such new credit facility may be different than the terms of the existing Credit Facility. The Credit Facility enables URI to borrow up to $300 million on a revolving basis and permits a Canadian subsidiary of URI (the "Canadian Subsidiary") to directly borrow up to $40 million under the Credit Facility (provided that the aggregate borrowings of URI and the Canadian Subsidiary do not exceed $300 million). Up to $10 million of the Credit Facility is available in the form of letters of credit. The Credit Facility terminates on March 30, 2001, at which time all outstanding indebtedness is due. As of September 8, 1998, there was $97.0 million outstanding indebtedness under the Credit Facility (not including undrawn outstanding letters of credit in the amount of $1.4 million). As described above, the Company expects to obtain a new $750 million revolving credit facility which would replace the existing Credit Facility. I-9 Borrowings by URI under the Credit Facility accrue interest, at URI's option, at either (a) the Base Rate (which is equal to the greater of (i) the Federal Funds Rate plus 0.5% and (ii) Bank of America's reference rate) or (b) the Eurodollar Rate (which for borrowings by URI is equal to Bank of America's reserve adjusted eurodollar rate) plus a margin ranging from 0.950% to 1.625% per annum. Borrowings by the Canadian Subsidiary under the Credit Facility accrue interest, at such subsidiary's option, at either (x) the Prime Rate (which is equal to Bank of America Canada's prime rate), (y) the BA Rate (which is equal to Bank of America Canada's BA Rate) plus a margin ranging from 0.950% to 1.625% per annum or (z) the Eurodollar Rate (which for borrowing by the Canadian Subsidiary is equal to Bank of America Canada's reserve adjusted eurodollar rate) plus a margin ranging from 0.950% to 1.625% per annum. If at any time an event of default (as defined in the agreement governing the Credit Facility) exists, the interest rate applicable to each loan will increase by 2% per annum. URI is also required to pay the banks an annual facility fee equal to 0.375% of the banks' $300 million aggregate lending commitment under the Credit Facility (which fee may be reduced to 0.300% for periods during which the Company maintains a specified funded debt to cash flow ratio). The agreement governing the Credit Facility contains certain covenants that require the Company to, among other things, satisfy certain financial tests relating to: (a) maintenance of minimum net worth, (b) the ratio of funded debt to net worth, (c) interest coverage ratio, (d) funded debt to cash flow, (e) the ratio of funded debt to cash flow, and (f) the ratio of senior debt to tangible assets. The agreement governing the Credit Facility also contains certain covenants that restrict URI's ability to, among other things, (i) incur additional indebtedness, (ii) permit liens to attach to its assets, (iii) pay dividends or make other restricted payments on its common stock and certain other securities, (iv) make acquisitions unless certain financial conditions are satisfied, (v) engage in transactions with affiliates or (vi) consolidate, merge or sell all or substantially all of its assets. In addition, the agreement governing the Credit Facility provides that failure by any two of Messrs. Jacobs, Milne, Nolan and Miner to continue to hold executive positions with URI for a period of 30 consecutive days constitutes an event of default unless replacement officers satisfactory to the lenders are appointed. The obligations of URI under the Credit Facility are (i) secured by substantially all of its assets, the stock of its United States subsidiaries and a portion of the stock of a Canadian subsidiary and (ii) guaranteed by the Holding Company and secured by the stock of URI. The obligations of the Canadian Subsidiary under the Credit Facility are guaranteed by URI and secured by substantially all of the assets of the Canadian Subsidiary and the stock of the subsidiaries of the Canadian Subsidiary. Term Loan. In July 1998, URI obtained a $250 million term loan from a group of financial institutions. The term loan matures on June 30, 2005. Prior to maturity, quarterly installments of principal in the amount of $625,000 are due on the last day of each calendar quarter, commencing September 30, 1999. The amount due at maturity is $235,625,000. The term loan accrues interest, at the Company's option, at either (a) the Base Rate (as defined above with respect to the Credit Facility) plus a margin ranging from 0% to 0.5% per annum, or (b) the Eurodollar Rate (as defined above with respect to the Credit Facility for borrowings by the Company) plus a margin ranging from 1.875% to 2.375% per annum. The term loan is secured pari passu with the Credit Facility. The agreement governing the term loan contains restrictive covenants substantially similar to those provided by the Credit Facility. 9 1/2% Senior Subordinated Notes. In May 1998, URI issued $200 million aggregate principal amount of 9 1/2% Notes which are due June 1, 2008. The 9 1/2% Notes are unsecured. URI may, at its option, redeem the 9 1/2% Notes on or after June 15, 2003 at specified redemption prices which range from 104.75% in 2003 to 100.00% in 2006 and thereafter. In addition, on or prior to June 1, 2001, URI may, at its option, use the proceeds of a public equity offering to redeem up to 35% of the outstanding 9 1/2% Notes, at a redemption price of 109.5%. The Indenture governing the 9 1/2% Notes contains certain restrictive covenants, including (i) limitations on additional indebtedness, (ii) limitations on restricted payments, (iii) limitations on liens, (iv) limitations on dividends and other payment restrictions, (v) limitations on preferred stock of certain subsidiaries, (vi) limitations on transactions with affiliates, (vii) limitations on the disposition of proceeds of asset sales and (viii) limitations on the ability of the Company to consolidate, merge or sell all or substantially all of its assets. I-10 8.80% Senior Subordinated Notes. In August 1998, URI issued $205 million aggregate principal amount of 8.80% Notes which are due August 15, 2008. The 8.80% Notes are unsecured. URI may, at its option, redeem the 8.80% Notes on or after August 15, 2003 at specified redemption prices which range from 104.40% in 2003 to 100.00% in 2006 and thereafter. In addition, on or prior to August 15, 2001, URI may, at its option, use the proceeds of a public equity offering to redeem up to 35% of the outstanding 8.80% Notes, at a redemption price of 108.8%. The Indenture governing the 8.80% Notes contains restrictions substantially similar to those of the 9 1/2% Notes. FLUCTUATIONS IN OPERATING RESULTS The Company expects that its revenues and operating results may fluctuate from quarter to quarter due to a number of factors, including: seasonal rental patterns of the Company's customers (with rental activity tending to be lower in the winter); changes in general economic conditions in the Company's markets; the timing of acquisitions and the opening of start-up locations and related costs; the effect of the integration of acquired businesses and start- up locations; the timing of expenditures for new equipment and the disposition of used equipment; and price changes in response to competitive factors. The Company is continually involved in the investigation and evaluation of potential acquisitions. In accordance with generally accepted accounting principles, the Company capitalizes certain direct out-of-pocket expenditures (such as legal and accounting fees) relating to potential or pending acquisitions. Indirect acquisition costs, such as executive salaries, general corporate overhead, public affairs and other corporate services, are expensed as incurred. The Company's policy is to charge against earnings any capitalized expenditures relating to any potential or pending acquisition that the Company determines will not be consummated. There can be no assurance that the Company in future periods will not be required to incur a charge against earnings in accordance with such policy, which charge, depending upon the magnitude thereof, could adversely affect the Company's results of operations. The Company will be required to incur significant start-up expenses in connection with establishing each start-up location. Such expenses may include, among others, pre-opening expenses related to setting up the facility, training employees, installing information systems and marketing. The Company expects that in general start-up locations will initially operate at a loss or at less than normalized profit levels. Consequently, the opening of a start-up location may negatively impact the Company's margins until the location achieves normalized profitability. There may be a lag between the time that the Company purchases new equipment and begins to incur the related depreciation and interest expenses and the time that the equipment begins to generate revenues at normalized rates. As a result, the purchase of new equipment, particularly equipment purchased in connection with expanding and diversifying the Company's rental equipment, may periodically reduce margins. GENERAL ECONOMIC CONDITIONS AND INFLATION The Company's operating results may be adversely affected by (i) changes in general economic conditions, including changes in construction and industrial activity, or increases in interest rates, or (ii) adverse weather conditions that may temporarily decrease construction and industrial activity in a particular geographic area. Although the Company cannot accurately anticipate the effect of inflation on its operations, the Company believes that inflation has not had, and is not likely in the foreseeable future to have, a material impact on its results of operations. RECENTLY ISSUED ACCOUNTING STANDARDS In June 1997, the Financial Accounting Standards Board Issued Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive Income," and SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information." SFAS No. 130 establishes standards for reporting and I-11 display of comprehensive income and its components in a primary financial statement. The Company adopted SFAS No. 130 during the period ended March 31, 1998. The adoption of SFAS No. 130 did not have a material effect on the consolidated financial position results of operations or cash flows of the Company. SFAS No. 131 establishes a new method by which companies will report operating segment information. This method is based on the manner in which management organizes the segments within a company for making operating decisions and assessing performance. The Company continues to evaluate the provisions of SFAS No. 131 and, upon adoption, the Company may report operating segments. The Company is required to adopt SFAS No. 131 by December 31, 1998. In February 1998, the Financial Accounting Standards Board issued SFAS No. 132, "Employers' Disclosures about Pensions and Other Post Retirement Benefits." SFAS No. 132 revises employers' disclosures about pension and other post retirement benefit plans but does not change the measurement or recognition of those plans. The Company is required to adopt SFAS No. 132 by December 31, 1998. The adoption of SFAS No. 132 is not expected to have any effect on the Company's consolidated financial position or results of operations or significantly change disclosures presently made by the Company with respect to employee benefit plans. In June 1998, the Financial Accounting Standards Board issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133 establishes a new model for accounting for derivatives and hedging activities. The Company will adopt SFAS No. 133 beginning January 1, 2000. The adoption of SFAS No. 133 is not expected to have a material effect on the Company's consolidated financial position or results of operations. I-12 All financial and operating data for the Company contained herein under the caption "Business" with respect to the year ended December 31, 1997 is on a pro forma basis after giving effect to the acquisition of the Acquired Companies and the financing thereof as of January 1, 1997. BUSINESS United Rentals is a large, geographically diversified equipment rental company with 269 rental locations in 31 states and Canada. The Company rents a broad array of equipment to a diverse customer base that includes construction industry participants, industrial companies, homeowners and other individuals. The Company also sells used rental equipment, acts as a distributor for certain new equipment, and sells related merchandise and parts. The Company commenced equipment rental operations in October 1997 by acquiring six established companies and acquired 66 additional companies in the first nine months of 1998 (through September 8, 1998). During the year ended December 31, 1997, the Company on a pro forma basis rented equipment to approximately 395,000 customers (with the top ten customers representing less than 1% of total revenues) and had pro forma revenues of $768.9 million. The types of rental equipment offered by the Company include a broad range of light to heavy construction and industrial equipment (such as backhoes, forklifts, aerial lifts, skid-steer loaders, compressors, pumps and generators), general tools and equipment (such as hand tools and garden and landscaping equipment) and, to a lesser extent, special event equipment (such as tents, tables and chairs). The equipment mix varies at each of the Company's locations, with some locations offering a general mix and some specializing in specific equipment categories. As of September 4, 1998, the Company's rental equipment included approximately 153,000 units (not including special event equipment), had an original purchase price of approximately $849 million and had a weighted average age (based on original purchase price) of approximately 32 months. BACKGROUND The Company was founded by eight of the Company's officers, who contributed an aggregate of $44.4 million in cash to the capital of the Company. Each of the founders was formerly a senior executive of United Waste Systems, Inc. ("United Waste"), a solid waste management company that was sold in August 1997, or a senior member of United Waste's acquisition team. United Waste executed a growth strategy that combined a disciplined acquisition program (including over 200 acquisitions completed from January 1995 through August 1997), the integration and optimization of acquired facilities, and internal growth. Since the founding of the Company, the Company has recruited additional operating, acquisition, finance and other personnel from the equipment rental industry and other industries, including regional managers, store managers and acquisition professionals with extensive experience in the equipment rental industry. See "Management." United Rentals, Inc. is principally a holding company (the "Holding Company") and conducts its operations principally through its wholly owned subsidiary United Rentals (North America), Inc. ("URI") and subsidiaries of URI. URI was incorporated in August 1997, initially capitalized in September 1997 and commenced equipment rental operations in October 1997. The Holding Company was incorporated in July 1998 and became the parent company of URI on August 5, 1998, pursuant to the reorganization (the "Reorganization") described below. Prior to the Reorganization, the name of United Rentals (North America), Inc. was United Rentals, Inc. On August 5, 1998, a Reorganization of URI's legal structure was effected pursuant to Section 251(g) of the Delaware General Corporation law. In the Reorganization, (i) URI became a wholly owned subsidiary of the Holding Company, (ii) the name of the Holding Company became United Rentals, Inc. (and the name of URI was changed from United Rentals, Inc. to United Rentals (North America), Inc.), (iii) the outstanding common stock of URI was automatically converted, on a share-for-share basis, into common stock of the Holding Company and (iv) the common stock of the Holding Company commenced trading on the New York Stock Exchange under the symbol "URI" instead of the common stock of URI. The purpose of the Reorganization was to facilitate certain financings by the Company. I-13 The executive offices of the Company are located at Four Greenwich Office Park, Greenwich, Connecticut 06830, and its telephone number is (203) 622- 3131. INDUSTRY OVERVIEW The Company estimates that the U.S. equipment rental industry (including used and new equipment sales by rental companies) generates annual revenues in excess of $20 billion. The combined equipment rental revenues of the 100 largest equipment rental companies have increased at an estimated compound annual rate of approximately 23% from 1992 through 1997 (based upon 1992 revenues and 1997 pro forma revenues, giving effect to certain acquisitions completed after the beginning of 1997, reported by the Rental Equipment Register, an industry trade publication). The Company believes growth in the equipment rental industry primarily reflects the following trends: Recognition of Advantages of Renting. There is increasing recognition of the many advantages that equipment rental may offer compared with ownership, including the ability to: (i) avoid the large capital investment required for equipment purchases, (ii) reduce storage and maintenance costs, (iii) supplement owned equipment thereby increasing the range and number of jobs that can be worked on, (iv) access a broad selection of equipment and select the equipment best suited for each particular job, (v) obtain equipment as needed and minimize the costs associated with idle equipment, and (vi) access the latest technology without investing in new equipment. Increase in Contractor Rentals. There has been a fundamental shift in the way contractors meet their equipment needs. While contractors have historically used rental equipment on a temporary basis--to provide for peak period capacity, meet specific job requirements or replace broken equipment-- many contractors are now also using rental equipment on an ongoing basis to meet their long-term equipment requirements. Outsourcing Trend. The general trend toward the corporate outsourcing of non-core competencies is leading large industrial companies increasingly to rent, rather than purchase, equipment that they require for repairing, maintaining and upgrading their facilities. The equipment rental industry is highly fragmented, consisting of a small number of multi-location regional or national operators and a large number of relatively small, independent businesses serving discrete local markets. Based upon rental revenues reported by the Rental Equipment Register for 1997: (i) there were only 10 equipment rental companies that had 1997 equipment rental revenues in excess of $100 million (with the largest company having had 1997 equipment rental revenues of approximately $460 million), (ii) the largest 100 equipment rental companies combined had less than a 22% share of the market based on 1997 equipment rental revenues and the Company's estimate of the size of the market (with the largest company having had a market share of less than 3%), and (iii) there were approximately 100 equipment rental companies that had 1997 equipment rental revenues between $5 million and $100 million. In addition, the Company estimates that there are more than 20,000 companies with annual equipment rental revenues of less than $5 million. The Company believes that the fragmented nature of the industry presents substantial consolidation and growth opportunities for companies with access to capital and the ability to implement a disciplined acquisition program. The Company also believes that the extensive experience of its management team in acquiring and effectively integrating acquisition targets should enable the Company to capitalize on these opportunities. STRATEGY The Company's objective is to continue to expand its operations in North America. The Company believes that it has competitive advantages relative to many smaller operators, including greater purchasing power, a lower cost of capital, the ability to provide customers with a broader range of equipment and services and with newer and better maintained equipment, greater flexibility to transfer equipment among locations in response to customer demand, and greater ability to efficiently dispose of used equipment through direct sales to customers. The Company's plan for achieving this objective includes the following key elements: I-14 Increase Internal Growth. The Company believes that a lack of capital has constrained expansion and modernization at many small and mid-sized equipment rental companies and that as a result there is significant potential to increase internal growth at many acquired companies through capital investment. The Company seeks to increase internal growth by investing in additional and more modern equipment, using advanced information technology systems to improve asset utilization and tracking, increasing sales and marketing efforts, cross-marketing between locations that offer different equipment categories, expanding and diversifying the customer segments served, expanding the geographic areas served, and opening complementary locations. Improve Operating Margins. The Company focuses significant efforts on improving operating margins at acquired companies through the efficient integration of new and existing operations, the elimination of duplicative costs, reduction in overhead, and centralization of functions such as purchasing and information technology. Execute Disciplined Acquisition Program. The Company intends to continue to expand through a disciplined acquisition program. The Company is seeking to make acquisitions of varying size, including acquisitions of smaller companies to complement existing or anticipated locations and combinations with relatively large companies that have an established presence in one or more regions. In evaluating potential acquisition targets, the Company considers a number of factors, including the quality of the target's rental equipment and management, the opportunities to improve operating margins and increase internal growth at the target, the economic prospects of the region in which the target is located, the potential for additional acquisitions in the region, and the competitive landscape in the target's markets. Open New Rental Locations. The Company also intends to grow by selectively opening new rental locations in attractive markets where there are no suitable acquisition targets available or where the cost of a start-up location would be less than the cost of acquiring an existing business. Diversify Locations, Equipment Categories and Customers. The Company plans to continue to diversify geographically and to focus on a broad range of equipment categories and customer markets within the equipment rental industry. The Company believes that this will allow it to participate in the overall growth of the equipment rental industry and reduce the Company's sensitivity to fluctuations in regional economic conditions, adverse weather impacting a particular region or changes that affect particular market segments. In order to achieve this diversification, the Company will continue to seek expansion opportunities in North America and will pursue acquisition candidates with varying equipment mixes and customer specializations. ACQUISITIONS The Company believes that there will continue to be a large number of attractive acquisition opportunities in the equipment rental industry due to the highly fragmented nature of the industry, the inability of many small and mid-sized equipment rental companies to expand and modernize due to capital constraints, and the desire of many long-time owners for liquidity. The Company has an experienced acquisition team, comprised of senior level executives with extensive acquisition, operating and financial experience, that is engaged in identifying and evaluating acquisition candidates and executing the Company's acquisition program. COMPLETED ACQUISITIONS The table below provides certain information concerning the 72 acquisitions completed by the Company to date:
NUMBER OF YEARS IN 1997 COMPANY LOCATIONS RENTAL SITES BUSINESS REVENUES - ------- -------------- ------------ -------- --------------------- 1997 ACQUISITIONS: (DOLLARS IN MILLIONS) Mercer Equipment Company North Carolina 3 9 $ 18.5 A&A Tool Rentals and Sales, Inc. California 2 35 13.8 Coran Enterprises, Inc. California 4 33 9.5 (dba A-1 Rents) and affiliate
I-15
NUMBER OF YEARS IN 1997 COMPANY LOCATIONS RENTAL SITES BUSINESS REVENUES - ------- --------------------------------------------------------- ------------ -------- -------- J&J Rental Services, Inc. Texas 1 19 $ 8.7 Bronco Hi-Lift, Inc. Colorado 1 16 6.5 Rent-It Center, Inc. Utah 1 45 2.9 1998 ACQUISITIONS: Equipment Supply Alabama; Delaware; 22 21 101.1 Company, Inc. and Georgia; Indiana; affiliates Kentucky; Maryland; Michigan; New Jersey; North Carolina; Ohio; Pennsylvania; Virginia Access Rentals, Inc. and affiliates Connecticut; Florida; 19 23 52.3 Indiana; Minnesota; New Jersey; New York; Pennsylvania; South Carolina; Tennessee; Washington; Ontario, Canada Rental Tools & Equipment Co. International, Inc. Georgia; Maryland; Pennsylvania; Virginia; North Carolina 22 47 47.1 McClinch Equipment Services, Inc. and Connecticut; Delaware; Maryland; Virginia; New Jersey; affiliates New York; Virginia 9 44 42.8 Power Rental Co., Inc. Idaho; Oregon; Washington 18 28 40.5 BNR Equipment Limited and affiliates New York; Ontario, Canada 8 23 24.0 ADCO Equipment, Inc. and affiliate California 2 43 23.3 Industrial Lift, Inc. Maryland; New Jersey; Virginia 4 15 21.5 Rental Equipment, Inc. and affiliates California 6 38 19.3 Grand Valley Equipment and affiliate Michigan 2 24 18.3 Valley Rentals, Inc. Washington 3 37 15.6 Lift Systems, Inc. Illinois 2 12 14.5 Independent Scissor Lift and affiliate Arizona; California 4 26 14.3 Gaedcke Equipment Com- pany Texas 4 38 14.0 Perco Limited Quebec, Canada 10 61 13.6 Bear Associates, Inc. Delaware; Maryland 4 13 13.2 Reitzel Rentals Ltd. Ontario, Canada 10 52 12.1 High Reach, Inc. and af- filiate Oregon; Washington 3 16 11.0 Channel Equipment Holding, Inc. and affiliates Texas 4(a) 20 10.8 Paul E. Carlson, Inc. (dba Carlson Equipment) Minnesota 3 42 10.7 West Main Rentals & Sales, Inc. California; Oregon 6 18 9.8 Select Equipment Ltd. Ontario, Canada 2 20 9.3 Mission Valley Rentals, Inc. California 4 22 8.6 Ross Equipment Corpora- tion Ohio 1 51 8.6 Ray Gordon Equipment LLC Ontario 3 3 8.0 Arrow Equipment Company Illinois 3 27 7.6 Western Rental & Sales, 4 21 7.6 Inc. and affiliate Utah Dealers Service Company New Jersey 2 27 7.2
I-16
NUMBER OF YEARS IN 1997 COMPANY LOCATIONS RENTAL SITES BUSINESS REVENUES - ------- --------------------------- ------------ -------- --------------------- (DOLLARS IN MILLIONS) Yankee Equipment Corpo- ration Connecticut 2(a) 22 $6.9 Mid-Mountain Machinery Inc. Washington 1 40 6.4 Ace Rental & Sales Com- pany, Inc. Kentucky 3 18 6.3 Pro Rentals, Inc. Washington 6 12 5.9 Anderson Oregon Rental, Inc. and affiliates Oregon 6 13 5.7 ASC Equipment Company, Inc. North Carolina 3 21 5.5 B&H Equipment, Inc. Texas 2 6 5.5 Equipment Rental and Sales of Monroe, Inc. North Carolina 1 24 5.2 Sky-King Holdings Equipment Ltd. Ontario, Canada 3 13 5.0 Equipment Capital Corporation (dba Owens Equipment Company) Colorado 1 10 4.6 Nevada High Reach Equipment, Inc. and affiliate Nevada 3 13 4.5 Windham Construction Corp. (dba Windham Equipment Company) New York 2 13 4.3 C.T.R. Rental Center, Inc. Texas 3 27 4.3 Action Rentals LLC Colorado 3 6 3.9 Palmer Equipment Company, Inc. Michigan 1 21 3.7 Gene's Village Rental & Sales, Inc. South Carolina 2 24 3.6 Manchester Equipment Rental & Sales, Inc. Connecticut 1 11 3.3 San Leandro Equipment Rental Service, Inc. California 1 36 3.2 Quarry & Drill Supply, Connecticut; Massachusetts; Inc. (dba Premier Tool) New York 3 8 3.2 Madison Equipment Rentals and Sales, Inc. Alabama 3 11 3.2 MISCO Rents, Inc. Indiana 2 8 3.1 Power Rentals and Sales, Inc. California 1 33 2.5 Santa Fe Supply & Rental, Inc. Colorado 1 11 2.3 Archer Construction Equipment, Inc. (dba Ace Equipment) North Carolina 1 30 2.2 Dirt & Rock Rentals & Equipment LLC Kentucky 2 15 2.1 Contractors Supply and Equipment Kentucky 1 9 1.9 Rentals Unlimited, Inc. Rhode Island 2 30 1.7 Darien Rental Services Company Connecticut 1 31 1.7 Phoenix Rental Corporation and affiliate Wisconsin 1 9 1.7 Pearson Equipment Rentals, Limited Ontario, Canada 1 33 1.4 Rents Et. Al., Inc. California 1 10 1.4 Salisbury Rental Center, Inc. North Carolina 1 10 1.3 Carson Tahoe Rents, Inc. California; Nevada 3 33 1.1 CC Rentals, Inc. Nevada 1 2 1.1 Anchor Rental, Inc. Connecticut 1 15 1.0 Georgian Sales and Construction Ontario, Canada 1 30 0.7 A-1 Rents of Galveston, Inc. Texas 1 16 0.6 M&S Sales, Inc. Rhode Island 1(b) 12 0.3
- -------- (a) One of these locations was shut down and the operations formerly conducted at such location were consolidated with another location. (b) This location was shut down and the operations formerly conducted at this location were consolidated with another location. I-17 The aggregate consideration paid by the Company for the Acquired Companies was $1,015.2 million and consisted of approximately $872.7 million in cash, 5,105,380 shares of Common Stock, a convertible note in the principal amount of $300,000, and warrants to purchase an aggregate of 30,000 shares of Common Stock. In addition, the Company repaid or assumed outstanding indebtedness of the Acquired Companies in the aggregate amount of approximately $498.8 million. The Company agreed in connection with 12 acquisitions to pay former owners additional amounts based upon specified future revenues and/or new store openings (such amounts being limited to (i) $10,000,000, $2,800,000, $2,000,000, $1,400,000, $1,000,000, $800,000, $500,000, $500,000, $500,000, $350,000, and Cdn$4,000,000, respectively, with respect to 11 of such acquisitions, and, (ii) an amount based on a single store with respect to one acquisition). POTENTIAL ACQUISITIONS The Company is currently a party to 35 non-binding letters of intent relating to the possible acquisition by the Company of 35 additional companies having an aggregate of 106 rental locations. Based upon information provided to the Company in connection with its preliminary investigation of these companies, the Company estimates that the aggregate 1997 revenues of these companies were approximately $270 million. However, in view of the preliminary nature of this estimate, there can be no assurance that actual revenues did not differ. Based upon the terms contained in the letters of intent, the Company estimates that the aggregate purchase price for the 35 companies under letter of intent would be approximately $264.0 million plus the assumption of approximately $102.4 million of indebtedness. A portion of the purchase price may be paid in the form of Common Stock. In view of the fact that the letters of intent are non-binding and that the Company has not completed its due diligence investigations with respect to the companies under letter of intent, the Company cannot predict whether these letters of intent will lead to definitive agreements, whether the terms of any such definitive agreements will be the same as the terms contemplated by the letters of intent or whether any transaction contemplated by such letters of intent will be consummated. The Company is continuously involved in discussions relating to potential acquisitions of varying size and in due diligence investigations of potential acquisition candidates. In addition to the potential acquisitions that are currently under letter of intent, there are additional potential acquisitions with respect to which the Company is currently engaged in discussions or due diligence investigations. These potential acquisitions include the acquisition of smaller companies to complement existing or anticipated locations and combinations with large companies that have an established presence in one or more regions. START-UP LOCATIONS The Company has to date developed three start-up locations (1 in Florida, 1 in Texas and 1 in Quebec) and is in the process of developing three additional start-up locations (1 in Maryland, 1 in Texas, and 1 in Washington). These projects were commenced by certain of the Acquired Companies, prior to their having been acquired by the Company, and are being continued by the Company. The Company expects that one of these locations will open in the third quarter of 1998, one in the fourth quarter of 1998 and one in the first quarter of 1999. OPERATIONS The Company currently operates 269 rental locations in 31 states and Canada. The Company offers for rent a broad array of equipment including light to heavy construction and industrial equipment, general tools and equipment and, to a lesser extent, special event equipment. The Company also engages in related activities such as selling used rental equipment, acting as a distributor for certain new equipment, and selling related merchandise and parts. The Company's customer base is diverse and includes construction industry participants, industrial companies, and homeowners and other individuals. I-18 EQUIPMENT RENTAL The Company offers for rent a broad array of equipment on a daily, weekly, monthly and multi-month basis. The following are examples of the types of equipment that the Company offers for rent: Construction and Industrial: aerial lifts (such as boom and scissor lifts), air compressors, backhoes, ditching equipment, forklifts, generators, pumps, and skid-steer loaders. General Tools and Equipment: garden and landscaping equipment, hand tools, high-pressure washers, paint sprayers, power tools, roto tillers. Special Event: lighting, staging and dance floors, tables and chairs, tents and canopies. As of September 4, 1998, the Company's rental equipment included approximately 153,000 units (excluding special event equipment) and had an original purchase price of approximately $849 million and a weighted average age (based on original purchase price) of approximately 32 months. The Company estimates that (based on original purchase price) construction and industrial equipment represents approximately 94% of the Company's rental equipment, general tools and equipment represents approximately 6%, and special event equipment represents less than 1%. The Company also estimates that aerial lift equipment represents approximately 51% of the Company's rental equipment and accounted for approximately 33% of the Company's pro forma revenues in 1997. The equipment mix varies at each of the Company's locations, with some locations offering a general mix and some specializing in specific equipment categories. The Company expects that as it integrates the Acquired Companies it will further expand and modernize its rental equipment and expand and diversify the customer markets served by certain locations. RELATED OPERATIONS In addition to renting equipment, the Company is engaged in a variety of related or complementary activities. Sales of Used Equipment. The Company routinely sells used rental equipment to adjust the age and composition of its rental fleet. The Company sells such equipment through a variety of means including sales to the Company's existing rental customers and local customer base, sales to used equipment dealers, and sales through public auctions. The Company also participates in trade-in programs in connection with purchasing new equipment. Sales of New Equipment. The Company, at most locations, is a distributor for various tool and equipment manufacturers, including American Honda Motor Co. Inc. (generators and pumps), Edco Manufacturing (surfacing equipment), Genie Industries, Inc. (aerial lifts), Grove Worldwide (aerial platforms), Kubota (earthmoving equipment), Multiquip, Inc. (compaction equipment and compressors), Milwaukee Electric Tool Corporation (power tools), Trak International (loaders and forklifts), Stihl, Inc. (surface preparation equipment) and Wacker (compaction equipment). In general, such manufacturers may terminate the Company's distribution rights at any time. Sales of Related Merchandise and Parts. The Company, at most locations, sells a variety of merchandise that may be used in conjunction with rental equipment (such as saw blades, fasteners, drill bits, hard hats, gloves and other safety equipment) and also sells parts. Other. The Company at certain locations offers equipment maintenance services to customers for equipment that is owned by the customer. This service is primarily provided with respect to equipment purchased from the Company. I-19 CUSTOMERS AND SALES AND MARKETING The Company on a pro forma basis rented equipment to approximately 395,000 customers in 1997. No single customer accounted for more than 0.5% of the Company's pro forma revenues in 1997, and the Company's top 10 customers accounted for less than 1% of the Company's pro forma revenues in 1997. The composition of the Company's customer base varies widely by location and is determined by several factors, including the equipment mix and marketing focus of the particular location and the business composition of the local economy. The Company's customer base consists of the following general categories: (i) construction industry participants (such as construction companies, contractors and subcontractors), (ii) industrial companies (such as manufacturers, chemical companies, paper mills and utilities), and (iii) homeowners and other individuals. The Company estimates that in 1997 (a) revenues attributable to construction industry participants accounted for approximately 68% of the Company's pro forma revenues, (b) revenues attributable to industrial companies accounted for approximately 26% of the Company's pro forma revenues, and (c) revenues attributable to homeowners and others accounted for approximately 6% of the Company's pro forma revenues. The Company markets its products and services through a sales force which, as of September 4, 1998, consisted of approximately 445 store-based salespeople and 428 field-based salespeople. The Company supplements the activities of its sales force through participation in industry trade shows and conferences, direct mailings, and advertising in local industry publications and the yellow pages in the markets it serves. PURCHASING The Company is in the process of centralizing the purchasing of certain equipment items, particularly large items with a significant cost and items that are purchased in volume. The Company believes that such centralization will give it greater purchasing power with its suppliers and enable it to obtain discounts. INFORMATION TECHNOLOGY SYSTEM The Company has recently installed a new integrated information technology system. The Company believes that this system should enable the Company to more effectively monitor and manage operations, improve equipment utilization, and facilitate the redeployment of under-utilized equipment to other locations. The new system replaces the separate systems heretofore used by the Acquired Companies. The Company's information technology system is currently operational at all of the Company's locations, except for certain locations that were acquired in the past 45 days. In general, it takes the Company three to five weeks to install the system at newly acquired locations. However, in view of the significant number of new locations that will be acquired in the Merger with U.S. Rentals, the Company expects that the system will not be installed at such locations until January 1999. Each of the Company's locations is equipped with a workstation that is electronically linked to each of the Company's other locations and to the Company's centralized databases. All rental transactions are entered at these workstations and processed on a real-time basis through a centralized AS400 system located at corporate headquarters. Authorized personnel at each location are able to access the system 24 hours a day in order to determine equipment availability, monitor business activity on a real-time basis, and obtain a wide range of operating and financial data. The data available through the system includes: (i) inventory reports, (ii) accounts receivable information, (iii) customer and vendor information, (iv) price and sales trends by store, region, salesperson, equipment category, or customer, (v) fleet utilization by individual asset or asset class and (vi) financial results by store or region. The system also allows an employee at any location to locate a specific item of equipment throughout a region, determine when it will be available for rental, reserve it for a specific customer, and schedule delivery to the customer's job site or one of the Company's locations. I-20 COMPETITION The equipment rental industry is highly fragmented and competitive. The Company's competitors include: public companies or divisions of public companies (such as Hertz Equipment Rental Corporation, Prime Service, Inc., Rental Service Corporation and, prior to the Merger, U.S. Rentals); regional competitors which operate in one or more states; small, independent businesses with one or two rental locations; and equipment vendors and dealers who both sell and rent equipment directly to customers. The Company believes that, in general, large companies enjoy significant competitive advantages compared to smaller operators, including greater purchasing power, a lower cost of capital, the ability to provide customers with a broader range of equipment and services and with newer and better maintained equipment, and greater flexibility to transfer equipment among locations in response to customer demand. Certain of the Company's competitors are larger and have greater financial resources than the Company. PROPERTIES The Company currently operates 269 rental locations (230 in the United States and 39 in Canada). The rental locations in the United States are in the following 31 states: Alabama (4), Arizona (1), California (26), Colorado (6), Connecticut (8), Delaware (5), Florida (3), Georgia (2), Idaho (1), Illinois (5), Indiana (5), Kentucky (8), Maryland (17), Massachusetts (1), Michigan (4), Minnesota (5), Nevada (7), New Jersey (8), New York (11), North Carolina (14), Ohio (2), Oregon (25), Pennsylvania (7), Rhode Island (2), South Carolina (3), Tennessee (2), Texas (15), Utah (5), Virginia (11), Washington (16) and Wisconsin (1). The rental locations in Canada are in Ontario (28) and Quebec (11). The Company's rental locations generally include facilities for displaying equipment and, depending on the location, may include separate equipment service areas and storage areas. The Company owns 33 of its rental locations and leases the other locations. The leases for the Company's rental locations provide for various terms, including (i) 112 leases that provide for a remaining term of more than five years (of which 35 provide for a renewal option), (ii) 71 leases that provide for a remaining term of between one and five years (of which 28 provide for a renewal option), (iii) 38 leases that provide for a remaining term of less than one year (six of which provide for a renewal option) and (iv) 15 leases that are on a month-to-month basis. The Company is currently negotiating renewals for those leases that provide for a remaining term of less than one year and do not provide for renewal options. These leases were entered into (or assumed) in connection with the acquisitions of the Acquired Companies and most of the lessors are the former owners of these companies. The Company believes that its leases generally reflect market terms. The Company maintains a fleet of vehicles that is used for delivery, maintenance and sales functions. A portion of this fleet is owned and a portion leased and, as of September 4, 1998, this fleet included approximately 8,892 vehicles. The Company's corporate headquarters are located in Greenwich, Connecticut, where it leases approximately 15,000 square feet under a lease that extends until 2001 (subject to extension rights). ENVIRONMENTAL REGULATION The Company uses hazardous materials, such as solvents, to clean and maintain its rental equipment and generates and disposes of wastes such as used motor oil, radiator fluid, solvents and batteries. In addition, the Company currently dispenses, or may in the future dispense, petroleum products from underground and above-ground storage tanks located at certain rental locations. These and other activities of the Company are subject to various federal, state and local laws and regulations governing the generation, handling, storage, transportation, treatment and disposal of hazardous substances and wastes. Under such laws, an owner or lessee of real estate may be liable for, among other things, (i) the costs of removal or remediation of certain hazardous or toxic substances located on, in, or emanating from, such property, as well as related costs of investigation and property damage and substantial penalties for violations of such laws, and (ii) environmental contamination at facilities where its waste is or has been disposed. Such laws often impose such liability without regard to whether the I-21 owner or lessee knew of, or was responsible for, the presence of such hazardous or toxic substances. Although the Company investigates each business or property that it acquires or leases and believes there are no existing material liabilities relating to non-compliance with environmental laws and regulations, there can be no assurance that there are no undiscovered potential liabilities relating to non-compliance with environmental laws and regulations, that historic or current operations have not resulted in undiscovered conditions that will require investigation and/or remediation under environmental laws, or that future uses or conditions will not result in the imposition of environmental liability upon the Company or expose the Company to third-party actions such as tort suits. Furthermore, there can be no assurance that changes in environmental regulations in the future will not require the Company to make significant capital expenditures to change methods of disposal of hazardous materials or otherwise alter aspects of its operations. EMPLOYEES At September 4, 1998, the Company employed 4,387 persons, including 52 corporate and regional management employees, 3,462 operational employees and 873 sales people. Of these employees, 1,207 are salaried personnel and 3,180 are hourly personnel. Collective bargaining agreements relating to 22 separate locations cover approximately 216 of the Company's employees. The Company considers its labor relations to be good. LEGAL PROCEEDINGS The Company and its subsidiaries are parties to various litigation matters, in most cases involving ordinary and routine claims incidental to the business of the Company. The ultimate legal and financial liability of the Company with respect to such pending litigation cannot be estimated with certainty but the Company believes, based on its examination of such matters, that such ultimate liability will not have a material adverse effect on the business or financial condition of the Company. I-22 MANAGEMENT BACKGROUND The Company was founded in September 1997 by the following officers of the Company: Bradley Jacobs, John Milne, Michael Nolan, Robert Miner, Sandra Welwood, Joseph Kondrup, Jr., Kai Nyby and Richard Volonino. Each of these officers was formerly a senior executive of United Waste Systems, Inc. ("United Waste") or a senior member of United Waste's acquisition team. United Waste, a solid waste management company, was formed in 1989 and sold in August 1997 to USA Waste Services, Inc. for stock consideration valued at over $2.2 billion. United Waste executed a growth strategy that combined a disciplined acquisition program (including over 200 acquisitions completed from January 1995 through August 1997), the integration and optimization of acquired facilities, and internal growth. At the time it was sold, United Waste was the sixth largest provider of integrated, non-hazardous solid waste management services in the United States, as measured by 1996 revenues. OFFICERS AND DIRECTORS The table below identifies, and provides certain information concerning, the current officers and directors of the Company. Upon completion of the Merger, certain changes relating to the Company's Board of Directors and officers will be made as described under "Material Terms of the Merger Agreement--Certain Covenants" and "Management of United Rentals Following the Merger." The expected changes include the following: (i) four new directors will be appointed, (ii) Wayland R. Hicks will become Vice Chairman while continuing as Chief Operating Officer of the Company, (iii) William F. Berry (who currently serves as President and Chief Executive Officer of U.S. Rentals) will become President of the Company and (iv) John S. McKinney (who currently serves as Chief Financial Officer of U.S. Rentals) will become Vice President, Finance of the Company.
NAME AGE POSITIONS(1) ---- --- ------------ OFFICERS AND DIRECTORS Bradley S. Jacobs....... 42 Chairman, Chief Executive Officer and Director(2) Wayland R. Hicks........ 55 President, Chief Operating Officer and Director(3) John N. Milne........... 39 Vice Chairman, Chief Acquisition Officer, Secretary and Director(2) Michael J. Nolan........ 37 Chief Financial Officer(2) Robert P. Miner......... 48 Vice President, Strategic Planning(4) Sandra E. Welwood....... 42 Vice President, Corporate Controller(2) Kurtis T. Barker........ 37 Regional Vice President, Operations(5) Daniel E. Imig.......... 52 Regional Vice President, Operations(5) Robert P. Krause........ 38 Regional Vice President, Operations(6) Joseph J. Kondrup, Jr. ................... 39 Vice President, Acquisitions(2) Kai E. Nyby............. 45 Vice President, Acquisitions(2) Richard A. Volonino..... 55 Vice President, Acquisitions(2) Ronald M. DeFeo......... 46 Director(5) Richard J. Heckmann..... 54 Director(5) Gerald Tsai, Jr. ....... 69 Director(7)
I-23 - -------- (1) For information concerning the term served by directors, see "-- Classification of Board of Directors." (2) The indicated person has held such position(s) since September 1997. (3) Mr. Hicks has served as President and Chief Operating Officer since November 1997 and as a director since June 1998. (4) Mr. Miner was appointed Vice President, Strategic Planning in July 1998. From September 1997 until July 1998, he served as Vice President, Finance. (5) The indicated person has held such position since October 1997. (6) Mr. Krause has served as Regional Vice President, Operations since May 1998. (7) Mr. Tsai has served as a director since December 1997. Bradley S. Jacobs founded United Waste Systems, Inc. in 1989 and served as its Chairman and Chief Executive Officer from inception until the sale of the company in August 1997. From 1984 to July 1989, Mr. Jacobs was Chairman and Chief Operating Officer of Hamilton Resources Ltd., an international trading company, and from 1979 to 1983, he was Chief Executive Officer of Amerex Oil Associates, Inc., an oil brokerage firm that he co-founded. Wayland R. Hicks served in various senior executive positions at Xerox Corporation where he worked for 28 years (1966-1994). His positions at Xerox Corporation included Executive Vice President, Corporate Operations (1993- 1994), Executive Vice President, Corporate Marketing and Customer Support Operations (1989-1993) and Executive Vice President, Engineering and Manufacturing--Xerox Business Products and Systems Group (1987-1989). Mr. Hicks served as Vice Chairman and Chief Executive Officer of Nextel Communications Corp. (1994-1995) and as Chief Executive Officer and President of Indigo N.V. (1996-1997). He is also a director of Maytag Corporation. John N. Milne was Vice Chairman and Chief Acquisition Officer of United Waste Systems, Inc. from 1993 until August 1997 and held other senior executive positions at United Waste from 1990 until 1993. Mr. Milne had primary responsibility for implementing United Waste's acquisition program. From September 1987 to March 1990, Mr. Milne was employed in the Corporate Finance Department of Drexel Burnham Lambert Incorporated. Michael J. Nolan served as the Chief Financial Officer of United Waste Systems, Inc. from February 1994 until August 1997. He served in other finance positions at United Waste from November 1991 until February 1994, including Vice President, Finance, from October 1992 to February 1994. From 1985 until November 1991, Mr. Nolan held various positions at the accounting firm of Ernst & Young, including senior audit manager, and is a Certified Public Accountant. Robert P. Miner was an executive officer of United Waste Systems, Inc. from November 1994 until August 1997, serving first as Vice President, Finance and then Vice President, Acquisitions. Prior to joining United Waste, he was a research analyst with PaineWebber Incorporated (November 1988 to October 1994) and Needham & Co. (January 1987 to October 1988) and held various executive positions at General Electric Environmental Services, Inc., Stauffer Chemical Company, and OHM Corporation. Sandra E. Welwood served as Vice President, Controller of United Waste Systems, Inc. from March 1996 until August 1997. From October 1994 to February 1996, she was Assistant Controller of OSi Specialty, Inc., and from October 1993 to September 1994, was Director of Internal Audit of the Gartner Group, Inc. Prior to this, Ms. Welwood was a senior audit manager at Ernst & Young from September 1987 to September 1993, and held various positions (including senior audit manager) at KPMG Peat Marwick from January 1980 to August 1987, and is a Certified Public Accountant. Kurtis T. Barker served as Vice President-Operations-Great Lakes Region of United Waste Systems, Inc. from 1993 until August 1997. From 1991 to 1993, he was an operations manager at Chambers Development Company, Inc. From 1990 to 1991, Mr. Barker was a project engineer at South Dakota Disposal Systems. From 1986 to 1990, he was a project engineer and then a general manager at Silver King Mines, Inc. Daniel E. Imig served as President-Mid-Central Region of Waste Management, Inc. from 1996 to August 1997. From 1978 to 1996, Mr. Imig served in a number of operating positions at Waste Management, Inc., including District Manager and Division President. I-24 Robert P. Krause held various management positions with Hertz Equipment Rental Corporation prior to joining the Company in 1998, including Regional Operations Manager of Hertz's Western Region from 1995 until 1998 and Branch Manager from 1990 until 1995. Joseph J. Kondrup, Jr. was a senior member of United Waste's acquisition team from March 1996 until August 1997, with responsibility for the company's entry into and subsequent development of its Rocky Mountain Region. From July 1987 until March 1996, he was Division President of a subsidiary of Waste Management, Inc. Kai E. Nyby was a senior member of United Waste's acquisition team from 1995 until August 1997, with responsibility for acquisitions and business development in the company's Midwest Region. From 1981 to 1995, Mr. Nyby was the Regional Manager, Midwest Group for Waste Management, Inc. From 1973 to 1980, Mr. Nyby was General Manager, Operations for a subsidiary of Waste Management, Inc. Richard A. Volonino was a senior executive officer of United Waste from November 1991 until August 1997, serving as Chief Operating Officer from 1991 to 1992 and thereafter as Executive Vice President--Acquisitions. From May 1988 to October 1991, Mr. Volonino held various positions, including Vice President, Operations, with Chambers Development Company, Inc., and from 1986 to December 1987, was District Manager at Laidlaw, Inc. Ronald M. DeFeo is the Chief Executive Officer, President, Chief Operating Officer and a director of Terex Corporation, a leading global provider of equipment for the manufacturing, mining and construction industries. Mr. DeFeo joined Terex in 1992 as President of the Terex heavy equipment group and was appointed President and Chief Operating Officer in 1993 and Chief Executive Officer in 1995. From 1984 to 1992, Mr. DeFeo held various management positions at Tenneco, Inc., including Senior Vice President and Managing Director. Richard J. Heckmann has served since 1990 as Chairman, President and Chief Executive Officer of United States Filter Corporation, a leading global provider of industrial and commercial water and wastewater treatment systems and services. Mr. Heckmann is also a director of USA Waste Services, Inc. and K2 Inc. Gerald Tsai, Jr. served as Chairman, Chief Executive Officer and President of Delta Life Corporation, an insurance company, from 1993 until the sale of the company in October 1997. Mr. Tsai was Chairman of the Executive Committee of the Board of Directors of Primerica Corporation, a diversified financial services company, from December 1988 until April 1991, and served as Chief Executive Officer of Primerica Corporation from April 1986 until December 1988. Mr. Tsai is currently a private investor and serves as a director of Meditrust Corporation, Proffitt's, Inc., Rite Aid Corporation, Sequa Corporation, Triarc Companies, Inc. and Zenith National Insurance Corp. He also serves as a trustee of Boston University and New York University Medical Center. CAPITAL CONTRIBUTIONS BY OFFICERS AND DIRECTORS The officers and directors of the Company listed below have made capital contributions to the Company in the aggregate amount of $46.8 million (excluding amounts paid by certain officers and directors in respect of shares of Common Stock purchased by them in the Company's initial public offering in December 1997). Such capital contributions were made in connection with the sale to such officers and directors in private placements of an aggregate of 13,150,714 shares of Common Stock and 6,342,858 warrants ("Warrants"). Each such Warrant entitles the holder to purchase one share of Common Stock at an exercise price of $10.00 per share at any time prior to September 12, 2007. Such shares and Warrants were sold at a price of $3.50 per unit consisting of one share of Common Stock and one-half of a Warrant (except that Messrs. Barker and Tsai purchased only Common Stock at a price of $3.50 per share and Messrs. Hicks, Imig and Heckmann purchased only Common Stock at a price of $10.00 per share). The table below indicates (i) the number of shares of Common Stock and I-25 the number of Warrants purchased by such officers and directors (excluding shares purchased in the Company's initial public offering) and (ii) the aggregate amount paid by such officers and directors for such securities:
SECURITIES PURCHASED(1) ------------------------- COMMON NAME STOCK WARRANTS PURCHASE PRICE ---- ------------ -------------------------- Bradley S. Jacobs.................. 10,000,000 5,000,000 $35,000,000 Wayland R. Hicks................... 100,000 -- 1,000,000 John N. Milne...................... 1,428,571 714,286 5,000,000 Michael J. Nolan................... 571,429 285,715 2,000,000 Robert P. Miner.................... 285,714 142,857 1,000,000 Sandra E. Welwood.................. 100,000 50,000 350,000 Kurtis T. Barker................... 100,000 -- 350,000 Daniel E. Imig..................... 5,000 -- 50,000 Joseph J. Kondrup, Jr. ............ 100,000 50,000 350,000 Kai E. Nyby........................ 100,000 50,000 350,000 Richard A. Volonino................ 100,000 50,000 350,000 Richard J. Heckmann................ 20,000 -- 200,000 Gerald Tsai, Jr. .................. 240,000 -- 840,000
- -------- (1) In certain cases includes securities owned by one or more entities controlled by the named holder. CLASSIFICATION OF BOARD OF DIRECTORS The Board of Directors is divided into three classes. The term of office of the first class (currently comprised of Mr. Hicks and Mr. Tsai) will expire at the annual meeting of stockholders following January 1, 1998, the term of office of the second class (currently comprised of Mr. DeFeo and Mr. Heckmann) will expire at the second annual meeting of stockholders following January 1, 1998, and the term of office of the third class (currently comprised of Mr. Jacobs and Mr. Milne) will expire at the third annual meeting of stockholders following the January 1, 1998. At each annual meeting of stockholders, successors to directors of the class whose term expires at such meeting will be elected to serve for three-year terms and until their successors are elected and qualified. COMMITTEES OF THE BOARD The Board of Directors has three standing committees: the Audit Committee, the Compensation/Stock Option Committee, and the Special Stock Option Committee. The responsibilities of the Audit Committee include selecting the firm of independent accountants to be appointed to audit the Company's financial statements and reviewing the scope and results of the audit with the independent accountants. The members of this committee are Messrs. DeFeo, Heckmann and Tsai. The responsibilities of the Compensation/Stock Option Committee include making recommendations with respect to the compensation to be paid to officers and directors, administering any stock option plan of the Company in which officers or directors of the Company are eligible to participate and approving the grant of options pursuant to any such plan. The members of this committee are Messrs. DeFeo, Heckmann and Tsai. The responsibilities of the Special Stock Option Committee include administering any stock option plan of the Company in which officers and directors of the Company are not eligible to participate and approving the grant of options pursuant to any such plan to persons who are not officers or directors. The members of this committee are Messrs. Jacobs and Milne. COMPENSATION OF DIRECTORS Each director of the Company is paid up to $2,500 per day for each Board of Directors' meeting such director attends, together with an expense reimbursement. During 1997, Messrs. DeFeo, Heckmann and Tsai were each granted options to purchase an aggregate of 20,000 shares of Common Stock at an exercise price of $15.00 per share. I-26 COMPENSATION OF CERTAIN OFFICERS The following table sets forth information concerning the compensation of the Chief Executive Officer of the Company and each of the other executive officers of the Company during the period August 14, 1997 (inception) through December 31, 1997. SUMMARY COMPENSATION TABLE
LONG TERM COMPENSATION AWARDS ------------ SECURITIES UNDERLYING NAME AND PRINCIPAL POSITION SALARY($) OPTIONS(#) - --------------------------- --------- ------------ Bradley S. Jacobs...................................... $97,039 -- Chief Executive Officer Wayland R. Hicks....................................... 47,692(1) 450,000 President and Chief Operating Officer John N. Milne.......................................... 63,577 -- Chief Acquisition Officer Michael J. Nolan....................................... 58,558 -- Chief Financial Officer Robert P. Miner........................................ 50,192 -- Vice President, Finance
- -------- (1)Mr. Hicks's employment with the Company commenced on November 14, 1997. The following tables summarize the options granted in 1997 to Mr. Hicks, the potential value of these options at the end of the option term (assuming certain levels of appreciation of the Company's Common Stock), and the total number of options held by such executive officer as of December 31, 1997. None of the other executive officers of the Company named in the Summary Compensation Table above were granted options in 1997. OPTION GRANTS IN 1997
INDIVIDUAL GRANTS -------------------------------------------------------- POTENTIAL REALIZABLE VALUE NUMBER OF % OF TOTAL AT ASSUMED RATE OF STOCK SECURITIES OPTIONS EXERCISE APPRECIATION FOR OPTION UNDERLYING GRANTED TO PRICE TERM(1) OPTIONS EMPLOYEES PER EXPIRATION --------------------------- NAME GRANTED IN 1997 SHARE DATE 5% 10% - ---- ---------- ---------- -------- ---------- ------------- ------------- Wayland R. Hicks........ 350,000(2) 38.7% $10.00 11/13/07 $ 2,201,131 $ 5,578,099 50,000(2) 5.5% $15.00 11/13/07 64,447 546,871 50,000(2) 5.5% $20.00 11/13/07 -- 296,871
- -------- (1) These amounts are based on calculations at hypothetical 5% and 10% compound annual appreciation rates prescribed by the Securities and Exchange Commission and, therefore, are not intended to forecast possible future appreciation, if any, of the Company's Common Stock price. (2) These options are not currently vested. These options will vest one-third in November 1998, one-third in November 1999 and one-third in November 2000. These options were granted pursuant to the Company's 1997 Stock Option Plan. VALUE OF OPTIONS AT DECEMBER 31, 1997
NUMBER OF SECURITIES UNDERLYING VALUE OF UNEXERCISED UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS AT NAME DECEMBER 31, 1997 DECEMBER 31, 1997 - ---- ------------------------------- ------------------------- EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE -------------- ----------------- ----------- ------------- Wayland R. Hicks........ -- 450,000 -- $3,475,000
I-27 EMPLOYMENT AGREEMENTS The Company has entered into employment agreements with each of the executive officers of the Company. Certain information with regard to these agreements is set forth below. For information concerning certain employment agreements to be entered into in connection with the Merger, see "The Merger-- Interests of Certain Persons in the Merger." The agreements provide for base salary to be paid at a rate per annum as follows: Mr. Jacobs ($290,000), Mr. Hicks ($400,000), Mr. Milne ($190,000), Mr. Nolan ($175,000), and Mr. Miner ($150,000). The base salary payable to Mr. Hicks is payable 50% in cash and 50% in Common Stock (valued at the average closing sales price of the Common Stock during all trading days in the calendar quarter preceding the quarter in which the payment is made). Shares of Common Stock issued to Mr. Hicks are subject to certain restrictions on transfer as described under "--Certain Agreements Relating to Securities Held by Officers." The base salary payable to Messrs. Jacobs and Milne is subject to possible upward annual adjustments based upon changes in a designated cost of living index. The agreements do not provide for mandatory bonuses. However, the agreements provide that in addition to the compensation specifically provided for, the Company may pay such salary increases, bonuses or incentive compensation as may be authorized by the Board of Directors. The agreements with Messrs. Jacobs and Milne provide for each such executive to receive an automobile allowance of at least $700 per month. The agreement with Mr. Hicks provides for the Company to reimburse him for certain relocation expenses up to a maximum of $100,000. The employment agreements with the following executives provide that the term shall automatically renew so that at all times the balance of the terms will not be less than the period hereinafter specified with respect to such executive: Mr. Jacobs (five years), Mr. Milne (five years), Mr. Nolan (three years) and Mr. Miner (three years). The employment agreement with Mr. Hicks provides for a term extending until November 2000. Under each of the agreements, the Company or the employee may at any time terminate the agreement, with or without cause, provided that if the Company terminates the agreement, the Company is required to make severance payments to the extent described in the following paragraph. The employment agreements with Messrs. Jacobs and Milne provide that the executive is entitled to severance benefits in the event that (i) his employment agreement is terminated by the Company without Cause (as defined in the employment agreement), (ii) the executive terminates his employment agreement for Good Reason (as defined in the employment agreement) or because of a breach by the Company of its obligations thereunder, (iii) his employment is terminated as a result of death or (iv) the Company or the executive terminates the employment agreement due to the disability of the executive. The severance benefits include (i) a lump sum payment equal to five times the sum of the executive's annual base salary at the time of termination plus the highest annual bonus paid to the executive in the preceding three years and (ii) the continuation of the executive's benefits for such specified period. The employment agreement with Mr. Hicks provides that the executive is entitled to a severance payment in the amount of $1 million in the event that his employment agreement is terminated by the Company without Cause (as defined in the employment agreement) or he terminates his employment for Good Reason (as defined in the employment agreement). The employment agreements with the other officers provide that the executive is entitled to severance benefits of up to three months' base salary in the event that the executive's employment agreement is terminated without Cause (as defined in the employment agreement). The employment agreements with Messrs. Jacobs and Milne provide that if any portion of the required severance payment to the executive constitutes an "excess parachute payment" (as defined in Section 280G of the Internal Revenue Code of 1986, as amended (the "Code")), the executive is entitled to receive a payment sufficient on an after-tax basis to offset any excise tax payable by the executive pursuant to Section 4999 of the Code. Any payment constituting an "excess parachute payment" would not be deductible by the Company. Each of the agreements provides that all options at any time to be granted to the executive will automatically vest upon a change of control of the Company (as defined in the agreement). I-28 Pursuant to the employment agreement with Mr. Hicks, Mr. Hicks has been granted options to purchase an aggregate of 450,000 shares of Common Stock. For information concerning these options, see "--Compensation of Certain Officers." The agreement with Mr. Hicks provides that, after Mr. Hicks becomes a director, at each annual meeting of the stockholders of the Company which occurs during the term of the agreement and at which Mr. Hicks' term as director would be scheduled to expire, the Company will nominate Mr. Hicks for re-election as a director. CERTAIN AGREEMENTS RELATING TO SECURITIES HELD BY OFFICERS Prior to the Company's initial public offering, the officers of the Company purchased Common Stock (and in certain cases Warrants) from the Company in private placements, as described under "--Capital Contributions by Officers of Directors." All shares of Common Stock and Warrants purchased by the officers of the Company prior to the Company's initial public offering (and any shares of Common Stock acquired upon exercise of such Warrants) are referred to as the "Private Placement Securities." Each officer of the Company (other than Mr. Jacobs and Mr. Hicks) has entered into an agreement with the Company and Mr. Jacobs that provides that (i) if Mr. Jacobs sells any Private Placement Securities that he beneficially owns in a commercial, non-charitable transaction, then Mr. Jacobs is required to use his best efforts to sell (and has the right to sell subject to certain exceptions) on behalf of such officer a pro rata portion of such officer's Private Placement Securities at then prevailing prices, and (ii) except for sales that may be required to be made as aforesaid, the officer shall not (without the prior written consent of the Company) sell or otherwise dispose of the Private Placement Securities owned by such officer (subject to certain exceptions for charitable gifts). The foregoing provisions of the agreements terminate in September or October 2002. Each officer of the Company (other than Mr. Jacobs and Mr. Hicks) has also agreed pursuant to such agreements that the Company, in its sole discretion, may (i) prior to September 1, 2005, repurchase the Private Placement Securities owned by such officer in the event that such officer breaches any agreement with the Company or acts adversely to the interest of the Company and (ii) repurchase such Private Placement Securities without any cause (provided that such repurchase right without cause will lapse with respect to one-third of the securities on the first, second and third anniversaries of the date of such agreements). The amount to be paid by the Company in the event of a repurchase will be equal to (i) in the case of Messrs. Milne, Nolan and Miner, $9.125 per share of Common Stock and $0.625 per Warrant plus an amount representing a 4% annual return on such amounts from the date on which such securities were purchased and (ii) in the case of the other officers, the amount originally paid by such officer for such securities plus an amount representing a 10% annual return on such amount. See "--Capital Contributions by Officers and Directors" for information concerning the amounts paid by the officers of the Company for the Private Placement Securities owned by them. Mr. Hicks has agreed that (i) he will not transfer any Private Placement Securities purchased by him until November 1998 and (ii) he will not transfer any shares of Common Stock that are hereafter issued to him as compensation pursuant to his employment agreement for a one-year period following the date of issuance. See "--Employment Agreements." COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION At the time the employment agreements with Messrs. Jacobs and Milne were approved by the Board of Directors, the sole members of the Board were Messrs. Jacobs and Milne. No compensation committee interlocks with other companies have existed. STOCK OPTION PLANS The Company, as of September 8, 1998, had granted under the Company's 1997 Stock Option Plan options to purchase an aggregate of 4,974,875 shares of Common Stock. These options have a weighted average exercise price of $22.97 per share. I-29 The Board of Directors of the Company is proposing for stockholder approval a new 1998 Stock Option Plan. In addition, the Company expects that prior to completion of the Merger, it will adopt an additional stock option plan pursuant to which options, for up to an aggregate of 750,000 shares of Common Stock, may be granted to employees who are not officers or directors of the Company, and to consultants and independent contractors who perform services for the Company. For additional information concerning such stock option plans, see "Additional Matters To Be Considered At The United Rentals Special Meeting." CERTAIN TRANSACTIONS The Company has from time to time purchased equipment from Terex Corporation ("Terex") and may do so in the future. Ronald M. DeFeo, a director of the Company, is the chief executive officer, and a director, of Terex. During 1997, the Company purchased approximately $1.1 million of equipment from Terex. I-30 INDEX TO FINANCIAL STATEMENTS
PAGE ---- I. Consolidated Financial Statements of United Rentals, Inc. Report of Independent Auditors...................................... I-37 Consolidated Balance Sheet--December 31, 1997....................... I-38 Consolidated Statement of Operations for the period from August 14, 1997 (Inception) to December 31, 1997.............................. I-39 Consolidated Statement of Stockholders' Equity for the period from August 14, 1997 (Inception) to December 31, 1997................... I-40 Consolidated Statement of Cash Flows for the period from August 14, 1997 (Inception) to December 31, 1997.............................. I-41 Notes to Consolidated Financial Statements.......................... I-42 II. Unaudited Consolidated Financial Statements of United Rentals, Inc. Consolidated Balance Sheet--June 30, 1998 (unaudited) and December 31, 1997........................................................... I-51 Consolidated Statement of Operations for the Six and Three Months Ended June 30, 1998 (unaudited).................................... I-52 Consolidated Statement of Stockholders' Equity for the Six Months Ended June 30, 1998 (unaudited).................................... I-53 Consolidated Statement of Cash Flows for the Six and Three Months Ended June 30, 1998 (unaudited).................................... I-54 Notes to Unaudited Consolidated Financial Statements................ I-55 III. Combined Financial Statements of Equipment Supply Co., Inc. and Af- filiates Report of Independent Certified Public Accountants.................. I-60 Combined Balance Sheets--December 31, 1997 and 1996 and June 30, 1998 (unaudited)................................................... I-61 Combined Statements of Income for the Years Ended December 31, 1997, 1996 and 1995 and for the Six Months Ended June 30, 1998 and 1997 (unaudited)........................................................ I-62 Combined Statements of Stockholders' Equity for the Years Ended December 31, 1995, 1996 and 1997 and for the Six Months Ended June 30, 1998 (unaudited)............................................... I-63 Combined Statements of Cash Flows for the Years Ended December 31, 1997, 1996 and 1995 and for the Six Months Ended June 30, 1998 and 1997 (unaudited)................................................... I-64 Notes to Combined Financial Statements.............................. I-65 IV. Consolidated and Combined Financial Statements of Access Rentals, Inc. and subsidiary and affiliate Report of Independent Accountants................................... I-77 Consolidated and Combined Balance Sheets--March 31, 1996 and 1997 and December 31, 1997 (unaudited).................................. I-78 Consolidated and Combined Statements of Income for the Years Ended September 30, 1994 and 1995, for the Six Months Ended March 31, 1996, for the Year Ended March 31, 1997 and for the Nine Months Ended December 31, 1996 and 1997 (unaudited)....................... I-79 Consolidated and Combined Statement of Stockholders' Equity for the Years Ended September 30, 1994 and 1995, for the Six Months Ended March 31, 1996, for the Year Ended March 31, 1997 and for the Nine Months Ended December 31, 1997 (unaudited)......................... I-80 Consolidated and Combined Statements of Cash Flows for the Years Ended September 30, 1994 and 1995, for the Six Months Ended March 31, 1996, for the Year Ended March 31, 1997 and for the Nine Months Ended December 31, 1996 and 1997 (unaudited)....................... I-81 Notes to Financial Statements....................................... I-82 V. Financial Statements of Rental Tools & Equipment Co. International, Inc. Report of Independent Accountants................................... I-92 Balance Sheets--June 30, 1997 and 1998.............................. I-93
I-31 Statements of Operations For the Years Ended June 30, 1996, 1997 and 1998................................................................ I-94 Statements of Changes in Stockholders' Equity For the Years Ended June 30, 1996, 1997 and 1998........................................ I-95 Statements of Cash Flows For the Years Ended June 30, 1996, 1997 and 1998................................................................ I-96 Notes to Financial Statements........................................ I-97 VI. Financial Statements of Power Rental Co., Inc. Report of Independent Auditors....................................... I-103 Balance Sheets--July 31, 1997 and April 30, 1998 (unaudited)......... I-104 Statements of Operations for the Year Ended July 31, 1997 and for the Nine Months Ended April 30, 1997 and 1998 (unaudited)............... I-105 Statements of Stockholders' Equity for the Year Ended July 31, 1997 and for the Nine Months Ended April 30, 1998 (unaudited)............ I-106 Statements of Cash Flows for the Year Ended July 31, 1997 and for the Nine Months Ended April 30, 1997 and 1998 (unaudited)............... I-107 Notes to Financial Statements........................................ I-108 VII. Combined Financial Statements of BNR Group of Companies Report of Independent Auditors....................................... I-114 Combined Balance Sheets--March 31, 1996 and 1997 and December 31, 1997 (unaudited).................................................... I-115 Combined Statements of Earnings for the Years Ended March 31, 1996 and 1997 and for the Nine Months Ended December 31, 1996 and 1997 (unaudited)......................................................... I-116 Combined Statements of Stockholders' Equity for the Years Ended March 31, 1996 and 1997 and for the Nine Months Ended December 31, 1997 (unaudited)......................................................... I-117 Combined Statements of Cash Flows for the Years Ended March 31, 1996 and 1997 and for the Nine Months Ended December 31, 1996 and 1997 (unaudited)......................................................... I-118 Notes to Combined Financial Statements............................... I-119 VIII. Combined Financial Statements of Adco Equipment, Inc. Report of Independent Auditors....................................... I-128 Combined Balance Sheets--December 31, 1997 and June 30, 1998 (unaudited)......................................................... I-129 Combined Statements of Operations For the Year Ended December 31, 1997 and For the Six Months Ended June 30, 1997 and 1998 (unaudited)......................................................... I-130 Combined Statements of Stockholders' Equity For the Year Ended December 31, 1997 and For the Six Months Ended June 30, 1998 (unaudited)......................................................... I-131 Combined Statements of Cash Flows For the Year Ended December 31, 1997 and For the Six Months Ended June 30, 1997 and 1998 (unaudited)......................................................... I-132 Notes to Combined Financial Statements............................... I-133 IX. Consolidated Financial Statements of McClinch Inc. and Subsidiaries Report of Independent Accountants.................................... I-137 Consolidated Balance Sheets--January 31, 1998 and April 30, 1998 (unaudited)......................................................... I-138 Consolidated Statements of Income and Retained Earnings For the Year Ended January 31, 1998 and For the Three Months Ended April 30, 1997 and 1998 (unaudited)................................................ I-139 Consolidated Statements of Cash Flows For the Year Ended January 31, 1998 and For the Three Months Ended April 30, 1997 and 1998 (unaudited)......................................................... I-140 Notes to Consolidated Financial Statements........................... I-141 X. Financial Statements of Industrial Lift, Inc. Report of Independent Auditors....................................... I-148 Balance Sheets--December 31, 1996 and 1997 and as of April 30, 1998 (unaudited)......................................................... I-149 Statements of Income and Retained Earnings for the Years Ended December 31, 1996 and 1997 and for the Four Months Ended April 30, 1997 and 1998 (unaudited)........................................... I-150
I-32 Statements of Cash Flows for the Years Ended December 31, 1996 and 1997 and for the Four Months Ended April 30, 1997 and 1998 (unaudited)......................................................... I-151 Notes to Financial Statements........................................ I-152 XI. Combined Financial Statements of Able Equipment Rental, Inc. Report of Independent Auditors....................................... I-157 Combined Balance Sheets--December 31, 1997 and February 28, 1998 (unaudited)......................................................... I-158 Combined Statements of Income for the Year Ended December 31, 1997 and for the Two Months Ended February 28, 1997 and 1998 (unaudited)......................................................... I-159 Combined Statements of Stockholders' Equity and Partners' Capital for the Year Ended December 31, 1997 and for the Two Months Ended February 28, 1998 (unaudited)....................................... I-160 Combined Statements of Cash Flows for the Year Ended December 31, 1997 and for the Two Months Ended February 28, 1997 and 1998 (unaudited)......................................................... I-161 Notes to Combined Financial Statements............................... I-162 XII. Combined Financial Statements of Grand Valley Equipment Co., Inc. and Kubota of Grand Rapids, Inc. Independent Auditors' Report on Combined Financial Statements ....... I-167 Combined Balance Sheets--December 31, 1997 and May 31, 1998 (unaudited)......................................................... I-168 Combined Statements of Income and Retained Earnings for the year ended December 31, 1997 and for the five months ended May 31, 1997 and 1998 (unaudited)................................................ I-169 Combined Statements of Cash Flows for the year ended December 31, 1997 and for the five months ended May 31, 1997 and 1998 (unau- dited).............................................................. I-170 Notes to Financial Statements........................................ I-171 XIII. Financial Statements of McClinch Equipment Services, Inc. Report of Independent Accountants.................................... I-175 Balance Sheets--December 31, 1997 and June 30, 1998 (unaudited)...... I-176 Statements of Income and Retained Earnings for the year ended December 31, 1997 and for the six months ended June 30, 1997 and 1998 (unaudited).................................................... I-177 Statements of Cash Flows for the year ended December 31, 1997 and for the six months ended June 30, 1997 and 1998 (unaudited)............. I-178 Notes to Financial Statements........................................ I-179 XIV. Combined Financial Statements of Valley Rentals, Inc. Report of Independent Auditors....................................... I-184 Combined Balance Sheets--December 31, 1997 and March 31, 1998 (unaudited)......................................................... I-185 Combined Statements of Income for the Year Ended December 31, 1997 and for the Three Months Ended March 31, 1997 and 1998 (unaudited).. I-186 Combined Statements of Stockholders' Equity and Partners' Capital for the Year Ended December 31, 1997 and for the Three Months Ended March 31, 1998 (unaudited).......................................... I-187 Combined Statements of Cash Flows for the Year Ended December 31, 1997 and for the Three Months Ended March 31, 1997 and 1998 (unaudited)......................................................... I-188 Notes to Combined Financial Statements............................... I-189 XV. Financial Statements of Lift Systems, Inc. Independent Accountants' Report...................................... I-194 Balance Sheets--December 31, 1997 and June 30, 1998 (unaudited)...... I-195 Statement of Income for the year ended December 31, 1997 and for the six-month periods ended June 30, 1998 and 1997 (unaudited).......... I-196 Statement of Changes in Stockholder's Equity for the year ended December 31, 1997 and for the six-month period ended June 30, 1998 (unaudited)......................................................... I-197 Statement of Cash Flows for the year ended December 31, 1997 and for the six-month periods ended June 30, 1997 and 1998 (unaudited)...... I-198 Notes to Financial Statements........................................ I-200
I-33 XVI. Consolidated Financial Statements of Perco Group Ltd. Report of Independent Auditors....................................... I-205 Consolidated Balance Sheet--December 31, 1997 and April 30, 1998 (unaudited)......................................................... I-206 Consolidated Statement of Earnings for the year ended December 31, 1997 and for the four-month period ended April 30, 1997 and 1998 (unaudited)......................................................... I-207 Consolidated Statement of Retained Earnings for the year ended December 31, 1997 and for the four-month period ended April 30, 1998 (unaudited)......................................................... I-208 Consolidated Statement of Changes in Financial Position for the year ended December 31, 1997 and for the four-month period ended April 30, 1997 and 1998 (unaudited)....................................... I-209 Notes to Consolidated Financial Statements........................... I-210 XVII. Financial Statements of Reitzel Rentals Ltd. Auditors' Report..................................................... I-218 Balance Sheets--February 28, 1998 and May 31, 1998 (unaudited)....... I-219 Statements of Operations for the year ended February 28, 1998 and for the three months ended May 31, 1997 and 1998 (unaudited)............ I-220 Statements of Shareholders' Equity for the year ended February 28, 1998 and for the three months ended May 31, 1998 (unaudited)........ I-221 Statements of Cash Flows for the year ended February 28, 1998 and for the three months ended May 31, 1997 and 1998 (unaudited)............ I-222 Notes to Financial Statements........................................ I-223 XVIII. Combined Financial Statements of Channel Equipment Holding, Inc. Report of Independent Auditors....................................... I-229 Combined Balance Sheet--December 31, 1997............................ I-230 Combined Statement of Operations for the Year Ended December 31, 1997................................................................ I-231 Combined Statement of Stockholders' Equity (Deficit) for the Year Ended December 31, 1997............................................. I-232 Combined Statements of Cash Flows for the Year Ended December 31, 1997................................................................ I-233 Notes to Combined Financial Statements............................... I-234 XIX. Financial Statements of Paul E. Carlson, Inc. dba Carlson Equipment Company Independent Auditor's Report......................................... I-238 Balance Sheets--February 28, 1998 and May 31, 1998 (unaudited)....... I-239 Statements of Operations for the year ended February 28, 1998 and for the three months ended May 31,1997 and 1998 (unaudited)............. I-241 Statements of Stockholders' Equity for the year ended February 28, 1998 and for the three months ended May 31, 1998 (unaudited)........ I-242 Statements of Cash Flows for the year ended February 28, 1998 and for the three months ended May 31, 1997 and 1998 (unaudited)............ I-243 Notes to Financial Statements........................................ I-244 XX. Financial Statements of West Main Rentals and Sales, Incorporated Independent Auditor's Report......................................... I-252 Balance Sheet--December 31, 1997 and March 31, 1998 (unaudited)...... I-253 Statement of Income for the Year Ended December 31, 1997 and for the Three Months Ended March 31, 1998 and 1997 (unaudited).............. I-254 Statement of Stockholders' Equity for the Year Ended December 31, 1997 and for the Three Months Ended March 31, 1998 (unaudited)...... I-255 Statement of Cash Flows for the Year Ended December 31, 1997 and for the Three Months Ended March 31, 1998 and 1997 (unaudited).......... I-256 Notes to Financial Statements........................................ I-257
I-34 XXI. Financial Statements of Mission Valley Rentals, Inc. Report of Independent Auditors....................................... I-263 Balance Sheets--June 30, 1996 and 1997 and December 31, 1997 (unaudited)......................................................... I-264 Statements of Operations for the Years Ended June 30, 1996 and 1997 and for the Six Months Ended December 31, 1996 and 1997 (unaudited)......................................................... I-265 Statements of Stockholders' Equity for the Years Ended June 30, 1996 and 1997 and for the Six Months Ended December 31, 1997 (unaudited)......................................................... I-266 Statements of Cash Flows for the Years Ended June 30, 1996 and 1997 and the Six Months Ended December 31, 1996 and 1997 (unaudited)..... I-267 Notes to Financial Statements........................................ I-268 XXII. Financial Statements of Pro Rentals, Inc. Report of Independent Auditors....................................... I-274 Balance Sheet--December 31, 1997..................................... I-275 Statement of Income for the Year Ended December 31, 1997............. I-276 Statement of Stockholders' Equity for the Year Ended December 31, 1997................................................................ I-277 Statement of Cash Flows for the Year Ended December 31, 1997......... I-278 Notes to Financial Statements........................................ I-279 XXIII. Financial Statements of ASC Equipment Company Report of Independent Auditors....................................... I-283 Balance Sheet--December 31, 1997..................................... I-284 Statement of Income for the Year Ended December 31, 1997............. I-285 Statement of Stockholders' Equity for the Year Ended December 31, 1997................................................................ I-286 Statement of Cash Flows for the Year Ended December 31, 1997......... I-287 Notes to Financial Statements........................................ I-288 XXIV. Financial Statements of MERCER Equipment Company Independent Auditor's Report......................................... I-291 Balance Sheets--December 31, 1996 and October 24, 1997............... I-292 Statements of Income and Retained Earnings for the Years Ended December 31, 1995 and 1996 and for the period from January 1, 1997 to October 24, 1997................................................. I-293 Statements of Cash Flows for the Years Ended December 31, 1995 and 1996 and for the period from January 1, 1997 to October 24, 1997.... I-294 Notes to Financial Statements........................................ I-295 XXV. Consolidated Financial Statements of A&A Tool Rentals & Sales, Inc. and subsidiary Report of Independent Auditors....................................... I-300 Consolidated Balance Sheets--October 31, 1996 and October 19, 1997 and July 31, 1997 (unaudited)....................................... I-301 Consolidated Statements of Operations for the Years Ended October 31, 1995 and 1996 and for the period from November 1, 1996 to October 19, 1997 and for the Nine Months Ended July 31, 1996 and 1997 (unaudited)......................................................... I-302 Consolidated Statements of Stockholders' Equity for the Years Ended October 31, 1995 and 1996 and for the period from November 1, 1996 to October 19, 1997 ................................................ I-303 Consolidated Statements of Cash Flows for the Years Ended October 31, 1995 and 1996 and for the period from November 1, 1996 to October 19, 1997 and for the Nine Months Ended July 31, 1996 and 1997 (unaudited)......................................................... I-304 Notes to Consolidated Financial Statements........................... I-305 XXVI. Financial Statements of J&J Rental Services, Inc. Report of Independent Auditors....................................... I-312 Balance Sheets--December 31, 1996 and October 22, 1997 .............. I-313
I-35 Statements of Income for the Years Ended December 31, 1995 and 1996, for the Six Months Ended June 30, 1997 and for the period from July 1, 1997 to October 22, 1997......................................... I-314 Statements of Stockholders' Equity and Partners' Capital for the Years Ended December 31, 1995 and 1996 and for the Six Months Ended June 30, 1997 and for the period from July 1, 1997 to October 22, 1997................................................................ I-315 Statements of Cash Flows for the Years Ended December 31, 1995 and 1996, for the Six Months Ended June 30, 1997 and for the period from July 1, 1997 to October 22, 1997.................................... I-316 Notes to Financial Statements........................................ I-317 XXVII. Combined Financial Statements of Coran Enterprises, Inc. dba A-1 Rents and Monterey Bay Equipment Rental, Inc. Report of Independent Certified Public Accountants................... I-324 Combined Statements of Earnings for the Years Ended December 31, 1995 and 1996 and for the period from January 1, 1997 to October 24, 1997 .................................................................... I-325 Combined Statements of Stockholders' Equity for the Years Ended De- cember 31, 1995 and 1996 and for the period from January 1, 1997 to October 24, 1997 ................................................... I-326 Combined Statements of Cash Flows for the Years Ended December 31, 1995 and 1996 and for the period from January 1, 1997 to October 24, 1997 ............................................................... I-327 Notes to Combined Financial Statements............................... I-328 XXVIII. Financial Statements of Bronco Hi-Lift, Inc. Report of Independent Auditors....................................... I-330 Balance Sheets--December 31, 1996 and October 24, 1997 .............. I-331 Statements of Income for the Years Ended December 31, 1995 and 1996 and for the period from January 1, 1997 to October 24, 1997......... I-332 Statements of Stockholders' Equity for the Years Ended December 31, 1995 and 1996 and for the period from January 1, 1997 to October 24, 1997................................................................ I-333 Statements of Cash Flows for the Years Ended December 31, 1995 and 1996 and for the period from January 1, 1997 to October 24, 1997.... I-334 Notes to Financial Statements........................................ I-335
I-36 REPORT OF INDEPENDENT AUDITORS Board of Directors United Rentals, Inc. We have audited the accompanying consolidated balance sheet of United Rentals, Inc. as of December 31, 1997 and the related consolidated statements of operations, stockholders' equity and cash flows from August 14, 1997 (Inception) to December 31, 1997. These financial statements are the responsibility of the management of United Rentals, Inc. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of United Rentals, Inc. at December 31, 1997, and the results of its operations and its cash flows from August 14, 1997 (Inception) to December 31, 1997, in conformity with generally accepted accounting principles. /s/ Ernst & Young LLP MetroPark, New Jersey January 30, 1998, except for Note 11, as to which the date is August 25, 1998 I-37 UNITED RENTALS, INC. CONSOLIDATED BALANCE SHEET DECEMBER 31, 1997 ASSETS Cash and cash equivalents......................................... $ 68,607,528 Accounts receivable, net of allowance for doubtful accounts of $1,161,000....................................................... 7,494,636 Inventory......................................................... 3,827,446 Prepaid expenses and other assets................................. 2,966,822 Rental equipment, net............................................. 33,407,561 Property and equipment, net....................................... 2,272,683 Intangible assets, net of accumulated amortization of $241,000.... 50,533,736 ------------ $169,110,412 ============ LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities: Accounts payable................................................ $ 5,697,830 Debt............................................................ 1,074,474 Deferred taxes.................................................. 198,249 Accrued expenses and other liabilities.......................... 4,409,828 ------------ Total liabilities............................................. 11,380,381 Commitments and contingencies Stockholders' equity: Preferred stock--$.01 par value, 5,000,000 shares authorized, no shares issued and outstanding.................................. -- Common stock--$.01 par value, 75,000,000 shares authorized, 23,899,119 shares issued and outstanding....................... 238,991 Additional paid-in capital...................................... 157,457,418 Retained earnings............................................... 33,622 ------------ Total stockholders' equity.................................... 157,730,031 ------------ $169,110,412 ============
See accompanying notes. I-38 UNITED RENTALS, INC. CONSOLIDATED STATEMENT OF OPERATIONS AUGUST 14, 1997 (INCEPTION) TO DECEMBER 31, 1997 Revenues: Equipment rentals............................................... $ 7,018,564 Sales of rental equipment....................................... 1,011,071 Sales of new equipment, merchandise and other revenues.......... 2,603,763 ----------- Total revenues.................................................... 10,633,398 Cost of revenues: Cost of equipment rentals, excluding depreciation............... 3,203,209 Depreciation of rental equipment................................ 1,038,747 Cost of rental equipment sales.................................. 527,523 Cost of new equipment and merchandise sales and other operating costs.......................................................... 2,052,639 ----------- Total cost of revenues............................................ 6,822,118 ----------- Gross profit...................................................... 3,811,280 Selling, general and administrative expenses...................... 3,311,669 Non-rental depreciation and amortization.......................... 262,102 ----------- Operating income.................................................. 237,509 Interest expense.................................................. 454,072 Other (income) expense............................................ (270,701) ----------- Income before provision for income taxes.......................... 54,138 Provision for income taxes........................................ 20,516 ----------- Net income........................................................ $ 33,622 =========== Basic earnings per share.......................................... $ 0.00 =========== Diluted earnings per share........................................ $ 0.00 ===========
See accompanying notes. I-39 UNITED RENTALS, INC. CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY AUGUST 14, 1997 (INCEPTION) TO DECEMBER 31 , 1997
COMMON STOCK ------------------- ADDITIONAL NUMBER PAID-IN RETAINED OF SHARES AMOUNT CAPITAL EARNINGS ---------- -------- ------------ -------- Balance, August 14, 1997 (Incep- tion)............................... -- $ -- $ -- $ -- Issuance of common stock and war- rants............................. 23,899,119 238,991 157,457,418 Net income......................... 33,622 ---------- -------- ------------ ------- Balance, December 31, 1997........... 23,899,119 $238,991 $157,457,418 $33,622 ========== ======== ============ =======
See accompanying notes. I-40 UNITED RENTALS, INC. CONSOLIDATED STATEMENT OF CASH FLOWS AUGUST 14, 1997 (INCEPTION) TO DECEMBER 31, 1997 CASH FLOWS FROM OPERATING ACTIVITIES Net income....................................................... $ 33,622 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization.................................. 1,300,849 Gain on sale of rental equipment............................... (483,548) Deferred taxes................................................. (2,204) Changes in operating assets and liabilities: Accounts receivable.......................................... 609,529 Inventory.................................................... 631,484 Prepaid expenses and other assets............................ (755,545) Accounts payable............................................. 281,056 Accrued expenses and other liabilities....................... (512,507) ------------ Net cash provided by operating activities.................. 1,102,736 CASH FLOWS FROM INVESTING ACTIVITIES Purchases of rental equipment.................................... (1,886,533) Purchases of property and equipment.............................. (819,557) Proceeds from sales of rental equipment.......................... 1,011,071 In-process acquisition costs..................................... (128,523) Purchase of other companies...................................... (51,451,634) ------------ Net cash used in investing activities...................... (53,275,176) CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from issuance of common stock and warrants, net of issuance costs.................................................. 154,788,110 Proceeds from debt............................................... 35,000,000 Repayment of debt................................................ (68,222,252) Payment of debt financing costs.................................. (785,890) ------------ Net cash provided by financing activities.................. 120,779,968 ------------ Net increase in cash and cash equivalents........................ 68,607,528 Cash and cash equivalents at beginning of period................. -- ------------ Cash and cash equivalents at end of period................. $ 68,607,528 ============ Supplemental disclosure of cash flow information: Cash paid for interest......................................... $ 446,559 ============ Supplemental schedule of non cash investing and financing activi- ties: The Company acquired the net assets and assumed certain liabilities of other companies as follows: Assets, net of cash acquired................................. $ 98,876,932 Liabilities assumed.......................................... (43,300,749) Less: Amounts paid in common stock............................... (3,824,549) Amount paid through issuance of convertible note........... (300,000) ------------ Net cash paid.................................................. $ 51,451,634 ============
See accompanying notes. I-41 UNITED RENTALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1997 1. ORGANIZATION AND BASIS OF PRESENTATION United Rentals, Inc. (together with its subsidiaries the "Company") was incorporated in August 1997 for the purpose of creating a large, geographically diversified equipment rental company in the United States and Canada. The Company rents a broad array of equipment to a diverse customer base that includes construction industry participants, industrial companies, homeowners and others. The Company also engages in related activities such as selling used rental equipment, acting as a distributor for certain new equipment and selling related merchandise and parts. The nature of the Company's business is such that short-term obligations are typically met by cash flow generated from long-term assets. Consequently, consistent with industry practice, the accompanying balance sheet is presented on an unclassified basis. The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Cash Equivalents The Company considers all highly liquid instruments with a maturity of three months or less when purchased to be cash equivalents. Inventory Inventory consists of equipment, tools, parts, fuel and related supply items. Inventory is stated at the lower of average weighted cost or market. Rental Equipment Rental equipment is recorded at cost and depreciated over the estimated useful lives of the equipment using the straight-line method. The range of useful lives estimated by management for rental equipment is two to ten years. Rental equipment is depreciated to a salvage value of zero to ten percent of cost. Rental equipment having a cost of $500 or less is expensed at the time of purchase. Ordinary maintenance and repair costs are charged to operations as incurred. Revenue Recognition Revenue related to the sale of equipment is recognized at the point of sale. Revenue related to rental equipment is recognized over the contract term. Property and Equipment Property and equipment are recorded at cost and depreciated over their estimated useful lives using the straight-line method. The range of useful lives estimated by management for property and equipment is two to ten years. Ordinary maintenance and repair costs are charged to operations as incurred. Intangible Assets Intangible assets consist of the excess of cost over the value of identifiable net assets of businesses acquired and are being amortized on a straight line basis over their estimated useful lives of forty years. I-42 UNITED RENTALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) Fair Value of Financial Instruments The carrying amounts reported in the balance sheet for accounts receivable, accounts payable, accrued expenses and other liabilities approximate fair value due to the immediate to short-term maturity of these financial instruments. The fair value of notes payable is determined using current interest rates for similar instruments as of December 31, 1997 and approximates the carrying value of these notes due to the fact that the underlying instruments include provisions to adjust note balances and interest rates to approximate fair market value. Advertising Expense The Company expenses the cost of advertising as incurred. The Company incurred $146,000 in advertising costs for the period August 14, 1997 (Inception) to December 31, 1997. Income Taxes The Company uses the liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are determined based on the differences between financial statement and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that are expected to be in effect when the differences are expected to reverse. Recognition of deferred tax assets is limited to amounts considered by management to be more likely than not of realization in future periods. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Concentrations of Credit Risk Financial instruments that potentially subject the Company to significant concentrations of credit risk consist principally of cash investments and accounts receivable. The Company maintains cash and cash equivalents with high quality financial institutions. Concentrations of credit risk with respect to accounts receivable are limited because a large number of geographically diverse customers make up the Company's customer base. No single customer represents greater than 10% of total accounts receivable. The Company controls credit risk through credit approvals, credit limits, and monitoring procedures. Stock-Based Compensation The Company accounts for its stock based compensation arrangements under the provisions of APB Opinion No. 25, "Accounting for Stock Issued to Employees." Since stock options will be granted by the Company with exercise prices at or greater than the fair value of the shares at the date of grant, no compensation expense will be recognized. Computation of Earnings Per Share Earnings per share is calculated under the provisions of recently issued Statement 128, Earnings Per Share. Common Stock issued for consideration below the initial public offering price ("IPO price") of $13.50 per share at which shares were sold in the Company's initial public offering (the "IPO"), and stock options and warrants granted with exercise prices below the IPO price per share during the twelve months preceding the date of the I-43 UNITED RENTALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) initial filing of the registration statement for the IPO are included in the calculation of common equivalent shares at the IPO price per share. Impact of Recently Issued Accounting Standards In June 1997, the Financial Accounting Standards Board issued SFAS No. 130, "Reporting Comprehensive Income," and SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information." The Company is required to adopt the provisions of these Statements in fiscal year 1998. SFAS No. 130 establishes standards for reporting and display of comprehensive income and its components in a primary financial statement. The Company is currently evaluating the reporting formats recommended under this Statement. SFAS No. 131 establishes a new method by which companies will report operating segment information. This method is based on the manner in which management organizes the segments within a company for making operating decisions and assessing performance. The Company continues to evaluate the provisions of SFAS No. 131 and, upon adoption, the Company may report operating segments. 3. ACQUISITIONS During October 1997, the Company purchased all of the outstanding stock of the following six equipment rental companies for the indicated consideration:
COMPANY CONSIDERATION ------- ------------- A & A Tool Rentals and Sales, Inc........................... $ 8,593,520 Bronco High-Lift, Inc....................................... 7,949,568 Coran Enterprises, Inc...................................... 15,264,337 J & J Rental Services, Inc.................................. 3,824,549 Mercer Equipment Company.................................... 14,933,242 Rent-It Center, Inc......................................... 6,400,000
All of the consideration paid for the acquisitions was in cash, with the exception of Rent-It Center, Inc. which included a $300,000 convertible note and J & J Rental Services, Inc. where all of the consideration was paid through the issuance of 318,712 shares of the Company's Common Stock. These shares are subject to adjustment so that their value will equal $3.8 million based upon the average daily closing price of the Company's Common Stock during the 60 day period beginning December 18, 1997. Contingent consideration is due on the J & J Rental Services, Inc. acquisition based upon a percentage of revenues up to a maximum of $2.8 million. These acquisitions have been accounted for as purchases and, accordingly, the results of their operations have been included in the Company's results of operations from their respective acquisition dates. The purchase prices have been allocated to the assets acquired and liabilities assumed based on their respective fair values at their respective acquisition dates. Contingent purchase price is capitalized when earned and amortized over the remaining life of the related asset. The Company has not completed its valuation of the 1997 purchases and the purchase price allocations are subject to change when additional information concerning asset and liability valuations are completed. I-44 UNITED RENTALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) The following table summarizes, on an unaudited pro forma basis, the combined results of operations of the Company for the years ended December 31, 1997 and 1996 as though each acquisition described above was made on January 1, for each of the periods.
1997 1996 ----------- ----------- Revenues............................................ $59,832,952 $51,889,258 Net income.......................................... 2,607,127 3,462,371 Basic earnings per share............................ $ 0.16 $ 0.22 Diluted earnings per share.......................... $ 0.14 $ 0.20
The unaudited pro forma results are based upon certain assumptions and estimates which are subject to change. These results are not necessarily indicative of the actual results of operations that might have occurred, nor are they necessarily indicative of expected results in the future. 4. RENTAL EQUIPMENT Rental equipment and related accumulated depreciation consists of the following: Rental equipment............................................... $34,444,129 Less accumulated depreciation.................................. (1,036,568) ----------- Rental equipment, net.......................................... $33,407,561 =========== 5. PROPERTY AND EQUIPMENT A summary of property and equipment is as follows: Furniture, fixtures and office equipment....................... $ 2,294,277 Less accumulated depreciation.................................. (21,594) ----------- Property and equipment, net.................................... $ 2,272,683 =========== 6. DEBT Debt consists of the following: Subordinated convertible notes................................. $ 500,000 Equipment notes, interest at 7.0% to 10.6%, payable in various monthly installments through 2001, secured by equipment....... 574,474 ----------- Total debt..................................................... $ 1,074,474 ===========
The Company's credit facility with a group of financial institutions, for which Bank of America National Trust and Savings Association acts as agent, enables the Company to borrow up to $155 million on a revolving basis (the "Credit Facility"). The facility terminates on October 8, 2000, at which time all outstanding indebtedness is due. Up to $10 million of the Credit Facility is available in the form of letters of credit. Borrowings under the Credit Facility accrue interest, at the Company's option, at either (a) the Floating Rate (which is equal to the greater of (i) the Federal Funds Rate plus 0.5% and (ii) Bank of America's reference rate, in each case, plus a margin ranging from 0% to 0.25% per annum) or (b) the Eurodollar Rate (which is equal to Bank of America's reserve adjusted eurodollar rate plus a margin ranging from 1.5% to 2.5% per annum). As of December 31, 1997, there was no outstanding indebtedness under the Credit Facility. The Credit Facility contains I-45 UNITED RENTALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) certain covenants that require the Company to, among other things, satisfy certain financial tests relating to: (a) maintenance of minimum net worth, (b) the ratio of debt to net worth, (c) interest coverage ratio, (d) the ratio of funded debt to cash flow, and (e) the ratio of senior debt to tangible assets. The Credit Facility also contains certain covenants that restrict the Company's ability to, among other things, (i) incur additional indebtedness, (ii) permit liens to attach to its assets, (iii) enter into operating leases requiring payments in excess of specified amounts, (iv) declare or pay dividends or make other restricted payments with respect to its equity securities (including the Common Stock) or subordinated debt, (v) sell assets, (vi) make acquisitions unless certain financial conditions are satisfied, and (vii) engage in any line of business other than the equipment rental industry. The Credit Facility provides that the failure by any two of certain of the Company's executive officers to continue to hold executive positions with the Company for a period of 30 consecutive days constitutes an event of default under the Credit Facility unless replacement officers satisfactory to the lenders are appointed. The Credit Facility is also subject to other customary events of default. The Credit Facility is secured by substantially all of the assets of United Rentals, Inc. and by the stock and assets of its subsidiaries. The subordinated convertible notes consists of two notes; $300,000 in principal bearing interest at 7% per annum and $200,000 in principal bearing interest at 7 1/2% per annum. The $200,000 note was converted into 14,814 shares of Common Stock during January 1998. The $300,000 note is repayable in equal quarterly installments of principal and interest through October, 2002, is convertible into the Company's Common Stock at a conversion rate of $16.20 per share and is subordinated to the Company's Credit Facility. Maturities of the Company's debt for each of the next five years at December 31, 1997 are as follows: 1998.............................................................. $ 244,260 1999.............................................................. 340,916 2000.............................................................. 239,020 2001.............................................................. 181,676 2002.............................................................. 68,602 ---------- $1,074,474 ==========
7. INCOME TAXES The provision for federal and state income taxes is as follows: Current State....................................................... $22,720 Deferred State...................................................... 3,041 Deferred Federal.................................................... (5,245) ------- $20,516 =======
A reconciliation of the provision for income taxes and the amount computed by applying the statutory federal income tax rate of 34% to income before provision for income taxes is as follows: Computed tax benefit at statutory tax rate.......................... $18,407 Increase in tax benefit: Tax-exempt interest income........................................ (91,971) Non-deductible expense............................................ 77,078 State income taxes, net of Federal benefit........................ 17,002 ------- $20,516 =======
I-46 UNITED RENTALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) The components of deferred income tax assets are as follows: Accrual liabilities.............................................. $ 957,619 Net operating loss carryforward.................................. 313,719 Property & equipment............................................. 43,908 ---------- $1,315,246 ==========
The components of deferred income tax liabilities are as follows: Intangibles and other.............................................. $633,132 ========
The Company has net short-term deferred tax assets in the amount of $880,363, which are reported in the balance sheet in prepaid expenses and other assets. The Company has net operating loss carryforwards ("NOLs") of $845,681 for income tax purposes that expire in 2012. 8. CAPITAL STOCK Preferred Stock: The Company's board of directors has the authority to designate 5,000,000 shares of $.01 par value preferred stock in series, to establish as to each series the designation and number of shares to be issued and the rights, preferences, privileges and restrictions of the shares of each series, and to determine the voting powers, if any, of such shares. At December 31, 1997, the Company's Board of Directors had not designated any shares. As of December 31, 1997 there are outstanding warrants to purchase an aggregate of 6,344,058 shares of Common Stock. Each warrant provides for an exercise price of $10.00 per share, is currently exercisable and may be exercised at any time until September 12, 2007. The Board of Directors has adopted the Company's 1997 Stock Option Plan (the "Stock Option Plan") which provides for the granting of options to purchase not more than an aggregate of 5,000,000 shares of Common Stock. All officers, employees and others who render services to the Company are eligible to participate in the Stock Option Plan. Each option granted pursuant to the Stock Option Plan must provide for an exercise price per share that is at least equal to the fair market value per share of Common Stock on the date of grant. No options may be granted under the Stock Option Plan after August 21, 2007. The exercise price of each option, the period during which each option may be exercised and the other terms and conditions of each option are determined by the Board of Directors (or by a committee appointed by the Board). During 1997, 904,583 options to purchase shares of the Company's Common Stock were granted and remain outstanding at December 31, 1997. The weighted average exercise price per share of such options was $12.76. Such options had exercise prices ranging from $10 to $30 per share. Of such options, 818,583 provided for an exercise price per share in the range of $10.00 to $19.99 (the weighted average exercise price and weighted average remaining life of the options in this range being $11.84 and 9.9 years, respectively) and 86,000 provided for an exercise price per share in the range of $20.01 to $30.00 (the weighted average exercise price and weighted average remaining life of the options in this range being $21.51 and 9.9 years, respectively). At December 31, 1997, 60,000 options to purchase Common Stock at $15.00 per share were exercisable. I-47 UNITED RENTALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) The Company applies Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" in accounting for stock-based employee compensation arrangements whereby no compensation cost related to stock options is deducted in determining net income. Had compensation cost for the Company's stock option plans been determined pursuant to Financial Accounting Standards Board Statement No. 123 ("SFAS No. 123"), "Accounting for Stock- Based Compensation," the Company's net income and earnings per share would have differed. The Black-Scholes option pricing model estimates fair value of options using subjective assumptions which can materially affect fair value estimates and, therefore, do not necessarily provide a single measure of fair value of options. Using the Black-Scholes option pricing model and a risk-free interest rate of 5.8%, a volatility factor for the market price of the Company's Common Stock of .315 and a weighted-average expected life of options of approximately three years, the Company's net loss, basic earnings per share and diluted earnings per share would have been $(43,731), $0.00 and $0.00, respectively. For purposes of these pro forma disclosures, the estimated fair value of options is amortized over the options' vesting period. Since the number of options granted and their fair value may vary significantly from year to year, the pro forma compensation expense in future years may be materially different. At December 31, 1997 there are 6,344,058 shares of Common Stock reserved for the exercise of warrants, 5,000,000 shares of Common Stock reserved for issuance pursuant to options granted, and that may be granted in the future, under the Company's 1997 Stock Option Plan and 33,332 shares of Common Stock reserved for the future conversion of convertible debt. 9. EARNINGS PER SHARE The following table sets forth the computation of basic and diluted earnings per share: Numerator: Net income....................................................... $ 33,622 =========== Denominator: Denominator for basic earnings per share--weighted-average shares.......................................................... 16,319,193 Effect of dilutive securities: Employee stock options.......................................... 116,061 Warrants........................................................ 1,736,899 ----------- Dilutive potential common shares Denominator for diluted earnings per share--adjusted weighted- average shares................................................. 18,172,153 =========== Basic earnings per share........................................... $ 0.00 =========== Diluted earnings per share......................................... $ 0.00 ===========
10. COMMITMENTS AND CONTINGENCIES Operating Leases The Company leases rental equipment, real estate and certain office equipment under operating leases. Certain real estate leases require the Company to pay maintenance, insurance, taxes and certain other expenses in addition to the stated rentals. Future minimum lease payments, by year and in the aggregate, for I-48 UNITED RENTALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) noncancellable operating leases with initial or remaining terms of one year or more are as follows at December 31, 1997: 1998.............................................................. $2,676,494 1999.............................................................. 1,860,615 2000.............................................................. 1,213,003 2001.............................................................. 1,155,995 2002.............................................................. 816,400 Thereafter........................................................ 1,929,430 ---------- $9,651,937 ==========
Rent expense under non-cancellable operating leases for the period August 14, 1997 (Inception) to December 31, 1997 was $524,752. 11. SUBSEQUENT EVENTS Subsequent to December 31, 1997 and through August 25, 1998, the Company completed the acquisition of 65 equipment rental companies (the "Acquisitions") and the aggregate consideration paid by the Company for the Acquisitions was $854.3 million and consisted of approximately $715.9 million in cash, 4,786,668 shares of Common Stock and warrants to purchase 30,000 shares of Common Stock. The Company funded a portion of the cash consideration for these acquisitions with cash on hand and the balance with borrowings under the Credit Facility and proceeds from the public offering noted below. On March 11, 1998, the Company completed a public offering of 8,625,000 shares of its Common Stock. Net proceeds of the offering were approximately $207.4 million. The purchase agreement relating to one of the 1997 acquisitions provides that the stock consideration paid by the Company in connection with such acquisition is subject to adjustment based upon the trading price of the Common Stock during the 60-day period commencing December 18, 1997. In accordance with such provision, the Company expects that 137,600 shares of Common Stock issued by the Company in connection with such acquisition will be cancelled. On May 19, 1998, the Company completed an offering of $200,000,000 of 9 1/2% Senior Subordinated Notes due 2008. Net proceeds of the offering were approximately $193.0 million. On June 15, 1998, the Company entered into an Agreement and Plan of Merger with U.S. Rentals, Inc. The Agreement calls for an exchange ratio of 0.9625 shares of the Company's Common Stock for each share of U.S. Rentals Common Stock. The pending Merger is subject to the satisfaction or waiver of a number of conditions, including, but not limited to, the adoption of the Merger Agreement by the stockholders of U.S. Rentals, Inc. and the Company's stockholders. The Company expects the Merger to be completed in the fall of 1998. During July 1998 the Company entered into a definitive agreement with respect to the acquisition of McClinch Equipment Services, Inc., McClinch, Inc. and Grey Fox Equipment, Inc. (McClinch). For the twelve months ended June 30, 1998, McClinch had aggregate revenues of approximately $45.5 million. The Company expects that the aggregate consideration for the Pending Acquisition will consist of cash of $94.0 million (subject to adjustment). In addition, the Company will assume approximately $37.0 million of indebtedness. I-49 UNITED RENTALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) In August 1998, the Company completed a reorganization pursuant to which existing United Rentals, Inc. became a wholly owned subsidiary of United Rentals Holdings, Inc. (Holdings), a newly formed holding company. The name of existing United Rentals, Inc. changed to United Rentals (North America), Inc. and the name of United Rentals Holdings, Inc. became United Rentals, Inc. The accompanying financial statements of United Rentals, Inc. became the financial statements of United Rentals (North America), Inc. On August 5, United Rentals Trust I, a subsidiary of Holdings, completed a $300 million offering of Convertible Quarterly Income Preferred Securities. Net proceeds of the offering of $290 million were contributed by Holdings to United Rentals (North America), Inc. On August 12, 1998, United Rentals (North America), Inc. completed an offering of $205,000,000 of 8.80% Senior Subordinated Notes due 2008. Net proceeds of the offering were approximately $197.5 million. I-50 UNITED RENTALS, INC. CONSOLIDATED BALANCE SHEETS (UNAUDITED)
JUNE 30 DECEMBER 31 1998 1997 ------------ ------------ ASSETS Cash and cash equivalents.......................... $ 5,486,092 $ 68,607,528 Accounts receivable, net of allowance for doubtful accounts of $7,778,000 in 1998 and $1,161,000 in 1997.............................................. 67,202,625 7,494,636 Inventory.......................................... 33,255,606 3,827,446 Prepaid expenses and other assets.................. 22,887,178 2,966,822 Rental equipment, net.............................. 298,956,195 33,407,561 Property and equipment, net........................ 32,349,116 2,272,683 Intangible assets, net of accumulated amortization of $3,198,000 in 1998 and $241,000 in 1997........ 429,027,657 50,533,736 ------------ ------------ $889,164,469 $169,110,412 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities: Accounts payable................................. $ 55,855,965 $ 5,697,830 Debt............................................. 389,181,344 1,074,474 Deferred income taxes............................ 2,375,648 198,249 Accrued expenses and other liabilities........... 23,357,346 4,409,828 ------------ ------------ Total liabilities.............................. 470,770,303 11,380,381 Commitments and contingencies Stockholders' equity: Preferred stock--$.01 par value, 5,000,000 shares authorized, no shares issued and outstanding.... -- -- Common stock--$.01 par value, 75,000,000 shares authorized in 1998 and 1997, 34,192,085 in 1998 and 23,899,119 in 1997 shares issued and out- standing........................................ 341,921 238,991 Additional paid-in capital....................... 409,817,333 157,457,418 Retained earnings................................ 8,253,698 33,622 Cumulative translation adjustments............... (18,786) -- ------------ ------------ Total stockholders' equity..................... 418,394,166 157,730,031 ------------ ------------ $889,164,469 $169,110,412 ============ ============
The accompanying notes are an integral part of these consolidated financial statements. I-51 UNITED RENTALS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
SIX MONTHS THREE MONTHS ENDED ENDED JUNE 30, 1998 JUNE 30, 1998 ------------- ------------- Revenues: Equipment rentals................................ $ 86,104,719 $59,324,869 Sales of rental equipment........................ 10,464,642 7,481,451 Sales of new equipment, merchandise and other revenues........................................ 30,781,919 21,354,794 ------------ ----------- Total revenues..................................... 127,351,280 88,161,114 Cost of revenues: Cost of equipment rentals, excluding deprecia- tion............................................ 35,608,405 24,386,901 Depreciation of rental equipment................. 14,565,250 9,981,418 Cost of rental equipment sales................... 5,828,280 4,188,849 Cost of new equipment and merchandise sales and other operating costs........................... 24,110,542 16,518,651 ------------ ----------- Total cost of revenues............................. 80,112,477 55,075,819 ------------ ----------- Gross profit....................................... 47,238,803 33,085,295 Selling, general and administrative expenses....... 25,101,187 17,294,256 Non-rental depreciation and amortization........... 3,815,236 2,728,812 ------------ ----------- Operating income................................... 18,322,380 13,062,227 Interest expense................................... 4,936,708 3,763,990 Other (income) expense............................. (527,547) (146,844) ------------ ----------- Income before provision for income taxes........... 13,913,219 9,445,081 Provision for income taxes......................... 5,693,143 3,863,356 ------------ ----------- Net income....................................... $ 8,220,076 $ 5,581,725 ============ =========== Basic earnings per share........................... $ 0.27 $ 0.17 ============ =========== Diluted earnings per share......................... $ 0.23 $ 0.14 ============ ===========
The accompanying notes are an integral part of these consolidated financial statements. I-52 UNITED RENTALS, INC. CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (UNAUDITED)
COMMON STOCK -------------------- NUMBER ADDITIONAL CUMULATIVE OF PAID-IN RETAINED TRANSLATION SHARES AMOUNT CAPITAL EARNINGS ADJUSTMENTS ---------- -------- ------------ ---------- ----------- Balance, December 31, 1997................... 23,899,119 $238,991 $157,457,418 $ 33,622 -- Issuance of common stock.................. 10,415,752 104,158 252,158,687 Translation adjust- ments.................. $(18,786) Conversion of convert- ible note.............. 14,814 148 199,852 Cancellation of common stock.................. (137,600) (1,376) 1,376 Net income.............. 8,220,076 ---------- -------- ------------ ---------- -------- Balance, June 30, 1998.. 34,192,085 $341,921 $409,817,333 $8,253,698 $(18,786) ========== ======== ============ ========== ========
The accompanying notes are an integral part of these consolidated financial statements. I-53 UNITED RENTALS, INC. CONSOLIDATED STATEMENT OF CASH FLOWS SIX MONTHS ENDED JUNE 30, 1998 (UNAUDITED) Cash Flows From Operating Activities: Net income...................................................... $ 8,220,076 Adjustments to reconcile net income to net cash provided by op- erating activities: Depreciation and amortization................................... 18,380,486 Gain on sale of rental equipment................................ (4,636,362) Deferred taxes.................................................. 3,623,614 Changes in operating assets and liabilities: Accounts receivable............................................ (7,175,089) Inventory...................................................... (1,842,775) Prepaid expenses and other assets.............................. (6,694,037) Accounts payable............................................... 21,489,836 Accrued expenses and other liabilities......................... (2,543,195) ------------ Net cash provided by operating activities..................... 28,822,554 Cash Flows From Investing Activities: Purchases of rental equipment................................... (62,722,443) Purchases of property and equipment............................. (11,519,846) Proceeds from sales of rental equipment......................... 10,464,642 In-process acquisition costs.................................... (3,495,002) Payment of contingent purchase price............................ (2,255,433) Purchases of other companies.................................... (369,534,206) ------------ Net cash used in investing activities......................... (439,062,288) Cash Flows From Financing Activities: Proceeds from issuance of common stock, net of issuance costs... 206,456,306 Proceeds from debt.............................................. 623,776,408 Repayments of debt.............................................. (474,999,342) Payment of debt financing costs................................. (8,115,074) ------------ Net cash provided by financing activities..................... 347,118,298 ------------ Net decrease in cash and cash equivalents........................ (63,121,436) Cash and cash equivalents at beginning of period................. 68,607,528 ------------ Cash and cash equivalents at end of period.................... $ 5,486,092 ============ Supplemental disclosure of cash flow information: Cash paid during the period: Interest........................................................ $ 2,290,550 ------------ Income taxes.................................................... $ 2,946,000 ------------ Supplemental disclosure of non cash investing and financing ac- tivities: During the six month period ended June 30, 1998 a convertible note in the principal amount of $200,000 was converted into 14,814 shares of common stock. The Company acquired the net assets and assumed certain liabili- ties of other companies as follows: Assets, net of cash acquired.................................... 681,724,845 Liabilities assumed............................................. (264,655,908) Less: Amounts paid in common stock and warrants....................... (47,534,731) ------------ Net cash paid................................................. $369,534,206 ============
The accompanying notes are an integral part of these consolidated financial statements. I-54 UNITED RENTALS, INC. NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 1998 1. BASIS OF PRESENTATION United Rentals, Inc. is principally a holding company ("Holdings") and conducts its operations principally through its wholly owned subsidiary United Rentals (North America), Inc. ("URI") and subsidiaries of URI. URI was incorporated in August 1997, initially capitalized in September 1997 and commenced equipment rental operations in October 1997. Holdings was incorporated in July 1998 and became the parent of URI on August 5, 1998, pursuant to the reorganization of the legal structure of URI described in Note 7. Prior to such reorganization, the name of URI was United Rentals, Inc. References herein to the "Company" refer to Holdings and its subsidiaries, with respect to periods following the reorganization, and to URI and its subsidiaries, with respect to periods prior to the reorganization. Separate consolidated financial statements of URI and its subsidiaries have not been presented as they are the same as those of the Company as of June 30, 1998 and for period then ended. The Consolidated Financial Statements of the Company included herein are unaudited and, in the opinion of management, such financial statements reflect all adjustments, consisting only of normal recurring adjustments, necessary to a fair statement of the results of the interim periods presented. Interim financial statements do not require all disclosures normally presented in year-end financial statements, and, accordingly, certain disclosures have been omitted. Results of operations for the six and three month periods ended June 30, 1998 are not necessarily indicative of the results that may be expected for the year ending December 31, 1998. The Consolidated Financial Statements included herein should be read in conjunction with the Company's Consolidated Financial Statements and related Notes thereto included in the Company's Annual Report on Form 10-K for the period from August 14, 1997 (inception) to December 31, 1997. Impact of Recently Issued Accounting Standards In June 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive Income," and SFAS No. 131, "Disclosures About Segments of an Enterprise and Related Information." SFAS No. 130 establishes standards for reporting and display of comprehensive income and its components in a primary financial statement. The Company adopted SFAS No. 130 during the period ended March 31, 1998. The adoption of SFAS No. 130 did not have a material effect on the consolidated financial position, results of operations or cash flows of the Company. SFAS No. 131 establishes a new method by which companies will report operating segment information. This method is based on the manner in which management organizes the segments within a company for making operating decisions and assessing performance. The Company continues to evaluate the provisions of SFAS No. 131 and, upon adoption, the Company may report operating segments. The Company is required to adopt SFAS No. 131 by December 31, 1998. In February 1998, the Financial Accounting Standards Board issued SFAS No. 132, "Employers' Disclosures about Pensions and Other Post Retirement Benefits." SFAS No. 132 revises employers' disclosures about pension and other post retirement benefit plans but does not change the measurement or recognition of those plans. The Company is required to adopt SFAS No. 132 by December 31, 1998. The adoption of SFAS No. 132 is not expected to have a material effect on the Company's consolidated financial position or results of operations. In June 1998, the Financial Accounting Standards Board issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133 establishes a new model for accounting for derivatives and hedging activities. The Company will adopt SFAS No. 133 beginning January 1, 2000. The adoption of SFAS No. 133 is not expected to have a material effect on the Company's consolidated financial position or results of operations. I-55 UNITED RENTALS, INC. NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 2. COMMON STOCK On March 11, 1998, the Company completed a public offering of 8,625,000 shares of Common Stock (the "Offering"). The net proceeds to the Company from the Offering were approximately $207.4 million (after deducting the underwriting discounts and offering expenses). The Company used $132.7 million of the net proceeds from the Offering to repay all of the then outstanding indebtedness under the Company's credit facility and used the balance of such net proceeds for acquisitions. The purchase agreement relating to the acquisition of one company acquired provides that the stock consideration paid by the Company in connection with such acquisition is subject to adjustment based upon the trading prices of the common stock during the 60-day period which commenced December 18, 1997. In accordance with such provisions, the Company canceled 137,600 shares of common stock issued by the Company in connection with such acquisition. 3. 9 1/2% SENIOR SUBORDINATED NOTES In May 1998, the Company issued $200 million aggregate principal amount of 9 1/2% Senior Subordinated Notes which are due June 1, 2008. The Company used $102.8 million of the net proceeds from the sale of such notes to repay all of the then outstanding indebtedness under the Company's credit facility and used the balance of such net proceeds from this offering for acquisitions, capital expenditures and general corporate purposes. 4. ACQUISITIONS During the six months ended June 30, 1998, the Company completed the acquisition of 45 equipment rental companies having an aggregate of 160 rental locations in 24 states and Canada. The aggregate consideration paid by the Company for the acquisitions completed during the six months ended June 30, 1998 was $429.7 million and consisted of approximately $382.2 million in cash, 1,779,351 shares of Common Stock and warrants to purchase an aggregate of 30,000 shares of Common Stock. In addition, the Company repaid or assumed outstanding indebtedness of the companies acquired during the six months ended June 30, 1998 in the aggregate amount of $216.4 million. The Company also agreed in connection with eight of the acquisitions completed during the six months ended June 30, 1998, to pay additional amounts to the former owners based upon specified future revenues (such amounts being limited to (i) $10.0 million, $2.0 million, $0.8 million, $0.5 million, $0.5 million, $0.4 million and Cdn. $4.0 million, respectively, with respect to seven of such acquisitions and (ii) an amount based on the revenues of a single store with respect to the other acquisition). These acquisitions have been accounted for as purchases and, accordingly, the results of their operations have been included in the Company's results of operations from their respective acquisition dates. The purchase prices have been allocated to the assets acquired and liabilities assumed based on their respective fair values at their respective acquisition dates. The Company has not completed its valuation on all of its purchases and the purchase price allocations are subject to change when additional information concerning asset and liability valuations are completed. The following table summarizes, on an unaudited pro forma basis, the combined results of operations of the Company for the six months ended June 30, 1998 as though each acquisition described above was made on January 1, 1998.
SIX MONTHS ENDED JUNE 30, 1998 ---------------- Revenues.................................................... $160,026,542 Net income.................................................. 9,493,852 Basic earnings per share.................................... 0.32 Diluted earnings per share.................................. 0.27
I-56 UNITED RENTALS, INC. NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) The unaudited pro forma results are based upon certain assumptions and estimates which are subject to change. These results are not necessarily indicative of the actual results of operations that might have occurred, nor are they necessarily indicative of expected results in the future. 5. EARNINGS PER SHARE The following table sets forth the computation of basic and diluted earnings per share:
SIX MONTHS THREE MONTHS ENDED ENDED JUNE 30, 1998 JUNE 30, 1998 ------------- ------------- Numerator: Net income....................................... $ 8,220,076 $ 5,581,725 =========== =========== Denominator: Denominator for basic earnings per share weight- ed-average shares............................... 29,970,357 33,702,126 Effect of dilutive securities: Employee stock options......................... 903,311 1,705,898 Warrants....................................... 4,218,749 4,554,411 ----------- ----------- Dilutive potential common shares Denominator for diluted earnings per share-- adjusted weighted-average shares.............. 35,092,417 39,962,435 =========== =========== Basic earnings per share........................... $ 0.27 $ 0.17 =========== =========== Diluted earnings per share......................... $ 0.23 $ 0.14 =========== ===========
6. AGREEMENT AND PLAN OF MERGER On June 15, 1998, the Company entered into an Agreement and Plan of Merger (the "Merger Agreement") with U.S. Rentals, Inc., a Delaware corporation ("U.S. Rentals"). The Merger Agreement provides, subject to the terms and conditions set forth therein, for a subsidiary of the Company to be merged with and into U.S. Rentals (the "Merger"). Following the Merger, U.S. Rentals will become a wholly owned subsidiary of URI. At the effective time of the Merger, (i) each outstanding share of U.S. Rentals common stock will be converted into 0.9625 shares of Common Stock of the Company (the "Exchange Ratio") and (ii) all outstanding options to purchase shares of U.S. Rentals common stock will be assumed by the Company and converted into options to purchase Common Stock of United Rentals, Inc. subject to adjustment for the Exchange Ratio. The Merger is expected to be accounted for as a "pooling of interests" for financial accounting purposes. The Merger, which is subject to shareholder approvals and other customary conditions, is expected to close before the end of September 1998. 7. SUBSEQUENT EVENTS Completed Acquisitions Subsequent to June 30, 1998, the Company completed the acquisition of 19 equipment rental companies consisting of 66 rental sites. The aggregate consideration paid by the Company for these acquisitions was $344.1 million and consisted of approximately $331.4 million in cash, and 390,549 shares of Common Stock. The Company also agreed in connection with two of the acquisitions to pay additional amounts to the former owners based upon specified future revenues not to exceed $0.5 million in each case. The Company funded a portion of the cash consideration for these acquisitions with cash on hand (including cash proceeds from debt and equity offerings) and the balance with borrowings under the Company's revolving credit facility. I-57 UNITED RENTALS, INC. NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) Potential Acquisitions The Company has entered into definitive agreements with respect to the acquisition (the "Pending Acquisitions") of the following companies (the "Pending Acquisition Companies"): Rental Tools and Equipment Co. International Inc.; and McClinch, Inc., McClinch Equipment Services, Inc. and Grey Fox Equipment, Inc. The Pending Acquisition Companies have an aggregate of 32 rental locations in nine states. Completion of the Pending Acquisitions is subject to various conditions, and no assurance can be given that the Pending Acquisitions will be consummated or that the Pending Acquisitions will be consummated on the terms contemplated by the definitive agreements. The Company expects that the aggregate consideration for the Pending Acquisition Companies will consist of (i) up to 2,090,240 shares of Common Stock (subject to adjustment), (ii) cash of $103.2 million (subject to adjustment) and (iii) warrants to purchase an aggregate of $0.6 million worth of Common Stock at an exercise price per share based on the price of the Common Stock at the time the acquisition is completed. In addition, the Company will assume approximately $77.8 million of indebtedness. The consideration for the Pending Acquisition Companies includes reimbursement to the shareholders of the Pending Acquisition Companies for certain expenditures to acquire equipment and businesses and payment for certain real estate used in the business. Term Loan In July 1998, URI obtained a $250 million term loan from a group of financial institutions (the "Term Loan"). The Term Loan matures on June 30, 2005. URI used the net proceeds from the loan for acquisitions. Holding Company Reorganization URI was formerly named United Rentals, Inc. On August 5, 1998 a reorganization was effected pursuant to which (i) URI became a wholly owned subsidiary of Holdings, a newly formed holding company, (ii) the name of URI was changed from United Rentals, Inc. to United Rentals (North America), Inc., (iii) the name of Holdings became United Rentals, Inc., (iv) the outstanding common stock of URI was automatically converted, on a share-for-share basis, into Common Stock of Holdings and (v) the Common Stock of Holdings commenced trading on the New York Stock Exchange under the symbol "URI" instead of the common stock of URI. The purpose of the reorganization was to facilitate certain financings. The business operations of the Company will not change as a result of the new legal structure. The stockholders of Holdings have the same rights, privileges and interests with respect to Holdings as they had with respect to URI immediately prior to the reorganization. Holdings has the same board of directors as URI and the certificate of incorporation and by-laws of Holdings is the same in all material respects as the certificate of incorporation and by-laws of URI in effect immediately prior to the reorganization. Issuance of 6 1/2% Convertible Quarterly Income Preferred Securities On August 5, 1998, a subsidiary trust (the "Trust") of Holdings issued and sold in a private offering (the "Preferred Securities Offering") $300 million of 6 1/2% Convertible Quarterly Income Preferred Securities (the "Preferred Securities"). In addition, the Trust may sell up to an additional $50 million of Preferred Securities pursuant to an over-allotment option granted to the initial purchasers of the Preferred Securities. The Preferred Securities have not been registered under the Securities Act of 1933 (the "Act") and, accordingly, may not be offered or sold in the United States absent registration or an applicable exemption from the registration requirements under the Act. The net proceeds from the Preferred Securities Offering were approximately $290.0 million. The Trust used the proceeds from the Preferred Securities Offering to purchase convertible subordinated debentures from I-58 UNITED RENTALS, INC. NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) Holdings which resulted in Holdings receiving all of the net proceeds of the Preferred Securities Offering. Holdings in turn contributed the net proceeds of the Preferred Securities Offering to URI. URI used approximately $281 million of such net proceeds to repay the then outstanding indebtedness under the Company's credit facility and used the balance of such net proceeds for acquisitions. 8.80% Senior Subordinated Notes In August 1998, URI issued $205 million aggregate principal amount of 8.80% Senior Subordinated Notes which are due August 15, 2008. URI used $90.3 million of the net proceeds from the sale of such notes to repay outstanding indebtedness under the Company's credit facility and expects to use the balance of such net proceeds to repay borrowings under the credit facility and expects to use the remaining net proceeds for future acquisitions, capital expenditures and general corporate purposes. I-59 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS To the Board of Directors and Stockholders of Equipment Supply Co., Inc. and Affiliates Burlington, New Jersey We have audited the accompanying combined balance sheets of Equipment Supply Co., Inc. and Affiliates (see Note 1) as of December 31, 1997 and 1996, and the related combined statements of income, stockholders' equity, and cash flows for each of the three years in the period ended December 31, 1997. These combined financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these combined financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the combined financial statements referred to above present fairly, in all material respects, the financial position of Equipment Supply Co., Inc. and Affiliates as of December 31, 1997 and 1996, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1997 in conformity with generally accepted accounting principles. BDO Seidman, LLP Philadelphia, Pennsylvania June 19, 1998, except for Notes 9 and 15 which are as of July 10, 1998 I-60 EQUIPMENT SUPPLY CO., INC. AND AFFILIATES COMBINED BALANCE SHEETS
DECEMBER 31, ------------------------- JUNE 30, 1997 1996 1998 ------------ ------------ ------------ (UNAUDITED) ASSETS Cash and cash equivalents............... $ 1,038,086 $ 4,015,527 $ 1,784,124 Marketable securities................... -- 1,103,354 -- Accounts receivable, net of allowance for possible losses of $2,241,339, $1,202,790 and $2,241,339......................... 16,087,730 14,592,845 16,528,382 Inventories............................. 3,234,402 3,249,010 4,507,505 Prepaid expenses and other assets....... 2,365,177 389,234 1,837,531 Due from stockholder.................... 4,310,190 1,637,628 5,184,698 Rental equipment, net................... 122,154,888 127,343,198 111,617,692 Property and equipment, net............. 6,548,778 5,401,275 5,267,210 Goodwill and other intangible assets, net.................................... 3,887,945 4,436,997 3,639,033 ------------ ------------ ------------ Total assets........................ $159,627,196 $162,169,068 $150,366,175 ============ ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY LIABILITIES Debt.................................. $ 94,870,512 $107,460,779 $ 87,577,703 Capital lease obligations............. 8,841,236 11,923,889 7,241,127 Accounts payable...................... 4,909,578 4,116,967 3,648,493 Income taxes payable.................. 1,209,251 1,393,548 1,442,884 Deferred income taxes................. 3,884,669 3,996,763 939,847 Deferred leasing costs................ 4,379,594 -- 5,626,989 Deferred rental income................ 2,404,500 2,016,607 2,653,308 Other liabilities..................... 1,599,427 2,335,963 3,215,431 ------------ ------------ ------------ Total liabilities................... 122,098,767 133,244,516 112,345,782 ------------ ------------ ------------ COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' EQUITY Common stock, no par value Authorized 2,500 shares; Issued and outstanding 581 shares.... 1,500 1,500 1,500 Additional paid-in capital............ 363,808 326,294 363,808 Retained earnings..................... 37,163,121 28,596,758 37,655,085 ------------ ------------ ------------ Total stockholders' equity.......... 37,528,429 28,924,552 38,020,393 ------------ ------------ ------------ Total liabilities and stockholders' equity............................. $159,627,196 $162,169,068 $150,366,175 ============ ============ ============
See accompanying notes to combined financial statements. I-61 EQUIPMENT SUPPLY CO., INC. AND AFFILIATES COMBINED STATEMENTS OF INCOME
SIX MONTHS ENDED YEAR ENDED DECEMBER 31, JUNE 30, ------------------------------------- ------------------------ 1997 1996 1995 1998 1997 ----------- ----------- ----------- ----------- ----------- (UNAUDITED) REVENUES Equipment rentals..... $78,141,502 $65,226,201 $40,905,725 $34,381,555 $38,110,803 Sales of rental equip- ment................. 8,102,210 11,935,375 7,968,205 3,280,299 3,150,044 Sales of new equip- ment, merchandise and other revenues....... 8,314,451 10,129,016 5,246,285 5,678,060 4,111,176 ----------- ----------- ----------- ----------- ----------- TOTAL REVENUES...... 94,558,163 87,290,592 54,120,215 43,339,914 45,372,023 ----------- ----------- ----------- ----------- ----------- COST OF REVENUES Cost of equipment rentals, excluding depreciation......... 23,509,529 19,225,581 14,222,651 12,528,730 7,675,660 Depreciation of rental equipment............ 20,397,030 15,383,114 7,844,434 10,368,052 10,774,115 Cost of rental equip- ment sold............ 5,049,876 9,834,128 3,291,409 2,131,867 1,975,139 Cost of new equipment and merchandise...... 6,312,172 6,263,969 2,250,037 5,135,293 3,721,652 ----------- ----------- ----------- ----------- ----------- TOTAL COST OF REVENUES........... 55,268,607 50,706,792 27,608,531 30,163,942 24,146,566 ----------- ----------- ----------- ----------- ----------- GROSS PROFIT............ 39,289,556 36,583,800 26,511,684 13,175,972 21,225,457 ----------- ----------- ----------- ----------- ----------- OPERATING EXPENSES General and adminis- trative expenses..... 17,874,879 15,195,802 10,852,925 9,672,514 9,455,819 Nonrental depreciation and amortization..... 878,342 627,534 237,427 358,520 421,916 ----------- ----------- ----------- ----------- ----------- TOTAL OPERATING EXPENSES........... 18,753,221 15,823,336 11,090,352 10,031,034 9,877,735 ----------- ----------- ----------- ----------- ----------- INCOME FROM OPERATIONS.. 20,536,335 20,760,464 15,421,332 3,144,938 11,347,722 INTEREST EXPENSE........ (11,185,934) (7,508,226) (3,691,638) (4,220,244) (6,434,136) OTHER INCOME (EXPENSE).. 2,858,438 854,658 (28,356) 198,381 793,290 ----------- ----------- ----------- ----------- ----------- INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES.................. 12,208,839 14,106,896 11,701,338 (876,925) 5,706,876 PROVISION FOR INCOME TAX EXPENSE (BENEFIT)...... 1,242,142 2,073,617 1,517,539 (2,637,684) 575,365 ----------- ----------- ----------- ----------- ----------- NET INCOME.............. $10,966,697 $12,033,279 $10,183,799 $ 1,760,759 $ 5,131,511 =========== =========== =========== =========== ===========
See accompanying notes to combined financial statements. I-62 EQUIPMENT SUPPLY CO., INC. AND AFFILIATES COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY
COMMON STOCK ADDITIONAL ------------- PAID-IN RETAINED SHARES AMOUNT CAPITAL EARNINGS TOTAL ------ ------ ---------- ----------- ----------- BALANCE, January 1, 1995... 581 $1,500 $ -- $14,408,232 $14,409,732 Net income................. -- -- -- 10,183,799 10,183,799 Stockholders' distributions............. -- -- -- (3,861,677) (3,861,677) Capital contributions...... -- -- 170,406 -- 170,406 --- ------ -------- ----------- ----------- BALANCE, December 31, 1995...................... 581 1,500 170,406 20,730,354 20,902,260 Net income................. -- -- -- 12,033,279 12,033,279 Stockholders' distributions............. -- -- -- (4,166,875) (4,166,875) Capital contributions...... -- -- 155,888 -- 155,888 --- ------ -------- ----------- ----------- BALANCE, December 31, 1996...................... 581 1,500 326,294 28,596,758 28,924,552 Net income................. -- -- -- 10,966,697 10,966,697 Stockholders' distributions............. -- -- -- (2,937,557) (2,937,557) Capital contributions...... -- -- 37,514 -- 37,514 Adjustment related to affiliate with different fiscal year..... -- -- -- 537,223 537,223 --- ------ -------- ----------- ----------- BALANCE, December 31, 1997...................... 581 1,500 363,808 37,163,121 37,528,429 Net income (unaudited)..... -- -- -- 1,760,759 1,760,759 Stockholders' distributions (unaudited)............... -- -- -- (1,268,795) (1,268,795) --- ------ -------- ----------- ----------- BALANCE, June 30, 1998 (unaudited)............... 581 $1,500 $363,808 $37,655,085 $38,020,393 === ====== ======== =========== ===========
See accompanying notes to combined financial statements. I-63 EQUIPMENT SUPPLY CO., INC. AND AFFILIATES COMBINED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED YEAR ENDED DECEMBER 31, JUNE 30, ---------------------------------------- ------------------------ 1997 1996 1995 1998 1997 ------------ ------------ ------------ ----------- ----------- (UNAUDITED) CASH FLOWS FROM OPERATING ACTIVITIES Net income............. $ 10,966,697 $ 12,033,279 $ 10,183,799 $ 1,760,759 $ 5,131,511 Adjustments to reconcile net income to net cash flows provided by operating activities Depreciation and amortization........ 21,275,372 16,010,648 8,081,861 10,775,137 11,196,031 Provision for bad debts............... 1,038,549 374,056 828,734 -- -- Loss (Gain) on sale of equipment........ (3,052,334) (2,101,247) (4,555,863) (1,148,432) (1,174,905) Gain on sale of marketable securities.......... (390,410) (126,747) (37,345) -- (413,631) Deferred income taxes............... (112,094) 743,691 961,861 (2,944,822) (127,771) Adjustment related to affiliate with different fiscal year................ 537,223 -- -- -- 537,223 Changes in operating assets and liabilities: (Increase) decrease in accounts receivable.......... (2,533,434) (4,603,457) (4,789,132) (440,653) (1,275,848) (Increase) decrease in inventories...... 14,608 (945,385) (824,220) (1,273,103) (384,360) (Increase) decrease in prepaid expenses and other assets.... (1,975,943) 122,694 587,072 527,646 (233,087) Increase (decrease) in accounts payable............. 792,611 1,436,552 1,560,529 (1,261,085) 3,933,297 Increase (decrease) in income taxes payable............. (184,297) 1,076,242 689,302 233,633 (474,120) Increase in deferred leasing costs....... 4,379,594 -- -- 1,247,395 -- Increase (decrease) in deferred rental income.............. 387,893 627,699 499,251 248,808 175,016 Increase (decrease) in other liabilities......... (736,536) 914,657 1,015,997 1,616,004 (527,352) ------------ ------------ ------------ ----------- ----------- NET CASH PROVIDED BY OPERATING ACTIVITIES... 30,407,499 25,562,682 14,201,846 9,341,287 16,362,004 ------------ ------------ ------------ ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES Purchases of equipment............. (21,445,901) (73,822,654) (32,957,168) (664,200) (12,537,761) Acquisitions of affiliated companies............. -- (11,807,987) (7,829,319) -- -- Proceeds from sale of equipment............. 8,102,210 11,935,375 7,741,552 3,280,299 3,150,044 Sales (purchases) of marketable securities............ 1,493,764 (414,665) 397,153 -- (347,750) ------------ ------------ ------------ ----------- ----------- NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES............. (11,849,927) (74,109,931) (32,647,782) 2,616,099 (9,735,467) ------------ ------------ ------------ ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from debt..... $ 12,869,925 $ 79,950,621 $ 28,777,004 $ 2,634,890 $11,729,779 Repayment of capital lease obligations..... (3,341,413) (4,419,085) (2,177,919) (1,774,650) (2,004,361) Repayment of debt...... (25,460,192) (18,525,872) (4,207,118) (9,927,699) (14,536,422) Payment of loan acquisition fees...... (28,728) (299,978) (88,493) (586) (26,183) (Increase) decrease in due to/from stockholders.......... (2,672,562) (1,673,052) 35,425 (874,508) (2,555,699) Capital contributions......... 37,514 155,887 170,406 -- -- Stockholders' distributions......... (2,937,557) (4,166,875) (3,861,677) (1,268,795) (1,809,911) ------------ ------------ ------------ ----------- ----------- NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES............. (21,535,013) 51,021,646 18,647,627 (11,211,348) (9,202,797) ------------ ------------ ------------ ----------- ----------- NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS............ (2,977,441) 2,474,397 201,691 746,038 (2,576,260) CASH AND CASH EQUIVALENTS, beginning of year................ $ 4,015,527 $ 1,541,130 $ 1,339,439 $ 1,038,086 $ 4,015,527 ------------ ------------ ------------ ----------- ----------- CASH AND CASH EQUIVALENTS, end of year................... $ 1,038,086 $ 4,015,527 $ 1,541,130 $ 1,784,124 $ 1,439,267 ============ ============ ============ =========== =========== SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCIAL ACTIVITIES Acquisition of equipment in exchange for capital lease obligations........... $ 260,760 $ 7,121,669 $ 6,997,926 $ 174,541 $ 228,467 Goodwill related to acquisitions.......... $ -- $ -- $ 1,897,761 $ -- $ -- Assets acquired from purchase of companies............. $ -- $ 13,165,000 $ 9,524,479 $ -- $ -- Liabilities assumed from purchase of companies............. $ -- $ 3,357,013 $ 3,151,101 $ -- $ -- ============ ============ ============ =========== =========== OTHER SUPPLEMENTAL DISCLOSURES Taxes paid............. $ 2,226,828 $ 315,814 $ 276,960 $ 73,505 $ 1,280,867 Interest paid.......... $ 11,116,164 $ 7,250,310 $ 3,568,958 $ 4,401,870 $ 6,572,411 ============ ============ ============ =========== ===========
See accompanying notes to combined financial statements. I-64 EQUIPMENT SUPPLY CO., INC. AND AFFILIATES NOTES TO COMBINED FINANCIAL STATEMENTS (INFORMATION AS OF JUNE 30, 1998 AND FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997 IS UNAUDITED) 1. ORGANIZATION AND BASIS OF PRESENTATION The combined financial statements include the accounts of Equipment Supply Co., Inc. ("Equipment Supply") and its affiliated companies: High Reach Co., Inc. ("High Reach") and Rylan, Inc. ("Rylan") (collectively the "Company") which have common ownership and activities. For financial reporting purposes, Equipment Supply has been treated as the parent company and the purchaser of both High Reach and Rylan during 1995. The 1995 acquisitions of the stock of these companies were made by the stockholders of Equipment Supply. The Company rents, sells and services aerial platform equipment throughout the mid-Atlantic region of the United States. The nature of the Company's business is such that short-term obligations are typically met by cash flow generated from long-term assets. Consequently, consistent with industry practice, the accompanying balance sheets are presented on an unclassified basis. All significant intercompany balances and transactions have been eliminated in combination. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Interim Financial Statements The combined balance sheet as of June 30, 1998 and the combined statements of income, stockholders' equity and cash flows for the three months ended June 30, 1998 and 1997 are unaudited and have been prepared on the same basis as the audited financial statements included herein. In the opinion of management, such unaudited financial statements include all adjustments necessary to present fairly the information set forth therein, which consists solely of normal recurring adjustments. The results of operations for the interim periods are not necessarily indicative of results for the full year. CASH EQUIVALENTS The Company considers all highly liquid instruments with a maturity of three months or less when purchased to be cash equivalents. MARKETABLE SECURITIES Statement of Financial Accounting Standards No. 115, "Accounting for Certain Debt and Equity Securities" requires investments in debt and equity securities to be classified into one of three categories based on the Company's intent. The Company has classified its investments in marketable securities as available for sale which requires the Company to record these investments at fair market value and record the unrealized gain or loss on the original investment as a separate component of stockholders' equity. Such unrealized gains or losses were not material in any period presented. INVENTORIES Inventories consisting of equipment and parts are stated at the lower of average weighted cost or market. DEPRECIATION AND AMORTIZATION All equipment and property is stated at cost. Depreciation of rental equipment is computed, using an estimated 5% residual value, by the straight- line method at rates adequate to allocate the cost of rental equipment over their estimated useful lives, ranging from five to ten years. I-65 EQUIPMENT SUPPLY CO., INC. AND AFFILIATES NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED) (INFORMATION AS OF JUNE 30, 1998 AND FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997 IS UNAUDITED) Depreciation of property and equipment and amortization of leasehold improvements are computed by the straight-line method at rates adequate to allocate the cost of applicable assets over their estimated useful lives. Ordinary maintenance and repair costs are charged to operations as incurred. DEFERRED FINANCING COSTS Deferred financing costs, which are incurred by the Company in connection with debt, are charged to operations over the life of the underlying indebtedness and are included in goodwill and other intangible assets. The net book value of deferred financing costs at December 31, 1997 and 1996 and June 30, 1998 is $369,421, $340,693 and $321,445, respectively. INCOME TAXES The Company adopted in 1995 the provisions of Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS 109"). SFAS No. 109 requires a company to recognize deferred income tax liabilities and assets for the expected future tax consequences of events that have been recognized in a company's financial statements or tax returns. Under this method, deferred income tax liabilities and assets are determined based on the difference between the financial statement carrying amounts and tax bases of assets and liabilities using enacted tax rates in effect in the years in which the differences are expected to reverse. For all periods presented, Equipment Supply has elected, with the consent of its stockholders, to be taxed as an S Corporation for federal and certain state reporting purposes. In lieu of federal and certain state corporation income taxes, the stockholders are taxed on their proportionate share of the Company's taxable income. Provision has been made for state income taxes for those states not recognizing S Corporation status. During 1998, Rylan elected, with the consent of its stockholders, to be taxed as an S Corporation for federal and state income tax reporting purposes. Consequently, all applicable federal and state deferred income taxes have been reversed during the six months ended June 30, 1998. As a result, the effect on the 1998 combined statement of income was to increase net income by approximately $2.9 million. During 1997, High Reach elected, with the consent of its stockholders, to be taxed as an S Corporation for federal and state income tax reporting purposes. Provision has been made for state income taxes for those states not recognizing S Corporation status. A provision for federal and state income taxes has been recorded for all periods through September 30, 1997. As of October 1, 1997, all applicable federal and state deferred income taxes approximating $81,000 have been reversed in accordance with SFAS 109 and have been recorded in the statement of income. ACQUISITIONS High Reach On April 1, 1995, the stockholders of Equipment Supply purchased all of the capital stock of High Reach for an aggregate purchase price of approximately $3.1 million, of which approximately $2.5 million was paid in cash with the balance in the form of a note maturing no later than March 31, 1997, bearing interest at 7% per annum. I-66 EQUIPMENT SUPPLY CO., INC. AND AFFILIATES NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED) (INFORMATION AS OF JUNE 30, 1998 AND FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997 IS UNAUDITED) The High Reach acquisition was accounted for using the purchase method of accounting. Accordingly, the purchase price was allocated to the net assets acquired based on their estimated fair values. In accordance with SFAS 109, the Company recorded an additional increase to goodwill of approximately $737,000 and a corresponding increase to a deferred income tax liability, representing the difference between the financial and tax bases of certain assets acquired. The goodwill is being amortized over fifteen years on a straight-line basis. The results of operations of High Reach have been included in the Company's combined financials since the effective date of the acquisition. The stockholders borrowed approximately $2.5 million from the Company and such amounts have been recorded as part of the purchase price. Additionally, other amounts paid by the stockholders in connection with the acquisition have been treated as additional capital contributions and as part of the purchase price. During 1995 and 1996, High Reach was combined using its fiscal year end of September 30. In 1997, the Company reported the results of operations for High Reach on a calendar year basis. Net income for High Reach's three month period ended December 31, 1996 has been reflected as an adjustment to stockholders' equity. No unusual trends or transactions were noted in this three month period. Rylan On April 27, 1995, the stockholders of Equipment Supply purchased all of the capital stock of Rylan for an aggregate cash purchase price of $4.8 million. The Rylan acquisition was accounted for using the purchase method of accounting. Accordingly, the purchase price was allocated to the net assets acquired based on their estimated fair values. In accordance with SFAS 109, the Company recorded an additional increase to goodwill of approximately $1.2 million and a corresponding increase to a deferred income tax liability, representing the difference between the financial and tax bases of certain assets acquired. The results of operations of Rylan have been included in the Company's combined financial statement since the effective date of the acquisition. Total goodwill arising from the acquisition, in the amount of approximately $1.9 million, is being amortized over fifteen years on a straight-line basis. The stockholders financed the Rylan acquisition in the amount of $4.8 million by obtaining a term loan from a financial institution. Such debt has been recorded on the Company's financial statements, as the Company has been making the required principal and interest payments on behalf of the stockholders and have guaranteed this debt (see Note 9). Freestate Effective May 1, 1996, Rylan acquired substantially all of the assets and assumed certain liabilities of Freestate Industries, Inc. for approximately $11.8 million in cash. Such amount included payments specified for covenants not to compete for three key employees. The acquisition was accounted for using the purchase method of accounting. Accordingly, the purchase price was allocated to the net assets acquired based on their estimated fair values. Total goodwill and other intangible assets, amounting to approximately $2,000,000, are being amortized over a period ranging from five to fifteen years on a straight-line basis. The results of operations of Freestate have been included in the Company's combined financial statements since the effective date of the acquisition. I-67 EQUIPMENT SUPPLY CO., INC. AND AFFILIATES NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED) (INFORMATION AS OF JUNE 30, 1998 AND FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997 IS UNAUDITED) The Company borrowed approximately $10.8 million to finance a portion of the purchase price (see Note 9). REVENUE RECOGNITION The Company rents equipment to its customers under agreements not exceeding one month, consequently the rental agreements are classified as operating leases. Revenues from rental leases are recognized over the term of the respective agreements. Revenues from product sales are recognized when the product is shipped. Revenue from equipment repairs is recognized at the time of service. Revenues from maintenance contracts are recognized over the term of the respective contracts as service is provided. Amounts billed in advance are recorded as prebilled rentals which is classified as deferred rental income on the combined balance sheet. DEFERRED LEASING COSTS The Company receives volume rebates for leasing and purchasing certain equipment. The rebates related to operating leases are recognized as a reduction in lease expense over the terms of the respective leases, generally five years. Rebates related to purchased equipment are treated as a reduction in the cost of equipment. The Company amortizes the costs of its leases on a straight-line basis over the respective lease terms. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. LONG-LIVED ASSETS The Company follows the provisions of Statement of Financial Accounting Standards No. 121 ("SFAS 121") "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of." SFAS 121 establishes accounting standards for the impairment of long-lived assets, certain identifiable intangibles and goodwill related to those assets to be held and used and for long-lived assets and certain identifiable intangibles to be disposed of. The Company reviews the carrying values of its long-lived and identifiable intangible assets for possible impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable based on undiscounted estimated future operating cash flows. As of December 31, 1997, the Company has determined that no impairment has occurred. IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS In June 1997, the Financial Accounting Standards Board issued two new disclosure standards which are effective for financial statements for periods beginning after December 15, 1997. I-68 EQUIPMENT SUPPLY CO., INC. AND AFFILIATES NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED) (INFORMATION AS OF JUNE 30, 1998 AND FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997 IS UNAUDITED) Statement of Financial Accounting Standards (SFAS) No. 130, "Reporting Comprehensive Income," establishes standards for reporting and display of comprehensive income, its components and accumulated balances. Comprehensive income is defined to include all changes in equity except those resulting from investments by owners and distributions to owners. Among other disclosures, SFAS No. 130 requires that all items that are required to be recognized under current accounting standards as components of comprehensive income be reported in a financial statement that is displayed with the same prominence as other financial statements. SFAS No. 131, "Disclosure about Segments of a Business Enterprise and Related Information," which supersedes SFAS No. 14, "Financial Reporting for Segments of a Business Enterprise," establishes standards for the way that public enterprises report information about operating segments in annual financial statements and requires reporting of selected information about operating segments in interim financial statements issued to the public. It also establishes standards for disclosures regarding products and services, geographic areas and major customers. SFAS No. 131 defines operating segments as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance. The Company believes that its operations compose a single segment and there are no components of comprehensive income. 3. FINANCIAL INVESTMENTS AND CONCENTRATIONS OF CREDIT RISK Financial instruments which potentially subject the Company to concentrations of credit risk consist principally of periodic temporary investments of excess cash and trade receivables. The Company places its temporary excess cash investments in high quality short-term money market instruments and the carrying value approximates market value. A significant portion of the Company's rental sales and equipment sales are to customers in the construction industry and, as such, the Company is directly affected by the well-being of that industry. However, the credit risk associated with trade receivables is minimal due to the Company's large customer base, geographical dispersion and ongoing control procedures which monitor the credit worthiness of its customers. 4. DUE FROM STOCKHOLDERS From time to time, the Company makes advances to its stockholders. Generally, there are no formal repayment terms and the amounts are noninterest-bearing. 5. RENTAL EQUIPMENT Rental equipment consists of the following:
DECEMBER 31, ------------------------- JUNE 30, 1997 1996 1998 ------------ ------------ ------------ Rental equipment................... $168,047,372 $156,891,144 $163,566,080 Less accumulated depreciation...... 45,892,484 29,547,946 51,948,388 ------------ ------------ ------------ $122,154,888 $127,343,198 $111,617,692 ============ ============ ============
I-69 EQUIPMENT SUPPLY CO., INC. AND AFFILIATES NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED) (INFORMATION AS OF JUNE 30, 1998 AND FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997 IS UNAUDITED) Depreciation expense amounted to $18,948,184, $14,385,916, $7,332,808, $9,686,871 and $10,130,648 for the years ended December 31, 1997, 1996 and 1995 and the six months ended June 30, 1998 and 1997, respectively. 6. PROPERTY AND EQUIPMENT Property and equipment consists of the following:
DECEMBER 31, ---------------------- JUNE 30, 1997 1996 1998 LIVES ----------- ---------- ----------- ----------- Shop equipment................. $ 834,355 $ 760,669 $ 525,492 5-7 years Transportation equipment....... 9,134,757 6,887,232 8,008,297 5 years Furniture and fixtures......... 1,288,479 962,474 1,071,448 5-7 year Building and lease hold im- provements.................... 635,895 590,132 701,146 15-39 years ----------- ---------- ----------- Total........................ 11,893,486 9,200,507 10,306,383 Less accumulated depreciation and amortization.............. 5,344,708 3,799,232 5,039,173 ----------- ---------- ----------- $ 6,548,778 $5,401,275 $ 5,267,210 =========== ========== ===========
Depreciation and amortization amounted to $1,749,408, $1,180,285, $625,324, $838,767 and $774,830 for the years ended December 31, 1997, 1996 and 1995 and the six months ended June 30, 1998 and 1997, respectively. 7. CAPITAL LEASE OBLIGATIONS Capitalized leased assets include machinery and transportation equipment. Interest on the respective capital lease obligations range from 7.3% to 11.4% at December 31, 1997 and 1996 and June 30, 1998. Capital lease obligations, all of which are collateralized by the leased equipment, consist of the following:
DECEMBER 31, ---------------------- JUNE 30, 1997 1996 1998 ---------- ----------- ---------- Various equipment capital lease obligations, lease terms of 60 months with monthly lease payments of $512 to $52,463 ending April 1999 to June 2001.......................... $6,451,715 $8,807,391 $5,290,680 Various vehicle capital lease obligations, lease terms of 60 months with monthly lease payments of $590 to $10,751 ending August 1998 to April 2002......................... 2,204,559 2,826,490 1,825,700 Various vehicle capital lease obligations lease terms of 48 months with monthly lease payments of $578 to $4,049 ending January 1999 to June 2000.......................... 184,962 290,008 124,747 ---------- ----------- ---------- $8,841,236 $11,923,889 $7,241,127 ========== =========== ==========
I-70 EQUIPMENT SUPPLY CO., INC. AND AFFILIATES NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED) (INFORMATION AS OF JUNE 30, 1998 AND FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997 IS UNAUDITED) The future minimum lease payments under capital leases, together with the present value of the net minimum lease payments as of December 31, 1997 is as follows:
YEAR ENDING DECEMBER 31, AMOUNT -------- ----------- 1998........................................................ $ 3,628,913 1999........................................................ 3,416,347 2000........................................................ 2,478,665 2001........................................................ 845,860 2002........................................................ 9,965 ----------- Total minimum lease payments................................. 10,379,750 Less amount representing interest............................ 1,538,514 ----------- Capital lease obligations.................................... $ 8,841,236 ===========
The net book value of equipment under capital leases at December 31, 1997 and 1996 and June 30, 1998 amounted to $11,165,421, $13,800,349 and $9,990,153, respectively. 8. NOTES PAYABLE, BANK At December 31, 1997 and June 30, 1998, the Company had a line of credit with a bank for $2,500,000. Borrowings under the lines bear interest at a rate of 1/2% above the bank's prime rate (9%, at December 31, 1997 and June 30, 1998) and are secured by certain Company assets. At December 31, 1997 and June 30, 1998, $-0- and $1,993,000, respectively, was outstanding under this line. I-71 EQUIPMENT SUPPLY CO., INC. AND AFFILIATES NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED) (INFORMATION AS OF JUNE 30, 1998 AND FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997 IS UNAUDITED) 9. DEBT Debt consists of the following:
DECEMBER 31, ------------------------ JUNE 30, 1997 1996 1998 ----------- ------------ ----------- Notes payable to banks and finance compa- nies with fixed interest rates ranging from prime plus .5% to prime plus 2% (9% and 10.5% at December 31, 1997) due in monthly installments ranging from $546 to $211,242 ending in September 1999 to De- cember 2001 including interest. Collater- alized either by a specific security in- terest in equipment, a general lien on equipment or by all assets owned or here- after acquired by the Company............ $51,164,326 $ 64,098,599 $46,140,944 Term note payable to a finance company with interest of 9.93% due in monthly in- stallments of $221,314, including inter- est, through April 2002. Collateralized by a specific security interest in equip- ment and guaranteed by the President of the Company. (During 1998, the balance of the loan was converted to and is included in the note payable to a finance company noted below.)............................ 9,310,102 -- -- Note payable, bank, in connection with Rylan acquisition, due in monthly in- stallments of $99,519, including interest at 9.25%: collateralized by certain as- sets of Rylan and guaranteed by the stockholders and the Company; final pay- ment due July 2000....................... 391,362 2,041,928 -- Note payable, sellers in connection with the High Reach acquisition, due in monthly installments of $10,213 plus in- terest at 7% with final payment of $377,844 made during March 1997.......... -- 408,523 -- Note payable, bank (see Note 8).......... -- -- 1,993,000 Note payable to a finance company with an interest rate of LIBOR plus 3.25% (9.41% at December 31, 1997) due in varying monthly installments. Collateralized by a specific security interest in equipment and guaranteed by the President of the Company.................................. 34,004,722 40,911,729 39,443,759 ----------- ------------ ----------- $94,870,512 $107,460,779 $87,577,703 =========== ============ ===========
I-72 EQUIPMENT SUPPLY CO., INC. AND AFFILIATES NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED) (INFORMATION AS OF JUNE 30, 1998 AND FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997 IS UNAUDITED) At December 31, 1997, the aggregate maturities of debt are as follows:
YEARS ENDING DECEMBER 31, AMOUNT ------------ ------------ 1998.......................................................... $ 26,007,808 1999.......................................................... 25,586,393 2000.......................................................... 23,492,367 2001.......................................................... 18,116,590 2002.......................................................... 1,208,650 Thereafter.................................................... 458,704 ------------ $ 94,870,512 ============
Certain agreements require the Company to maintain specified minimum net worth and working capital and certain financial ratios. At December 31, 1997, the Company was in violation of certain covenants, including obtaining a specified level of minimum tangible net worth and a debt service coverage ratio. From the proceeds of the sale, more fully described in Note 15, the Company repaid substantially all of its debt. 10. INCOME TAXES Deferred income taxes reflect the net tax effect of differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Deferred income taxes relate primarily to depreciation and amortization, differences in the accounting treatment of capital leases and bases of certain assets of acquired businesses. The components of income tax expense are summarized as follows:
YEAR ENDED DECEMBER 31, JUNE 30, --------------------------------- --------------------- 1997 1996 1995 1998 1997 ---------- ---------- ---------- ----------- -------- CURRENT INCOME TAXES Federal............... $ 482,568 $ 928,915 $ 277,900 $ -- $232,612 State................. 871,648 401,011 277,778 307,138 470,532 ---------- ---------- ---------- ----------- -------- TOTAL CURRENT INCOME TAX EXPENSE........ 1,354,216 1,329,926 555,678 307,138 703,144 ---------- ---------- ---------- ----------- -------- DEFERRED INCOME TAXES (BENEFIT) Federal............... 393,018 133,507 452,061 -- 311,611 State................. (424,092) 610,184 509,800 (20,000) (439,382) Reversal of deferred income taxes relating to sub S elections... (81,000) -- -- (2,924,822) -- ---------- ---------- ---------- ----------- -------- TOTAL DEFERRED INCOME TAX EXPENSE (BENEFIT).......... (112,074) 743,691 961,861 (2,944,822) (127,771) ---------- ---------- ---------- ----------- -------- TOTAL INCOME TAX EXPENSE (BENEFIT).. $1,242,142 $2,073,617 $1,517,539 $(2,637,684) $575,373 ========== ========== ========== =========== ========
I-73 EQUIPMENT SUPPLY CO., INC. AND AFFILIATES NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED) (INFORMATION AS OF JUNE 30, 1998 AND FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997 IS UNAUDITED) Differences which give rise to a significant portion of deferred income taxes are as follows:
DECEMBER 31, JUNE 30, ----------------------- ----------- 1997 1996 1998 ----------- ----------- ----------- DEFERRED INCOME TAX (ASSETS) LIABILITIES Depreciation and amortization...... $ 2,256,399 $ 2,393,302 $ 1,072,381 Reserves and allowances............ (269,491) (294,300) (132,534) Difference in basis of certain acquired assets................... 1,897,761 1,897,761 -- ----------- ----------- ----------- $ 3,884,669 $ 3,996,763 $ 939,847 =========== =========== ===========
The differences between the income tax provision and the tax that would have resulted from applying federal statutory rates on income before taxes is primarily due to Equipment Supply being taxed as an S Corporation and High Reach being taxed as an S Corporation for the three months ended December 31, 1997. The effect of Rylan's conversion to an S Corporation in 1998 was for the Company to recognize a deferred income tax benefit of approximately $2.9 million. 11. RETIREMENT PLANS The Company participates in several defined contribution plans covering substantially all nonunion employees. The Plans allow matching contributions based on a percentage of the employees' contributions. The Company contributions for the years ended December 31, 1997, 1996 and 1995 and the six months ended June 30, 1998 and 1997 amounted to $139,572, $96,931, $30,821, $91,351 and $70,393, respectively. Additionally, the Company participates in a multi-employer plan that provides defined contributions to the Company's union employees. For collectively bargained, multi-employer pension plans, contributions are made in accordance with negotiated labor contracts and generally are based on the number of hours worked. With the passage of the Multi-Employer Pension Plan Amendments Act of 1980 (the "Act"), the Company may, under certain circumstances, become subject to liabilities in excess of contributions made under collective bargaining agreements. Generally, these liabilities are contingent upon the termination, withdrawal or partial withdrawal from the plans. Company contributions for the years ended December 31, 1997, 1996 and 1995 and the six months ended June 30, 1998 and 1997 amounted to $96,737, $75,930, $62,372, $57,991 and $43,609, respectively. On January 1, 1998, the Company terminated its defined contribution plans for Equipment Supply, High Reach and Rylan and established a combined defined contribution plan covering substantially all nonunion employees. The plan allows employees to make voluntary contributions processed through payroll deductions. 12. COMMITMENTS AND CONTINGENCIES AND RELATED PARTY TRANSACTIONS The Company leases various facilities under lease agreements, including those with related parties. Some of these leases require the Company to pay property taxes and other related costs. I-74 EQUIPMENT SUPPLY CO., INC. AND AFFILIATES NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED) (INFORMATION AS OF JUNE 30, 1998 AND FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997 IS UNAUDITED) Future minimum lease payments, by year, and in the aggregate for noncancelable operating leases, including those with related parties, with initial or remaining terms of one year or more are as follows at December 31, 1997:
FACILITIES LEASES YEAR ENDED (SUBSTANTIALLY WITH EQUIPMENT TOTAL OPERATING DECEMBER 31, RELATED PARTIES) LEASES LEASES ------------ ------------------- ----------- --------------- 1998....................... $ 2,120,949 $11,035,372 $13,156,321 1999....................... 1,938,559 10,001,175 11,939,734 2000....................... 1,921,804 7,768,161 9,689,965 2001....................... 1,917,196 6,567,617 8,484,813 2002....................... 1,912,170 4,870,393 6,782,563 Thereafter................. 876,000 -- 876,000 ----------- ----------- ----------- $10,686,678 $40,242,718 $50,929,396 ----------- ----------- -----------
Rent expense under noncancelable operating leases for the years ended December 31, 1997, 1996 and 1995 and the six months ended June 30, 1998 and 1997 amounted to $10,210,657, $6,674,413, $1,179,277, $7,886,107 and $2,405,348, respectively. The following related party transactions including rent expense is summarized as follows:
YEAR ENDED SIX MONTHS ENDED DECEMBER 31, JUNE 30, ------------------------- ----------------- 1997 1996 1995 1998 1997 -------- -------- ------- -------- --------